Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 9 - Evidence, October 27, 2014
TORONTO, Monday, October 27, 2014
The Standing Senate Committee on Transport and Communications met this day at 9 a.m. 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.
[English]
The Chair: Honourable senators, today we continue our study into the challenges faced by the Canadian Broadcasting Corporation in relation to the changing environment of broadcasting and communications.
Our first witnesses from Rogers Media Inc. are Keith Pelley, President of the Media Business Unit, and Susan Wheeler, Vice-President of Regulatory Affairs.
We try to start on time to respect broadcasting traditions.
Keith Pelley, President, Media Business Unit, Rogers Media Inc.: Good morning. It is a beautiful Monday morning here in the wonderful city of Toronto as we get ready for election day, which is exciting. Thanks for the opportunity to talk today about Omni.
First, before I discuss Omni I will just give you a little bit of background of what is transpiring right now in the conventional business since you are going through a tremendous amount of research.
I have been in this position for four years as the president of Rogers Media. The structural change that we have seen in the advertising market is unparalleled. Over time usually the advertising has been very cyclical where it has gone down, i.e. in 2005, and then it comes back up; then it goes down and comes back up.
This is now a full structural change in the actual broadcasting industry as advertisers now move more and more dollars to digital platforms. There is just a plethora of opportunities for them to spend their dollars.
When I look at our competitors now I don't look at the likes of CTV and Global first. I look at the fact that we are now competing on a world stage and that our competitors are that of Google, Facebook, Amazon, Netflix, Yahoo and Apple. Those are the competitors that we are now playing with.
From a pure conventional advertising perspective, if you have seen what has transpired even over the last couple of months, in the last couple of years advertising has been significantly reduced. In fact in our conventional broadcasting we have gone from advertising of $802 million in 2011 to this year at somewhere around $680 million to $690 million. That is a drop of $110 million in advertising just on our television networks.
You perhaps read that Bell last week lowered their e-bill expectations by $45 million, which is significant, and again they contributed that to advertising.
You may have seen what happened late last week when Chorus announced their quarterly results, and again the advertising was forefront. Some of the announcements that have come from the actual agencies over the last couple of weeks really characterize what type of challenge that we are into. The last one was Microsoft that announced its $2.5 billion worldwide advertising from a television perspective was going to be dropped by 38 per cent.
Other decisions by ZenithOptimedia and Omnicom has really solidified the fact that the traditional legacy media businesses have never been threatened more than they are right now, and we are witnessing it.
From a conventional perspective the challenge with conventional is obviously you only have one revenue source, separate from the U.S. where they have multiple revenue sources: (a) they have retrains and (b) they have the ability to actually own a studio and produce content and sell that internationally, which we don't here in Canada based on the terms of trade. We are really handcuffed as far as a conventional broadcaster when you only have one revenue source and that revenue source is in serious, serious decline.
When you look at Omni, and I will bring it back to Omni, with the conventional broadcasting business as challenged as it is, the biggest of all those would be Omni because it is the weakest of all the conventional broadcasters. Its advertising revenue when I talked about advertising has gone from $80 million in 2011 to $24 million this year with a prediction of $16 million next year. Even the government has dropped their advertising commitment for Omni from $14 million in 2011 to $8 million this year, which is $6 million.
Omni started in 1979. At that particular time it was a great niche network. Now it is not nearly niche enough. It was interesting because I was at TSN in 1984 when we launched the sports network and people were saying that a sports network, a 24-hour sports network, was way too niche. Now people are saying it might not be niche enough.
Omni has survived over the years on the success of the U.S. programing. That has actually generated the significant amount of revenue so the strip programming that was commonplace at Omni like "The Simpsons" and the shows like "Married with Children" back then drove the revenue which supported and funded the rest of the network.
Unfortunately those are now commonplace on many different SVOD services or many difficult networks so the actual strip programming, and that is what it is called, has really dried up. Again the advertising has been the critical component of that.
Now you are looking at a very challenged environment for Omni. We have arduous conditions of licence where there are 20 different languages that we have to produce. Unfortunately and fortunately for the consumer as well there are so many opportunities for them to get their ethnic programming that didn't exist in the last 15 or 20 years. Rogers itself carries 126 channels dedicated to ethnic programming; Bell carries 136. Again, these didn't exist so many years ago, as well as how many opportunities there are to get programming over the top. When you come in now from a different country it is very easy for you to get your homeland newscast, your homeland information all via the over-the-top services or in fact through one of the cable providers.
Omni is definitely not niche enough. We have to broadcast 20 different ethnic languages and it is simply not viable. We produce newscasts in Cantonese, Mandarin, Punjabi and Italian on a daily basis, and all of those newscasts are losing money cash in, cash out.
When I look at the ethnic over-the-air services and I look at the G20 countries, I think 15 of the ethnic over-the-air services are state-owned. We went back to the CRTC because our licence renewal was in April, and we put forward a number of suggestions and recommendations to the CRTC of how we could try to make Omni more viable. Most of those, if not all of them, of significant importance were declined. We have spoken to the Progressive Conservative Party. We have spoken to the Liberal caucus. We have spoken to the NDP. We have spoken to the CRTC and we now have the opportunity to speak to you.
This is a real challenge. We really have to determine what we are going to do with Omni going forward. I really don't see it as a viable service right now, and I think the government has to decide if they want to continue with an over-the-air ethnic broadcasting channel.
Really, that is where we are. It is that part of the heritage of this country. We have had significant commitment to multicultural programming. We would like to continue with it but at same time we are a profit company and have responsibility to shareholders. As it is right now Omni is seriously threatened.
It is just an informal conversation that I would love to have and hear your opinions and your thoughts, but that is the overview of what is facing Omni right now.
The Chair: Thank you very much.
Susan Wheeler, Vice-President, Regulatory Affairs Media, Rogers Media Inc.: We are happy to answer any questions you might have.
The Chair: I have Senator Plett first on my list.
Senator Plett: Thank you for being here this morning.
Mr. Pelley, you said that your competitors were not the CTVs and the Globals of the world and so on and so forth. In your opinion, and obviously this is opinion because you are not working with CBC, who would CBC's competitors be if yours aren't the CBCs and the CTVs? Who would CBC be competing with?
Mr. Pelley: Let's say that they were not our first competitors in CTV and Global. They used to be our primary competitors. Everybody would think you are competing with CTV and Global first. Now when you are talking about advertising the biggest competitors we have are the likes of Google, and when you look at the actual programming the biggest competitor we have on the non-sports side would be Netflix.
From CBC's perspective I can't comment on what they would feel their biggest competitor is but I would say anybody that is acquiring content right now and is taking advertising dollars out of the system would be their competitor. I think that certainly is the likes of the Googles, the Facebooks and so forth.
Senator Plett: When you talk about advertising, and most of your presentation is at least related around advertising, how much advertising would Rogers need to sell to make "Hockey Night in Canada" a viable deal for them?
Mr. Pelley: I think it is not separate. The NHL deal is not simply an advertising deal.
Senator Plett: It is not simply an advertising deal, but obviously you said at the end of your remarks that you were obligated to your shareholders.
Mr. Pelley: Absolutely.
Senator Plett: Clearly you need to make a case, so when Rogers made the deal for the NHL they knew what they needed to do to make that case.
Mr. Pelley: Absolutely, but what I was saying, Senator Plett, is that the NHL is not predicated and the success of the NHL is not predicated on an advertising body. It is a very elaborate deal with the National Hockey League that brings many different revenue sources into the mix, and advertising is but one of those revenue sources.
Hence when I talked about Omni or Conventional they have one revenue source. Our NHL deal has many revenue sources, i.e. Game Centre Live, the centre ice package and the online package. We actually represent the NHL.com. There is subscription revenue. There is advertising revenue. There is a plethora of opportunities to make the NHL package viable.
As well when I look at the NHL we are in week three of 12-year deal, so it would be premature to actually start to look at and analyze the success or lack thereof of the NHL deal at this particular time. What I did talk about was premier content and premium content, and that is what the National Hockey League provides us.
Senator Plett: Are your figures public? If I ask you point-blank how much advertising did you sell in the first year of the 12-year package, would you be able to tell us?
Mr. Pelley: If the CRTC requests that then we would be able to submit that.
Senator Plett: But not if I request it.
Mr. Pelley: We are not finished yet. I can tell you right now if in fact the Toronto Maple Leafs make it to the finals, a 30-second commercial is worth about $100,000. If the Calgary Flames make it to the Stanley Cup final that 30-second spot is worth about $50,000.
Senator Plett: I think there are a lot of people here who would say we will give you a million dollars if the Toronto Maple Leafs make it to the finals.
Mr. Pelley: We will accept that, gladly.
Senator Plett: I am from Winnipeg and I am hoping that the Jets do a little better this year. They did win yesterday.
You talked about making a number of requests to the CRTC and they basically declined all of your significant requests. Could you tell us what some of those significant requests were?
Ms. Wheeler: I would be happy to do that. The majority of our requests surrounded scheduling flexibility. Right now Omni has blocked time periods within its prime time schedule where it has to air a certain type of programming, whether it is third language or whether it is ethnic origin or Canadian content.
Given that appointment viewing is not as important as it once was in terms of people aren't necessarily gathering around the television at a set time anymore—there is a lot more on-demand viewing; there is a lot more multi-platform viewing—we asked for some greater flexibility in prime time to be able to put on some programming that will drive better audiences, things like "Hockey Night in Canada" in Punjabi and other things like that.
Those we saw as potential revenue drivers that would help us sustain some of the in-house programming that we are doing such as the third language newscast. The feeling was that type of flexibility would remove our requirement to have a consistent programming for ethnic audiences throughout the week, and the CRTC declined to grant those.
The other request that we made was to reduce the number of languages and ethnic communities we serve from 20 to 15. Our research tells us that the majority of people are going to single language services. They are not going to multi-language services. We know that is part of our mandate so we weren't trying to back away from that. We were just simply trying to focus the orientation of our programming a bit more, and we were denied that flexibility as well.
Senator Munson: Thank you for being here, Keith.
Our order of reference is about the CBC. We have heard about Omni and the serious problems you have. What is your view just in the general question of where the CBC is at with the slashing of funding, the issues surrounding the CBC and its very survival? Do you think in this world that you are talking about that your competition is all these digital platforms? Where does the CBC fit in this platform now?
Mr. Pelley: First and foremost I would commend Hubert Lacroix on the strategy to move digitally. He articulated the strategy of a mobile and a digital philosophy moving forward. If in fact you don't adapt such a strategy and you remain as a linear broadcaster and don't look at it as creating content in a multi-platform environment then I think it is going to be very challenging.
As far as CBC goes I know that if we had not created a partnership with the CBC they would not be broadcasting "Hockey Night in Canada." There is no question that the sports rights have gone through the roof. You saw what happened last week with TNT, ESPN and ABC with the NBA which somewhat tripled their rights. It went with a $9 billion deal or a $24 billion deal over nine years, which is tripling their rights.
I think the National Hockey League was important to have on CBC and from just watching it this weekend, what that did was provide great promotion for "This Hour has 22 Minutes," great promotion for the Rick Mercer show, and some of the other programs that are coming up on CBC. I think CBC's mandate will be to continue to produce high quality Canadian programming but producing it on multiple channels and I think that Mr. Lacroix is developing the strategy.
Senator Munson: But you are profit driven. The CBC in this day and age is not really profit driven but it needs advertising to survive. There is an issue called content that has to be on all of these platforms.
Do you see CBC playing any role since you said it is a serious problem that on all these ethnic programs and all these channels for you to survive may be very difficult, at least on Omni, while the rest is a lot of gravy? There is TSN1, TSN2, TSN3, TSN 4 and 5. Do you see anything for the CBC?
Mr. Pelley: A lot of those have the same type of programming.
Senator Munson: But do you see another aspect of the CBC that could take up some of that ethnic programming and having another avenue of content programming? We are living in this vast age of, as you say, digital media and things are moving fast and people are thinking fast but I don't know if they are understanding fast in terms of content that is out there. One thing the CBC has done over a long period of time traditionally is provided Canadian content and interesting content to the public.
I grant it having worked at CTV it is not the same, but a lot of the networks look the same. Can CBC survive in this present environment with good content that may come from ethnic programming and that may come from Canadian-produced content?
Mr. Pelley: It is interesting because I think good content and good brands are going to sustain over time. In going through the "Let's Talk TV" hearing there was a lot of discussion regarding pick and pay and so forth. At the end of the day in a pick and pay world I think the broadcaster that is producing the most compelling content available on multiple platforms will be successful. I think CBC has been very successful over the years in terms of giving Canadians good quality Canadian programming that is not available anywhere else. I think that programming now moving to multiple platforms will give them an opportunity to monetize it in ways they haven't done before, and that is the strategy Mr. Lacroix is following.
Senator Munson: I have one other question and thank you for that. You talked about all of this advertising revenue that Senator Plett was talking about, the millions. I put down some figures here. It is amazing. We are living in a pretty strong economy, a reasonably strong economy. Where is all that money going that has disappeared? Are the advertisers not advertising anymore? Are they not spending that much anymore? What has happened with that?
Mr. Pelley: They are spending it. They are not spending it with traditional media businesses anymore. We have a publishing division and publishing is down 14 per cent. You read what happened with the National Post last week. There is just such an opportunity for advertisers to look at so many different ways.
When you think about the "Donnie and Marie Show" which used to have a 60 share, it was the only place to buy. One of the broadcast legends, Rick Brace, used to say — it was a great quote—that nobody ever got fired for buying "Hockey Night in Canada." I would say now from an agency perspective that nobody would ever get fired for buying Google.
Where they are going, Senator Munson, is beyond the traditional legacy businesses. The transition to digital is significant, and the likes of when you used to go down to meet all the agencies, it would be either Global, CTV or City.
Now right behind us are the likes of Facebook, Google and Yahoo that didn't exist. These are real players taking significant dollars out of the marketplace. The overall market is not shrinking. It is actually expanding. It is just that the traditional businesses are being threatened.
Senator Unger: Thank you for your presentations. You mentioned in your comments that you had two different requests for the CRTC and they declined both requests. Did they really understand what your needs are?
Mr. Pelley: I think they understood them very well. Susan and I met with the Chair probably close to a year ago and outlined the challenges that we are having with Omni and how the industry has changed so dramatically.
I think the CRTC was definitely made aware of the challenges and certainly I believe that we articulated our requests very well.
Ms. Wheeler: Just to clarify, too, we did have more than two requests. I guess those were the two that we saw as the largest revenue opportunities for the station.
Senator Unger: You also said that single language services are what people are moving to. How will that play out in your present situation with Omni and all of the channels that you cover?
Mr. Pelley: I think it is safe to say that Omni's future is definitely up in the air. As I said, the challenge of the opportunity for people to get content from their country is significant. As well the way the millennials, the younger generation of 18 to 34, are coming into our country and are acclimatizing is completely different.
Our research shows that they speak their native tongue in the home and they speak English out of home. Most of their content they view now is in English and if they want content from their homeland they can find that over the top in a very easy way. It is very simple if you want to go online and find content from your own country or you can subscribe to one of the other channels, as opposed to when you look at Omni and it has 20 different languages that it has to broadcast. What exactly is which language on? When is the Portuguese show on? It is far easier just to go online. People now want to watch what they want, when they want and how they want, especially the millennial generation. Like I said, I don't believe Omni is now niche enough.
Senator Unger: How are your reporters coping with all of this? Do you have them out selling advertising as well as doing their other jobs? They would be impacted, I would think.
Mr. Pelley: There is no question. Unfortunately we have had to make like a number of other traditional media businesses significant cuts over the last couple of years. The question now is, again, that we produce four newscasts in four different languages. I think everyone who works on those newscasts is worried about the future of Omni as they see the revenue continuing to decline.
Senator Housakos: At some point Omni was a very profitable operation. At what point did that decline begin? Are you at a point now where your losses are just too significant or when do you think you will get to that point?
Mr. Pelley: I think the big turning point was in 2012 when we started to see the real structural advertising change. As in any business when you go from $80 million in ad revenue to a predicted $16 million next year, that is more than significant.
I think, senator, what you do at first in any business, and that is what we have done in Omni, is that you cut costs. Then there becomes a point where you can't cut any more costs. We are getting very close to that point where unfortunately the U.S. programming which was highly profitable ten years ago isn't now. We have stripped off the U.S. programming on Omni as much as we possibly can and tried to minimize the losses. If it continues to erode, and I am not sure exactly when that would happen—it is in serious trouble.
Senator Housakos: For ethnic TV are your ratings monitored the same way as you would English and French television? How do you do your BBMs?
Mr. Pelley: It is a massive challenge.
Ms. Wheeler: Yes. Obviously Omni is subject to the same currency measurement systems as all traditional mainstream broadcasters. As a result BBM or Numeris, as it is now called, has sample audiences that they use to base the currency. We believe, and it has been well established, those samples are significantly underrepresented when it comes to ethnic communities. It is not really capturing the full extent of the audiences that are watching.
However we can talk until we are blue in the face. The advertisers will say that more people are actually watching than what the measurement systems are showing, but at the end of the day they need to put their money where they are assured there are audiences. It takes more than just our word for it.
There are different new developments coming up. There is the box technology that we can use to demonstrate to advertisers. That is an ongoing market or a developing market and there is a number of policy and privacy issues that need to be resolved before those can actually really be used as a form of selling advertising, but it is unclear whether that market will develop in time enough to be able to help services like Omni.
Senator Housakos: On your $20 million of revenue, how much of that will come in from Rogers head office kind of thing, national advertisers that are across-the-board advertisers? What percentage of the advertising comes in from community-specific advertising?
Mr. Pelley: It will be about $12 million nationally and about $6 million for next year locally.
Senator Housakos: Another very significant drop I assume is local community advertising for any specific planning.
Mr. Pelley: Sure. Radio right now is holding its own and even for small businesses there are a lot of opportunities. Everyone wants to spend some of their money on search optimization. Nobody does a business plan without that. Again, that wasn't available some time ago.
Senator Housakos: I appreciate all that information as a backdrop to the next question I have. Historically around the globe broadcasting was always linked and intertwined to culture. There was always this view that whatever comes across on TV and on radio was considered culture. To go back to the specifics of the CBC, many, many years ago we determined that the government be given a mandate in order to promote and protect Canadian content, Canadian culture, against that big elephant to the south, which was understandable and is still understandable.
But right now I think the big challenge to protecting and promoting communications of culture has nothing to do now with the big powerful elephant to the south. It has to do with the fact that communication barriers have gone down and we live in a fluid, global communication environment.
Mr. Pelley: You are competing globally, yes.
Senator Housakos: I listened to your testimony. My mom who was an immigrant to this country from Greece in the 1950s historically had listened to local Greek radio every Sunday, and she would listen to her local Greek channel in Montreal. Now she is listening to two Greek channels being fed in overseas.
Mr. Pelley: Sure.
Senator Housakos: It has got to the point now where I go over to the house and visit her sometimes and those channels have set up segmented hours where Greek broadcasting of Canadian news is being done. They are actually adopting their broadcasting to their clientele overseas. They want to watch their shows and listen to that language and they will feed them Canadian news in Greek, which I found remarkable.
I am looking at this and I am trying to determine: what is a newscast? Is it Greek content or is it Canadian content in Greek? This is really going to be a big challenge for the government to determine how to deal with this. My question going forward is: At the end of the day how do we combat the fact that people decide where they go with their eyeballs these days and their ears, and advertisers are chasing those eyeballs and those ears?
That is a challenge for you guys. You are in the business of making money. We are trying to evaluate the future of the CBC, and the CBC right now has two challenges. They are losing eyeballs. They are losing ears. They are losing revenue. The question fundamentally that we ask as a government is: Do we continue to tax the people whose eyeballs and ears are going elsewhere? Do we keep taking their money out of their pocket and putting it in that institution?
That is a very broad question. I would like an answer to it.
Mr. Pelley: That is a decision. As far as the CBC and what the government decides to do would be something I would leave to your capable hands after your full analysis. All I know is that think we have an announcement again tomorrow with the CBC.
We continue to work closely with them. We have now done two pro quos in the last year with the CBC on Canadian content. Again it comes back to my original comment. I look at CBC at this particular time as a partner, not as a competitor. Ten years ago you would have looked at them as a competitor. They were the ones taking advertising. You were battling for advertising dollars. You were battling for ratings. Ratings are nothing more than a form of currency.
We have announced that we are launching an SVOD service called "Show me." Who are we doing that with? Shaw. It is interesting that the traditional legacy businesses are now working closely together to combat and to compete against the over-the-top services that obviously are not regulated at this time in the marketplace. I would say "at this time: in a relatively loud voice.
Senator Eggleton: Good morning. You mentioned that advertising is as big a pot as it has been but that it is spread over more platforms now. When the CBC lost "Hockey Night in Canada" it lost a fair bit of revenue.
It is a question mark as to the revenue they have now, and particularly I am thinking of the main station as opposed to the news world station or whatever it is called. It costs a bit of money to chase that advertising. Is it worth it, I wonder. Of course the private sector organizations have in the past complained about the competition coming from a public broadcaster, a subsidized public broadcaster.
Is it something that should be considered, that the CBC should get away from advertising? They haven't had advertising traditionally on radio, although that may be changing. Should they get out of the advertising business?
Mr. Pelley: Again it is very difficult for me to comment on that without understanding all facets of CBC's business. I know that they still have a very robust advertising department and again after tomorrow's announcement they wouldn't be able to announce what they are announcing tomorrow and provide to Canadians without having advertising.
It is tough for me to comment on whether they should or should not be in the advertising market, but in their current model of producing programming that is really designed to satisfy Canadians and draw ratings as I said ratings are a form of currency. If they are producing shows that draw significant ratings across multiple platforms then monetizing it through advertising will be the key focus for them.
Senator Eggleton: I think Senator Housakos said there are less eyeballs now on the CBC. Why do you think that is?
Mr. Pelley: I just think competition. I think competition overall. I don't even know what year it was or where that came from but as I said back in the 1970s and 1980s it was very easy to garner large audiences because there were only four or five different stations. I look at a lot of it through the eyes of my 11-year-old boy who doesn't watch linear television. The concept of his sitting and watching an NHL game on a Saturday night with me and watching all three hours would be unheard of. He might watch the first period or something as opposed to when we were 11 that was the only option we had. There was no such thing as Sony PlayStations, Xboxes and online games.
I think it is nothing more than the whole thing in terms of eyeballs is competition. Just think about how many specialty networks there are out there now compared to what there were ten years ago.
Senator Eggleton: So more choices of entertainment not only just on visual platforms but I guess entertainment in general.
