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Decision
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Ottawa, 1 December 1987
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Decision CRTC 87-902
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CHUM Limited - 871219200
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The Commission approves the application by CHUM Limited (MuchMusic) to amend its licence in order to permit distribution of its national English-language music video service by cable affiliates as an optional-to-basic or as a discretionary service for the remainder of the licence term, in accordance with the provisions outlined in the Public Notices accompanying this decision (Public Notices CRTC 1987-260 and CRTC 1987-261). The amendments to the conditions of licence are contained in the appendix to this decision and will be set out in the amended licence to be issued.
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This satellite-to-cable network is currently received in 17% of all Canadian cable households. It is distributed on a discretionary basis to approximately 1.2 million cable subscribers of Class 1 and Class 2 cable systems, and on the basic service to subscribers of Part III cable systems, as defined in the Cable Television Regulations, 1986.
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As indicated by the licensee, the specialty music service, which is programmed on an 8-hour cycle that is repeated twice in each 24-hour period,m will continue to feature Canadian and international video clips of two to four minutes in duration, "surrounded by a blend of music-related news, views, jock talk and interviews, the latest experiments in video art, and ... concerts and specials including a limited number of music movies and other feature programming".
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Launched in September 1984, MuchMusic, in line with the requirements set out in the conditions of its existing licence, has increased the Canadian content level of its video clips from 10% to 20% as of 1 January 1987. In addition, MuchMusic asserted in its application that virtually all of the remainder of its programming is produced in Canada, with the exception of some concert footage and music specials. Over its first three years of operation, MuchMusic ha spent a minimum of $100,000 per year or 2.4% of gross revenues for the funding of Canadian video productions through VideoFACT, an organization initiated by the licensee to stimulate the production of Canadian music videos.
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At the hearing the licensee noted that while it preferred to continue its existing discretionary service tier distribution, if existing or new specialty services were to be distributed on the basic cable service, it wanted the same consideration.
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Demand
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In this application, MuchMusic stated that it is "presently carried on a discretionary basis by the majority of cable systems in Canada". It noted that "a number of systems have indicated ... a strong desire to carry MuchMusic on the basic tier", and expressed confidence that, should the Commission approve this application, most cable operators would choose to distribute the service on basic cable service "on the basis of the success of MuchMusic to date".
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With regard to cable subscriber attitudes toward adding this service to the basic cable service, the Commission notes that the May 1987 demand study conducted by Angus Reid Associates Inc. found that 60% of subscribers would opt to take the service if it were offered as part of the basic service, for an additional five cents a month, and that a September 1986 study by Sorécom Inc. estimated that demand for the service is approximately 1 in 4 Canadians.
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Programming
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In outlining MuchMusic's contribution to the Canadian broadcasting system, Mr. Moses Znaimer, President of MuchMusic, noted that this channel, which is "dedicated to music", has succeeded in making the public aware of Canada's musical culture by showing that Canadian musicians and singers can compete effectively on the same stage with "anything that we can see [from] around the world".
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If allowed access to the basic cable service, the licensee advised the Commission that while the fundamental character of the service would not change new program elements would be added to ensure that the service provides:
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an even broader reflection of Canada, both in terms of pure music and in terms of information about that music ... Our music programming will continue to be mostly rock, but we will also take in other musical sounds as they become available in video.
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The licensee emphasized that all of the Canadian programming elements presently exhibited on the MuchMusic service are produced "in our own operation, with our own resources". However, in line with the amended Telefilm Canada criteria for accessing the Broadcast Program Development Fund, MuchMusic intends to provide some original, first-run material from the Canadian independent production sector.
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Mr. Znaimer stated at the hearing that in order to live up to the real potential of its proposed expanded distribution, MuchMusic would explore with other broadcasters the possibility of introducing some independent production projects, and to this end has budgeted $40,000 in licence fees for the first year.
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MuchMusic identified music features, such as a film of a concert or a panel discussion of new music videos, at the king of programming it had in mind to add to its current mix, and asked the Commission to amend the current condition of licence which prohibits the service from scheduling feature films or variety programs. The licensee clarified that it would only be interested in exhibiting movies with a very high element of musical content, specifically those in which the ratio of music to synchronized spoken word exceeds 60%.
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The Commission has considered this request and, as set out in the appendix to this decision, has deleted condition 6 in the appendix to Decision CRTC 84-338 (the original licensing decision for MuchMusic) and replaced it with a new condition of licence permitting the licensee to distribute no more than two hours per 8-hour programming block and a maximum of six hours per week of feature films and other programming provided that such programming has a music to synchronized spoken word ratio of at least 60:40.
