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Ottawa, 19 October 1993
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Decision CRTC 93-644
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Fairchild Communication Ltd.
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Toronto, Ontario - 922298500
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Acquisition of the Assets of Chinavision and Issuance of a New Licence to Carry on a National, Discretionary, Chinese-language Specialty Programming Undertaking
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Following a Public Hearing in the National Capital Region commencing 6 July 1993, the Commission approves the application for authority to acquire the assets of the existing national, Chinese-language specialty programming undertaking currently licensed to Chinavision Canada Corporation (Chinavision), and for a broadcasting licence to continue its operation under the terms and conditions in effect under the current licence.
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The Commission will issue a licence to Fairchild Communication Ltd. (Fairchild), expiring 31 August 1997, upon surrender of the current licence issued to Chinavision. The licence will be subject to the same conditions as those in effect under the current licence as well as to any other condition specified in the appendix to this decision and in the licence to be issued.
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In keeping with Fairchild's own description of the nature of the service, the licensee shall, by condition of licence, provide a national, discretionary, specialty service that consists of programming of Type A, as defined in Schedule II to the Specialty Services Regulations, 1990, having as its target audience the Chinese-speaking communities of Canada. The four-year licence term granted herein will enable the Commission to assess, at a suitable date, Fairchild's progress towards implementing its business plan and establishing the undertaking as a financially viable and contributing component of the Canadian broadcasting system. It will also enable the Commission to examine closely with the new licensee the practical results of various safeguards that the Commission has required Fairchild to put into place for the purpose of ensuring balance in the programming of the service. Further, at the time of licence renewal, the Commission intends to evaluate the effectiveness of a condition of licence it has imposed upon the applicant which is intended to eliminate concerns for any potential conflict of interest arising from the 20% equity position in Fairchild held by Condor Entertainment B.V. (Condor), a foreign corporation, and Condor's proposed role as the licensee's principal supplier of non-Canadian Chinese-language programming.
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BACKGROUND
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The Commission first licensed Chinavision in 1984 to provide a predominantly Chinese-language, discretionary programming service to cable subscribers across Canada, except those in British Columbia (Decision CRTC 84-445). Extension of Chinavision's service to British Columbia was subsequently approved in 1987 (Decision CRTC 87-74), thus allowing Chinavision to compete directly with the predominantly Chinese-language, regional, ethnic pay television undertaking operated exclusively in that province by Cathay International Television Inc. (Cathay). Cathay's status has since changed to that of a regional specialty programming undertaking serving British Columbia.
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According to information provided at the July hearing, Chinavision currently has a total of approximately 17,700 subscribers in Vancouver, Toronto, Calgary and Edmonton, who receive the service either on a stand-alone basis or as part of a package with another discretionary service. A further 95,000 cable subscribers in and around Richmond Hill, Ontario receive the service as part of a non-encrypted discretionary service tier.
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The Commission notes that an application to acquire the assets of Cathay filed by the applicant's associated company, Fairchild Broadcasting Ltd., was considered at the 4 October 1993 Public Hearing in Vancouver. A decision on this application is pending. Cathay currently has approximately 16,000 subscribers in the Vancouver area, many of whom receive that service in a package with Chinavision.
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Chinavision has encountered financial difficulties ever since it was first licensed. In 1992, the company's mounting debt led to an order of the Ontario Court that placed the licensee company in receivership. The receiver was instructed by the Court to continue the business of Chinavision pending sale of the company's assets. The receiver, following a competitive bidding process and consideration of the bids received, recommended that Fairchild's offer to purchase be accepted by the Court and that an application for authority to transfer assets be submitted to the Commission. The Court so ordered.
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Fairchild is a Canadian company owned 80% by Happy Valley Investments Ltd. (Happy Valley), a Canadian company controlled by Mr. Thomas Fung of Vancouver. Mr. Fung also holds an indirect 20% interest in CJVB Vancouver. As noted above, the remaining 20% of Fairchild is owned by Condor, a foreign company indirectly controlled by Television Broadcasts Limited (TVB) of Hong Kong.
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The purchase price relating to this transaction is $9.25 million. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or the adequacy of the required financing.
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BENEFITS TEST
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Because the Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings, the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature. As a first test, the applicant must demonstrate that the proposed transfer will yield significant and unequivocal benefits to the community served by the broadcasting undertaking and to the Canadian broadcasting system as a whole, and that it is in the public interest.