Mr. Pelley: Sure. You have probably not heard of Dude Perfect or Brodie Smith but Brodie Smith is a Frisbee trick artist. When he does a new video he posts it on YouTube. His last one I think had seven million impressions. It is amazing how you can get your content and how people are consuming content now. It has nothing to do with the quality of programming, although the only thing that is going to matter going forward is how strong and compelling that programming is to multiple demographics.
Senator Eggleton: How important is it to continue having a public broadcaster, a public broadcasting system in this country? Perhaps Senator Housakos doesn't think the entertainment industry from the United States is still quite as big and powerful. I think it very much is. We were trying to tell our Canadian stories. How important is it to continue to have a public broadcaster?
Mr. Pelley: I think it is very important but again that is not for me to comment on. That is for you and the government to decide but I think the CBC does a terrific job in bringing Canadians together in many different ways.
The Olympics is an example where it left CBC for a couple years in 2010 and 2012 and now is back at the CBC. There is no question the way that the CBC embraces Canadian stories is something that traditional private broadcasters don't do with the same vengeance.
Senator Housakos: I have a supplementary question to Senator Eggleton's question which I think was really right on the money. I just want to raise it in a different way. In the last decade consistently the CBC's ratings have gone done, especially the CBC's English ratings.
Mr. Pelley: Now I am convinced this has nothing to do with Omni.
Senator Housakos: No, but it has to do with the industry and you have a really clear understanding of the industry. Your opinion is as important as anybody else's, and probably more so because of your background and experience. The ratings are down; the revenue was down. The point I was trying to make before is that the United States is not less important as a cultural power in the world. What I am saying is that it is not the only person intruding on us.
As ratings went down and revenue went down in the CBC over the last decade, are we any less Canadian today than we were ten years ago from your perspective as somebody in the broadcasting industry?
Mr. Pelley: I think the Americans have certainly proven over the years that they are very, very patriotic. We made significant steps in celebrating our own stories and rallying together in the 2010 Olympics where we kind of galvanized the nation. I think, though, that what transpired this weekend in how we in a very elegant way handled the tragedy of what happened in Ottawa through the CBC was very important. It is important to our culture and it is part of the fabric of who we are. I still think that Canadians need to stand up and be a little bit more patriotic. I certainly think CBC provides that platform.
Senator Unger: Thank you for your answer and I will just state for the record that this gentleman would be an outstanding candidate for politics.
The Chair: In Quebec most politicians come from CBC.
Senator Housakos: That is true.
Senator MacDonald: I thank the witnesses for being here this morning. Mr. Pelley, I want to tap into your experience in private sector advertising. I am going to go back to CBC because that is what we are studying.
You mention that you believe CBC is a partner, not a competitor, but as far as hockey is concerned CBC is really a subsidiary now of Rogers in many respects. The loss of hockey was a big revenue hit, a big cultural loss for them and probably a big psychological loss.
When I looked at those negotiations that CBC entered into over hockey I was shocked at the fact that CBC had an enormous reach into people's homes much greater across the country than Rogers. They gave up their air time for hockey for free to Rogers in those negotiations.
If you had negotiated on behalf of CBC would you have been this submissive when it came to this particular strength and CBC be accused of poorly managing their advantage?
Mr. Pelley: No. I think two things: First of all you have to understand the way that the NHL negotiations went down. I got a call in October from John Collins from the NHL who was the chief operating officer. He said, "We have made a decision that we are either going to go fully with Bell or fully with Rogers." At that particular time they were going to sell all of their rights to Bell. Bell had put in a very strong offer.
We congregated, came together, and went and put in a competitive bid against Bell. At that particular time we thought it was important based on the history and the legacy of CBC, but there were other options that we had as well. We could have done a deal similar to the one that we did with CBC with other potential over-the-air broadcasters. CTV would not have been one of them but we certainly could have had dialogue with Global. We could have stayed on our own which would have bolstered City significantly, but we felt it was best to do a deal with CBC.
The deal that we did with CBC I think was a deal that was great for both sides and great for Canadians. First of all it provided them "Hockey Night in Canada," the premium content, at no cost. That is important because if in fact the National Hockey League had been able to come to an agreement with CBC prior to determining that they were going to go with the all-in model with Bell or Rogers, that deal would have garnered somewhere between a $50 million and $75 million loss for the CBC.
So what happened was CBC did a deal that was self-liquidating while at the same time provided great promotion for the rest of their programming as I alluded to earlier. From our perspective it allowed us to give Canadians and the NHL on Saturday night on two different conventional broadcasters, both CBC and City, so it worked for us. As far as consumers we know that they have far more choice than they have ever had. There will be 350 more games televised this year on linear alone and more than 1,200 games, which is an additional 300 digitally.
I think it is a deal that worked really well for the consumers. It has worked well for Rogers and certainly made CBC viable and continued to provide them premium content.
Senator MacDonald: I just want to go back to one of the points. I still have trouble understanding why they would have this enormous reach through the network. It would have to be of great value to Rogers or Bell and whoever partnered with them in terms of providing a reach to almost every Canadian household. Yet they gave away that reach apparently for nothing.
I am curious why they wouldn't attach a value to that reach and to get some revenue for it. They are revenue challenged. I don't understand why they would give that up for relatively nothing.
Mr. Pelley: Like I said the option really was ours. If in fact they wanted 25 or 50 per cent of the revenue that was a deal we weren't prepared to do. It was not that CBC didn't ask for revenue or opportunities to sell during the negotiations, but we felt strongly that we would continue to build a "Hockey Night in Canada" brand which remains with CBC and which they are now monetizing. We felt that we needed the revenue and didn't want to give some of the revenue opportunities to CBC which would allow for two sales forces in the market selling the conventional broadcaster. If CBC had significantly pushed back then we would have looked at other options.
Senator MacDonald: What do you see occurring in four years' time with the CBC? What do you think the future holds?
Mr. Pelley: That is a good question. I am not sure what the future holds in four days, never mind four years. That is how quick the industry has changed. The reason why we did a four-year deal with the CBC for "Hockey Night in Canada" was just that, to see where the industry has changed and where it has gone in four years. If you look back and see where technology has taken us and where the environment has changed in four years, if we back it up I could come and present a document to you that would be just absolutely mind-boggling.
Where it is going to be in four years is who knows. We wanted to retain some flexibility in determining what the best way is for us to move forward with the NHL after the four years.
The Chair: In the six minutes left we will have Senator Plett, Senator Unger and Senator Housakos. Maybe I could ask all three of you to ask your questions and Mr. Pelley could answer all three of them and have a closing statement at the same time, if you agree.
Senator Plett: I certainly agree, and I will shorten my questions from what I had. Clearly we have said and have always said that this study is to talk about the viability of CBC in the changing environment. I don't know whether it is the official mandate but in light of the deal that "Hockey Night in Canada" made I mean how viable is CBC.
My question in that regard comes back to the advertising. I am not even going to say now let's talk about four years from now. CBC was never in the game in making this deal. I think you have said that the NHL was dealing either with Rogers or with Bell. How much ad revenue approximately — and I know you won't be exact — will CBC lose as a result of this deal all things being equal in four years from now?
Obviously they will still have some now but what we are trying to determine is how viable they are. How much advertising revenue will they lose in four years from now? I will just leave that as my final question.
Senator Unger: My question sort of ties in with that. Are you the only broadcaster working as closely with CBC as you are? You have made several references to that. If you are not the only one, with your help and others is their business going to get a boost? Will they be able to survive?
Senator Housakos: A short question, if you can just sum up and wrap up for us how you perceive the future of ethnic TV in the next five to ten years in this country. Is there still a market for it? What would be its role?
Mr. Pelley: The first question in terms of how much revenue, obviously the CBC's numbers are public. I believe they generate somewhere between $120 million and $150 million in terms of ad revenue on a per annum basis for "Hockey Night in Canada," so that would be somewhere between $500 million and $700 million over the four years.
At the same time the costs would have been closer to a billion dollars, so cash in, cash out the CBC would have probably been losing in the neighbourhood of $300 million over the four years.
The way that sports rights have escalated, and I don't want to miss how critical this is, has made it very difficult for CBC or any broadcaster who simply looks at cash in, cash out to make it viable unless you have significant partners. That is what happened with the NHL.
Are we the only broadcaster? I think another broadcaster is starting to work with the CBC. I think more and more we are all working together. When I look at the four of us, the four conventional broadcasters, there are far more co-pros being done. We haven't done one with Bell as of yet and that probably won't happen. I am not sure if Shaw will do one with Bell but we have worked closely with Shaw and closely with CBC.
I can't speak on behalf of the other conventionals but for us CBC would be the least threatening to us. Does that make it viable? That would be a question that again you would have to ask the CBC, but we are talking to the CBC and we don't look at them as competitors. I look at them as partners.
As far as ethnic television goes that is an excellent question. The fundamental question for government is: Is an ethnic over-the-air channel needed with the over-the-top services that provide ethnic programming and with all the cable programming that is provided? Does the government like many of the other G20 countries need an over-the-air ethnic channel? Would that be best served under the CBC umbrella? That would be a question that I would ask the government.
I would ask the CRTC Chair what you feel you need as far as an over-the-air ethnic channel because I think it is incredibly challenged under the current model.
Senator Unger: Very quickly, political ads also bring in revenue, especially during an election campaign. What is your position on this ad revenue?
Mr. Pelley: As far as government and political ad revenue it is capped here in Canada. Again it is not capped in the United States so one of the great opportunities for broadcasters in the U.S. is election revenue. Pharmaceutical revenue and election revenue is a significant difference between the U.S. market and the Canadian market. I would love as a broadcaster to have all the restrictions from political ads relieved and everyone spending a lot more dollars from an ad revenue perspective.
The Chair: On this last note I will send you a copy of my bill on controlling expenses between elections by political parties.
I would like to thank you for your presentation this morning.
Bram Abramson, Chief Legal and Regulatory Officer, TekSavvy Solutions Inc.: Good morning. Thank you for inviting TekSavvy here today. We are not quite as well-known as Rogers. Except in one small eastern Ontario town called Madoc near Belleville we don't sell television subscriptions. There we only started to do it recently.
What we do, though, is move a lot of television over the Internet. TekSavvy sells Internet access into about 250,000 homes. About four out of every five of those homes don't subscribe to television, so when you talk about cord cutters and so on those are our subscribers. Yet most of the traffic on our network involves getting TV shows and movies on to screens attached to computers. Netflix and YouTube alone are more than half of the traffic we carry.
The funny thing in all this is that TekSavvy would actually like to become a traditional TV player. When we appeared at the CRTC's "Let's Talk TV" hearing to say so, some people were genuinely surprised. I would like to explain to you why and how I think it would actually help push forward the goals assigned to the Canadian broadcasting system and the CBC in the Broadcasting Act.
To get there I first do need to tell you a little bit about TekSavvy because we are not quite as well-known as others. We operate a pretty extensive Internet backbone in Canada and into the United States. We differ from a Rogers or a Bell in how we deliver access to that Internet. In the last mile we typically operate over wholesale network access. In other words we pay a regulated rate to access someone else's access line into the home. That is not true everywhere. In rural areas we operate fixed wireless but percentage-wise that is the greatest proportion of our subscribers.
The theory behind those regulated rates is pretty simple. It is sort of like in the old days when you would see 20 telephones on someone's desk. It wouldn't make sense for everyone who wants to serve a home to build a separate line and then have most lines lie fallow but for the one who has provided the customer's currently chosen. Instead the regulator sets a fair rate with a built-in profit for the bottleneck facility. We buy it. Off we go to compete.
So far the only thing TekSavvy runs to those wholesale network access lines are Internet access and voice over IP telephone service but there is no reason we can't run television service in the same way and here is why that matters. In the Internet space we hope and we like to think that players like us have brought price discipline and innovative service delivery to the market.
In television we would like to do the same. Over-the-top Internet television is watched an average of five hours a week by those who actually watch Internet television — it is even less if you take it across the whole population — versus 28 hours a week on traditional television. In other words the video content and the video network is still traditional television. Today's Internet, to be honest, would have a hard time handling a Canada where most people streamed 28 hours of video during prime time every week over broadband. It wouldn't work.
Traditional television is where the eyeballs are and where the content is. We seek access to the television channels that have cleared all the rights for distribution over traditional television. In other words that is the interest for us. Here is the thing: in the current environment when we want to offer a television service to the public we have to abide by the CRTC's rules like the basic service, a preponderance of Canadian channels, CBC, SRC, Newsworld, LD and so on.
For the next few years — and this is what we talked about at the "Let's Talk TV" hearing that you have asked us to talk about today — that means leverage in the online world for the CRTC, for the CBC and for the Canadian broadcasting system in which the CBC still holds pride of place at least from a regulatory standpoint. Most importantly it means many competitive distributors that are not vertically integrated with content that competes or partners with the CBC.
That leverage won't last forever. The architecture of the Internet is still evolving. The dollars to be had online are still growing. At some point the people who are spending money making TV shows or making content for television like sports will be able to make more of it back online than they can through traditional television.
I guess our point is that we are not there yet. We may be a few years away. In the meantime you actually have Canadian companies clamoring at the doors wanting to get into the market and reinvigorate the pricing and service delivery model for delivering a television service that is based on the CBC and on Canadian channels. In other words that is the content available to seed the service that we create.
In one of your earlier meetings the CRTC's Scott Hutton described 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.
What we suggested at the "Let's Talk TV" hearing was that the opportunity to apply that to stimulate competition in Canadian subscription television is the CRTC's key challenge right now.
There are two major barriers in the wing. One is access to content and what I mean by that is in the over-the-top environment you have to go out and have long protracted negotiations for all the content you carry. That is fine. That content is the differentiator for each service. In the regulated environment, every provider has to offer the same channels which is a great starting point for launching a new service already stocked with content, but the negotiations there are long protracted so you kind of say, "Why would you bother?" It erases the advantage of starting in the regulated system. It chips away at that leverage. It is unnecessary red tape.
So what we asked the CRTC to do was to create default agreements between TV channels and distributors. If someone like us wants to launch by offering the basic and discretionary Canadian channels and we are willing to follow all of the rules, we think it would be better for the system if we could opt into the default arrangements in pricing and launch fast. We could always negotiate for still better off-tariff pricing but we would already be in the market. We would have launched.
The other barrier is bigger. It is the cost of bandwidth. A major television distributor can sell their basic service to consumers for $30 or $40, but for those of us still clamoring at the doors who rely on wholesale network access as a bottleneck facility it costs $80 in bandwidth costs alone to offer the same TV service. In other words it costs us more just to do the bandwidth part of the service than what they are selling the whole thing for.
That doesn't make sense. If you look at the tariff bandwidth prices from provider to provider right now they are all over the map. Those are regulated tariffed rates. The CRTC has made tremendous progress we think in enabling competition. It certainly benefitted consumers but it still has to get some of the details right, and we think they will.
Canadian competition over wholesale network access will be disruptive to TV like it was disruptive to broadband but for a public broadcaster assigned a special role within a regulated system which has been at pains to separate itself out from distribution towers and which the CRTC talks about how most of its distribution is with distributors whose content competes with it, that would be a net positive. You would have more players in the market, more people competing and specifically lots of players distributing who are not vertically integrated with content.
I know that there has been some debate here on whether what is needed is to rewrite or to redraft or to edit the broadcasting or telecommunications acts. I guess what I would emphasize is that none of what I have talked about today certainly requires any of that.
In our view most of the answers lie not with statutory drafting but with fairly straightforward regulatory measures that we hope the CRTC will undertake and we get that the CRTC itself is under tremendous pressure.
I guess our view is that the next few years will be critical in all this and we have two choices: We can wait for the next wave of California-based over-the-top players to come. That is fine. I think it will be great for consumers. We can also enable a flood of new Canadian television distributors seeded by Canadian content which is the system that already has the CBC already at its heart. We have the opportunity to do so in a fairly straightforward manner. I think it would help everyone.
Senator Eggleton: I take it you constitute what is called an over-the-top broadcast.
Mr. Abramson: We don't offer broadcasting today. People use our Internet access to access over-the-top broadcasters like Netflix or iTunes.
Senator Eggleton: You are providing Netflix, for example.
Mr. Abramson: We are simply providing Internet access. Someone goes to the website of Netflix and pays their $7.99 a month, or I guess it has gone up. That is none of our business. That is between the end user and Netflix and we are just in the middle transporting the bits.
Senator Eggleton: You are a broker in the middle here.
Mr. Abramson: Yes, exactly.
Senator Eggleton: How do you see your organization advancing Canadian broadcasting? The idea here with the CBC is to tell Canadian stories. Netflix is doing some Canadian stuff but they are not held by the same regulatory controls as the main broadcasters in Canada. They are providing a lot of U.S.-based programs which is natural. That is where they are from.
How do you see you could even this up in terms of more Canadian content, doing what the public broadcasters expect it to do?
Mr. Abramson: We like to offer television.
Senator Eggleton: You want to do this but you are not doing it yet.
Mr. Abramson: We are not doing it yet and the reason we are not doing it is because it would cost us more just to access the bandwidth that we need to do it than Rogers is charging for its basic service.
Senator Eggleton: Have you sought regulatory permission or whatever from the CRTC?
Mr. Abramson: Yes. I mean what we have said is, "Look, we think the rates are out of whack. We think they need to be more rational." In other words if the regulatory regime says, "Look, this is a bottleneck facility; this is the wholesale network access; it has to be priced at cost plus markup," which is what it is, it can't be that the rates are all over the map and some are extremely high and some are less high but our bandwidth costs are astronomical compared to what they offer the TV service using the same line on a retail basis. It just doesn't make sense.
Senator Eggleton: How would we know that you would advance Canadian content necessarily?
Mr. Abramson: In my view part of the trick is that we already have rules for that. In other words if we want to offer Canadian television we have to offer a service that every subscriber takes a predominance of Canadian channels. We offer all the CBC and SRC services and so on. That is part of the system today.
Senator Eggleton: You are looking to become more of a traditional broadcaster in the sense of having channels as opposed to just online.
Mr. Abramson: Yes, a traditional broadcast distributor I would say. We would like to be able to do that. I guess our message is from our standpoint that a world in which that is more accessible and in which we have more rational rates and all the stuff that gets us there is actually a lot better for the CBC because there is a lot more people competing to distribute it to homes.
Senator Eggleton: Are you a Canadian-based company totally?
Mr. Abramson: We are completely Canadian. All of our call centre staff, everyone, has full-time Canadian jobs.
Senator Eggleton: Since the mandate here is to look at the CBC and its future in view of all these changes that are coming about, do you have any particular thoughts about the CBC itself?
Mr. Abramson: I get there are challenges with reliance on funding from the government. It is not always clear what the role of the private sector is in funding it. There is great debate about that.
First of all I should say like the speaker before me it is in a way not my role and I suspect our users who are very value-conscious have different views on it.
I have always been someone who watched the CBC avidly throughout the years. During my days studying I read a lot about how to have a rich ecosystem of content you need different business ownership models. If it is all private sector, if it is all state-owned or all public, depending on how it is managed or if it is all community it doesn't work. You need different things pulling and leading the market in different directions. I get that. It seems as though we need someone who is going to tell those stories and so on. How that is financed and how that works in practice is clearly tricky.
Senator Housakos: Clearly in this ever-changing environment there are so many ways that information is being disseminated to people. The CBC is a stand-alone, traditional broadcaster. It seems to me and it seems to this committee so far that they have been overwhelmed a little bit with some of the changes that have taken place over the last decade. They have had a digital strategy in place over the last few years. They have spent tens of millions of dollars. It is unclear yet what the payback has been and it has been very difficult for them to even tell us what tangible, empirical evidence they have of the results of that.
I would like for you to comment on what radically they need to do quickly to try to adapt themselves, and in what way can they, to the ever-changing environment that they have just talked about and you presented to us.
Mr. Abramson: Let me throw out two thoughts on that. One is in terms of their relationship with distribution. It seems to me and what I have seen from the CBC at the "Let's Talk TV" hearing that they don't want to be in the distribution business. They don't want to be running antennas. They are concerned with a lot of the content that is alongside them which people can watch instead of their content. You might say they compete. It is integrated with distribution and they are not sure how that works and are a little bit worried.
From that standpoint I would say we get that. We are sort of on the opposite side of the coin. We are also not vertically integrated but we are on the carriage rather than the content side. We are always worried about hearing if a big network provider like a Rogers or a Bell or whomever — and I am not saying they do this — is only going to offer premium content to their users and say literally if you want to subscribe to the Internet you had better not do it with those guys because you won't be able to see everything. That is why we are such strong champions of network neutrality as a policy kind of issue.
I think the CBC has similar concerns and what they need to do there is simply embrace the Internet in some ways and make sure that their stuff is available so that they don't need to have a deal with every distributor that makes their content available. You can literally get it as long as you are on the Internet. The more places their content is available the better on every tablet, every website and all that stuff.
I suppose that brings me to my second related point which is simply to focus on being a content provider. In the U.K. a few years ago they used to talk about public service publishers rather than public service broadcasters. That is something to think about. I think the CBC has done a reasonably good job at some of that. We heard a lot about a well-known talk show host in the news yesterday and this morning from CBC.
What really struck me there was of course what a big deal it was. Everyone was talking about it and so on. That is a show that a lot of people have consumed, not just through radio although there is obviously that but through sort of a TV show where you see them online. The Twitter aspect to it has been enormous. I read a letter by one of the principals in that whole affair on Facebook and we have seen a fair bit of that.
I do think the CBC has done a reasonably good job at trying to embrace digital platforms. It is hard to do simply because we are not there yet. As I said, 28 hours a week on traditional TV, subscription television I guess, versus something like two when you average it out on Internet television it is a completely different thing as of yet and the money is just not there.
Senator Housakos: Digital platforms it seems to me are very hard to transform into currency, into dollars.
Mr. Abramson: Yes.
Senator Housakos: I am no expert in the field but I am somebody with a background in sales. How is that progressing? How is the industry to get around to creating what is a platform that is disseminating information quickly in various platforms but is making it very difficult to recoup revenue?
Mr. Abramson: If I knew. . .it is a great question. What we have seen are some platforms which are great at disseminating stuff. We talked about Twitter. I was on it this morning and I saw members of this committee on it this morning and so on. It has really changed the way a lot of us consume news and so on.
In terms of their revenues I don't know what they are but they are way down and none of that is video. As you know video is much, much more expensive to produce than any of this stuff. I guess you could do it with YouTube but even YouTube has been very active in seeking out what they call premium content and making deals and bringing people to the platform because it is not the sort of thing you can do in high quality in your basement at night as a hobby. It takes real dollars to have people write good scripts and actors and cameras and all the rest of it.
It is very, very hard. I don't know the answer but what I do know is that there are a lot of people out there putting a lot of dollars into trying and seeing what sticks.
Senator Munson: How many groups like you across the country are doing what you are doing? I even talked about more carriage than content and that is sort of that is in the background of things. I don't think people are paying attention to that. How do you make your money?
