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ARCHIVED -  Decision CRTC 99-86

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Decision CRTC 99-86

Ottawa, 13 April 1999
Cogeco Câble Canada inc.
Rimouski, Matane, Mont-Joli, Amqui and Sainte-Anne-des-Monts, Quebec
– 199802153
Application processed by Public Notice CRTC 1998-92 dated 24 August 1998
Summary
The Commission, by majority vote, denies the application by Cogeco Câble Canada inc. (Cogeco) for relief from the requirements of section 29 of the Broadcasting Distribution Regulations (the regulations).
The Commission notes that Cogeco is one of the four largest multiple system operators in Canada. It has diversified holdings and operates on a for-profit basis. Having considered all of the arguments raised by Cogeco in its application, the Commission considers that the applicant has not shown that a derogation from the requirements of section 29 of the regulations would be warranted. The Commission considers that the split between contributions to local expression and recognized production funds set out in section 29 of the regulations is appropriate for a licensee in Cogeco's situation.
The licensee will therefore continue to be required to devote a minimum of 5% of gross revenues derived from broadcasting activities to Canadian programming, on an annual basis. A portion of this money may be allocated to Cogeco's community programming with the rest going to production funds, according to the formula set out in the regulations.
In its application, Cogeco had requested authorization to allocate up to the entire 5% contribution to community programming if it so chose.
Discussion
The requirements of section 29
1. Section 29 of the regulations provides that Class 1 broadcasting distribution undertakings (BDUs) must contribute at least 5% of their gross revenues derived from broadcasting activities to Canadian programming unless a condition of licence provides otherwise. BDUs may use a portion of the contribution to support local expression, such as the community channel, if they elect to provide such a service. The balance of the 5% contribution must be paid to funds that support the production of Canadian programming. The specific split between the amount of money that supports local expression and the amount of money directed to production funds varies according to the class of undertaking and the number of subscribers.
2. In this case, Cogeco operates a Class 1 cable system with more than 20,000 but fewer than 60,000 subscribers. Pursuant to the regulations, Cogeco must make the following contributions to funds supporting the production of Canadian programming:
3. For the broadcast year ending 31 August 1999, Cogeco must contribute not less than the greater of:

· 5% of gross revenues derived from broadcasting activites in that year, less any contribution to local expression made in that year; and

· 2.5% of gross revenues derived from broadcasting activities in that year.

4. For the broadcast year ending 31 August 2000, and each broadcast year thereafter, Cogeco must contribute not less than the greater of:

· 5% of gross revenues derived from broadcasting activites in that year, less any contribution to local expression made in that year; and

· 3% of gross revenues derived from broadcasting activities in that year.

5. Accordingly, if Cogeco elects to operate a community channel, it may:

· for the broadcast year ending 31 August 1999, deduct up to 2.5% of gross revenues derived from broadcasting activities from the total 5% contribution it would otherwise be required to make. In such a case it must contribute a minimum of 2.5% of such revenues to funds supporting the production of Canadian programming.

· for the broadcast year ending 31 August 2000, and for each year thereafter, deduct up to 2% of gross revenues derived from broadcasting activities from the total 5% contribution it would otherwise be required to make. In such a case, it must contribute a minimum of 3% of such revenues to funds supporting the production of Canadian programming.

6. In Public Notice CRTC 1997-150, which was issued with the revised regulations, the Commission stated that it would allow exceptions to section 29 of the regulations on a case-by-case basis related to the special circumstances of a licensee’s operations. The regulations provide that such exceptions may be granted by condition of licence.
The applicant’s position
7. Cogeco considered that it should be permitted to allocate up to the entire 5% of gross revenues derived from broadcasting activities to community programming. Any portion of the 5% not spent on community programming would be contributed to production funds. Thus, under Cogeco's proposal, there would be no minimum required contribution to production funds, as section 29 provides.
8. Cogeco noted that this system provides service to a large area in the Bas St. Laurent and Gaspésie regions. This licensee provides service to five zones: Rimouski, Matane, Mont-Joli, Amqui and Sainte-Anne-des-Monts. It also currently provides a separate community channel for each zone. The applicant noted that these community channels provide the only local television programming service in these communities. The applicant stated that, if the current application is not approved, it will be necessary to stop providing community programming in the majority of these zones because of insufficient financial resources.
9. On the other hand, Cogeco indicated that, if the application is approved, it will maintain its existing community channels, production facilities and levels of original weekly programming for the remainder of its licence term.
10. The applicant also argued that the impact of the proposed condition of licence on the amount of revenue to production funds would be minimal.
11. Although Cogeco was licensed as a Class 1 licensee with more than 20,000 subscribers, but fewer than 60,000 subscribers, it has requested that each system be considered as a separate class for the purposes of section 29 of the regulations. Specifically, Cogeco proposed that the system in Rimouski be considered as a Class 1 licensee with less than 20,000 subscribers, and its systems in Matane, Sainte-Anne-des-Monts and Amqui be considered as Class 2 licensees with 2,000 to 6,000 subscribers. This would allow the licensee to reduce the amount of its contribution to production funds.
The Commission’s decision
12. Section 3(1)(e) of the Broadcasting Act (the Act) stipulates that "each element of the Canadian broadcasting system shall contribute in an appropriate manner to the creation and presentation of Canadian programming." The regulations provide that distributors must contribute a minimum of 5% of their gross annual revenues derived from broadcasting activities as a means to achieve this fundamental objective, unless a condition of licence provides otherwise.
13. The Commission explored, during an extensive public process that resulted in the adoption of the regulations, the appropriate split between the amount of money that may be allocated to local expression and the amount that would be paid to production funds at a national and regional level.
14. The Commission appreciates the important service that community channels provide, especially in areas where they are the only source of local television programming. That is why section 29 of the regulations allows smaller cable systems to reduce their contributions to production funds if they operate community channels. In this context, the Commission notes the interventions on this applications submitted by community members and organizations, as well as public officials, indicating that Cogeco’s community channels are important sources of local news and information.
15. The Commission, however, continues to believe that contributions by broadcasting distribution undertakings to production funds provide essential support for the production of Canadian programming. Such support is necessary if Canadian programming is to continue to have a strong presence in a more competitive broadcasting environment. The Commission considers that subscribers will benefit from higher quality and more diverse Canadian programming on the services offered by distribution undertakings as a result of these contributions. It therefore wants to ensure that production funds receive broad support from the distribution sector.
16. The Commission notes that Cogeco is one of the four largest multiple system operators in Canada. It has diversified holdings and operates on a for-profit basis. Having considered all of the arguments raised by Cogeco in its application, the Commission considers that the applicant has not shown that a derogation from the requirements of section 29 of the regulations would be warranted. The Commission considers that the split between contributions to local expression and recognized production funds set out in section 29 of the regulations is appropriate for a licensee in Cogeco's situation. The Commission therefore denies Cogeco's application.
17. The Commission reminds Cogeco that there are benefits as well as costs to providing local programming on a community channel. As indicated in the interventions to this application, community channel programming is very attractive to many subscribers. A community channel can therefore be an advantage to cable systems when they compete for subscribers with other distribution systems that do not offer outlets for local expression.
Related CRTC document

• Public Notice 1997-150 dated 22 December 1997: Broadcasting Distribution Regulations

Secretary General
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