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History Table of Contents
1995 Winter Conference
 
Winter Conference 1995
The Changing Economy and Knowledge-Based Services:
How Will Canada Succeed?

Selling Canada's Knowledge-Based Services in Foreign Markets

Peter Herrndorf, Chairman and CEO of TVOntario

I'm going to talk about this somewhat startling notion of exporting Canadian culture and why it's so important for us to compete in this increasingly-globalized marketplace.

All of this is part of the so-called "new economy", in which I believe Canada is uniquely qualified to do business. And as you've been hearing all day, this is an area with tremendous potential for growth.

TVOntario, for example, has been exporting knowledge-based products internationally for many years. I suspect that you be surprised about how far we've gone in opening up new markets and how far we've gone in forging some rather unique partnerships.

But first, let's take a moment to look at some of the buzzwords or jargon that we're dealing with: The knowledge-based economy: the new economy; information technology (IT); enabling technologies.

Call it what you will, but It's unmistakably the language of success in the 1990s and beyond. Remember the days of manufacturing and production, when our economic health was measured by new housing starts, automobile sales and the volume of major household appliances consumers were buying up?

The stuff was hard, tangible, solid. A chair was a chair. You could look at it, sit in it, push it up against a table.

It was built by a combination of machinery and human hands. Its raw materials were basic, 'visible and came from the earth.

It would appear on the floor of a showroom and customers could look at it, match it up with their decor, and buy it with no down payment, and, of course, an easy financing plan.

OK. So the making of real chairs that real people sit in isn't a thing of the past, yet

Not everything is "virtual," I grant you.

But we all know that the dominance of resource based manufacturing in our economic pecking order is quickly being relegated to second place, while new technologies and the so-called "knowledge-based" economy is beginning to drive our financial and social well being.

Information technology has transformed the way we do business.

The convenience and the speed with which we could suddenly communicate with one another, coupled with an explosion of new products and services to fuel this technology, led to a revolutionary transformation in the business environment

Telecommunications, computers and software have become the new "masters of the information universe."

The new leading economic indicators are bio-technology start ups, knowledge-based employment, and the production of semiconductors, computers, and telecommunications equipment Machine tool orders and manufacturing employment statistics are indicators of what is fast becoming the old economy.

We're all acutely aware of this new phenomenon.

Conferences like this are being held all over the country, discussing Canada's role in the new economic order. Everyone's trying to figure out how we survive and flourish.

The federal government has been particularly preoccupied with developing policies to position Canada's economy for this new world order.

And, I’m delighted to see that they're increasingly focussed on how culture can play an important role in this new economy.

In a recent document entitled, Canada in the World, the federal government stressed the importance of projecting Canadian values and culture internationally as a significant element of our economic evolution.

"The vitality of our culture," the report suggested, "is essential to our economic success. In the new knowledge-based world economy, the skills of people, their education, their ingenuity and social adaptability will become key elements of a country's international advantage.

"Our educational system, cultural diversity and the continued dynamic growth in the export of cultural products and services will contribute significantly to our international achievement."

In the past, our competitive advantages were seen has the possession of low cost natural resources, our proximity to the American border and our relatively high educational levels.

Today, speed and innovation are critical to a competitive advantage. It's based on the skills and knowledge of the workforce – in other words, successful products have to be knowledge-intensive and not labour intensive.

Knowledge, culture, values, identity – it's certainly not chairs.

So here we are in the mid 1990s, living in a country whose exports generally make up 30 per cent of our GDP and in which telecommunications products and services now generate $21 billion annually.

No one could argue that this is anything other than big business.

And in Ontario, the push is no less dramatic. This is a province determined to become competitive on a global scale.

A report on the telecommunications industry prepared for the provincial government made no bones about our situation:

"Ontario is at a turning point in the evolution to an information society and to a knowledge-based economy.

"We can continue to do business as usual, while others seize the opportunities and we fall further behind, or we can take action to seize the available opportunities, and in so doing achieve, through the enabling effects of telecommunications, a vision of Ontario has the best place in the world to live, work, learn and do business can evolve."

