Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 13 - Evidence, February 3, 2015
OTTAWA, Tuesday, February 3, 2015
The Standing Senate Committee on Transport and Communications met this day at 9:30 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 are continuing our study into the challenges faced by the Canadian Broadcasting Corporation in relation to the changing environment of broadcasting and communications.
Our witnesses are from Nordicity, which is an independent consulting firm specializing in policy, strategy and economic analysis of media. We have before us today, through the magic of television, Dustin Chodorowicz and Stephen Hignell.
I invite the witnesses to begin their presentations. Afterwards, senators will ask their questions.
Dustin Chodorowicz, Partner, Nordicity: Good morning. My name is Dustin Chodorowicz and I'm a partner at Nordicity. I'm the author of the study Analysis of Government Support for Public Broadcasting and Other Culture in Canada. At Nordicity we often refer to this study as the "public service broadcasting study,'' or the PSB study for short, and we may refer to it in those terms during our presentation at certain points.
I'm joined by Stephen Hignell, who is a manager in Nordicity's London office. He was the lead researcher on this study.
CBC commissioned Nordicity to conduct the first version of the PSB study in June 2006. Since that time we have updated it four times, the most recent being in October 2013.
The PSB study is divided into three key research pieces. The first piece is an international comparison of public broadcasters. The second piece is an assessment of the potential benefits of public broadcasting. The third piece is a review of federal government economic support for culture.
At this point, I will ask Mr. Hignell to take you through the first piece of the research.
Stephen Hignell, Manager, Nordicity: The first piece, or section 2 in the report, presents a comparison of the levels and types of public funding for public broadcasting in 18 Western countries, including Canada, the U.S., Australia, New Zealand, Western Europe, as well as Japan.
Our research shows that the CBC received public funding equivalent to $33 per capita in 2011. This was the third lowest among the 18 countries in our study and less than half the average of $82 per capita. Only New Zealand and the United States displayed lower levels of public funding for politic broadcasting.
In addition to per capita public funding, we also examined the commercial revenues earned by public broadcasters. We found that the CBC was generally in the middle of the pack in terms of the share of revenue earned from commercial revenues and, more specifically, the revenues earned from the sale of advertising and program sponsorships.
Our study also shows that it's very rare for public broadcasting systems not to utilize commercial revenue sources in some manner. Only 3 of the 18 countries we looked at did not earn commercial revenues in 2011 and relied exclusively on government funding.
Not surprisingly, the countries in which the public broadcaster did not sell advertising also tended to be among those with the highest levels of per capita public funding. The only exception was Japan, where public funding was $67 per inhabitant, although this was still double what it was in Canada in 2011.
Mr. Chodorowicz: Of course the potential benefits from public broadcasting can vary from country to country. It could be these relative levels of potential benefit that affect the levels of public funding. Countries where the potential benefits could be higher see a greater need to have a larger public broadcasting system, and therefore may provide higher levels of funding to their public broadcasters.
In section 3 of the report, therefore, we relate the levels of per capita public funding to an index designed to gauge the potential benefit that each country might derive from public broadcasting. This index is composed of six separate indicators which measure population diversity, linguistic pluralism, ethnic diversity challenges, the size of the domestic audience market, proximity to competing sources of programming, and the audience appeal of indigenous programming. I should add that it considers the population density as well.
As you can see in figure 9 of our report, most countries fall within the predicted quadrant or are close to the middle of the plot in our graph. In other words, their levels of per capita public funding correspond with the potential benefit they might derive from public broadcasting.
There appear to be just a handful of outliers in the chart: Norway, Germany, New Zealand and Canada, where the level of public funding is inconsistent with the potential benefit, according to our index.
The third piece of the report, found in section 4 of the PSB study, focuses on the historical funding situation in Canada. It compares the trends in various types of public financial support for culture in Canada between 1991 and 2011. Over that 20-year period, the value of public financial support for CBC/Radio-Canada increased by 5 per cent. That's not inflation adjusted; that's the nominal dollar increase in financial support.
Meanwhile, over that same 20-year period, total federal government spending, excluding defence and debt repayments, increased by 110 per cent. Even federal government spending on culture, if we pull out CBC funding or exclude CBC, was up by 66 per cent during that 20-year period.
We also measured the growth in the federal government's indirect support for private Canadian television broadcasting. This indirect support comes from two sources: first, simultaneous substitution regulations that permit Canadian broadcasters to sell advertising in U.S. shows aired on U.S. stations, except of course the Super Bowl beginning in 2017 as per the CRTC's recent decision; and, second, from section 19.1 of the Income Tax Act, which denies Canadian companies tax deductibility for ads placed on non-Canadian broadcasters.
We estimate that the combined value this indirect support for private Canadian broadcasters increased by 58 per cent to 70 per cent over the 20-year period 1991 to 2011. In 2011 the combined value of this indirect support was worth as much as $334 million.
As you can see from Nordicity's PSB study, the CBC receives one of the lowest levels of per capita public funding among its peer countries. Our PSB study also shows that part of the reason why the CBC's relative funding level is so low is that public financial support has hardly increased since 1991. Indeed, the rate of growth in CBC funding was less than one-tenth the rate displayed by the federal government's direct financial support for culture and indirect financial support for private television broadcasting.
That concludes our presentation. We'd be pleased to take questions from the committee at this time.
The Chair: Thank you.
We'll start with the deputy chair, Senator Plett.
