Submission of Corus Entertainment Inc.

Summary

1. Digital Interactive Media changes everything we do. The information already on the public record illustrates the profound changes sweeping every aspect of the Canadian media landscape and our country overall. Corus congratulates and thanks the Government of Canada for embarking on this process.

2. Corus has invested in the capacity to compete in this new environment but we remain small players in the global market.

3. This new media market presents the following imperatives for Corus and other Canadian players:

• We need to strive for operational excellence in every way.
• We need to compete on a global scale even when only competing in Canada. Canadians won't expect less than this from us.
• We need to invest in technology, research, training, skills and development to establish a solid core of business basics. Enterprise risk management will become a catch–phrase of successful companies.
• We need to recognize that our customers rule.
• We need to constantly innovate to succeed and grow.

4. Corus recommends the establishment of a review panel to recommend a digital economy strategy for Canada. Its recommendations to government and regulators should be based on what we call the Corus BIG SIX:

ONE: Embrace the merits of fostering a Canadian–owned but globally competitive industry.

TWO: Increase the probability of success of the Canadian media industry by encouraging the creation of larger and stronger enterprises.

THREE: Develop a Canadian industrial strategy that supports the creation of high quality Canadian content from all Canadian producers including producers that are affiliated to Canadian broadcasters.

FOUR: Recognize that private media enterprise success is what will lead to a stronger cultural system, not the current system of progressive fees, conditions and tariffs.

FIVE: Allow Canadians to experiment.

SIX: Recognize that our small market requires that government continue its support of research and development in intellectual property.

Submission

A. Introduction

1. Corus is one of Canada's leading media and entertainment companies¹. We have extensive radio holdings across Canada, several national specialty and pay services and three over–the–air television stations serving the communities of Peterborough, Kingston and Oshawa. We employ people across Canada from Quebec to BC.

2. We also own Nelvana, one of the world's premiere producers of children's animation programming. Our program library currently comprises some 3,300 half–hour episodes of Canadian produced and co–produced content. Kids Can Press is Canada's largest publisher of materials intended for children. Some of our brands include the popular Scaredy Squirrel and Franklin the Turtle and the iconic Babar, who is everyone's favourite elephant.

3. Over the past several years we have been exploring new and innovative ways to capitalize on new technology–driven markets. To accomplish this we have been continually upgrading our physical plants and training our employees so that we can remain relevant to Canadians. For example we have recently moved into Corus Quay which will become part of the rebirth of the east end of Toronto's waterfront. The mega million dollar investment will establish one the world's most sophisticated media centres.

4. We are making this investment in recognition of the fact that we need to be able to compete with the best that the world has to offer. We are competing with the world and the world competes with us right here in Canada.

5. Corus provides Nelvana–owned Canadian content to multi–platform channels such as KidsCo in Europe, Asia and Africa, and qubo in the United States.

6. We also have a direct–to–consumer digital download strategy. Initiatives such as the Azureus service in the UK, Australia, New Zealand, Italy, the US and Russia, and the Kidstudio.com streaming service in the US, the UK, France and elsewhere in French–speaking Europe, are examples innovative platforms that deliver Nelvana–owned content around the world.

7. The result of all this is that today our productions are available in more than 160 countries worldwide in more than 40 different languages.

8. Why are talking about foreign markets? It is because those are the markets that will allow us to expand our Canadian presence. New technologies are not just about threats; they provide us all with opportunities. But we must be thoughtful, nimble and strategic to succeed.

9. For its part, Corus is excited about the opportunities that new digital platforms present for the delivery of our Canadian content directly to Canadian consumers and around the world. Over the past few years we have undertaken several initiatives that are doing exactly that. Moreover, Corus will continue to experiment and innovate with the delivery of content using new forms of media whenever novel opportunities arise.

10. Corus applauds this consultative process that embraces the objective of developing a digital economy strategy for Canada. The process of creating a strategy is a difficult one because it involves making choices about goals and the allocation of scarce resources to achieve these goals. The new digital economy involves a complex array of issues. In sum this strategy process can pose enormous political and other challenges for any government.

11. In this context Corus recommends that the Government appoint a review panel to develop and perfect recommendations upon which to build a digital economy for Canada. Such a review panel would serve a key role, similar to that of the Competition Policy Review Panel and the Telecommunications Policy Review Panel. In each of those cases, the result was a comprehensive report with recommendations that served to effectively reconcile myriad competing interests. It is our view that a digital economy review panel would be able to achieve similar results.

