Mr. Robert A. Morin
Secretary-General
CRTC
Ottawa, ON
K1A 0N2

Dear Mr. Morin:

Executive Summary All participants in the Canadian broadcasting system should be asked to contribute according to their capacity. Cable broadcast distributors enjoyed a 32% profit before interest and taxes in 2008, while over-the-air television broadcasters had a 0.4% PBIT. Because broadcasting distribution undertakings derive substantial profits from the sale of local OTA signals, the Commission should require them to share a portion of that profit with the local signal originators. Three million Canadians rely on OTA signals and their needs must be addressed in digital conversion. FRIENDS supports Canadian programming expenditure requirements, and recommends that news programming should not exceed 55% of this requirement. Independent production requirements should be reduced from 75% to 60%. Fee-for-carriage funds in each market should be divided among the OTA broadcasters based upon the total audience they assemble for Canadian programs.

1. Friends of Canadian Broadcasting is an independent watchdog for Canadian programming on radio, television and new media supported by 100,000 Canadian viewers and listeners. FRIENDS seeks to appear at the November public hearing in order to share with the Commission a television viewers’ perspective on the important issues your Commission is considering.

2. FRIENDS welcomes the Commission’s group-based licensing approach. We support examining television licensing on an official language-specific basis, a technology-neutral approach that considers total audience, revenues and programming commitments. We also support considering the role of public and educational broadcasters in the same context – in other words, approaching the television environment from a viewer’s perspective.

3. We support a public and educational broadcasting sector that is distinct from its for-profit counterparts, as contemplated in the Act. Needless to say, for the public sector to play this role effectively, it requires adequate funding and leadership.

4. FRIENDS also supports the concept of providing station groups with greater flexibility because we recognize that this can lead to diversity of offerings. We also express our support for the Commission’s caveat that the appropriate test for this flexibility lies in “greater support for Canadian programming”.

5. Harmonizing commitments so that all contributors to the Canadian Broadcasting system are making similar contributions is an appropriate goal, even if it leads to reduced individual station commitments in some communities. The Commission is correct to keep its eye firmly on the criterion of an overall increase in Canadian programming.

6. As we will detail herein, FRIENDS supports the concept of Canadian programming expenditures as a means of ensuring that each broadcasting group makes compatible contributions to Canadian programming. We strongly recommend that the Commission focus not just on Canadian programming but also on priority Canadian programming – focusing on under-represented categories such as drama and documentaries.

7. The Commission will be aware that expenditures on news programming have historically represented a substantial proportion of total Canadian spending. FRIENDS submits that it is appropriate to consider an appropriate limit on the news proportion of Canadian programming expenditures to ensure that spending requirements cannot be fulfilled by news alone.

8. Although the introduction of priority programming requirements in 1999 has led to negative consequences, such as those outlined in paragraph 15 of the Notice, it has also increased variety in the system. The challenge going forward is to attenuate the negative developments while encouraging diversity of Canadian offerings. Expenditure requirements should be considered through this lens.

9. FRIENDS supports the Commission’s position that the contribution of pay and video-on-demand services to the system requires parallel attention. We consider that the providers of these services should be licensed as station groups, especially when they are owned by broadcasting distribution undertakings (BDUs).

10. All participants in the Canadian broadcasting system should be contributing according to their capacity. A sector-neutral measure of capacity is profit before interest and taxes (PBIT):¹

2008 Broadcasting Year	PBIT %
Conventional Television	0.4
Pay, Pay-per-view, Video-on-demand & Specialty Television	23.4
Cable Broadcast Distribution	32.3
Non-Cable Broadcast Distribution	4.0

11. The Communication, Energy and Paperworkers Union has prepared a useful summary of basic cable rates since de-regulation in 2002 which indicates that the price of Rogers’ basic has increased 85% in sixty-five months, while Shaw’s basic has risen by 68%. During the same period, the Consumer Price Index rose 14%:

12. With only 9% of Canadian households receiving television signals over the air, the role of distributors in the Canadian broadcasting system is obviously of critical importance. We believe that the holistic approach that the Commission has espoused will contribute to ensuring a balance between content and distribution. While we can expect variations over time in the profitability of various sectors in the audio-visual system, the Commission has a role in balancing the contribution of each sector based on financial capacity.

