Speaking Notes for

Karen Thorne-Stone, President and CEO
Kevin Shea, Chair, Board of Directors
Ontario Media Development Corporation

at the

Canadian Radio-Television and Telecommunications Commission
Public Hearings 2007-10

Review of the Regulatory Frameworks for Broadcasting Distribution Undertakings and Discretionary Programming Services

Conference Centre Portage IV
140 Promenade du Portage
Gatineau Quebec
Hearing Room: Outaouais

Tuesday, April 22, 2008
9:00 a.m.

Introduction & Context

Thank you, Minister.

I would like to thank the Commission for the opportunity to contribute to this review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services.
Ontario Media Development Corporation – OMDC – is an agency of the Ministry of Culture and we are pleased to appear today with the Minister to advocate on behalf of Ontario’s cultural media industries, particularly the screen-based industries.

The Minister has already described the importance of Ontario’s creative industries to the province and OMDC is the vehicle through which the Government supports the growth of these critical sectors. Through tax credits and a range of other investment programs and services for the book and magazine publishing, music, film, television and interactive digital media industries, OMDC strives to maximize opportunities for growth and innovation in Ontario and around the world.

The government of Ontario’s media tax credits, which are administered by OMDC, are an important source of financing for foreign and domestic content creation. Last year, OMDC issued over 1,000 tax certificates valued at almost $200 million to support content creation in Ontario’s cultural media industries, including television production.

Pay and specialty television services have become a critical element of the Canadian broadcasting system. They have moved from holding a marginal place at their inception to, in 2007, earning $2.7 billion in English service revenues. They contributed almost $1 billion to Canadian programming, of which over $300 million went directly to independent producers.¹ Ontario, as a centre of excellence for screen-based content creation, is a major beneficiary of this economic and cultural activity.

Decisions made in this proceeding could have a direct impact on this economic activity and in particular on support for Ontario’s independent producers. Any decisions that are made should not and must not come at the expense of support for Canadian content.

Therefore, I would like to focus my comments today on the three key issues set out in the Agency’s written submission:

1. First, the measures that directly support the funding and exhibition of Canadian content.
2. Second, the measures that ensure the priority and preponderance of Canadian services.
3. And finally, measures that mitigate the inequality of bargaining power in the broadcasting system.
   

Funding and Exhibition of Canadian Content

I would like to first address the funding and exhibition of Canadian content.

OMDC stated in its written submission its belief that advancing the Canadian content objectives of the Broadcasting Act must take precedence over any greater reliance on market forces.² I would like to re-iterate that position here today.

The Minister has already outlined how important pay and specialty television services are as a source of Canadian programming.

Recently released CRTC numbers indicate that in 2007, conventional spending on Canadian programming was $616 million³ , while pay and specialty services spent almost $945 million.⁴ Ontario’s independent production community is a major beneficiary of this spending.

This significant spending is due in large part to the current regulatory environment, in particular the fact that these licensees are subject to Canadian programming expenditure and exhibition requirements. OMDC believes that these requirements should be maintained.

History has shown that when broadcasters are not subject to expenditure requirements, their spending on Canadian programming declines. The 1999 TV Policy was predicated on the argument that market forces would ensure that broadcasters would invest in quality Canadian programming. Eight years later, we see that the results of that policy have been higher spending on foreign programming and lower spending on Canadian content, particularly dramatic content.

We urge the Commission not to go down this road again. Expenditure and exhibition requirements should be maintained for pay and specialty services.

In addition, we agree with the proposal put forward by the CFTPA, among others, that the time has come to re-consider the low exhibition and non-existent expenditure requirements for Category 2 digital services. It is also time to increase Canadian content obligations for Video-on-Demand and Pay-Per-View services.

Priority and Preponderance of Canadian Services

I would like to turn now to some comments on the issue of preponderance and the distribution model put forward by the Commission.

It is clear that the Commission’s model would represent a substantially altered operating environment for the pay and specialty services that have played such an important role in supporting Canadian content. However, OMDC does not believe that such changes are warranted at the present time nor are we confident that these changes will maintain support for Canadian content.

In our written submission, OMDC argued that we saw no evidence of need for these changes. We remain unconvinced that without regulation consumer demand alone will ensure that BDUs continue to carry the channels currently available. We also remain unconvinced that the proposed changes will have a positive impact, or at the very least an overall neutral impact, on the availability of Canadian content.

In addition, the distribution model put forward by the Commission has defined preponderance as fifty percent plus one. OMDC submits that this percentage is too low, and marks a distinct shift from the Commission’s current mandate to make “maximum use” of Canadian creative and other resources.

In fact, as indicated by the CFTPA, currently close to 75% of total services received by Canadian consumers are Canadian services. OMDC is opposed to any model that could lead to such a drastic reduction from the current levels.

Finally, OMDC submits that the current access rules, along with genre protection, have contributed to a favourable operating environment that has allowed pay and specialty services to support the production and exhibition of Canadian content. We urge the Commission to consider seriously the potential impact that the proposed changes may have on this balanced ecosystem.

OMDC echoes the Minister’s statement today that any regulatory changes that result from this review should at the very least maintain, and preferably enhance, the level of investment in the production and exhibition of Canadian programming.

Issues of Inequality of Bargaining Power

Finally, I would like to address inequality of bargaining power in the marketplace.
The Minister has rightly pointed out that a strong broadcasting system requires a diversity of prosperous players as part of a healthy Entertainment and Creative Cluster.

The Chairman has also stated that access is an important objective of the Broadcasting Act. OMDC’s opinion is that access incorporates broad principles of diversity, including choice, ownership, editorial and programming.

In principle, we agree that issues that can be left to the marketplace are best left to the marketplace. However, it is evident in this instance that a free market does not really exist. Broadcasters both small and large have indicated to the Commission that they feel they are disadvantaged when negotiating with BDUs.

As an advocate for independent producers, we are aware of the issues they face with access to broadcasters, and the need for the system to make sure that such access is both real and fair. It is important that producers have access to a wide range of commissioning broadcasters. Rules such as the 5 to 1 linkage rule⁵ , access rules, undue preference provisions and dispute resolution procedures all help ensure a diversity of broadcasters participating in the system.

We therefore believe that it is important to maintain and support independent discretionary services. We urge the Commission not to allow conditions that permit only BDU-affiliated or large consolidated discretionary services to survive and prosper.

Conclusion

(Kevin Shea)

Mr. Chairman, this brings us to the end of OMDC’s portion of the presentation.
I would like to reiterate the three key points of OMDC’s position:

1. Canadian programming expenditure and exhibition requirements for pay and specialty services should be maintained.
2. Under the current access rules, Canadian pay and specialty services have thrived. We think these rules should be maintained, but if the Commission decides that a new distribution model based on preponderance is necessary, preponderance should be defined as something much greater than 50 percent plus one.
3. It is important for the Commission to ensure that a diversity of companies of all sizes and genres continue to have access to the broadcasting system.

OMDC believes strongly that the production and exhibition of Canadian content should be at the core of the regulatory framework for the broadcasting system. Any changes that are implemented to the current framework should at the very least maintain, and ideally enhance, the current levels of support for this content.

I would like to thank the Commissioners for the opportunity to appear today, and I would like to turn the presentation back over to Minister Carroll.

Notes