Senator Plett: Thank you, gentlemen, for taking the time. I'm looking forward to visiting London next week and touring BBC and doing some comparisons.
I had the opportunity to read part of your report last night on the airplane coming out, and I have some questions that, in part, are related.
You've done a lot of comparisons here where CBC is as far as public sources of funding are concerned. You've done some comparisons on where Canada is in supporting other cultural events and in supporting defence. I don't think really it's a fair comparison. We talk about defence culture maybe. Nowhere in your report did I see any correlation between what Canadians want versus what CBC is getting — i.e., viewership.
Do you not agree that part of a report like you have done here, which is a very extensive report, should give an indication of what Canadians want? I think many of us believe that CBC is getting the funding that Canadians have shown they want CBC to get. How does your viewership play into a report like this?
Mr. Chodorowicz: As you pointed out, certainly there is no viewership incorporated in this particular analysis. That's not to say that looking at indicators of audience performance and other indicators of satisfaction with Canadians could be incorporated in this type of study. It's something that we are always looking at, which is to expand these types of studies over the years. We have gradually expanded the indicators. We just started looking at per capita public funding, one of the inputs to CBC, and then we expanded it look at the advertising and commercial side. As good audience data becomes available to us, perhaps through CBC and through other sources, and provided that we can properly have all the factors incorporated into the analysis, I think it's something that we could look at expanding or including in a future comparison such as this.
At this time, we don't have that type of comprehensive look at both the input and the output side. As you've pointed out, this study looks at a lot of the inputs and compares them to government spending on culture as well, but it hasn't looked at the output side and what are Canadians getting for the dollars they are putting into CBC.
Senator Plett: Aside from this particular report, I'm hearing that you have no data on viewership in Norway, for example, or Switzerland — the ones that you say are getting the top dollars — or even as far down as the U.K.? Clearly we will ask BBC this, but you have no data on the viewership of the station in Norway?
Mr. Chodorowicz: There are studies that include audience data across different countries. There is very high-level audience data that could be incorporated into this type of study. I think before we do that we want to make sure that that data is consistent across different countries, that it's collected and that audience measurement is consistent.
If we are going to do an international comparison that incorporates audience data, I think we want to be very cognizant of the environment in which the different public broadcasters operate, specifically the competitive environment. Canada, for example, is very unique in that Canadian broadcasters, both private and public, have to compete directly with the major American broadcasters. That's something that we'll try to take into account when we do embark on some type of audience analysis, if we are commissioned to do so or if we have a need to do so on an independent basis.
Senator Plett: As you say, CBC has to compete with American stations. Some of us believe that competition sometimes makes things difficult and others believe that competition is a wonderful thing. I guess I would be of that ilk, that competition usually makes you operate a little more efficiently.
Next question: Does BBC do any public advertising? Clearly they don't get all of their money from the British government. What other sources of revenue does BBC have? Do they advertise or is it just sponsorships?
Mr. Chodorowicz: I want to answer that in a couple of ways and point out a couple of things.
To answer directly about BBC, they have commercial revenues that they earn not from selling ads, per se, but from other types of revenue-generating sources: selling rights in their programming, historically DVD sales, rights to DVD sales and that sort of thing. They had ways to generate revenues without selling advertisements.
The other thing important to keep in mind is that in the U.K. — and you'll find out more about this during your visit next week — there is the BBC, but then there is also Channel 4. They're both government-owned; they're both public broadcasters. BBC does not have advertising on air. Channel 4 does have advertising on air in the same manner as CBC.
In Canada, the CBC is a hybrid; it receives direct public funding and sells advertising. In the U.K., if you put together the two public broadcasters, they have a hybrid revenue model. It's just that they happen to be operating as separate entities. Taken together, the U.K.'s public broadcasting system also has a hybrid revenue model just like Canada. Taken separately, Channel 4 is very much advertising focused, whereas BBC is not advertising focused, but it has access to commercial sources of income.
I wanted to ask Mr. Hignell if he wanted to elaborate on the types of BBC commercial revenue sources.
Mr. Hignell: The BBC operates BBC Worldwide, which is its commercial arm, and that's what they use to sell and distribute their programming for commercial revenues around the world.
Senator Plett: You alluded at the tail end of your presentation today about the CRTC having approved for 2017 the sale of American advertising on the Super Bowl. Do you have any numbers as to what the revenues would have been for CTV on Sunday's Super Bowl game the way it was with Canadian advertising? Do you have any idea what they would have generated had they been able to sell American advertising?
Mr. Chodorowicz: No. That's a very detailed analysis that requires — I wouldn't say contract-specific information — a high level of knowledge of the ad-buying marketplace in Canada. It changes from year to year, so we don't have those numbers, I'm afraid.
Senator Demers: Thank you very much for your presentation.
Here in Canada we're having our issues with CBC/Radio-Canada, obviously. What is the overall picture of BBC? There are rumours that it's not going well and that there are some difficulties. Our committee is going there as part of this study. What is the overall picture? Are the rumours founded, or are people saying things just to say them?
Mr. Chodorowicz: I'll say a few things and then Mr. Hignell may want to comment.
Generally, I think the audience approval for BBC is high. In terms of its relationship with the U.K. government, certainly the BBC's focus is on trimming or controlling cost, whereas in the past the BBC may have had more consistent increases in its collection of revenue through the household licence fee, the TV licence fee, and from other government funding. Since the coalition government has come in, there's been some renegotiation to the terms of their funding.
