CHECK AGAINST DELIVERY
CRTC Broadcasting Notice of Consultation 2014-190
OPENING STATEMENT OF BCE
1. Thank you and good morning. I'm Mirko Bibic, EVP and Chief Legal and Regulatory Officer, BCE and Bell Canada. With me on our panel today are, to my right, Wade Oosterman, President, Bell Mobility and Residential Services and Chief Brand Officer and Geoff Wright, VP, Content and Business Planning, Bell TV. To my left, from Bell Media: Kevin Crull, President; Kevin Goldstein, VP, Legal and Regulatory Affairs; Tracey Pearce, SVP, Specialty and Pay; Wendy Freeman, President, CTV News; and Gerry Frappier, President and GM, Le Réseau des Sports. Behind me to my left, also from Bell Media: Corrie Coe, SVP, Independent Production; Mario Clément, VP, Content; Dany Meloul, Assistant General Counsel; and Mike Elgie, VP and GM, CTV Atlantic. Finally, behind me to my right are the experts whose reports were included in our filing: Dr. Jeffrey Eisenach, Stephen Armstrong, and Ken Goldstein.
2. This hearing challenges us to examine whether today's broadcasting rules have a place in a modern system.
3. What's at stake is the very successful system we have developed and which delivers incredible value to consumers today: television viewing costs Canadians just $0.24 per hour and offers a wide array of services with more packaging flexibility than is offered in the United States. While important and provocative questions are being asked in this hearing, one or two missteps can place this success at risk, ultimately to the detriment of all Canadians.
4. Nor will this success be sustainable if we forget that what's really relevant to consumers is watching content, not just watching TV. And that means regulation should not favour one type of broadcaster or distribution platform over another. And it certainly cannot continue to provide structural advantages to foreign players without in the long term dramatically undermining the cultural objectives of the Broadcasting Act.
5. Our team has crafted a proposal that addresses all of the issues put forward by the Commission, keeping in mind desired outcomes rather than just rules, and balancing the risk to the overall system against the benefits of flexibility for individual consumers. Many of these outcomes have already been set out by the Commission and the Government: choice and flexibility in selecting services, access to a variety of popular and niche programming, creation of compelling and diverse Canadian content, fostering local reflection, and protection of Canadian jobs. Our road map puts those outcomes front-and-centre.
6. First, choice and flexibility for consumers. Under our proposal, consumers could select any service not included in basic on a pick-and-pay basis, exactly as they have said they want.
7. This can be achieved with two minimally-intrusive regulatory rules. At retail, BDUs must make every service available on a stand-alone basis if it is not included in basic. At wholesale, programmers – domestic or foreign – must not restrict BDUs from offering stand-alone, pick-pack, or other flexible retail packaging and must not demand any packaging, penetration, or pay-on commitments.
8. BDUs would remain free to construct basic and any other packages in order to deliver compelling value. There is no evidence of dissatisfaction with existing basic packages. But of course BDUs should be free to offer skinny basic or any other packages.
9. Beyond the two rules we proposed, more intrusive unbundling regulation would actually limit competitive differentiation and, without a change to the regulation of wholesale negotiations between large players, puts at risk the ability of the system to create the quality and variety of programming available to Canadians.
10. Second, a regulatory focus on the creation of big-budget, high-quality Canadian programming. To grow in popularity Canadian programming must match the production values of the best that Hollywood can offer, and this requires a shift in focus. That shift leads to a virtuous cycle, driving audience attention and subscriptions, thereby funding more content. We have seen this time and again with shows like Dexter and then Homeland on Showtime, or more modestly Orphan Black and then Bitten on Space and L'Appart du 5eme on VRAK.
11. Third, long-term sustainability for local television. We know that viewers cherish their local news and local content and rate local television as the most important. A third of all viewing in the system is to private conventional TV, and our CTV stations alone reach 80% of English Canadians every week. This remains the principal entry point into the system for most viewers. Yet today it is unsustainable. We need to not only maintain simultaneous substitution but should convert to a local specialty model and improve the protection of the Canadian rights market.
12. Fourth, promoting our great Canadian content to the maximum extent possible. We do a lot already but we need to continue to focus on promotion to attract viewers. This is another reason to have strong local television stations, as they are the key promotional platform for Canadian content, in particular due to the power and audience delivery of simultaneous substitution.
13. Fifth, make our great content available over all platforms. This is key to meeting foreign OTTs head on. It consumes us every single day at Bell Media, Bell TV, and Bell Mobility.
