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37th PARLIAMENT, 1st SESSION

Standing Committee on Canadian Heritage

EVIDENCE

CONTENTS

Tuesday, March 12, 2002

0905

The Chair (Mr. Clifford Lincoln (Lac-Saint-Louis, Lib.))

Ms. Christiane Gagnon (Québec, BQ)

The Chair

Ms. Christiane Gagnon

The Chair

Ms. Christiane Gagnon

The Chair

Mr. Casey B. Anderson (Vice-President, International Public Policy, AOL Time Warner Inc.)

Mr. Ian Hembery (Vice-President, Government Relations and Communications, AOL Canada)

0910

Mr. Casey Anderson

The Chair

Ms. Betty Hinton (Kamloops, Thompson and Highland Valleys, Canadian Alliance)

Mr. Casey Anderson

0915

Ms. Betty Hinton

Mr. Casey Anderson

The Chair

Ms. Christiane Gagnon

Mr. Casey Anderson

Mr. Ian Hembery

0920

Ms. Christiane Gagnon

Mr. Ian Hembery

Ms. Christiane Gagnon

Mr. Ian Hembery

Mr. Clifford Lincoln

Mr. Dennis Mills (Toronto--Danforth, Lib.)

Mr. Ian Hembery

0925

Mr. Dennis Mills

Mr. Ian Hembery

Mr. Dennis Mills

Mr. Casey Anderson

Mr. Dennis Mills

Mr. Casey Anderson

Mr. Dennis Mills

Mr. Casey Anderson

Mr. Dennis Mills

Mr. Casey Anderson

Mr. Dennis Mills

0930

Mr. Casey Anderson

The Chair

Ms. Wendy Lill (Dartmouth, NDP)

Mr. Casey Anderson

Ms. Wendy Lill

0935

Mr. Casey Anderson

The Chair

Mr. Grant McNally (Dewdney--Alouette, PC/DR)

Mr. Casey Anderson

Mr. Ian Hembery

0940

Mr. Grant McNally

Mr. Ian Hembery

Mr. Grant McNally

Mr. Ian Hembery

The Chair

Mr. Casey Anderson

0945

0950

The Chair

Ms. Betty Hinton

Mr. Casey Anderson

The Chair

Mr. Casey Anderson

0955

Ms. Betty Hinton

Mr. Casey Anderson

Ms. Betty Hinton

Mr. Casey Anderson

The Chair

Ms. Christiane Gagnon

1000

Mr. Casey Anderson

Ms. Christiane Gagnon

Mr. Casey Anderson

1005

Ms. Christiane Gagnon

The Chair

Mr. Dennis Mills

Mr. Ian Hembery

Mr. Dennis Mills

Mr. Ian Hembery

Mr. Dennis Mills

Mr. Ian Hembery

Mr. Dennis Mills

1010

The Chair

Mr. Casey Anderson

Mr. Dennis Mills

The Chair

Mr. Claude Duplain (Portneuf, Lib.)

Mr. Casey Anderson

1015

The Chair

Ms. Wendy Lill

Mr. Casey Anderson

1020

Mr. Grant McNally

Mr. Casey Anderson

Mr. Grant McNally

Mr. Casey Anderson

Mr. Grant McNally

Mr. Casey Anderson

1025

The Chair

Mr. Dennis Mills

The Chair

Mr. Casey Anderson

The Chair

1030

Mr. Casey Anderson

The Chair

Mr. Casey Anderson

The Chair

Ms. Wendy Lill

Mr. Casey Anderson

Ms. Wendy Lill

The Chair

Mr. Casey Anderson

1035

The Chair

Ms. Betty Hinton

1040

Mr. Casey Anderson

Mr. Ian Hembery

Ms. Betty Hinton

Mr. Ian Hembery

Ms. Betty Hinton

The Chair

Ms. Christiane Gagnon

Mr. Casey Anderson

1045

The Chair

Mr. Dennis Mills

Mr. Casey Anderson

Mr. Dennis Mills

1050

Mr. Casey Anderson

Mr. Dennis Mills

Mr. Casey Anderson

Mr. Ian Hembery

Mr. Dennis Mills

Mr. Ian Hembery

Mr. Dennis Mills

The Chair

Ms. Wendy Lill

Mr. Casey Anderson

1055

The Chair

Mr. Grant McNally

Mr. Casey Anderson

Mr. Grant McNally

Mr. Dennis Mills

Mr. Grant McNally

Mr. Casey Anderson

The Chair

Mr. Casey Anderson

The Chair

CANADA

Standing Committee on Canadian Heritage

NUMBER 042

1st SESSION

37th PARLIAMENT

EVIDENCE

Tuesday, March 12, 2002

[Recorded by Electronic Apparatus]

¿ (0905)

[English]

The Chair (Mr. Clifford Lincoln (Lac-Saint-Louis, Lib.)): Good morning. I'd like to declare open the meeting of the Standing Committee on Canadian Heritage, which meets today to continue its study on the state of the Canadian broadcasting system.

We are very fortunate today to--

[Translation]

Ms. Christiane Gagnon (Québec, BQ): If I could just interrupt you, Mr. Chair. I tabled a motion on the issue of journalists.

The Chair: We will discuss that tomorrow.

Ms. Christiane Gagnon: Fine. We also have consultations.

The Chair: Tomorrow, we are meeting to deal with routine business.

Ms. Christiane Gagnon: Fine. That's great.

[English]

The Chair: We are pleased today to welcome AOL Time Warner Inc. and AOL Canada. We're all aware of the importance of AOL in the world of communications. It's the largest communications firm anywhere. We are very pleased that today we have with us Mr. Casey B. Anderson, the vice-president, international public policy, AOL Time Warner Inc.; and Mr. Ian Hembery, vice-president, government relations and communications, AOL Canada.

I don't know who wants to start. Mr. Anderson.

Mr. Casey B. Anderson (Vice-President, International Public Policy, AOL Time Warner Inc.): Good morning, Mr. Chair, vice-chairs, and members of the standing committee. Thank you for the introduction.

As you've said, I'm Casey Anderson, vice-president for public policy at AOL Time Warner, and I have with me Ian Hembery, who is vice-president for government relations and communications at AOL Canada.

We would like to thank you for granting us the opportunity to appear before you in this important proceeding on the future of the Canadian broadcasting system.

We've organized our presentation into three sections: first, we'll provide a brief introduction to AOL Time Warner and AOL Canada; second, we will provide our views on the issue of foreign ownership and its relationship to the promotion and preservation of Canadian culture; and third, we'd like to provide some recommendations on the role of government in respect of the broadcasting industry. We'll stop after making opening remarks in each of these sections to provide an opportunity for questions and answers.

I'd like to begin by introducing AOL Time Warner, which is the world's first Internet-powered media and communications company. We are truly a global enterprise. Our brands touch consumers around the globe more than 2.5 billion times each month.

AOL Time Warner has three business units operating in Canada: the AOL interactive online service, the Warner Bros. family of brands, and Time Inc. publishing interests.

Ian will now take a moment to describe AOL Canada, and then I will outline AOL Time Warner's other business activities in Canada.

Ian.

Mr. Ian Hembery (Vice-President, Government Relations and Communications, AOL Canada): Thank you, Casey.

AOL Canada is an alliance between America Online and the Royal Bank of Canada. We operate two online services tailored to the Canadian market, AOL Canada and CompuServe, as well as Internet brands, such as AOL.ca and AOL Instant Messenger. Mr. Mills asked me how many Canadian households we serve. We serve approximately 400,000 households in Canada. We provide them with Internet access and original new media content.

AOL Canada has tailored itself to the Canadian market by working closely with and relying on over 80 Canadian content and e-commerce partners to provide Canadian members with easy-to-use, high-quality Canadian content in both French and English. Our content partners include both large companies, such as the CBC and Globe Interactive, and individuals such as the famous Don Cherry. Our partners produce Canadian content that includes news, current events, health, sports, entertainment, reference, and financial services. CBC News, News Background, Satire, Viewpoint, Diaries, and Science and Technology feature prominently in the AOL Canada news channel.

We were pleased to introduce French-language content on the AOL Canada channel lineup in the fall of 1998. The Français channel provides a wide range of information in French, including news and discussion boards, and convenient access to relevant content from other sources such as AOL France. The success of that led us to introduce a stand-alone French-language service, and we launched that in August 2001. We simultaneously introduced a French-language version of our AOL 6.0 software. Francophones across Canada have the choice of obtaining customer service 24-hours a day, 7 days a week, in either French or English. We also extended our content partnerships to include organizations such as Astral Media, Cyberpresse, and the SRC in order to provide the best French-language content possible.

¿ (0910)

Mr. Casey Anderson: I hope you're all AOL subscribers, but if you're not, you may be more familiar with some of the Time Warner division companies and their business activities in Canada.

AOL Time Warner has interests in various affiliates that carry on business in Canada in the fields of film and television distribution; home video distribution; recorded music, including domestic, artist, and repertoire; music publishing; magazine publishing and distribution; and licensed products distribution. Warner Music Group also has an indirect 50% interest in Columbia House Company (Canada), which is a record club, together with Sony Music Canada.