12. Taking part in a global communications environment presents tremendous opportunities for Canadian broadcasters, but at the same time entails considerable risk. Revenue models are unclear, so broadcasters must have the freedom to experiment, to test different business models and to take the necessary risks to find what works with consumers and what doesn't.

13. In this submission, Corus outlines an approach that we believe should guide the government and review panel in the current review, an approach not based on regulation but focused on the identification and removal of existing regulatory barriers to broadcaster participation in the digital economy and the new media universe.

14. We also describe initiatives that Corus and Nelvana have undertaken with respect to the distribution of content on new digital platforms and our plans to exploit new opportunities in the future.

15. In our view, these initiatives clearly demonstrate that Canadian content can and will flourish in a global new media environment if Canadian media companies are given an opportunity to adapt to changing circumstances and take advantage of opportunities as they arise, without being constrained by the imposition of unnecessary and ultimately counter–productive regulatory requirements. This is the best way to support the achievement of what we believe is an important public policy goal — the exposure of Canadian programming and the reflection of Canadian values around the world.

B. Our business environment: It's about bits

16. The early phase of the introduction of digital technology was to change the traditional television broadcasting and production businesses in an incremental fashion:

• Digital compression enabled the delivery of more channels of traditional linear television. This increased the number of Canadian services and also allowed the introduction of more foreign services to the Canadian market. Today the large broadcasting distribution undertakings (BDUs) deliver hundreds of linear channels to Canadian homes. A major proportion of these channels are foreign.
• Digital editing technology and video capture reduced the technical costs of high quality production and newsgathering. This greatly reduced the barriers to entry into the production business. Fragmentation did not reduce the cost of talent or intellectual property. The costs of these elements have increased.

17. In this regard the development of networks and the ease of transmission have shrunk the importance of geography. We now have RAI and BBC in Canada providing diversity but also competing with Canadian licensees like never before. These traditional linear channels have an incremental impact on our markets. But this is the tip of the iceberg.

18. The second phase of the introduction of digital media was the popularization of the media tools and the birth of interactivity. The CRTC's reports on the growth of connectivity, computing and adoption of new technologies outline the macro–Corus economic changes sweeping the Canadian landscape². We are now in an era of transformational and very disruptive change due to the application and use of digital interactive media by both professional and a rapidly emerging amateur class of media players. People are quickly learning how to use this technology. Of course this technology is also changing other sectors of the Canadian economy as well. Media is no longer the exclusive province of media companies. For example, many media advertisers and other business entities have become producers and distributors of content with the goal of marketing their products and services. These technologies also impact virtually all aspects of the broadcasting business — the market, the supply chain, internal operations, human resources and content. New media are not discrete from the analog world. They are co–mingled and inseparable.

19. To predict how the media environment might evolve and what the associated impacts might be, one must also understand the core attributes of digital interactive media.

20. Bits: Analog media existed in a variety of concrete forms (e.g. film, videotape, etc.) and moved to market via constrained delivery structures (e.g. limited radio spectrum or retail shelf space). The digital world is made up of bits. It is these combinations of ones and zeros that make up every digital file. These bits are arranged in files or databases that are easily networked through a variety of means. Databases can have a variety of forms depending on application software and the manner in which they are populated. A website is merely one type of database with the navigation tools to connect to the Internet, which is the most open and interconnected structure of networks. Of course the nature of bit stream has an important impact on the consumer experience but even the early 64 kbps systems had an enormous impact.

21. Copy ease & plasticity: Bits are easily copied and each copy is identical. The one–million^th copy is of the same quality as the first. Combinations of bits are also easily adaptable — they are very plastic. Consumer behaviours and expectations are changing dramatically. We will copy and adapt works almost with impunity.

22. Rights management becomes a more significant issue. One must track and protect one's rights while at the same time ensuring that infringement of others' rights does not occur. Tariffs and administration become complex and expensive. Government and regulators are no doubt aware of the impacts of this on the music business. This attribute will soon impact upon television in profound ways as well. For example, most if not all of the Corus library can be found on sites such as YouTube in its original form or as part of adaptations. None of these are authorized and we manage an ongoing effort to protect our market from the impacts of these uses.

