Proceedings of the Subcommittee on
Communications
Standing
Senate Committee on
Transport and Communications
Issue 4 - Evidence - December 4 meeting
OTTAWA, Wednesday, December 4, 1996
The Subcommittee on Communications of the Standing Senate Committee on Transport and Communications met this day at 3:30 p.m. to study Canada's international position in communications.
Senator Marie-P. Poulin (Chair) in the Chair.
[English]
The Chair: Honourable senators, we are privileged to have with us representatives of Call-Net Enterprises Incorporated. As you probably know, this subcommittee has been brought together by the Senate of Canada to answer the following question: How can Canada remain at the leading edge of communications in the year 2000? We know it is a complex issue and a rapidly evolving one. We would like to look at it from four perspectives: the technological perspective, the cultural content perspective, the human resources perspective -- actual and future human resources, those we are training for tomorrow -- and the commercial perspective.
Please proceed with your opening remarks.
Mr. Juri Koor, President and Chief Executive Officer, Call-Net Enterprises Inc.: We are pleased to have this opportunity to comment on issues surrounding Canada's international competitiveness in communications. In doing so, we would also like to comment on competition in the Canadian marketplace, for what is happening or not happening there has direct implications for our international competitiveness.
Competition in the communications industry is still a novel idea in Canada. It arrived in the long distance sector just four years ago. It will appear in some new wireless sectors over the next couple of years; wireless mobile telephone services, for instance, and fixed wireless broadband services. However, all told, Canada is behind the emerging trends in the United States and Europe. Consequently, you are right to raise concerns about Canada's international competitiveness in communications. I believe we are lagging behind, and that is costing us economic growth, jobs and export opportunities. Let me give one vivid example: We at Call-Net estimate that data centres moving from Canada to the more competitive U.S. environment have taken with them thousands of jobs, about $700 million in payroll and $3 to $4 billion in economic output and whatever the tax base is on that.
These are startling numbers and they underscore something very obvious: Canada needs a coherent and visionary communications policy that fosters competition at home and acknowledges the global context.
We need a communications policy that builds on our proven and indigenous ability to bridge distance through technological innovation. We need a communications policy that has the clarity and foresight to peer far into the future and embrace, with enthusiasm, the massive technological change occurring in other parts of the world. We need a communications policy that puts us a few strides ahead of the pace of change that is going on in Europe and the United States. Instead of being five or six years behind, we should try to get a year or two ahead. We need a communications policy that heightens competitiveness and entrepreneurship at home and encourages the export of Canadian knowledge, products and services.
All of that, of course, means jobs in Canada. Having a communications policy will also give the federal regulator a more useful reference document for making decisions and a framework for investors to consider the industry's opportunities.
Obviously this is not the time to map out a detailed policy. What we would like to do is address three items that fit with your committee's mandate: First, the need to develop a competitive communications infrastructure -- that means building both facilities and intelligence, both hardware and software -- second, the importance of global alliances to the growth of the Canadian communications industry and the Canadian economy and third, the need for access to enormous quantities of capital.
Let me begin with infrastructure. The existing communications infrastructure in Canada is inadequate. It must be greatly expanded. To start with, barriers to entry in all markets must be removed so that Canadians will end up with a multitude of choices. Competitive choice is very much a catalyst of economic expansion.
Consider the situation in the long distance market, which was opened to competition in 1992. Call-Net was the first carrier to provide an alternative supply of fibre optic transmission capacity to the duopoly of Stentor companies and Unitel. Today we are one of two full-service long distance alternatives to the Stentor alliance of former long distance monopolies. They are still monopolies in local telecommunications services. There are also two other national long distance suppliers, though they are not full-service companies.
Our national telecommunications network is one of the most modern, reliable and high capacity systems in Canada. It consists of our own fibre optics circuits as well as leased transmission lines, along with four digital switching centres in Vancouver, Calgary, Toronto and Montreal. We have established two network management centres, one in Toronto and the other in Vancouver, that can individually manage our entire network. We also maintain a 24-hour customer service centre in Toronto and have 17 sales and service offices from coast to coast. All in all, we employ more than 1500 people in our long distance company, Sprint Canada.
By the way, we created this company from absolutely nothing. Virtually all employees have been hired in the past three or four years during a time of painful struggle and adjustment to the Canadian economy. These are all well-paying and full-time jobs, and we will create more.
Based on our experience, competition in the long distance sector has promoted new investment and new jobs. It has also promoted other widespread socio-economic benefits. For example, long distance prices in Canada have declined by more than 50 per cent over the past four years. That means Canadians, whether they be corporations, self-employed, not-for-profit institutions, charities, governments or consumers, all have saved billions of dollars on their phone bills.
Competition has increased customer demand for long distance services. That has prompted product and service innovations. That, in turn, has further fed customer demand. Furthermore, competition in long distance has led to the formation of new business enterprises, for example, call centres, that make it easier for small firms to find customers and struggling arts groups to raise money. Consequently, the more competitive we are in the development of long distance infrastructure, the better off are Canadians.
Our nation needs more infrastructure suppliers. That means barriers to entry must be removed so that new entrants like Call-Net can remain at the forefront as agents of change. As you can see, infrastructure means much more than the hardware for transmitting information. It also includes intelligence in the form of software. For instance, at Call-Net we have created all our own software systems and applications for billing services. These are ideal export products.
In the next few years many new services will emerge. Call-Net will develop some of these new applications for both the domestic and export markets. New services will promote a surge in the demand for transmission facilities and bandwidth. We see this happening in both local and long distance communications, on wire line and increasingly by wireless transmission.
Consequently, Canada cannot afford to be caught in short supply. It is essential, therefore, that the government establish a comprehensive policy that encourages new entrants to construct facilities in all markets throughout Canada. This is especially necessary in creating alternative local networks founded on facilities-based competition. Regretfully, however, it looks as though this will not happen anytime soon.
As you know, the CRTC has just concluded proceedings on local competition. All the evidence submitted suggests that it will take several years before effective facilities-based competition in local services makes economic sense. The fact is that the Stentor companies have had 100 years to build the public network telephone system across Canada. The regulatory regime enabled them to enjoy healthy and guaranteed returns on their monopoly investments. In other words, they were able to build their service at great expense to the Canadian public. It would be difficult for new entrants to duplicate these public facilities overnight.
Meanwhile, how can Canada develop a more competitive infrastructure? We have suggested to the CRTC a complementary resale framework. In our case at Call-Net, this would involve reselling bundled telephone company services and/or leasing circuits from the local telephone companies, combined with our own switching and local network facilities. This is similar to the hybrid carrier strategy we developed in the long distance market. We believe this resale strategy would ensure a more rapid deployment of the benefits of local competition to all residential customers, both urban and rural. As important, this strategy would be the catalyst for the building of local networks, both wired and wireless, throughout Canada.
We are very interested in wireless infrastructure. For example, we have a 19 per cent interest in Microcell Telecommunications of Montreal. Microcell is one of the two companies awarded national licences last year to provide PCS mobile wireless telephone services in competition with the existing two national cellular telephone companies."PCS" stands for personal communications systems.