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The licensee reaffirmed its commitment to devote each year the greater of 2.4% of gross revenues or $100,000 to the development of Canadian music video clip productions.
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Moreover, in line with the licensee's proposal, the Commission amends the current conditions of licence regarding the level of Canadian content and, as set out in the appendix, requires that the licensee devote not less than 60% of the broadcast day to the distribution of Canadian programming. In addition, 30% or more of the total number of music video clips distributed by the licensee each broadcast day must be Canadian and are to be schedule din a reasonable manner. For the purposes of these conditions, Canadian programming is comprised of Canadian music videos, as defined in Public Notice CRTC 1987-83 dated 24 March 1987 entitled Music Video Programs, and Canadian programs, as defined in section 2 of the Television Broadcasting Regulations, 1987.
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The Commission notes that MuchMusic has undertaken to continue to abide by its commitment not to distribute any local advertising. The licensee also proposes to revise its commitment with respect to advertising in order to distribute a maximum of 12 minutes per hour of commercial messages. The Commission expects MuchMusic to adhere to this revised commitment for the balance of the current licence term which expires 31 March 1989, at the end of which, consistent with the approach adopted by the Commission in the licensing of new specialty networks for distribution as part of the basic service on cable, the Commission would intend to attach a condition of licence regarding the maximum amount of advertising.
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Viability
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The licensee estimated that in the first year of operation under the proposed revised distribution provisions, 82% of its subscriber revenue would be derived from subscribers to the basic cable service and 18% from those to the discretionary service. It estimated that this proportion would remain the same over the following years although the number of cable systems offering the service would increase, such that the number of cable homes subscribing to MuchMusic should increase from 3.8 million to 4.4 million by 1992/93. This is based on penetration projections of approximately 65% of Canadian cable households in the first year, rising to 80% by the fourth year, or 90% of the cable homes in the English-language market.
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The licensee noted that actual subscriber levels would depend upon such factors as channel availability, the number of converter-equipped households, subscriber price sensitivity, and the possible erosion of discretionary tier subscribers.
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MuchMusic stated at the heating that its audience and advertising revenue projections are based primarily on past experience, allowing for a 27% projected increase in advertising revenue from that "in place today on MuchMusic as a discretionary channel". Mr. Denis Fitz-Gerald, Vice President and General Manager of MuchMusic, explained that the service's actual audience reach is difficult to measure:
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In actual fact, neither Nielsen nor BBM, by their own admission, can properly measure the audience of the specialty channel, because the audience by and large comes in for very short bites of the channel. If somebody is coming in for ten minutes, that distorts their ballot and their ability to record it properly.
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It is further complicated by the fact that they take the discretionary base and apply it to the total base, so you can have an overabundance of diaries flooding into subscriber homes, or ... no diaries ... Either way, it is not adjusted ...
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In assessing the financing requirements of this application, the Commission has noted that MuchMusic will require no additional capital expenditures, interim financing or working capital.
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The licensee stated that it welcomed the opportunity to "expose and promote both established and emerging Canadian music talent to the widest possible audience".
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In attempting to assesses the impact of the expanded distribution of this specialty service on conventional television broadcasters, the licensee (which also owns the independent television station CITY-TV in Toronto) has calculated that, to date, the MuchMusic service has eroded $2.4 million annually in revenue from CITY-TV's music programs.
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However, MuchMusic submitted that while expanded distribution of its service would result in greater impact on audiences and advertising revenue than under the current discretionary distribution provisions, the Nordicity Group Ltd.'s June 1987 impact study had specified that only the incremental advertising impact of MuchMusic should be considered and, overall, assessed the magnitude of its impact on conventional television broadcasters as "low", since only a few of them rely on this format for a portion of their revenue.
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With respect to the potential impact of MuchMusic on radio broadcasters, the Commission notes that in major Canadian markets the profitability of rock stations, which are for the most part the most popular radio services, places them in a healthy financial situation. The Commission has observed, moreover, that the addition to a market of television programming featuring video clips (whether on conventional television stations or the MuchMusic discretionary service) has served to reinforce the success of the radio stations which program rock music. As for smaller market radio stations, the Commission notes that on average 75% to 85% of their revenues are derived from local revenues. It further notes that, in accordance with the licensee's own commitment, MuchMusic is prohibited from distributing any local advertising on its network.
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MuchMusic has projected that its advertising revenue will be $7.3 million in 1988/89 increasing by 5% annually to $8.5 million in 1991/92 with $2 million of this directly attributable to basic service distribution; and that its cable revenues are expected to rise from $3.3 million in 1988/89 to $4.3 million in 1990/91 and to $4.4 million in 1991/92. These cable revenue projections are based on charges of $0.06 per subscriber per month to operators carrying the service on their basic service and a rate of $0.10 per subscriber per month for distribution as a discretionary service, rising to $0.07 and $0.11 respectively after three years.