13. The early success of the Canadian cable industry did not depend on the distribution of Canadian signals, which were readily available over the air in the major urban centres where residential density created the potential for profitable cable operation. In those early days, cable’s value-added to the Canadian viewer came from enhancing the picture quality and also from expanding the availability of US border signals. The early cable operators understood the convenience to their subscribers of providing Canadian channels to avoid the need to switch systems. Accordingly, they provided a more catholic offering by including local channels.

14. During cable’s struggling first decade, conventional broadcasters enjoyed significant profits. At the time, they judged it to be in their business interest to use cable distribution to increase audience and build advertising revenues, considering that distributing local signals at no charge in exchange for greater audience was a fair trade-off. This is no longer the case. Advertisers no longer pay for the full coverage area audience, but only for the proportion of that audience that resides within a designated market area. As a result, carriage outside that area provides little benefit to the conventional broadcaster. In fact, carriage of local signals as distant signals cannibalizes the local audience, while the out-of-market audience cannot be monetized. This results from the way advertisers currently buy television.

15. As the Commission’s industry financial data indicate, the balance of power is now firmly in the hands of the BDUs, which have attained a commanding position, controlling not only television to the home, but also Internet and increasingly home phone. Now that these latter business lines are becoming increasingly profitable for the cable industry, it appears convenient for them to ‘forget’ that it was the capital expenditure pass-throughs authorized by your Commission on customers’ cable bills that made possible the Internet and home phone backbones to the home that have now become so profitable for cable.

16. FRIENDS’ support for the concept of fee-for-carriage derives from our observation that the sale of local channels by BDUs to customers has and does contribute substantially to their enormous profits. It is therefore appropriate that they should share a portion of that profit with local signal providers.

17. The tone, logic and integrity of the BDU response to fee-for-carriage is well expressed in the following email to Rogers customers distributed on September 4, 2009 wherein Rogers warns its customers that fee-for-carriage could add $5 to $10 to their monthly cable bill:

18.

19. This email, and similar communications from other BDUs, appear to be intended to elicit calls of outrage to the Commission. Noteworthy among significant omissions in the above message is the fact that past access to local signals at no cost has enabled Rogers to generate substantial profits through the delivery of those signals to its customers.

20. In reference to the 4th paragraph of the above message: as CTVGlobeMedia is a private company, the only public access to their overall financial position is through the required filings of Torstar, a public company that holds a 20% interest in CTVGlobeMedia. For the year ending December 31, 2008, Torstar reported that its 20% share of CTVGlobeMedia’s losses was $110.6 million:²

21.

22. For the same period, Torstar also reported a $95.7 million write-down of its investment in CTVGlobeMedia. Accordingly it is difficult to fathom how Rogers can support the statement that CTVGlobeMedia is “financially healthy”.

23. For several years, the BDUs have told the Commission how price-sensitive their customers are. Yet they have raised their prices for basic and optional services at levels far high than inflation (see paragraph 11 above). Price sensitivity has not stopped them from passing along the 1.5% Local Programming Improvement Fund (LPIF) charge to their customers, nor would it appear to inhibit them from a plan to do the same for a negotiated fee-for-carriage.

24. BDUs have also repeatedly stated that station group ownership of OTA stations and specialty and pay channels should be looked at as a package. FRIENDS supports that position but insists that the same logic applies to the BDUs, whose financial capacity should be evaluated based on the whole business, not just the BDU portion, in view of the Capex public investment.

25. Digital Over-the-Air Transmission: As nine percent of Canadian households – approximately three million Canadians – receive television signals over the air, the Commission has a responsibility to ensure access to OTA television for those who may lose the present analog OTA signals as a result of digital conversion or who choose not to access television through a distributor. We note with approval that the Commission has taken steps to ensure digital OTA coverage in 29 Canadian markets. We also welcome Bell TV and StarChoice’s proposals to make access available for some households that would otherwise receive no OTA service. We note, however, that the above initiatives will only marginally address the problem.

26. The Future Television Landscape: A key consideration in foreseeing the future landscape is to assess the competitive position of conventional and specialty services going forward. Broadband competition is likely and emerging Internet-based services such as Hulu, offering US network programming on demand, will become significant competitors for conventional broadcasters. They may also be expected to further reduce the value of programming rights purchased for Canada. This is particularly the case for younger viewers acclimatized to viewing television on the Web.

