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Chairman and Commissioners:
Thanks for granting Friends the opportunity to appear today. We are a watchdog group for Canadian content in English-language radio and television, supported by 100,000 Canadians.
While your notice cites a principle that the Commission would "require regulation only where the goals of the Broadcasting Act cannot be met by other means", Friends believes that regulation is by no means a "necessary evil". Rather it is a system of rules that facilitates markets; a set of rules by which each of the licensed participants understands what is expected of them and ensures that each makes a contribution towards the Act's goals according to their means.
Over-the-Air broadcasters must be financially healthy in order to make these contributions, and to respond to viewers' expectations. While our September 27th submission explores many of the questions posed in the public notice, this morning we wish to focus on ensuring the future financial viability of the OTA system.
Friends believes that relaxing the current limit on advertising would favour the larger television groups over their smaller competitors. Any increase in ad inventories would go disproportionately to the larger groups while reducing the ad revenue available to the smaller ones. For this reason, we oppose relaxing the twelve-minute rule.
We also believe that specialty channels' access to subscription fees enables them to sell ad inventories significantly discounted in comparison with OTA rates, and that this places OTA channels at a significant disadvantage. Furthermore, subscription fees and regulation are the primary reasons for specialty channels' commendable contribution to the production and presentation of Canadian programming in recent years – averaging 36% of total revenues over the past five years.
The traditional OTA financial model, relying upon basic carriage to draw substantial audiences and ad revenues, is losing viability owing to fragmentation. The financial data speak for themselves.
This trend puts at risk the future contribution of OTA stations to local and regional news, as well as other valuable programming, such as Category 7 drama. Therefore, in principle, OTA television should be permitted equitable access to subscriber fees.
This raises legitimate concerns about the impact of such a decision on the pocketbooks of television subscribers. For this reason, Friends suggests that the Commission consider permitting OTA broadcasters to obtain subscription revenues based on the total number of digital subscribers. By exempting analog customers, especially lower-income customers purchasing basic services, the Commission would ensure that these customers would not be required to bear additional fee increases as a result of implementing this proposal. Friends also takes the position that the primary impact of audience fragmentation has come from the advent of digital services. Therefore, there is a logic to the idea that basic-only customers have not contributed to the financial disadvantage facing OTA television, and should not be asked to contribute to its resolution.
Friends also believes that the existing and historical fee structure should not be considered sacrosanct. The public interest would be served by re-apportioning subscriber fees to ensure value for money, consistent with financial performance results.
The Television Policy should ensure that a preponderant portion of these revenues be allocated to enhancing local services and high production value drama programming.
In our submission, we draw upon data from the 2006 CMRI study published in August by the Commission, which suggest that the total number of households subscribing to BDUs is in the range of ten million, of which some five million are digital subscribers whose monthly invoices average $48. A 10% increase in this fee, $4.80, might be phased in over two years, and would generate subscription revenues in the range of $278 million per annum. And, as the overall digital cable penetration rate is only 37%, there will be room for substantial growth in this total over time.
Friends notes that the most hostile response to fee for carriage seems to have come from BDUs, which have suggested that a subscription fee of this modest size could ring the death knell for their business. This reminds us of their assertion in the 1990s that licensing DTH would unleash a Death Star. Now that DTH is a reality, cable remains extremely profitable. The Commission should be appropriately skeptical of BDU predictions that fee for carriage is a "bad idea".
Compare a $4.80 monthly charge to digital customers with other comparable charges from BDUs. For example, Rogers Cable's Music Package costs $4.99 monthly, Sports $9.99, Lifestyle $6.99, and More
Movies $7.99. A single channel "Create Your Own Package" costs $2.49; five channels cost $9.95; and thirty channels $26.99.
We recommend strongly that the Commission grant fee for carriage only in response to incremental commitments to local and drama programming. We also recommend that this provision apply to all OTA channels, especially the CBC.
In our submission we noted that the BCE benefits have demonstrated that with the right budget and the right promotion, Canadian drama can succeed. This appears to have been the case with Category 7 drama programs like Corner Gas leading the way. There also appears to be a clear correlation between investment and audience results. The lesson is that spending on Canadian programming, more than the quantity of offerings, appears to be the most promising route.
Friends also recommends that the Commission consider an alternative scenario whereby private sector OTA broadcasters are encouraged to allocate their share of fee for carriage to the CBC in return for the CBC agreeing to reduce or eliminate its draw upon ad revenues. This reliance, to the tune of some $300 million annually, has the undesirable effect of pushing the CBC in the direction of programs with commercial appeal which can stray from its public service mandate. This includes excessive dependence upon professional sports, particularly hockey, and is consistent with government policy[1].
The Commission should use its powers to ensure that this fee for carriage is not subject to pass-through charges by BDUs, which we note would incur no incremental costs, and which have free access to OTA signals.
We do, however, find merit in the suggestion of Mr. Ted Rogers that the fees should be visible on BDU invoices. Friends recommends that the Commission use its powers to ensure that all fees for carriage, not just those of OTA broadcasters, are transparent to BDU subscribers.
Friends is greatly concerned that the Commission has not published individual station group data regarding spending on Canadian programming, as it did during the lead-up to the 1998 television policy review. These data are necessary so that the contributions made by each of the players can be separately considered. We find that in the absence of these data, it is not possible for outside observers to determine the impact of the Commission's 1999 Television Policy, especially on individual programming categories. There is no justifiable public policy reason for withholding these data.
We also note with concern that in questioning of ACTRA representatives Monday, Commissioners appeared skeptical regarding the potential of well-funded Canadian drama programs to attract mass audiences. For the record, the Commission should know that Canadian English-language viewers assemble in the millions to watch drama programs each week. Here are some numbers for the week of
November 13 to 19, 2006 as reported by CMRI:
- C.S.I: 3,658,000
- C.S.I. Miami: 2,445,000
- House: 2,413,000
- Criminal Minds: 2,325,000
- Corner Gas: 1,314,000
Owing to the correlation between spending and quality, Friends recommends that public policy be designed to ensure that all parties contribute in a fair and equitable manner to the system. The
Commission should reinstate its previous policy of requiring a specified minimum percentage of revenue to be spent on the production of Canadian programming, with a specific minimum percentage of revenue dedicated to Category 7 drama programming.
Friends recommends that the overall spending on Canadian programming be required at a minimum level of 30% of revenue, and the specific expenditure for Category 7 drama programming should exceed 5%.
Friends also proposes that the Priority Programming regime be amended to require that four of the eight weekly hours must be broadcast in the 15 weekly hours of peak prime time, from 8:00 to 11:00 pm, Monday to Friday.
Friends also recommends that the Commission re-introduce the specific requirement that OTA broadcasters provide local news. As well, cable companies providing local and community news coverage should be allowed to access local advertising adjacent to their news programming on condition that 80% of the new-found revenues be invested incrementally in local news programs.
We wish you well in your deliberations to come. The success or failure of your new policy will be visible to Canadians in all parts of the country. It's important that you succeed!
Thanks!
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For information: Jim Thompson 613.567.9592
1 - The Prime Minister, addressing the Canadian Association of Broadcasters in his then role as Opposition Leader in November 2004 said: "We would seek to reduce CBC’s dependence on advertising revenue and its competition with the private sector for these valuable dollars, especially in non-sports programming".