Specifically, in Canada we're engaged in a number of businesses, including Warner Bros. Canada Inc., which distributes film products for theatrical and television exhibition; and Warner Home Video (Canada) Ltd., which is responsible for sales, marketing, advertising, distribution and finance for the Warner Brothers, HBO, Turner Home Entertainment, and MGM product lines.

There's also Warner Music Canada Ltd., which is the recorded music business. In its 35 years of operation, Warner Music has developed the careers of such Canadian music icons as Neil Young, Joni Mitchell, Gordon Lightfoot, Blue Rodeo, The Barenaked Ladies, Great Big Sea, and Alanis Morissette. Warner Music manufactures all recordings distributed in Canada locally.

There's also Time Canada Ltd., which publishes TIME magazine and also operates the www.timecanada.com website in Canada; Warner Publisher Services (Canada) Inc., which distributes magazines and paperback books through wholesalers or directly to newsstands, supermarkets and general variety stores; Warner Bros. Distributing (Canada) Inc., which is involved in television production in certain Canadian provinces; Warner Bros. Entertainment Inc., which licenses film for theatrical and television exhibition; Time Warner Merchandising Canada Inc., which provides contract services involving licensing agreements for the use of Time Warner intellectual property; and finally, our New Line Cinema releases are distributed in Canada by Alliance Atlantis Communications Inc.

In the United States, AOL Time Warner holds a minority interest in a joint venture that operates an online service business called Road Runner, which affiliates with cable operators to provide Internet access and offers original content for broadband cable networks. Road Runner itself does not provide any Internet access in Canada, and AOL Time Warner has no cable operations in Canada.

The various AOL Time Warner companies have proprietary websites that consumers can use to reach electronic versions of their products and services around the world, for example, CNN news and magazines, as well as annual reports and other public documents filed with securities regulators.

Time Canada Ltd. operates www.timecanada.com, and Warner Music Canada publicizes the releases of their Canadian artists through www.warnermusic.ca. AOL Time Warner's principal website, of course, is www.aoltimewarner.com.

That concludes our introduction to AOL Time Warner and AOL Canada. We will be pleased to respond to any questions you may have about our company before outlining our views on foreign ownership in the media and Canada.

The Chair: Just to clarify for members, our witnesses have asked to break up their presentation in different sections, so there will be questions after each section. We'll go back to their testimony afterwards.

So this is the first round of questions on this section of their presentation.

Mrs. Hinton.

Ms. Betty Hinton (Kamloops, Thompson and Highland Valleys, Canadian Alliance): Thank you, and welcome to the committee. Glad to see you here. I found your briefing very interesting.

You are obviously a very large company. One of the concerns we should have, as members of government, is what will happen if you enter the market here in an even bigger way than currently?

What's to keep you from buying up all the Canadian media? What assurances can you give me that that's not your intent? What safeguards are there that distinctively Canadian programs would be produced and shown if the media were foreign-owned?

Mr. Casey Anderson: Well, in a moment Ian will describe, by way of a case study, AOL Canada's operations in Canada, and I think that this will illustrate how AOL Time Warner and AOL in particular have approached every market where they've done business outside the United States. That is to say, they've built content offerings from the ground up, using local partners producing local content, and they have essentially used the AOL technology as a template or back end for more or less entirely local content offerings.

I think that the AOL way of doing business, that is to say, constructing an online service that is effectively homegrown everywhere it does business, including in Canada, provides good reason to be optimistic that local content can thrive in the future. The local content will be based on the market incentives that companies like AOL Time Warner have to accommodate the tastes of consumers in Canada and elsewhere, this in a multi-channel world where people will have many more choices than they've ever had before in terms of what types of content they can obtain and what sorts of news sources they'll have access to. In other words, we have every reason to provide content that speaks to Canadian values and tells Canadian stories because that's the sort of content Canadians are most likely to be willing to pay for, frankly.

I think the AOL Canada experience is just one of the first and most encouraging signs of a more general trend we see in media around the world, where additional choices are made available to consumers and local voices have an opportunity to be heard where perhaps they might not have had the same sort of market opportunities in the past.

¿ (0915)

Ms. Betty Hinton: The fear I've been hearing, the fear I hear from the majority of people, is that this may be your intent at the beginning, but they're concerned that once you've eliminated all the competition, then you can do as you will and there'll be nothing we can do to stop you. Now, that's just a comment I've heard. It doesn't happen to be the way I think.

I would point out one other thing to you. You may notice when you look around the table that, given the fact we're discussing the Internet as part of this, one of the components that's missing is an orange-haired spiky person with multiple body piercings who's about the age of 15 and who can actually tell us what this is all about. Hacking is something you must have to face on a daily basis. Do you have anything in place to prevent hackers from going in and taking down your entire system, which would leave Canadians in a very odd spot?

Mr. Casey Anderson: Yes. We have a full-time professional staff of security personnel, supplemented by a group of lawyers based at our headquarters in Virginia. They deal with law enforcement agencies as well as technical experts from around the world to address security threats--hackers as well as other forms of illegal activity that can take place over computer networks, including the AOL system.

That's something we take very seriously, and I would say that AOL Inc., in all its iterations around the world and in the United States, Canada, and elsewhere, has long been a target of hackers. We have several years of experience dealing with repeated attacks on our systems, so we've been put to the test, and that's something we've been forced to deal with for some time now.

[Translation]

The Chair: Ms. Gagnon.

Ms. Christiane Gagnon: When I read your brief, I noticed that you very clearly stated that the production of Canadian and Quebec content would be respected and you also said that we currently have Quebec and French-language content. The Quebec cultural reality is also one of your possible markets. Why have you waited so long, in fact until 2001, to reach agreements with Radio-Canada on French-language content? What type of arrangements have you made to ensure that your company does have French-language Quebec content?

[English]

Mr. Casey Anderson: Ian, would you like to address that question?

Mr. Ian Hembery: Yes, I will. Thank you for your questions.

We started our operations in Canada in 1996. Certainly, in comparison to later years, it was really an opportunity that the company took with a relatively limited budget. In 1999, we were fortunate enough to attract investment from the Royal Bank of Canada. It allowed us to look at investing in the Quebec market, in particular, by providing francophone services to not only Quebeckers but francophones across Canada.

We started off by offering the Français channel. What we did with our Français channel, which was part of our English-language service, was really look to see what kind of content Quebeckers wanted. We conducted a number of focus groups in Quebec to determine what the Internet viewing habits were, so to speak, of Quebeckers and then, as well, interviewed a number of partners.

Obviously, potential partners came to us to look to see what kind of content could be provided. We were very fortunate, obviously, to attract the SRC. It forms the basis of news offered on our all-French-language service, as well as other companies, such as Astral Media.

We're still in the process of building it. For example, in 1996, when we introduced the AOL Canada service, we started with zero partners. We have now grown to eighty. Similarly, we introduced our entirely French-language service in the year 2000. We anticipate similar growth over the coming years. We're anxious to attract new French-language partners and are continuously looking to see who has content that fits with what our audience is requiring and asking for.

¿ (0920)

[Translation]

Ms. Christiane Gagnon: Do you currently have the exact percentage of French-language content and Quebec content compared to the English-language content that you offer? Do you have figures on that?

[English]

Mr. Ian Hembery: On our all-French-language service, the content is 100% in the French language. It's something I can state absolutely.

As for the content that is created by Canadian content partners, I don't have an exact number for it. Obviously, news, sports, and entertainment are all provided by our French-language content partners, most of whom are based in the province of Quebec.

[Translation]

Ms. Christiane Gagnon: In your brief, you list AOL Canada's partners. If you look closely at this list, there are some French-language services. However, there is not enough for me to be able to say that Quebec and French-language content is provided, to the greatest possible extent. Could you give us some idea of how the Quebec and French-language content in your services could be developed?

[English]

Mr. Ian Hembery: I should state, first of all, that AOL Canada Inc. does not generate any original content. We are not content creators; we are content distributors. Therefore, we look for partners to provide us with content. We engage in a commercial relationship with them.

The content is really driven by audience need. What content do Quebeckers want? It's the content we're going to provide to them.

We found that the best way, not only in Canada but in other markets around the world, is to rely on local partners to do it. We are continuously interviewing and having commercial discussions with partners, whether they be Canadians who speak English, Canadians who speak French, or Canadians who speak French and live in the province of Quebec, who give our audience an offering that is saleable. It's what drives us. We were not forced to do this for any regulatory reason or any legal reason. We wanted to make a product and provide a service that francophones, and particularly francophone Quebeckers, would embrace and subscribe to.

Mr. Clifford Lincoln: Mr. Mills.

Mr. Dennis Mills (Toronto--Danforth, Lib.): Thank you, Mr. Chairman.

Welcome, gentlemen.

Building on the partnership concept, Mr. Hembery, that you have with your Canadian partners--you use the word “partnership”. Do you rent the content from the Canadian partners? Do you pay them for the use of the content on the site?

Mr. Ian Hembery: There are many kinds of arrangements, Mr. Mills, but some of the content we pay for. We license that content and provide it to our members. We engage in some of the content on a shared-success, shared-reward basis with our Canadian partners, and for some of the content, particularly e-commerce content with, for example, an advertiser or partner such as Canadian Tire, we charge them a fee to participate in our service. I think those are the three basic models.