23. Equivalence: Content made up of bits also becomes equivalent from a policy perspective. A newspaper database is essentially no different than a television program or photograph. These are aggregations of bits. In the analog world we treated them differently from a regulatory and business perspective. But if they are all bits then why are websites not regulated while specialty TV licensees have a mountain of obligations? It is clear that bits might properly attract protection in a walled community but in an Internet context they probably don't lend themselves to traditional regulatory prescriptions. The practical impact of the growth of the volume of content and creators is that they cannot be regulated in traditional ways.

24. Compactness: Digital media are compact. Vast amounts of data can be stored or easily transported to single or multiple users of this data. We now can easily access "jump drives" that can hold 400 full length high definition films. This also translates to 1,200 standard format films or 2,000 hours of television or 250,000 songs. A USB key³ can now store up to 250 GB and download a 1.9 GB high definition feature film in mere seconds. For Corus it would mean that our archive of 3,300 program titles that cost us over $1 billion to produce would fit on a key ring and it could be placed there during someone's lunch break. Archivists such as Library and Archives Canada can foresee digitizing and making available all of the collected wisdom ever produced in Canada: every film, song, book, magazine, newspaper or memo. This would yield an unprecedented resource of knowledge for the benefit of Canadians, but would undermine and ultimately bypass traditional business models for the distribution of such content.

25. Networks and the death of distance: Databases are networked in a variety of ways. The Internet is one example of an open standard digital network. The transport of digital media is relatively much easier than with analog works. The consumption of digital interactive media by Canadian consumers can be relatively borderless.⁴

26. These attributes mean that Canadians can access content from every part of the planet in unheard of volumes. The digital interactive platforms that exist on the Internet create disruptive change. For example, each day people watch two billion videos on YouTube and upload hundreds of thousands of videos with 24 hours of video uploaded to YouTube every minute.⁵ The Hollywood studios were once the largest content creators in the English–speaking world. One commentator has now characterized the annual output of Hollywood as a "rounding error" in the total amount of content now available.⁶ Canadian production is even further dwarfed by this ever–expanding universe of content.

27. Similarly in radio, the transition to digital has meant increased competition. But just as today's technology no longer respects borders, it also no longer respects the assumptions of scarcity on which the regulatory model is based. First, consumers now have an ever–growing array of choices of audio content, including, but not limited to:

• conventional AM or FM radio;
• audio services;
• digital terrestrial radio;
• satellite/subscription radio;
• the Internet, on computers, or on portable devices that can or will be able to receive wireless broadband due to Wi–Fi initiatives being undertaken in Toronto and other urban centres;
• iPods and other similar portable devices;
• radio over cell phones; and
• peer–to–peer networks that enable listeners to also become programmers.

28. While this paints a picture of growing fragmentation and of a changing audience, it is useful to understand how the current technological transition is different, both in nature and in scope, from technological changes in the past. What is happening today is not analogous to the change from AM to FM — it is very different, with very different implications.

29. Until very recently, the radio business operated on an assumption of universal access to and by consumers, within a defined geographic area. In other words, if a consumer purchased a radio, he or she was able to tune in to all of the stations on the AM or FM band that could be received in that geographic area.

30. Today, however, both of those assumptions — universal access and defined geography — are being challenged. As new digital alternatives are introduced, consumers are not always able to tune across all platforms but, in many cases, they now are able to tune across greater (or even unlimited) geography.

31.For example, the two satellite/subscription radio services licensed by the CRTC require discrete receiving units to be purchased by consumers. Those new units, generally, can receive AM and FM, but only one of the two satellite subscription services. Consumers purchasing radios capable of receiving digital terrestrial radio will also get AM and FM, but not the ability to receive either of the satellite services. And devices that might receive audio services over wireless broadband may or may not also receive some of the other platforms.

32. At the same time, the consumer's relationship to audio content has changed, perhaps more dramatically than anything else in the business. Portable radios date, in practical terms, to the 1950s with the introduction of transistor radios. Those portable devices were able to receive audio content that had been formatted and packaged by radio stations. By the 1980s, the portable device of choice for young people was the "Walkman" or a similar device. For the most part, those devices were able to play content that had been packaged by someone else.

33. Today, however, the portable device of choice is an iPod or other digital audio player, and the content is no longer packaged by a radio station or a record company — it is packaged by the consumers themselves. And consumers now are creating their own broadcasts — called "podcasts" — that can be received by their peers via the Internet. Such podcasts can be unique or they can be compilations of material, some of it ours.

34. That transition from industry–packaged to consumer–packaged — and consumer–created — is one of the fundamental consequences of new technology, and one of the fundamental challenges that radio and related industries, such as record labels, are facing today.