Microcell is deploying a national PCS network and is the first company in Canada to launch the new PCS phone service. We are proud to be an investor in building this network and look forward to a government policy that encourages the construction of a wide variety of other communications infrastructures.
The focus of government policy for the coming years must also ensure that competition is effective and robust in all markets. However, the government should not encourage premature deregulation of incumbent and dominant monopoly firms. I mention this because the CRTC recently initiated a proceeding to determine whether to deregulate the long distance services of the Stentor companies.
We are all in favour of deregulation provided that there is sufficient time to establish effective competition. We are not asking for the hundred-year competitive protection that the telephone companies have had, but it does take several years to get a new business up and running against the enormous economic might and market presence of the monopolies.
Everyone agrees that genuine competition in local services will benefit Canadians but, as the experience in long distance shows, it is extremely difficult for new entrants to get a firm foothold. That is not surprising. After all, the new long distance companies are competing against large vertically integrated telephone companies that have 100 per cent of the local market share.
Let me now turn to the second element of a vibrant communications policy, global alliances. We believe that a national communications priority should acknowledge the participation of Canadian service providers in global alliances. We have yet to feel the impact of globalization on our communications industry, but it is beginning.
Consider the three major alliances that link Canada to the rest of the world. First, the alliance between MCI and the Stentor companies. The proposed merger of MCI in the United States and British Telecom will create a global company with $42 billion in revenues. That is bigger than most of our provincial economies. The beneficiaries of this alliance will be the Stentor firms. Second, we have the alliance between AT&T Canada and the worldwide AT&T corporate empire. Obviously, our main rival in the alternative long distance market will benefit. Third, Call-Net is fortunate to be associated with one of the most important global communications organizations. It is called Global One and is jointly owned by Sprint in the U.S., France Télécom and Deutsche Telekom. The Global One association gives Call-Net considerable value and confidence in going forward. It will enable us to compete against the Stentor companies in providing Canadian businesses with a seamless communications service they expect across Canada, throughout North America and around the world.
Furthermore, Call-Net intends to enter the international service market as soon as Teleglobe's monopoly is terminated. We appreciate Teleglobe's honesty in stating to this committee a month ago that it would like its monopoly terminated because it is hurting competitors, Canadians and even itself. This is a dramatic request and we urge the committee and the government to act immediately.
As I mentioned earlier, Canada cannot afford to be left behind at the global level, and we will not fully benefit from global opportunities if our national communications policy is biased in favour of the monopoly firms.
I might note that there are large Canadian communications equipment companies -- Northern Telecom and Newbridge come to mind -- that have done well in global markets without having to hide behind government-sponsored protectionism. These companies are world renowned for their innovation, something that cannot be said of most monopolies.
Much of Canada's innovative capacity, and certainly the ability to create new jobs, is in small and entrepreneurial firms. This is true in any industry. To maximize the benefits of the current trends in global alliances, we need a policy that provides equal incentives for a full roster of Canadian service providers in the communications field.
It takes considerable capital to be a viable competitor in the communications industry, and this brings me to my third point, the need for improved access to capital resources. The pressure to access capital will intensify as competition spreads in the Canadian communications industry and as globalization begins to impact on our domestic market. Billions of dollars will be needed over the next few years to add further fibre optic circuits to build our new wireless services, to upgrade existing wireless and wireline systems, to develop and introduce new software and products, to establish new service ventures that have not yet been anticipated. I have not even touched on the potential of the Internet and other on-line computer services.
We are talking about a quantum leap in the invention, commercialization, functionality, delivery and use of digitized communications. If we do this pathfinding work at home the Canadian industry will be in a strong position to take advantage of export industries around the world.
For all this to be financially viable, we need easier access to capital, and lots of it. Unfortunately Canada represents between two and three per cent of world capital markets. This means we must have access to foreign funds. This is the point in the remarks where I must admit a mistake. The last time I appeared before a Senate committee in November 1995 I argued that foreign investors should be prohibited from owning more than 50 per cent of a Canadian telecommunications company. The government is moving ahead on this but, on further reflection, I think that we must go a large step further on this issue.
In the past year alone we have seen how the pace and shape of competition has changed at the global level. With it, the demand for capital is escalating. Current foreign ownership rules cannot support the size of investments that will be required in Canada by companies determined to be viable competitors at home and abroad.
The two-tiered voting and non-voting regime that currently exists is not attractive to foreign investors. As a result, Canadian carriers like Call-Net have an inflated cost of capital because investors prefer regular voting stock as an investment security. Higher cost of capital is disadvantageous to all Canadian carriers on the world stage. It particularly hurts newer and smaller carriers like Call-Net.
While we have done remarkably well in raising equity and debt capital so far, we simply cannot compete over the long haul for limited capital in Canadian markets against the Stentor companies. After all, they still have a guaranteed return and are capable of paying dividends.
The solution to this problem is simple: Eliminate all foreign ownership restrictions. Foreign ownership should not be a concern as long as the infrastructure is built in Canada, products are developed in Canada, the jobs are created in Canada and management is in Canadian hands. Nor should foreign ownership be a concern as long as all carriers are subject to Canadian laws and regulations.
I should point out, however, that Call-Net is very much a Canadian owned and a Canadian managed communications company. Our shares trade on the Toronto and Montreal stock exchanges, as well as Nasdaq in New York. About 65 per cent of our economic ownership is in the hands of Canadian investors, principally institutions. About 25 per cent is non-voting shares owned by Sprint in the U.S., and the balance is owned by investors around the world.
In conclusion, Canada needs a policy that promotes and facilitates fair and effective competition in all Canadian telecommunications markets. We need to build a greater choice of infrastructure. We need to understand global trends and get ahead of the inevitable changes. We need to broaden the industry's access to capital by removing foreign ownership restrictions so that new and financially strong Canadian competitors can emerge to serve both domestic and world markets.
The domestic long distance market testifies to the benefits of competition. Canadian businesses and consumers are the big winners from new services and options, as well as lower prices. Furthermore, many innovative services and products are on the market today that were not available just a year ago. In short, competition works. Long distance competition is one of Canada's most successful public policy initiatives.
The communications industry, with its potential for enormous growth and innovation, can do much to broaden our economic opportunities, to create quality jobs and to generate export income. To carry us well into the next century, Canada needs a new policy that will facilitate and enhance competition in all facets of the communications business and position the industry as an international leader.
The Chair: One question that we have asked previous witnesses is: What is the appropriate foreign ownership level? If I understand your presentation correctly, you would be comfortable with even 100-per-cent foreign ownership, as long as rules and regulations were respected by this ownership.
Mr. Koor: That is right.
The Chair: That is on the ownership of a infrastructure. What recommendations would you make to ensure that the intelligence behind the infrastructure reflects Canadian content and culture?
Mr. Koor: I think that the marketplace determines a lot of those things. The content is low capital, relatively high risk development in a lot of things happening in Canada right now. Just drive around Toronto and you will see continuously movies being shot and vans on our streets. It is obviously a good place for this sort of thing. Who provides the funding is, to my mind, almost irrelevant. If you get a thousand mutual funds to provide the money none of them on their own would exercise control. If the money coming into Canada enables Canadian management to go out into world capital markets, I think it will actually help the development of Canadian content.