¿ (0925)

Mr. Dennis Mills: Okay, that's fair enough.

Just so you understand where I'm coming from, because the Internet is unregulated, my preoccupation is the Canadian content on the site. I'm one of those Canadians who, when he thinks of AOL Time Warner, sees a massive force that has the capacity to really marginalize the Canadian content that's going through the system. I'm wondering what kind of self-discipline AOL Time Warner uses to be sensitive to our sensitivity about our Canadian culture.

Mr. Ian Hembery: It's really a matter, Mr. Mills, of looking at what consumers want, and certainly in our next segment I'll be going through this in some detail as to how we arrived at the business structure we have. Suffice it to say that Canadians certainly want Canadian content on their Internet service. We weren't obliged to provide it; we provide it because it makes good business sense.

Mr. Dennis Mills: I have a short question for Mr. Anderson.

Mr. Anderson, when you talked about the support in the music sector you gave to Canadian artists, you cited Gordon Lightfoot, Blue Rodeo, and Barenaked Ladies as examples. How exactly do you support those Canadian artists? What does Time Warner do for them?

Mr. Casey Anderson: We perform the same sort of service we provide for artists anywhere else in the world, which is to say, we scout for local talent, we then try to sign up the talented artists we find, we help to market them, we get them signed up for a record deal, and then we distribute and market the records they produce--CDs, usually.

Mr. Dennis Mills: Would you invest in their album production and market them across North America? Do you make that kind of investment in those...?

Mr. Casey Anderson: Yes, that's right.

Mr. Dennis Mills: Could you give me a rough idea of how much money that would be in terms of what you do, in terms of investment in Canadian artists?

Mr. Casey Anderson: I'm not an expert on the economics on the music business, but it can amount to several hundred thousands of U.S. dollars to develop a single artist. As you probably know, very few artists wind up being able to justify that return because very few artists can sell enough CDs or tapes to earn back the investment, the substantial upfront investment a record company will make in distributing and promoting their creative works. Really, it's a process of trying to locate as many good prospects as possible, doing our very best to promote them both locally and in the United States--as is the case of the Canadian artists you mentioned and who I referred to in my earlier statement--and then seeing how many of those others you can break to a wider audience.

Mr. Dennis Mills: I understand that, but my question is, do you have an idea of how much money you invest in, say, the Canadian music industry?

Mr. Casey Anderson: I think we can get back to you with a more specific figure if you're looking for a total number, one that's at least in the ball park. As you know, we've made significant commitments in connection with our merger to invest in Canadian content, both in film entertainment and in music, and those are tied to some very specific dollar numbers.

Mr. Dennis Mills: Mr. Hembery, it would really be helpful for me--and this is the last question, Mr. Chairman--if you could provide for me just what the investment of the AOL Time Warner experience in Canada in the various sectors.

¿ (0930)

Mr. Casey Anderson: Yes, we'd be happy to get back to you with that.

Mr. Dennis Mills: Thank you.

Thank you, Mr. Chairman.

The Chair: Would you send it to the clerk of the committee, please?

Ms. Lill.

Ms. Wendy Lill (Dartmouth, NDP): Thank you very much.

I regret I wasn't here for your opening presentation, but I have read your material. I'd like to ask you a big question, because obviously you're a big company. With $36 billion estimated revenue, you're bigger than Disney, you're bigger than Viacom. You're big, right? You're the biggest.

So I'd like to ask you the big questions, because that's what we're here for. We're here to talk about safeguarding, enriching, and nurturing Canadian culture. That's all we care about. We really don't care about your bottom line. I know you do.

You're the Harry Potter people. You've put, I think, $125 million into making that movie and then you put the rest of your empire into marketing it and the whole Pottermania, producing the spinoffs.

As a mom who knows the most important thing a child can do is read, I know the precious thing we have here is the Harry Potter book. The critics are saying--and I'd like your comments on this--that Harry Potter was a creation of somebody who had nothing to do with mass culture, nothing to do with what you are marketing right now. She wrote this book in isolation, in a tiny place, and it's the stuff of imagination. So what we have now is the marketing of something that was in fact an imaginative work, which may not in fact be able to be created any more because of the business you do.

I guess I'm thinking, can we not say that the Pottermania and the marketing of mass culture is not, in a way, clear-cutting our children's imaginations? I know that's a big question at 9:30 in the morning, but I'd like you to take a shot at it.

Mr. Casey Anderson: Well, I would certainly hope the Harry Potter movies would spark more interest among children in reading the books. And certainly, if your children have seen the first Harry Potter movie, they'll have to turn to the books if they want more before the succeeding movies are released. So I can only speculate, but I would certainly think there is some reason to be optimistic that the promotion of the Harry Potter movie will actually encourage kids to read, as well as to go see the movie.

As to the broader question, I think, as you may know, Ms. Rowling asked for certain commitments concerning the way the movie was marketed, and our willingness to accommodate those desires is one of the reasons AOL Time Warner was able to persuade her to sign an arrangement with our company to make the movie. Those involved some limitations on the way the movie was marketed.

I would also say that the fact that we promote the Harry Potter movie has, I would think, encouraged the production of more creative works, both books and movies, that attempt to provide children with high-quality education and entertainment. I'm not sure I understand the gist of your question to the extent that it seems to suggest that maybe the movie has undercut, in some way, the incentive to produce high-quality books for children.

Ms. Wendy Lill: I guess what I'm trying to get at is the issue of culture. We in this country and in this committee are trying to nurture and preserve a national culture, and it's a tiny nation. It's big in space, but there aren't very many people, and we're living next to America, which is a huge presence. It's the elephant--people always talk about the elephant beside us.

We spend less on promoting our Canadian culture than you would probably spend on promoting Harry Potter, so I'm just trying to get a sense from you of how you think this works. How is it that we can continue to preserve and nurture Canadian writers, when in fact it's only one in a hundred or a thousand writers who would get the nod from AOL Time Warner for a Harry Potter. What happens to the rest of them? What happens to all of the other writers in our country who are trying to get some kind of hearing and some kind of support?

I just want to know how you think that works. I get the sense from your material that you don't think the government really should be involved in any kind of support of the arts, that we should let the marketplace take over. Do you understand at all what we are trying to do here?

¿ (0935)

Mr. Casey Anderson: I think we certainly understand and respect the desire of Canadians to ensure their stories are told and that their values are reflected in media of all types, whether it's books, movies, music, or the Internet, across the board.

The intention of our testimony today is to illustrate ways in which the new media, in particular, that AOL Time Warner is involved in trying to develop creates new spaces for voices that might not have been heard previously--to find a market, a niche, and not only be marketed and heard in Canada but receive a wider audience in the United States and elsewhere in the world.

One of the strengths we have as a large company is our ability to distribute and promote talent we find in Canada and all the other countries where we do business globally, and to provide an audience for Canadian authors and creative artists of all kinds, so they can reach people in other places who might never have had an opportunity to see what they had to offer.

By way of a specific example, if you go to the books area of the entertainment channel on the AOL service, you'll find that we promote several Canadian authors and best-selling books in the Canadian market, as opposed to simply trying to promote the works we may be involved in publishing or works that may be popular in the United States.

So I can understand your skepticism. But I would urge you to look at our behaviour and examine the types of things we promote and the ways in which we try to help Canadian artists and creators find a wider audience for their work.

The Chair: Mr. McNally.

Mr. Grant McNally (Dewdney--Alouette, PC/DR): Thank you, Mr. Chair.

Often perception becomes reality, not only in politics but in business too. You're hearing a bit of that today. We hear it as well. Of course, AOL Time Warner is a giant--“big”, as Ms. Lill mentioned.

First of all, do you accept the accusation that AOL Time Warner's going to gobble up Canadian media interests, dominate the Canadian culture, and possibly be part of the group that puts the production of Canadian content out of business? If you don't accept that, how do you rebut that? That perception is out there, and I would submit it's not a minor perception. There are a lot of people who just view your company as an American giant looking to steam-roller over Canada.

Mr. Casey Anderson: That's certainly a fair question. I think the next section of our presentation addresses that very specifically, and outlines some of the reasons why we think a company like AOL Time Warner will have very good business reasons to ensure that Canadian voices continue to be heard and in fact are promoted more extensively than they ever have been before.

With your indulgence, I might turn to Ian to describe the process AOL Canada used to build its service, because I think it goes to your question fairly directly. I don't mean to put off your question, but I think it goes right to the heart of the matter.

Mr. Grant McNally: That's fine.

Mr. Ian Hembery: As I told you, we entered the Canadian market in 1996, and based on similar models in other countries around the world, we realized that in order to be successful we needed to provide products and services of interest and utility to Canadian consumers.

We responded to market demand and developed a business plan to seek out Canadian partners to produce online content of interest to Canadians and AOL members around the world, a similar model to what I described in our entry into providing a francophone service. We really looked at what kinds of services Canadians wanted and needed, and we were clearly told that it was important to have Canadian sources of information. No government regulator, advisory body, or licence conditions compelled us to do that. As you know, the Internet is not under the same constraints as other media.

We responded to the needs of our Canadian members, and we provide them with services they want and use. An interesting statistic is, as I said, we're now in 400,000 Canadian households. We're widely used not only by the adults in the household but by children as well. Our usage now exceeds, per household, over one hour a day of accessing content. At the same time, we provided, and continue to provide, significant investment in the distribution of Canadian online content both within Canada and in the world.