27. What differentiates Hulu from other download sites is its ownership – a joint venture of NBC Universal, the Walt Disney Company (through ABC Inc.), Fox Entertainment and Providence Equity Partners. In addition to the programming from the partners’ network and cable-distributed channels, Hulu also offers content from PBS, A&E, USA Network, Bravo and Comedy Central. This is a direct threat to Canadian broadcasters. Past insulation through geo-filtering, which limits access by Canadian IP addresses, can now readily be overridden by programs such as Hotspot Shield, which are commonly available on the Web.

Specific Commission Questions

Canadian Programming Expenditures & Exhibition Requirements

28. The following paragraphs contain FRIENDS’ responses to the specific questions (text in italics) posed in PN CRTC 2009-411 (as modified):

29. As FRIENDS’ response to the questions on Canadian Programming Expenditures and Exhibition are linked, we have provided a combined response.

19.

The Commission is seeking responses, with detailed rationale and supporting evidence, to the following questions: a) Would it be appropriate to implement a single, flexible CPE requirement for integrated corporate undertakings? If not, what would be an appropriate minimum CPE for each service that makes up the group and should transferability be permitted among the services? Should there be exclusions when considering minimum spending levels (such as sports or news services)? b) If required, by what method could the Commission set such a CPE requirement for integrated corporate undertakings? If there is a need to transition VOD contributions from that of payments to programming funds to a new common CPE requirement, how should that be accomplished? c) What measures might be required under such a framework to ensure appropriate financial support for the production of programs of national interest, such as dramas and documentaries?

24.

The Commission is seeking responses, with detailed rationale and supporting evidence, to the following questions: a) How can the various exhibition requirements currently in effect be simplified, streamlined or amalgamated? b) By what method could the Commission establish flexible exhibition requirements for integrated corporate undertakings and what should they be? Should there be a minimum level established for each service within a group? If so, what should it be? c) What measures might be required under such a framework to ensure appropriate exhibition of programs of national interest, such as dramas and documentaries?

30. FRIENDS believes that a Canadian Programming Expenditure requirement will ensure that all station groups are contributing an equitable percentage of revenue to the production of Canadian programming. As outlined above, we recommend that a CPE regime include a maximum proportion within the CPE devoted to news programs. This is necessary to ensure diversity of choices.

31. Implementing CPE would enable the Commission to be more flexible in its specific exhibition requirements, which would in turn create greater overall diversity because each station group would be free to make its own decisions.

32. CRTC Television Financial Summaries for 2008 demonstrate that station spending on news as a percentage of total Canadian spending was 53% (or 23% of total program spending). These figures display substantial continuity in recent years. By contrast, news spending by specialty, pay and pay-per-view services as a percentage of Canadian program spending was 15%.

33. Obviously, station groups such as CTV, CBC or Rogers that also own all news services or news-related services such as CTV News Channel, CP 24, BNN or NewsWorld would have higher news expenditures than other licensees. FRIENDS recommends that conventional television spending on news (Category 1) should not exceed 55% of total Canadian spending in order to ensure that there is appropriate spending in the other important programming categories (including Category 2, current affairs).

34. However, if the Commission were seeking a spending cap on news, then its formula would need to take into consideration spending that is required by those groups that have all news services while not providing those groups without news channels an opportunity to significantly increase spending on news as a percentage of overall Canadian program spending.

35. FRIENDS considers that the implementation of Priority Programming in 1999 significantly simplified the previous exhibition rules while maintaining minimum expectations and creating greater diversity. As the chart below demonstrates, the post-1999 priority programming regime enabled a broader distribution of Canadian programming expenditures. News and sports decreased while Human Interest and Game Shows increased. Drama slipped somewhat:

36. We believe that the current priority programming categories have proven successful and recommend that they be maintained in their present form.

37. Recognizing the current hardship facing conventional broadcasters, we commend the Commission for creating mechanisms to help them access additional revenue: from LPIF, distant signals and carriage revenues. Together, these initiatives and a strengthening economy may be expected to assist OTA television materially.