That gives you a flavour of telecommunications, but where does the cultural arm of this business fit in?

Where do books, films, television programs and records make their mark on this new economic order?

Why on earth do you suppose that the people living in Shanghai would be interested in a television program like Polka Dot Door?

After all, our television shows are uniquely ours. They reflect our ideas and our distinctive culture. They look like us, they sound like us.

Why would parents in Hong Kong want their kids to watch shows that reflect the values of kids in Ontario?

This is the crux of the information technology phenomenon and of globalization.

The beauty of this new world order, I would argue, lies far beyond the economic. It captures an ideal that the human race is linked somehow by basic commonalitites.

It breaks down cultural barriers and divisions. It encourages understanding, knowledge and an appreciation for what’s different and unique; it fosters acceptance and encourages positive emulation; it plays to our natural curiosity about differences.

The truth is we're interested in knowing about our global neighbours.

The hunger to learn about one another and the world we share has been unleashed through technological and software advances. Ws becoming more and more apparent that this is one genie that won't be crammed back into the bottle.

The power of television technology and programming is awe-inspiring.

Consider that people in most parts of the world watch up to 25 hours of television a week. Consider that there are more than 1 billion television sets in homes around the globe – a 50 per cent increase in the past five years alone.

Consider, too, that world-wide spending for television programming is now about $65 billion a year, and growing by 10 per cent annually.

Consider that the number of "satellite-delivered" TV networks around the world is more than 300 and growing fast. CNN is seen in 137 countries.

A recent article in the Los Angeles Times reported that Japanese homes now have more Ws than flush toilets; that almost every Mexican home has a TV, but only half have telephones; and that consumers in Thailand would rather have a TV set than a refrigerator.

The cultural, political and economic impact of this kind of appetite and growth is immense.

The next question is obvious.

Is there a hunger out there for Canadian culture? Can we step into this niche and have an impact? Surprisingly, the answer is unequivocal: We've already stepped into this niche and we're having a major impact.

We're the second largest exporter of television programming in the world, next only to the United States.

It's already estimated as a $500 million dollar export industry for this country, and growing fast.

As our deficit-plagued governments grapple with reducing expenditures, the importance of this relatively new industry in generating revenues – and new sources of taxation – can't be overstated.

In a recent speech by Michael MacMillan, one of Canada's most successful producers, Michael extolled the virtues of "cultural exports" at some length.

He pointed out that American movies, television series and records currently represent America's second largest export category, just behind the aerospace industry.

He summed up the situation nicely: "Bugs Bunny", he said, "is fast catching up to the patriot missile as a leading source of income on America's trade balance sheet"

Canada's film and television industry generates billions of dollars annually domestically for this country.

It also provides countless jobs in the process. As a result, we're on the leading edge of creating the kinds of jobs the "new economy" is crying out for – the knowledge jobs... or as Michael MacMillan calls them, the "above the neck" jobs.

It’s a wonderful phrase, by which he means jobs that are highly-skilled, highly-paid, and create renewable resources whose value is enhanced with reuse. These jobs, in turn, fuel our competitive advantage in a global marketplace that's placing increasing value on those kinds of skills.

Before I tell you about TVOntario's approach to the international market, I want to give you a few other illustrations of Canadian companies going global in related fields.

One of the most intriguing examples is Harlequin books – owned by Torstar –which made its name by producing somewhat steamy romance fiction for North American women in the 1970s and 80s.

A decade later, Harlequin is the world's largest "romance" publisher with publishing operations in 21 countries, and with sales to more than 100 countries on six continents.

You don't get to this level of success by simply putting Fabio on every book cover.

While the rest of us were watching the Berlin wall come down on CNN, Harlequin sales reps were handing out free books to East Germans as they crossed the border.

And while the most successful publishing companies have been growing at about 5 per cent annually, Harlequin continues to grow at about 10 per cent every year.

Key Publishers, a Canadian magazine company, is another example of this kind of international ingenuity. A Key subsidiary, Where International,, is probably the world's leading publisher of visitor magazines.