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The Commission has assessed the benefits package identified by the applicant as flowing from this transaction and, in general, is satisfied that it is significant and unequivocal. Moreover, based on these benefits, and with the conditions of licence specified herein, the Commission is satisfied that the Fairchild application represents the best possible proposal under the circumstances and that approval of the transaction is in the public interest.
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In light of the longstanding financial difficulties encountered by Chinavision, the Commission agrees with the applicant that the most significant benefit associated with this transaction is the monetary resources available to Fairchild, and more particularly its commitment to ensure the preservation and continuance of Canada's only national Chinese-language specialty programming service.
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Among the other benefits proposed by Fairchild are direct incremental expenditures of approximately $1 million; most of this amount is earmarked for upgrading the equipment of the undertaking's Toronto and Vancouver facilities. The Commission expects the applicant to ensure that all of the proposed expenditures included in the benefits package are made in accordance with the schedule outlined in the application.
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CANADIAN CONTENT
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The Commission also attaches considerable importance to Fairchild's plans to expand, by a very significant margin, the amount of Canadian content broadcast by the undertaking. By condition of licence, Chinavision's programming currently includes 30% Canadian content during the hours of 7:00 p.m. to 10:00 p.m., and 20% overall. Chinavision is also required to ensure that a minimum of 45% of its overall program expenditures is devoted to Canadian programming. It is Fairchild's commitment that, after a transition period of between 12 and 18 months to allow an orderly transfer of the business from one company to the other, it will increase Canadian content levels over time from their present levels to 60% during prime time viewing hours and 40% overall.
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Accordingly, the Commission has required the applicant, by condition of licence, to adhere initially to the same requirements that currently apply to Chinavision with respect to minimum levels of Canadian content, but to increase these levels progressively over time so that, beginning with the third year of the licence term, it is achieving the levels it has proposed.
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The applicant also stated, as a commitment, that not less than 49% of its total program expenses in each year would be directed to the acquisition of, or investment in, Canadian programs. In figures submitted following the hearing, however, the applicant increased the amount it proposes to expend on non-Canadian programming, thereby adjusting downwards, from 49% to 47%, the proportion of its overall program expenses it proposes to devote to Canadian programs. The Commission considers that Fairchild should adhere to its original commitment.
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Conditions of licence imposed on other specialty service licensees stipulate required levels of Canadian program expenditures as a percentage of annual gross revenues. The Commission notes that, according to the new figures submitted by the applicant, 49% of Fairchild's total programming expenditures would equate to approximately 28.5% of its projected gross revenues in the first year, and to approximately 29% in each of the next three years. Accordingly, and consistent with the approach described above, it is a condition of licence that Fairchild expend on the acquisition of, or investment in, Canadian programs in the first year, not less than 28.5% of the gross revenues earned by the service in 1992/93 and, in each subsequent broadcast year, not less than 29% of the gross revenues earned during the preceding year.
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NON-CANADIAN PROGRAMMING
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Fairchild intends to acquire the bulk of its non-Canadian programming from TVB through an agreement with Condor, TVB's subsidiary and the applicant's 20% shareholder. TVB of Hong Kong is the world's largest Chinese-language television producer; its very popular programming is distributed to audiences in forty countries around the world, including the Canadian audiences of Chinavision, Cathay and CFMT-TV Toronto.
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Concerns were raised by a number of interveners at the hearing regarding TVB's indirect participation in the ownership of Fairchild and its coincident role as the applicant's major source of non-Canadian programming. One such concern relates to the terms of the proposed program supply agreement between Condor and Fairchild which would give the latter company a first option on the Canadian broadcast rights for all TVB programming. For a number of years, an agreement with TVB gave Cathay first option to purchase the British Columbia broadcast rights for programs available from TVB. Interveners argued that the change in distribution arrangements contemplated under the proposed transaction, whereby Fairchild would acquire these first option rights, would cause irreparable harm to Cathay's regional specialty service. Expanding upon this concern at the hearing, interveners expressed apprehension regarding the influence that TVB would have, in the words of one speaker, as "the only significant supplier of Chinese-language programming in Canada". It was claimed that TVB would be able to dictate the version of news provided to the Chinese community in Canada, and alter public opinion within that community. Interveners also raised concerns about graphic violence and sex-role stereotyping within the Chinese-language programming currently broadcast by Chinavision, and submitted that the Fairchild proposal "... offers little change from the current line-up".