Mr. Abramson: We are a little bit like a utility. We carry bits.
Senator Munson: I know the word "bits" but people don't understand that word and think it has something to do with horses. A lot of people just don't get that kind of conversation, maybe aging senators and me too.
Mr. Abramson: Fair enough. In the same way that we have all had phone lines in our homes where you simply pick it up and get a dial tone. Rather than a dial tone we provide a certain Internet dial tone. Rather than hook a telephone up to it you hook your computer up, and rather than dial phone numbers and talk to people you can do all the different things they hear about on the Internet by having the computer send it through that line.
If people want to do e-mail, if people want to do web, if people want to watch movies, it is a much broader technology, I think, the Internet than the phone which is really much more single purpose. What you did was talk to people.
What we do is literally try and act as that utility, providing that Internet line into the home and letting people do whatever they want with it.
Senator Munson: Do you make money doing this? I think you mentioned a specific area. Do you have other small organizations like yourself across the country doing the same thing in designated areas?
Mr. Abramson: We are about 250,000 homes across Canada, principally in Ontario and Quebec. The very small part I mention is we bought a cable company about six months ago, or I guess probably a little bit less, in order to learn more about the TV business and see what it would take to get into it, especially see how we could sort of meld it into what we do which is heavily focused on the Internet, or at least the style of carriage that characterizes the Internet. It is pretty small. It is Madoc, Ontario, and it is under 1,000 homes, so it is literally a fraction of what we do generally.
In terms of others out there I guess we are probably one of the bigger ones in Canada, maybe the biggest independent or alternative residential service provider like that. There are a good 25 or so that are all operating and doing sort of similar things that we do at a smaller scale.
Senator Munson: You may have mentioned this. Do you go through a regulatory process to get the licence?
Mr. Abramson: A lot of what we do isn't formally licensed although there are registration lists that we have to be on. Some of it requires licences, depending on how we do it, but yes, we need to be involved with the CRTC. There are tariffs under which we get access to the bottleneck facilities that we integrate into our networks. The bottleneck facility is that line to the home where it just wouldn't make sense for everyone to build their own. Yes, the regulatory process is a big part of what we do.
Senator Munson: So you are making a good living at this.
Mr. Abramson: We are trying. The margins are not what they are in hockey, I hear, but we do our best.
The Chair: Do you have an association? If you are not the only one doing it, are you regrouped as an association and make collective requests to the CRTC?
Mr. Abramson: Yes, we are. A few years ago we founded the Canadian Network Operators Consortium. It is really exactly that, a ministry grouping of 20-odd companies—I don't remember the numbers, I apologize—that do this at different scales and in different ways as well. Some do it through wholesale network access as we do; some almost entirely only through the fixed wireless that I mentioned we do. That we do mostly in our home base of Chatham, Ontario. Yes, there is ministry association and yes, it is quite active.
Senator Plett: You answered some of my questions at the tail end of answering Senator Munson's questions, but I do want to get into it a little more. Senator Munson and Senator Eggleton were both trying to find out what it is exactly that you do as well. I apologize for this but I have never heard of TekSavvy Solutions before today.
Mr. Abramson: No worries.
Senator Plett: I am from Manitoba and you said Ontario and Quebec. Do you operate right across Canada?
Mr. Abramson: Geographically we are across Canada but we are not everywhere in Canada. Specifically we are not present in Manitoba yet. We are now taking steps, we hope, to offer the service in Manitoba as well but we are not there yet.
Senator Plett: You said there are a number of organizations like yourself and you are part of an association.
Mr. Abramson: Yes.
Senator Plett: What would you need to do to break into Manitoba? What do you do different from your competitors?
Mr. Abramson: We all deliver our services slightly differently. The pricing, the service bundles, the customer service, the equipment that is used to access and so on, all of that is a little bit different. On the telephone side, because we have the telephone service as well, the rates are different for long distance. All of that is a little bit different.
In terms of what we would need to get started in Manitoba, which as I say is something we are very interested in, we simply need at the largest scale to work with the local exchange carriers there like MTS and do our best.
Senator Plett: That was going to be my next question. I have my Internet at both of my places, at my cottage and my condo in Winnipeg. I am with MTS and they provide all my services. If you were in Manitoba my option would be to get TekSavvy to supply me with my long distance and all my Internet services. Is that correct?
Mr. Abramson: Your home phone and all that, yes.
Senator Plett: And my home phone.
Mr. Abramson: Exactly.
Senator Plett: MTS would be one of your large competitors if you came into Manitoba.
Mr. Abramson: If we came into Manitoba MTS would be both one of our large competitors and our biggest supplier.
Senator Plett: Your desire is to be a competitor with CBC and you are not now.
Mr. Abramson: No, our desire really is to carry CBC and make it available.
Senator Plett: So you would like to work with CBC and not against them.
Mr. Abramson: Absolutely. Ideally it would be great. I guess what I would say is if there were a world in which the members of our industry association generally were competing in TV the way we do in Internet, you would see a much more competitive market for TV services in this country.
Senator Plett: Because of the municipal elections in Manitoba the other day we got a good result in our mayoral election. I wanted to watch "Dragons' Den" because it was the first of the season but I couldn't because it was preempted by the municipal elections. I went on the CBC site and I played it through my Internet, through my MTS. If I could subscribe to TekSavvy would I have been able to do that right now? If you were there or wherever you are, would I have been able to do that?
Mr. Abramson: I believe so and the reason I am being cautious is because there are some shows on some websites where they say unless you are a subscriber to our cable service we won't let you watch it. You have to put in your password and so on. I don't think that is the case for most of the CBC shows. I think they have pursued the strategy I was talking about earlier about making their content as available as they can on the Internet to make sure people watch it. You probably would have been able to with that particular show but I would have to look it up.
Senator Plett: But at least it gives me an idea of it.
Mr. Abramson: Exactly.
Senator Unger: You just commented that CBC is just putting their shows on the Internet as much as they can, making them available to everyone. Would you consider that competition from a public company paid for by taxpayers' money competition and if it is competition is it really fair?
Mr. Abramson: That is a good question. Is it competition? Is it fair? As someone who used to do a little bit of competition law it is tough because with a television show as with any intellectual property each piece of content is different. How directly do they compete if they are all different? If we say the reason we created a CBC is for them to do something different from what the private sector does, then you might say it is not competition. The whole point is to do something other, to do a different kind of show, to do more Canadian shows and all that stuff.
On the other hand you might say, "Look, at the end of the day what I am interested in is selling advertising and in that sense I can either take my advertising to a CBC or take my advertising to a Rogers." I guess that would be competition. Is it fair? It is not for me to say but we have made a policy choice in this country to create a public broadcaster and have it create content. That is a choice we have made. Once we make that choice we have to let it use that content in the way that is going to best serve its ends. I am not one to second guess. That is their management and their board. Either they are in the marketplace or they are not, but once you are in a marketplace of ideas I can understand wanting to get those ideas out there.
Senator Unger: You said that you would be able to offer TV in remote areas wirelessly. Would you be able to cover all of the places in Canada that the CBC does without towers and that type of transmission?
Mr. Abramson: No. I was talking about a couple of different things. We offer most of our service over wholesale network access but in rural areas we do fixed wireless, principally in our two main offices in Chatham, Ontario, our home base, and Gatineau, Quebec. Those do not necessarily involve towers. A lot of the time it is the top of grain silos or the corner of the roof of an arena. We provide wireless access that way and then we run fibre typically to that building or to that silo or whatever it is. That absolutely needs towers but beyond satellite I don't see many options for reaching those most remote regions without a terrestrial infrastructure.
Senator Unger: You are talking about fibre optics, right?
Mr. Abramson: Yes.
Senator Unger: Is Bell doing this now?
Mr. Abramson: In many areas it is, yes.
Senator Unger: I live in a condo in Ottawa and Bell is offering that services. Are you in western Canada, specifically Alberta? I am from Edmonton.
Mr. Abramson: Yes.
Senator Unger: The competitors there would be Shaw and Telus.
Mr. Abramson: And TekSavvy, yes.
Senator MacDonald: Thank you for being with us, Mr. Abramson.
In regard to Bell and Rogers networks, other than the change to the tariffs for access to these networks what other changes would you like to see the CRTC enact?
Mr. Abramson: It is a very good question and I should say there is an upcoming major CRTC policy hearing where we will address some of those. I have to be careful not speak out of turn and change what we are asking for.
Currently with their service we do depend in that last mile on the bottleneck facility provider. That involves more than flipping a switch. It involves sometimes sending out an installer. It involves doing internal diagnostics because that access line is wired up with all kinds of electronics that we don't have access to.
One of the things that we have asked the CRTC about is basically to follow the lead of some other jurisdictions in Europe and elsewhere in order to make this thing work especially on the non-price side and to treat us in the same way that they treat themselves. In other words where there is a bottleneck facility that has been determined to be one that you need to tariff in order to enable competition because it is not feasibly reproducible, the wholesale arm that provides the bottleneck facility ought to treat its retail arm the same way as it treats other retailers. We think that without that there is always going to be a bit of a speed bump. There is every incentive. I can understand why they would act on their opportunity to realize the incentive to not treat other retailers in the same way as they do their retail arm.
To us that is a huge issue because it really does impact consumers who get frustrated. Sometimes we are sort of the man in the middle on that and that is tough. Rates are obviously significant but there is a whole new technology coming down the pike as well where you build fibre all the way to the residence including to condominiums. We can't access that right now and we believe that the economics of fibre to the actual residence, or they say fibre to the premise, are similar. In other words it is not economic to have five or seven, or whatever it is, different fibre optic lines all going to the premise. It just doesn't make sense.
What we have proposed to the CRTC is an economic model for how you would tariff that and how you would find an acceptable way for the person who put in the fibre to offload the risk to the person who wants to get access to it in a way that doesn't dampen the incentive to invest, make sure that we have fibre to the homes in this country, and make sure that we can have competition so that once someone puts that fibre to the home it doesn't end competition for that consumer.
I would say those are some of the biggest things that we are especially concerned about going forward. We think there is a pretty good regime right now that works apart from some of the details like the pricing. We are worried that going forward it may not be around anymore. It may not work in the same way if some of this stuff isn't looked at very seriously by the CRTC and that is why we have put it on the table.
Senator MacDonald: Can you expand your thoughts on bundling? What are your thoughts on bundling?
Mr. Abramson: Once you are providing service to the home, the more services you can provide the more revenue you can realize, the faster you can recoup your investment and invest in other things and so on.
Bundling is also a way to innovate so from a consumer standpoint you may get a richer suite of services and the service provider has every interest in providing it to you. Our concern is going the other way that sometimes if you can't bundle you get frozen out. Certainly that is our case in some areas and it is one of the reasons we like to be in television as well. For some people if we are not providing television they are not interested at all. That is one of the reasons why so few of our subscribers are people who have television service
We see the advantages. We also see some disadvantages. I guess one of the things we want to make sure is that we don't have a marketplace in which the people who don't bundle can't compete anymore because we think that would be terrible for the consumer.
Senator MacDonald: My oldest son is always on Apple TV. I wonder if you could describe how you see Apple TV and similar models playing out in the future.
Mr. Abramson: We have a few of those at home. I should say I cut off my Rogers subscription, as it were, about six months ago and actually had a fellow on my rooftop put up an antenna so we could get about 20 services over the air in full high definition. We don't pay anything for that. We have an Apple TV and some other similar boxes hooked up.
I think right now nobody is sure what the model is going to be. A big question has been who is the analogy to? If you are an Apple TV or if you are a Netflix are you like HBO or are you like Rogers? Are you like the cable company or are you like one of the channels that the cable company provides?
I don't know if there is a clear answer and maybe it is neither going forward. The business model for this thing just hasn't shaken out yet. Now we have Apple TV boxes. At some point that is not too hard to build into the television or it is not too hard to build into a set-top box that a TekSavvy or a Bell might provide to somebody and you might just tune to the Apple portion of it.
What I do know is contracting for getting access to bundling packaging content on one hand and the same activity with respect to the connectivity on the other hand, increasingly they are just, at least to my mind, separate activities. In terms of where Apple TV goes I see more of the same. In other words people who bundle content have nothing to do with the people who provide the access line to bring that content to you. That is that window I guess I was talking about in terms of the window closing.
Right now we would love to be in traditional television because we would like to bring people the television channels they want, but let's say in ten years I doubt very much that we would see that as part of our business any more than we would see it as part of our business today of competing with Netflix. It just wouldn't make sense for us. It is not what we do.
Senator MacDonald: When it comes to apps do you see apps including those of the CBC being connected directly to TVs via these set-top boxes?
Mr. Abramson: Yes. I think more and more what people are interested in is sort of a seamless experience across a whole bunch of platforms. They have their TV. They have their phone. They have their laptops and their tablet and all that. They want to watch on the big screen and then maybe take it away with them on their phone and go upstairs with their tablet and all that stuff. I think the apps just kind of all melds together at some point. Absolutely it is part of it and in fact the way we deliver it is going to change completely. Again I don't think we are quite there yet technology-wise, but that is where it is headed.
The Chair: You talked at the beginning of what is the role of the regulatory officer with the CRTC. You talked about Apple TV. You talked about Netflix. CRTC puts their head in the sand and those things don't exist. Actually the testimony the witness gave doesn't exist either. We didn't hear you.
How long can we continue working in an environment in which the regulatory process is so discriminating between people that make an effort to respect it? Your predecessor this morning was explaining, "I went to the CRTC. They said no to this. They said no to that." Other people don't go to the CRTC. They just do it. How far can we as a government or how far can the federal institutions tolerate that type of inequality?
Mr. Abramson: I would put it a different way. We have heard, fair enough, that foreign players were not regulated and domestic ones are. Really it is the stuff that goes over the Internet that is not regulated and the stuff that goes through dedicated channels that is regulated.
If Rogers wants to compete with Netflix in doing over-the-top service it is free to do so and it will face no more regulation than Netflix does. In fact that is what I gather they are doing with Shaw. In a sense you might say they have the regulatory advantage. They can do two things because they are Canadian. They can operate the regulated service or an unregulated one over the top. Netflix can only do one of those things. They can offer only the regulated service over the top because they are not Canadian.
It is clearly more complicated. Netflix is also one of these California companies that benefits from kind of global economies of scale that we simply don't have in a more peripheral market like Canada so it is hard to compare.
I would say my view is right now and for the next few years that regulatory piece should be flipped around. People can already go over the top and do whatever they want. The question is: Why would they want to be in a regulating kind of environment? We have laid out some of the reasons why we want to be. We could have offered an over-the-top service that wouldn't be regulated. We have no interest in doing that, but we would like to offer a regulated service and opt into that because it would give us access to the Canadian content, the basic services and so on that would allow us to provide the service that customers and consumers expect.
If the CRTC were to take steps to enable that and to make that easy then surely you would see many new distributors start up. As those barriers fall where it is no longer sustainable maybe to maintain a difference, you would already be in an environment where you have a much stronger Canadian ecosystem. That is our view.
Perry Rosemond, Producer, Writer and Director, The Rosemond Company: Thank you, and what a pleasure it is to be here.
This morning I will share my concepts with you on three types of television programming that are guaranteed to send CBC's revenues and ratings shooting right through the roof.
At first I will discuss news and public affairs. Then I will speak to scripted entertainment programming and lastly I will address the arts.
News and public affairs: It is essential to involve the youth of our nation in programming, creation, development and production.
I quote Eric Schmidt of Google. "The health of a country start-up sector eventually predicts the health of its economy at large." I would suggest a national web-based public affairs youth network bringing the finest talent to CBC while fostering and training the future broadcasters of our nation.
Our recruitment process would be in the form of a national think tank. Everyone is welcome from every place. Once the students are chosen in each region these young minds would then select content and write and direct and perform on all of their productions.
Although we begin on the web with the advancement in broadband and the other transmission miracles that are on the horizon, it won't be long before this programming is available to the CBC and to the world at large, plus a magnificent opportunity for all of the CBC stations, French and English, to work together.
Not all participants will choose a career in broadcasting but as they go for their MBAs or their law degrees many will be attracted to broadcasting. CBC will be provided with a first look at some of the brightest minds in the nation. The way we communicate will continue to change in logarithmic proportion and these young people will lead the change.
Next my views on scripted entertainment programming: There are already several excellent shows on CBC Radio-Canada. I can't remember a better prime time schedule. Being a supplier of scripted programming in this country is not for the faint hearted. It costs a lot and it is hard to do but it still is the best way to tell our stories and CBC Radio-Canada must carry the torch.
Showtime and HBO have set the bar very, very high and they have done it with one simple premise: Do half as much and make it twice as good. CBC is beginning to adopt that philosophy and it is a good idea. They are on the right track.
I would like to see a creative move up the ladder. Here is a plan for developing scripted material: Let's say we start with the two creative people, the CBC executive who is very well versed in script and the creative genius who brings the idea to the CBC. They collaborate. They discuss sensibility, plot and character. United, they get a few bucks from whatever funding agency is available and CBC puts in a few bucks. It literally costs $12,000 to get a property into deep development with this scenario and that is very economical.
The usual story editing process takes place with the broadcaster and the writer until the script is completed. A suitable production company is then found to undertake the project with the writer. I like this concept because I like where the writer, the creator, the artiste is positioned in the structure. The writer in series television provides most of the creative equity and this gives them a chance to be positioned high in the hierarchy.
Finally the Arts: I started in television before black and white. When I started there was only black. I go back a long way. I have produced a lot of theatre for the screen and I produced it with magnificent stars on both sides of the border and with wonderful properties, and they have all been unsatisfactory. They were transmitted on small screens with inferior sound.
We actually did the arts a disservice by putting them on television. How do we capture, showcase and preserve the wonderful arts and culture of our nation? There is a new day dawning and I am sure you are as aware of it as I am: theatre for the movie screen and the television screen that actually works. The Olivier National with their broadcasts, Alan Bennett, Greek tragedy, French farce, Shakespeare, it all works. The Metropolitan operas, riveting. What changed? The size and quality of the screen and the innovations in sound. In the very near future this kind of programming will be available at home. Our own Stratford Festival is already building a library.
In closing let me take you on a short fantasy trip to the future. One of the world's greatest living playwrights is Canada's own Bernard Slade, as Don Cherry would say, "a good old St. Catherines boy."
Now, his play Same Time, Next Year is the most often performed two-character play in the world. It is translated into every language. It performs particularly well in France. He has written a sequel. I have recently reread it, and it is called Same Time, Another Year. It has had very minimal exposure and it is every bit as good a play.
Let's say we staged it one night in English and then the sequel the next night in English, and then we did the same thing in French and we recorded the performances. CBC would take an equity position and would have conventional television rights.
You have heard other speakers say this but the exposure for properties like this has become boundless. There are now 1,400 theatres in North America exhibiting this kind of product: concerts, plays, whatever. They are now occurring concurrently on stage and on the screens.
There is a British-based company, DigitalTheatre.com. It is Netflix for stage presentations, concerts, events, also Pay Per View and On demand. CBC Radio-Canada will soon be capable of delivering our brilliant cultural product to the entire world.
To sum up first in news and public affairs, more youth participation originating from all regions. Next is scripted material. CBC is getting there. Let's make sure creative rises in the process. In theater CBC is on the brink of a very, very exciting adventure. In the very near future the programming that it has to do will be the programing that it wants to do.
Senator Munson: Thank you, sir, for coming. First of all I don't have a bio on you and I am really curious to find out a bit of your wealth and experience.
Mr. Rosemond: Oh, don't worry. I will sneak it in during this session. You can rest assured.
Senator Munson: I would like to hear that because I think it is important for context to know some of the things that you have done.
Mr. Rosemond: Right, Wikipedia.
Senator Munson: I think my colleague told me that 340 hours of programming have to be filled on Saturday night. My mother would listen to Gordie Drillon, a hockey player from Moncton, and "Hockey Night in Canada." On Saturday night they would gather around the radio in the Maritimes and she would always bring up the gentleman's name. It actually became a tradition on Saturday night.
Those of us who lived in Montreal listened to Danny Gallivan along with Rene Lecavalier. Those voices in my head made hockey exciting. We were there. It is part of our DNA.
The reality is that with all these digital platforms and everything else going on and the cuts in the CBC they will continue to have that for a few more years. In your innovative creative mind what kind of programming could move into Saturday night? I am actually worried about prohibitive cost of producing this kind of Canadian content which would allow the CBC to be vibrant in the landscape of broadcasting.
Mr. Rosemond: I will address them individually. The first part, the youth part, is very cost efficient. I have to tell you that I tested this platform on a show I did in the 1960s called Through the Eyes of Tomorrow, À travers les yeux de demain.
What I did was I took a student from each high school, assembled them and did a program involving them. Under this scheme we would ask the mentors to perform their services pro bono and there would be mentorship in the beginning.
Secondly, movies are being done on iPhones so technical elements are achievable and I polled two communication colleges that were willing to supply facilities for this kind of property. Also, Senator Munson, we are dealing with the cream of the crop of the entry level market. It may indeed be very appealing to non-competing corporate sponsors. Of course CBC would be entitled to throw in a few bucks because they are getting a lot of programming in return.
As far as revenue in the second scenario that I suggested, the scripted one, I am only talking about initial development costs. There are no further costs. There are no greater costs. As a matter of fact there are fewer costs because you have proven scripted pages going into the project.
As for the third one there can be no more efficient programming than the arts platform I presented. There are robotic cameras now that are doing them. There are theatres that are equipped with facilities. If you go to Stratford they know exactly where to put what, so this could actually become a very, very positive fiscal undertaking.
Senator Munson: I would just like to have a more visual context to what you are talking about. When you are saying all of these platforms are available in Stratford and other spots in the country, are you talking about programs or shows, things being produced there that are already there which the creative mind can put together for television programming?
Mr. Rosemond: Yes. If I can give you a bit of history they recently did a production of Twelfth Night which had a musical adaptation to it. It is beyond brilliant. CBC has not licensed the show and I don't necessarily blame them for not licensing that show, but three years from now when that wall in your den is going to be five times the size of the flat screen you have now that production will perform brilliantly.
Senator Housakos: Thank you for being with us this morning. I have taken the time to read your bio and I was quite impressed actually. If there is anybody to speak to us about Canadian broadcasting, Canadian culture and Canadian art, it is you.
Mr. Rosemond: Thank you, I appreciate the compliment.
Senator Housakos: There are two challenges, I guess. The first challenge is to produce Canadian content, produce the show and produce the art. The other one is to find the platform to get people to see it. The first one requires expenses to produce it and the second one should be bringing in revenue to pay for the project.
Mr. Rosemond: Right.