They began with a couple of local magazines focussing on the tourist trade in Toronto and Ottawa, and in less than 10 years, they're producing WHERE magazines for visitors in New York, Washington, Chicago, Los Angeles, London, Paris, Rome and Budapest And they're now heading for Asia.

Arid, of course, in television, we're beginning to reverse a 30-year trend by selling Canadian programs aggressively into the prime-time American Market

Due South, which features an "improbably straight-laced" Canadian Mountie, temporarily assigned in the U.S. is co-produced by Robert Lantos' company, Alliance Films. Kevin Sullivan's Road to Avonlea has been a great success in the U.S. by chronicling a kinder, gentler Canadian era.

And Bernie Zuckerman's made for television movies and mini-series – Love and Hate, Conspiracy of Silence, and The Dionne Quintuplets – have scored huge ratings on U.S. networks, and have forever changed the way that major American networks view Canadian-made product

Having given you a flavour of the success that other Canadian organizations have experienced in exporting knowledge-based products, I want to spend the balance of my time this afternoon talking about TVOntario.

TVOntario has quietly become one of the world leaders in educational software in the past decade.

Let me start by giving you a thumbnail sketch of this remarkable organization.

TVOntario is a publicly-funded, educational broadcaster, operating two networks – our English language service, TVO; and our French language organization, La Chaîne, which serves the needs of the nearly one million Francophones and Francophiles in Ontario.

Since Bill Davis created TVOntario almost 25 years ago, and appointed Ran Ide as our first Chairman, the role and values of educational broadcasting in Ontario have become very well established. They remain the same ones we live by today.

We've adapted to changing times, new technologies, different educational and social demands, but we continue to stick to our knitting – programming that informs, enlightens and educates and that responds to a wide variety of learning specific requirements.

Over 70 per cent of our schedule is devoted to children's programming, curriculum programming, professional development, skills training courses and adult education material.

Let me give you a few examples of the range of programming we provide.

We produce internationally4enowned curriculum programs for primary and secondary schools across the province. These programs are delivered to the schools on a downloading basis overnight by satellite directly to schools, or we sell them through our catalogue.

These curriculum programs serve the 80 per cent of the province's teachers who use television or video as a teaching tool.

We've developed a full range of professional development programs to help those teachers cope 'with increasingly complex classroom and social demands.

Our work in this area is so well regarded that the American Association for Supervision and Curriculum Development recently chose TVO to help them develop courses for teachers throughout America.

As everyone in this room who has children knows, we also focus heavily on children's programming.

Every morning, we provide four and a half hours of preschool programming, called Get Ready to Learn, hosted by Jennifer Martin.

And every afternoon for three and a half hours, we provide TVO Kids, for younger school children at home.

This is children's programming that's both educational and enjoyable for kids, and programming in which parents have an enormous amount of confidence. This is not Power Rangers.

We also provide a growing array of high school credit courses for mature students, in partnership with the Ministry of Education and Training's Independent Learning Centre.

And we're expanding the list of college and university credit courses we provide on television in association 'with major post-secondary institutions.

In what has become a critical need in a rapidly changing economy, we've formed 35 partnerships in the past two years to deliver skills training programs and courses directly to those who need them, in their homes or at work.

These kinds of options for life-long learners are essential if Ontario is to keep pace with the demands of a knowledge-based economy.

Its training for the "above the neck" work hat Michael MacMillan referred to in his speech. I'm delighted that more than 20,000 people have been trained in hose programs over the past 24 months.

We're also convinced that our prime time schedule provides a high quality, noncommercial alternative to the mainstream broadcasters and specialty services available to Ontario viewers.

We produce and acquire first class programming that gives our viewers a window on the world and a chance to see the beet of Canadian production and programming.. Innovative home grown programs like Inquiring Minds, Imprint and Journeys have all developed loyal audiences.

We commission outstanding Canadian documentaries on The View from Here, and current affairs and cultural issues are covered on our daily programs, Studio 2 on TVO, and Panorama on La Chaîne.