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As a further concern, interveners suggested that TVB's potential influence over the affairs of the applicant might place TVB in a position to exercise control of Fairchild. They requested that their concerns in this regard be addressed by the Commission; one asked that specific safeguards be put in place "to effectively cap de facto foreign control".
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THE COMMISSION'S FINDINGS
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(i) Program Supply Agreement
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With respect to the first of the three concerns noted above, the Commission's general policy is not to intrude upon the business decisions of its licensees in areas related to program acquisition. In the Commission's view, the expiry of the program supply agreement between Cathay and TVB's subsidiary at the end of August of this year leaves TVB free to reach new arrangements with the party or parties of its choice, regardless of the outcome of Fairchild's present application. At the same time, the Commission notes the assurances given by a TVB representative at the hearing that the company remains willing to sell, both to Cathay and to the licensee of CFMT-TV Toronto, the rights for any TVB programming not purchased by Fairchild. (ii) The Issue of Balance; Requirements Concerning Policy Guidelines, Advisory Committees and Other Social Issues
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The second concern noted above addresses the applicant's ability to ensure the presence of balance, particularly in its news programming. Several facets of this issue were examined at the hearing with both the applicant and interveners. Under the Broadcasting Act (the Act), all persons who are licensed to carry on broadcasting undertakings have a responsibility for the programs they broadcast. In addition to the important regulatory prohibition against the broadcast of any false or misleading news, the Act specifically requires broadcasters to provide balanced programming in areas that deal with matters of public concern.
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In responding to the concerns of interveners that its programming may fall short of achieving these important principles, the applicant made the following statement at the hearing:
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Any broadcasting undertaking owned and operated by Fairchild will be totally independent and free from undue influence. Fairchild will implement a series of policy guidelines that will ensure the independence and freedom of its news directors to report on local, national and international news events in an accurate and unbiased manner. In addition, the guidelines will ensure that alternate commentary is granted so as to provide balanced views in relation to any news or public opinion program that presents a controversial point of view.
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In addition to the policy guidelines proposed by the applicant, various other safeguards and approaches were discussed at the hearing as tools to eliminate potential concerns in this area; these included the incorporation of a complaints procedure within any set of policy guidelines prepared by the applicant, the appointment of advisory committees, and the establishment of minimum quantitative requirements for expenditures on, and the broadcast of, non-Canadian programming acquired from sources other than TVB.
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Fairchild indicated that, while no advisory committee currently exists in Vancouver, it has already established one in Toronto consisting of five individuals, all well-respected and active in the Chinese community. The applicant also expressed a willingness to accept conditions of licence regarding violence and gender portrayal. Further, the applicant indicated that it would abide by a condition of licence requiring it to establish effective policy guidelines regarding balance in programming. Fairchild stated that these guidelines would be "...developed in consultation with the Commission and the public and [would include] a process to deal with complaints".
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Accordingly, the Commission expects Fairchild, by 28 February 1994, to prepare and submit for the Commission's review, policy guidelines establishing clear and effective mechanisms to ensure the presence of balance in programming dealing with matters of public concern. The guidelines should also set out the procedures that will be followed by the applicant in dealing with complaints by the public on this matter and on other aspects of its service, including the issue of violence. The Commission, by condition of licence, requires Fairchild to have the finalized guidelines in place and made public by 31 August 1994, or by such later date as may, upon application by the licensee, be specified by the Commission in writing.
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By condition of licence, the Commission also requires the applicant to submit a report, by 28 February 1994, confirming that it has established an advisory committee in Vancouver to complement the one it has already set up in Toronto, and that both committees are in full operation. The report should provide the names and brief biographies of those appointed to each committee, specifying the groups and organizations that these individual members represent within the Chinese-speaking community. The report should also contain information concerning the precise role and mandate reserved for these committees, including details regarding such matters as the frequency of their meetings and the level within the applicant's organization that they report to. The Commission requires Fairchild, by condition of licence, to submit further reports, by 31 August 1994, and annually thereafter throughout the licence term, updating the information on file with the Commission in the various areas noted above and outlining the activities of each committee during the preceding year.
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In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled "Implementation of an Employment Equity Policy", the Commission announced that the employment equity practices of broadcasters would be subject to examination by the Commission. It encourages the applicant to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.
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(iii) Requirements Concerning Non-Canadian Programming
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With regard to the non-Canadian content of its proposed service, Fairchild acknowledged in its application the need to acquire programming from sources other than TVB, including those in Hong Kong, the People's Republic of China, Taiwan and elsewhere, "...in order to provide its viewers with a more diversified and appealing mix of programs".