Senator Housakos: What is the biggest challenge in the industry right now? Is the biggest challenge producing the Canadian show or is the biggest of the two challenges finding the platform to have people watch it and getting the revenue?
Mr. Rosemond: I don't know too much about platforms.
Senator Housakos: When I say "platform" I am saying it like I have a view that I don't think the CBC is carrying enough Canadian content of quality. Is it because they are making the wrong choices? Are they investing in the wrong places?
I grew up in Montreal as a kid and I never missed an episode of "King of Kensington." I never missed an episode of the "Beachcombers." They were shows my friends and I watched; we wanted to watch them.
I have never seen my kids' generation running to say, "I want to see this show on the CBC" which is a Canadian show. Obviously they are not watching it on Bell or on other channels because they are watching American shows, and I see them watching American shows. How do we overcome that?
Mr. Rosemond: I like "King of Kensington" best because I am getting royalties for it but I think that "Heartland," "The Rick Mercer Report" and "This Hour has 22 Minutes" are fine show. I find the prime time schedule quite good.
It boils down to there just aren't the dollars. Senator, I was involved with a show called "Good Times" with CBS in America. Our licence fee was $500,000 for two domestic runs and when we got to $460,000 in expenditures a bell rang and we stopped spending.
We were in profit already. We had the burgeoning syndicated market. We had foreign. We had rights in perpetuity. Now those fees are a quarter of what they were. You can come to Canada where you are dealing with 10 per cent of the population the numbers aren't there. It is difficult. It is really, really difficult.
Senator Eggleton: One of the concerns raised here a lot is that the CBC doesn't seem to be getting as much viewing as it has in the past. It has been suggested that there is more competition for entertainment, more of these different platforms that people watch, and some are saying it is because of the quality.
You just said, though, in terms of when you were talking about the scripted entertainment programs that you have never seen the quality any better and that they seem to be on the right path. You mentioned a Showtime on HBO, something similar to what they do, which seems to be more cost efficient and still good quality. How is it that the viewership keeps dropping?
Mr. Rosemond: Because there is so much more out there. When we started "Royal Canadian Air Farce," Senator Eggleton, we had close to two million viewers. By the time we finished we were usually under a million because there were so many other options. There is just so much out there. That is the good news. The bad news is there is only so much money to pay for it.
Senator Eggleton: The cuts to the CBC are impacting the quality of the programming because of not as much money to produce them.
Mr. Rosemond: I just feel that there is too much out there. There is too much out there. There are too many options.
Senator Eggleton: You mentioned in the arts programming that what is making a difference is putting theatre on to the stage. You mentioned the Metropolitan Opera. You mentioned Stratford and others. It is the size of the screen as well as the sound techniques that are used. You think this could become something that is viable in a home setting once we get to a lot bigger screen. Is that the whole idea?
Mr. Rosemond: That is the whole idea. In the 1970s I was doing a theatre presentation for Arts and Entertainment U.S. My colleague, John Hirsch, was doing a Stratford presentation and we both had the same problem: We couldn't tone the actors down for the small screen but now with the advent of the large screen they go right out with it, so we are able to capture the theatrical experience due to the size of the screen and the quality of the sound.
Senator Eggleton: They also get revenue from these because you go to these theatres and you are obviously paying for it. How would that work with the CBC in a general broadcast situation?
Mr. Rosemond: CBC would take an equity position and participate in all of the streams that I outlined, the Netflix concept, et cetera. They would retain Canadian conventional rights.
Senator Eggleton: This news and public affairs concept that you told us a bit about, I wonder if you could flesh it out a little bit more. You are talking about bringing news together in some way. It sounds like what you are doing here is developing talent eventually for news and public affairs programming. Is that the whole idea behind it? You get youth to do something they believe is the right thing to do, interest them, and then that becomes a means to getting more talent.
Mr. Rosemond: It is a training program but it is a supply program. When I did it on a small scale in the Toronto region let's say the astronaut Gus Grissom was having a press conference and CBC sent Norman DePoe.
My little Bill Craig who is now a deputy minister was 15 years of age and he tagged along. They were asking all of these high-minded questions and my little Bill put his hand up and he said, "Mr. Grissom, why can't the Russians and the Americans work together?"
We are getting, as I said, through the eyes of tomorrow. This is quality programming. This isn't just a training program. They interviewed Walter Cronkite. They interviewed Stokely Carmichael, the activist. It was riveting. It was one of the things in my career that I am most proud of and I would love to be able to take it to a national level with the new technology.
Senator Eggleton: Is part of the objective here also to get younger people watching what is happening in terms of news and affairs programming, or is it just to further develop them in the training concept?
Mr. Rosemond: It is broad based. If you look at CBC On demand, for example, Senator Eggleton, you will see everything but teen programming. CBC has often said, "Well, teens want to watch what adults want to watch." I am not sure. They have a newscast on CBC for preschoolers and nothing for teens. There hasn't been a teen show on the Canadian Broadcasting Corporation since 2006.
Senator Eggleton: They would produce some product themselves.
Mr. Rosemond: They would have total control.
Senator MacDonald: Mr. Rosemond, thank you for being here this morning. You are a man with great experience in this field and it is a pleasure to have you here.
Mr. Rosemond: Thank you. It is a pleasure to be here.
Senator MacDonald: I am intrigued by youth and the aging strategy. What you seem to be saying is that we should take advantage of the critical decreases in the cost of production. Anyone with a laptop or an iPhone can record and edit and produce something, so content production is accessible and anybody can do it.
It is a CBC challenge here because they have a highly unionized workforce. Can the talent come from the spontaneous pool when you are facing this highly unionized structure? The CBC is a highly unionized workforce.
Mr. Rosemond: Right.
Senator MacDonald: Is that problematic when it comes to integrating this type of initiative?
Mr. Rosemond: I think there would have to be something worked out in that area. I think you raise a very good point. When I recruited originally it was with CBC staff. You raise a very good point and it would be something I would have to explore.
I feel there would have to be a budget. The big expense would be for errors and omissions and liabilities because you want to make sure these kids are safe and secure. We may indeed need some sort of tradeoff in terms of the union situation. I thank you for mentioning that because it is something that would have to be dealt with.
Senator MacDonald: In terms of branding there are companies like YouTube and Netflix that really understand branding. People watch them. They have little staff, little production capacity. They look for the best content and they work with it. Do you really think CBC is prepared to do that, could do that, or is willing to change that much? Do you think CBC is capable of making that change in that direction? Would they be willing to do that?
Mr. Rosemond: There is not much of a downside to it as I see it. As I said when I did it originally it yielded such gifted people.
Paul Saltzman went into broadcasting. I mentioned in my opening that not all would become broadcasters. Marlys Edwardh became a lawyer. Buffy Sainte-Marie became a singer. Bill Craig was a deputy minister. We did an exchange program with Quebec and little Geneviève Bujold showed up, 15 years of age. I don't know what ever happened to her.
Senator MacDonald: She is still going.
Mr. Rosemond: It just yielded all of this talent. Why wouldn't a public broadcaster explore this area?
Senator MacDonald: I just want to finish with the thought that CBC is a great brand. Even with people like me who are sometimes very frustrated with CBC over the years it still has a very strong brand. You may have a natural empathy with the brand even though you may not necessarily agree with the content sometimes.
Mr. Rosemond: Right.
Senator MacDonald: You were here before when I was speaking to the Rogers people. I still am concerned that the CBC doesn't understand the brand value and how to exploit it, maximize it.
Mr. Rosemond: I totally agree.
Senator MacDonald: I just think there is a lot of room for improvement in that area.
Mr. Rosemond: I totally agree. I had this argument for 16 years on "Royal Canadian Air Farce." I said, "Do you know what that name means to Canada and what we could be doing with it?" I had exactly the same problem and you are 100 per cent correct.
Senator MacDonald: Thank you, sir, for being here this morning. It is much appreciated.
Senator Unger: Thank you, Mr. Rosemond. It is a pleasure to listen to you.
I agree with you absolutely regarding Canada's youth. I recently attended a Manning Innovations Awards event. Everyone who was present was completely astounded. They had a special category of awards for young people. Three 17-year-olds were recognized and their presentations were outstanding. Two of them specifically had to do with medical issues, with one who had done a study on the disease multiple sclerosis. He is on his way to possibly finding a cure for this disease.
These young people are just brilliant. They understand algorithms and they understand computers and how they work. They put them together with some senior expertise using labs and they are producing these incredible results.
You could have a program around that. Everyone was just unbelieving that these kids stood up and accepted their awards speaking like 35-year-old businessmen. There could be something around that, so I agree.
I think you can now watch some of the productions of the Met Opera possibly in the States on TV.
Mr. Rosemond: Right.
Senator Unger: What would CBC need to do to embrace the vision that you have? I would like to know in your opinion who is their audience. You mentioned youth that is being left out, with which I agree. What about their lifetime supporters who are now grey power or the seniors of this country? There is not a lot for them. It seems to me they have been dumped.
Mr. Rosemond: I don't honestly know what the demographics are and I am not capable of answering that question.
As to your mentioning of what these kids are capable of, as I was structuring this idea I thought we are leaving out 25 per cent of the country who are not part of a CBC station city. I thought, "How do we stream to them?" My knowledge of streaming equals my knowledge of calculus, and I know nothing about calculus.
I thought, "Wait a minute, I have 75 per cent of the brightest minds in Canada. Let them figure it out." As to who the audience is, I guess it is an older demographic. That would be my hunch. I know on Air Farce, for example, the average age was deceased. We would get people coming up to us and say, "My grandmother loves you." It would be like a knife in our heart. I guess it is an older demographic.
Senator Housakos: It seems to me the CBC through the years has tried to branch out to as many areas of broadcasting as they could. They are covering news and public affairs. They are doing prime time shows and sports. In this competitive world, this ever more competitive world — and you have mentioned in your testimony there is more competition — there is less money to go around. Is it time for the CBC in its reorganization of their strategy to start narrowing in on more specific areas, more niche productions?
For example, and I have always argued this, I look at Canada now and in English Canada we have four major broadcasters. They all provide local, national and international news. I don't see the argument that CBC somehow provides news locally, nationally and internationally from a more Canadian cultural perspective than Bell Media does, than Shaw, than Rogers or anybody else.
On the other side of the coin I look at shows that are produced by Canadian artists, Canadian actors, that are only carried by CBC. Once upon a time I got the impression—and I don't know what breakdown is—that the CBC carried more Canadian major films, for example.
It is rare now you sit down and watch CBC and you see on Friday night a major motion picture film that is Canadian, produced in Canada. You certainly won't see it on any other channel because for whatever reason people are not watching them, but I really believe we have some good Canadian film makers and some good Canadian films that are not watched because they are not promoted enough. Does this make any sense to you?
Mr. Rosemond: First of all as far as genre is concerned I will take a good documentary over a bad drama and I will take a good drama over a bad documentary.
Our best show doesn't have a genre. It is the Rick Mercer show. It is a no name, bag your own grocery show. I don't know what it is but it is a good, good show.
I am very, very, very disappointed in the film industry in this country. I feel that the scripts we are doing are for the most part inferior. Unless we can start writing good scripts then we shouldn't be in that business. I don't mean to be cruel. We just don't have good film scripts.
I have read as a developer of programing in television dozens and dozens of these scripts. The dialogue is there and the characters are there but there is no story. There is a weakness there and unless that weakness is overcome we shouldn't be attempting on CBC to do original material of this nature, unless it goes through the process that I mentioned so that George Walker the playwright comes in, develops something with CBC over a period of six months as a mini-series or a whatever and then it goes to air. The current status is that there are not enough good stories being written that are worth bringing to the screen.
The Chair: From all the models that are out there in terms of if we as a government would adapt the way CBC is funded there has been talk about people saying, "Look, it has to be 100 per cent funded by taxpayers and get out of advertising completely."
There are other models that talk about having a duplicate of the PBS model in the U.S. where they go out and solicit money. For every dollar they raise, the government matches the dollar.
Do you have any thoughts in terms of what is the best way going forward for the government to support the CBC if we would change the current model?
Mr. Rosemond: Let CBC advertise.
Senator Housakos: Compete with the competitors for advertising dollars.
Mr. Rosemond: Correct.
Senator Housakos: This is currently what they are doing right now for a lot of misery. They have been losing revenue dollars exponentially over the last few years. If this model in place continues to operate or go the direction it is going, they will be out of business regardless of the amount of money right now.
If there are no cuts for the federal government over the next three or four years and they keep losing at the proportion they have been losing advertising dollars they will be out of business in no time.
Mr. Rosemond: That is precisely why I devoted my time to three areas that might be cost effective and might generate revenue.
Senator Housakos: If I understand correctly you are saying this model would just force them to be better.
Mr. Rosemond: Exactly, because at one time in the syndicated market you needed 60 shows in order to get any kind of sale. Now with binge watching and "on demand," it is better to do less and make it higher quality because you have a better chance of distributing it. If you look at "Breaking Bad" or "Nurse Jackie" or anything and everything on Showtime and HBO, those are quality productions and they are just doing less.
Senator Housakos: Losing the hockey contract and now being forced in the next few years to replenish all those hours that are going to be vacated by hockey, is this an opportunity for the CBC?
Mr. Rosemond: Yes, the margins in producing hockey are very small. I produced 1,000 hours of hockey in 1987. I can't tell you how small my profit margins were. I would be embarrassed.
As for the revenues I heard Keith's assessment of the revenues and I don't know what they are making. There is this whole concept that lead in and the lead out are going to gain because of this beautiful bed that Hockey Night is providing. It didn't prove to be true. There weren't great ratings before. There weren't great ratings after.
I would get out of the sports coverage business, period. I would do sports documentaries. I would do what ESPN is doing with their documentaries, 30 for 30. I watched one on Wayne Gretzky when he left Edmonton. There were tears in my eyes. It was beyond brilliant. Let's do sports documentaries instead of this kind of servicing.
I produced the Molson Indy. I had to aim 19 cameras at it. CTV charged $10,000 for a 30-second commercial. My partner Don Ohlmeyer was aiming 20 cameras at the Long Beach Indy and NBC was charging $80,000 a 30. Unless it can have some international legs it is not as good a business as it is purported to be in my opinion.
Senator Eggleton: You have said a couple of things in the last few minutes. In fact for the second time you mentioned that Showtime and HBO were doing fewer productions but better quality productions, and you think the CBC should follow that lead. You even suggested maybe they are starting to do that.
They also had to fill airtime with programming. Are you suggesting a lot of repetitive programming, putting on a show more than once a week or something like that? How would you see that happening?
Mr. Rosemond: I think a lot of the programming could come from some of the elements that I have outlined here. I looked at the schedule last night, Senator Eggleton, just to refresh myself. I guess maybe provide less air time to the public.
Senator Eggleton: Do you mean be off the air part of the time?
Mr. Rosemond: Yes.
Senator Eggleton: I see.
Mr. Rosemond: The other option would be to close shop on Newsworld and jettison that programming on to conventional television or whatever it is called this week. What is it? Newsnet?
Senator Plett: Newsnet.
Senator Eggleton: That is an intriguing thought. Let me ask you about another thing you said, more advertising. This is a public broadcaster who is supposedly not in the business of competing with the private broadcasters in terms of advertising, but are you saying that they should become a full advertising entity, the same as the private broadcaster?
Mr. Rosemond: Absolutely. If private broadcasters want to pay $50,000 for a show instead of $250,000, compete with them.
Senator Eggleton: For the public broadcaster to do that would they just become another private sector company? Is that what you are suggesting?
Mr. Rosemond: My fear is about that kind of influence has never really been too much. I have a feeling corporate sponsorship for one thing will have a resurgence. There are several programs on CBC now talking about pursuing corporate sponsorship so maybe that is an avenue.
There are no easy solutions. You all have asked such great questions because it is not a great business to be in, period, given the fact that there is so much out there, Senator Eggleton.
Senator Plett: Can I make a comment?
The Chair: Certainly, Senator Plett.
Senator Plett: I apologize that I had to miss the presentation but you made a very intriguing comment at the end about maybe taking News-Net off and putting regular programming on.
I guess I would like you to elaborate a little bit only because that is probably my favourite part of CBC. I watch CBC for the news. I watch NewsNet an awful. I think quite frankly that they are better than their competitors on that aspect. Would you mind just commenting just a bit?
Mr. Rosemond: When I first structured my talk with you the first thing I addressed was taking News-Net and putting it on conventional television. Things have to be streamlined. Some things have to be let go: perhaps cable stations, perhaps we don't need to be a partner in satellite radio. I don't know what they are, but I do know that as I say do less programming I would also say participate less in the overall communications world.
The Chair: Mr. Rosemond, thank you very much for your presentation. You have left a lot of information on the table for us to ponder during the next few months while we prepare our report. I really appreciate your presentation.
Mr. Rosemond: Thank you. It was a pleasure to be here.
The Chair: Honourable colleagues, our next witnesses today are from Fair Pensions for All, Mr. William Tufts and Mr. Gene Dziadyk.
Gene Dziadyk, Technical Advisor, Fair Pensions for All: Good afternoon, Mr. Chairman, members of the committee, ladies and gentlemen. I am Gene Dziadyk. It is Ukranian. I am a technical advisor to Fair Pensions for All.
We have examined the CBC pension situation, and a year ago Fair Pensions for All evaluated the same pensions for the Finance Committee of the House of Commons. Our report to the committee, "Bigger Bailouts and Deeper Holes" looked at and considered if Crown corporation pension plans are broadly aligned with those of the federal employees.
However, we strongly believe government must go one step further. It must align the pension plans of both the federal employees and the Crown corporations with the plans in the broad private sector.
The private sector has seen the light. A defined benefit pension has all the ingredients of a perfectly formulated racket. A Crown corporation is not a societal vehicle. It must pay a fair, all-in wage in a competitive market with other businesses.
The employer contribution is an interesting formulation. In fact, it is an insidious myth that has lost its moorings for what it really is. For CBC, it is $58.2 million in deferred wages in 2013, and such an employer contribution generates lavish pension that pushes out the real cost, that is the real wages, to plunder the entity in the long run.
There are three broad areas that we want to communicate to you today. These pensions are unfair, unaffordable, and insecure. In short, they are not sustainable, and the economic investment and accounting models used to justify these plans are broken, and more importantly, always were.
In a nutshell, these pensions are an abomination, an abuse of the public trust. Pensions are unfair. These plans are unfair to Canadians funding them through taxes, unfair because they divert significant resources into pensions rather than into the core operations of the CBC and Crown corporations.
We are all familiar with the fairness discussions on pensions. Most of the public sector and the Crown corporations have defined benefit pensions, and most in the private sector do not.
There are ten and a half million Canadian workers in the private sector who have no employer-sponsored pension at all. Yet they have to contribute to the cost of these no worries ever, public sector pension plans every time they pay sales taxes, income taxes, property taxes, buy a case of beer, renew a driver's licence. Is that fair?
A pension promise puts taxpayer capital at risk. What is a promise if it doesn't have a risk? Why would taxpayers knowingly gear the CBC balance sheet, blowing up both sides on securities and interest rate bets in a phony, shadowy accounting?
CBC should justify and employ capital where it has an advantage. It is broadcasting franchise. That is what the ownership should demand. It has no advantage in the pension business, but it claims that it does.
So why isn't CBC running the world's investment banks? Well, the answer is that the massive deficits to the accrued pension demonstrate that they are wrong more often than they are right. The truth is no one knows whether the market will rise or fall tomorrow or next month or next year, though many pretend to.
Who is reading these pension reports, like the CBC report? Who is interpreting them and making recommendations based on them? You see, the CBC presentation of its financial position is misleading and inappropriate. It is a massive scheme: mountains of money, assets of $5.3 billion, plenty in the long run. Going concern surplus is $849 million. But there is just not enough money to pay everyone what they are owed in the short run. The solvency deficit is $486 million.
The CBC report states: "Positive going concern position indicates the plan continues to hold more than sufficient assets to meet all long-term obligations." But this plan depends on future taxpayer and worker contributions that exceed the future benefits that will be accrued by $1.5 billion. These are soft, future assets for redistributive purposes, redistribution, as the hard assets, the securities and trust, cannot cover what is owed for work that was done.
They will eventually be proven unfair to today's employees. Funding pensions for retired employees who did not adequately fund their own pensions, through no fault of their own, will find that their promises fall short. That, ladies and gentlemen, is the definition of a moral hazard. The people who will pay the price for these risks taken today are not the ones taking those risks.
It cannot possibly be fair for the federal government or any other government in Canada to use its powers of taxation to privilege what has become an elite, pampered, but not a particular distinguished group in our society. The issue of fairness must be addressed.
Pensions are financially unstable. There are five things contributing to a perfect pension storm. Of course, the first one is we have a tsunami of baby boomers beginning to retire. Secondly, the public sector workers continue to retire earlier and earlier, thanks to underpriced early retirement options, not market priced. Three, life expectancies continue to increase. If I could just stop there for one second, just think about that. What is the CBC doing in the mortality business taking a risk that people will live too long? Does that make any sense? Will taxpayers take those risks without compensation?
Four, we now had an extended period of very low rates of return on assets, which may continue for some time, which is sending the CBC and the other Crown corporations on a hunt around the world for riskier and riskier assets. But there is no free lunch. People selling these assets aren't stupid. Five, the federal and provincial government finances are in shambles across the country. Municipalities are stressed, and all levels of government are now ill-equipped to bail out public sector pension funds.
Let me give just a quick description of what pensions are all about. It is a complex financial business. It exchanges wages — not employer contributions, because that is just a myth. Wages are all that count. Exchanging wages — but of course, they are obscure.
For pension promises with many moving parts between the pension design and the price, think of them like an insurance policy — the designing and the pricing of the pension, and then taking those wages and investing them to the ultimate delivery of that pension promise. This is all guided by discipline, actuarial statistics, economics, capital markets, statistical mathematics, demographics and longevity, taxation, regulation and public accounting. It is an extraordinarily complex business that has really just been glossed over.
The public puts its trust in pension practitioners and unions under the watchful eye of government. But the evidence is that this trust is misplaced or misunderstood. Ideology, not science, rules pensions.
Imagine I am sitting here telling you there is no coherent intellectual foundation supporting society's pensions. Public sector pensions operate in defiance of capital markets, and predictably, have failed the public comprehensively.
The history in Canada is that the defined benefit pension was pedaled by the ideologues. It was pedaled as both cost and benefit superior to defined contribution. Of course, government seeing social good gave big fat tax breaks, and they went to town stretching that math until it burst.
A huge pension industry and unions, a group of self-deluded ideologues conflicted with the public. There is no money for ideologues in defined contribution. They fed the public half-baked economic mush and propelled defined benefit to the default societal coveted pension model, a remarkable achievement, telling people what they want to hear. If it is too good to be true, it probably is.