I'd say the overall impression or viewpoint is that BBC is a world-class public broadcaster. I'd say the government sees it that way. Certainly the population and TV viewers see it that way. But they are constantly looking for ways to improve the governance and operations of the BBC, and do it as cost effectively as possible.
Mr. Hignell: I would add that every time the BBC comes up to its five-year licence fee renewal, these issues come up again and again increasingly in the press and, as you say, in rumours as well. It may also be partially as a result of the BBC coming to that licence fee renewal.
Senator Demers: Thank you for your honesty.
In your opinion, how might the broadcasting environment in Canada and in other countries change in the next five years? It could be a little before that, but how do you see the change over the next five years?
Mr. Chodorowicz: Certainly, the proliferation of online platforms is a challenge for broadcasters, both public and private, around the world. In the U.K., in my opinion, the BBC has responded quite quickly and effectively to audiences' preferences or audience migration to new platforms.
If you're in London next week talking to the BBC, you'll find out about the iPlayer, which is the online platform for BBC programming. It's been highly successful. It got off to a very early start. I suppose they did not waste much time refining it but instead got it out there and refined it over time. As far as I know, audiences are avid users of it. I believe it has had perhaps some traction internationally outside the U.K., where it's offered on a fee-based service. Because it offers world-class content, which BBC produces, in a very usable platform, it's easy to discover or find that content. In the online world, discoverability is the key that's made it quite successful. That's the biggest challenge.
Mr. Hignell: Further to the comments on multi-platform programming, it's not only the BBC that has the BBC-branded online platform, but also 4oD, Channel 4, the other public service broadcaster in the U.K., which Dustin described as having a more commercial angle to it. They have been successful with their 4oD version of the iPlayer.
As well, broadcasters in the U.K. have been innovative in their approaches to extending this video-on-demand, VOD, service. They have initiated these projects, and although not all have gone through, they've pursued Project Canvas and Project Kangaroo, which were innovative approaches to working with private sector broadcasters in delivering their content online and on set-top boxes for catchup to audiences around the U.K.
There are also other initiatives such as the Freeview, which is a set-top box, and Freesat, which enables viewers, as long as they've paid the licence fee, to access these programs on Catch Up TV on VOD around the U.K.
Senator Housakos: Gentlemen, can you tell us which two nations in the world in your opinion are the most successful at developing their domestic cultural products? Which two nations in the world have not only been successful at developing their cultural products but also at exporting them to the world? Which nations in the world would you say are the top two?
Mr. Chodorowicz: Well, that's a very good question. It's hard to answer without pointing to the United States as being extremely successful in developing world-class content and exporting it in all the audio-visual mediums: music, film and television. After that, I guess there is a second tier. Of course, we have a slight inclination for the U.K. In recent years, they've been successful in the film sector and in developing television formats that have been exported to other countries. Many of the contest shows and reality-type programming that we see in North America were developed in the U.K. There's a lot of pride in that success in recent years. Of course, that also applies to the music industry in the U.K., which has been very successful.
You asked for two, and they both happen to be English-speaking countries.
Senator Housakos: I appreciate that.
Could you give us examples of poor performers in producing cultural content?
Mr. Chodorowicz: There will be several countries maybe not too happy with us today. Some countries have challenges. That question probably should be answered with a bit of data. One of the challenges in the cultural sector is getting good international data, and there have been efforts at the UN level to improve that in recent years. I don't know if we can pick a couple of countries and throw them out there without any good data, as the good analysts that we are.
Senator Housakos: I appreciate that.
I want to go back to what you said earlier in your presentation. I appreciate that you were quite clear in your presentation to ensure that Canadian culture is highlighted when we're looking at CBC and Radio-Canada because this is about developing and promoting Canadian culture.
Throughout your presentation you mentioned in your calculations that Canada spends in the range of $33 per capita on public broadcasting and Canadian culture. I've heard figures as low as $29 per capita by the Friends of the CBC and others. Of course, successive Canadian governments, regardless of political colour, have wanted to make sure over the decades that we promote Canadian culture and get the best bang for our dollar.
I would like your opinion. When I do research, I don't just look at CBC and Radio-Canada and that particular subsidy as the sole contribution to Canadian content, vis-à-vis Canadian culture and production of Canadian culture. I also look at Telefilm Canada that gets over $100 million a year. I look at the Canadian Media Fund, with over $370 million a year. We look at close to $1 billion that goes to CBC and Radio-Canada. Right now, I'm over $1.4 billion. My quick mathematical calculation means that $41.91 per capita is spent on Canadian culture, and I haven't gone into adding all the subsidies that provincial governments spend on film production credits they give in order to attract film producers to their provinces. I suspect that if we calculate the amounts for TVO in Ontario and Télé-Québec and so on, it is probably significantly higher than $42 per capita for Canadian taxpayers. I would like your comment on that.
I would like you to take it a step further. My second question following that statement is that CBC/Radio-Canada, in my humble opinion, is spending an enormous amount of money producing local and national news. We're not debating whether they're doing a good job at that, but in your opinion, would that fall into the context of promoting and developing Canadian content, or is that just providing news information like every other Canadian private broadcaster provides? Are we not spreading our resources thinly when we take all those issues into consideration and not putting as much of that $1.5 billion plus into producing Canadian-content documentaries and films that could not only be strengthened by taking that money and rooting into those areas but also we could develop good enough content to start exporting it to the world? I believe we have great actors, artists and performers in Canada. What is the best model to give them the maximum from taxpayers to promote themselves?