35. Why raise the subject of radio? Our radio websites stream content that is both audio and video. We use professional and amateur content on our sites. So our radio websites can have the same types of combinations of bits that our television sites have. The branding and type of storytelling may vary but the form of the content is the same — bits arranged into text, photographs, audio or video. In other words the traditional concepts of radio and TV are becoming blurred in the digital interactive world.

36. Consider the simple communications tool called e–mail. We don't tend to think of e–mail as "media." In 2004 Corus staff generated or responded to just over two million e–mail messages. This year we anticipate that the overall traffic will be over 3.6 billion messages. We estimate that 98% of this is spam which leaves 70 million legitimate messages a year or about 200,000 a day for 1,200 people. This method of communication does not often get considered when the changes in the system are assessed. We tend to focus on delivery of programs. But e–mail is enormously capable and it does it all. We send and receive text messages, audio and video files, photographs, graphics and anything else that is digital in nature.

37. In so doing e–mail changes the value chains we depend upon to realize our financial and regulatory goals but it effectively is out of reach of any regulatory purview.

38. How does the Canadian media system manage the transition to a purely digital environment? Spectrum scarcity remains an issue for radio and for linear television. Access to carriage remains an issue for Canadian operators as well. Content is easier to make with digital technology and Canadians may dominate Facebook.com with homemade content but the creation and marketing of high quality content remains an expensive challenge. The size of the Canadian market and its increasing fragmentation exacerbates the problem.

39. As noted above the technology changes so and does the consumer. Canadians are demanding a system that will provide them with content anywhere, anytime and through a variety of devices. New generations of Canadians think of media much differently than their parents do:

Net Gen kids growing up looked at computers in the same way boomers look at TV. Boomers don't marvel at the technology or wonder how television transfers video and audio through thin air, we simply watch the screen. TV is a fact of life. So it has been with Net Geners and computers. And as technology relentlessly advances each month, young people just breathe it in, like improvements in the atmosphere.⁷

40. This demographic group is made up of people who were born between 1977 and 1997 and who make up roughly a quarter of our population. Coupled with the so–called Generation X (people born between 1965 and 1976) they represent nearly half of all Canadians. These are the people who grew up with the Internet at school, at home and now on their belt.

41. This point was eloquently made by the Minister of Canadian Heritage and Official Languages in December 2008:

As the youngest member of the Cabinet and a typical Canadian, I thrive on digital technology. I am an avid consumer of your products. My computer, my Blackberry, my iPod, my PVR — they are an integral part of my life. I am a multi–platform, multi–tasking guy, who wants information in real–time.

I am more loyal to the content than to the technology or the station. Canadians like me want HD content. We want interactivity and we want mobility.

Not to put too much emphasis on my age, but being born in 1976, I have never known a world without colour TV and multi channels. Computers have always been a part of my life.⁸

42. So the fundamental challenge remains for Canadians. How do we continue to gather the resources to compete on a global basis to ensure that Canadian stories continue to be told? How do we preserve our IP industries and their capacity to create jobs and exports?

43. The problem that Corus and other regulated companies have with the current regulatory regime is that their mandates have become confused, cloudy and ineffectual. The regulatory processes are inherently slow–moving. Each new business and technological challenge is met with incremental regulation coupled with new fees, tariffs and reporting requirements. The regulatory regime is desperately trying to manage value chains that are rapidly disappearing.

44. The result is that regulated Canadian media companies are subject to a complex array of rules that inhibit our capacity to compete and innovate.

45. Meanwhile the low barriers to entry into the system of programming creation and distribution have fostered the impression that one can compete in the digital interactive world with cottage industries. The reality is just the opposite.

46. The inescapable reality is that Canadian media players are small on a continental or global scale. We have always worked in a small market. But it is now more fragmented and we compete directly with larger players for capital, intellectual property, talent and ideas. Google, for example, is able spend a sum on research and development each year — US$2.8 billion⁹ — that almost doubles the total revenue of the Canadian radio industry¹⁰.

47. Our view is that Canadian players cannot continue to compete under the existing regulatory regime. We need an industrial strategy for production. We need a policy and regulatory structure that supports the development of Canadian–owned but globally competitive, large companies, that are able to experiment with new technologies without increasing layers of taxes and rules. Without this, we will fail, and diversity will be diminished as Canadian players fall by the wayside.

