CRTC Exhibit 3 - Gatineau, Quebec - Renewal of Television Licences Held by Large English- and French-Language Ownership Groups

The Commission requires that Corus Entertainment Inc. (Corus) respond to the following undertakings by 9 December 2016.

Question 1. CPE Flex

Financial projections submitted by Corus are based on the assumption that all proposals by Corus are approved, including the ability to flex 100% of CPE spending between services amongst its group. In the event that the Commission denies Corus’ proposal respecting the cap on CPE flex between conventional television stations and discretionary services:

1. Comment on the impact that such a determination may have on CPE levels of individual services in Corus’ proposed group.
2. Provide CPE projections for each individual service in Corus’ proposed group for each year covering the BY 2017-18 to BY 2021-22 period.

Question 2. Non-telecast issue

Corus, in reporting the amount of non-telecast CPE, included the following lines from form 1230 of the annual returns:

Source: Aggregate returns

Corus has consistently over the past four years reported much higher amounts in the Canadian non-telecast section than the other three major English language groups. On average, the other three groups (BCE English, Rogers & Shaw) reported about 1% of total CPE in the non-telecast CPE section while Corus on average reported 20%.  

As part of the revised 2014-2015 aggregate return, Corus explained the large amounts reported as non-telecast programming as large impairment charges that were incurred in the third quarter of fiscal 2015 as a result of a review of the television programming slate that resulted in $33M written down as spending on programs that were not delivering adequate audience ratings.

Accordingly:

1. Provide a detailed explanation for the large non-telecast CPE amount reported in each of the first four years of the current licence term. Include specific reasons for each type of non-telecast expenditure and the specific types of expenditures that are grouped on each line of the annual return, including the line “Other”, as detailed above.
2. Provide the relevant accounting policies which describe the accounting of all Canadian programming expenditures. Additionally, provide any specific accounting policies related to program inventory write-downs and the process of determining how programs are impaired.
   1. The concept of “pre-buy” is referenced in Corus’ application. Explain this method of acquiring programming and the approach used by Corus when accounting for these expenditures.
3. Describe fully the Corus program acquisition & development process, including for programs from independent and affiliated producers, and explain why this process would result in a much larger percentage of CPE being directed towards programs which are never telecast when compared to the other designated groups.
   1. Describe the types of agreements used by Corus when purchasing programming from Nelvana and how each of these types of agreements impacts Corus’ accounting policies, particularly in terms of Canadian programming expenses. In addition, explain how each of these types of agreements may have contributed to the significant percentage of CPE being directed towards programs which are never telecast.

Question 3. Cash vs Accrual accounting

In Broadcasting Decision CRTC 2011-446, the Commission imposed conditions of licence on Encore Avenue, Movie Central, W Network, YTV, Treehouse TV and OWN providing them with three years to align their spending with their Canadian program expenditure requirements as calculated using an accrual method. In Broadcasting Decision CRTC 2013-737, the Commission imposed a similar condition of licence on TELETOON/TÉLÉTOON and provided a transition period which ended August 31, 2015 by which to effect a change from the cash to the accrual method.  The Commission also required Corus to include a reconciliation with the annual return for each of the first three years of the licence term detailing the amount of CPE incurred under the accrual method and reconciling this amount with that incurred under the cash method.  

1. Provide, for each of the above mentioned services, the detailed accounting methodologies, used by Corus for each year covering the BY 2011-12 to 2015-16 period.  Ensure to include details on both the cash and accrual methods used by Corus to report their Canadian program expenditures.
2. Corus did not file the reconciliations it was required to provide as part of its annual returns during that period. Provide, for each service and for each year, the reconciliation as required. Please also explain why these reconciliations were not provided with Corus’ annual returns as required.
3. Confirm that the accrual method, which was to be fully implemented and in effect for the broadcast year ending 31 August 2015 (31 August 2016 for TELETOON/TÉLÉTOON), is now fully implemented.
4. Comment on the possibility that the Commission may find Corus in non-compliance with the Condition of licence requiring that a reconciliation be filed with the annual returns detailing the amount of Canadian programming expenditures incurred under the accrual method and reconciling this amount with that incurred under the cash method.  Please comment on what measures would be appropriate for the Commission to take if it finds Corus in non‑compliance with this Condition of licence.