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The Commission has assessed the licensee's financial projections and is satisfied that the expense projections for the remainder of MuchMusic's licence term are reasonable. Accordingly,as set out in the appendix to this decision, the Commission authorizes, by condition of licence, a wholesale rate of $0.06 per subscriber per month for distribution on the basic cable service for the remainder of the licence term.
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Conclusion
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The Commission considers that MuchMusic's contribution to the diversity of programming offered by the Canadian broadcasting system, the support it provides to Canadian musical talent, and the exclusive exposure it provides Canadian artists whose talents are exposed within the context of a musical environment featuring "the best of the rest of the world", outweigh any concerns with respect to concentration of ownership.
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The Commission acknowledges that the VideoFACT production fund, which was initiated by this licensee, has awarded close to $400,00 for more than 100 English-language music video projects.
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In addition, the Commission recognizes this licensee's substantial contribution to the development of French-language music talent and notes that more than a dozen French-language video clips have been produced to date with the more than $100,000 that has been awarded to Quebec artists by VideoFACT. The Commission further notes the licensee's substantial investment date in the MusiquePlus French-language music video service (see Decision CRTC 86-215 dated 13 March 1986).
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Given the significant contribution of MuchMusic to Canadian musical talent in the three years during which it has been distributed as a discretionary service, the Commission is convinced that with a wider audience base, the licensee's positive contribution to the Canadian broadcasting system will be even greater.
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In assessing this application, the Commission has given particular consideration to MuchMusic's past performance particularly in terms of its Canadian program expenditures; its commitment to continue to allocate the grater of $100,00 or 2.4% of its gross revenue to the production of new Canadian music videos through VideoFact; its undertaking to abide by the increased Canadian content levels set out in its application; and the viability of the proposal in terms of its financial projections for the remainder of the existing licence term.
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The Commission has also given consideration to the concerns raised by interveners with respect to the potential financial implications for conventional broadcasters of basic cable distribution of this service, taking into account the incremental portion of revenues attributable to distribution on the basic service and the additional fragmentation resulting there from and, having assessed the comments and studies available in the context of this hearing, the Commission has concluded that the overall impact on existing broadcasters will be minimal.
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The Commission is further satisfied that the advantages which will accrue to the Canadian public, the Canadian broadcasting system by permitting a broader distribution of this specialty music service outweigh the potential disadvantages which could result from the concentration of ownership.
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With regard to other issues of public concern, MuchMusic reviewed with the Commission its policy and the procedure it has established with respect to violence and sex-role stereotyping in music videos:
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The process is that when videos are reviewed by a weekly programming committee, those videos which are questionable are [set aside] and are then reviewed by a separate committee which is comprised of a wide distribution of genders ages and professions from within the station,s personnel.
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Only after the secondary review, and a vote taken upon that review, is a video then aired.
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We think it is a responsible process. It is one that is carefully tracked. We have a record of all videos that have been banned, and we would propose to continue with this policy and procedure.
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Violence in television programming is a source of on-going public concern. The Commission therefore expects the licensee to exercise particular care and discretion in the presentation and scheduling of program material which depicts scenes of violence and to continue to abstain from showing any program material portraying excessive or gratuitous violence.
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The Commission has also noted the licensee's undertaking to adhere to the CAB's self-regulatory guidelines on sex-role stereotyping and to abide by the provision of the CAB's code for advertising to children.
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The Commission also notes that MuchMusic has endorsed enthusiastically a request that it ensure that its live programming reflects realistically the participation of multicultural minorities in Canadian society.
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The Commission expects MuchMusic to fulfill the commitments noted above for the remainder of its present licence term.
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The Commission notes that a condition of licence was imposed in Decision CRTC 84-338 respecting the application of sections 14, 15, 18 and 19 of the Television Broadcasting Regulations, Consolidated Regulations of Canada, 1978, c. 381. As this condition of licence is no longer appropriate and in order to take advantage of the new Television Broadcasting Regulations, 1987 which came into effect 9 January 1987, the licensee may wish to apply to delete this condition and to replace it with a condition of licence containing the appropriate sections of the new regulations.
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In Decision CRTC 87-897, the Commission has licensed an application for a French-language specialty music network "MusiquePlus" (871225900). At the hearing MuchMusic, which is a 50% partner in that application, stated that it intended to file with the Commission an application to delete the condition of its licence authorizing the distribution by satellite of a music video service to be presented in French, in the event the Commission granted a licence to MusiquePlus.
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The Commission will follow with interest MuchMusic's plans to increase the regional reflection of Canadian music talent and to introduce new programming features by independent Canadian producers.