48. Similarly we face the huge challenge of managing digital rights. It is true that some of the barriers to entry with respect to the production of high quality content have been reduced. This drives the success of YouTube and related sites. However the creation of professional content has a new challenge established by digital interactive media. We need to utilize technology to track and protect our rights. This requires huge seven figure investments in technology and in training of our employees to use it.

49. The advent of the digital era poses perplexing challenges for all players in the system. The challenge for government is that it has no legal or practical jurisdiction over much of the activity that will define the content creation and distribution environment of the future. It is inescapable that Canadians will demand the same from the regulators as they do from us. Our fear is that the Canadian regulatory regime will stifle our ability to compete and hence survive because we won't be able to meet their needs.

50. This new media market presents the following imperatives for Corus and other Canadian players in the market:

• We must recognize that digital technology changes all of our assumptions about markets and processes. We need to embrace change rather than fear it.
• We need to strive for operational excellence in every way. We need to be efficient, low cost, speedy and resilient companies that can meet changes.
• We need to compete on a global scale even when only competing in Canada. Canadians won't expect less than this from us. The global market is here in our own backyard. There is no place to hide.
• We need to invest in technology, research, training, skills and development to establish a solid core of business basics. Enterprise risk management will become a catch–phrase of successful companies.
• We need to recognize that our customers rule. We need to be able to analyze their wants and needs and understand these to survive.
• We need to constantly innovate to succeed and grow.

51. The next section of this submission describes some of the initiatives that Corus is undertaking in order address these imperatives, both in Canada and around the world.

C. Corus initiatives

52. Corus is a multi–national, multi–media company that produces a variety of programming that is distributed around the world on many different media platforms.

53. To be competitive and relevant, however, content providers can no longer rely solely on a Canadian domestic market. The broadcast content market is global and producers must have the structure and ability to sell, market and successfully distribute their content to every corner of the globe.

54. Accordingly, in more recent years Corus has been able to leverage the value of Nelvana's program library, as well as other rights that we own, by capitalizing on global opportunities enabled by consumer adoption of new media and the development of new digital platforms. Through international partnerships involving multiplatform initiatives, on–demand services and branded websites, Corus has undertaken a number of initiatives to deliver this content to consumers around the world.

55. The result is that Nelvana–owned Canadian programming is now available in more than 160 countries worldwide in more than 40 different languages. Corus believes that the dissemination of Canadian programming and the reflection of Canadian values around the world is an important public policy goal. The ability of Canadian media companies to exploit new media opportunities without unnecessary regulatory hurdles is the best way to maximize our contributions to this goal.

56. The following linear and nonlinear program delivery initiatives provide excellent examples of how Nelvana–owned Canadian content can be a success, not just in Canada but in a global marketplace.

Linear program delivery initiatives

KidsCo

57. KidsCo is a 24/7 international multiplatform channel jointly owned by Corus, NBC Universal and Cookie Jar Entertainment. It launched in fall 2007 in five countries in Europe and is now carried in more than 50 countries across Europe, Asia and Africa.

58. KidsCo is committed to providing a responsible and entertaining environment for children and families. About 40% of its program schedule is provided by Nelvana from its library of Canadian produced and co–produced animation programming.

59. In addition to distribution on more than 30 satellite and cable platforms, KidsCo has launched on an IPTV VOD basis in South Korea and has also launched a VOD service in Spain via Teuve.

qubo

60. Qubo is a multiplatform U.S.–based bilingual entertainment service for children that launched in 2006. It is jointly owned by Corus, Scholastic Media, ION Media Networks, NBC Universal and Entertainment Rights.

61. A three–hour block of qubo programming, focusing on literacy, values and healthy lifestyles, is broadcast on NBC Saturday mornings, on ION Television Wednesday to Friday afternoons and on Telemundo weekend mornings. On NBC, qubo has increased NBC's share of viewers 2–11 by 6% for the time period.

62. Qubo is broadcast as a 24/7 digital broadcast channel on ION Media Networks' nationwide television group of 60 stations covering about 84% of the U.S. population, and qubo programming is available on a branded website. In the future, qubo will also be offered on a VOD basis.

63. Qubo is currently available in 42 million homes. It represents another outstanding opportunity for the wider exposure of Nelvana–owned Canadian content to an international audience.

Nonlinear program delivery initiatives

64. KidsCo and qubo are primarily linear programming services based on a variety of digital distribution technologies, complemented by on–demand offerings and branded websites. Corus is also actively pursuing strategies based on nonlinear program offerings providing virtually unlimited personalization and customization options to the consumer.