For example, CBC reports the pension liabilities based on interest rate crystal balls, projections of future interest rates. Why are they projecting interest rates if the capital markets have already done that? We don't need to do that again. So we have pension liabilities that in effect are valued not in Canadian dollars, but what I have called "DB bucks." DB bucks are worth about 65 cents on the dollar, and some pension plans are worth 50 cents on the dollar. The problem is that the pensions are actually paid in Canadian dollars at par, exchanging DB play money until it runs out of real money or until sedated workers and taxpayers wake up and realize that they have been had.
What is a union doing negotiating pensions? Union has no business imposing and dictating terms for an entirely unrelated financial business, for the enterprise to undertake, and particularly one that undermines its real business to the detriment of workers it represents. Unions should focus on wages.
Bold leadership is required. Your predecessors in government have left you saddled with a huge fairness and sustainability problem. You and your contemporaries in the provincial capitals and municipalities have three choices: One, raise taxes and bail out the plans and let the unfairness continue; two, cut government staff and services brutally and bail out the plans and let the unfairness continue; or fix the root problem: the overly generous public sector pension plans, paid in DB bucks.
We strongly urge you to consider the latter course of action. The pension devastation is not a bug, but a feature of defined benefit pension. Failure was entirely predictable. It operates in defiance of the collective wisdom of the capital markets.
In summary, CBC the pension is unaffordable, sends taxpayers to the capital market casino betting from a starting losing position while it thrives on a phony accounting. It is a societal fairy tale with a guaranteed scary ending.
Thank you.
Senator Plett: I have a couple of basic questions. First, the way I understood it, you spend a good part of your presentation saying that pensions overall are not a good thing.
Mr. Dziadyk: That is correct.
Senator Plett: That is correct, okay.
Mr. Dziadyk: I wish it weren't so, but it is correct.
Senator Plett: Okay, so pensions overall. How do you feel about Canada Pension?
Mr. Dziadyk: Well, I think that is an entirely different model, because it is an open-ended model. It is a societal model based on general tax — well, on tax revenues, so it is an open-ended plan, and it depends upon a continual flow of contributions coming in from future workers.
With these plans, the question is can you keep kicking the can down the road? If you look at pension and you define pension by the security of promise, I think that is the essence of it. If it is a promise, a secure promise, a promise I can build my life around, that means that there are a lot of things going on that are protecting my pension. If it is not that, it is like a farce, so you need the protection in the corporations and in the Crown corporations. You need to be able to protect that the workers are funding their own pensions and not depending on future generations.
Senator Plett: But Canada Pension, as you say, is tax funded, but the scheme of Canada Pension, basically, hasn't been sustaining itself either.
Mr. Dziadyk: That is correct.
William Tufts, Executive Director, Fair Pensions for All: There have been recent movements toward trying to make it sustainable. One of the things you have to keep in mind is that I think there is a $2 trillion liability on the pension plan when we look at it 20, 30 years down the road.
If you think of the investment scenario for the CPP, it is like a giant Rubik's Cube with all the squares and all the sides. When we analyzed the CPP plan and looked at all the assumptions that are made in it, it would have to be a miracle in order for them to all come to fruition. There are assumptions based on the number of immigrants coming into the plan and paying in the future, age longevity, the stock returns on the bonds and stocks, and all types of investments that the CPP is looking toward, what the average earnings are going to be.
From the Fair Pension's point of view, we feel that is a good, solid part of the security base that is in Canada today with the CPP, the Old Age Security program, and if people fall short, it is guaranteed income supplement.
One of the things to keep in mind about a public sector employee pension is that it is stacked on top of the CPP, OAS, GIS, so when you hear that an employee at CBC, is getting $39,000 a year on their pension, that is on top of CPP and Old Age Security. So a newly retired CBC employee today is getting a pension from the pension plan and government sources of almost $60,000 a year.
Compare that to the average taxpayer. Half of Canadians over 65 are earning less than $27,000 year. Basically, the public sector pension plans that are in place today are stacked on top of the programs that all other Canadians are getting, and it is creating a new economic elite, which is the public sector employees who are having their pensions and the shortfall funded by taxpayers.
Senator Plett: You alluded to private industry not having any pension plans where they contribute. How many of those companies are there? I am a small business person, or was. We had self-directed plans where the employee could direct where his or her money should go, and we matched the contributions. Do the majority of private companies not have some form of a plan?
Mr. Dziadyk: They do. Defined benefit pension plans, as I said, originally were pedaled by these ideologues as being both a benefit and cheaper, it would provide a better benefit, so it was no contest to a defined contribution plan like what you are describing.
Many corporations have defined benefit plans like yours, or something like this. They all have various degrees of richness. Of course, 2 per cent, 1.5 per cent, final three, final five, all of those kinds of things, but as the economics have started to come into focus these corporations have started reneging on their benefits, such as Air Canada. Some of these pensions have been dropped, promises broken, lives shattered because of that, so this isn't a free lunch.
Senator Plett: But can that happen with CBC being a Crown corporation?
Mr. Dziadyk: Well, it can if the taxpayers stand up and refuse to fund it. I have said: This plan is depending on $1.5 billion in future contributions that exceed future benefits to pay for the past, so it is a very serious situation. They don't have enough money to pay what they owe for the work that was done, so everything is pushed out into the future.
If I am a future worker, do I want to contribute to this kind of a plan? By definition, my contributions are going to be bigger than my benefits. I want to have a plan like yours, defined contribution plan.
If you really do the economics, you will see that the defined benefit pension is an intrusion into a symbiotic relationship between a worker and the employer. The pension doesn't connect them in any way. You pay a wage for fair work that was done. If you said you were paying somebody $15 an hour, and then you were putting in $2 as an employer contribution, and they were putting in $2, the fact is you are paying them $17 an hour.
Senator Plett: That is going to be my last question. First of all, does CBC compare, in that case, with other broadcasters? Clearly, if I am a journalist out looking for a job and I go to CTV or Global and they offer me $30 an hour and $2 an hour for my pension, and I go to CBC and they offer me the same wage but they will give me $4, it is a better deal by $2. Is this not simply part of the entire package that I look at, and is CBC that much better than other broadcasters?
Mr. Tufts: We have looked into that. One of the things that we were concerned about is the lack of information that was coming out of CBC.
Senator Plett: Well, we all are.
Mr. Tufts: One of the things that I have provided, just for interest for you, was something that came from Ontario Power Generation, OPG. All major private corporations in Canada and most public entities provide some sort of salary data, not only on their senior executives, but in Ontario, for example, on any employees earning over $100,000. It is impossible to correlate the CBC annual report. It is 167 pages long. The single biggest expense that would eat up 60, 70, 80 per cent of all their operations would be salaries, benefits, and pensions. They don't have a single substantial reference in their whole annual report to what those salary costs are. We know how many employees they have, but we can't even give you an average wage, which is absolutely ridiculous in terms of disclosure.
It is part of the corporations operating cost, its single biggest expense, and you can't disclose to your shareholders even what is your base cost. We would certainly urge some sort of compensation that is standard throughout industry, throughout government, at least, of the top five executives. Just the anecdotal information would provide that no other broadcasters could come close to matching CBC for that compensation.
As I say, with the caveat based on the information that is not available, we are not aware of any other corporation that offers a defined benefit pension plan at the same level.
Senator Housakos: I have a supplementary question to Senator Plett's question. You mentioned that there is very little information available when it comes to how the CBC is awarding pensions. The private competitors, do you have access to their information? Is their information more accessible?
Mr. Dziadyk: I can say that one of the concerns that I have is the lack of communication, miscommunication for both the members in the plans, and also for the ownership. I have used the term "ownership" in general terms to describe shareholders and taxpayers.
I think the best word is probably "ambiguity." It is all ambiguous. It is all shadowy. It is in the dark, all of the accounting.
If you look at the CBC, General Motors, Ford, Nortel, anybody, once you have made a pension promise, just because you have assets in a side trust doesn't mean that you don't have capital exposed to risk, because what they really have is an IOU down the road on future earnings, if you don't have the assets.
What should be happening is that all of those pension assets and liabilities should be on the balance sheet, but they are not. They are in this trust, and this is in the private sector with publicly listed companies.
The disclosure is only in the notes. We have made a big issue out of this. Shareholders have no idea of the exposures that these widget companies are taking in these massive schemes that are sitting outside. They are in the shadows. It is a phony accounting, and it is not on the balance sheet. That obscurity is very worrying?
As we were just talking here, if you are paying a teacher $30,000 a year, what are you really paying that teacher? I have been reading Jim Leech's articles on the Ontario Teacher's Pension. He pops up in the paper every second day, and the governments and the politicians just love this guy. Hey, all the power to him. But he is just talking mush, and they are eating it all up. He says, "Hey, we are the best. We are the cheapest. We have everything going for us."
But there is no demonstration of any of that. What is that teacher costing the taxpayer? If you do that, then you think about the math that these Ontario taxpayers have been talking about, you would say, "We could figure out if it makes sense that a teacher is being paid $100,000 on $30,000 all in." But the way it is, nobody knows.
Just as a last point, not to belabour it, let's flip this pension promise around to the innocents, supposedly, the employees. Now, if a corporation has got to issue a prospectus for a ten year corporate bond, why wouldn't it have to issue a prospectus for a 40-year pension promise? There is no good answer to that.
Most of these employees, the workers who come into these defined benefit plans, don't realize that really, what they have is two things — you have an earnings contract, and then you are giving part of your wages and they are promising you a pension. That is an entirely different thing. You are buying a pension with your wages, so are you not entitled to know the basis of this arrangement? Are you entitled to know that your wages are being redistributed to others? It is a Ponzi scheme and you are going to end up with Lord knows what when it comes time to retire. I think there are a lot of things that need to be addressed.
Senator Munson: Thank you for being here.
Are you folks part of the National Taxpayers Federation? Are you just on your own? You are two gentlemen who have a point of view. I would like to know more about you. Do you represent tens of thousands of Canadians who share your views?
You seem to think that there is a villain behind every corner. You ask the question: What is a teacher costing the taxpayer? These are teachers who give of their lives for 35 to 40 years and no matter how the pension plan looks, deserve a benefit at the end of their working days.
You didn't answer the question about the private sector anchors and so on and so forth, about what they make. How can we talk about an analysis of CBC— and you seem to have the CBC target on your foreheads — when you are not answering the question about the private sector? I don't know how you can do that kind of analysis at the end of the day.
You say, "What are unions doing negotiating pensions?" Since time immemorial, unions have been there doing that for those in the private and public sectors.
I am irritated. You may have allies around this table, but certainly not with me. You can argue all you want about pensions, but the issue is that — you talk about the $39,000 and then getting a Canada Pension and OAS — that is the way it is for thousands of Canadians. That horse has left the barn. I find frightening, some of the language you are using. You almost make it look like people are stealing money that they contributed to a plan that was there in the first place and have allowed themselves to say, "In my retirement, I am going to live a good life." — for 39,000 bucks, maybe 8,000 bucks in Canada Pension and 6,000 bucks so they can live a life.
I just don't understand this target in your submission, the CBC. You may as well attack all of us, politicians, you name it.
Mr. Dziadyk: May I try and respond?
Senator Munson: Well, I hope so.
Mr. Dziadyk: The business of broadcasting is entirely different from a financial business of providing a pension. When you bring these two businesses together — the pension business and the financial business — you have a structure that is operating against the capital markets, in defiance of the capital markets. The economics are the economics.
In the real world, when you set up that kind of a structure, those assets and liabilities are going like this over time. They say, if you read this report, all the way through it, in the long run we are all fine. In the long run, we have enough assets. Are we in the long run now? When is the long run going to be here? Who is going to pay for it?
I am not saying this is wrong. I would love to have one of these pensions, but who is going to pay for it? Because of this ambiguity, we don't know what it costs because it is all pushed out into the long run.
Now, sir, the real world operates that nobody has a long run without a short run, because if you fail in the short run, you won't have a long run. These guys are $500 million short in phony accounting, so what are they really short? These guys use interest rates in these DB liabilities. One per cent on that interest rate moves that liability $750 million. These guys are using interest rates that are way above the basic treasury rates where these things should be. It is a very frightening situation. It is much worse than shown.
I didn't want to go down that road, but it is worse than it is shown. So what has happened? When I said this thing about prospectus, I call, in all of my work and all of my writings, the people "the innocents," because promises were made that are not secure. First of all, they are not secure. Will they be? People have fashioned their lives around these things. Now, all over Canada, they are talking about reducing benefits. They even want to change laws and reduce accrued benefits.
In the old days, what they used to do if they had a loss, they would reduce future so they can make up their losses on future. So it is just a scam, in the way it has been played out.
I am not saying the teacher who has worked their whole life, that that is not a noble profession or something like that. It was just that there was a lot of press with Mr. Leech's articles in the paper, so it is easy to sort of talk about that. But I have the highest respect for them.
I want fairness. That is why I said prospectus. In some cases what is going on in some of these pension plans is that the people that are working today — I tried to describe this — are putting their contributions into the plan and those contributions are being hived off to the retirees. So if right now, the plan is 80 per cent funded, I am a worker. I am putting in a dollar. The retiree takes out a dollar. For my dollar, I now have 80 cents. When is that going to get fixed? Why do I want to keep putting my dollar into it?
We are trying to put a square peg into a round hole. The cost of labour is $25 an hour. Sooner or later, I think with the help of employers, the help of governments, people have to take some responsibility for their own investments. You invest money in the markets. It goes like this. Why is it any different if you give your money to CBC? They promise you this, but it is going like this.
Senator Munson: I know that other senators have many questions. In the Canada Pension Plan, people who manage it, they also invest up and down in various entities to make sure, to try to keep the Canada Pension Plan flush. Right? So they are out there speculating as well, and you hope as a taxpayer that they are going to make wise decisions, but it is also market driven.
Could you tell me succinctly, today, since we have thousands of CBC employees who have this pension plan now, in your view, what is then the best plan?
There is an illusion here made to people that are making this kind of money. Well, maybe perhaps we should take a look at members of parliament, senators, and see what their pensions will be in a short period of time of work, plus the Canada Pension. If you don't make the cut, you could get OAS.
If you are going after the CBC, you may as well come after all of us. If this turns out to be a generous time for them, well, perhaps it is, and perhaps we can't afford this either. I know you are here to take issue with the CBC, but I feel, having myself worked in the private broadcasting business too, that there are lots of issues there of people who make a lot of money. I am trying to figure out your analysis, if you don't have that stuff in the mix in this country of broadcasting. Anyway, that is my point.
Mr. Tufts: Thank you. We were invited to be here.
Senator Munson: No, I know.
Mr. Tufts: We didn't solicit to be here. We were investigating the CBC pension. I think one of the things we have to look at is just the generosity of pensions, and I would agree with you that we have to look at all pensions, including — sorry — senators and MPs and anybody else across the public sector.
What has happened in Ontario, for example, is that over 14,000 retired employees in Ontario are getting a pension over $100,000 a year. We have to look at the sheer numbers and the implications of pensions.
Think of $1 trillion. What is $1 trillion? These numbers start to become boggling. You can't put them into context, but the Canadian public sector employee pensions in Canada have now accumulated over $1trillion of assets. What sort of influence and impact is that going to have on the equity and capital markets in Canada?
Think of $35 billion. How can you relate to that? Well, $35 billion is the total amount of money that the four Atlantic provinces are going to spend this year on government services. That is the amount of money that is going into public sector employee pensions.
One of the things that the unions are concerned about is corporation taxes being too low and they are not being taxed high enough. Last year, public sector pensions earned $105 billion of tax-free profits, tax-free profits that they will use to compete in the private sector against corporations looking to reinvest. They are able to reinvest that money on a tax-free basis.
I would suggest to you that the scope and scale of this thing has become too monstrous. It is out of control, what has happened with pensions. In 1924, the federal government made major changes to the pension system. In 1924, the age of retirement was set at age 65 and life expectancy was age 59. The actuarial reports that just came out show that public sector employees are now going to live five years longer on average than the rest of the population, and they suggest that it is due to gold-plated pensions and the lack of stress that they have in dealing with retirement, relative to the private sector, half of whom have pensions that are worth about half that much.
So we need to go back to the original concept of pensions, which was providing for seniors in their old age security, old age retirement to keep them out of poverty, and I think that is a very noble cause. For that reason, I think the CPP is an excellent program, the OAS, and the GIS.
We have concern about the amount of money that is being diverted out of regular government services. How much money is being diverted out of the CBC? How much time do you think the senior management at the CBC is spending every year looking at and trying to manage a $5 billion pension plan that is two and a half times the size of their total and revenue and expenses?
We are seeing that corporations across the country, across governments, go out and advise. We spoke earlier this year with the Premier and the Finance Minister of Newfoundland and they are looking into their problems. We have been several times before the Senate Finance Committee, and have been asked to consult with all levels across the government on these defined benefit pension plans.
I agree with you, it is a difficult situation. Where do we go, and what are the solutions? I think it is going to be a lot of sessions like this until we finally get to the true picture and what those solutions might be.
Senator Housakos: I do agree with Senator Munson that pensions are a fantastic idea. People work hard in order to secure their future. I think at the end of the day right now, there is also no arguing that we live in deflationary times, and there is pressure being put on a wide range of economies and sectors, like the broadcasting sector we are studying here today.
Senator Munson talked about our pensions. Since I came to the Senate, I have seen how generous the pension structure is, and I've seen over the last year and a half, I think it was about a year and a half ago, that they have restructured our pay into the system. It is nowhere near as generous as it was four or five years ago, and the reason for that is, I assume, the fund is getting pressure it didn't have before. I do take your argument that this is projection of a long-run economic evaluation. We all assume when we invest in something, that three years from now, things will grow, and six years from now, you will have more inflation, nine years from now, more inflation. Eventually, we see, time and time again, that that is how bubbles burst.
I want to get specifically into the crux of the matter, which is the CBC. I appreciate the global view you have given us on pensions, and I appreciate that we get a little bit of a virage when we start talking about the Canada Pension Plan.
But I want to talk about the CBC pension plan. I was wondering if you have specific numbers, and I am concerned again because there has been a trend throughout the study that we don't seem to be able to get transparent information from a governance perspective on this administration.
Again, pensions, I think, are so fundamental. They are of huge import, and the people who are counting on these pensions who are retired or will be retiring in the next few years need to feel a sense of security, and we as the shareholder of this corporation have to understand what we are liable for. What happens when that bubble occurs, if ever? I would like to know if you can share with this committee specific numbers. What is their pension fund in terms of total money managed?
I also would like to know if you can elaborate for us, you mentioned that it is self-funded, that they fund the pension fund themselves. Can you shed some light on how they operate in terms of who is managing the fund, how much money it has, what is the projected shortfall, if there is a shortfall in the short-term, and what is — from your point of view — the projected shortfall in the long-term, and also has anybody taken into consideration in that evaluation the cutbacks in jobs over the last few years and might have in the future, as well as the compression they have had in their overall subsidies from the federal government.
Mr. Dziadyk: What we have been looking at is the 2013 annual report. It is about a 75-page or a 100-page document. It is very, very, heavily focused on their investments, and it gives an overview of some of the liabilities and the pension values as well.
We have not seen the actuarial report. I don't believe that information has been made available. The results of the evaluations are included. I would just like to apologize. I realize that a contrary opinion delivered to a non-economically focused audience is not an easy thing. I expected that it would be a difficult message to send, because in the real world, even in the public corporations, publicly listed corporations, they take asset risk.
The shareholders don't need an entity to take these risks. They can take them in their own personal accounts, but they don't. They would never take the risks that they allow that the entity does, just because it is all obscure.
I will just reread this section of my presentation to answer some of your questions, sir. The CBC presentation of pension financial position is misleading and inappropriate. It is a massive scheme. Mountains of money, assets of $5.3 billion, and there is plenty in the long run because they say they have a going concern surplus of $849 million in the long run. But there is just not enough money to pay everyone what they are owed in the short-run, and that is a deficit of $486 million. That is what they are short today.
Senator Housakos: The $486 million shortfall, is that an accumulation of the overflow they have had or the shortfall over two, three years, I guess, or four years.
Mr. Dziadyk: What it is, sir, is a —
Senator Housakos: My question is at what point did they fall into a deficit position?
Mr. Dziadyk: The deficits, as shown in the report, have occurred in eight of the previous ten years.
Just to be clear, like in any other financial reporting, we are valuing the balance sheet. We are valuing the balance sheet at this day, December 31, 2013. What that means is that all of the prior decisions that were taken are now reflected in that balance sheet — the assets that exist and also the obligations that have been undertaken. So at that point in time — it is a point-in-time calculation — they say, what is the pension? That pension that has been promised is then projected out and brought back and valued, and the assets are here.
So we are saying for the promises that have been made, we are almost $500 million short. I would just like to go on to this other thing, because it is critically important as well. The CBC report states — and I think, again, even more misleadingly — "Positive going concern position indicates the plan continues to hold more than sufficient assets to meet all long-term obligations." But it doesn't hold the assets it needs.
Senator Plett: I have quick supplementary to the deficit. The problem that I see is the way the pension holders, if you will, are investing the money. I think the Ontario Teachers' Association would be an example, not that I am supportive of them, but nevertheless, they would be an example of doing some wise investing with the money, and I don't believe they will ever have a shortfall.
So is that not the real problem with the CBC's pension fund, the fact that they are running a deficit versus the fact that they have a pension?
Mr. Dziadyk: I will let Bill take over, but the CBC plan, last time, two years ago in 2012, had a deficit, as we said here, of $500 million. The Teachers' Pension Plan was $16.5 billion. That means there were $16.5 billion of assets short for lessons that were taught. That is in the past, $16.5 billion.
In 2013, I believe that 36.5 went down to about 18.5. The Ontario Teachers have assets at $130 billion, so we are talking about a monster. Their problems are monstrous in relation to the CBC pension, so what is going on is systemic. It is not that one is doing better or worse than others. They are all doing bad because they are behind the eight ball.
Senator Eggleton: Pensions are part of our social infrastructure in this country, just as other things are like medical and dental benefits that are provided by employers, whether they are private sector, public sector. You have mentioned that we do have CPP and we have the stacking with the OAS plus the GIS, but that barely gets people at or above the poverty line. Most people are out there working to have their standard of living in this rich country reduced by 50 per cent or more when it comes to a pension. A lot of them haven't saved.
So what is the answer, then, for the CBC? I understand that some pension plans are in trouble. I remember the Nortel pension plan. The company reneged on it. They managed to give their executives big bonuses and big salaries, but they reneged on the plan for the rest of the employees.
So it is an issue. I understand that, and I understand it also in the context of the baby boomers paying more now for all these people retiring.
So what is the answer here? I think you have to bear in mind that when we talk about the taxpayers paying this the taxpayer is sitting in the position of an employer, just as it is for all of us; we are all on defined benefit plans here. The taxpayer sits in that particular role.