I think the clear conclusion is that increased investment in the broadcasting system by non-Canadians will strengthen, rather than harm, cultural industries and the broadcasting system itself. Remember, we weren't required to do this by any licensing condition or regulatory body; we did it because it made good business sense and that's what our Canadian consumers wanted.

So I think the conclusion that Canadian content can flourish in a free market is confirmed by the current state of the Internet more generally. In the absence of Canadian ownership or content regulations, Canadian content is continuing to flourish, and Canadian content creators are continuing to thrive on the Internet.

It was that conclusion that was the driving force behind the CRTC's 1999 decision to exempt new media Internet broadcasting from regulation under the Broadcasting Act. I think the conclusion is equally valid today. In the market-driven online world, our members demonstrate a clear preference for Internet content that is truly Canadian, overwhelmingly choosing Canadian over non-Canadian sources of news, sports, and financial information.

I think it's important as well to recognize that the Internet makes Canadian content accessible to Internet users around the world. For example, 33 million AOL users have easy access to AOL content, 33 million users around the world. The Internet provides an ease of access on a global basis that no other medium can provide. People from outside of Canada who wish to obtain information about Canada or specific matters within Canada will go to the source.

¿ (0940)

Mr. Grant McNally: So, in essence, you would categorically say that the perception out there is false and that you've gone over and above the call of duty to provide opportunities for Canadian content through the methods you've just described.

Mr. Ian Hembery: Yes. As I said, we are not content creators, we are aggregators of content and distributors. Our AOL Canada business relies on over 80 Canadian content e-commerce partners to do that, and that list grows continuously.

Mr. Grant McNally: So then it's your assertion that, without your business here in Canada, there would be fewer places for Canadians to access the market, to have their content displayed in places where others, not only Canadians, could view it?

Mr. Ian Hembery: I agree with that. Both in Canada...and certainly having 33 million AOL members around the world who have one-click access to the AOL Canada service is a benefit to Canadian content creators.

Mr. Grant McNally: Thanks.

The Chair: I understand that you will start the second section of your report.

Mr. Casey Anderson: Yes, thank you. Ian has covered some of it. I might pick up from where Ian left off.

Our company more generally, not just in our Internet businesses, supports local production of content and programming in markets all over the world. Whether we're talking about Canada, the United States, Japan, or central Europe, everywhere we go, we want to produce as much local content as possible.

It's what consumers want. It's only natural that people would turn to providers, media companies, that reflect the values they hold and provide information of uniquely local interest to them when they're deciding among the many choices available in the entertainment and news media.

I think the AOL Canada business model is a particularly good illustration of this. It's also true of other types of broadcast media, like the cable and satellite businesses, where twenty years ago only three, four, or five channels might be available to any individual consumer. Today we have cable networks and satellite networks that can make literally hundreds of choices in video programming available to anyone who will pay out a relatively modest monthly subscription fee. These types of technological changes, I think, speak to a change in the nature of what's necessary in order to ensure there is diversity, and specifically that local voices have an opportunity to be heard.

I might mention specifically a couple of recommendations we have about ways in which Canada's approach to foreign ownership of the media might be modified in order to encourage the creation and promotion of more Canadian content. It has been said, and we agree, that current Canadian content regulations inappropriately focus on the nationality of the content creator rather than on the content itself.

In fact, we would support a review of the definition of Canadian content. This review could clarify that the purpose of the content restrictions is to produce content that is Canadian and make classifications that are more consistent with that purpose. This idea was incorporated in CanWest Global's recommendations, as well, to level the playing field so the structure of the program's producer is not "dispositive" as to the question of whether or not it's considered Canadian for the purposes of regulation.

As Ms. Copps suggested when she appeared before you last November, there may be other means of ensuring Canadian stories continue to be told by Canada's broadcasting system that do not restrict foreign ownership in Canadian media. We believe Canadian stories will continue to be told, and can be told, through quality well-financed programming with one ownership.

The Canadian government and the CRTC have recognized that Canadian companies need to be strong and well financed to compete in an increasingly global broadcasting market. The broadcasting and media industries continue to experience consolidation. Canada is no exception. Foreign investment is required to ensure Canadians continue to have access to a wide diversity of views.

Representatives of the Canadian cable industry appeared before you on February 19 and recommended relaxing the foreign ownership restrictions for broadcast distributors because of the capital-intensive nature of their industry and their need to have access to foreign capital. We support their recommendation that foreign ownership restrictions be relaxed with respect to BDUs and other distributors. We would go further and say the arguments favouring such a relaxation for distributors apply with equal, if not greater, force to Canadian content creators.

In that vein, I'd like to highlight the relationship between access to capital and foreign investment in Canadian cable systems and the development of high-speed Internet.

¿ (0945)

Since 1995, we have been working with the CRTC to try to obtain access to Canadian cable systems for high-speed Internet access offerings. Over the period of time, the CRTC has agreed that, in principle, independent ISPs, ISPs that do not have a direct equity or ownership stake in a cable operator, should be able to get access to the cable networks to provide high-speed Internet access and content on reasonable terms and conditions. Yet, seven years later, we still cannot get access to Canadian cable systems for the AOL Canada Internet service for a variety of technical and regulatory reasons. On the other hand, we don't have the option of buying or making a significant equity investment in a Canadian cable operator in order to obtain access through commercially negotiated means.

I bring this to your attention because it illustrates how the foreign ownership restrictions have the unintended consequence of creating a barrier to independent ISPs that happen to be affiliated with foreign companies. This barrier includes getting access to consumers and therefore denying consumers another set of choices for Internet access and content, choices that are exploding in importance and popularity as the Internet develops as a truly mass medium for communications, information, and entertainment. So for those reasons, we support the elimination of ownership restrictions in all aspects of the Canadian broadcasting system, including content producers and distributors.

With that, perhaps we should open this up for more questions before turning to our recommendations on the future role of the CRTC and the role of government in regulating the broadcasting sector.

¿ (0950)

The Chair: It's clear to all members, I'm sure, that these two sections are of key importance to us in regard to AOL's views on Canadian content and foreign ownership, on the one side. They have another section coming up on the role of the government and the CRTC. If we want to allow ourselves time for questioning and so forth, I would urge members to be concise so that we have time to cover these two sections, which are of primary importance for all of us.

Mrs. Hinton.

Ms. Betty Hinton: You mention in your briefing here that HBO is part of your packaging. HBO doesn't have a licence in Canada, yet it's sold here, to the detriment of Canadian licence holders, such as SuperChannel. I think that's another fear that needs to be addressed. If you're going to bring it across on the Internet, as you suggested, then what happens to the Canadian licence holders who pay very good money, follow all the rules, and have no protection?

I just have one comment. This is the courtship phase of this relationship we have here. You always get flowers and candy during the courtship phase. We're concerned about later on.

Your target is obviously urban centres because that's where you can generate the most income. I understand that. But what about rural Canada in terms of Internet capability? How are you going to address that? Or are you only going to target urban centres because the infrastructure is already in place?

Mr. Casey Anderson: I think the need to develop high-speed Internet access infrastructure in rural areas is one of the very best reasons to be looking for new sources of capital. Foreign capital is the most obvious, and perhaps the only, available source of new investment for infrastructure.

Canada has made great strides in encouraging the development of broadband deployment and has one of the highest broadband adoption rates in the entire world. But I think as we move to a new phase in the development of the Internet, it will be especially important to make sure there's continued investment to build out that infrastructure to reach not only people in rural areas, but also people in urban areas who may not be in the most affluent strata of society and may not be able to afford to pay for high-speed Internet access at current prices. By lowering the cost of capital, by increasing the available supply of capital that can be used to invest in new telecommunications infrastructure and cable infrastructure, foreign investment can only benefit Canada in terms of the number of people who will be reached by a broadband-capable set of pipes.

The Chair: Could you perhaps respond to that first question on HBO?

Mr. Casey Anderson: Certainly. It's true that HBO's programming is sold in Canada through intermediaries--through independent distributors--but HBO's channel offerings, which are available in the United States and Europe and many parts of Asia, cannot be sold in a package because they directly compete with some existing Canadian channel offerings.

¿ (0955)

Ms. Betty Hinton: Ah, but they are.

Mr. Casey Anderson: Well, they may be available in some places. I won't speak to the grey market or some of the other issues you may be alluding to. I would just observe that the question of foreign ownership and the question of ensuring that predominantly Canadian content is shown on the broadcast media are really two separate questions.

You can retain requirements that Canadian content be at least 50% or 60% in prime time of the material that's shown on cable or over-the-air television and still allow foreign equity ownership of Canadian broadcasters. In fact, that's the regime in place in most parts of Europe, because the European Union has a quota system that's designed to encourage at least 50% European-originated content but does not, in most cases, directly restrict the equity investments of foreigners in the broadcast outlets themselves.

Ms. Betty Hinton: I have one more question for you, Mr. Anderson.

I have a personal theory. You can tell me whether I'm right or wrong. My general feeling is that as a Canadian government we would be better off trying to level the playing field in Canada for Canadian entrepreneurs to get involved in the distribution of Internet. One of the major problems and the hurdle they face is through the telco companies, because the telco companies own the rights.