I've put a lot into that question. Maybe you have some comments and answers to that.
Mr. Chodorowicz: You raised a good point about the various types of government support for audio-visual content creation. Yes, we've only looked at the parliamentary appropriation, which arrives at the $33 per capita. As you noted, that figure, I believe, dropped to about $29 per capita once the announced or planned reductions to CBC's appropriation took place.
As you know, there are other forms of government support, such as the Canada Media Fund, which I believe at this point is running close to $300 million in funding for Canadian content. Part of that does go into CBC programming, but part of that also goes into programming commissioned and aired by private broadcasters. We would need to take that into account, as well as the other funding envelopes that you noted, such as the tax credits at both the federal and provincial levels.
The challenge is that when you get into an international comparison, it's difficult enough to get the direct funding for public broadcasters in 18 countries. To then go the next step and get reliable data on the portion of other types of funding through direct grants and tax incentives that are available in all the countries that are in our study, it becomes very difficult to do a like-for-like or apples-to-apples comparison across various countries. For example, in the case of the U.K., we'd have to also have reliable data on the portion of tax credits or tax relief that went into U.K. films that were commissioned by Channel 4, which is very active in the feature film market. We'd also have to look at any money from the EU level that also went into U.K. films. It certainly would be a comprehensive analysis. It's just that it could be very challenging to do across several countries.
That said, there's probably some merit in looking at things in a little more detail in Canada, at least, and in making sure that the complete support statistics are there, so long as we can isolate what the CBC is accessing. That, then, should also be compared against what the private broadcasters are benefiting, which we've done to some extent in section 4 of our report, the third piece, where we look at the indirect benefits of certain regulations and tax rules that benefit the private broadcasting side.
In terms of how to allocate the monies, it's very challenging for a public broadcaster. Commercial broadcasters have a much clearer mandate, I'd say. Their prime objective is to gather audiences, which they can then sell to advertisers. In the Canadian system, that's moderated to some degree by regulatory obligations in terms of commissioning and exhibiting Canadian content.
A public broadcaster often has to operate with several mandates. In the case of the CBC's mandate, which is very similar to the BBC's, they have to inform, educate and entertain. If you try to divert from one mandate to another, obviously it's going to sacrifice quality on one side or the ability to achieve that mandate. I think any type of reallocation of resources has to come part and parcel with a close examination of the mandate that we have for our public broadcaster and what we want them to achieve.
In the case of BBC and a lot of the other public broadcasters that we looked at in our study, we haven't come across any instances where there has been much pullback on the news side. That always seems to be prominent. BBC has been able to maintain its world-class news service but at the same time be very ambitious with its content side, entertainment side, to the point where it has been very successful in exporting.
The Chair: Before giving the floor to Senator Eggleton, Senator Unger, you had a supplementary to Senator Housakos' question?
Senator Unger: Yes, I do.
With regard to the first topic raised by Senator Housakos, is culture really an important issue globally? How hard is culture to sell, and is it relevant anymore?
Mr. Chodorowicz: I think culture remains very relevant as a public policy issue or objective. I haven't seen any diminishing in the discussion at the global level in terms of the importance of supporting culture. We monitor what's happening in the European Union, and there's been a renewal in its support of culture as well, so I don't think it's something that has lost its public policy importance over the past decade.
Senator Eggleton: By way of follow-up to the questions from Senator Housakos, I want to ask you about the comparisons that you've done. You've done the comparisons on the basis of what is provided for public broadcasters in different countries. You've come up with this figure of $33 per capita. You say it's probably more like $29 now. You've put Canada far below the average and right towards the bottom — third from the bottom, in fact.
The question has been raised about indirect public funding — in Canada, for example, the Canada Media Fund. You say that there probably are other funds in other countries. From your understanding of what is available for other public broadcasters, is the relationship within these statistics still valid? Is it still valid to say that Canada is far below the average of the 18 countries? You seem to have some knowledge about indirect public funding for other countries. Could you please comment on that?
Mr. Chodorowicz: I have some knowledge, but I think it may require a much fuller investigation of the different types of supports that public broadcasters may be able to access in other countries.
Given what we know about the U.K. and perhaps some other countries, in looking at the situation in Canada with the other support measures that were mentioned, yes, it may change the 33. The 33 may move higher. If we were to include CBC's portion of the Canada Media Fund and CBC's portion of tax credits, then it would, of course, move higher.
I guess the question is, once we look to the other countries, and even if they're not as substantial as the system in Canada in terms of other support measures, would it substantially change the rankings? Would Canada really move up that much? That's what I would be interested in finding out.
I think it was mentioned that taking into account some of these other support measures already moves you up to $40 per capita, but I don't think that gets you very far up the rankings. You're still in the lower third even if we wouldn't touch the other countries, which we would, of course. For example, Australia has tax incentives as well for independent productions, so those would have to be taken into account, and Australia might move a bit higher. Canada moves up, Australia moves up, everybody moves up a bit, and I'd have to see how the rankings would change. That is all to say that it may not change the conclusions of our study that much.
Senator Eggleton: That's what I wanted to know. Senator Housakos figured that it probably comes out to approximately $42, but that's still way below the average of $82.
Senator Demers asked you a question about the BBC dealing with different platforms in this new age, and you talked about the iPlayer. Could you talk about the CBC with respect to what it's doing on the Internet and trying to keep up to date with the new technology?