Senator Spivak: You mentioned local services markets, and I know there has been a drop in the price of long distance calls, but has there been a drop in the cost of long distance calls? Will there be a similar drop in local services to the residential customer? It does not seem to be so from the information we in Manitoba are getting. What is your outlook for the cost of local telephone services?
Mr. Koor: I do not think the drop in prices for local calls will be as dramatic as in the case of long distance calls.
Senator Spivak: Do you think it will drop though?
Mr. Koor: I think price will drop because of $2- to $4-price increases every year. You cannot look at today's prices when you apply your question, you must look at the price two or three years from now when the local market will really open up. If you add $4 a year for another couple of years that is a different question. Compared to those prices I think price will drop, but I do not think it will be the kind of dramatic drop of 50 per cent experienced in long distance rates.
What will actually drive customers to change suppliers is additional functionality, such as customer service that is available 24 hours a day, billing options that are not available. In the longer term, I believe customers will buy functionality rather than technology.
Senator Spivak: Do you really think it is profitable for companies such as yours to compete in remote locations?
Mr. Koor: We compete now in long distance. What we do is pay the Stentor companies for leased lines, or if we do not lease into a location, we terminate the calls and pay either DDD or advantage rates. Also we originate calls from all over Canada.
Mr. Jean Brazeau, Vice-president, Regulatory Affairs, Call-Net Enterprises Inc.: There are a couple of additional points to be made here. We must look also at the total bill and the questions of whether it is going down or will be going down.
Senator Spivak: Are we talking residential services?
Mr. Brazeau: Absolutely. Previously the long distance side of the operation was subsidizing the local side, so you cannot look at local services in isolation. If the subsidy on the long distance side is being reduced, you must look at by how much, at by how much local rates are going up and at the total to determine whether you will be worse off under this scenario.
Senator Spivak: Right, but for industry, long distance was cheaper than for residential consumers, so it was the bypass problem. How much long distance will residential consumers use as compared to local services?
Mr. Brazeau: For certain residential customers this was a great deal. If you did not make many long distance calls -- and when I say "many" I do not mean $600 a month, I think the break even point was $30 a month -- it was a great deal. The other point is that what you are seeing and what you will see in the future is that as competition and new technologies come in, incremental costs of providing local service will come down.
In Canada today the incremental cost of providing local service is $30; in the U.S. it is $10. As new competitors come in, costs will come down to this incremental rate, and that is when you will start seeing some of the local rates coming down. Also, what you are seeing is the sins of the past. Although local service was pretty cheap, price wise to customers, on the capital cost side it was a very expensive network. Our incremental cost is $28, the fully imbedded or average cost is closer to $50 or $60. If we had no subsidies on local services, residential customers would be paying $60 a month. That is a lot of money. That is the cost structure that was allowed to permeate in the industry. That will change with competition. We will use new technologies, we will use new ways of providing service.
In the short term, I think perhaps customers will see local rate increases. In the medium term and longer term I think you will see those rates coming down, as new entrants come in.
Senator Spivak: Will cable and telephone companies actually compete in each other's markets? Will small players entering these markets create the competition, and what are Sprint's plans?
Mr. Koor: First of all, I think smaller firms will generate innovation and spend the money on new technology. We have set up a subsidiary and have a number of people working in that company getting ready for the regulatory decisions to be in the local market. Our entrance into those markets will be based on different technologies focused on the specific market. I do not think any one technology will become universal across the country.
For us, being in the local business is almost mandatory. In order to even continue competing and growing in the long distance business, we must be in the local business to effectively complete and offer a bundled product just on those two services.
Senator Spivak: Do you think that telephone companies and cable companies will compete as it is visualized they will compete, or will there be other things, like LMCS?
Mr. Brazeau: I agree with Mr. Koor. Although the vision was that the two facilities-based carriers in Canada today, the cable companies and the telephone companies, would compete in this converging world, I do not think that is how it will evolve.
Senator Spivak: It will be too expensive.
Mr. Brazeau: They just do not have the culture. Competing is very difficult and unless you have competed, have been in a very competitive marketplace and understand what is involved, you just do not wake up one morning and say, "I am a competitor and I will compete aggressively in this marketplace." Unfortunately, the cable companies have not evolved in that type of environment. They certainly like to talk but I do not know if they will ever get into the telephone market, and that is why, more and more, telephone companies are looking at acquisitions, instead of competing in the marketplace, and building two infrastructures. If there is a hope for competition it will come from a company like Call-Net.
Senator Rompkey: If you are to compete in the local marketplace, will you do that through wireless technology? Presumably you will not build your own infrastructure to compete?
Mr. Koor: The technology will be dependent on the market sector. In the very dense downtown areas of cities we will more than likely build fibre to the buildings. Some of it will be wireless. We will buy capacity from LMCS providers if they are there. PCS, I think, will never have a very large market share because it is primarily a mobile technology, certainly not in the time frame we are talking about. Our proposal to the CRTC is that we also be allowed to start reselling local services, and as our volume builds we will build the facilities, which is exactly what we have done in the long distance business.
Senator Rompkey: You say that data centres are moving from Canada. Why are data centres moving from Canada?
Mr. Koor:It was really during Bill Heatherington's, who is Canadian and who used to run IBM Canada, four or five years in Canada that this happened. Private line rates used to be between 7 and 11 times more expensive in Canada than in the United States. When you are running these very large data networks you do not have to be an intellectual giant to figure out that moving your data centres south of the border has huge economic benefits.
I just use data centres because it is an industry with which I am familiar, but it has happened with lots of other industries. Call centres were moving to the United States, until when Frank McKenna started promoting his province. He has done a fantastic job in bringing the call centres back, helped by the drop in long distance rates. He could not have competed and do what he has done without a drop in long distance rates. Large elements of the software industry have moved to the United States, again, because of the cost of private line and data. You have to think in terms of 7 to 10 and 11 times more expensive for route miles. That is not the case any more.
The other thing that is important is that a competitive market is not a duopoly. A duopoly is not a competitive market because, although both Unitel and Stentor were in private line and data and Unitel was priced slightly below Stentor, nothing serious happened. We built our first fibre optics line between Toronto, Montreal, and Ottawa. When we announced that we were going live, Stentor dropped their prices on private line on that route by 40 per cent. It was instantaneous. Fortunately, we had anticipated them, but if you are, say, ten times more expensive than the U.S. and you drop your price by 40 per cent, you are still five times more expensive. There is still a huge difference, and prices have come down since but only on those specific routes.
No one else has built fibre in the time we have or in the quantity we have, and fortunately in our financial models we assumed that prices would actually drop to U.S. rates in four or five years. We did not quite expect the price to fall off the edge of a cliff the way it did but the investments have not been a financial disaster mainly because our assumptions were that the rates would come down to U.S. levels. You need at least three suppliers to have effective competition.
Senator Rompkey: You say that infrastructure includes intelligence in the form of software and that such products are ideal for export. What do you mean by that?