That wouldn't be a problem for you, because you have a lot of money. But I'll give you an example here. In Kamloops, British Columbia, which is one of the communities I represent, it costs $1,200 per month from Telus to rent T1 dataline space and gateway access. Thirty miles to the north, in a community called Barrière, that exact same service costs $4,500 a month.

If you wanted to be able to extend the service to the rural areas, I guess what I'm asking you is, why wouldn't we, as a government committee, encourage government to level the playing field so that rural Canada and urban Canada have free access to this product rather than embrace a huge company with a voracious appetite? I admire you; you've done wonderfully well. I'm looking at it from the Canadian content side of it here. Why wouldn't we prefer to go that route and level the playing field rather than invite you in and not go that process?

Mr. Casey Anderson: I don't think those are mutually exclusive alternatives. In fact we would wholeheartedly endorse more pro-competitive regulation of Canadian telecommunications systems, because one of the primary problems independent ISPs have--and by “independent” I mean companies not affiliated with the incumbent owners of infrastructure, whether that's cable television networks or telephone networks, and they may be foreign-invested or purely domestic--and what we all share in common is tremendous difficulty and frustration in getting access to incumbent infrastructure so we can offer our services on a level playing field, as you put it, with the incumbent services.

I think we completely agree with you and endorse the idea that there should be more competition--and a more level playing field for all unaffiliated providers of Internet access offerings--with the incumbent telephone companies and cable operators.

I don't think any of that is intentioned with the idea that it would be in Canada's interest to encourage the availability of more investment dollars from whatever source, foreign or domestic, to develop Canada's media industry in either the Internet sector or in traditional forms of media.

[Translation]

The Chair: Ms. Gagnon.

Ms. Christiane Gagnon: You are opting to increase the percentage of foreign ownership. What would happen if the Americans bought out Canadian media companies? How would the Americans react to government measures to protect specific cultures either in Quebec or in the rest of Canada? How could we defend our resolve to promote Canadian culture or Quebec culture, which is more fragile? The Americans could very well, as they are currently doing in the area of lumber, impose... They would put enormous pressure on us to rescind our support for Quebec and Canadian production.

I think that you are well aware that we're currently looking at the tools that could be used to protect smaller nations in the world against the American invasion. Don't you think, then, that we would be opening the door for them and giving them the green light to impose their idea that cultural production is a commodity just like hot dogs or other consumer goods? Don't you think that American production would invade other areas also? I think that there's a danger here. Could you perhaps tell us that these dangers don't exist because we have various guidelines in Canada? Could you perhaps tell us a bit about what you think we should do to avoid this danger?

À (1000)

[English]

Mr. Casey Anderson: I think that in our recommendations we've tried to provide what we hope are constructive suggestions about how Canada can make foreign companies, including AOL Time Warner, partners in developing Canadian content.

Specifically, there are our recommendations concerning what should be considered Canadian content and the way the point system would work to evaluate what will be considered Canadian for purposes of the regulatory regime. I think they go to your question because they are ways in which we can help invest in Canadian productions, which is to say creative works that reflect Canadian values and tell Canadian stories, and in turn promote them both within Canada and in other parts of the world more easily and more cost-effectively.

I think the consolidation that has taken place in the media in Canada and elsewhere in the world is certainly a fact of life. The issue is how to harness that to make sure Canadian voices are still heard. I would suggest that the best way is to try to work with us to become partners in the promotion of that type of content.

[Translation]

Ms. Christiane Gagnon: Let's just say that you haven't really answered my question. You've mentioned protecting Canadian content but I'm talking about something completely different.

If the Americans, for example, got their hands on the Canadian media, they would be able to bring some pressure to bear to force us to change the ground rules. They would be able to do that if we didn't have protective guidelines. Don't you think that governments would be pressured into withdrawing their support for Quebec and Canadian production? We have a free market here in Canada and the Americans have a share of that market. The Americans are present in Canada and they do indeed have a share of our market. They own some media. You are well aware that the trend for American companies is... Indeed, cultural production, for the Americans, is a commodity just like any other product. Culture is defined in a different way in Canada and Quebec.

Currently, there are attempts afoot to set up an international mechanism to allow governments to continue to support their... As you are undoubtedly aware the United States has already shown its resolve to get rid of this protection that we provide our culture because we feel that it is more fragile and under greater threat. We need to assert our culture in terms of United States culture. Many smaller nations also want to protect their culture because American culture is invading all the areas.

Don't you think that that's a real possibility? Of course, I know that we want to be able to sell our products, but we also have to protect our culture. If governments do not support home-grown production, that would mean that we would produce less. If the Americans impose their way of doing things on us, at least, we would have this protection, which would allow us to continue to produce home-grown material and to sell it and market it abroad.

You have said that we do indeed have protective mechanisms. You said that we have a point system. However, if we implemented your vision of the future, we would be facing a completely different situation.

[English]

Mr. Casey Anderson: Well, what I'm suggesting is that there are ways to adapt the existing rules to more effectively encourage the development and promotion of Canadian content.

On the question of whether there would be continued pressure to relax restrictions on the amount of Canadian content that would be available, I'm suggesting that in other parts of the world, like Europe, there are restrictions on foreign content that exist in the absence of restrictions on foreign investment. So I don't think there is any necessary relationship between maintaining restrictions on foreign investment in broadcasting outlet and distribution systems and continuing to require a particular proportion of Canadian content in the broadcast media.

À (1005)

[Translation]

Ms. Christiane Gagnon: I would just like to add something, I'd like to give you an example. I know a head of a company who was very happy to work with France because it allowed him to speak French, but, when they had to negotiate something, the working language was English. Consequently, protection... We have to get our own house in order. It goes without saying that there are French companies in France, but they do business in English.

[English]

The Chair: Mr. Mills.

Mr. Dennis Mills: Mr. Chairman, I would like to build on what Ms. Gagnon has been chatting about with Mr. Anderson for the last little while, because I share many of her concerns and perhaps I could position it a little differently.

When we bought into the free trade agreement in this country, surprisingly enough, back in 1988 there were many Canadian presidents of American-owned manufacturing concerns in southern Ontario. I can remember meeting with three of them specifically. They said that once this free trade agreement went through, the capacity in their manufacturing concerns here in Canada to do research, to manufacture would essentially vanish over a short period of time, perhaps two or three years, and they would become essentially a warehouse. In fact, in the three particular instances, where I had this lunch with these presidents who were telling me to be very concerned about this, it did happen.

So the concern we would have here is that once this regulatory framework, this protection of our culture is lifted, then we would fear that eventually we would become a warehouse system here in Canada in this sector. Most of the real creativity, most of the real manufacturing would be done outside of Canada, and therefore our value system would be greatly diminished. I don't personally see any way of preventing that from happening, knowing the precedent that has happened in manufacturing in the free trade agreement. I don't see any precedent for throwing away this foreign ownership protection that we have.

Would you not think that once this regulatory framework was pushed aside, the temptation of your superiors, because your superiors are essentially outside of Canada...?

Mr. Hembery, are you the Canadian president of AOL Canada?

Mr. Ian Hembery: I'm vice-president of government relations and communications.

Mr. Dennis Mills: Is there a Canadian president?

Mr. Ian Hembery: Yes, there is.

Mr. Dennis Mills: Where does that Canadian president reside?

Mr. Ian Hembery: In Toronto, Ontario.

Mr. Dennis Mills: To be very blunt with you, and with all due respect to the both of you, the notion that the Canadian president would not be here today I find a bit strange, because we take this work very seriously here. We're trying to be constructive and we don't have any.... You've both done a fantastic job, but I think the fact that your president is not here shows that what we're doing here is really not a big deal, because if it's not a big deal for him it's certainly not a big deal for the directors of the parent of this $36-billion organization.

So I think we have to really be careful here, because I don't see any case to be made that where in the past, since 1988, we threw away our protectionist system, that's been a tremendous advantage in protecting the Canadian creative, research, and manufacturing experience. I would apply that same thought process to culture.

Thank you, Mr. Chairman.

À (1010)

The Chair: Would you like to respond, Mr. Anderson?

Mr. Casey Anderson: To answer the question directly about the comparison to manufacturing and trade, I would say that what's unique about the media, and the reason why media companies of whatever national origin will always have powerful reasons to encourage and promote locally generated creative works, is that those works are not fungible, that is to say, they're not interchangeable across national boundaries.

People who live in Quebec will always have a unique perspective. People who live in Ontario will have a slightly different perspective. Canadians as a group will have a different perspective from Americans. Therefore, they will naturally be more attracted to and more interested in information and art that reflects their unique perspective on the world.

That's really at the essence of why I think media is somewhat different from manufacturing or other types of goods and services that can be produced. That, I would submit, is a reason to be more optimistic about the sustainability of locally produced media and Canadian stories and perspectives in the global media.

Mr. Dennis Mills: Excuse me, Mr. Chairman, could I respond to that, because I wouldn't want anyone to think that I shared this view.

My experience is quite the opposite. When I watch Global Television, and I do from time to time, I experience the tremendous amount of United States' manufacturing that they put on that network.