Mr. Chodorowicz: Well, given our particular location, we can't really speak in detail of the CBC's most recent new platform endeavours as much as we can about the BBC. In some cases there is very good access to CBC content internationally on new platforms, such as the iOS platform, but of course in other cases, for those of us outside of Canada, it can be difficult to access CBC content over new platforms because there are geographic restrictions. The rights-holders to that content only licence to CBC to distribute it for broadcast in Canada.
It's frustrating for some of us hockey lovers and lovers of Canadian content and other types of Canadian programming because we can't get the ready access that we think we deserve, even though we're outside of the country sometimes.
Over the years, for example, in the case of satellite radio, the CBC was quite aggressive in getting onto that platform. That particular platform may not have had the traction that was expected at the time.
In terms of digital TV platforms, the CBC has moved on to especially TV platforms, particularly with its news channel, but in that case I'd say that the CBC is at the mercy or the subject of the CRTC in terms of how many digital TV services it can have.
Senator Eggleton: You've done two studies. You did something called the Westminster study as well, which was more relevant to value for money than it is these strict statistical measurements. In the measurement I previously talked about you said Canada was third from the bottom. But when you did this value for money, this Westminster study, you ranked Canada last. What caused that situation to arise? How did they drop in the value-for-money valuation?
Mr. Chodorowicz: I don't know if I'd call it the Westminster media study. It was a presentation at a breakfast conference that was looking at public service broadcasting. Nordicity was asked to provide some international context, a bit of background. We fulfilled that by providing a lot of the indicators that you also see in the PSB study that was done for the CBC, but also expanding that and experimenting with some other indicators. As you pointed out, value for money was one of them.
That was a case where we introduced some audience data. As I mentioned earlier, there is some audience data available from international ports on various countries, and it permitted us to do some what I would call rudimentary measures of value for money.
But I think for a full-blown commissioned study, as I noted earlier, we take a lot closer look at that audience data, scrutinize it and make sure that it provides a sufficient apples-to-apples comparison across countries in terms of how it has been measured. We also want to take into account, as I noted earlier, the competitive environment that each of those countries faces.
While the Westminster media forum presentation provided some interesting background, it didn't stimulate the discussion that we had hoped it would on the day. It wasn't a full-blown study or a comprehensive study looking into value for money, but it's something that we could probably do in the future with or without the CBC.
Senator Eggleton: Thank you.
Senator Housakos: I have a quick supplementary on Senator Eggleton's first question about funding sources.
The BBC, which obviously seems to be a model for everyone, does it get any funding outside of taxpayer dollars and outside of advertising revenue? My question, in short, is this: Does the BBC get any funding outside of the borders of the U.K.? What funding would that be, and why would they be getting that funding?
Mr. Chodorowicz: Do you mean income?
Senator Housakos: Revenue, yes.
Mr. Chodorowicz: Maybe Mr. Hignell can describe the BBC Worldwide arm.
Mr. Hignell: The BBC has a division or an arm called BBC Worldwide, which is tasked with not only distributing BBC content — channels such as BBC World Service — around the world, but it also is involved in a number of businesses and actually operates itself very much like a business. It takes BBC content and sells it to broadcasters around the world. It has been very successful in doing so and generates a significant amount of revenue that way.
Senator Housakos: Thank you.
Senator Unger: Thank you, gentlemen.
A witness appeared before the committee for this study and made the statement: "Don't get preoccupied with technology. It's content that matters.''
Before you answer, I would like to refer to an article that was in our National Post newspaper in December 2014. The comment was that the CBC is not the public's broadcaster, and there was an observation made that the CBC is not about Canadian programming but programming Canadians to its enlightened view about how the world should work. Would you comment about content? Is that what really matters?
Mr. Chodorowicz: Our view has been that content is extremely important. Yes, I would agree that there is a lot of emphasis or attention to the technology, especially when new technologies emerge and it's felt that they're going to disrupt traditional models. When the dust settles, it seems that the quality of content always emerges as the key to success.
I think to some degree we are seeing that with what's been referred to as over-the-top services such as Netflix. It's a new platform, but it really has made its mark recently in terms of the quality of the content it is producing.
Going back to the BBC, which has always paid attention to technology and has experimented and has made sure that it's prominent on new platforms, it certainly hasn't ignored the fact that it still has to create very high quality, world-class content to remain competitive. As the saying goes, content is king, and I think it remains so.
Senator Unger: What is it that the CBC is not doing, in your opinion? Again, CBC is paring away evening newscasts.
I live in Western Canada, in Alberta, and specifically they've significantly cut our newscasts and thus have become more and more irrelevant in that part of the country. What should they be doing that they're not?
Mr. Chodorowicz: In the context of our study, how can we expect them to fill their mandate vis-à-vis other public broadcasters when they're 50 per cent of the average and well behind some of the other public broadcasters?
We come back to BBC a lot, which in my view is the gold standard in terms of public broadcasting. They maintain a national news operation. They probably don't have the same local news demands that CBC does, yet they operate, as you see in our study, with a funding level — even if you added in CBC's advertising revenues, which are another $400 million to $500 million on top of the appropriation, they're still nowhere near the kind of resources that BBC operates on, and yet they seem to have news obligations that aren't that different.