Question 4. French-language CPE on Teletoon/Télétoon

In Broadcast Decision CRTC 2013-737, the Commission imposed a number of conditions of licence on Teletoon/Télétoon relative to French-language programming requirements, including that the licensee shall in each broadcast year devote to the acquisition of or investment in French-language Canadian programming at least 9% of the previous year’s gross revenues of the undertaking.

Corus was required to report its French-language CPE specifically in its annual returns, but did not provide this information as required.

1. Confirm that the amounts of CPE on French-language programming by Teletoon/Télétoon provided in Corus’ Responses to Request for Additional Information – May 11th, 2016 for each year covering the BY 2013-14 to 2015-16 period, are accurate. If they are inaccurate, please provide revised figures and a detailed explanation of the issue.
2. Provide, for BY 2016-17, the projected amount of CPE on French-language programming by Teletoon/Télétoon.
3. Comment on the possibility that the Commission find Corus in non-compliance for not having filed complete annual returns as it did not provide the amount of CPE on French‑language programming by Teletoon/Télétoon.

Question 5. Teletoon/Télétoon Revenues by French and English Feeds

The Commission is considering whether TELETOON/TÉLÉTOON should remain a bilingual service operating under a single licence for the next licence term or two distinct discretionary services for each language operating under two distinct licences. As such:

1. Provide a breakdown of revenues by feed, one for Teletoon (English) and one for Télétoon (French) for each year covering the BY 2013-14 to BY 2015-16 period.
2. Provide, the breakdown of projected revenues by feed, one for Teletoon (English) and one for Télétoon (French) for the BY 2016-17.
3. In the scenario that Teletoon/Télétoon is split into two distinct discretionary services, please provide revenue projections for each the English and French service for each year covering the BY 2017-18 to BY 2021-22 period by type of revenue (i.e. subscriber, national advertising and other revenue).

Question 6: Teletoon/Télétoon programming and production expenses

The Commission is considering whether TELETOON/TÉLÉTOON should remain a bilingual service operating under a single licence for the next licence term or two distinct discretionary services for each language operating under two distinct licences. As such:

1. Provide a breakdown of production and programming expenses, one for Teletoon (English) and one for Télétoon (French) for each year covering the BY 2013-14 to BY 2015-16 period.
2. Provide a breakdown of projected production and programming expenses, one for Teletoon (English) and one for Télétoon (French) for the BY 2016-17.
3. In the scenario that Teletoon/Télétoon is split into two distinct discretionary services, please provide programming and production expenses for each the English and French service for each year covering the BY 2017-18 to BY 2021-22 period.

Question 7: Revision of figures

Commission staff have been required to correspond with Corus several times in the last few months in order to correct and complete Corus’ financial information. Notably, when looking at the programming expenses filed by Corus, a number of issues were noted when comparing the information provided in its annual returns and the information submitted as part of its application for licence renewals. This has led to revisions of Corus’ annual returns, Aggregate and PNI Reports, as well as to the information provided as part of its application for licence renewals.

For instance, as it regards children programming:

• Corus reported $0 in children programming in its Aggregate Report submitted in November 2015;
• That number was revised a first time to just over $77M its revised 2015 Aggregate Report submitted on 14 October 2016;
• The number was revised again to $56M in the 2015 Aggregate Report submitted on 24 October 2016.  

Another example is the PNI figures:

• Corus reported about $49M in PNI expenditure as part of its PNI Report submitted in November 2015;
• This number rose to $82M in a revised version of the PNI report submitted on 24 October 2016.

Based on the above, describe the measures Corus put in place, or will put in place, to improve the quality and reliability of the data it submits to the Commission going forward?

Date modified:

2016-11-28