The CBC has to bear in mind the other broadcasters. It is the public broadcaster, but there are other broadcasters as well, CTV, Global, etcetera. How would you level that playing field in terms of what kind of pension plan would be similar to what the other companies provide, or pension allowance, defined contribution or whatever? Maybe you could comment in the context of those remarks.
Mr. Tufts: It would be a defined contribution pension plan that would give a generous matching contribution of seven per cent. You would have an employee that would be putting 14 per cent a year into their pension plan, which over this lifetime expectancy, based on the rates that we have here, would be sufficient. That is the first part of your question.
As to the other part of the question, we looked into going back to the basic nature of pensions, which is to keep seniors out of poverty in their old age. One of the things that we have been investigating and like is a guaranteed income supplement for people in retirement, so that everybody had a flat level of retirement that would be geared to something that would be similar to the minimum wage, or —
Senator Eggleton: Guaranteed income.
Mr. Tufts: A guaranteed income for all seniors. We would suggest that the $1trillion from the public sector pensions be rolled into that to help fund it, and that all Canadians would be guaranteed an equal base level of income. If you want to save more for your future, go ahead.
One of the things that we haven't considered on top of the CPP, the OAS, is that the CBC employee in retirement with a pension of $60,000 a year is getting an additional $6,000 a year in health care. That tsunami is coming. The average Canadian in Canada today at age 80 is consuming $18,000 a year in health care. The numbers aren't sustainable. They are not affordable. We have to seriously look at it based on whether your ideology can fit, "Well, yeah, the public sector employee deserves to have a pension." Police officers today across Canada can retire at age 52 on an average $60,000 a year pension.
Senator Eggleton: It is not really going to save the taxpayers money if you are going to reduce the amount that goes into pensions, but then you are going to increase what comes from government in terms of guaranteed income to ensure that people have a base line.
Mr. Tufts: How much more can come from government? Even an average taxpayer collecting $18,000 a year and spending $6,000 a year in health care and drugs is close to $25,000. You are edging pretty close to the median income for a Canadian. There is no easy solution.
Mr. Dziadyk: If I could just make one general comment. When you are producing goods and services, the price of those goods and services are basically dictated in the Marketplace. There is a limit on what can be spent on labour, the cost of labour, which would then include all of the benefits. The wage is the basic fundamental part. The wage is split into all these different pieces plus a salary. If you operate outside that, obviously, then you are going to jeopardize the enterprise. It was just recently reported that governments at all levels are consuming — I believe it was 46 cents on all wages. Well, we are seeing now that the pensions that people have come to expect are costing an awful lot more than they believed, so maybe our expectations are wrong. It is affecting society. It is affecting family size and double income — all of those things competing for that one wage — so I think there has to be a balance, and you just can't solve pensions outside of the big picture of the wage.
The Chair: Senator Unger, last question.
Senator Unger: A quick comment. I am from Alberta, and recently with our last two premiers, the province had to bail out the Alberta Teachers' Association Pension Plan, the unfunded portions, not once but twice, so that kind of makes your case in point.
To bring us back to the CBC, you mentioned trying to get information. If there was complete disclosure from the CBC to people looking to evaluate this monster, that would certainly help the situation.
The other question I have is: Who really is looking at the unfairness? You have mentioned it many times, the unfairness to the taxpayer. The government money comes from the taxpayers. The money the Alberta government used came from the taxpayers, and they are funding a good part of this, and many of them, as you stated, do not have pensions.
Mr. Dziadyk: Right. That is exactly correct. The problem is that it is a huge industry. The simple fact is that in a defined contribution plan, there is no money for this massive industry of ideologues. They are pushing defined benefit, and there is $5 billion a year in fees paid to the defined benefit pensions industry, so they are not going to tell you what I am telling you. Who is Gene Dziadyk? Well, I hooked up with Bill Tufts because he is fair-minded. We are not here to trash but to make you understand that you are starting behind the eight ball because you are telling people a story they don't want to hear. I don't want to be telling you this nonsense.
Senator Unger: The truth.
Mr. Dziadyk: I want to tell you the truth, and the truth is, as we said, even with the publicly listed companies, there is not enough disclosure. Those balance sheets are not properly presented on the balance sheet so shareholders don't know. The employees should be getting something comparable to a prospectus.
For most workers, their pension plans are by far their largest asset, and they don't understand it. They have no idea, and they are building their lives around this. They don't know what could happen. We just said, those benefits were reduced. Those teachers, now they are looking at reducing accrued benefits. They are now looking at changing all of this stuff into something that should be very alarming — the target benefit plan. Well, do you know what kind of a pension plan that is? That is heads, I win with a defined benefit, because if there is a surplus the employer gets it, and tails, you lose, because if there are deficits, they are yours.
What are we doing here? That is disgraceful, but that is what the ideologues are pushing now to replace defined benefit, because everybody can see that defined benefit was intellectually bankrupt. Now they have gone to a morally decrepit thing, so I am a voice in the wilderness with Bill saying "hey."
The Chair: Well, your voice in the wilderness was heard today.
Mr. Dziadyk: Thank you, sir.
The Chair: We heard both of you quite clearly. Thank you for your presentation.
Senators, our next witness is John Weigelt, from the National Technology Office of Microsoft Canada, who will certainly have some interesting things to tell us about the changing environment, technologically speaking.
John Weigelt, National Technology Officer, Microsoft Canada: Thank you, Mr. Chair.
My name is John Weigelt, and I am Microsoft Canada's Chief Technology Officer. In that role, it sees me living somewhat in the future, three to five years out, trying to figure out where technology is going and helping business and public sector organizations understand where technology is going so that they can change the way that they do their business. I appreciate the opportunity to appear before this committee and share with you a few thoughts on the state of broadcasting and communications in Canada.
My introductory comments will focus on Microsoft devices and services here in Canada, and some of the factors that we consider when developing these products and the content they enable. I will be happy to try to answer any of your questions afterwards.
As a technology person, this is a very exciting time for both providers and consumers of digital content. Now, I can start off with ones and zeros, but I am certain that that is not going to suit this audience here. I think the best way is to describe a scenario or an example of how these technologies change our lives.
This morning, you may have started off by watching a curling match on the television. As you grab your bag to go to the airport, you watch it on your mobile phone. Maybe in the car service that you are taking, you watch that content continue to be streamed through the car service, now, of course, if you are not driving.
As you head to the airport, you can watch it on the screens at the airport, perhaps in the seat back entertainment system. There is a remarkable amount of digital content, be it print, music, games, video or TV, and now there is a myriad of devices where you can access, enjoy, and even interact with the content. What we are seeing more and more, you can share that experience with others in real time as you are interacting with that content.
At Microsoft, we are passionate about making devices — the phones, Surface tablets, Xbox consoles — and providing the services — MSN, Skype, Xbox Live — that connect people to the experiences they love. We also, and this is important, provide the software and services that help other companies and individuals create, share their content with Canadians, and innovate, not only locally but around the world.
We are a global company. We design our digital services, taking into account factors that cross cultures, like customer usage data, studio and partner feedback, box office sales. But we are also a local company, which means we take intentional steps to include Canadian content in the services we provide.
For those of you that might have had the chance to visit MSN Canada this morning, approximately 75 per cent of its content is Canadian curated from top Canadian content providers, including the CBC. You can also access CBC content through apps on the Windows PC, CBC News and Hockey Night in Canada, on the phone and on Xbox. As alluded to earlier, our online services like MSN benefit not just Microsoft, but third parties like the CBC and those who enjoy their content.
This investment in Canada is consistent with our broader commitment to the country. In addition to a business which employs over 1,000 Canadians, we have made significant investments in Canada through our retail stores, our game studio, and the recently announced Microsoft Canada Excellence Centre, where over 400 developers and 50 paid interns from Canadian universities will work. We are particularly proud of our work with over 1,500 startups through our BizSpark and Microsoft Ventures programs. Many of these entrepreneurs are leveraging the access to Microsoft tools and services to provide Canadian content around the world, so streaming and providing media services.
In addition, through our YouthSpark program, we are engaging Canadian young people with 21st century skills they will rely upon to be successful today and into the future.
The world of communications and broadcasting has evolved and is continuing to do so at a rapid rate. We have moved from a time of passively consuming a narrow band of content options to one in which customers drive not only the choice of what they consume, but where and how and how they interact with others as they consume it. It is these many choices that create a wonderful opportunity for those who create content, and those who enjoy such content, and like Microsoft, seek to bring them together. This is an exciting time. Thanks.
The Chair: Thank you very much. I have to admit that 20-odd years ago I had the pleasure of hearing your founder, co-founder and president, Mr. Gates, make a presentation. He said that 20 years from now, we will be listening to these features on the big screen, but we won't know if it is coming from the Internet. We won't know if it is coming from the microwave. But we will be looking at content.
I am the first to recognize that Microsoft has been able to see far ahead in the past, and I hope that you are seeing far ahead into the future of what is going to change our environment.
Senator Plett: I have a very simple question: What are your biggest challenges?
Mr. Weigelt: Our biggest challenge is that we are currently in challenger mode. We are fighting to regain the top spot within the marketplace, and there are others that are in the marketplace that we are competing heavily against.
Senator Plett: Who are your biggest competitors?
Mr. Weigelt: Our biggest competitors vary across the different marketplaces. When we look at online services, we can look at online service providers like Amazon and Google. When we look at devices, Apple is certainly a strong competitor in that space.
Senator Plett: I heard Phil Mickelson say a few years ago when Tiger Woods came on to the scene and started beating everybody, "Tiger Woods is making everybody a better golfer because we all have to work harder."
Would you say that the Googles and the Amazons have made Microsoft a better organization because it has to fight a little harder?
Mr. Weigelt: Competition is a great thing. When others are taking your share and reaching customers better than you are, yes indeed, it does make us a better company.
Senator Eggleton: What thoughts do you have about the public broadcaster, the CBC, and how this changing environment could help sustain them in the future? The organization is going through struggles, partly because of budget cuts, but also it is trying to find its way in this new world that you know a lot about. What kind of advice would you have in terms of how we should shape the public broadcasting entity in the future?
Mr. Weigelt: Being a technology person and not in the broadcast community, it is a little bit awkward to look at the business models that they have put in place. But certainly from a technology perspective, when you look at the content offerings that CBC provides across a variety of different channels, I think they are working diligently to reach the audience that they are intending to reach.
Certainly, when we look at the current state of the media news gathering, there is a large change afoot. One thing that is quite intriguing is the use of citizen reporters, citizen journalists, for example, and the trend that is there around that type of news gathering. So how do you curate that news and make it something that is compelling for a broad audience? I think all broadcasters are challenged with that environment.
One other thing that intrigues me is the different tastes of consumers. There is an online gaming television network now called Twitch TV where people actually watch other people as they play video games. To me, it is a little bit bewildering, but it is a new form of content that has a particular demographic that is interesting. I think there could be opportunities to look at some of those emerging trends around what young people are looking to, what entertainment options there are, and perhaps seeing how they can integrate that into their offerings.
Senator Munson: You just said "citizen reporters." On a serious note, having been one for 35, 40 years, it is like watching the tragedy in Ottawa last week. Reporters can make mistakes, obviously, in reporting, but then you have citizen reporters who are reporting, and some of it is verbatim. It is a happening thing and they have all this new technology. Doing that kind of reporting, there is an obligation on your fellow citizen in that what you are saying could influence or endanger the life of somebody at the same time. Do you accept that? Everybody is a reporter now without context.
Mr. Weigelt: Correct, and I think that is where the CBC really shone last week, and the counterparts south of the border really highlighted the fact that the CBC broadcast was very levelheaded in the way that they presented the facts and were respectful. In certain cases, they withheld, and said, "Well, we are not quite ready to reveal and disclose that information," as they were finding things happening in real time, whereas others were perhaps more free-flowing with the information.
Senator Munson: Back to one obligatory question we have here: In designing and modifying your Windows operating system, how much attention or resources are devoted to programs and applications dedicated to media streaming and downloading at Microsoft?
Mr. Weigelt: That is an interesting question. When we look at the way that our services and tools are being delivered, we find that the experience — we call it the "natural user interface" — the end user experience with rich content, be it video, streaming or voice, is baked into the operating system. To look at it as a separate effort would be difficult, so it is built right into that experience.
Increasingly when we look at tool sets like our latest operating system in the new interface, we have the live titles and the video content there, so it is just part of that experience.
Senator Munson: You use the word "interface." We use it so much now, it is easy to understand. I remember in 1979 or 1980 at CTV some guy in computer technologies told us as we had these big computers in front of us that we had to interface with them. I had no idea what he was talking about. What am I supposed to do with that computer in terms of technology?
Mr. Weigelt: You are right, and that is a query of focus that we have; to transform that experience from an interaction where you actually have to give thought to what to press or the mouse to something more natural, almost as if you are interacting with an individual or a personal assistant.
We call it "natural language voice." We have a personal assistant called Cortana that you can speak with to get the video background. Perhaps it is a video overlay to your world around you. We all carry mobile devices and phones with us. Today, there are technologies that we are working on that allow you to put an overlay onto the world around you so you can see perhaps a news item on that recent restaurant so that you know, "Well, perhaps my stomach is not as strong as I hoped it was to be able to go and enjoy whatever is in that restaurant."
Senator Munson: One final question. Microsoft is a good company and it does good things, but it is about making money. These platforms, ultimately, everybody is talking about it in the digital platforms and what we do and how we get our news.
I know that we senators now all have an iPad, and I am a total junkie. I am totally fixed on this. I can't wait until the morning to read my newspapers; I am getting it at night and I am getting it in real time.
These applications cost money. I watched curling this morning. I don't have the application on here, but it would cost money for me to have the application to watch the live streaming.
You talked about on your device and then out on the taxi, then I am someplace else and I want to do something else. The consumer at the end of the day really doesn't know how much he or she has spent, just hopes — it is like the bundle packages you get from some telephone companies. You think it is a certain amount, and it is a lot more than you thought. The newspaper costs you a buck a day or 50 cents a day. Is there analysis of that sort, what it is costing us and what does it mean to our economy and our own individual pocket book?
Mr. Weigelt: That is a great question. Any time you deliver a service, you need to consider what's the business model behind that service? There is a lot of creativity and innovation around business models today. Some are subscription based. When you look at Xbox live subscription service, we collect a subscription on a monthly basis, and you get additional content based upon that.
Others are advertising revenue-based services, like the traditional television broadcast-type environment where advertisers will help support that service. We are seeing even more creativity where people will pay for per-episode type transactions. You will see disintermediation occurring as well where broadcast television networks no longer have to go through a cable provider and will go direct to the consumers.
I think when we look at the different models there, the eventual cost to the end consumer, some may be zero cost and some may have an amount dealt to their existing content bills that they get at the end of the month.
Senator Munson: Briefly, we had Mr. Pelley here this morning who embraced the idea, as Mr. Lacroix had said, that CBC has to embrace the whole digital platform and focus on that kind of thing. What role would Microsoft play in those different platforms, the software part of it? Would you encourage the CBC to do that as a business person?
Mr. Weigelt: There are a few different roles that Microsoft plays currently with the CBC. We do have their application on our portable devices, so that allows people to gain access to news and streaming content, or even "Hockey Night in Canada." We help enable CBC in doing that.
We also provide services online, commonly called "cloud services," and one of the more popular services that we have is the content provision as you are content streaming, which allows local content providers to access a world-wide audience quite quickly. We used that during the Olympics for NBC, for example, to stream the Olympics around the world, so it provided another avenue, a channel for them to be able to broadcast on an on-demand basis using very, very cost effective tools.
We also have other technologies. One in particular is a co-browsing technology that allows you to almost have a synchronized portable device with the screen that is before you, and you can then provide additional content options as you are seeing the push broadcast. It may include advertising. It may include other episodes that could be downloaded on a pay-per basis. It really transforms that interaction from a passive interaction with content that is being provided to more active, so that you can perhaps share socially with others who are watching, or contribute through an online social media community. We provide those tools to help assist the content providers in reaching that broad audience.
Senator Munson: Thank you.
Senator Housakos: Can you give us your view on how successful CBC's campaign to go digital has been? We know they have spent tens of millions of dollars in the last few years, in essence, trying to catch up. I was wondering if you have any opinion on how successful their strategy with digital has been.
There have been conflicting views. They seem to feel like they are progressing with success, and others say for the tens of millions of dollars they have spent, it hasn't been nearly as effective.
It is also crystal clear to us that CBC has been in competition the last few years with vertically integrated communication companies that have become broadcasters, and as a result, CBC in large part has just lost the traction required in this new era of technological platforms to be able to compete.
On that front as well, can you give us your opinion? Is it too late for the CBC or are there still strategic alliances they could be making with other organizations in order to bring them up to speed quickly enough to be able to compete with vertically integrated organizations? As the fluidity of communications continues to evolve and change, I just don't see how a stand-alone broadcaster can survive in this marketplace. Could you share your views on that?
Mr. Weigelt: I will start with the first one.
Not having direct access to the metrics that they are tracking on any particular platform makes it very difficult to determine whether or not they have achieved their objectives on their digital reach. Certainly, when I look at the content options and the device options available to the Canadian consumer or the worldwide consumer from the CBC website across multiple platforms — you can choose the device that best suits you to be able to download the applications and the content that you require to be able to view that — I find they provide a broad selection of tool sets there, and we are quite proud to have them on our platform as one of those providers.
When we look at competing with the vertical communities, in some cases, I think you see the vertical communities being heralded for their reach and audience, but not necessarily for their business models around whether or not they have really solidified on a profitable business. Some of the new emerging news outlets are still trying to figure out how to best make that work.
So one of the things that I think is a challenge for a large organization is just keeping pace with the cadence of the marketplace. Certainly, when I look within Microsoft, we used to use a three- to five-year planning horizon. We would look out and say, "This is what customers will want to do in three to five years, and here is how we are going to address those needs." We found that was too slow, and we have had to accelerate that pace. We now look 18 months out. We figure out what customers might want to do in those 18 months, but then we map that every six months. Now we have a cadence of every month, where we release new features and functions just to keep pace with customer demands and customer requirements.
So when you are looking at entertainment options, communications options, people are expecting a fresh new look on things and how do you keep up that pace? Perhaps that is wherein the magic lies, to be able to keep it fresh and provide new options to a community on a rapid basis.
The Chair: I will steal a line from my colleague, Senator Plett, about changing environment. We always talk about the Olympic Games in Vancouver. They were done on standard television, but by the time we made it to the Olympic Games in Russia, people were listening via CBC through tablets, iPhones, and the multiple services that we are now being offered.
To get to Microsoft, my son was at home listening to the Olympic Games through his Xbox which had been given to him as a gaming tool and now he is using it for Netflix and for traditional broadcasting. Is that an area where you are looking forward, to crossing the border from these being games to being tools for broadcasting?
Mr. Weigelt: We see the Xbox One as that one centre for entertainment within the living room. Often, people see computers as residing within your office, and we don't see that computer residing in the office. We see it being part of your life, that portable device. Many of us sleep with that portable device on our pillow.
Now, mind you, I am not going to listen to the sports game as I am trying to fall asleep, because it is going to be a little bit too nerve wracking, but we move around with those devices. The Xbox One is that centre for everything in your living room.
Now, the hardcore gamers have poked at us a little bit to say that we have lost our way because we have got the other tools there. It is still a fantastic gaming device, but we now also provide you with music options that you can stream, video options that you can stream, and there is also a web browser so you can get access to other content that is there.
The Chair: So that is a strong trend that now has future for Microsoft?
Mr. Weigelt: Yes, and we certainly foresee freeing the screen from the traditional view of the computer, so we see screens being ubiquitous. One day, perhaps there will be a screen here on the desk, and we will be able to see what is happening almost in real time, if there is a news item or something else that comes up.
The Chair: Thank you.
Senator Munson: I was just wondering if you notice around the room today that all of us have these devices that we are using. He was just using one. I was just using one. Senator Dawson had his iPad. Senator Plett was paying attention. Senator Housakos, he had something on the go. We are all doing something and we are listening at same time.
While I admire multitasking, I guess some of the fear I have is that sometimes we have so much of it. We used to have a defined space to go to in order to sit down and watch things and do things and read things, but now we are just moving at warp speed.
Is there a policy or an analysis that Microsoft and others in this great big wide world use that says, "Yes, you can have all these things, but be respectful of others at the same time"? Are we actually listening to each other in this new digital age? It seems to me we are not always listening.
Mr. Weigelt: That is a great question, and we do focus extensively on the human device interaction. How do people interact with one another? What are some of the social cues that are required? On our phones, you now have quiet hours so it can actually shut off. You can set quiet hours and then, say, if you are in a meeting, it will turn off automatically so we don't interrupt the speaker.
If it is a family member, you can, say, burst through if they call three times, so starting to get some of those social cues within the technology to work through that. Sometimes these things aren't thought up right at the beginning. We talk to people and say, "What would you want this to do?" "I want it to alert me about this important appointment." "All the time?" "Sure, all the time," and then they get a couple of gotchas. "Well, maybe not all the time," so we work through those types of things.
Likewise, we see that the driving mode will prevent you from looking at texts while you are driving, because we know that is something that is horrendous that is in the marketplace, people texting while driving. Those things will come through.
There are demographics. My daughter who is 14 years old will find it quite normal to have her friends over, but everybody is talking with one another on social media. Now, in my house when we are watching TV, it is devices down. I would say lids down, because we found that at one point, the four of us were all texting with one another or speaking through social media, and yet we are all in the room. We said that was crazy, so we have had to put in our rules to manage that.
Senator Plett: That is all a matter of self-discipline, no matter what you do. Like you say, you can set it to alert me if my wife is calling, or alert me when anybody is calling. We have gotten to a new age, and whether you need to take the fault or the credit, I guess, is up in the air. But before the Microsofts of the world and others, whoever is creating the device, it used to be that when one would leave the office at nine o'clock in the morning for meetings until noon you were out of contact for three hours. We all managed to do our business.
Now, there isn't one of us who believes that we can be out of contact for ten minutes. We go on the golf course, and these devices become the most irritating devices in the world when somebody else is doing it. I go on a foursome, and three guys are e-mailing or two guys, and I am frustrated until my call comes in.
Mr. Weigelt: You are exactly right. I think when you start to look at how technology is used and how people perhaps are too consumed by what is happening, they need to take that time to step away. We do see some exciting potential, coming back to how people consume media, in that social aspect, for example, to be able to do split screen, and watch something unfold in real time and talk with others and communicate and connect to others while that is happening. We find that is increasing the social aspects, believe it or not, of these tools and technologies.