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At the hearing, Fairchild committed to ensure that a minimum of 500 original hours of first-run non-Canadian programming would be purchased for broadcast on its service each year from sources other than TVB, representing a figure slightly in excess of 20% of all non-Canadian programming broadcast. Conditions of licence are attached requiring adherence to these commitments. Figures filed by the applicant following the hearing indicated that its average annual expenditures on non-TVB programming would amount to approximately 13% of its annual expenditures on programming acquired from TVB. By condition of licence, however, the Commission requires Fairchild to ensure that its expenditures on non-TVB programming in each broadcast year are not reduced and amount to not less than 15% of its total expenditures on non-Canadian programming. The Commission is satisfied that this is a reasonable requirement in the circumstances, and will ensure that the non-TVB productions acquired by the applicant provide an acceptable level of quality and diversity.
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(iv) Issue of Control
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The remaining area of concern raised by interveners and noted above is whether TVB's influence as an indirect shareholder in Fairchild and as the applicant's principal source of non-Canadian programming places TVB in a position to exercise de facto control of Fairchild.
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The Commission examined this question against the background of the Direction to the CRTC (Eligible Canadian Corporations). Under the Direction, the Commission may not issue a broadcasting licence to any applicant that is not a Canadian citizen or an eligible Canadian corporation. Based upon the definition of "eligible Canadian corporation" set out in the direction, and on the evidence submitted by the applicant, the Commission considers that Fairchild satisfies the requisites of the Direction, and that it may be issued a licence.
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(v) Potential for Conflict of Interest
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As stated in the preceding section, the determination reached by the Commission at this time is that Fairchild is an eligible Canadian corporation, one that is effectively owned and controlled by Canadians. The Commission does consider, however, that a conflict of interest would exist should any nominee, employee or other representative of Condor, TVB, their affiliates or subsidiaries, or any person associated with these companies or with whom the licensee has entered into an agreement for the acquisition of programs, also be permitted to serve either as a director of Fairchild or as an officer of the company. Were this to be permitted, situations might arise where the fiduciary responsibilities to Fairchild of such a nominee or representative dictate decisions that are at odds with the commercial or other interests of the program supplier.
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As indicated earlier, the Commission would consider inadvisable any action on its part to alter or influence the terms of the program supply agreement reached between Condor and Fairchild. Further, the Commission wishes to emphasize that it has no concerns with Condor's proposed 20% shareholding in Fairchild. However, in light of the conflict of interest discussed above, the Commission has decided to impose a condition of licence prohibiting any nominee, employee or representative of Condor, TVB, their affiliates or subsidiaries, or any person associated with these companies or with whom the licensee has entered into an agreement for the acquisition of programs, to serve on Fairchild's Board of Directors or as an officer of the company.
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CONCLUSION
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The Commission is satisfied that the various safeguards and conditions it has obliged the applicant to observe with regard to such matters as balance, violence in programming and community consultation, together with the further condition it has stipulated for the purpose of avoiding any conflict of interest, adequately respond to the concerns of interveners. The Commission acknowledges all of the groups and individuals who contributed to the public process through their interventions, both those whose submissions were in support of the applicant and those who were opposed. The Commission notes that virtually all of these parties stressed the importance they attach to the continued availability of a strong, attractive and responsible Chinese-language programming service across the country. The Commission encourages the applicant in its efforts to ensure the ongoing presence of just such a service.
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Allan J. Darling
Secretary General
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Appendix to Decision CRTC 93-644 / Annexe à la décision CRTC 93-644
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FAIRCHILD COMMUNICATION LTD.
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Conditions of Licence Nature of the Service
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1. The licensee shall provide a national discretionary specialty service that consists of programming of Type A, as defined in Schedule II to the Specialty Services Regulations, 1990, having as its target audience the Chinese-speaking communities of Canada.
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Exhibition of Canadian Programs
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2. During each of the first four semesters of its licence term and until 31 August 1995, the licensee shall devote to the broadcast of Canadian programs not less than
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(i) 30% of the time from 7:00 p.m. to 10:00 p.m. and
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(ii) 20% of the total hours devoted to all programming.
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3. Commencing 1 September 1995 and during each of the last four semesters of its licence term, the licensee shall devote to the broadcast of Canadian programs not less than
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(i) 60% of the time from 7:00 p.m. to 10:00 p.m. and
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(ii) 40% of the total hours devoted to all programming.