In my own community, I have 5,000 people employed in the motion picture industry; 98% of that content is...they're not the key actors that you see on the screen, they're putting them together, manufacturing the movies. But I can tell you, it's all essentially offshore content, it's not domestic. I think if this is all that's put on, whether they be AOL or our television stations, then that's what Canadians will watch.

I'm really fearful that the Canadian creative experience is fragile and it's really being marginalized. I say to you humbly, respectfully, especially as both of you are government relations people, I really think we have to be much more sensitive to that fragile reality. It's not fragile in terms of its capability, but in terms of its capacity to access the Canadian creative experience.

Thank you.

The Chair: Excuse me, Mr. Mills, Mr. Duplain asked me if he could ask a question.

Mr. Duplain.

[Translation]

Mr. Claude Duplain (Portneuf, Lib.): I only have one question. If we want to get rid of these restrictions and if Canadians are afraid of losing what they have, what tangible suggestions would you have for protecting French language or Canadian content? How could we protect this content, exactly, if we were to rescind investment barriers?

[English]

Mr. Casey Anderson: I think the recommendations about the definition of Canadian content speak to this concern. What we're trying to suggest is that perhaps foreign ownership restrictions as such may interfere with the availability of capital to invest both in infrastructure and in financing of the production of creative works. For that reason, local content might benefit and local broadcasting media might benefit from the increased availability of foreign capital that would result if the foreign ownership restrictions were lifted.

In addition, by modifying the definition of what constitutes Canadian content it will be easier for companies like AOL Time Warner to collaborate with Canadians to produce stories that reflect the Canadian experience. The definition would focus more on the nature of the story being told or take into account the Canadian nature of the work rather than concentrating on the identity of the company that financed it or perhaps the specific identity of the cast members, the director, or other individuals involved in its production.

It's perhaps a counterintuitive but not unreasonable conclusion to suggest that in some ways the existing definition of Canadian content, together with the existing restrictions on foreign ownership, may actually interfere in some cases with investment in and the development of Canadian creative talent and stories.

À (1015)

The Chair: Thank you.

Ms. Lill.

Ms. Wendy Lill: I'd like to continue with this issue of foreign ownership and Canadian content. I've heard you say several times that you provide Canadian content because people want it and it makes good business sense. But we have heard over and over across this country...and I'd like to reference the Canadian Conference of the Arts, which is the main representative body for creators in this country, the filmmakers, the novelists, the playwrights, and so on. They in fact are saying that they would like to have the foreign ownership restrictions remain in place. The main reason is that they have not seen Canadian private broadcasters really working as much as they think the broadcasters should have been on enhancing and strengthening Canadian content.

Right here and now in Canada today, there is no evidence--many people believe--that private broadcasters are providing Canadian content if they can avoid it and if they do not get tax advantages and programs from the government to support their Canadian content. They would in fact be much more willing--and it is much more profitable--to just simulcast American product. The economics are that Canadian content is expensive. Canadian private broadcasters are not providing it if they can avoid it. Why on earth would AOL Time Warner be providing it if they could avoid it?

Are these people all wet? Is this organization that represents the creators in the country misguided somehow? Have they just not got it right? How is it that they are so negatively disposed towards the idea of raising foreign ownership restrictions? What have they not seen that you're seeing?

Mr. Casey Anderson: Well, I can understand their skepticism, and while I can't speak for Canadian private broadcasters, I can say that we certainly have every interest in trying to produce as much Canadian content as is possible consistent with running our business effectively.

What we're saying with respect to the definition of Canadian content is that we would be able to collaborate more easily with Canadian artists and creative talent if the definition of Canadian content were reworked to focus more directly on the nature of the story that's being told in a particular production. So I think the question is not as simple as should there be foreign ownership restrictions, should there be foreign content restrictions, but if we assume that Canadian content should be protected and should be encouraged by the government, the question is, what is the most effective way to accomplish that goal?

I don't think the debate is between foreign companies, on the one hand, who want to remove all the content restrictions and foreign ownership requirements, and Canadian artists, on the other, who want to retain them, but rather I think the debate should be a dialogue about what's the best way to adapt the existing restrictions in order to advance most effectively the public interest of Canadians in seeing their stories told and having their voices continue to be heard, and ideally, to see Canadian culture be promoted not only within Canada but around the world.

We have tried in our testimony to outline some specific suggestions about how that might be accomplished, but we certainly do so very humbly and with a profound appreciation for the gravity of the problem you face in seeking to address this problem. So we stand ready to try to work with you and also with others in the Canadian media industry to try to promote and convey Canadian points of view more effectively.

À (1020)

Mr. Grant McNally: Thanks, Mr. Chair.

I find it ironic that we had, as Mr. Mills mentioned, one of the presidents of CanWest Global say to us--I believe it was when we were in Winnipeg--that infomercials basically should be considered as Canadian content. So you have a Canadian company arguing for less visibly Canadian content material being classified as Canadian content.

Now we have basically, as described by others here, the big American company coming in today, with the Canadian arm, saying that we should look at Canadian content and perhaps redefine it. So, to me, it's ironic that the Canadian company wants to see less visibly Canadian content, and yet--and I think you're getting a fair bit of hard questions here today--your company is saying, let's get the Canadian stories as the priority in classifying Canadian content, rather than who happens to be the producer or this industrial content definition that we have right now.

It seems to me that your company is suggesting to us that there's a way to get Canadian content more actively out there, not only to be shown here in Canada but to be seen around the world, and that the foreign ownership aspect.... There seems to be an illogical connection going on here between the idea that if we allow more foreign ownership, we're not going to get Canadian content....

So your assertion is that by getting more foreign capital, we actually enhance the opportunity for the development of Canadian culture through the producers and writers and artists having another avenue not only to be able to produce here in Canada and be seen in Canada, but to be seen around the world.

To me, this argument that if we restrict foreign ownership it's going to benefit Canadian content seems to be the exact opposite: by restricting foreign ownership, we stop our producers from being able to access the capital to get their stories out to Canada and the world. I don't see why we wouldn't take advantage of that situation so that our producers and writers and artists can do well, not only here but around the world.

Mr. Casey Anderson: Exactly.

Some hon. members: Oh, oh!

Mr. Grant McNally: That's half the battle here.

Mr. Dennis Mills: Apply the same principle to softwood lumber.

Mr. Grant McNally: The same principle for softwood lumber would be a low dollar policy that has been initiated by this government for years and years.

Mr. Dennis Mills: The free trade agreement.... Don't be naive.

Mr. Grant McNally: My protectionist friend sitting with the free-trading government is having trouble defending himself. His position is certainly not on.

In terms of this argument we're seeing here, it would seem to me that the Canadian content regulations we have would protect Canadian content, unless we're to assume that your motivation is to somehow whittle away and get these foreign ownership restrictions removed. We have no reason to assume this, but perhaps you could put this on the record for us. Then is AOL Time Warner going to go after Canadian content regulations? Are you going to say we shouldn't have any Canadian content regulations in Canada?

Mr. Casey Anderson: For the record, our interest is in trying to produce news, information, and entertainment that is as appealing as possible to Canadians.

Mr. Grant McNally: But do you say Canadian content regulations should be gone? That would seem to be the protection side of allowing foreign ownership. If we don't have Canadian content rules, then I think the argument holds water that a big American company can dominate and then shut down Canadian production.

Mr. Casey Anderson: I don't think it's for me, as an American, to tell Canadians whether or not Canadian culture should be protected by the government, or exactly how that should be done. I think our role is simply to try to work constructively with you to suggest some ways to achieve the goals you've set out.

Very clearly, the protection of Canadian culture and encouragement of the production and promotion of Canadian content is a long-standing public policy goal in Canada. We would hope to try to earnestly cooperate with you to make sure that goal is achieved as effectively as possible. It's our view that in order to do that, perhaps the content restrictions should be re-evaluated and reworked. The foreign ownership restrictions may in fact be counterproductive.

À (1025)

The Chair: I think we will leave this section. I know Ms. Lill is asking for an additional question, but if we don't move on, we won't have time for the last section. Anyway, there will be another round of questions, Ms. Lill.

Mr. Dennis Mills: Mr. Chairman, is it not a Canadian content point? It's so important.

The Chair: Yes, okay.

Anyway, I wanted to ask you this. As you know--in fact, you refer to it in your brief--the CCTA has suggested that the Canadian foreign ownership restrictions be removed on the distribution of content but not on the content itself. If AOL Time Warner or another foreign company were to buy a Canadian company that was integrated, that carried both distribution and content, then the content should be spun off into a Canadian controlled company. The distribution would be made foreign, or would be allowed to be foreign.

I remember questioning them about how you'd ensure this. AOL Time Warner is an integrated company that carries both distribution and content. In Canada, AOL Canada is a distribution company.

Let's say, for argument's sake, that AOL Canada's foreign ownership restriction should be removed and it buys Rogers and controls Rogers. Wouldn't a large company like yours, owning a key distribution company, then have such a tremendous hold on our market that eventually it would be easy for AOL Canada to be such an influence in our market that the brain drain toward AOL Time Warner would be tremendous--the people who produce animation in Canada? Even if they weren't part of Rogers, even if they are part of the system, this tremendous pull of this giant south of us, which is an integrated company and which can accommodate so many of our producers and content makers, especially the people who have ideas that maybe haven't filtered through somewhere else, don't you think there's a tremendous danger with that slippery slope that eventually content and distribution cannot be separated, in effect?