38. We concur fully with the Commission’s statement in the Notice, paragraph 23 that: “it is the Commission’s preliminary view that regardless of the challenges facing the television sector, all services owned by a group should broadcast an appropriate amount of Canadian programming.”

39. Similarly, in the broader context, we urge the Commission to continue its ongoing investigation of emerging technologies, such as mobile and PDA content through this same prism.

40. News and priority programming are the cornerstones of the Canadian broadcasting system. We do not believe that any of the station groups should be relieved of these basic commitments.  FRIENDS also recommends that Canadian programming should be technology-neutral and a part of every platform, including wireless and mobile devices.

Independent Production

27.

In establishing group-based CPE and exhibition requirements, the Commission is mindful that a balance needs to be struck between supporting the independent production sector and providing broadcasters the flexibility to control the rights of programming that they broadcast.

28.

With that in mind, Commission is seeking responses, with detailed rationale and supporting evidence, to the following questions: a) One measure to ensure the place of Canadian independent creative talent and production in the broadcasting system could be the imposition of a spending and/or exhibition requirement related to independently-produced programming. Would such an expenditure and/or exhibition requirement be appropriate and if so, what would be the appropriate level? Should minimum levels be established for specific programming categories and if so, what should those levels be and how should they be determined? b) What other measures might be required under such a framework to ensure there continues to be a diversity of programming?

41. Responding to PN CRTC 2009-113, FRIENDS commented that:

 “…the Broadcasting Act requires that Canadian programming should include a “significant contribution” ³  from the independent production sector, although the Act does not define “significant”. FRIENDS supports a strong independent production sector but we also recognize that no single sector deserves protection at historic levels when much greater systemic flexibility may be required going forward. FRIENDS suggests that the required contribution might be reduced to 60%, a level that is not only significant but also predominant.”

42. Having now had the benefit of reviewing comments of others who participated in the process, we have concluded that our initial position remains valid. We see no reason to further complicate conditions of licence, and recommend that the Commission make only one change: reduce the required level from 75% to 60%.

Alternative support mechanisms for local programming

33.

These new terms and conditions are only intended to be in effect for the upcoming broadcast year. It is the Commission’s intention to review the terms and conditions of the LPIF for implementation on a longer-term basis and determine whether it should revert to the initial terms and conditions set out in Broadcasting Public Notice 2008-100.

34.

In this context, the Commission is seeking responses, with detailed rationale and supporting evidence, to the following question: a) The Commission has waived the requirement for incremental local spending and has increased BDU contribution levels for the upcoming broadcast year. It intends to revert to the initial criteria set out in Broadcasting Public Notice 2008-100. Please comment on the appropriateness of this approach.

43. While FRIENDS’ initial position was that access to the LPIF should be based on incremental spending on local programming, we recognize that this cannot happen until OTA broadcasters return to profit. We also believe that historical spending is a very important consideration in determining the distribution of LPIF funds.

44. The harmonization of local programming requirements, however, may lead to a reduction in local commitments in some markets. Any reductions in local programming should not be rewarded by receipt of LPIF funds based on historical spending. A station that might have spent substantial sums in the past on local programming but which has now significantly reduced its commitment to local programming should not benefit from that past spending. Maintaining local spending should be a minimum commitment for access to LPIF.

45. As stations return to profit, the Commission should move towards an incremental spending regime, as originally contemplated in 2008.

Integrity of Canadian broadcaster signals

36.

Accordingly, the Commission is seeking responses, with detailed rationale and supporting evidence, to the following questions: a) In addition to the current mechanisms, such as simultaneous substitution and mandatory carriage, are there other mechanisms that could be implemented to ensure the integrity of Canadian broadcaster signals? b) Should the carriage of the U.S. 4+1 signals (CBS, NBC, ABC, FOX and the non-commercial PBS network) be contingent on the successful negotiation of fair market value for Canadian signals?

46. Creating a balance of power between broadcasters and distributors within the Canadian broadcasting system is of critical importance. The provision of US signals has been the life-blood of Canadian cable monopolies over four decades. Canadians’ access to foreign signals is unparalleled throughout the world. Simultaneous substitution was created in part as a compromise that returned some level of value to the Canadian rights holders, while at the same time allowing distributors to continue to market US signals to their customers.