In spite of – or maybe even because of –the growing number of choices available to viewers, TVO's audience figures his season have shown dramatic increases with a 15 per cent jump over last year. The press has been enthusiastic in heir support of TVO's programming.

When we managed to get seven major TV magazine cover stories over 2 consecutive weekends in February, I decided that this was as good as it got.

Our membership base also continues to grow. We now have almost 70 thousand members – people who contribute their hard earned dollars to TVOntario above and beyond their taxes.

That's commitment, and the kind of loyalty a broadcaster in this market needs to survive

In all of this, TVOntario has been determined to become far more entrepreneurial.

We're committed to increasing our privately-generated revenues by 15 per cent each year till the end of the decade.

This, too, is a survival strategy, because It's simply not realistic to expect hat in this day and age the public treasury can continue to provide the same level of funding as it did in the past.

We're becoming more self-reliant through a series of revenue generating initiatives.

Membership revenues are up 26 per cent his year. We're licensing and merchandising toys, clothing and videos based on programs like Polka Dot Door and developing new forms of corporate underwriting for our programs and our overall schedule.

But the most important area for us is the world of international sales and co-productions.

Not only can we generate new revenues from the sales of our programs abroad, but we can significantly reduce the cost of production by partnering 'with international broadcasters to create programming we couldn't otherwise afford.

Our international activities really began in 1982, when TVOntario forged a ground-breaking partnership 'with Japan's giant broadcaster NHK.

Alvin Toffler had approached our head of science programming, Wally Longul, to produce a 90 minute special based on his book, The Third Wave.

He'd already convinced NHK to be involved and needed a co-producer. TVO jumped at the chance, and the deal became a model for countless co-productions to come. In fact by the end of 1994, TVO had co-produced 115 science documentaries with NHK – all of which were co-developed, co-shot, but edited separately for our respective markets.

For example, we began to co-produce the award winning Global Family series with NHK in 1989, and we've now produced 80 half hours on how various species interact within their own ecosystems. TVO and NHK shot his series on location in Africa, Asia, Mexico, Canada and the U.S. By re-versioning the programs for French language audiences... and editing hem to IS minutes for children's audiences, we managed to create 200 different programs.

We hold the distribution rights for Global Family in North America and for all French language markets, and share in the worldwide sales.

Science programming is one of our export pillars, but here are many more.

One of the most interesting breakthroughs in recent years has been our foray into Korea.

Last year, TVOntario sold our "English as a second language" series for children, Just Like You, to one of Korea's leading language institutions.

Yoon's English Academy, a private institution for elementary students, bought the programs for its core curriculum.

To give you a sense of the impact Canadian culture has had on our friends in Korea, one of the school's directors became quite smitten 'with an actress in the series, Li Fang and explained to our sales rep that Li Fang would almost certainly become the next Adrienne Clarkson!

The sale to this particular institute represents more than $300,000 in license fees and royalties, the largest sale we've ever made to an international language school.

We've all been following the dramatic changes hat are occurring in China and TVOntario has made quite extraordinary strides in the past year in cracking the world's largest and fastest growing market. We've signed a multi-year partnership agreement 'with Shanghai's Oriental Television. It's the first agreement of this kind that they've ever negotiated with a foreign broadcast partner.

Oriental Television is one of China's newest and most innovative broadcasters, and serves a market in and around Shanghai of 120 million people.

The agreement will result in a range of co-production activity, as well as opening this market for TVOntario program sales. We've already begun working on a major documentary called A Tale of Two cities, focussing on the similarities and differences between Shanghai and Toronto. The business arrangement is quite revealing about how these international co-productions work.

Oriental TV will hold all the rights in China and TVO holds all of the North American rights, with a 70-30 revenue split for sales in both territories. All other international sales will be shared on a 50-50 basis.

The partners will consult with each other on all stages of development, and will shoot in both Shanghai and Toronto.

