• Free the CBC
  • About Friends

PN CRTC 2014 – 190: Phase 3 – Let’s Talk TV

Jun 27, 2014

Mr. John Traversy
Secretary-General
CRTC
Ottawa, ON
K1A 0N2

Dear Mr. Traversy:

Enclosed is FRIENDS’ submission.

Also submitted as separate .pdf files are two studies co-funded by FRIENDS and other parties, one an Environmental Scan and the second on the Rights market, both authored by Peter H. Miller. These should be considered as appendices to FRIENDS’ submission.

Friends wishes to appear at the Public Hearing in order to discuss its views with Commissioners.

Yours sincerely,


Spokesperson


Broadcasting Notice of Consultation CRTC 2014-190

Phase 3 – Let’s Talk TV

Friends of Canadian Broadcasting is an independent watchdog for Canadian programming, primarily in the English‐language broadcasting system, supported by 235,000 Canadian families, and is not affiliated with any broadcaster or political party. Friends asks to appear at the forthcoming public hearing in order discuss with the Commission our views on the future of television in Canada, as outline herein.

  1. The Canadian Broadcasting System in Transition (Executive Summary)
  2. Scope and Outcomes of This Proceeding
  3. What Canadians Value in Their Broadcasting System
  4. What’s at Risk in the Canadian Broadcasting System?
    • Simultaneous Substitution
    • Unbundling
    • Other Risks to the System
  5. Supporting Key Priorities of the Canadian Broadcasting System
  6. Ensuring an Optimum Regulatory Framework for the Private Elements of the System
    • Redirecting Community Channel Funding
    • Support for Private Conventional TV Local Programming Requirements
    • Other Regulatory Changes
  7. A Fair Contribution From Non-traditional TV Players
  8. Enhancing the Support and Role of the CBC/SRC
    1. A Less-commercial CBC English Television
    2. BDU Compensation Regime in Favour of CBC/SRC
  9. Conclusions

Appendix 1 – CRTC Questions
Appendix 2 - The State of the Canadian Program Rights Market: 2014
Appendix 3 - TV Environmental Scan: 2014

1. The Canadian Broadcasting System in Transition (Executive Summary)

1. Friends of Canadian Broadcasting (Friends) comes to this proceeding with four fundamental perspectives:

    1. That the Canadian broadcasting system is and can remain a core element of Canadians’ sense of local and national identity, and Canada’s place in the world;
    2. That cultural policy objectives need to be taken into account alongside the economic interests of both the industry and consumers;
    3. That, as protective regulatory measures become less effective, and direct government subsidy a scarce commodity, the system must focus on key priorities as well as means for their delivery; and
    4. That, as the system is challenged, and private elements of the system are less able to contribute, the role of the CBC/SRC increases in importance.

2. The current Television Regulatory framework has developed over several decades to balance the objectives of the Broadcasting Act – taking into account the broad array of foreign services and programming that Canadians enjoy daily – and the interests of Canadian broadcasters themselves. It would be irresponsible, bordering on foolish to abandon tools developed over several decades to achieve this balance. Yet this possibility seems clearly on the table. It would, of course, be equally foolish to advocate that nothing needs to change.

3. In our view, there is no need to change fundamentally the current regulatory framework for at least three, if not five years.  To do so would undermine a system that works and can continue to work, at least over the short-to medium-term.

4. Rather, the thrust of our recommendations is to:

    1. Retain key and essential regulatory protections for private over-the-air TV (priority carriage and simultaneous substitution) and specialty services (genre protection, packaging, including predominance of Canadian, and barriers to entry of foreign services);
    2. Introduce some targeted measures to provide more support for Canadian programming – particularly local programming, and
    3. Recalibrate the expectations of the private and public components of the system, emphasizing the contribution of public broadcasting.

5. These three themes are inter-related. Friends believes strongly that the single best way to strengthen the CBC/SRC is to reduce or eliminate its dependence on advertising (in particular on English Television). Removing this ‘subsidized competition’ creates an effective and attractive quid pro quo for leveraging the system as a whole (primarily BDUs and "over-the-top" television [OTT1] services) to provide additional resources to finance the national public broadcaster.