Mr. Koor: For instance, all the customer service systems, all the billing systems, routing systems. We have developed all that software in Canada. As competition opens up all over the world there will be a lot of competitors our size with our scale to which I believe we can sell the software. This is not a market where you will have hundreds of thousands of buyers but you will have hundreds of buyers.
Mr. Brazeau: This software is really at the heart of the company and that is what we are. If it was not for that we could not bill our customers.
Senator Rompkey: I just noticed that there was a request to the committee to ask the government to act immediately, and I suggest that we might actually do that.
Senator Johnson: Cable and other broadcasting systems will pay a 5-per-cent levy to fund cultural content production and this is a CRTC regulation. Should a similar 5 per cent levy be applied to telco companies like Sprint, in your opinion?
Mr. Koor: We are not asking for anything special. If people who are in the content business get the levy once we are in that business, I would not have a problem with that. We are not in that business right now. Our strategic plan is to get very close to it. However, we have no intention to actually be in the creative part of the business. That is a different type of organization; most of our people wear suits and our corporate culture is different. There is no point in pretending what we are not.
Senator Johnson: Do you feel that Canadian culture is in jeopardy as a result of our rapidly changing telecommunications industry and your obvious desire to eliminate all foreign ownership restrictions? Do you see those factors as threats to our culture in any way, as a result of the new technologies?
Mr. Koor: Let me give you an example on the challenge of answering the question. If I want to watch "Lion King" at home, I can walk to the video store and rent a "Lion King" tape. I can wait till I can watch it on television for free. I can watch it on pay TV. I can sign on to a Marathon line, down load it on my PC to a CD-ROM and watch it. Which should be the regulated "Lion King"?
That is the difficulty because with convergence there is very little difference, you cannot separate the transmission of digital information from a voice phone call and some video being down loaded. With competition the customer decides what he wants: he can pay $30 for the tape, he can pay $2.50 to rent it, he can pay $6.50 and watch it on Pay TV, he can wait until he gets if for free or he can down load it from a Marathon line, which will take him half an hour. Then he has his "Lion King."
I do not have pat, easy answers, because the world is actually moving a lot faster than our regulatory environment, and if I were in the cable business I would say, "Why is my "Lion King" being regulated when the "Lion King" at the video store or on the Marathon line is not regulated?"
The Chair: What Senator Johnson is probably leading to is if the "Lion King" is so accessible, how can Canada make sure that the "Eager Beaver" is also accessible and produced, to put a Canadian slant on the story?
Mr. Koor: It is easy; Canada must be an attractive place in which to invest. You will get all the money in the world then. As I said earlier, if you drive around Toronto you will continuously see movies being produced, and there are no huge tax incentives any more like there were five or six years ago.
Senator Johnson: Those are mostly American movies being made.
Mr. Koor: That is where the money comes from.
Senator Johnson: The problem is distribution of our product and the competition there.
Senator Spivak: You cannot have competition if somebody has all the money in the world and we do not.
Mr. Koor: Yes, but you can produce a better product.
Senator Johnson: We do produce excellent products.
Mr. Koor: Newbridge produces an excellent product. They compete worldwide. Because they produce an excellent product they are able to raise money worldwide. Because we have done what we have done, we are able to raise money worldwide. If you get directors and producers in Canada to produce an excellent product, the money will come. Money comes to where it earns a good return, and it generally earns a good return because you have a good product.
Senator Spivak: However, Hollywood has 98 per cent of the market and they want 100. That is the difference. How can you compete with those deep pockets?
Senator Johnson: They are the ones making the movies here; 90 per cent of the movies.
Senator Spivak: They are making American movies.
Mr. Koor: True, but they are using Canadian labs, Canadian facilities, Canadian trucks and generating Canadian jobs.
Mr. Brazeau: Your question would suggest that perhaps the existing policy is not achieving what it is supposed to achieve.
Senator Johnson: That was part of what I was asking you. What would you say to we parliamentarians with regard to making these new laws?
Mr. Brazeau: I will come back to what Mr. Koor was saying: Quality will attract investment and new productions. How do you legislate quality? You cannot do that. The only thing you can do is create an environment that would allow that to happen. You talked about your subsidization policy; maybe that needs to be revisited. All we are talking about here is what is the optimal taxation system in order to encourage Canadian production. Perhaps the system that we have today does not achieve that objective, and we need to revisit how we, in the most effective way, should tax people to ensure that we do produce quality programing. Only when we have quality will you see real Canadian productions being shown around the world. How do you legislate that? That is a very tough question.
The Chair: As you can see, Mr. Koor, we do not have an easy mandate in ensuring balance and growth and progress on all levels, be it progress at the economic level or be it progress at the Canadian identity level. I do know that there will probably be follow-up questions between our research team and yourselves. Your contribution is extremely worthwhile and useful to us.
Welcome, Ms Macdonald. It is a pleasure to have you here on behalf of the National Film Board.
Ms Sandra Macdonald, Government Film Commissioner and Chairperson, National Film Board of Canada: I am very pleased to be here today. With me is Joanne Leduc, our director of international program. I invited Joanne to join us in anticipation that you will have questions about, for example, the commercialization of our kind of production abroad and, indeed, the commercialization of other people's production abroad. Joanne is extremely well placed to respond to that kind of question because each year she attends all the markets, she sells for us, and she sees what everybody else is selling. I thought that she would bring a very informed point of view to that issue, one on which I do not have the same degree of expertise.
We thought we would share our views with you, in particular, on the cultural dimension of your mandate and the role of Canada's traditional cultural institutions like the National Film Board in this new context. Also, because these things are inextricably linked, we want to talk about how the evolving communications universe is affecting the broader environment in which we function, both the challenges in it and the opportunities.
First, I would like to take a few minutes to describe our working hypotheses about communications, competition, globalization and Canadian content. I know that you have heard from a number of well-informed witnesses over the last few weeks who have given you a pretty complete overview of our telecommunications infrastructure and how it is responding to competition and globalization. We are all aware that Canada's international competitiveness in this field is essential, both for the sector itself and for all of Canada's other industries. Canada is a high wage, high consumption, high service society and the maintenance of our standard of living is clearly linked to our competitiveness in those areas where we can add value or reduce cost. Communications and computing are the tools by which we add value and reduce cost.
Fortunately, we have an extremely good and internationally competitive communications infrastructure. Our history in this country of building these kinds of transportation systems, from railways to pipelines to satellites, is outstanding. Our problems have consistently been those of content and coverage. The portion of our population that lives outside urban centres has always been hard to serve because of the enormous cost of doing so. Content and coverage have been a problem because the normal play of market forces does not, by itself, produce a satisfactory result. The costs are disproportionate to the population served. Intervention has been required to achieve the levels of service which successive generations of legislators have determined to be in the public interest.
[Translation]
Intervention in telecommunications, until very recent years, took the form of regulation of monopolies to ensure reasonable rates and equality of access. In radio, it took the form of public financing, with the creation of the CBC in 1936. The creation of the National Film Board in 1939 followed the same model. In both cases, there existed a private sector alternative. The problem was that the content of that private sector alternative was predominantly foreign.