47. While this policy has been widely regarded as successful, a by-product is that US networks are essentially setting the schedule for Canadian viewers. If their access to US signals were reduced, this would dramatically affect distributors, which would not be in the interest of any thoughtful stakeholder.

48. FRIENDS believes that cable distributor payment of a negotiated fee-for-carriage, the cost of which is not passed along to subscribers, but rather absorbed as a business cost should be a requirement for the carriage of the US 4 + 1 signals. However, we recommend that non-cable distributors operating from a much lower profit position should be allowed to pass along the fee-for-carriage cost to customers.

Negotiated, fair market value for conventional signals

49. In the following italicized questions, the amended text (PN CRTC 2009-411-3) is reproduced in bold face type:

37.

In Broadcasting Public Notice 2007-53 and again in Broadcasting Public Notice 2008-100, the Commission elected not to grant fee for carriage to conventional broadcasters but did provide broadcasters with the right to negotiate the terms under which their distant signals will be retransmitted. The Commission considers that it is appropriate, in the context of the present proceeding, to consider whether or not a negotiated solution for the compensation for the fair value of local conventional television signals is also appropriate, and is seeking comment on this question. 38. The Commission expects that negotiations for distant conventional television signals, and for conventional local television signals, should the Commission decide that the latter is appropriate, will be completed before the long-term renewal of licences and that they will take place in a way that ensures that Canadians will not lose access to programming services. In the absence of a negotiated agreement or agreements, the Commission is considering what strategies and procedures are most likely to contribute to and/or ensure a timely resolution of negotiations and is seeking comment on this issue as well.

39.

39.    The Commission is now seeking comments on what mechanism should be used for establishing a negotiated, fair value for conventional signals. To that end, the Commission is seeking responses, with detailed rationale and supporting evidence, to the following questions: a) What regulatory measures are needed to facilitate fair negotiations? b) What methodology and criteria should be used for determining the fair market value of a conventional signal? c) Are there any other considerations that the Commission should take into account? d) What safeguards need to be established so that the negotiations are successful and are restricted to the issue of a negotiated fair market value for the conventional signal being distributed? e) What is the appropriate method, if required, to achieve resolution through binding arbitration?

50. FRIENDS has consistently supported the idea that BDUs should compensate OTA broadcasters for the value of their signals. We encourage the Commission to move forward on this matter. At the time when cable was a fledgling business and OTA broadcasters were very profitable, cable could not have afforded to pay for the Canadian signals they were distributing. As well, broadcasters were then pleased to have cable carriage, because they were then able to monetize the full coverage area of the audience that was generated. This is no longer the case.

51. In March 2008, FRIENDS collaborated with other groups⁴ to commission a Pollara survey on Canadians’  Views on De-regulating Cable and Other TV Distributors.⁵ The following paragraphs contain a summary of Pollara’s findings:

52. 82% of Canadian subscribers feel strongly about their unique values and identity.

53. 87% think that Canadian TV production is important to the economy

54. 55% believe that the Canadian television production industry will not be able to survive and succeed in an unregulated cable and satellite environment.

55. Overwhelmingly, Canadians view television as a CULTURAL TRUST, not just an economic or a business issue. Your Commission and the federal government – and not the service providers – are considered the guardians of Canadian culture on TV.

56. Almost seven in 10 Canadian subscribers place the most trust in the CRTC and the federal government to protect and promote Canadian content on TV.

57. 74% of subscribers believe that less regulation is likely to have a negative impact on Canadian TV, by reducing choices of Canadian programming.

58. Nine in ten think it is important to have regulations and incentives to ensure the continued presence of independently-owned Canadian broadcasters on their cable and satellite line-ups.

59. Nearly six in ten subscribers believe that it would be detrimental to Canadian content to allow cable/satellite providers to decide which channels to make available.

60. More than half of Canadian subscribers would support paying $3 more per month on their cable/satellite bill to protect Canadian content. Four in ten would pay $6 monthly and a third would pay as much as $10 monthly.

61. Pollara also tested two specific fee-for-carriage options, and I quote:

62. “Proposal 1: CRTC has been asked to consider adding a $4 to $5 fee to monthly cable or satellite television subscriptions, and this revenue would be distributed to local, privately owned Canadian channels like CTV, Global and CityTV (TVA, etc.), which are currently funded exclusively by advertising revenues. This money would be used to support and enhance Canadian programming. These channels would still be available at no cost for those who use an antenna.”