6. These funds should be sufficient to enable the CBC to (a) offset the loss of commercial revenue; and (b) resume its role as the principal provider of truly distinctive Canadian programming. We define ‘distinctive’ Canadian programming as programming that is ‘culturally’ Canadian (i.e. tells uniquely and recognizably Canadian stories or focuses a uniquely Canadian lens on the world) rather than merely ‘industrially’ Canadian (i.e shot in Canada or using some arbitrary proportion of Canadian resources).

7. Accordingly, this intervention is divided into the following sections:

  1. What do Canadians value and continue to want to see from their Canadian broadcasting system?
  2. What is at risk vs. possibly enhanced by digital technology and the Internet?
  3. What are the key priorities that the broadcasting system should continue to support?
  4. How do we recalibrate the architecture and design of the system to free up private broadcasters to compete profitably, and strengthen and renew the CBC/SRC? In particular:
    • What should the private elements of the system do, and how should the regulatory framework support this?
    • How can non-traditional Internet-based OTT contribute?
    • What should the public elements, and in particular, the CBC/SRC, do? And how can sufficient resources be allocated to this end?

2. Scope and Outcomes of This Proceeding

8. The Commission has defined this proceeding as being about “the future of TV”.  Surprisingly, for this headline, while many fundamental elements of the historic broadcast regulatory framework are on the table (including simultaneous substitution and Canadian content exhibition requirements), two critical elements are not even mentioned: CBC/SRC and over-the-top television services (OTT).  That the Commission apparently considers it possible to conduct a genuine review of “the future of TV” in 2014 without debating such topical matters as the role and funding of the CBC/SRC and the appropriate contribution of OTT and other Internet players (raised in the CRTC Choicebook) is, quite frankly, startling – even shocking. In short, Friends respectfully suggests that the scope of this proceeding is at once insufficiently comprehensive in some essential respects – the role of CBC/SRC and of OTT; and overly broad in others – the extent of regulatory ‘reform’ (dismantling), which is, at least, contemplated.

9. A review of landmark CRTC policy proceedings held over the past twenty years that examined future regulatory frameworks for the broadcasting system suggests that even if broad in title, they were less ambitious in scope:

  • 1993 Structural hearing2
  • 1999 TV Policy3
  • 2006 Digital Migration Framework4
  • 2010 TV Group Licensing Policy5

10. The only occasion when the Commission has looked at “the future of TV” more generally (at least, in recent memory) was the 2006 Section 7 report to the government on The Future Environment Facing the Canadian Broadcasting System.

11. None of the Commission’s past broadcast regulatory policy hearings appear to have attempted – as this proceeding apparently does – to look at the entirety of TV regulation (distribution, conventional, specialty, pay, PPV and VOD broadcasting) all at the same time.  Historically, the Commission may have recognized that attempting to do so carries the risk of getting too much terribly wrong, at the expense of listeners and viewers.

12. At a minimum, this suggests that – in contrast to the framing in the Notice ­– the Commission should approach the notion of change to current regulatory frameworks with caution. The default should be a bias in favour of retaining and fine-tuning, rather than abolition. The ‘do no harm’ principle comes to mind.

13. This suggests that the Commission should narrow the scope of the current policy proceeding to one key regulatory framework – perhaps to private TV (as in the 1999 policy) or distribution (as in the 1993 Structural hearing), rather than dealing with all areas concurrently.

14. On balance, Friends believes that the scope should remain broad, and the outputs defined in discrete, manageable ways.

15. Consistent with the Commission’s history, and the scope of issues that cry out for debate in a holistic and realistic manner, Friends proposes that the Commission do the following:

16. First, recognize that any regulatory framework that arises from this proceeding could, at best, have a sunset of three, possibly five years.  This proceeding may usefully put in place some new measures for the longer term, but it should not remove obligations on the hunch that they might become unsustainable three to five years hence.  Some broad measures may reasonably be determined in this proceeding.  Others will require further, more focused proceedings in future years.

17. Second, the Commission should, following this proceeding, commence a review of the New Media Exemption Order.  As is further discussed below, and evidenced by the Environmental Scan commissioned by Friends and other interested parties6, the notion that new media (including OTT) are merely complementary and do not pose a threat to traditional broadcasting licensees' ability to meet their obligations is no longer tenable.  As a result, Friends submits that the CRTC is legally obliged to revisit the New Media Exemption Order and determine what contributions pursuant to the Broadcasting Act would be appropriate for OTT services and other Internet-based TV players.