Private radio in Canada was much more integrated into the US pattern in the 20's, 30's, 40's and even 50's than it is today. Many of the radio stations, and later the TV stations, were owned by US networks. We tend to forget that Canadian ownership rules are not that old, they really came into force in the 1970's. Content rules for private radio date from about the same time, and forceful regulation of Canadian content on private television is a product of the 1980's.
[English]
The decision to intervene directly in content was a reaction to the lessons learned through the free market beginnings; first radio, then film and later television. It was evident that without intervention we would have the communications-rich and the communications-poor as a consequence of our geography, and that we would have very little content that spoke particularly to our own circumstances because the costs of producing such content were high, with little potential for profit. Foreign material, on the other hand, was plentiful and readily available, and could be obtained very cheaply because its costs had already been amortized in its domestic market. This is all well-known, and I mention it here only because the content issues we face in the years to come are in many ways discouragingly similar to those which characterized the early years of both radio and television. They are similar because we remain a geographically vast country, linguistically diverse with a small population. The underlying dynamics of our communications market have not changed.
I use the term "discouragingly similar" because our interventions in the content of communications have produced notable successes, but we have spent a long period learning how to manage the system. We began in the 1930s with the creation of public institutions like the CBC and the NFB to produce and distribute content. In the 1950s we began also to support artists of all kinds through the Canada Council and later provincial arts councils. Through the 1970s and 1980s we became very effective, by trial and error, in using the regulatory system to support some forms of content which were considered under-represented. All the activities so stimulated created a production capacity which was then reinforced in the 1980s and 1990s by support for independent film, television and music production companies, many of which are now successful exporters. It is a complex and delicately balanced system. It works pretty well, for the moment.
[Translation]
But we are all aware of the fragility of that system. It is constantly under siege from the forces of fragmentation of audiences, costly and difficult technological change, fiscal restraint, and the unceasing competition from the wealth of material which enters our market freely, every day. It has taken decades to develop our present approach for the broadcasting system. Therefore, the speed with which on-line services are developing is really quite alarming, because we have no similar mechanisms in place to ensure even a minimal Canadian content presence in that new environment.
It is also an environment which lends itself far less readily to regulation, and where the potential cost of subsidizing a significant quantity of Canada specific content is enormous. On the other hand, the potential cost of not being present in a substantial way is also enormous, from a social, cultural and political point of view.
[English]
What do we do? We at the National Film Board have an action plan called "NFB 2000." It is a framework which will guide our activities for at least the next three years in production, distribution, technical services, the management of our collection and our support services.
We start from the assumption that Canada will continue to have a state-of-the-art telecommunications system and that we can make use of that system to add value, to reduce cost and to conquer geography, so that we can contribute our maximum resources to the creation of content, Canadian content.
[Translation]
We, like many other activities of government, have had to adjust to a significant reduction in the resources available to us. In our case, the effect over 3 years is almost 30 per cent. We have consequently had to re-examine every aspect of what we do to minimize cost, to maximize effectiveness, and to position ourselves for the future.
[English]
We started from the principle that production is our top priority and that we want to continue to release 85 new titles a year, which has been our average for the last several years, and that we want to continue to have a presence in all our existing production centres; Vancouver, Edmonton, Winnipeg, Toronto, Moncton and Halifax, as well as Montreal. In order to ensure that as much of the production money as possible appears on the screen, the number of producers and executive producers has been reduced by half. Creative positions will be filled on a per-project or fixed term contract basis, and location personnel will be hired on a free lance basis, which is the norm in the private sector production industry. If we are successful in maintaining our level of production, the number of individuals engaged to direct, shoot, capture sound and perform all the other tasks associated with making a film will remain the same as it is today. They will simply be predominantly freelance rather than full-time employees.
We will continue to co-produce with film-makers from across Canada, and to provide support to emerging film-makers through our existing programs which exist for that purpose.
[Translation]
A major change in the area of technical services was to assess the cost of each service being offered at our Montreal plant and to compare that cost with the one of services available from the private sector. We took the position that we should only continue to offer in-house those services which offered a cost advantage relative to the private sector, or which provided other advantages of such value as to justify their retention where they were not economic. The assessment of the viability of each service was based on decisions about production formats taken by our technical services restructuring committee, and on estimates of volumes provided by the two production programs, French and English. Based on these assessments, it was decided to expand visual effects services and digital activities, to retain pre-production, editing, sound and video services, and to cease operating the graphic studio, the sound stage and the laboratory, except for certain specialized functions needed for conservation and visual effects.
I should mention that we offered assistance in developing a business plan to any former employee who wanted to offer, as a private company, a service we were getting out of. An agreement has subsequently been reached with a former employee to operate the sound stage as a private venture.
[English]
In the past, the NFB had an approach to making its collection available to the public which offered a very high quality of service through some 30 distribution centres across the country. The service was also very expensive. Over the past two years all of those centres, except NFB Montreal, have been closed. The collection has been placed with partner public libraries in each city where we have closed our own distribution services. A much more streamlined approach has been taken to the most active 500 titles, making use of a 1-800 number and the Internet to respond to enquiries and to make sales. This activity, from being one which was a money-losing proposition, is slated to become cost recovering within the year.
A different approach has been taken to the balance of the National Film Board's 9,000 titles. A major effort is under way to evaluate and conserve our vault holdings and to transfer all of those titles which are in suitable condition to laser disc for consultation and the making, on request, of single video cassette copies through our CinéRobothèque in downtown Montreal. There is some literature on that in the package that we have given committee members. Some 4,300 titles have already been transferred. This collection belongs to the Canadian people, and we take our responsibility as its custodians very seriously, even in these difficult times.
The other major change we made as part of our response to budget reduction was to reduce all administration and support activities by 50 per cent. That is what we have done.
[Translation]
These plans, which have now largely been put into effect, are aimed at ensuring that the National Film Board of Canada continues to fulfil its mandate of interpreting Canada to Canadians and the world, within the resources which continue to be available to us. We are using the strengths of the Canadian telecommunications systems internally to work more efficiently, and, externally, to reach the public in new ways.
[English]
Let me give you a few examples. We have been able to reduce our non-production expenses at the board by approximately 50 per cent, through the implementation of an integrated financial management system operating on a wide area network, which links our operational headquarters in Montreal with our six other production centres across the country. We have eliminated inventory in our distribution system by going to just-in-time manufacturing of videocassettes through a conventional outside supplier for our active titles, and through our new automated system, which we developed ourselves, for titles from the heritage collection.
We are actively using the Internet as a distribution mechanism through our very large corporate site, which receives on average 1,900 visits a day, and through productions specifically for the Internet, especially production with an educational purpose. Two current examples are the Media Awareness Network, which is a site dedicated to media education. This was begun by the board and has now been set up as a separate not-for-profit organization with the support of a number of public and private sponsors. Another example is a production of our own, on our own site, called "The Prince and I," which comes from our education and multimedia studio. It is a children's production aimed at enhancing literacy through stories, interactive games and other activities. This project also has a CD-ROM aspect to it.