65. Our nonlinear strategies can be classified into three broad approaches: (i) VOD–by–cable and IPTV; (ii) digital download–to–own or rent; and (iii) streaming content online.

66. Nelvana content is offered on a VOD–by–cable basis through the KidsCo initiatives discussed above and, in the United States, through a partnership with Comcast branded as "Vortex". Nelvana provides about 400 half–hours of its animation content on a licence fee basis through the Vortex initiative. Our Canadian channels also offer a range of VOD services through Canadian BDU's.

67. Nelvana also makes content available on an IPTV VOD basis in Great Britain with British Telecom and in Australia and New Zealand with Village Roadshow.

68. VOD–by–cable is limited by capacity constraints at the cable head end and thus can realistically offer only a fraction of the content that would otherwise be available. Licence fees are generally modest and therefore this approach to the nonlinear space is unable to fully leverage the value inherent in Nelvana's library.

69. A download–to–own/rent approach, on the other hand, does represent a growth opportunity and is being aggressively pursued by Corus at this time. As part of its worldwide direct–to–consumer digital download strategy, Corus has entered into several partnerships to make Nelvana–owned content available through various Internet–based platforms. They include the following:

• the distribution of animated and live–action content through Amazon Video–On–Demand;
• distribution of the Babar series and feature films on a rent or download–to–own basis on the Azureus service in the UK, Australia, New Zealand, Italy, the US and Russia;
• distribution of content on the Village Roadshow Digital Rental service in Australia and New Zealand;
• distribution of content through Reeltime.com, Reeltime's streaming VOD service in the US; and
• the sale of on–demand animated content through Tribal Nova's Kidstudio.com streaming service in the US, the UK and France and elsewhere in French–speaking Europe.

70. The download–to–own model represents the next evolutionary step in the business model for the distribution of DVDs and its success will be an essential element of the financing model for the creation of new content. Corus submits that there is no rationale for any attempt to regulate the download–to–own model, just as there is no rationale for regulating the operations of DVD rental and sale outlets.

71. The third approach to the delivery of content on a nonlinear basis is the streaming of content directly to the consumer over the Internet, not just archived shows on an on–demand basis but also the real–time streaming of new content.

72. Corus believes that the ideal model would be a broadband, on–demand, advertising–supported service available to viewers at no cost. Broadband distribution supports the notion of unlimited shelf space and the ability to offer content at little incremental cost. In this sense, the model is based on the "long tail" concept but it can be fully exploited by broadcasters only to the extent that they are able to own the content they offer. This requires enormous investments.

73. The business model for online streaming, however, will depend on the ability to generate advertising revenues, not only to cover the incremental costs of offering content initially created for other platforms, but also to support the much more significant costs of developing new content for the online platform. This is a key challenge that will require testing of many different approaches to determine whether there is a viable business model in the long run.

74. Corus submits that, at this early stage in the development of online advertising–supported streaming of content, any move by the government or its agencies to impose regulation would almost certainly kill the business before it has a chance to develop.

75. Furthermore, online streaming presents additional specific challenges associated with the delivery of Nelvana–produced content, particularly with respect to providing a secure online environment for children. An advertising–supported model, for example, would require that measures be taken to ensure that advertising in online content that is directed to children is consistent with accepted standards relating to operating guidelines and advertising content.

76. As part of its ongoing efforts to develop innovative approaches to the delivery of Nelvana–owned children's programming, Corus will take the lead in the development of a proposed code for children's advertising in online content.

D. Recommendations: The Corus BIG SIX

77. This brief review of Corus initiatives and future plans illustrates that any strategic analysis of the digital economy must incorporate a global perspective. Canadian companies need to be able to compete internationally and this will be achieved, not through regulation, quotas and fees, but by eliminating policies and practices that create barriers to the creation and worldwide distribution of Canadian content on new digital platforms. Similarly, the only way that we can succeed at home is to put ourselves in a position to compete with the best the rest of the world offers Canadians. We can do that.

78. The consideration of a digital economy strategy cannot be a discrete effort. It really means a consideration of the entire policy and regulatory regime because all of it is impacted by digital interactive media. Bits don't respect regulations any more than they do traditional business models and value chains.