We have done some work with the NFL where we actually have your fantasy football team streaming beside and showing how you would fair during the live telecast. You can see and compare and contrast that and have that interaction with your friends. Again, a new way of interacting with live action content, but also bringing in the gaming aspects of things.
The Chair: You mentioned that you had some relationship with broadcasters, and you mentioned CBC. How do you see the role of broadcasters with that fragmented market where people are listening to different devices. How do you plan television scheduling and the promotion of shows if everybody is not going to be listening to it close to the same time? Do you cooperate with the broadcasters on those issues?
Mr. Weigelt: We do. We cooperate with the broadcasters extensively and as much as we can in any marketplace. What is interesting to watch is the shift in patterns. In the past, there was a linear programming model where you turned it on, and basically, there was the 24 hours of broadcast that was brought through, so one after another sequentially.
Slowly but surely, people started to use personal video recorders to record content, time shift, and watch things on their own time. We now see that people will get episode by episode, or they even will do things like binge watching. So on a Sunday, they will watch 12 hours of the "Royal Canadian Air Farce" just because they want to get caught up.
So there is a variety of different content consumption models that are available to each broadcaster. Some may decide that they are going to use the traditional model on an online streaming model. In the United States a broadcaster is actually contemplating doing just that, to say, "Look, we are going to take our traditional cable model, which has our schedule from 6 a.m. to 6 a.m. every day, and putting that through the Internet. At the same time, we will compliment that by supplying on demand streaming with those particular shows and those binge watching options."
So it is putting consumers at the centre to be able to satisfy their requirements and providing them choice and then being able to understand from the consumers what they do and do not enjoy. In this online world, you don't have to now rely on a third party to say, "Yeah, they wrote down that show properly in their book." Now you can see this is what they watch, this is what they clicked on. Here is the advertisement that they enjoyed, and you can get that rich data from the content you provide.
Senator MacDonald: Thank you for being here today, sir.
Steve Jobs and Bill Gates knew that as consumer product makers, they would sometimes have to kill their own products and introduce new ones to bring them along. Microsoft, of course, faced with the same issue with the PC being seen in a different light than it was 15 years ago or so.
CBC, on the other hand, tends to be working on a model that was still around in the 1970s with CBS, NBC or ABC, this general interest, over-the-air TV model. You mentioned keeping pace with business, but they are a huge company, the CBC. How can they change? What are the challenges in changing a model that size? Take yourself, doing what you are doing for PCs and plant yourself in the CBC. What would you do?
Mr. Weigelt: Those are big shoes to fill for someone like me in a large company in an outpost here in Canada. You know, I see the tremendous change exercise that we are undergoing as a company. We, over the last three years, have really experienced a hockey stick in change within the company as we move to our devices and services.
Senator MacDonald: That is quite an analogy up here.
Mr. Weigelt: It is, and it is one that is near and dear to my heart. So when we look at the change, I think the first stop is the tone from the top. Our new CEO has really set up the landscape for us all to understand the changes required, and really to get us to look toward the future for an innovative approach, to regain that innovation that we were known for within the community. Often, that innovation wasn't seen outside the company walls, so we are really trying to demonstrate that innovation.
The tone from the top, I think, makes a big difference. Compelling events don't hurt, so compelling events around that changing face of computing, the move from packaged software to online software, was something that created a compelling event for us. The way that people make use of computing services has dramatically changed from the way that we used to do business. Then you have to be able to move and motivate the community to do that.
For CBC, perhaps that compelling event is the change to the nature of broadcast communications. In order to keep pace with that change, everybody that is part of the company needs to find that way to be successful in the future. That is how I would approach it.
Senator MacDonald: Thank you.
Senator Housakos: Undoubtedly, we live in an era of express consumption of information. Everything has to be summarized, and everything has to be quick, and everything has to be at our fingertips.
What we hear constantly from CBC/Radio-Canada, and from those who are big proponents of them, is that they do in-depth, high quality content, be it news, documentaries, shows and so on. Then they do some very, very interesting good, intellectual and cerebral work.
The question is: Is it feasible to be able to do that kind of high quality content and successfully get people in this era to take a step back, shut off their Xbox, BlackBerrys and iPads, and just focus on whatever platform they are using to listen to that document? An in-depth news story on any issue is not a 30-second news bite. It is usually a few minutes. Like I said at the beginning of my preamble, we live in an era where everybody wants to consume "fast food news." Is CBC's objectives and what they do feasible in this era of communication we live in?
Mr. Weigelt: I think when you take a look back at the tragic events of last week and the frustration that a lot of people experienced as they were trying to follow the news items in real time via citizen reporters, social networks and what not, there was a sense of comfort in being able to go to that curated news service to get that voice with the CBC to help provide context to those things.
Perhaps it is like a bag of potato chips. You can't have just one. So that first potato chip kind of hooks you, and you say, "You know what? I am going to wait a little bit longer," and then you have the second chip and you have the third chip, and then you are engrossed, and you are saying, "This is something that is compelling to me," and then get that full substance.
So perhaps it is the nature of the hook used to excite people and get them to listen to that longer session. I know myself, sometimes when I am reading things on the plane, I will start off, "Oh, man, too long, did not read." We have all experienced that before, "I am going to move on to the next one."
But other things capture you and you say, "This is important to me." So it gets down to the audience and what is compelling to the audience, what is important to the audience, and understanding what the consumer wants from that newscast. I would submit that people are willing and waiting for that content. It is just a matter of how do you present it in a way that keeps them engaged.
Senator Housakos: Having said that, there is a constant argument that we hear that people want that in-depth analysis. They want that in-depth news. They want those long documentaries that are so substantial. Yet if we look at the ratings of CBC, they don't seem to indicate that they want it. As a result of the ratings they will choose to go with the quick, express, inexpensive story, so to speak.
I will use a specific example. Look at the ratings of "The National" and of Bell Media's broadcast. You look at local news that CBC does in Western Canada compared to Shaw or Bell Media. The ratings don't compare. Again, it is easy to say, "Well, there has to be an appetite for this in-depth content, valuable content, substantial content," but the marketplace doesn't seem to support that argument.
It is a problem that needs to be resolved. I for one do believe that we live in a society where people do want good content, in-depth content, and I understand we need to do it quickly and efficiently because we live in a competitive world. But there has to be a happy medium, and right now, I get the impression from what I have seen so far that all this innovation and technology is eating up the lunch of traditional broadcasters in this country.
Mr. Weigelt: I can't comment on the relative eyeballs that different newscasters are seeing across the country. When I look towards the digital portals, the curated content, the intent is to provide a selection for all tastes, or as many tastes as possible. There will be some news stories that may never get clicked on. They will show up, they will pop up, and unfortunately, the time of day or the audience that is there might not click on it.
But then on other days, they may click on that. So I think the approach to providing a variety of different content options to different audiences provides you the opportunity to reach those people that may stay a while and consume that content. I think the use of technology has really provided the consumer with choice in consuming those things that are most interesting to them, so it is up to that content provider to provide them the information they expect.
The Chair: Any other questions, colleagues?
Thank you, Mr. Weigelt.
Colleagues, our final witnesses are presenting as individuals: John P. Roman and Kady MacDonald Denton.
Mr. Roman.
John P. Roman, as an individual: Mr. Chairman, senators, thank you for having us appear before you.
I am here in two capacities: first, as the individual who proposed activating the APS clause of the 1991 Broadcasting Act to the CRTC in September. I did this to provide a solution to English Canada's massive television dilemma. The second is simply as a 32 year-old whose perspective on broadcasting may be different than that of earlier generations.
Working in the broadcast regulatory field for a few years now, I've noticed that, for the most part, the players have been dancing around the real issues affecting the Canadian broadcasting sector. Few have looked at the larger and fundamental question of how Canada might create a new, successful, and contemporary broadcast model. That's what I have tried to do, and I found myself focusing on National Public Broadcasting as the principle lever of broadcasting policy.
Please let me establish one caveat. I am an anglophone. When I discuss the CBC and Canadian content, unless I specifically mention Radio-Canada, I am always referring to the corporation's English services and English programming content. At its last licence renewal hearing, a CBC executive described CBC-TV as "a publicly-subsidized commercial service." On the evidence, the corporation now sees itself as primarily a commercial broadcaster. Its public service role has been seriously compromised.
With the blurring of broadcast imperatives, resulting from its desperate hunt for advertising revenue, CBC has now lost sight of its public objectives. This is compounded by the fact that its programming, overall, draws a dismal audience share.
But the biggest challenge facing both the CBC and the industry as a whole is the shift in technology, and the availability of new content that the Internet has introduced. Audience numbers for conventional television are down overall, and advertising revenue is declining. At the same time, attractive international content, and not just from America, has become easily accessibly any time of day.
We won't get a second crack at this, and we won't be able to play catch-up if we don't act soon. Evidence provided to the CRTC indicates that domestic production will soon be driven out of business by international sources streaming their content onto our TVs, computers and tablets from OTT services that Canadian regulation is powerless to control.
The Broadcasting Act will take years to redesign, but it presently contains one saving grace: section 3(r), the provision for an APS, an alternative programming service. This could be quickly activated as a public model to provide a secure venue for continued domestic production with delivery via a streamed service.
The APS legislation in the 1991 act was designed specifically to address future audience needs, ones that the national public broadcaster could not meet. Based on its audience share, the CBC is, by and large, incapable of developing and delivering the entertainment programming that Canadians want.
Therefore, I am proposing two things: first, that CBC-TV combine with CBC News Network and focus only on what it does best — news, current affairs, and investigative journalism — adopting a non-commercial model for provision of international, national, regional, and local news.
Second, to replace this element, I am suggesting the activation of the APS legislation to create a non-commercial public streaming service whose mandate would be to engage, challenge, and, yes, entertain Canadians.
It would be an exclusively online streaming service that Canadians could access on their own schedules. Its programming would be fully funded, not supported with a pathetically small licence fee so as to properly support high quality Canadian production.
This programming and constantly developing library of content would be owned by the Canadian people and remain available for generations of Canadians to enjoy. All content would be in both official languages, accessible to the visually and hearing impaired, and it could be easily subtitled for minority language groups to enjoy.
This is a solution, not just to the Canadian conundrum or the CBC conundrum, but also to ensuring there will be a viable Canadian production sector for generations to come.
The Chair: Madam Denton?
Kady MacDonald Denton, as an individual: Senator Dawson, Members of the Senate Transport and Communications Committee, thank you for this opportunity to speak.
I am Kady Denton, now living in Peterborough, Ontario. I am self-employed and a member of no political party. I am here as an individual who cares about the future of the CBC, and to speak also on behalf of the organization "I love CBC -Peterborough."
This group, I love CBC -Peterborough, formed in response to the comment by our Member of Parliament who was then the Parliamentary Secretary to the Minister of Heritage. He broached the idea of closing CBC when he said, "Maybe it's time we get out of the broadcasting business." That was November 2010. There was an immediate and visceral response throughout the Peterborough region.
Six thousand people wrote to the Prime Minister saying, "Mr. Harper, please assure me that your government does not intend to cut funds, sell off, or otherwise diminish our famous and respected national broadcasting system." There was no response from the Prime Minster, nor was there any response to our petitions signed by another 4,000 people. These 10,000 plus people still care passionately about the CBC.
There have been further protests and petitions in the region in response to cuts in funding to the CBC and in response to Bill C-60, the government's Budget Implementation Bill that would allow the government to intervene in the collective bargaining negotiations of the CBC. Those are immediate matters, and it has also angered people that there is a curious indifference on the part of the government to the unique role of CBC.
There has been no response to our letters and petitions over these years, with one exception. The exception was being told by our Member of Parliament that funding to the CBC would be "maintained or increased. That is a promise." But we know that hasn't happened.
In 2015, we will make the CBC an election issue in the Peterborough riding. That is what we will do. I am sure the future of the CBC will be an election issue in many parts of Canada, given its state of crisis. CBC has enormous popularity throughout Canada, according to any polls we have seen. But in all the discussion about popularity and numbers, something gets missed. Radio, iPod, and television are peculiarly intimate — one set of pictures, one viewer, one voice, one listener, one voter. There is a thread of engagement between the broadcast and the one person. We make the click, we come to the medium. Propaganda and advertising, direct messaging come to us. There is a difference. We know the difference. I think that helps to explain the deep loyalty Canadians have to the CBC.
Because it is public, owned by all of us for all of us as citizens of Canada, CBC elicits a most special trust. We can't imagine Canada without CBC. A private broadcaster's concern is the profit stream. The CBC has a different mandate. It is our public space in the media, like a public greenway in a city of privately owned ballparks and arenas. It is a space for all of us that no other media can provide. You know that, and it is how Canadians feel.
This group of people I have told you about in Peterborough has this request. This is their request: Let the CBC get on with its mandate to serve and inform the country. Let it be edgy and brave, entertaining and investigative. Increase funding to a level comparable to the public broadcasting systems of other democratic countries.
This committee is looking at the challenges faced by CBC in relation to the changing environment of broadcasting. There are technical challenges. Canada also faces social challenges. That's precisely why CBC is so important.
I encourage your committee to hear more from actual viewers and listeners and voters. I am sure you will hear a strong vote of endorsement. We are here throughout Canada — on trap lines, subways, working alone in studios or study centres, tractors, boats, condos, cottages — joined together by the CBC and joined in our affection for the CBC.
Thank you.
The Chair: Thank you, Mrs. Denton.
I have Senator Plett and Senator Munson on the list for now.
Senator Plett: Mr. Roman, I have a couple of questions for you, and then Ms. Denton. You talked about advertising revenues, and that is certainly something we have heard a lot of, and we have heard a lot of reasons for that. I would like you to tell me why you think advertising revenues are declining.
Mr. Roman: Advertising revenue in broadcasting is declining in large part because of, well, two things. One, audiences are going elsewhere, but overall viewing is going up, which is kind of an odd dichotomy. The second reason is that there are PVRs.
Now, the people who never get cable in theory sometimes tend to migrate back towards cable as they mature, settle down and have families. But by that point, their Netflix subscriptions and their online viewing habits have trained them not to enjoy advertising in any capacity. They have gone a decade or two without it. So at that point, why would they suddenly go, "That sounds like a good option, when I can get a PVR from Rogers or Bell to then not watch commercials on Rogers or Bell channels." It is kind of a double standard there.
So as to why advertising revenue is falling, advertisers are going to have to look for other means by which to get revenue, and they can, but that creates a problem for the broadcasting and Canadian production side as to where those dollars come from in the future.
Senator Plett: Certainly, I agree with you, and that was the answer that we have been hearing over and over again, that the PVRs and the Netflixes of the world are taking over, and we can stream stuff, we can watch it on iPads, or do whatever we want without having to watch commercials. I think that is only going to continue and get worse.
APS is what you were talking about, alternative programming service. Do we not have a lot of that? Are Netflix and all the specialty stations not alterative programming services?
Mr. Roman: In 1995, there was a commission of the government led by one Peter Grant, who I believe you are seeing tomorrow morning, actually. He led the commission to say, "Do we need the APS, and if so, what format would it have?" Could the private sector do what the APS is in theory on the books to do?
At that time, the conclusion was we will have specialty channels. These will do all the things that Canadians will need. At the time, that suited our purposes. However, in the process, Bell, Rogers and all the rest did the bundling thing, and Canadians have paid for channels they haven't wanted, and at the same time, they have noticed a decline in quality content from various specialty channels.
As for things like Netflix being an alternative programming service, the mandate of the alternative programming service is specifically written out in the Broadcast Act. I will spare you the reading of it, but suffice to say it is to do the job of or to assist the national public broadcaster in doing the things it is not currently able to do to meet the needs of Canadian citizens.
Getting back to the question of can the privates do what the APS is doing, the APS was specifically put in the act and is designed to assist the CBC in meeting the mandate and the needs of Canadians. That is a public service as opposed to a private service. So for instance, the privates are looking at primarily, as Ms. Denton said, making a profit, and that is fine for businesses. That is what they are supposed to do, and they are doing high-quality content that is appealing to Canadians in some capacity, but there is a different mandate for a public broadcaster.
In this role, I suggest that the APS could fill that mandate in a new platform better than the CBC could.
Senator Plett: Thank you.
Ms. Denton, I know that as a taxpayer, you need to live within your means in your household, and I know that you want our governments to live within their means.
The cuts that were made to CBC were primarily cuts that were expected of all Crown corporations to try to balance budgets, and not specifically picking on CBC. CBC's ratings — and Senator Housakos has said this many times, and I am sure he will again — have shown that people are somewhat indifferent. Even "The National" has the lowest ratings of the three main broadcasters.
I watch "The National." I am not sure why they have the low ratings, because I actually prefer "The National" over the other ones. But nevertheless, they do, and ratings are something that have to be considered.
I am wondering where you get the idea — and maybe you don't; maybe I misread your presentation, and if I did, I apologize for that — that this government or the government before us were out to get CBC. I think the governments have been very supportive of CBC, but as I have said many times, governments don't have money. We administer yours and my tax dollars and we need to do it in a responsible manner.
I appreciate the petition. I appreciate that you want to make it an election issue. Good luck to you there. I don't think it will be an election issue. I don't think people will vote on what is going to happen with CBC. I think there are going to be far more pressing issues than that one, come the election.
My question is: Why do you believe that some governments, either ours or our predecessors, were out to nix CBC, if you will?
Ms. Denton: Why? Well, there have been recent significant cuts at the CBC. There has been interest in — certainly through Bill C-60 — the internal matters of CBC.
We have CBC. It is glorious. It is known throughout the world. It is Canada's treasure. It is Canada's face on the world. It is how the world knows of Canada. They go to the CBC. It's all there back in time in the archives, iPods. Anyone in the world can find out what is happening in Vancouver or Halifax, just as, if I want to know what is happening in New Orleans, I can find out what they are talking about there.
The world is interested in Canada for a variety of reasons, and it is the CBC to which they return. The CBC can be so much more. It can be used. It can sell Canada internationally. Where are the extra finances to let it spin, let it grow, let it strut, let it show what it can do? There are lots of things you can do without a great deal of money.
IPods are cheap and easy, and they are immensely popular. I quite agree. You don't need big budgets to get good effects. Nevertheless, with some money, you can begin to move and to do things. It is in the service of Canada, in the service of Canadian culture, Canadian arts and sciences. This is who we are. You can cut it or slice it. You can start other things. You can talk about the privates, but there is only one CBC, internationally known and internationally recognized.
Senator Plett: You are suggesting that CBC is supposed to sell Canada to the world.
Ms. Denton: It shows Canada to the world.
Senator Plett: CBC's mandate has never been that.
Ms. Denton: That is what is happening now with the changing technology.
Senator Plett: No, no. CBC's mandate has never been to be an international broadcaster.
Ms. Denton: But it happens because people from around the world tune in.
Senator Plett: It is not their mandate though. Their mandate is to be a national broadcaster, not an international broadcaster.
Senator Eggleton: At one time, there was radio international.
Ms. Denton: It is. It is our national public broadcaster. You are quite right, Senator Plett. That is the mandate, yes.
Senator Plett: To be a national public broadcaster and to sell Canadian content to Canadians.
Ms. Denton: Yes, to explain us to each other, so that the conversation is a national conversation, so that we are all part of that conversation. But you have eavesdroppers; that is my point.
Senator Plett: We are one country, coast to coast to coast. What do you say when 2 per cent of Albertans watch CBC?
Senator Munson: They are misinformed.
Senator Plett: I think the question was to the witness here, not to another broadcaster.
The Chair: The chair will have to take out his gavel.
Senator Munson: Sorry, I apologize.
Senator Plett: I think Alberta is part of Canada.
Ms. Denton: It most certainly is.
Senator Plett: They don't want to watch it.
Ms. Denton: Having lived there and in Manitoba, I have great heartfelt feelings for Western Canada.
There is more than the television, although there are many things CBC does brilliantly in television and a lot that can't be duplicated. But radio or the netcasting, this is where people are all the time every day, on their smartphones, checking in on the news first thing in the morning, checking in constantly through the day. Is that factored into the ratings that you talk about with the 2 per cent? I am not sure.
Senator Plett: One last question, chair — and it is not my place, ma'am, to debate with you; that is not what I want to do at all.
Ms. Denton: It is a conversation.
Senator Plett: You talked about the petitions you have, so government is supposed to listen to the petition, and fair enough. We should. If you bring a petition or four or 10,000 people, government should take note of that.
But if we have 33 million people in Canada and only five million of them want to watch CBC, should we not take note of that? Should that not be a deciding factor in what happens with CBC? You can say simply yes or no. You are saying that we should take note when 4,000 people want something. Should we take note when two million Albertans say "We don't want to listen"?
And I am not from Alberta. I am from Manitoba. Our percentage of listeners in Manitoba is larger than that, but as we go into Western Canada, I think it is probably sliding, and we need to take note of that.
Ms. Denton: Yes. My point in mentioning the organization I love, CBC-Peterborough, is that I think it is not unique in that there is an intense loyalty to the CBC throughout Canada, and I would suggest that in many areas, it will indeed be an election issue.
Your responsibilities in this matter are broad and serious, and technology is changing. I have every confidence that the CBC has the talented people and the smarts and the savvy —
Senator Plett: Without a doubt.
Ms. Denton: — to push on and to do what they do best for Canadians, and if they are not watching now and not listening now, then they can be increasingly so with support.
Senator Munson: I don't see private broadcasters marching towards the North of this country offering services because they think they can make a dime. Perhaps part of this whole argument is the fact that it is not about the numbers to survive, but about CBC's position in the country of connecting Canadians, sort of the highway of broadcasting.
I think that is extremely important because while in Alberta the number may be falling, I don't understand that, in Atlantic Canada, a gentleman who is the host of the morning show on CBC radio is the most listened-to person throughout all of Nova Scotia. He connects Nova Scotia. CBC connects Nova Scotia, and I find that extremely important. I have nothing against private broadcasting. I have worked in it for 30 years, but I am a big defender of CBC.
Do you think there should be another model, or could there be another model? For example, the United Kingdom, they still have a reasonable love affair with BBC. I lived there and you had to pay a little bit of money for a licence. I forget how much it was in the 80s, but there is that model. There is a model that we see in PBS, and various programs are brought to you by philanthropic foundations, and it is really good quality television. In radio, it is the same thing.
Do you think in this age that we are living in, which is the argument amongst many people that there are just so many other platforms that are offering past movies for dues and so on, CBC has a niche area in which to operate as opposed to trying to be all things to all people?
Ms. Denton: One area where CBC is doing extremely well now is through their website. It is handled extremely well and fits a lot of the disparate sort of people in different parts of Canada. People can check in at any time. There are the latest episodes of shows. There are the current shows. There are particular shows, the music live streaming, and most people have podcatchers and they have their schedule of iPods.