18. Third, the Commission should, also following this proceeding, start a separate process to prepare a report to government, under the CRTC’s own initiative, on the ‘future of TV’.  Such a report would update the Commission’s 2006 report, and make appropriate recommendations.  In that vein, Friends urges the Commission to ask government to:

    1. Provide the CBC/SRC with predictable and sustainable funding sufficient to carry out its statutory mandate as the national public broadcaster; and
    2. Ensure that Internet players, beyond OTT, contribute appropriately to the broadcasting system.

19. The Commission is in a position to take many important steps stemming from this proceeding, including support for local programming, directing a portion of BDU Canadian programming contributions to CBC/SRC, and ensuring a reasonable contribution from OTT services.

20. In the longer term, government must ensure that Canadians can rely on a CBC/SRC that is properly funded for the future, and a system that draws support from an appropriately broad range of Internet players.

3. What Canadians Value in Their Broadcasting System

21. There is a lot to admire in the Canadian broadcasting system – choice, diversity of programming, local information and reflection, a sense of national identity and a Canadian window on the world. There are at least eight dimensions to this:

    1. Economic. The Canadian television system directly generates $15.2 billion in revenues annually and supports 66,000 jobs.7  The television system is also part of a broader film and TV ecosystem in Canada that supports an estimated 260,000 full-time equivalent workers (FTEs), and generates $13 billion in labour income for Canadians and $20 billion in GDP for the Canadian economy.8
    2. Canadian programming. Consistent with trends around the world, Canadian programming has never been stronger.  Canadian drama has had major success at home and abroad – Republic of Doyle, Orphan Black, Rookie Blue, Heartland, to name but a few.  Innovation and new formats have kept Canadians entertained and informed about their country and with their sensibilities as never before – from Rick Mercer and Dragon's Den and Tout le monde en parle on CBC/SRC to MasterChef Canada, Canadian Idol, So You Think You Can Dance Canada and Star Académie on private broadcasters.
    3. Local reflection. Canada’s local TV stations produce thousands of hours of local news and information programming every week.  These programs remain popular with Canadians across the land, and in times of crisis or concern, these stations are a vital link for local residents.
    4. Choice and value. Canadians enjoy more choice at equal or lower cost than their neighbours to the south.  They receive virtually all quality U.S. TV programming, plus an almost equal amount of quality Canadian content.
    5. Access.  Through such measures as closed captioning and descriptive video, Canadian broadcasters engage Canadians who might not otherwise be able to enjoy TV.
    6. Diversity.  English- and French-language programming is now complemented by an array of aboriginal and third-language programming and services. Indeed today, about half of specialty services offer third-language programming.
    7. Affection.  Canadians take pride in their broadcasting system.  They know that, like our country itself, it exists as an act of political will.
    8. Patriotism. The broadcasting system supports a distinct country on the northern half of the North American continent – and Canadians don’t want to lose that.9

22. Not all Canadians are familiar with the CRTC, and still fewer are familiar with the Broadcasting Act, but a vast majority support the objectives identified in the Act and expect the CRTC to implement reasonable measures to advance those objectives.10 

23. Over six decades of evolution, the Canadian television system has vastly improved in most areas, while becoming more fragile in others.  Quality, choice, convenience, cultural and genre diversity have all massively increased.  Ownership diversity and local programming have, by contrast, decreased.  In some cases – such as local news and community information –new media alternatives have started to supplement or replace them; in others such as ownership diversity, there have been huge losses.  On balance, however, most Canadians would probably agree that TV has never been better.