When you compare them to some other countries, it seems that CBC is stretched. That's just the view from looking at the numbers and the context in which these two public broadcasters operate. Obviously next week, you and the other committee members will get a bit more detail on the BBC's operations and you'll be able to see the differences for yourselves.
Senator Unger: Thank you.
Senator MacDonald: Gentlemen, I want to go back to the discussions about culture. Three years ago this month, when Konrad von Finckenstein stepped down as Chairman of the CRTC, he mentioned that the Internet and wireless technology had disarmed federal regulators of their weapons to protect cultural identity.
Well, it's now 2015. It's been three years since he said that. Do we need new weapons to protect our cultural identity? If so, what would they be? Have other countries introduced new weapons to protect their cultural identity and what might they be?
Mr. Chodorowicz: There's no question that it's a challenging time with new technology. Over-the-top services are proliferating in Canada. If you go back in time, it's not that much different to grey market satellites. That was a challenging time for the Canadian system as well. We found a Canadian solution through policy and regulation, allowing Canadian services to prosper in that particular marketplace. There may still be a grey market out there, but we don't hear as much about it when you have Bell ExpressVu and Shaw Direct.
I don't think that these challenges can't be addressed. It seems that one of the best ways to do it is to tweak or configure the policy and regulatory environment in Canada so that we can have Canadian champions, homegrown sources of content, whether that is a Canadian version of Netflix, which we see Rogers and Shaw getting into now with their own service, or making sure that our mobile operators also have the opportunity to make the most of audiovisual content over mobile platforms.
Whether it's the distribution of television signals or telecommunications, there is a continued role for policymakers and regulators to play to help nudge along the Canadian marketplace and to find a homegrown competitor, if you will, in these other platforms.
One thing about Canada is that it is unique. There's no other country competing directly with a cultural behemoth like the U.S. It's not until you spend a lot of time outside of Canada that you realize just how omnipresent American media is on Canadian television and I recall that in previous years it was quite prominent on Canadian radio.
This is a challenge that the U.K. doesn't face. Other countries certainly don't face it, because American programming has to be subtitled or dubbed into their language. Even in English-speaking countries like the U.K., there is American programming, but it's not aired at the same time as it is on the American networks, and you certainly don't have the promotional push that Canadian viewers are exposed to on a daily basis.
I think that other countries, in the U.K. specifically, may not have been directly or actively concerned about these other platforms. If we take Netflix, for example, in the U.K. there's a competing service which is now owned by Amazon, but it was originally a U.K. service called LOVEFiLM. So here is an example where the market leader now, even though it is owned by a global multinational, was effectively a homegrown U.K. solution to this particular over-the-top platform that was emerging. It's an example of making sure at all policy corners that Canadian media entrepreneurs have an opportunity to thrive. If you allow that, they will find homegrown solutions to these challenges for us.
The Chair: I have a few questions. If you don't have the answer right away, you can send it through the clerk.
What is the board structure for Channel 4? What are the governance issues? Is it BBC? Is it another kind of board?
Secondly, we talked about the ad revenues from the Super Bowl. What do they do with the simultaneous broadcast of ads on television when the revenues are being generated in the U.S.? Are they shared locally with the local broadcaster?
You talked about the $400 million of advertising for CBC/Radio-Canada. Would you know the share between CBC and Radio-Canada, and what was the effect of the approximately $100 million that was lost by the loss of "Hockey Night in Canada''? How would that affect the ratios you have been using since the beginning?
In general, when you talked about subsidizing, you used CBC/Radio-Canada, and we talked about market share. The success of Radio-Canada, as far as audience is concerned, you have millions and millions of people listening to many shows, which is not necessarily the case for CBC. How do you distinguish that when you do a study where you talk about market share?
Mr. Chodorowicz: In terms of the advertising revenue, on the English side of English TV, CBC English TV, I think it is around $250 million. These data are published by the CRTC, and we can certainly send them to you following this meeting. We have access to them.
On the French side, I believe it's some approximately $125 million in advertising for French TV, so it comes out to about $375, just touching $400 million. That's the split there.
In terms of the impact of the loss of "Hockey Night in Canada,'' offhand I don't know what CBC's advertising sales were for it. I think in the Canadian Press it was often reported that CBC was paying in excess of $100 million a year for the rights. I don't know if there were any press reports on what the corresponding ad revenue was. But we could take a look and see if there have been any reports or studies on that. You might put the question to CBC for a precise answer on that as we would only be speculating. They've lost the revenue, somewhere between $50 million and $100 million, from "Hockey Night in Canada.'' That would be anywhere from 20 per cent to 40 per cent of what they're earning now. Again, we would have to know precisely what "Hockey Night in Canada'' was earning in ad sales, but it was probably a significant chunk. From what I understand, under the new sort of retransmission deal that CBC has, they're not getting any ad revenue from "Hockey Night in Canada'' even though they're retransmitting the signals.
In terms of board structure, that is probably something we can get more detail on and send to you. We don't have it now, but it's readily accessible because Channel 4 has very good public reporting. We should be able to get that information. You'll find out more about BBC next week, including the BBC Trust, which is an independent governance body that oversees the BBC. They don't have a parliamentary appropriation. They collect the television licence fee, and the governance of that money is through the BBC Trust.
In terms of how to take into account the market shares of French versus English, that's a good question. If we were to tackle it properly, it would probably mean splitting up the two markets. We may have to look, in a comprehensive study, at the English-language Canadian TV market and the French-language Canadian TV market to get the proper ratios in terms of a value-for-money assessment. By blending together, there might be flaws in the approach.