14. We have endorsed many of the Commission's proposals, from pick-and-pay, to the elimination of genre-protection, to a system for handling complaints. And we have not shied away from proposing significant changes to the status quo, supported by fact-based evidence. We too seek a flourishing industry – from production to broadcast to distribution – that makes Canadians proud. The key question: how do we get there, from both a business and a regulatory policy perspective?
15. We are operating in the most intensely competitive period in the history of the BDU market in Canada: cable, IPTV, two national DTH providers, and domestic and foreign OTTs. Every day we try to attract customers to Bell Fibe and Satellite TV. And our competitors do the same for their services. Packaging requires a careful balancing of content and cost to generate compelling consumer value. If the Commission mandates skinny basic, and pick-and-pay, and build-your-own-packages, packaging differentiation will disappear and a crucial element of competition will be lost.
16. To be clear, we are not opposed to skinny basic – or any other packaging. We just do not support mandating it for all BDUs.
17. We saw in the on-line forums and interventions that consumers wanted more flexibility when adding channels above basic, which our pick-and-pay proposal provides. We did not see a clear desire for fewer channels to be included in basic. The empirical research shows the same thing. Our Hill & Knowlton survey found that just 13% of Canadians support skinny basic.
18. We do, however, support the Commission's view that the US 4+1s should not be included in basic, as including them undermines the cultural objectives of the system.
A sustainable regulatory model for local TV
19. As part of this all-encompassing conversation about the system's future, a frank discussion of local television is essential. Local TV stations are crucially important, but the business model has been broken for some time and it's time to act.
20. We have to decide: do we want sustainable local television in markets both large and small across Canada, giving it a pride of place in the homes of Canadian viewers? If we do, our local specialty proposal is a sound way to achieve that goal. As I'll explain in a moment, merely shutting down transmitters would actually make a dire situation even worse.
21. Bell Media proudly operates local TV stations in 30 communities across Canada. These stations are the primary way that citizens engage with each other via their broadcasting system. In the Commission's research, 81% of Canadians cite local news as important to them, more than any other category of programming. I'll ask Wendy to take you through some of the important work these stations do.
22. Our local stations serve a vital democratic and community function. The production of news – reporters and cameras on the ground in our communities – still depends crucially on local TV stations.
- In Edmonton, our CTV newsroom interviewed virtually every candidate for mayor and council during the last municipal election. We posted all of the full interviews on-line. On the night of the election, which brought in Edmonton's first new mayor in 9 years, CTV journalists ensured that viewers could hear from each elected council member.
- In Saskatoon this spring, CTV local news teams provided live coverage of the disappearance of 15-year old Austin Carter, contributing to his rescue when a local resident recognized him from media reports.
- In Moncton this summer, our local team provided extended live coverage of the RCMP-targeted shootings, keeping the community and the country up-to-date on developments and safety advisories. Our team was commended by the Mayor and local RCMP detachment.
23. This is news coverage that only local TV stations can produce. Our 30 local TV stations provide what CNN, Fox News, Al Jazeera, and the BBC never will: real stories from Montreal to Barrie to Terrace, and real coverage of local issues, local politics, and local events.
24. Local TV stations are also active community partners. Our Northern Ontario stations operate the longest-running telethon in Canada that will raise nearly half a million dollars this year. Twice a year our Saskatchewan stations take their show on the road to 10 rural communities across the province, telling their stories and supporting community events. Our London station is a founding partner of the Pledge To End Bullying. In fact, in total we aired 187,000 free, community-enriching PSAs last year.
25. Notwithstanding everything you just heard, the existing business model for these services is unsustainable. Despite investing about $2 billion each year, without the LPIF conventional TV as a whole would have been marginally profitable only one time in the last five years. Our 30 local TV stations together employ 2,060 Canadians and last year had costs of $721 million against revenues of $709 million – a loss of $12 million.
26. Unfortunately, the Commission's proposals in isolation would make the situation worse rather than better. Operating transmitters comprises less than 1% of our local TV operating costs. And the savings from shutting down transmitters would be more than offset by lost revenues from advertising revenue from over-the-air viewers and copyright payments under the distant signal retransmission regime.
27. And all that is before the impact of the Commission's proposals on simultaneous substitution, either of which would be immediately devastating for local TV. The evidence we filed on the record shows the value of simultaneous substitution to be in excess of $450 million annually. And live events account for a significant percentage of that – up to $40 million every year for CTV. Simulcast programming provides large lead-in audiences and our conventional stations provide $85 million in annual promotional value for Canadian programming. Just this past weekend, simulcast allowed Canadian networks broadcasting the annual Stand Up to Cancer event to ensure that all funds raised from Canadian viewers remained in Canada.