24. Looking back over the past 15 years (since the CRTC’s 1999 TV policy “Building on Success”) it is hard not to notice the magnitude of change, including:

  • Loss of independent ownership.  In 1999, CanWest, WIC, Baton, CHUM, and Craig Broadcast Systems were all independent conventional TV groups.  Alliance Atlantis and NetStar Communications were major independent specialty groups. Today, the vast majority of English- and French-language specialty and major market local TV are owned by four broadcast groups, which are in turn owned by vertically-integrated communications players.
  • Rollout of digital. In 1999, digital cable penetration was below 15%.11  Today it is close to 100%.  In 1999 few, if any services were available in HD.  Today, virtually all are, and discussion is starting to turn to 4K12 as the next-generation TV format.
  • Emergence of vibrant telco/BDU competition. Major telcos did not start to launch IPTV service until 2005 (Telus).  IPTV experienced 52.5% cumulative annual aggregate growth (CAGR) from 2008 to 2012, was at 6.7% penetration in 2012 and is over 10% today13
  • Broadband.  Neither broadband nor mobile Internet existed in 1999.  By 2012, 75% of Canadians were using broadband and over 50% had access to the Internet on their mobile devices.  These technologies have spawned a burgeoning market for new, and ‘re-purposed’ content forms, including:
    • Competing text/audio information services
    • Video – short form/UGC (user-generated content), e.g. YouTube; professional/OTT (e.g., Netflix)
    • Mobile video
  • Programming rights. By 1999, program rights had shifted from being purchased on a market–by–market or regional basis to being purchased nationally.  A typical sale for over-the-air television (OTA) provided for one run and a repeat.  Specialty rights used to be sold separately, at best with a defined number of ‘play days’.  Today, program rights typically include multiple platforms and multiple plays including ‘catch-up’ and in-season ‘stacking’ rights.  U.S. OTT services, such as Netflix, are also buying Canadian rights14.
  • Shifts in advertising.  In 2000, television had $2,454 million in advertising revenue; radio had $1,001 million and the Internet was at $110 million, out of a total advertising pie of $7,214 million15.  In 2012, television had $3,476 in advertising revenue; radio had $1,585 million and the Internet had grown to $3,085 million, out of a total advertising pie of over $11,215 million.16
  • Shifts in technology.  In 1999, approximately half of Canadian households had a PC; there were no tablets, no smartphones and downloading of movies or TV programs was statistically insignificant17.
  • Growth in the system. At the turn of the century, the television system had revenues of less than $10 billion.18  In 2013, the television system (CBC/SRC, private stations and BDUs) had revenues of $16 billion19.

25. In looking forward, the Commission noted wisely in 1999 that “Given the scope, complexity and pace of change, it is difficult to predict the exact nature of those changes and how and when they may have an impact.”  These words still apply.

26. In its 1999 TV Policy, the Commission also identified a number of “indicators of success” for private TV.  It is instructive to compare them selectively to today’s equivalents:

  • 1997 PBIT (profit before interest and taxes) margin stood at 15.6% for conventional television and at 17.4% for pay and specialty television. In 2013, average PBIT for conventional TV had fallen to -0.1%20, and for pay and specialty television had risen to 26.5%21.
  • Viewing of English-language Canadian programs, as a percentage of all viewing of English-language television, stood at 33% in 1997 (up from 27% in 1992), and as at 2012, reached 38.5%22.
  • 1997: Traders broadcast by Global, The City and Cold Squad broadcast by CTV, Emily of New Moon23 broadcast by WIC and CBC and Les Machos broadcast by TVA attracted between 600,000 and one million viewers on English stations and over one million viewers on French stations. Today’s Rookie Blue, on Global, draws 1.2 million Canadian viewers, while CTV’s Saving Hope draws over 1.3 million.  Also significant, both shows run on U.S. networks, drawing seven and three million plus viewers respectively.

27. Other than conventional TV, by these financial metrics, English-language private Canadian television is out-performing its 1999 self on every count.

28. As reflected in the CRTC’s own research, Canadians are largely satisfied with Canadian television.  If there is one complaint, it is the price that Canadians have to pay for their TV.  In fact, while two-thirds (67%) are satisfied with customer service and find Canadian programming in general, comedy and feature films important (62% each), half value local programming (53%), drama (51%), music (50%) and programs that portray Canadian diversity (48%) and are satisfied with flexibility in selecting (50%) channels. Only 36% are happy with the cost of their service. Considering the formulation of this latter question, who would expect otherwise?

29. CRTC-commissioned research confirms that the vast majority (78%) of Canadians pay for a subscription to a television service, with only 5% opting for free OTA television and 14% indicating they do not have a paid subscription24.