Mr. Casey Anderson: To be honest, I just don't see how ownership of a Canadian cable system, as you hypothesized, would pose the danger of attracting more Canadians southward to work in the U.S.-based media industry, which is.... Am I understanding your question correctly?

The Chair: Well, I'm just giving this as an example, but the interaction of the two would be so immense. When a company of your size--or Disney for that matter--controls a large Canadian company in the cultural sector, albeit a distributor, its influence would be so immense there is bound to be some slippage between infrastructure and content. How do you separate the two--as a sort of watertight barrier--so hat you can say one will not cross the other? I must say, I find it a bit hard to understand that.

À (1030)

Mr. Casey Anderson: Well, I think at our company we have tried to encourage executives from different divisions to benefit from each others' expertise, and in some cases you might see senior executives moving from one division of the company to another, to a related or even more or less unrelated part of the business. But I don't think you would see to any great extent a lot of transferability of skill sets amongst the personnel who are involved in managing the different types of business. For example, going from running the ISP business to running a broadcast network is, I think, a very different proposition.

So as a practical matter, even though all of the divisions have to work together, it seems unlikely to me that there would be much risk that the vertical integration of the media industry in Canada or in the United States would result in a significant brain drain, as you put it, into the U.S. business or into other parts of the vertical value chain.

The Chair: If you had the optimal choice, would you want your foreign ownership restriction to be lifted for both infrastructure and content?

Mr. Casey Anderson: Yes. I think that could be done while still preserving Canadian culture, as we suggested, by focusing the test of what's considered Canadian content away from the specific identity of the company that's financing it and looking more to the nature of the work that's being produced.

The Chair: Ms. Lill.

Ms. Wendy Lill: I'm interested in your comments here, your position on foreign ownership and trade. You say it is AOL Time Warner's position that Canadian culture may and must be preserved and strengthened in a manner that is consistent with Canada's obligations under global and regional trade agreements, and moreover, consistent with the further liberalization of trade in goods and services through international agreements such as the WTO and those that are being negotiated presently, the Free Trade Agreement of the Americas.

Again, back to Canadian content, the Canadian government's position, that of our Minister of Canadian Heritage and our Minister for International Trade, is that culture is not on the table in the FTAA agreement. We don't believe culture is the same...it's not a service, it's not a good, in the same way as softwood lumber or circuit boards are.

What you're saying here is that you think it is. You're saying culture should have exactly the same treatment as any other commodity being traded back and forth. If that is what you're saying, I'd like you to clarify it and repeat it one more time, because it seems to be in complete opposition to what our government, our people, are saying on this issue.

Mr. Casey Anderson: Well, on the question of whether or not cultural exceptions should be incorporated in the trade agreements, I don't think that covers all of the bases with respect to trade that are relevant to the broadcast media. For example, the availability of competitive access to high-speed infrastructure, like the infrastructure for cable operators--as I mentioned a few minutes ago--is an important area of market access that does not directly touch on the content restrictions that may exist, but goes more to the question of market access for telecommunications and Internet access.

Ms. Wendy Lill: Issues like the--

The Chair: I would remind you that it's 10:35. We have to give up this room at 11 o'clock. There's another committee coming in.

If we want to hear about the CRTC and ask questions, it's your choice. I know this is important, but at the same time, there's only so much time. I would suggest, if you have any other questions, maybe you can put them afterwards.

Could we hear from you on the role of government?

Mr. Casey Anderson: Yes. Thank you, Mr. Chairman.

The third area we address concerns the role of government in the broadcasting system, in particular with the Broadcasting Act and the roles of the CRTC, the Department of Canadian Heritage, and Industry Canada.

The broadcast media has changed dramatically since the current Broadcasting Act came into force in 1991. Eleven years ago, the Canadian broadcasting system operated in analog format and was characterized by a finite amount of frequency spectrum and cable system capacity. Today the system is digital, virtually free from scarcity and physical limitations, and characterized by an ever-increasing number of program suppliers, as well as competitive distributors of programming.

Another change is viewers are taking greater control over the transmission process by selecting the specific programs they want, interacting with them, and even creating their own programs. In the digital world, the importance of national borders will decline and viewers will have access to an increasing variety of programming and content from around the world.

These trends suggest to us that the CRTC should be transformed from a supervisory body that exercises power largely through control of the licensing and renewal process to more of a mediator or arbitrator that resolves disputes as they arise. In a new digital world where barriers to entry are low, it can reasonably be anticipated that there will be vibrant competition in the provision of many sorts of new media and digital services. Instead of attempting to decide in advance what services or types of programming should be offered, the CRTC might better serve the public interest by focusing on resolving disputes among competitors and complaints by consumers. This would allow the CRTC to be more responsive to changes in the marketplace and in technology while encouraging innovation in broadcasting.

These changes relative to the role and powers of the CRTC will require amendments to the Broadcasting Act. At the time of making the amendments, we would also recommend that the Broadcasting Act should be amended to remove new media services from the definition of broadcasting. New media services have already been exempted from regulation by the commission under the new media exemption order. This will relieve the commission and interested parties from the time and expense of having to review the new media exemption order in 2004, and will provide regulatory certainty to investors and stakeholders in the new media industries.

You have already heard from officials in Canadian Heritage and Industry Canada about the government's divided responsibility over broadcasting. Our recommendation is that the government should reunite these functions under one department, as was the case when the Department of Communications was first created in 1968.

We live in a world where wire-line and wireless telephone companies, cable companies, direct-to-home satellite companies, Internet service providers, and broadcast and new media content providers are increasingly integrated, provide converging services, and compete in the same markets. To the extent that regulation and government policy relative to broadcasting continue to be required, oversight can most effectively and efficiently be carried out by one government department rather than two.

In 1968, Canada was in the forefront of anticipating convergence through the creation of one department with responsibility for all communications matters. Unfortunately, just when the rest of the world was catching up and convergence was becoming a reality, the government of the day, in 1993, made a determination to abolish the DOC and split the supervision responsibilities between the Department of Canadian Heritage and the Department of Industry.

It is our suggestion that the committee would be making a substantial contribution by recommending the recreation of the DOC, which could still be called the Department of Communications, or perhaps the Department of Convergence. On our reading of your proceedings to date, we consider that the record of this committee's deliberations will provide persuasive evidence for the reunion of these government responsibilities.

It is important to add that this recommendation does not mean the dismantling of Canadian Heritage and Industry Canada, or the dismantling of the CRTC. Under our proposal, they will continue to have important cultural and industry responsibilities.

That concludes my comments on the role of government. I would welcome your questions on the subject.

À (1035)

The Chair: We have twenty minutes, so everyone gets a chance.

Mrs. Hinton.

Ms. Betty Hinton: I'll try to be brief.

I must tell you at the beginning that I believe you hit on something. The restructuring of the CRTC must happen. I'm not certain I agree with the methodology you've laid out here. I certainly had some concern when I heard you say that in time the CRTC's responsibilities in this regard will also disappear. You're talking about their being in an arbitrator or mediator position. It's worthy of examination, and I'm certainly going to look at it very hard.

When I was at home last time, I mentioned that AOL was going to appear before the committee. A number of people in the arts community wanted me to ask you a question and to give you the opportunity to answer it publicly.

I have an announcement here that was made in December 2001 regarding the money you're investing in Canada. Some people in the arts say it's nothing but a way to subsidize your own companies in Canada. You've put $180 million into film; $22 million into production, distribution, and marketing; $4 million into Canadian-owned and -controlled record companies; and $15 million into the sponsorship of non-profit organizations and charities. I'd like to give you an opportunity to respond to that. I think it was a rather hard line to take. I would like to know whether in fact you are subsidizing your own Canadian outlets, or was this over and above the companies you already have an investment in?

À (1040)

Mr. Casey Anderson: I wasn't involved in the negotiation of the benefits package you're describing, but I am aware that a website has been set up for applicants to receive funding under that benefits package. I think Ian may know a little bit more about that.

Mr. Ian Hembery: Yes, a website has been set up. The announcement, as you suggested, came out at the end of December 2001. A team has been assigned to develop the criteria for submissions. The information is on the website, and perhaps I can ask my colleague Robert Blair to give me the address of the website. It's www.warnerbroscanada.com. I suggest to you that those who are interested in looking at the opportunities should evaluate that for themselves.

Ms. Betty Hinton: I appreciate the response you've given me, but what I'm trying to do here is give you an opportunity to either deny that charge or to say, yes, we are subsidizing our own companies. It's all very well and good to go to the website, but you know which companies you own and I think you would have some idea of which companies have received the subsidies. So you should be able to say today, no, that's not true, or yes, it is. Is that possible, or am I putting you on the spot? I'm not trying to.

Mr. Ian Hembery: The negotiations with the Department of Canadian Heritage went on at some length. The criteria for what is or is not eligible are currently being developed, so I'm not able to tell you who is the beneficiary of the funding under that program.

Ms. Betty Hinton: All right. Fair enough. Thank you.

[Translation]

The Chair: Ms. Gagnon.