[Translation]
We are also actively developing the Intranet as an internal working tool to make our processes more transparent, to provide easy access to databases and other management tools, and to make the NFB an easier place for freelance personnel to work, since one of our major changes with NFB 2000 has been to have far fewer permanent production personnel and to rely more on contracted talent.
The transfer of our collection of 9,000 titles to laser disc, available on demand, is an effort to ensure that the Canadian production of which we are stewards will be there when the information highway eventually develops the technological -- and economic -- means to have it reach directly consumers' homes. We are currently offering some 4,000 of those titles on demand to sites linked by fibre optic cable to our Montreal facilities. The system works beautifully. However, we offer this service presently on a test basis where the telecommunications costs are absorbed by our partner in the enterprise, Videotron Telecommunications. Whether the service will be economically feasible once charges start being incurred for the content delivery remains to be seen.
[English]
These are some of the ways in which the NFB is adapting to the new communications environment. We believe we are at the leading edge of using technology to both produce content and distribute it, to manage it efficiently and to serve the public. Are we competitive? It is hard to say. The answer depends on what you consider indicators of success.
Is it income earned? The percentage of our overall budgets coming from earnings is increasing every year, but it still represents a relatively small part of our overall. At the moment it is about 12 per cent. We are not set up to make productions that the market place would generate on a commercial basis. Is it Canadians reached? That certainly is a benchmark we consider important and we do everything in our power to enhance. However, the material we produce is by its nature often specialized and numbers alone do not paint the entire picture. Is it critical acclaim and awards? These at least offer some indication of the quality of the work being done.
These are the questions we ask ourselves because the standards we aspire to -- quality, relevance and innovation -- are not judged by the bottom line alone. This is particularly true in the area of content because every production is a prototype. There is no formula which guarantees a successful outcome. The only way we can hedge our bets is by investing in talent; ensuring that there is enough opportunity with the right tools for talent to develop. Talent develops by learning from experience. We have shown, time and time again, in this country that the talent is there if we give if the means to develop. Amassing those means and putting them at the service of talent is the only mechanism we have for ensuring that there will be Canadian content in the communications systems of the future, because one thing that we do know with certainty is that only Canadians can produce content which is specific to us. That is not something which the global market can supply.
We also know, from long experience, that the domestic market, left to market forces alone, cannot economically generate certain kinds of content. The issue then becomes, from a public policy perspective, how important we consider what might be called uneconomic content and what we as a society are prepared to pay for it. We cannot answer that question. However, we will be pleased to answer any of yours.
The Chair: We do not have the annual report here. Could you just remind us of your annual budget?
Ms Macdonald: We brought some copies in case they were of interest. Our annual budget is dropping rapidly. Last year it was just over $80 million of which approximately $10 million was income. We had a parliamentary appropriation of roughly $70 million. It was approaching $70 million because we had a parliamentary appropriation and some special allocations for equipment. In 1998 the parliamentary appropriation will be $56 million.
The Chair: Of the actual $80 million in expenditures, what percentage would be administrative costs?
Ms Macdonald: We spent 8 or 9 per cent on costs not directly associated to production. There is administration in production but we consider that a production cost.
The Chair: Within the production cost what would be the percentage dedicated to marketing, to make Canadian and international markets aware of your product?
Ms Macdonald: If memory serves me well, in the past we were dedicating something in the neighbourhood of maybe 15 per cent of our overall activity to costs that you might consider marketing and distribution. We were also earning income, but our earnings were not matching expenses. In fact, a year ago we were spending about $7 million a year more than we were earning in the whole area of marketing and distribution. Our objective, which we are on line to achieve, is that by 1998 marketing and distribution of titles in English will be neutral as to cost. That is to say, we will no longer be spending more in this area than we are bringing in. A year later we will accomplish the same goal with regard to French productions.
Our objective, in the first case, is to ensure that our activities in getting the product out do not cost us more than we generate in income, so that we are not taking money away from production to subsidize distribution.
The Chair: You referred to the Juneau Report and one question we have asked a previous witness, who was also one of the three subjects of the Juneau Report was the following: Since Christmas is coming and we all believe in Santa Clause, if you could choose three recommendations of the Juneau report to be implemented immediately which three would they be?
Ms Macdonald: Actually, as the report pertains to recommendations for the NFB, we have in fact implemented all of them, except two with which we did not agree. One was to move all our English production out of Montreal to Toronto. We have rebalanced a bit there. Another one was to move downtown in Montreal and we have decided to stay where we are. Other than those two suggestions, we have implemented everything in that report pertaining to the NFB.
Overall, of course, the Juneau report did recommend that the government greatly enhance the resources it allocates to the CBC relative to the plans that were on the table, and I would certainly say that we would be very happy at the NFB if that were to happen. The CBC is important for all of us. Certainly in terms of reaching Canadians with NFB productions the CBC is one of our major customers. The health of the CBC is part and parcel of our capacity to reach the public with our films, so obviously the recommendations with respect to the resources for the CBC are critically important to us.
Senator Spivak: You mentioned that reduction is your top priority, but at one time, as I am sure you are aware, it was suggested that the NFB become basically a film school and make education its top priority. It never happened but what is your view of that proposal?
Ms Macdonald: There was a time when there might have been some logic to that thought. In the 1960s, for example, the NFB was the entire film industry in Canada and there were no film schools so anyone who learned the trade of making a film basically learned it at the NFB. Research done by the Canadian Film and Television Production Association about two years ago disclosed that there are now 57, if I am not mistaken, formal training programs in film and television production across the country.2
The gap that was identified by them and by us has closed, and there are thousands of people coming out of training schools to become film-makers and television makers. The big problem they have is getting the resources to make their first film. We at the board consider it a very important part of what we do, that we give young film-makers the chance to make their first film. Every year approximately a third of our titles are made by somebody who has never made a film with the NFB before.
We have a program, the Film-makers Assistance Program, whereby we set aside resources, $800,000 for this current year -- which for our budget is a lot money -- for young film-makers to help them make a film. As far as we are concerned, that gap that we fill is the best possible way to support the development of talent in the system, giving young people the chance to make their first professional film.
Senator Spivak: I was struck in your presentation, and I have seen it before, by the comparison of today's world with the world of early radio and television and the need for government intervention because had it not been for government intervention we would not have what we have today. Production I understand, and the minister has addressed production through that new fund, but everybody knows that one of the major problems is promotion and distribution. What should the government do in this aspect? We know that Hollywood has 98 per cent of that market and wants more. It is not enough to produce wonderful films, videos and all kinds of things, which then do not get distributed because there is no money to promote and distribute, as there is for American productions.
Ms Macdonald: That issue is specific really to feature films, theatrical. However, in television distribution exists by virtue of the fact that the people who have the capacity to distribute are regulated, and as part of the regulatory bargain, there is shelf space allocated for Canadian production and resources are channelled into production. Broadcasting is a completely different matter from feature films.