30. Since the CRTC’s relaxation of rate regulation among cable BDUs in 2002, big-cable has increased its monthly rates for ‘basic’  by approximately four times the rate of inflation: Shaw from $22 to $40; Rogers $23 to $43; and Vidéotron $19 to $37. The term ‘gouging’ appears insufficient to describe this increase.

31. Despite this ‘heist’, Canadians still see their television system as providing valued and cost-effective information and entertainment compared to other alternatives.  This is a strong foundation for the future.

4. What’s at Risk in the Canadian Broadcasting System?

32. Over several decades the Canadian broadcasting system has flourished by carefully ensuring that new initiatives fit with existing regulations so as to minimize the danger of unintended consequences. Wholesale gutting of many of these regulations could result in catastrophic impact on the entire broadcasting system. We therefore urge the Commission to exercise extreme caution when making changes to a system which is, in large measure, not only fulfilling the requirements of the Broadcasting Act, but is also working well for all stakeholders. Of course, there are many factors, some technological, which require regulatory change to ensure ongoing balance in the system.

33. Perceived or regulatory risks include the Commission’s flirtation with pick-and-pay and the termination of simulcast.  There is simply no compelling public policy reason to make these changes. While cloaked in ‘consumer-driven’ language, it is evident that the reason the CRTC is looking at pick-and-pay is to fall in line with the Harper Government’s bidding.  For the most part, the Commission’s evidence of a negative impact of simulcast seems to be limited to sporting events, in particular the Super Bowl –­ definitely not a sufficient reason to destroy an instrument that contributes one-third of a billion dollars each year to the broadcasting system. Its withdrawal would also deliver a huge, unsolicited gift to U.S. border stations. Both these proposals constitute an over-reaction to normal consumer dissatisfaction with regulatory measures that, at worst, cause minor inconvenience – akin to ‘traffic lights’ at an intersection.

Simultaneous Substitution

  • 34. First introduced in 1972, simultaneous substitution was designed by the Commission to protect rights purchased by Canadian broadcasters, while avoiding black-outs (a scourge of U.S. rights protection from a viewer’s perspective).25 Simulcast remains an important means by which the broadcasting system generates revenues/profits from U.S. programming that would, in any case, be watched by Canadian viewers. The termination of simulcast, by making it impossible for Canadian broadcasters to enforce the territorial rights they have purchased, would jeopardize the historic business model of investing profits from airing U.S. programming to subsidize Canadian programs, and with them, the viability of many local TV stations across the country, especially in smaller markets. It would also jeopardize the existence of a separate Canadian rights market – which would not be in the interest of creators and rights-holders.

35. According to the Environmental Scan, the total annual revenue bump to the system from simulcast is approximately $300 million (approximately 15% of private OTA TV revenues). Needless to say, a revenue reduction of this magnitude, in a sector already experiencing declining revenues, and without profit, could not be sustained without major repercussions – including station closures and lower production values.

36. A likely outcome would be the closure of a number of small-market independent TV stations and the CTV 2 Network, including its medium-market stations in London, Ottawa, Barrie and Victoria (once its acquisition-based regulated continuance ends).  In its 2011 group renewal, Bell cited the challenges facing this group of stations, and would guarantee their operation only for a limited number of years.  A fundamental change in the regulatory environment, such as the loss of simulcast, would almost certainly provoke that decision – as it would for many smaller local TV stations, already severely hit from the recent termination of the LPIF.  The Commission would justifiably be held responsible for the surrendering of multiple licences that provide valuable services to Canadians in disadvantaged, vulnerable markets.

37. The elimination of simulcast is a bad idea that should not be given serious consideration.  Complaints about Super Bowl ads would pale in comparison with the complaints from Canadians in small- and medium-sized communities affected by the station closures that would follow directly from simulcast’s demise.

Unbundling

38. It is worth noting that nothing requires the CRTC to introduce pick-and-pay.  Even the Harper Government’s Throne Speech, which launched this debate in Canada, stated: “Our government believes Canadian families should be able to choose the combination of television channels they want. It will require channels to be unbundled while protecting Canadian jobs.” 