Senator Plett: I want to make one quick observation before I ask two quick questions. I am not disappointed with the report or the gentlemen presenting today as I think they have done exactly what CBC asked them to do, but I am disappointed that CBC would not put more stock in wanting to compare the viewership with the amount of money they get from public funding, because I think there is a direct correlation. We have heard again today that the U.S. gets the least amount of funding and is doing the best job; and we don't have those comparisons in a report like this. However, I'm sure CBC didn't ask for that, and so I'm disappointed.
You talked a little about the fact that we are in a unique situation with the United States that other countries are not in. I would like to know what competition there is in other countries. Norway gets $180 per person in public funding. In Canada we have CTV, Global and CBC competing. One gets public dollars, the others do not. Is it the case in any Scandinavian countries that they would also have direct competition with a private broadcaster?
Finally, about one third of the people in Canada don't pay taxes. Is that taken into consideration in a report like this? What would the comparison be with countries that get such funding, keeping in mind that if we remove the one third who don't pay taxes and put Senator Housakos' numbers in, which he gave us earlier that include provincial funding and so on, so suddenly we would move up considerably? Would that comparison in any way correlate with what the Scandinavian countries have, keeping in mind the competition these countries face?
Mr. Chodorowicz: The second question was about removing the one third of the population that is not paying taxes. Is that what you were asking?
Senator Plett: I can do the numbers myself and figure out if we would take that out. My question is: How does that compare to Scandinavian countries that are way up there? In Norway, do one third of the people not pay taxes? I am asking about doing a comparison. I can figure out myself what it would be if we remove one third of our population. I want a comparison.
Mr. Chodorowicz: In European countries, Scandinavian countries and in the U.K., they're not dealing with parliamentary appropriation but with a household licence fee. We should be looking at what percentage of households pay that licence fee.
I can't speak to Scandinavia, but in the U.K. certain exemptions allow you to avoid paying the licence fee. For example, I think that once you reach 65 you may no longer have to pay the licence fee; and there might be other means tests.
In the case of the U.K., we'd also reduce the base from full population to some portion of it by finding out who's paying the licence fee. Some people can avoid paying the licence fee and some don't pay the fee because they don't have a TV or watch television over the Internet as it is being broadcast. We would take those exemptions into account.
Senator Plett: Since this is a licence fee, is it per television, which would mean possibly per household or maybe there are two televisions in the house? It wouldn't mean per person, so the comparison is different if we're talking $180 per television versus $33 per person. My household is two people now, but we had four boys. Multiply $33 times six and we're at $180 or a little more.
Mr. Chodorowicz: In the study, we've taken the total amount of revenue collected from households, X billion pounds, converted it into Canadian dollars and then divided it by the population. Everything is apples to apples in the study.
In terms of taking into account that not all Canadians are taxpayers, if we're going to do that, then we also need to take into account that not all households are licence-fee payers and not all the people in those households are taxpayers as well. Adjustments across all countries could be made similar to what would be done in the case of Canada.
Senator Plett: In order to get a fair assessment, those adjustments possibly should have been made. In any event, thank you for the comment.
I'll use Norway as an example because they are the highest amount here. What competition do they face? CBC faces CTV, Global and then a bunch of American stations. What competition does Norway face?
Mr. Chodorowicz: I can't say specifically about the Norwegian market.
Senator Plett: Use the Swiss or German market.
Mr. Chodorowicz: Can I use the U.K. market?
Senator Plett: Sure.
Mr. Chodorowicz: In the U.K., the BBC is quite high up there too, but not quite as high as Norway; and it's not because the pound was very strong in 2011, that's for sure. Even though the BBC is the leader, there's a lot of competition from private broadcasters. There are licensed private broadcasters, such as ITV and Channel 5, which would be equivalent to over-the-air broadcasters in Canada. They sell advertising, and they also have regulatory obligations in terms of promoting U.K. content.
Another important source of competition is outside of the traditional over-the-air broadcasters or the licensed broadcasters, and that's the numerous or dozens of what would be the equivalent of specialty TV channels in the U.K. Keep in mind that they don't have the same regulatory oversight in terms of licensing here, so it's much easier for an American specialty channel to come into the U.K. market. Then you also have Sky, BSkyB, which operates a premium service.
There are other sources of competition, but they tend to be not as direct as what Canadians face. When a Canadian turns on the TV, they have three plus one major American networks right there. In the case of the U.K., yes, you have private broadcasters that are in the lower tiers or in the lower valuations of the electronic programming guide, but they are British broadcasters. You have to really get high up in the dial until you start to reach anything close to American programming in the sense of what the American broadcasters will find. You'll never have just what is basically a direct feed of American programming the way you do in the Canadian market. There's just no comparison in terms of the competition.
Senator Plett: Thank you.
The Chair: I would like to remind members we have a special meeting after for the delegation to Great Britain.
Supplementary questions?
Senator Eggleton: I think we have to bear in mind when we talk about the American entertainment industry that it is funded by a population that's 10 times bigger than ours. That's a huge revenue ability that we don't have. We're up against that kind of competition to be able to tell our stories. It's not easy to do that against the American entertainment industry. That's something that not too many of these other countries have because of the language differences, or even Radio-Canada. They have some language protection that English-speaking Canada does not have from the American entertainment industry.