Ms. Christiane Gagnon: You have stated that the CRTC should be abolished and that we should set up a dispute resolution body in its place. If we did that, how would we monitor or supervise the CRTC content policy? Don't you think that pressure in terms of regulations might be brought to bear at a political level rather than through a more independent organization such as the CRTC? We would even like to increase the independence of the CRTC. What would possess us to get rid of the body that regulates content?

If I've understood correctly, you are suggesting that the Department of Communications be the one to provide regulations in this area. However, if this was the case, you would have to pressure the government rather than the CRTC. As I said before, we would like the CRTC to be even more independent than it is now.

[English]

Mr. Casey Anderson: Well, thank you for the opportunity to clarify, because I don't think I expressed this perhaps clearly enough.

We're not advocating the abolition of the CRTC. In fact, we're not advocating reducing its powers. Instead, we think that the way the CRTC accomplishes its goals should be modified.

So instead of an approach like the one today, where the CRTC controls the behaviour of licensing applicants by reviewing their licence application and then re-evaluating their conduct every seven years, after a set period of time, perhaps they would be more effective if they focused on specific behaviour as it occurs--in other words, complaints, whether they're brought by consumers or competitors, as they arise. This would allow the CRTC to be more responsive to developments in the market, to developments in technology, to specific behaviour that they see or that is brought to their attention by interested parties.

So we don't see this recommendation as an attempt to vitiate or abolish the importance of the CRTC, but rather, to the contrary, to make it more effective at carrying out its mandate.

As far as the question about content policy is concerned, we're certainly not favouring making a regulation either on content or on making distribution networks less independent. Rather, we think it's important to consolidate functions to the extent that it's possible so as to ensure consistency and to reduce the amount of overlap that occurs between different bodies that are addressing very similar questions. It's certainly not our intention to suggest that this sort of regulation should be made less independent.

À (1045)

The Chair: Mr. Mills.

Mr. Dennis Mills: Mr. Anderson, first of all, I want to say that this has been a very insightful and healthy exchange for me this morning. When you use words like “we have to look at consistency and overlap” as part of your thought process, part of your guiding system, this makes me really concerned. If you used that principle on the content side, then I think there could be a real danger that the content component, which is mostly the creative process, could really be marginalized.

I haven't heard from you yet. I'd like you to make one last crack at it here because we're running out of time. How would AOL Time Warner develop a policy, or what would their policy be so as to make sure that the ingenuity factor, the creative factor, which ultimately is the essence of content, would be protected?

Mr. Casey Anderson: I think that nothing about these proposals in terms of restructuring regulation would have any impact on the substance of regulatory policy, or at least that's not our intention. It's not our aim in forwarding these suggestions to obtain any back-door alteration to this substance of how regulation is developed. It is rather to go to the process of how regulation occurs, not to the substance of outcome. Really they're intended as proposals that would make the substances of regulation more effectively applied, whatever that substance may be.

To answer your question about how it is that AOL Time Warner would protect the interests of Canadian content, I have to return again to the idea that restrictions on foreign ownership and restrictions on the content of programming are not necessarily co-dependent subjects of regulation. It's fully consistent with the goal of preserving Canadian content to allow foreign investors to provide capital and take substantial equity stakes in Canadian broadcast media and content development. In fact, it may actually encourage it by increasing the amount of money available for the development of Canadian content.

Mr. Dennis Mills: Is there a policy guideline in the global and Canadian divisions of AOL Time Warner as to content in the various areas where you have organizations, the different parts of the world? Is there a sort of central guideline, and then is there one at the local level?

À (1050)

Mr. Casey Anderson: Certainly, we have written guidelines in which we set out our aspirations and expectations for ourselves, that we'll be good corporate citizens and support local public policy interests the best we can. But again, to go to your direct concern about the production and preservation of Canadian content, I would say that the best way to appeal to a Canadian audience is really to provide as much information about, by, and for Canada as we possibly can. This is a central operating principle, an assumption that underlies the way we do business, particularly in AOL Canada. I can't emphasize enough--and I know we come back to this again and again--that it really is a very effective and meaningful incentive to us to encourage and promote Canadian content.

Mr. Dennis Mills: Thank you, Mr. Anderson.

I have a short question, Mr. Chairman.

You mentioned in your opening remarks that the Royal Bank of Canada was a partner in your organization. How much of a partner would they be? How much have they invested in AOL Canada?

Mr. Casey Anderson: Ian, do you want to take that?

Mr. Ian Hembery: Yes. In 1999 they invested approximately $100 million, or $60 million U.S., for a 20% equity stake in AOL Canada Inc.

Mr. Dennis Mills: Do they have a seat on the board?

Mr. Ian Hembery: Yes, they do.

Mr. Dennis Mills: Thank you.

The Chair: We'll have Ms. Lill and Mr. McNally, and then we'll close.

Ms. Wendy Lill: In the area of the role of government in the culture business, I'd like to continue regarding your position on trade agreements. There is a major concern that with the liberalization of trade agreements and with putting culture on the table in trade agreements, we will lose our unique ability to protect and nurture culture. I'd like to ask you specifically what AOL Time Warner's position is with regard to government funding of a public broadcaster, the CBC. You talk quite a bit about using CBC material on your networks, but the fact is that CBC content would not be there if in fact the CBC didn't have a commitment on the part of our electorate to fund public broadcasting.

I'd like to know what you think of that and also programs such as the Canada Council's Canadian Television Fund. These are all programs that are put in place to nurture Canadian content. Do you believe those should be in place? Would they be in place under your views of liberalizing trade agreements?

Mr. Casey Anderson: On public broadcasting, yes. In principle we see no problem with public broadcasting. I would not include Canada in this statement, but in some parts of the world public broadcasters have been very aggressive outside their home markets, outside the countries where they are established, in competing with private broadcasters. That can raise some concerns, but certainly we have no problem with the idea of public support for the CBC or public broadcasting.

As to the broader question about subsidies, we obviously would view the market as a very effective way of ensuring that audiences get to see what they want to see and encouraging the production of quality programming. But again, we would not presume to tell Canada that they should not support production of local content. We again would just focus your attention on the question of what exactly it is you're trying to encourage in order to encourage Canadian content, and we would hope that you make sure that you tailor the rules in such a way that they provide the most effective incentive and support for Canadian content and the goals you are trying to achieve.

À (1055)

The Chair: Mr. McNally.

Mr. Grant McNally: Thanks. I want to follow up on that to close and to follow up on Mr. Mills' question, which I think was a very good question, about the Canadian content.

You used the European model earlier in your reference, saying that they require 50% or so of European production to be shown. We've talked about Canadian content a lot. You've talked about redefining Canadian content or possibly looking at that.

Is it AOL Time Warner's assertion that there should be no Canadian content regulations at all, regardless of how they're defined eventually sometime down the road? Or does AOL Time Warner believe there should be Canadian content regulations?

Mr. Casey Anderson: As I said before, I think it would be presumptuous to tell you whether or not Canadian content should be protected by the government. We're simply trying to suggest ways to make that as effective and narrowly tailored to the purpose it's intended to serve as is possible.

Certainly it would be our expectation that at a minimum over time, if our view is correct and the market does provide a sufficient incentive for the production of Canadian content, it will become apparent that those types of restrictions are unnecessary or at least that the need for those types of subsidies would be diminished.

Mr. Grant McNally: I'll close with this, Mr. Chair.

I'm not talking about subsidies, but I think the notion of Canadian content in regulation is an important question that we've danced all around but haven't got a specific answer to. Without the protection in regulation or law of some other sort, then the argument of increasing foreign ownership flooding out Canadian content I think is a valid argument if we don't have the Canadian content regulations in place.

It seems to me that we're not getting a clear answer, one way or the other, about whether your organization believes there should be Canadian content regulations in place. If we had that assurance from you, then we might be able to accept the notion of this increased foreign ownership more readily. But without that question being answered, in creates a large amount of doubt in our minds.

Mr. Dennis Mills: He has answered it. He doesn't want content restricted.

Mr. Grant McNally: That's what I'm looking for, a clear answer on that.

Mr. Casey Anderson: What we're saying is that we don't think restrictions are necessary, that the market is largely, if not entirely, an effective way to ensure that Canadian voices are heard. But to the extent that you decide content restrictions are necessary, we think that certainly the foreign ownership restrictions do not serve the goals perhaps that they were intended to achieve, and moreover, the content restriction should be redrawn to make sure they hit the target.

Mr. Grant McNally: Thanks.

The Chair: Mr. Anderson, Mr. Hembery, thank you very much for coming.

I know questions may have appeared as if they were hard and tough today on you, but at the same time I think it reflects the feelings of the people we represent at large, and their sensitivity about being close to a very big neighbour with a lot of power.

I hope you have treated these questions as being very open and fair, and it wasn't meant to be malicious in any way. I think the members are just trying to do their homework and find answers to a very tricky question.

Mr. Casey Anderson: Yes.

The Chair: Thank you very, very much for appearing here.

Mr. Casey Anderson: Thank you, Mr. Chairman. Thank you to all the members of the committee. I very much appreciate the opportunity to have a candid exchange on this subject, and I know that this is a tremendously complicated and difficult set of issues you're addressing.

Thank you.

The Chair: The meeting is adjourned.