39. Unbundling does not mean mandatory individual pick-and-pay.  It does not require abandoning a predominance of Canadian services.  To the extent that the Commission wishes to follow the government’s “Direction”, this could be accomplished without derogating from core regulatory principles.  And if not, the Commission should decline to proceed on the grounds that it cannot be done “while protecting Canadian jobs”.

40. As outlined in the Environmental Scan, estimates of the impact of pick-and-pay vary, but some U.S. studies suggest an impact as high as a 50% loss of revenues.  Even at the Scan’s more conservative 20% impact on subscription revenues, these are not the kinds of gambles a prudent CRTC would take with the future of the Canadian broadcasting system.

41. It is also clear that there are varying levels of consumer understanding and expectation around pick-and-pay that have not been clarified by the Commission’s recent flirtation with the idea.  Those few Canadians following the formal review process would be aware that some kind of basic service would still be required.  Unfortunately, Friends considers that the much-larger majority anticipate that, with pick-and-pay, the viewer would be able to purchase only the channels that s/he wants to pay for (including a package comprised exclusively U.S. services) and will not have to pay for any of the stations that are currently received as part of the basic package.   They could also come to the erroneous conclusion that, because of this reduction in the number of channels that are purchased, the overall cost for their services would go down.26

42. In reality, the Commission has made it clear that it would still require a basic package of the same services that many Canadians apparently claim they do not want to pay for, so that they would still have to pay for them. And (unless the Commission were to abandon the notion of predominance of Canadian services, which would be illegal) Canadians would still have to pick Canadian channels paired with U.S. channels.  Moreover, economic principles suggest that if everyone had the option of picking fewer channels, the per-channel cost would rise.

43. How would any of these proposals make the system stronger or create more and better Canadian programming? None of this would further the objectives of the Broadcasting Act

44. It is essential that the Commission study the options carefully in order to avoid harming our fragile and carefully-constructed broadcasting ecosystem. Adopting an ill-conceived, focus group-generated change would do a disservice to all Canadians.

Other Risks to the System

45. Risks to the system include major shifts in technology, consumer habits, advertising and subscription revenue, all of which could profoundly affect television.

46. The Environmental Scan, attached as Appendix 3, was commissioned by Friends, among others, in order to understand better these risks and trends.  This report concludes that, as substantial as these threats are, they will cause no substantive diminution in the system’s revenues nor its capacity to support Canadian programming and other objectives of the Broadcasting Act for at least three, if not five years.

47. Moreover, a companion study on the State of the Canadian Program Rights Market (Appendix 2) suggests that there is a strong likelihood that the Canadian broadcasting system can continue to survive and flourish in the face of a growing OTT sector as long as Canada is able to maintain a separate rights market for TV programming.  As the study states:

The ability of Canadians to bypass Canadian broadcasters through a Canadian Netflix, a grey-market subscription to Hulu or a pirate aggregator like Popcorn Time does not in and of itself render the Canadian broadcasting system “game over”.  The Canadian broadcasting system has always had the potential for bypass – from the fully 100% bypass in favour of U.S. OTA broadcasters that the system was founded to correct, to the 10% bypass to foreign ‘death star’ grey-market DTH operators of the late 90s and early 00s. The key to the Canadian broadcasting system has never been in “preventing” bypass, but in creating compelling, viable Canadian alternatives that the majority of Canadians are content to watch.

48. While it is apparent that certain parts of the system, particularly conventional television and CBC English Television, are suffering, overall the Canadian television system remains strong.  Indeed, even if the Commission were to change nothing as a result of this proceeding, the sector would likely have a similar economic profile in three to five years: $15.2 billion in annual revenue and 66,000 jobs27.   

49. This suggests that there is no need at this time to systematically unwind or demolish the fundamental regulatory underpinnings of the Canadian television system. Therefore, the Commission needs to take care to avoid over-simplification of arguments, so-called easy solutions and, most of all, unintended consequences. Therefore, the Commission should:

  • Employ a light hand in continuing to ‘tweak’ (or improve) its regulatory frameworks to give greater flexibility to industry players where warranted, and focus on core regulatory objectives (such as quality over quantity); and
  • Initiate a process to determine a mid-term regulatory framework that builds a stronger CBC/SRC within a sustainable Canadian broadcasting system, consistent with the objectives of the Broadcasting Act.
  • ddDdof the CBC/SRC.