28. Eliminating simultaneous substitution is clearly not a risk worth taking when there are fewer than 500 complaints out of more than half a billion hours of simulcast viewing annually, and the vast majority of intervenors, including all major stakeholders and more than 90% of individual consumers that addressed this issue, have supported maintaining simultaneous substitution.
29. Our proposed local specialty model would finally bring stability to local stations. We appreciate the concerns for those who receive these signals over the air. But without this support, local television could disappear entirely for all Canadians.
Funding great programming
30. Turning to the funding of our great programming, over the years we have experimented in order to create and find hits amongst the inevitable failures and maintain access for consumers to a wide range of quality content. Shows like Motive, Mix 4, Véro Inc., Saving Hope, InnerSpace, 19-2, and Coldwater Cowboys demonstrate the incredible creative talent we have here in Canada.
31. As an industry and as policymakers, we can't ignore the economic model of creating and distributing content or let rhetoric or inapplicable analogies dictate a policy that fundamentally tries to defy gravity. Because of high fixed costs for both BDUs and programmers, bundling has always been foundational to the economics of the television business and delivering the best value to viewers. Bundling is what allows not just the biggest hits but a wide variety of popular, creative, and edgy content to be available to Canadians. And it is not just a relic of old TV: OTT services like Netflix and Amazon Prime, digital radio services like Rdio, and digital magazine services like NextIssue all bundle content in order to deliver the best consumer value.
32. Now, to be clear, we accept the directive to unbundle. But we are gambling on our ability to re-invent an industry's foundational economics and generate sufficient revenue to sustain quality, variety, and investment and, at the same time, to improve our global creative competitiveness. In my opinion this is a tall task with significant downside risk for every stakeholder.
33. Under the existing distribution model, where rates are fixed, a modest 10-point drop in penetration (say from 80% to 70%) will lower revenue by 15% and profitability by nearly half. When Rogers unbundled in London, penetration of Bell Media services fell not 10 but an average of 57 points. In that scenario, the sustainability of even strong brands like TSN, RDS, Discovery, Space, VRAK, Canal Vie, and Canal D is at risk.
34. We are not asking Canadians to guarantee our success. It's just the opposite: in an unbundled world each of our services, from TSN to Bravo to Book TV, will thrive or fail based on the consumer value it delivers. All we are asking for is the freedom to work creatively with our distribution partners to find a model that supports the production and discovery of a great variety of quality content for Canadians.
Issues Specific to the Quebec Market
35. It is no surprise that the French-language market is unique in some important ways. The process of unbundling is already well underway. We have a well-developed star system that supports the production of great domestic content. OTT services have had less of an impact so far than they have in the rest of Canada. There are already far fewer – but very distinct – French-language services. And the Quebec market is dominated by a single large vertically-integrated BDU.
36. Notwithstanding these differences, the Commission's working document advances the same proposals for both English- and French-language markets. Bell Media's programming vision in Quebec is indeed similar for both markets: maximum consumer flexibility, big-budget high-quality Canadian hits, maximum promotion, and multi-platform distribution. But we think distinct approaches are necessary to implement it without undermining the success we have had so far, as recognized in section 3 of the Broadcasting Act.
37. We need to maintain genre-protection and carriage rights. The market is already delivering increased packaging choice in Quebec and maintaining genre-protection and carriage rights for French-language Category A services will not prevent further unbundling but eliminating them could significantly undermine diversity. Genre-protection and carriage rights remain essential to a diverse and thriving specialty television system in Quebec.
38. We have proposed an increase in CPE for French-language services, recognizing the success of domestic French-language programming, the lesser impact of OTT services, and our proposal to maintain genre-protection. Because we agree with the Commission that the new regulatory framework should be forward-looking, this commitment includes greater scheduling flexibility so French-language services are well-positioned to adapt.
39. Our regulatory framework has always reflected a bargain that balances privileges against important public service obligations. We understand that many of the privileges will be pared back and we are not resisting these changes. Nor are we seeking the elimination of all of our obligations.
40. Our proposal creates an environment that balances the inevitable trade-offs between personal choice, costs, and variety of content available to Canadians, while giving all stakeholders the flexibility they need to find creative solutions to new challenges.
41. Thank you for your time today and we look forward to answering your questions.