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Expenditures on Canadian Programs
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4. The licensee shall expend on the acquisition of, or investment in, Canadian programs in the first year, not less than 28.5% of the gross revenues earned by the service in 1992/ 93 and, in each subsequent broadcast year, not less than 29% of the gross revenues earned during the preceding year. Exhibition of Non-Canadian Programs
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5. The licensee shall broadcast, in each semester of its licence term, a minimum of 250 hours of first-run non-Canadian programs produced by, and acquired from, those other than TVB of Hong Kong or any of its subsidiaries, which programming shall constitute not less than 20% of the total number of hours of non-Canadian programs broadcast during that semester.
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Expenditures on Non-Canadian Programs
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6. The licensee shall, in each broadcast year, expend on non-Canadian programs produced by, and acquired from, sources other than TVB or its subsidiaries, an amount representing not less than 15% of its total expenditures on non-Canadian programs.
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7. The licensee shall submit a report, by 30 November 1994 and annually thereafter throughout the licence term, containing data setting out the expenditures it has made to comply with the requirements specified in each of Conditions of Licence 5 and 6 above.
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Advertising
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8. During each clock hour, the licensee shall broadcast not more than 8 minutes of commercial messages of which no more than 4 minutes shall be local commercial messages.
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Advisory Committees
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9. The licensee shall submit a report, by 28 February 1994, confirming that it has established fully-operational advisory committees in each of Vancouver and Toronto, and describing their composition and activities. The licensee shall submit further reports, by 31 August 1994 and annually thereafter throughout the licence term, updating the information on file with the CRTC and outlining the activities of each committee during the preceding year.
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Policy Guidelines
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10. The licensee, by 31 August 1994 or by such later date as may, upon application by the licensee, be specified by the Commission in writing, shall ensure that policy guidelines acceptable to the Commission are in place and made public, that establish the mechanisms the licensee will use to ensure balance in programming, and the procedures it will follow in dealing with complaints by the public on this matter and on other aspects of its service, including the issue of violence.
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Adherence to Industry Codes
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11. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) "Sex-Role Portrayal Code for Television and Radio Programming", as amended from time to time and approved by the Commission.
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12. The licensee shall adhere to the provisions of the CAB's "Broadcast Code for Advertising to Children", as amended from time to time and approved by the Commission.
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Restrictions Concerning Ownership and Participation on the Board of Directors and in Senior Management
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13. The licensee shall, by 1 January 1994, file with the Commission certified copies of by-laws which it shall enact prohibiting the participation as a director or as an officer of the licensee company, of any nominee, employee or representative of TVB, Condor, their affiliates or subsidiaries, or of any person associated with these companies or with whom the licensee has entered into an agreement for the acquisition of programs. The licensee, by the same date, shall also file an amended and duly executed copy of its Unanimous Shareholders Agreement reflecting the prohibitions set out above.
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14. The licensee shall, by 1 January 1994, file with the Commission the names and brief biographical descriptions of the members of its board of directors. The licensee shall also notify the Commission before any change is effected in the composition of its Board of Directors, or in its ownership or in the ownership of its principal shareholder, Happy Valley Investments Ltd.
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Definitions
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15. In these conditions:
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"broadcast year" means the period from 19 October 1993 to 31 August 1994 and each 12-month period thereafter beginning 1 September.
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"clock hour" means a period of 60 minutes beginning on each hour and ending immediately prior to the next hour.
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"expend on acquisition" means
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(a) expend to acquire exhibition rights for the licensed territory, excluding overhead costs;
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(b) expend on the following items associated with the production of a program:
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" talent fees (on air and other)
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" directly-attributable salaries and benefits " film and tape
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" studio sets, properties and other production materials
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" use of remote and other production facilities
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" delivery of remote programs to the satellite uplink or main studio and
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" any other matter directly related to the production of a program; or
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(c) expend on the production of filler programming, as defined in section 2 of the Pay Television Regulations, 1990, including direct overhead costs.
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"expend on investment" means expend for the purposes of an equity investment or an advance on account of an equity investment, but not overhead costs or interim financing by way of a loan.
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"semester" means the period from 19 October 1993 to 28 February 1994 and each 6-month period thereafter beginning 1 March and 1 September.
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"officer" means the chairperson, president, vice-president, secretary, treasurer, comptroller, general counsel, general manager, managing director or any individual who performs functions for the licensee similar to those normally performed by an individual occupying any such office, and each of the licensee's five highest paid employees, including the above.
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