One suggestion there would be to open up more of CBC's archives and make those available, but that is a whole world. That is like entering the National Gallery of Canada. More rooms can be built on there, and it is not high expense. In the BBC, yes, they have done some neat things. They have just been reading Moby Dick, one chapter every morning. We have glorious Canadian actors with beautiful voices. We could be reading some — people could come in at their convenience.
But their mandate is particular to Canada. It is an individual response. There are more people who work alone and live alone in Canada than you might expect and who want their information at their convenience.
There is the one reliable, trusted friend. It is an earned authority, and they turn to their news or for news or for information to the CBC. We have to recognize that.
Was it a question, Senator Munson, that you asked? I have gone rambling on here.
Senator Munson: I was asking what other models might serve our country in a different way, because the CBC wants to be all things to all people, and the question had to do with licence and PBS model, that kind of thing, no advertising, and with some federal money.
Ms. Denton: Yes.
Senator Munson: It doesn't seem to be an issue in the U.K.
Ms. Denton: No. Those names on American PBS, good people. I don't have a comment on that. We watch a fair amount of CBC television, but the strength right now in CBC, is, of course, the radio, unequalled.
The Chair: Do you want to add something, Mr. Roman?
Mr. Roman: Yes, actually.
Senator Munson: I will ask the question while you are thinking of the answer, because I will be done. This streaming, online streaming, who pays everybody? I can't quite figure that one out. You just said the state of current affairs, news, and so on. Somebody has to pay these folks.
Mr. Roman: Yes. Dealing with your first question of models and all the rest, I lived in the U.K. while I was at law school a few years ago. At that time, the licence fee was I think £120 a year, and now it is up to £145 a year for the BBC.
Senator Munson: It was £40 in the 1980s.
Mr. Roman: Inflation does change things. PBS obviously finances things in a very different model.
With regard to CBC, the CBC is the biggest funder of Canadian programming. They do 701 million on Canadian programming as opposed to all of the privates doing 600 million, and that is according to the CRTC's numbers. So in that regard, it is money well spent.
Their audience share as a reflection of things might raise a couple questions, but still they are spending their money on Canadian content, and they are the biggest spender on Canadian content.
As to a funding model specifically, the Canadian funding model for broadcasting as a whole is unique in the world. This isn't something I view as a benefit. Most channels do a 20 per cent licence fee roughly for their content, and then the various producers of content go to media funds to top up to the 50 to 70 per cent and then find other means by which to try and fund their programs, including sometimes mortgaging houses and doing whatever they have to do to get their content made, and then hoping to make the money back not on the original sale to CBC or whomever, but to international sales and syndication.
This model realistically isn't going to work in the Internet age, just because it means that everyone, if we take that model, we have to do everything sort of on the cheap, because we are up to 70 per cent or 80 per cent, and then we have to kind of scrounge the last 20 per cent for our programming.
In doing so, we are competing with shows like the stuff on Netflix, which is fully funded, or the BBC which is fully funding its content, like Sherlock. If we are doing things continually with a 10, 20, 30 per cent budget less than what we want for our programs, they can't be of the same quality that we should be doing on an international or even a domestic scale because the best of the world is coming to us online. It just is. We have to prepare for that.
So maybe we have to rethink the whole funding model for the industry. One of the things that could work is doing a model where CBC gets more funding, or the CBC and the APS get more funding, and as a result, the private broadcasters don't have to do Canadian content. They can if they choose to, but they don't have to. You make a mandate for the public broadcasters to only do Canadian content. It is an option. I am not saying it is a requirement. There are a number of means to do that.
As for how to pay for the APS, there are a few different models. I proposed I think three to the CRTC. The first was — and this is going to be the least popular of any idea ever announced, but it is still one model that had to be considered — a tax on Internet and cellular phones, because this is where the Internet is being engaged. As a result, if you are going to be using these services, it will be online, and you will have access to it, so you tax directly. I recognize that taxes are ever so popular.
Plan B is if you reduce the requirements of Canadian content which the private broadcasters all admit they don't make money on. They all say we lose money on this, and they did say this at the CRTC at the Let's Talk TV hearing. They said, "We don't want to do local. We don't want to do Canadian content, or as little as possible because we are not going to make any money."
So as a result, you remove that requirement to do Canadian content, you get them to pay a bigger share than just what they do to the Canada Media Fund, and you give that directly to public broadcasting which focuses only on Canadian content, high-quality Canadian content.
The final option, and one that I am less keen on, is that since the CBC did claim it was a commercial broadcaster, let it be more commercial, and give some of the money to a new broadcaster to start it up. It wouldn't take much at first to start. It would eventually cost — and I estimated roughly $600 million a year, which isn't an unsubstantial amount, but at that point, you can start it up for far less before you actually get the content requirements going, and that would be $50 million or $100 million a year. That money could be diverted from elsewhere.
I hope that answers your questions.
Senator Eggleton: I am one who thinks that taxes actually are a good thing. They do provide services. They provide civilization.
Anyway, your ideas are interesting. The original idea you talked about, Mr. Roman, was you thought the news and public affairs programming should continue in much the traditional way on Newsworld as it is now. The rest of it, you would the put on to an APS kind of system an alternate programming service. Would this make the CBC in that respect something like Netflix? Would it make it similar to that, except with Canadian content?
Mr. Roman: I think you may have slightly confused what I said. I am not sure. I am proposing, yes, the CBC move to a strictly news, current affairs, et cetera as mentioned, but that the APS would become a Netflix equivalent. Is that what you are saying?
Senator Eggleton: Yes. Is that the model sort of thing?
Mr. Roman: I wish I could claim this was a fully original idea — and more or less, it was something I came up with on my own — but I found out afterwards that it is sort of a combination of BBC 3 and BBC 4. This was after I presented it to the CRTC.
BBC 3 is moving to an online-only model, and BBC 4's mandate is to be engaging and challenging. Inadvertently, I came up with what half of the British are doing. The CBC does need good funding, and it needs to re-double down on its news. It actually proposed at the Let's Talk TV hearing that once it got additional funding, it wouldn't be very keen on doing local news and local content.
So what I am saying is keep the current funding going for the CBC, and let them reinvest that in local, regional news, and at the same time, additional funding to do a Canadian version of content that should be done online.
Senator Eggleton: Cultural content?
Mr. Roman: Yes.
Senator Eggleton: You have been asked about why the ratings don't match the enthusiasm that you have been able to get from your endeavours in Peterborough. Of course, to that, I would say it is not all just about ratings. It is not all about having the most popular kind of programs. We compete with what comes from the American entertainment industry, but it is in fact Canadians telling their stories to each other and reaching out to all parts of the population in this country, which doesn't necessarily involve ratings in every case. There are, in fact, lots of parts of the population that need to be served by all this.
I think it is also worth noting something else you talked about: Radio. The most popular radio show in Toronto in the morning is on CBC Radio, so it can be done. It is demonstrated in radio that it can be also very popular. But on the television side, would you see any changes that could help raise the popularity of some of the programs, notwithstanding that that isn't everything that we need to consider?
Ms. Denton: Yes. I would say not to play it safe. Play it edgy. It is what appeals. It is what they are not getting out. People don't get elsewhere. The most popular programs are the ones that are pushing, are provocative, not just pleasing. It is where the public broadcaster is free to go. They can go into that kind of territory. That would be my advice.
I am a little puzzled by the discussion of ratings. Do I understand we are talking about television ratings here?
Senator Eggleton: I think that is primarily what they are talking about.
Ms. Denton: Well, most people have smartphones. That is a whole different story. They are downloading and streaming the programs that way. They can be sponsored too, so there is financial return there that could be investigated. Edgy, brave, investigative.
Senator Eggleton: Good luck on your endeavours to make this an election issue. Senator Plett talked about the fact that there have been cuts, yes, but there have also been cuts by the previous government. That is all very true. I think we are in a piling-on stage where it is becoming now very difficult for the survival of the CBC. Living within its means, yes, the fact is that it is being starved far too much.
The Chair: That was a preemptive strike, Senator Plett.
Senator Unger: Thank you, witnesses, for your very interesting perspectives. I am from Alberta, and I don't know about the percentage —
Senator Plett: Are you in the 2 per cent?
Senator Unger: But I almost never watch CBC television. I will watch the classical music section and "Saturday at the Opera."
Ms. Denton, you mentioned polls. You have seen many polls that are very supportive. Can you tell me which ones?
Ms. Denton: May I have your card and get that information to you?
Senator Plett: Get it to the clerk.
Ms. Denton: I would be delighted to. It is interesting what people pick and choose. I like "Saturday Afternoon at the Opera" too. We should be able to. We are not duty-bound to watch everything the CBC presents. This variety is one of the delights of our national public broadcaster.
Senator Unger: I agree with you, but on the other hand, you have to remember there is only one taxpayer, and they are heavily burdened these days, struggling to make ends meet. I would agree with my colleague, Senator Plett. I think when the election comes around, there will be far more pressing issues.
I recognize your passion for the CBC. Good for you and good for the people of Peterborough. There are places in Alberta where people are as passionate about the CBC as well. Thank you for your comments.
Ms. Denton: Thank you, Senator Unger.
Senator Housakos: Thank you both for being here and participating in this dialogue.
First of all, I will say in regard to the importance of taxes, and my honourable friend and colleague on the other side equated taxes to civilization. I can tell you that ancient Greeks invented civilization, but it was the ancient Romans who invented taxation. One really doesn't equate with the other.
Nonetheless, CBC has a fundamental branding problem in this country from my point of view. I agree with you, Madam Denton, that the CBC has fond memories for young and old Canadians alike. For me as a young kid growing up, the fondest memory regarding CBC is "Hockey Night in Canada." Sitting in front of the TV set Saturday night with my parents as a family, watching that hockey game beginning to end, was a weekly common occurrence. I started that tradition a few years back with my kids. They are both young hockey players.
CBC Internationale, Radio International is part of the heritage of CBC. You are right when you say it sent the news in Canada to the world, to Canadians around the world.
A year ago, there were some cuts made, and again, CBC decided to, instead of taking the compression of cuts and spreading them across the organization or making a strategic decision not to touch things that were the fabric of their organization, they decided to brutally cut Radio Internationale by 80 per cent.
We had special hearings, and we brought people from CBC to explain themselves on that. Of course, when they came to those hearings, they brought forward a portrait of how CBC International had become more efficient than they were before. They converted themselves to digital existence. Even though they cut their budget by 80 per cent, they cut the employees by 80 per cent, they increased their reach, their efficiency. That happened because of forced decision, as they portrayed it, on part of the government. So nothing hopefully precludes them from becoming more efficient, because they have to.
But back to "Hockey Night in Canada," they lost recently what was their cornerstone business. It is what tied this country together from coast to coast to coast. It really defeats their raison d'être, whether their main purpose, as defined by yourself, is bringing Canadians together and talking to Canadians about who we are and what we are.
So I hear both of your arguments, and they are both compelling and good arguments. But what I would like to hear and this committee would like to hear from you is not if we need the CBC or we don't. I think there is a propensity toward the idea that we need a public broadcaster. I think we all agree, both Liberals and Conservatives, and the proof is in the pudding. It doesn't matter how much they cut, how much we cut. Successive governments can understand the taxpayers have limitations.
The real discussion here, what I would like for you to put on record, is what model do you recommend that will allow the CBC to provide some kind of formal public broadcasting in the future? Is it a PPS model, for example, where they bring in donations and they are matched by a certain amount?
Do we have a user-pay model where people who watch the CBC subscribe to it? Do we have a BBC model, for example, where we allow them to bring corporate donations and other types of donations from foundations and think tanks? There has to be an evolution, and there has to be some new formula if they are going to survive. This discussion about whether they survive or not has nothing to do with the next election. It has to do with economics.
I will tell you, if the model doesn't change — and we have had these discussions publically as a committee and amongst ourselves — the CBC will not survive in this current model. So can you share with us what suggestions or proposals you have in terms of what model you think is the ideal one?
Ms. Denton: I think strengthening the digital broadcasting and netcasting is important. That doesn't involve high expense, but that would mean it is everywhere at any time, and extremely flexible.
Speaking for myself, and I am just an ordinary person. If the CBC finds that it needs to bring in sponsors and have a name flash around the boards of the hockey arena, like Coke or what have you, go ahead. It is the content that follows that is going to rivet attention. I will leave my comment there.
There is a danger in talking about the CBC in nostalgic and sentimental terms. It is still a strong tool and can be. We needn't shuffle it off as some sort of set of dinosaur bones. This can be something that fully and vibrantly meets the mandate it should be meeting. Thank you.
Mr. Roman: I think I might take a slightly different tack here. I am generally of the view that throwing money at a problem without actually addressing the problem isn't going to lead to a solution, so just saying that funding is the only problem CBC has isn't really going to address the fact that, say, their audience share in a number of areas isn't very high.
Whether it needs to be exceptionally high or not, funding is a problem. But just throwing money at the problem isn't the solution. I have talked to a number of people in the industry who have said, "If the CBC lasts another five years, I would be surprised, in its current iteration." So what we have to figure out is not just how is the CBC going to survive, but what is the role of public broadcasting going forward into this whole new century, and how much money is that going to take?
There is a number of funding models open to us, but if we are already sort of uncorking the bottle, we might as well look at everything properly. I hope that answers your question.
Senator MacDonald: Thank you both for being here.
I just want to pick up on something Senator Housakos mentioned, because it reminded me of something. He talked about his memories of growing up watching "Hockey Night in Canada." I remember before "Hockey Night in Canada," as a young boy, we never missed Don Messer in my house. Mom and Dad always watched Don Messer.
The Chair: Who is that?
Senator MacDonald: Don Messer was still about the sixth-ranked show in Canada, and CBC cut it. Why did they cut it back in 1969, because the cognoscenti of Toronto didn't think it was sophisticated enough for the country.
It is the truth. It didn't matter what the ratings were, because it didn't appeal to the elites in Toronto, so they figured the rest of the country didn't have to see it, so I want to put that on the record.
The second thing I want to mention in terms of what CBC could have done over the years, when I see what broadcasting has done for the Blue Jays and revenue streams, back in the 1990s when the Expos were fighting with the 60 cent dollar, the CBC have contracted with the Expos to give them coverage coast to coast and to give them badly needed revenue when they needed it. But they didn't. They did nothing but continue to consume hundreds of millions of dollars and spend hundreds of millions of dollars producing things that people didn't want to see. But I know all kinds of people who wanted to see the Expos in the 1990s, and they couldn't see them on television. I used to listen to Radio-Canada because CBC television wouldn't carry them. I just want to put that on the record as well while we are here.
You use the analogy of a green space, and I think that was a pretty good analogy. We used to think the beach was only so long and all the beach front property belonged to the CBC. Of course, now we know that the beach front is unlimited. We live in an era of content, HBO, Netflix. It is all about content. These businesses leverage these brands and get people to watch the content to create value.
CBC doesn't do this. They spend money on the upkeep of a beach that nobody is setting umbrellas up on. It is a problem. So what you were talking about is leveraging the CBC brand, getting people to watch the stuff because it has the CBC logo, and I agree. It is a good brand, and it is a good logo. We mentioned this earlier. But right now, they spend a lot of their money on salaries, pensions, human resources, not content. A lot of their money goes into those two items.
So I think that is a problem. I am curious if either one of you think it is a problem, and what can they do to create better content? What can they do to change how they use their own resources, without just asking for more resources when we know they are not going to change?
Mr. Roman: There are two other instances. You probably have heard of them, but I will reiterate anyway. "Corner Gas" is a very successful TV show.
Senator Plett: Love it, very true.
Mr. Roman: It was initially passed on by the CBC. Also, there was a documentary that a producer who does documentaries wanted to put forward to the CBC. It was on the Group of Seven. It was going to be a series as Canadian as you can get realistically, at least in Ontario. He was told when he went to pitch the idea to the CBC, "We don't do arts documentaries." That is a direct quote.
This is part of the problem, figuring out what the CBC has to figure out. They need to know what they do, and they need to be able to do it, but they also need to understand that their strengths can't just be the status quo, because that can't lead to any progress. That is not to say they are incapable of finding new and original content, and they are starting to do some of that. But when it comes to costs versus content, they have already reduced their production, their in-house production, at least on the English side, rather substantially, so they no longer have a documentary section.
They purchase everything. That will reduce salaries, but it will also increase the cost of actually getting shows. I am not an expert on the financing of shows, but that is my understanding. So it is kind of a tricky game. Where can you save money, but not pay more money long term down the road? I don't have an answer for that. I know that is probably a problem that they are struggling with right now.
The Chair: Ms. Denton?
Ms. Denton: I work as a creative artist. I know creative artists from across Canada and I have taught them. There is nothing more disheartening, nothing that suppresses ideas more than to hear, "Oh, that is not right," or, "Look what you have done."
You are quite right. I don't mean that, but at some point, what creativity needs is, "We believe in you. Go, just go. Give us your best," and then you get the best results. You know what I am saying. The heavy breathing over the shoulder is just about the most paralyzing thing that can happen when one is digging deep to deliver the very best one can. Mistakes are always made. It is part of the creative process. You toss out a lot. You don't get it right every time. I have every faith that the CBC is getting a lot of things right, right now.
Senator Plett: I love a lot of CBC programs. "Corner Gas" is one of my favourites, and yet I have to close the door to our television room in my house when I watch "Corner Gas," because it drives my wife nuts.
We are not always in agreement. Senator Eggleton talked about CBC radio and it being one of the more popular shows. I don't think there is much argument about CBC Radio and their popularity. I really don't. One of my questions at some point will be to one of their witnesses, when we can get them, is what part of CBC's budget is CBC Radio? Because I don't think there is any argument about the need and the —
Ms. Denton: Brilliance.
Senator Plett: Yes, and they are good, professional people, without a doubt. I watched the channel last night in Halifax when we had this terrible, terrible tragedy in Ottawa. As much as many of us were happy that we weren't on the Hill when it happened, we also wanted to be there with our staff, and here we were we were watching CBC. Rosemary Barton and others on CBC did a fantastic job.
We heard today about the Americans complimenting CBC on the professionalism, so there is no argument. Senator Housakos said that most of us wanted a public broadcaster. I do. I think there is a need for a public broadcaster, but it is to what end. That is what we want to deal with and that is what we are grappling with.
I want to use a story that we heard in Halifax when we visited the CBC facilities. We are showed a state of the art production studio. They had spent $800,000 on the state of the art production studio. The long and short of it is when you do these types of improvements, you become more efficient with less people. So it costs six jobs at a cost of about $100,000 per job. So again, you see government being blamed because they made cuts to CBC who then cut jobs. Well, in this particular case, they cut six jobs because they did something that was good, and two people could do what eight people had done before, and do it in a better way.
So they need to be commended here where they are doing things and remaining as efficient as they can. I am more optimistic. I think they will be here in five years from now. Hopefully not in the way they are now, hopefully better, and maybe even hopefully at less cost to the Canadian taxpayers. I am not sure. But certainly, times are changing, and they need to change with it.
My question again is around ratings and so on and so forth. Now, they unceremoniously cut the Don Messer show. I had never heard of Don Messer until today.
Senator Eggleton: Oh my God, you are a young man.
Senator Plett: I guess I am that much younger. Nevertheless, they unceremoniously cut the Don Messer show because of Senator Eggleton and his crowd.
Sorry, Chair, I will get to my question right now.
I would really like both of you to answer this, even though it may be related more to Ms. Denton. When there is an unpopular show, a show that nobody is watching, should CBC cut it, even if there is a low percentage, 2 per cent of the people wanting to watch it? It is not a moneymaker. It is costing money. Should they cut the show or the program? Ms. Denton?
Ms. Denton: They are creative. Trust them. It is what you do with creative people. You trust that the best will come in time. Those are their decisions, not the government's decisions. Trust them.
Senator Plett: But they are a Crown corporation. They are an arm of the government.
Ms. Denton: They belong to the people, and they answer to their mandate. Trust them.
The Chair: Mr. Roman?
Mr. Roman: I would actually like to first get onto your radio popularity and funding point.
Senator Plett: Please.
Mr. Roman: CBC Radio, their audience for Radio 1 is 13 per cent across the country, which is quite respectable across the country. CBC Radio 2 is at 2 per cent, which is slightly worse. At the CBC licence renewal hearing in 2012, they requested to start advertising on CBC Radio 2, and in doing so, their audience share suffered severely, because they needed to search for new means of revenue, and that is fine. But they also at the same time were taking revenue out of radio to support CBC television. I think they took out roughly $40 million, so robbing Peter to pay Paul. They had two fully public services previously, CBC Radio 1 and CBC Radio 2 that were both noncommercial. These were true public broadcasting services.
Now, one is a commercial public service, and the other being CBC Radio 1 is still truly public. It is not that I am trying to get anywhere with that point; that is just something to note. As far as popularity goes, for CBC Radio 2, it took a massive hit because suddenly, there were commercials and they were doing music. Well, there are other commercial music stations elsewhere in the country, and the advantage that CBC Radio 2 had was that they were non-commercial. So if they are going to play the exact same game as everyone else, where is the benefit? What are they doing that is different, unique and distinctive for Canadians?
Now, should they cut an unpopular show, and I presume you are talking for CBC television and radio? Is that correct? Or just radio?
Senator Plett: Well, no, I would say probably anybody. If it is costing money and nobody wants to watch it, should they get rid of it? Certainly, CBC television is the larger portion of the budget.
Mr. Roman: Yes.
Senator Plett: Like I said, I like watching "Corner Gas," but if nobody else in the country likes to watch "Corner Gas," I have to accept the fact that maybe it shouldn't be there. That is my feeling. What is yours?
Mr. Roman: From a personal standpoint, I have to recognize that first, the CBC does have a mandate, so it depends on what the program is supposed to do. If the program is there to meet the mandate, then obviously, it needs to be kept. That is the purpose.
The worry I have, though, for the CBC is that it does too much of this trying to pick and choose, trying to meet specific — and this is my personal view here — trying to meet specific targets. Have we checked out this demographic. Yes, we checked out this location. Have we checked out this demographic? Yes. There is little mass appeal in their audience because they are becoming so specific in what they are trying to do.
The APS legislation specifically mentions mass appeal, and I worry that that is what the CBC has kind of lost sight of. They have shows that work wonderfully and that do have appeal across the board, but in large part, they are trying to tick boxes. That is my perception of it.
"Arctic Air" was all right. We have a show that ticks a box for a certain demographic. "Republic of Doyle," we have a show for the Maritimes. "Mr. D," a show for the Maritimes. All of these things that are adding up, but not mass appeal because you are going for specific audiences, and that is my concern that that is their way forward as opposed to doing shows that the BBC would do, like "Sherlock" which has mass appeal that everyone can enjoy.
The Chair: Thank you, Mr. Roman and Ms. Denton, for your presentation.
(The committee adjourned.)