79. Corus has been successful with international ventures such as KidsCo and qubo, and with various nonlinear online initiatives, not because of regulation but because we had the resources to experiment, develop partnerships and devise innovative approaches that made sense. The result has been that Canadian–produced programming has been made available in over 160 countries in 40 different languages and has been proven to be a success.

80. Corus is eager to pursue additional opportunities and new media program delivery models. To do so, we believe that government needs to recalibrate the current policy and regulatory structure to better support the ability of licensed broadcasters to compete and innovate in the online world.

81. Corus submits that broadcasters should be regulated in a way that supports the development of large Canadian–owned but globally competitive companies that are able to experiment with new technologies without increasing layers of taxes and rules. Otherwise, Canadian players will fall by the wayside and the availability of diverse high–quality Canadian content will suffer.

82. Corus submits that government's approach to new media and the digital economy should be guided by a set of principles that we characterize as the Corus BIG SIX:

ONE: Embrace the merits of fostering a Canadian–owned but globally competitive industry.

83. The Canadian system now competes with the world even here at home. We must recognize that and allow Canadian companies to build upon strategies that recognize our new market realities. We can have a Canadian–owned system that is globally competitive.

84. A digital strategy should seek to clarify the roles of various agencies to meet the demands of this new era. The strategy should examine broadcasting, telecommunications, radiocommunications, copyright and competition legislation and the current jurisdictional and agency structures to determine if they are relevant or effective.

85. Don't load up Canadian players with new rules and reporting obligations as unregulated foreign players with much larger financial capacity increasingly directly compete with us. In this regard we note subsection 5(2) (g) of the Broadcasting Act which requires that the regulatory system be sensitive to the administrative burden placed on broadcasters.

86. Align rules to global markets. For example, we recommend the relaxation of the prohibition on advertising of pharmaceuticals. Canadians already see a plethora of these messages on foreign services. Permitting this in Canada would not only establish another revenue stream estimated at $400 million but would provide the public policy benefit of making these messages subject to Canadian law and industry standards.

87. There is no need to change the foreign ownership rules for broadcasting and content companies. The existing Canadian capital markets are sufficient to fund our needs. We recognize that the need for capital is different in the distribution sector where capital costs are high and ongoing. However in the content sector we have sufficient access to capital in Canada.

TWO: Increase the probability of success of the Canadian media industry by encouraging the creation of larger and stronger enterprises.

88. Canadian companies need scale to make the investments in content and rights management that will be required to meet domestic and global market demands. The CRTC's diversity policy for television was punitive on Canadian companies and was based on an incorrect premise. Foreign scale can trump our diversity strategies. These policies need to be re–examined. Make no mistake that small entrepreneurs are to be encouraged as well. But we need some large players to maintain a relevant Canadian system.

89. Similarly expand the local radio 2 (FM) +2 (AM) ownership limit for large markets and consider 3+1 or complete migration of AM to FM (4 +0) to allow heritage AM stations to migrate to the FM band without penalty.

90. Re–assess the Competition Bureau's definitions of market in the context of the digital interactive media paradigm.

91. Eliminate the affiliate linkage carriage rules which simply serve to limit our ability to launch new services that Canadians want to watch.

THREE: Develop a Canadian industrial strategy that supports the creation of high quality Canadian content from all Canadian producers including producers that are affiliated to Canadian broadcasters.

92. One of the greatest regulatory inhibitors is the attempt to manage the production value chain by requiring that a large part of our content must be acquired from independent producers. Corus believes that the CRTC and other agencies must stop trying to manage the value chain and instead give broadcasters the flexibility to experiment to find business models that work.

93. Quotas are counter–productive in the global communications environment and especially in the non–linear digital environment. There will always be an important role in the new media universe for all producers who produce great content, whether independent and affiliated. We submit, however, that the best Canadian content will get the maximum exposure if artificial quotas are removed. Broadcasters must be allowed to own the digital rights to their content if they are to be expected to assume the risks and fully exploit the opportunities associate with new media broadcasting.

94. The Government of Canada and its agencies must adopt a digital strategy for Canada. This strategy must not attempt to be all things for all people. We need to focus our thinking and our efforts. Meanwhile a digital strategy must include certain key content elements:

1. Eliminate the artificial quotas requiring broadcasters to acquire large percentages of their programming from independent producers. At the very least Canada's media companies should not face barriers to creating and distributing the high quality Canadian Content that is contemplated by the Broadcasting Act. We can create a viable production industry and the beneficiaries will be Canadian viewers, writers and performers, and the economy.
2. Increase access to funding mechanisms for broadcasters who also produce.
3. Set aside the CRTC policy process on terms of trade — we need to own rights to be relevant and competitive.