Similarly, the whole issue of content in on-line services or on-demand services is completely different. We do not have the shape of that yet but the bottleneck on distribution that exists for feature films does not exist in on-line services. Look at the Internet; anybody who wants to set up a home page sets one up. The issue of distribution varies with the type of product you are talking about and, indeed, as the last witness mentioned just after we arrived, although the product is the same, the bottlenecks do not always occur in the same place.
For Canadians it is undoubtedly true that we have a huge problem in the area of feature films. It is a problem that has many dimensions. One is we do not make that many feature films, and it is hard to have a big presence if you do not have volume. That is one thing. The second thing is that almost all our films are low budget. Low-budget films, no matter who makes them, including the Hollywood studios, do not get much time in theatres because the audience tends to be adapted to big special effects and lots of action, and these things are extremely expensive to produce. We cannot play in that league, the money is not here, unless we bring in foreign money to make essentially those kinds of films.
I could go on all day about the feature film problem, but it is quite a different problem from the television problem or the Internet problem. We are capable of doing productions for television because they are not special effects driven, requiring enormous budgets, and there are places to go with them. That is why in fact our most successful independent production companies in this country got out of feature films and went into television. Television is a real business.
Senator Spivak: Even in the broadcasting field it is much cheaper to buy American reruns than it is to have Canadian productions. From what we have gathered in previous hearings, private broadcasters are not living up to what the CRTC demands of them.
I do not know what will happen on the Internet but do you have any other suggestions or thoughts about broadcasting?
Ms Macdonald: It is absolutely true that you can go to the market, buy product that someone else has paid for in their own country and bring it in to this country really cheap. In fact when we sell abroad we sell for very low prices in many countries. Because every country prefers its domestic product, there is a premium on it, and foreign product can be brought in cheaply. It is sort of the immutable rule of the market of programing.
In our particular case, because we have a small population which is accustomed to the production values of American programming, making something that is competitive for, say, $1 million an hour is not practical because we only have a potential of 18 million viewers, whereas an American company has a potential of 250 million viewers. The cost per unit just bears no relation. If we want that specific Canadian production we must recognize that competitive cost. Competitive production cannot be done at the same unit cost as in the U.S., so we must find another way to pay for it.
Senator Johnson: The whole country, in my opinion, owes the National Film Board a huge vote of thanks for the incredible work you have done over the years, starting in the film industry in this country.
How many films, documentaries, TV productions are you doing per year? Do you see yourself in the future concentrating on certain areas, say, documentaries, or will you continue to try and be more diverse because your budget is continuing to decline?
Ms Macdonald: We have made some strategic decisions. First, we have decided that we will concentrate on documentaries and artist animation, which are our traditional strengths. We are not doing fiction at the present time. The reason we are not relates to what is out there in terms of resources for production, and the hardest production to finance in this country is documentary, and nobody but us does artist animation. We felt that if we abandoned that field the field would disappear essentially.
Other people finance feature films -- Telefilm finances them, provincial agencies finance them -- and the tax incentives are conducive to feature films; they are not very useful for documentaries. We asked where we could do the most good, and that is where we felt we could do the most good.
Senator Johnson: That will continue to be your focus and that has been one of your outstanding roles in the past.
Ms Macdonald: Yes.
Senator Johnson: You made mention in your brief that the on-line services are developing in quite an alarming way because you have no similar mechanisms in place to ensure even a minimal Canadian content in this new environment. Then you went on to talk about how you and the film board are working with the Internet, with videocassette production and with fibre optics to get your material out there. Do you have any further points to add about what you would see as a role for you in this emerging era of competition and globalization?
I ask you that because Mr. Maserola, of Telefilm, on Monday, talked about establishing, in the interests of all the sort of traditional cultural institutions like yourselves, the CBC, Telefilm, one large umbrella organization and one board overseeing CBC, NFB, Telefilm. He said he favoured that approach. Can you tell me what you think of it? Would it be helpful? Would it be beneficial? Would it serve the purposes of the Canadian content presence, which I am worried about, in terms of the multi-channel universe and the whole new era we are heading into; preserving that Canadian content through film, through the CBC, through these traditional institutions? Do you have any comments on that proposal? Would that help to bring everything together?
Ms Macdonald: I cannot see how it would unless there was a lot more money attached to it. Basically the issue is not the organizational structure but the resources that will be required to be present in that field, and it is by no means obvious to me at the moment where they will come from. We have focused 25 per cent of our production resources on materials for learning, and we anticipate that most of that material will be interactive and will be available on the Internet probably.
We also have gone I think further than anybody else in the country in putting the material we have produced in the past in a catalogue that, in fact, is ready right now for distribution, if the transmission costs of the fibre optics can be figured out. We can do it right now, we are doing it.
We have tried to figure out how, with the resources we have, we can play our part in ensuring that the Canadian content is available in on-line services. The problem is that with the resources we have available the number of hours of material we can generate in the course of a year is a drop in not the bucket but the ocean.
The Chair: Because of what is available out there.
Ms Macdonald: Yes. I think really the thing that we must come to terms with in the on-line services, as we have learned with video-on-demand which the movie services make available, are twofold: One is regulation has far less effect. It can have some effect and we should use it to that effect, but it has far less effect than it has in the scheduled broadcasting system because these things are not scheduled. The most you can do, because people make their own schedules, is ensure some shelf space for the Canadian material. At least you can make sure that there is room for it to be there. That is less valuable than saying that a network broadcaster must have X hours in prime time, far less valuable, but it is something.
The other thing is that you must find some way to make sure that the resources are there to have material to fill up the shelf space. At the moment this is not just an issue of Canada being a small country, but also that nobody is making money on content for the Internet. It will be a long time before anybody figures out how to do it. There are lots of enterprises out there, the Time-Warners of this world and all the giants, who are throwing billions at this process in the anticipation that somewhere down the line there will be money in it. And, as with every other new thing, if you stake out your territory early, you have an advantage later on. If you come late you have a huge hurdle to overcome.
At the moment the issue of the on-line services in Canada is not do we have the technology to do it -- we have, it is there now -- but that we are not investing anything, relatively speaking, in content.
Senator Rompkey: What percentage of your production would you classify as educational?
Ms Macdonald: Of the roughly 85 films we do a year, 20 or so are specifically aimed at enrichment of the curriculum. The rest, being mostly documentaries, are educational to a greater or lesser degree. They all have a purpose, to inform people. We do not actually, with very rare exceptions, make things for entertainment value. We focus on specific topics periodically, where we feel there is a need. Sometimes it is science, sometimes it is history, sometimes it is economic, it depends.
Senator Rompkey: You see that area as a growing niche for you. You said the technology is there now. In fact SchoolNet exists. The question is what is the content for SchoolNet?
Ms Macdonald: I mentioned the Media Awareness Network, a project of ours which is on SchoolNet. This site is for media literacy, and that is the kind of thing that I see us doing. We have put more of a strategic focus on materials that are specifically for learning and for young audiences in our plan, and we have reached an entente with the CBC and Radio Canada to do a large project over the next three years, 30 hours of television on a people's history of Canada. It will be done in both French and English and will be aired on CBC and Radio Canada. We will use the research from that project as the basis of a big push on supplementary materials on Canadian history for learning, both for adults and children.