Each partner will do their own off-line edit to version the documentary for their respective audiences. And to carry the partnership further, Oriental TV will send some of its editors and technicians to learn from our editors, camera people and production crews.

It's probably worth spending a moment describing how the partnership was achieved, because it gives an interesting glimpse into how these kinds of business deals can occur.

We made the decision 18 months ago that we would pursue a major China initiative.

We asked our Director of International Relations, Bill Roberts, to do some exhaustive research into potential Chinese partners.

We started with about 100 major prospects and whittled the list to about 10 before we were ready to move on the project.

We then spent a good deal of time gathering support and advice from the Chinese Community in Toronto and from Chinese Government trade officials in Toronto and Ottawa.

These connections turned out to be tremendously useful to the process. We also sought the support of the federal and provincial governments and took part in Premier Bob Rae's trade mission to China in May of last year.

And if we took full advantage of the Canadian representatives posted in China. Richard King, our cultural attaché in Beijing, proved to be exceptionally helpful in guiding us through the labyrinth.

We finally decided to test the market in November to get a better feel for program trends in China and, as a result, we rented a sales booth at the Shanghai Television Festival.

To our delight, we were well-known to the Chinese broadcasters after three extended visits, and we sold them a number of our programs at reasonably good prices and in hard currency.

We're committed to China for the long haul, and we're convinced that we’ll be selling ever-increasing quantities of Canadian programs there in the years to come.

Let me mention one other example.

Last December, the French Government launched a new national educational television service in France, called La Cinquième.

It's been critically acclaimed by the French press and it looks like a permanent part of the broadcasting landscape in France.

What's not so well known about the creation of the service is that a TVOntario team, led by Jacques Bensimon and Judith Tobin, provided consulting support to the French Government and to the broadcasting executives who developed the new service.

They used TVO and La Chaîne as models for their educational network, and we're now in the process of negotiating a major export arrangement with La Cinquième.

This is yet another way in which TVOntario is exporting knowledge, expertise and cultural products abroad.

The sharing of resources and ideas, the revenue producing deals, and the co-productions that come out of these agreements are all ways in which we've become an increasingly significant player in the world of educational software.

We've now sold programs to 104 countries, spanning six continents, ranging from Albania to Zimbabwe, from the Atlantic to the Pacific. We're the second largest supplier of curriculum programming to the U.S. instructional television market And, in the past five years, we've generated $22 million in program sales internationally.

We're not Time Warner, or the BBC, but in our own quiet way, TVOntario has become a real international success story for Canada.

I believe that we've just begun to scratch the surface of what we'll be able to achieve in the next decade.

I believe that Canada can play that kind of a role internationally in every sector of the knowledge-based economy of the future. I'm convinced that Canadian companies – given a little encouragement, given a little incentive – will rise to that challenge.

Questions

You talked about the necessity of getting hard currency and striking deals that make money. Is it possible to do that when you’re exporting expertise, or do people expect when it's not a consulting firm, (to get) that expertise for free?

The experience with France was quite fascinating. That relationship with the French government and with La Cinquième was clearly a business arrangement

There was no notion of good neighbours helping one another.

We were there in a business capacity. We were also friends, but the idea was to sell out consulting services to the French government and to La Cinquième with the hope, of course, of levering that into a long-term sales relationship with La Cinquième where our educational software was going to be one of the staples that the French educational network used. And that seems to be happening.

We may be a public sector company, but we're in business and when we're dealing with broadcasters and production companies in various parts of the world it's a business relationship that's designed to show up on the bottom line.

You indicated that over the next few years you want to increase your share of private sector support 15 per cent a year, as the public purse is increasingly incapable of supporting all of its demands. Now will the shift to reliance on private sector funding going to affect how you approach export markets?

Our assumption is that we will have to move – sometime early in the next decade – to a situation where 50 per cent of our revenue comes from government sources and at least 50 per cent from private sources.

And that trend will simply continue. I think if you're looking further out, you're talking about a company that moves more and more towards a not-for-profit, as opposed to a government agency,

Let me give you an example. We have going into stores across the country pillow cases, sheets with Polka Roo's picture on them, so little kids on Red Deer, Alberta, can in fact sleep next to Polka Roo.