I want to ask about the question of share. I got a letter today from the chairman of the CBC. He talks about the share of the market that the CBC has, and it's actually respectable. It's lower than CTV, which does mainly American broadcasting, but it's higher than Global. CBC, of course, is showcasing Canadian content in its prime time. The share is 8.2 per cent. In this day and age, with the many channels we have in the television universe, that's not bad at all. CTV is 12.3 per cent.
He also points out in his letter that it's not just a question of share. He talks about reach. In reach, he says the total number of viewers who watch the CBC reaches 89 per cent, and that is 89 per cent of all Canadians watch CBC television on a monthly basis.
Can you comment on this question of the kinds of measurement, share versus reach?
Mr. Chodorowicz: Audience research and analysis is a very specific field. It requires a fair bit of knowledge and experience to navigate these various measurements. That's part of why, if we want to do a comprehensive value-for-money analysis, it needs to be done in conjunction with the expertise that goes into audience analysis. As I pointed out earlier, the Westminster media forum piece was a rudimentary look and doesn't take into account all of the various measures of audience in terms of, as you noticed, share and reach. Those are the kinds of indicators and types of analyses that would have to be incorporated and done on a country-by-country basis if we wanted to do an international comparison.
My comment is that I would love to comment, but it really requires someone with audience analysis expertise to give you a precise definition of what the difference is between share and reach. I have exposure to these types of data points, but they have very specific definitions.
Senator Housakos: We've been looking at these charts and listening to numbers all day, and numbers can really tell a story. When it's all said and done, the numbers that really count for any broadcasters are the BBM numbers and, at the end of the day, the advertising dollars. Advertisers are pretty savvy, and they are not subjective when it comes to deciding where they put their money. The reality is that we have a problem with our national broadcaster, which has lost significant amounts of advertising dollars.
I'm a little disappointed, honestly, gentlemen, today because I've been hearing your side of the coin consistently throughout the debate at this committee. The only solution we seem to be hearing is that we have to spend more money; we're not spending enough. Your core argument today was indicative of that strategy and that perspective: Look at Norway, look at Switzerland, look at Germany, and look at poor Canada, $33 per capita.
As my last question for you, using your chart and numbers, I look at the top five spenders here, and you have amongst them Norway, Germany, Switzerland and Denmark. I look at the chart for value-for-money, the audience share per capita, and the number of national viewers for public funding per capita. When I look at both of those charts, down at the bottom, next to Canada in terms of viewership, we have Canada, Germany, Denmark, Switzerland and Norway. Norway is spending six times more than Canada, and they're getting marginally better audiences than we are. Germany and Switzerland are spending five times more than Canada, and they are getting a marginally smaller audience than we are, and the same with Denmark. How do you account for that? Above and beyond just saying we need to spend more, is there anything else we can do besides spending more?
I used to be in business. When I had my division managers come to see me at the end of a quarter or end of the year and their sales, revenue and profits were down, trust me, the first I wanted to know was where the market was, and the second thing was what their strategy was. Then I would decide if I would spend more money in that division or not. The first question would not be whether I would spend more money in that division.
I end my questions on that note and hope you have some insight.
Mr. Chodorowicz: I think you've pointed out that a value-for-money analysis really has to take a look at all the intricacies of these various markets and countries, find out what they are doing with their funding and how much is going into content on-screen versus news programming, and what that means in terms of their audience share. There are a lot of factors. We've talked about the various competitive marketplaces or competition that these countries face, and that has to be taken into account.
I would caution arriving at too many conclusions based on what I've described as a rudimentary comparison of countries looking at a value-for-money ratio of funding or total turnover or total revenue to audience.
We'll need to find out what is going on exactly in the Scandinavian countries and why their funding per capita is high versus why their audience share may be lower. It may just be that they have a much different tradition or commitment to having public broadcasting and the role of an impartial voice or impartial entity in their broadcasting system, so they may feel that it requires a certain level of funding.
One of the things we look at in our study is the relationship between funding levels and the potential benefit. It may be that the Scandinavian countries feel there is a much higher potential benefit, so they fund their public broadcasters commensurately with that.
In terms of what to do, one of the things in our study is that there are 18 countries in there and Canada seems to be quite far off from the average or even the middle of the pack. We seem to be a bit of an outlier in terms of funding. If we were to take into account the Canada Media Fund and the tax credits we may get closer to the middle of the pack. But as we noted earlier, those things have to be taken into account in other countries and so it may not change the rankings or conclusions very much. We may still find ourselves in the position where we say that we need to examine or consider the level of funding vis-à-vis our peer countries just to get closer to the middle of the pack.
As you've noted, before we throw money at the issue, it's important to examine how things are being done and if they're being done as efficiently as possible. There are two elements. Once you've identified that you have the right strategy and are operating as efficiently as possible, you're still going to be faced with competition from American programming, which comes from a country with 10 times the population. Also our research in previous studies has shown that with TV programming you're dealing with budgets that are 10 times Canadian average budgets. It's very hard to compete like that, even if you are as nimble and as efficient as possible. Eventually you have to put resources into programming to get it to the quality where it can appeal to viewers.
The Chair: Colleagues, I know there are other questions, but the steering committee, Senator Housakos and Senator Eggleton, have a meeting to go to immediately in Room 7.
I'd like to thank the witnesses from Nordicity for their excellent participation.
Tomorrow we will hear from the Canadian Association of Film Distributors and Exporters.
(The committee adjourned.)