9. Conclusions

51. Local TV stations across the land, especially in smaller markets, will shut down and investment in Canadian programs will plummet if the CRTC adopts the rule changes it has broached in its review of TV policy Notice.

52. The Environmental Scan commissioned by Friends and others concludes that, by the year 2020, the Commission’s proposed changes, if implemented in full, would result in the loss of 31,460 jobs worth $2.9 billion to the Canadian economy every year, including the loss of $1.6 billion annually and 13,440 jobs in the broadcasting and production industries.

53. Independent stations in Canada’s smallest markets, such as Kamloops, Medicine Hat, Lloydminster, Thunder Bay, and Rivière-du-Loup would likely close, and even Bell Media’s CTV2 network of stations in London, Ottawa, Barrie, and Victoria would be at risk.  Independent specialty services would close, or be gobbled up at bargain-basement prices, and even those owned by major groups would suffer material revenue losses.

54. This would constitute a body blow to Canadian local and dramatic programming, and be at odds with the objectives of the Broadcasting Act  –which the CRTC is required to uphold.

55. There is a better way.

56. The Commission should recognize that there is no immediate risk to the health of the broadcasting system, and that any regulatory framework that arises from this proceeding could, at best, have a sunset of three, possibly five years.  This proceeding may usefully put in place some new measures for the longer term, but it should not remove obligations based on speculation that they might become unsustainable three to five years hence. 

57. Friends urges the CRTC to largely maintain the current regulatory framework, but with the following few key additions, that recognize the need to rebalance obligations in the system.

58. First, the Commission should reduce eligible community channel contributions to 1% of cable BDU revenues28, and redirect the remaining 1% to CBC for local programming (with up to 0.2% of this going to independent small market local TV stations), an amount equal to approximately $64 million annually.

59. Second, DTH should be required to match revised cable obligations towards “local expression” by directing a full 1% of revenues to local programming29. This would amount to an incremental $15 million.

60. Third, Friends recommends that a minimum 10% of Canadian revenue contribution requirement be imposed on OTT services operating in Canada.  This could be directed to a combination of Canadian programming expenditures and third parties such as the CMF and CBC/SRC.  Friends recommends that a minimum of 5% of OTT revenues be directed to the CBC/SRC, exclusively for programs of national interest (PNI).

61. The percentage itself could be evaluated over time, and adjusted as appropriate, taking into account the competitive environment. On projected Netflix revenues alone, the proposed 5% to third parties could yield $25 million annually by the end of 2015.

62. Together, these three measures would yield an incremental $100 million annually to CBC as early as end 2015, and grow to $150 million by 2020. Each lies within the Commission’s jurisdiction.

63. While seemingly counter intuitive with the CBC/SRC’s current financial crisis, Friends recommends that with such a reliable revenue infusion, CBC English Television get (at least substantially) out of the ad business, as a first and necessary bold step toward its reinvention by developing a truly distinctive offering, akin to Radio-Canada Television.

64. Finally, Friends recommends that, following this proceeding, the CRTC:

    • Commence a review of the New Media Exemption Order.  As is evidenced by the Environmental Scan, the notion that new media (including OTT) are merely complementary and do not pose a threat to traditional broadcasting licensees' ability to meet their obligations, is no longer tenable.  As a result, Friends submits that the CRTC is legally obliged to revisit the New Media Exemption Order and determine what contributions pursuant to the Broadcasting Act would be appropriate for OTT services and other internet-based TV players; and
    • Start a separate process to prepare a report to government, under the CRTC’s own initiative, on the ‘future of TV’.  Such a report would update the Commission’s 2006 report, and make appropriate recommendations.  In that vein, Friends urges the Commission to ask government to:
      • Provide the CBC/SRC with predictable and sustainable funding sufficient to carry out its statutory mandate as the national public broadcaster; and
      • Ensure that Internet players, beyond OTT, contribute appropriately to the broadcasting system.