That is a mix of lofty educational programming and hard-headed licensing.

And 'we're going to do more and more of that. But, the critical issue is can we hold on to enough rights to exploit them domestically and internationally. If we can't, then we've got a problem.

In the big debate between Newt Gingrich and PBS, one of the issues Gingrich keeps raising is: PBS why aren't you getting rich from some of your successful children's programs which seem to be reaping millions and millions of dollars?

In that situation, the private producer, who has provided that programming for PBS, is in fact getting rich, but PBS is getting very little of that The trick for us is to make sure that we hold on to enough rights that you really can lever that.

The CBC is trying to get approval to broadcast the Bernardo trial. if they do, it's my understanding CNN would pick it up and it would be aired world wide. What's appropriate for a public broadcaster to be selling?

I've had real problems with Newsworld carrying the O.J. Simpson trial. I simply don't understand it.

I understand the level of fascination that people can have, but I just simply don't understand where exactly the O.J. Simpson trial fits into the CBC mandate.

I haven't understood it from the beginning and don't understand it now and I've had conversations with people about it. I start from that proposition. In terms of the Bernardo trial, if the question is in relation to TVOntario I would take advice, but would take a very strong bias it had nothing to do with educational broadcasting.

You've talked about exports, but are you finding there's any particular area where it's easier, 'me difficult, or has the exploration to date been complete enough for you to make an observation?

We've had some difficulty in cracking PBS in the United States and it has to do with border protection situations, the Buffalo PBS station.

I would have thought that under other circumstances that we'd be doing a very good business exporting Canadian programs and Canadian co-produced shows into the U.S. on PBS. But for a whole lot of political reasons, border protection, we have not had much success.

Where we have had success in the U.S. is selling to a learning channel. We had a large sale to a learning channel two years.

We've done extremely well in terms of selling it to the educational television market, where we are the second largest provider of programming to that market and the largest foreign provider.

I'm really excited about the idea of TVOntario over the course of the next five or sbc years finding its own way in the world to a much greater degree. I don't regard that as a terrible hardship that's been imposed. To me it's a kind of a natural process.

It's more difficult for governments to provide this kind of public investment. I think the advantage we have is that we can achieve that kind of commercial success by being what we've always been, which is high quality, heavy emphasis on children, education, skills training and science – not trying to be what mainstream broadcasters are.

As I said, by sticking to our knitting and basing our commercial success on that.

We still import more films and broadcasting than we expert. is it a reasonable goal 10 try to have some form of balance in our trade in this area, or should we just stick to our niche?

I don't think it is reasonable for the foreseeable future that we can export enough to offset what we import from the U.S. I just don't think that's realistic.

The problem we have in this country (is) that the economics of the television business are built around (this is the case for CTV, Global and many other broadcasters) the notion of bringing cheap American programs into Canada, selling them fairly expensively to advertisers and using that money to cross-subsidize the Canadian programs and to generate, for sake of argument, a 17 per cent return on investment

That is the basic component of the television industry economy. It's been very good to people in the television business – advertisers have done well, agencies have done well, the owners of commercial broadcasting organizations have done well, but it's also meant there are very real limits on the kinds of high quality Canadian programming that can be produced by commercial broadcasters.

That's the way it's been since 1958-59 and it still is that way today.

There's also a tremendous appetite in Canada for certain kinds of American shows. Some of that is fuelled by the world's most powerful promotional infrastructure that feeds that appetite across the border every day and every night

My answer is in the television business, the film business, in the magazine business in the book business there will always be a disproportionate amount of American influence.

My goal, most of my professional career, was to make sure that there was enough Canadian programming in film, in television, in books, in magazines, in music, in all those areas to give Canadians a real choice.

What I’m excited about in the last few years is that Canadians have said, look our programming, our music, our books, whatever, – particularly our television – can in fact be exported to every part of the world and people will develop an appetite for that.

It always amazes Canadians.