FOUR: Recognize that private media enterprise success is what will lead to a stronger cultural system, not the current system of progressive fees, conditions and tariffs.

95. The Government of Canada should make no attempt to traditional broadcast regulatory rules to the new media activities of licensed broadcasters or any other party. There are a number of other actions, however, that the government could take to promote private media companies in the digital economy. We note that other nations have expressly noted the importance of private enterprise in their national digital strategies.

96. On copyright matters, the government should pass the Copyright Bill to allow for ephemeral recording, direct that the tariff system be streamlined and establish tariffs based on a single input. Meanwhile the UCG provisions should be carefully examined to ensure a proper balance between creator and user rights.

97. Any bans on advertising should be avoided. These would have little impact and would curtail our ability to provide service to young people including our Healthy Active Living messaging. A ban would simply place more unregulated foreign messaging in front of Canadian audiences.

98. The government is aware of the dedication of local stations to community and charitable efforts across Canada. Broadcasters should be able to deduct airtime donations as a charitable expense under the Income Tax Act.

99. The CRTC should re–examine the system of escalating conditions that were established to meet the goals of another era. Indexation of obligations does not meet the challenges of a global market. These fly in the face of the need for Canadian players to be efficient, resilient and globally competitive.

FIVE: Allow Canadians to experiment.

100. A digital strategy should contemplate a focus on identifying and removing existing regulatory barriers that inhibit the ability of licensed broadcasters to experiment, innovate and create content for distribution of new digital platforms. A flexible regulatory approach should be adopted to allow for innovation. The current regime of regulation, forbearance and exemption should be replaced with a more permissive approach. The system cannot wait for regulatory review before trying out new services.

101. In radio, for example, licensees should be permitted to launch digital services absent any conditions on programming. This would facilitate experimentation with the content that would establish the consumer promise for this new technology.

102. Similarly, the CRTC should re–examine the ability of radio licensees to change formats. As an example, a music service should be able to migrate to a talk format without the necessity of a CRTC approval that can take months to complete with no assurance of approval.

103. Our investments in digital rights management technologies and their implementation should be eligible for Canadian Programming Expenditures credit.

104. Our capital investments in towers and other digital broadcasting technologies should be eligible for accelerated capital cost tax treatment as well as government funding.

105. The government should also encourage the inclusion of FM receivers in mobile telephone units to provide Canadian local radio with an opportunity to stay relevant to Canadian listeners.

SIX: Recognize that our small market requires that government continue its support of research and development in intellectual property.

106. It is inescapable that the Canadian system will continue to require direct funding and policies such as tax incentives to support the creation of the content that will tell Canadian stories to domestic and international audiences.

107. Public institutions such as the CBC remain a necessary element of the Canadian media structure. Meanwhile the roles played by these and by private players can be assessed to determine what would have the best results.

108. In the area of tax policy, a strategy could explore expanding the ambit of section 19.1 of the Income Tax Act to apply to new media advertising platforms. The government could also allow for investment tax credit in rights management semantics and taxonomy processes.

109. With regard to research and development, the government should pay more attention to the "development" side of this challenge. It should also establish training as a research and development priority.

110. Finally, the digital strategy should consider structures to develop a stronger understanding of consumer use of the various technologies. We need better research tools.

¹ A complete description of Corus Entertainment Inc. is available at www.corusent.com.

² See for example The CRTC Communications Monitoring Report 2009.

³ A flash memory drive integrated with a Universal Serial Bus interface.

⁴ It is possible to regulate and constrain networks as was the case in China for journalists covering the Olympic Games or in Turkey where that government restricts access to YouTube. That said the notion of doing so is antithetical to democratic ideals.

⁵ YouTube Fact Sheet.

⁶ Kevin Kelly; Becoming Screen Literate; New York Times, November 21, 2008.

⁷ Tapscott, Don; Grown Up Digital – How the net generation is changing your world; McGraw Hill Toronto, 2009 at page 19.

⁸ Honourable James Moore, Minister of Canadian Heritage and Official Languages, in a speech to the Annual Conference of the International Institute of Communications, Canadian Chapter, Ottawa, Ontario, December 2, 2008.

⁹ See: Google Investor relations — 2011 Financial Tables

¹⁰ See: CRTC Communications Monitoring Report 2009, Table 4.1.1