This is another big project where we have put a specific focus on what you might call education, except that it will be popular education and not really didactic as is the case with many of our other school projects, having teacher's guides with them and things like that. It will be more oriented to the general public.
Senator Rompkey: Where would you say your competition is in terms of the production of educational materials? They probably exist in every province and nationally as well.
Ms Macdonald: I think of anyone else who is doing it as our colleagues because there is not enough, no matter how much we do and how much they do. We do not do things that are readily available in the market. For example, we do not do mathematics. Anybody can do mathematics. American products coming in serve perfectly well. Canadians do not have to do math. When we do wildlife and nature we tend to focus on areas ignored by the United States. They do not have that many grisly bears, they do the not have that many whooping cranes.
We try and provide the things that are peculiar to Canada which the commercial marketplace is not supplying, and we try to provide the things that are not easy for independent producers in the private sector to make on a commercial basis. We try to be sensitive to what only we can do and to avoid situations where we are undercutting what people can do as a business.
Senator Rompkey: You traced for us the history of the CBC and the film board. How does that compare with the pattern in other parts of the world? I always like to take Australia as a rough comparison. You cannot really compare Germany I do not think, although it is a federal state. Can you give us some comparisons of companies like the National Film Board in other countries and what pattern is developing worldwide?
Ms Macdonald: Australia has a national broadcaster like the CBC, the Australian Broadcasting Corporation. It also has private broadcasters, three networks. It has far less than we do in terms of specialty services, although that is expanding at the present time. The Australians did create an Australian film board modelled on the NFB. It was never as large and it was never as ambitious and, at the moment, it is a shadow of its former self, it has a budget of $4 or $5 million a year so it is a very modest enterprise. The film board has also been emulated in a few other places. Denmark was a film board modelled on the National Film Board. There are some examples like that. You would really have to say that the board as an entity is unique in the world, there is nothing quite like it.
France is the country that has the most extensive range of support systems for the production of audio visual material. It may have more than we do, although I am not sure on a per capita basis. They have the Institut national du audiovisuel, they have the CNC, they have public and private broadcasting entities that spend a lot of money. They support artists to a very great degree and you cannot think of making films and television programs without thinking about the fact that you must nurture actors, writers and publishers and all kinds of people because that is your talent pool, and they move around. If you have not supported the theatre it is very hard to have good television drama.
We tend to forget that we have an ecology in the talent pool and those in the talent pool do not say, "Well, I just act in TV," they say, "I act any place they will give me a job." If you cut away your support to theatre, you affect the quality of your films.
The Chair: Ms Leduc, how are we doing internationally?
Ms Joanne Leduc, Director of International Program, National Film Board of Canada: Internationally we are doing very well. We have offices in Paris, London and New York. Since the 1984 policy on film and video we have had a commercial mandate mainly. We have a staff of 18 overall, including Montreal. Two people are responsible for festivals, therefore, more of the cultural and visibility part. We participate in approximately 275 to 300 events a year nationally and internationally.
We also participate in the TV and video markets, where we promote and sell our product and, for the last few years, we have made a profit.
The Chair: As a result of the NFB's participation in these festivals or opportunities for marketing, what are the numbers , for instance, for the last three years with regard to NFB productions that have been purchased by other countries?
Ms Leduc: Literally hundreds if not thousands. At the end of each year we try and assess our best sellers. There are always some films that are much more important than others but maybe only four or five will have sold to more than one market. All the other sales are individual sales, they are "one-ofs."
The Film Board is extremely well known and admired internationally and we really do benefit from that when we attend markets. People come to us because they recognize us as high quality providers of programming and, amazingly, they know our product very well. At specific markets, they will come up to us and ask or either children's material, scientific content material or nature and wildlife, and they know that they will find it at the film board. There is a great variety of what we can provide.
The Chair: In your experience what would be the three criteria which would make an NFB film a best seller?
Ms Leduc: We tend to make films that are not necessarily related only to current events, so films can sell for 20 years sometimes. They have a very long life. In the feature area Mon oncle Antoine has been in fact described as maybe the best Canadian feature film ever made. In more recent years "Company of Strangers" has been very successful. It has been sold to approximately 80 countries around the world.
The Chair: What would be, in your evaluation, the criteria, that has made these films international products?
Ms Leduc: It depends which market specifically we are talking about because we reach so many different markets. Some films, although they may be Canadian in content, have a universal message. Others may be very unique or the quality is very high. People know they can come to us for excellent programing for children, for example. We cannot compare ourselves to Disney in the same way but people know that if it is NFB material it is safe for their children to watch on television.
The Chair: Do you have any commercial alliances with other countries for productions?
Ms Leduc: You mean in terms of production itself?
The Chair: Yes.
Ms Leduc: We are trying to develop more and more co-productions and pre-sales. It is not all that easy but we do have a few coproductions right now with France. We have done some in the past in the U.K. We have a very good relationship with A&E and the History Channel in the U.S. They have been pre-buying some of our material, historical material mainly. In France it is more of a scientific nature and so we are trying to develop that as well for the benefit of both countries.
The Chair: One of the questions that has come up around the table in the past is: There are 9,000 titles available at the NFB, why has the Canadian public not had access to them through the public broadcaster, i.e. CBC, on a regular basis for the last 20 years?
Ms Macdonald: That is a question for the CBC I think, because it is not for lack of trying on our part. To be fair to the CBC, I have to say that, first of all, we do not do series, and television thrives on series. We do unique films. Sometimes we do two or three, but we are hard to slot for them because we do not produce series. That is one problem.
The second problem is that our documentaries, which are our major output, tend to have a point of view, and the CBC tends to have a much more sort of journalistic perspective on the content of that kind of factual material and want absolute balance in everything that is said in the program. For the board the position has been traditionally that you do not need this exact balance in every program because the world is full of other kinds of information. We are offering something that has a perspective. It is not current affairs journalism, it is a documentary, and there is a difference. One of the problems is that the CBC applies their standards of current affairs journalism to the documentary form and it is not always a good fit.
Our animation, of which we are incredibly proud, consists of short pieces of odd lengths, and broadcasters have a terrible time figuring out how to put them on the air.
Senator Spivak: They are beginning to.
Ms Macdonald: We are becoming more accommodating too. The film-makers at the board have, for a very long time, resisted the idea that anybody could tell them what length something should be. They would say, "Well, its natural length is 86 minutes," and the broadcaster would say, "Well, I am sorry, we only have a slot for 47," and the film-makers would say, "Well, I am not cutting it." They are getting much better about that and we are being more realistic about it, I would say.
With the animation, we are also saying we can package a couple of shorts together, have a little interview with the film-maker and make a nice little show that is half an hour long. We had six such programs on Bravo earlier this year. They worked well, and we got coverage in the TV Times. We are getting better too, it is not all one-sided, it is not all the CBC's fault.
The Chair: Our research team, Mr. Fraser, will probably follow up with additional questions. If you have any additional recommendations to make to the committee we would be extremely open to receiving them in writing at any time but preferably before end of February.
The committee adjourned.