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The Commission acknowledges the many interventions submitted in response to MuchMusic's application to be distributed as part of the basic service and has taken the comments it has received into account in reaching its decision. Among the interveners supporting this application on the basis that there exists significant subscriber demand were the Cable Television Association of Alberta, Shaw Cable, Western Cablesystems Ltd., Canadian Satellite Communications Inc. (CANCOM), Westman Media Co-operative Ltd. and Rogers Cablesystems Limited. CANCOM noted that "this valuable service not only provides a window of opportunity for Canadian talent but, given its high production standards, showcases that talent in a world class manner".
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First choice Canadian Communications Corporation and Allarcom Pay Television Limited each submitted strong interventions against the movement of this specialty service to basic cable. Both maintained that their subscriber penetration levels would decline if this application were to be approved because the attractiveness of the discretionary tier would be diminished for Canadian viewers. In support of their argument, they submitted a study conducted by the Research Management Group (March 1987) which found a strong correlation between higher basic cable fees and subscriber disconnect rates for premium discretionary services. They also argued that since, by regulation, pay television services are prohibited from obtaining revenue through advertising, any loss of subscribers would directly affect their ability to support Canadian program production, to which a percentage of their annual revenues is allocated by condition of licence.
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A number of independent film producers and distributors also opposed this application on the grounds that the present configuration of Canadian discretionary services has stimulated subscriber interest, resulting in a significant measure of financial support for the Canadian production industry.
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The Commission notes that the CTV Television Network submitted that, notwithstanding the perceived or real shortage of a sufficient volume of Canadian music videos, MuchMusic must be required to adhere to the same Canadian content requirements as conventional television broadcasters if it is licensed for distribution on the basic service.
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The Canadian Association of Broadcasters (CAB) wished to be assured that Canadian specialty services licensed for distribution on basic cable complement the programming already available to Canadians and provide new creative opportunities, without siphoning programming from existing broadcasters or bidding up program costs. The Radio Board of the CAB asked the Commission to prohibit local advertising on MuchMusic to protect the viability of private radio broadcasters. This position was supported by Okanagan F.M. Broadcasters Ltd. and the British Columbia Association of Broadcasters.
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Several interveners, including Global Communications Limited, the Canadian Film and Television Association and CanWest Broadcasting Limited, expressed concern about the impact on conventional broadcasters of basic cable distribution of MuchMusic, in terms of audience fragmentation and erosion of advertising revenues.
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The Federated Anti-Poverty Groups of B.C. and few cable subscribers expressed concern that the cost of basic cable service would increase if this application were approved and that consumers not wishing to receive such narrowcast service would be charged for them as part of the basic monthly fee.
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The Commission has taken the concerns of these interveners into account and considers that they have been addressed in this decision. With particular reference to the comments of the existing pay television licensees, the Commission draws their attention to the exclusive distribution and linkage arrangements set out in Public Notice CRTC 1987-261.
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Fernand Bélisle
Secretary General
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APPENDIX
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Amendments to Conditions of Licence
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CHUM Limited (MuchMusic Network)
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1. Condition 2, 3 and 4 as set out in the Appendix to Decision CRTC 84-338 dated 2 April 1984, are deleted and replaced with the following:
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a) "The licensee shall devote not less than 60% of the broadcast day to the distribution of Canadian programming. "Canadian programming" is comprised of "Canadian music videos" and "Canadian programs". The definitions of "Canadian music video" and "Canadian programs". The definition of "Canadian music video" in Public Notice CRTC 1987-83 dated 24 March 1987 entitled Music Video Programs and of "Canadian programs" in section 2 of the Television Broadcasting Regulations, 1987 (SOR/87-49), as amended by SOR/87-425, shall apply."
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b) "30% or more of the total number of music videos distributed by the licensee each broadcast day shall be Canadian music videos and shall be scheduled in a reasonable manner throughout the broadcast day. For the purpose of this condition of licence, "a Canadian music video" means a Canadian music video as defined in Public Notice CRTC 1987-83."
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2. Condition 6 is deleted and replaced with the following:
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"The programming distributed by the licensee shall include no more than 2 hours per 8-hour programming block and a maximum of 6 hours per week of feature films and other programming has a music-to-spoken word ratio of at least 60:40".
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3. From the date of commencement of distribution of MuchMusic as part of the basic service on cable, the licensee shall charge each exhibitor of the MuchMusic service on the basic service on cable, the wholesale rate of $0.06 per subscriber per month.
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4. For the purpose of these conditions, all time zones shall be reckoned according to the eastern time zone.
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The balance of the conditions set out in the Appendix to Decision CRTC 84-338 remains in effect.
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