63. 50% of subscribers support this proposal.

64. “Proposal 2: CRTC has been asked to consider adding a $1 fee to monthly cable or satellite television subscriptions, and this revenue would be distributed to the main CBC/SRC (Radio-Canada) channel, which is currently funded exclusively through tax revenues and advertising. The additional fee would be used to enhance Canadian content on CBC television. This channel would still be available at no cost for those who use an antenna.”

65. This second proposal received an even higher approval rating of 57%.

66. Very few subscribers have cancelled their subscriptions as a result of past fee increases.

67. Replacing Canadian programming with foreign programming is unpopular in all the main program types.

68. A majority do not trust their cable and satellite companies to promote and deliver Canadian channels and content.

69. While Canadian cable and satellite subscribers are satisfied with their price 58%, program packages 62%, reliability 83% and picture and sound quality 90% – they do not trust their suppliers to make decisions on programming choices.

70. Finally, Pollara found that only 15% of Canadians are aware that your Commission is considering proposals to reduce regulation of cable and satellite services.

71. Key to the success of fee-for-carriage is establishing criteria that are fair and equitable. FRIENDS recommends a per-subscriber fee calculated based on the number of subscribers within the BBM/ACN designated market area. The funds collected should then be divided among each of the OTA stations in that market based upon the total audience they assembled in the preceding broadcasting year for Canadian programs.

Details regarding possible digital transition models

45.

In light of the above, the Commission is seeking responses, with detailed rationale and supporting evidence, to the following questions: a) Is the Commission’s preliminary list of markets mandated to convert to digital complete or should further stations be added to this list? b) What system should be put in place to allow existing OTA viewers with analog television sets to receive the new digital television signals? c) Where a conventional television station does not implement a digital OTA transmitter but provides its signal to BDUs via direct feed, how should its regulatory obligations and privileges, such as simultaneous substitution and mandatory carriage, be determined? d) Under what circumstances might some conventional television services not be required to convert to digital OTA transmission?

72. The Commission has a responsibility to consider the needs of three million Canadians who rely on OTA reception. Canadian Media Research Inc. (CMRI) has concluded that given the slowing trend in the past 4-5 years, it seems unlikely that the OTA segment will decline by much in coming years.” In other words, OTA viewing by millions of Canadians will continue to be a feature of our audio-visual system well into the future.

73. Cities with OTA viewing exceeding the Canadian average include: Windsor (27%), Saskatoon (15%), Montreal (14%), Quebec and Sherbrooke (13%). Even in cities with a lower proportion of OTA viewing, the number of viewers is substantial, for example: Toronto (477,000), Vancouver (138,000), Edmonton (113,000), and Ottawa (111,000).

74. CMRI also reports that, even in households subscribing to a BDU service, not all television sets are hooked up to the cable/satellite service. OTA viewing accounted for 25% of TVO's audience in 2006, 16% for CBC-TV, 14% for CTV and 8% for Global.⁶

75. In the Appendix to Regulatory Policy CRTC 2009-406, twenty seven markets are designated as requiring mandatory digital transmitters. This number increases to 29 when Hamilton and Barrie are considered distinctly from the Toronto market. We note that this list includes each of the urban centres referenced above with higher-than-average OTA reception. The vast majority of existing OTA viewers are not currently owners of digital television sets and will therefore require a digital converter in order to receive the digital signals.

76. We note the Commission’s comment in Paragraph 48 of the notice that “as a principle, the Commission is of the view that the consumer should not be responsible for paying the associated costs of this alternative model for signal delivery.”

77. As a result, there appears to be a potential inequity between a viewer who must pay for a digital converter in order to view OTA signals and a Bell FreeSat customer whom the Commission has indicated would not be responsible for the purchase of equipment necessary to access the satellite service.

78. Because the cost of digital conversion would probably have resulted in several small and medium market stations going off the air, the Commission’s hybrid model will likely have a positive impact in enabling the continuance of these stations.

79. We understand that under the terms of the inter-governmental agreement, Canadian stations could continue to broadcast analog signals providing these do not create interference issues in the United States. This suggests that some stations beyond line-of-sight distance from the US border might be allowed to continue analog broadcasting beyond 2011 until such time as that spectrum is allocated for other uses in Canada.