65. All of which is respectfully submitted.

For information:        

Jim Thompson
613-447-9592

Appendix 1 – CRTC Questions

Appendix 2 - The State of the Canadian Program Rights Market: 2014

Appendix 3 - TV Environmental Scan: 2014


1 An OTT service (or app) is one that provides television programming over the Internet and bypasses traditional TV distributers. Such services are generally, if not always, lower in cost than cable or satellite.  In Canada, Netflix is a primary example of an OTT service.  Cable and satellite distributers are also called broadcasting distribution undertakings or BDUs.

2 While labeled a “review of the evolving communications environment, and its impact on the existing and future structure of the Canadian broadcasting system” this process focused almost exclusively on distribution issues. Public Notice CRTC 1993-74.

3 Building On Success - A Policy Framework For Canadian Television. This, despite the title, dealt exclusively with private conventional TV. Public Notice CRTC 1999-97.

4 The framework for the migration of analog specialty services to digital distribution. Broadcasting Public Notice CRTC 2006-23

5 “A group-based approach to the licensing of private television services.” Broadcasting Regulatory Policy CRTC 2010-167

6 Friends participated in the commissioning of two third-party studies by Peter H. Miller. The State of the Canadian Program Rights Market: 2014, appended as Appendix 2, and
TV Environmental Scan: 2014, appended as Appendix 3.

7 This combines jobs in broadcasting (18,300), those in broadcast distribution (25,100) and those in independent television production (22,900). (2011 statistics).  Source: The Economic Contribution of the Film and Television Sector in Canada, Nordicity, July, 2013, commissioned by CMPA and MPA-C..

8 Ibid.  (Also as at 2011.) The complete value chain of film and TV production through exhibition and distribution (including, for example, media manufacturing and digital rights management (DRM) on-line and physical sales) was included in this analysis.  Approximately half of this economic value is accounted for through spin-off benefits, including indirect economic impact (that associated with the sector’s procurement from other sectors of the Canadian economy) and induced economic impact (the wider impact on the Canadian economy that arises from the re-spending of labour income earned at both the direct and indirect stages).

9 Nanos Research, July, 2013: http://www.friends.ca/poll/11549

10 Ibid.

11 The cable industry’s failure to meet the Commission’s then 15% threshold for launching certain specialty services in digital was the subject of a Friends letter to the CRTC, dated January 27, 1999.

12 4K resolution is a generic term for display devices or content having horizontal resolution on the order of 4,000 pixels, at least twice that of HDTV.

13 Communications Monitoring Report: 2013, CRTC, Table 4.41.

14 For more on this, see the accompanying paper on the State of the Canadian Program Rights Market: 2014.

15 http://www.crtc.gc.ca/eng/publications/reports/broadcast/rep061214.htm, Table 3.

16 IAB 2013 Internet Advertising Revenue Survey, p. 12.  Note IAB figures do not include community newspapers, which were included in the CRTC 2000 numbers. http://www.crtc.gc.ca/eng/publications/reports/broadcast/rep061214.htm

17 Ibid, table 25 & 26.

18 CRTC data no longer appear to be publicly available.  Extrapolating from available TVB data, conventional TV advertising revenue would have been approximately $2.1 billion and specialty $400 million for a total of $2.5 billion. Subscription revenues would have brought the specialty total to about $1 billion.

19 Based on 2013 CRTC Statistical Summaries.  The equivalent 2012 number is identified in the 2013 Monitoring report, Section 4.1, as $15.21 million., all this at a time of low inflation.

20 http://news.gc.ca/web/article-en.do?nid=845759

21 http://news.gc.ca/web/article-en.do?nid=843969

22 2013 Communications Monitoring Report, Table 4.3.6. http://www.crtc.gc.ca/eng/publications/reports/PolicyMonitoring/2013/cmr4.htm#n11

23 The CRTC probably meant to refer to Emily of New Moon.

24 Ibid.

25 It is notable that the U.S. enforces these intellectual property rights with a heavy hand, simply “blacking out” any out-of-market signal for which the broadcaster has not paid local rights, and this is unlikely to change any time soon.

26 http://www.friends.ca/news-item/11861

27 2012 figures from the 2013 CRTC Monitoring Report.  Aggregate broadcasting system revenues can be expected to rise for a few more years before any decline. 

28 This should include mandatory contributions to not-for-profit community channels.

29 The 1% would include the current 0.4% directed to the small-market local programming fund.