Satellite Delivery Model

80. Our understanding is that the satellite distributor proposals are to operate on a cost recovery basis, and that the distributors have indicated that this would be subject to audit verification. As we have stated in response to Vice-Chair Arpin’s May 6 question,⁷ FRIENDS is impressed by the creativity of the FreeSat proposal.

81. The recovery of legitimate expenses from customers suggests that they would pay for the upfront equipment cost. However, because the cost barrier is a significant factor in preventing low-income households from subscribing, we suggest that the Commission consider an income threshold under which the equipment might be provided to a home at no cost.

82. As local broadcasters will benefit from the success of this program, it appears reasonable that the LPIF contributions of satellite distributors might be reduced for a defined period to assist in cost recovery.

Appropriate minimum levels of spending on Canadian programming by English-language conventional television broadcasters

51.

Accordingly, the Commission is seeking responses, with detailed rationale and supporting evidence, to the following question: a) In the context of a group-based approach, for English-language broadcasters, which would be a more effective mechanism: (i) requiring a 1:1 ratio between Canadian and non-Canadian programming expenditures; (ii) requiring Canadian programming expenditures based on a percentage of group revenues as discussed in paragraph 18 and 19; or (iii) another method?

83. Any examination of this proposal should start from a recognition that a communication border with the United States does not exist. All US network programming comes into Canada on one of the US networks. If that program is not purchased by a Canadian broadcaster and is not simulcast, no benefit from Canadian viewership accrues to the Canadian broadcasting system, even though that program attracts a Canadian audience.

84. As Canadian program spending is substantially cross-subsidized by revenues from the sale of US programming, the inability to purchase a show because a Canadian broadcaster has reached a regulatory threshold could have a negative impact for years to come.

85. In the longer term, this proposal, therefore, should be screened for its vulnerability to the law of unintended consequences. For example, it may carry an inherent danger of achieving the unintended consequence of reducing overall spending on Canadian programming. Therefore, it merits careful scrutiny.

86. One positive impact might be reducing the amount of US programming which is acquired for the singular purpose of keeping it out of the hands of competing broadcasters.

87. Also, all of the station groups that might be included in such a decision own specialty services and often purchase subsequent runs of the same programs after the original network airings. The existence of a 1:1 ration might lead to creative amortizations of the overall contractual value of the programming package for the purpose of maintaining the 1:1 ratio on the conventional television platform.

88. FRIENDS also encourages the Commission to examine any issues that might arise that could be considered restraint of trade.

89. FRIENDS has advocated, and hopes that the Commission will implement, Canadian program expenditure requirements which will ensure that all station groups are spending an equitable percentage of revenue on Canadian programming. If the Commission were to proceed along these lines, FRIENDS suggests this might eliminate the need to get into a level of regulation which would be complicated because of the potential for creative allocation of program rights among not only the individual OTA stations within a group, but also the group’s specialty channels.

Yours sincerely,

Ian Morrison
Spokesperson
Friends of Canadian Broadcasting
200/238 – 131 Bloor Street West
Toronto, ON
M5S 1R8

*** End of Document ***

For information:  Jim Thompson 613 567 9592

¹ CRTC Statistical and Financial Summaries. Cable executives have suggested that PBIT is not an appropriate comparative measure of profitability because of their higher capital-intensity and borrowing costs.

² Torstar fourth quarter and 2008 full year results released February 26, 2009. CTVGlobeMedia also owns un-regulated assets such as the Globe and Mail.

³ Subsection 3(1)(t)(v) of the Broadcasting Act

⁴ ACTRA, CEP, Stornoway Communications and the Writers' Guild of Canada

⁵ Friends originally submitted a copy of this survey to the Commission on May 8, 2008. See: http://www.friends.ca/brief/396

⁶ How Many Canadians Rely on Over-the-Air TV Reception and What Do They Thin About TV? A Profile of OTA Viewers and Special Survey Results, prepared for Heritage Canada, CMRI, June 2007, page 6. This study indicates that OTA reception varies from 2.1% in Newfoundland to 12.7% in Quebec.

⁷ http://www.friends.ca/brief/8244