CRTC Exhibit 2 - Applications for the renewal of services with mandatory distribution on the basic service pursuant to section 9(1)(h) of the Broadcasting Act - Broadcasting Notice of Consultation CRTC 2017-365
The Commission requires that Aboriginal Peoples Television Network Incorporated (APTN) respond to the following undertakings by 9 May 2018.
In its application APTN stated that, aside from offsetting the effects of inflation and declining subscribership in the prospective term, its proposed rate would allow it to:
- Provide certain key improvements in news programming
- Increase investments in drama or documentary productions
- Offset anticipated changes to the Canada Media Fund’s funding envelopes
In response to a letter from the Commission requesting more detail, APTN listed specific programming initiatives that APTN will undertake in the prospective term. However, APTN has not broken down the costs associated with each initiative.
- Please provide a detailed breakdown, with associated dollar amounts included, of the specific programming initiatives that APTN argues necessitate its proposed rate increase.
- Please describe the impact (if any) on those programming initiatives for the scenario that APTN is renewed with mandatory distribution but at a lesser wholesale rate increase than that proposed. Please describe the potential changes required for every $0.01 reduction from your proposed rate increase.
- Further, please provide a detailed listing of those changes, with dollar amounts included.
APTN stated that, without its proposed rate, it expects to reduce projected investments in high quality productions, while neglecting necessary capital upgrades, cutting 22 staff positions, closing two (bricks and mortar) bureaus, and freezing salaries across the organization.
- Please provide a detailed breakdown of the specific cost reductions (with associated dollar amounts included) that APTN believes would be necessary for the scenario that APTN is renewed without a wholesale rate increase.
- Please describe the potential impact (if any) to your proposed COLs and other commitments, in particular those related to expenditure and exhibition requirements, for the scenario that APTN is renewed with mandatory distribution but at a lesser wholesale rate increase than that proposed. Please describe the potential impact for every $0.01 reduction from your proposed rate increase, along with full supporting rationale and evidence.
- Further, please provide a detailed listing of potential cost reductions, with dollar amounts included.
APTN stated that, in the event that the service is renewed without a wholesale rate increase, APTN would make every effort to maintain the service’s programming but would be required to draw upon its other resources and financing that would otherwise be earmarked to provide:
- Improved services
- Necessary capital upgrades
- Human resource development (e.g. training and hiring).
- Please provide a more detailed description of these upgrades.
- Please describe the resources and/or the sources of financing that APTN intended to draw upon to achieve these upgrades.
- Please provide the dollar amounts that would be allocated for each upgrade.
The Giganomics report predicts that incremental subscriber revenues resulting from the $0.06 wholesale rate increase granted to APTN in the current licence term will total $36.1M by the end of the term.
- Please provide a detailed breakdown, with dollar amounts included, on how these incremental revenues were allocated in the current term.
Based on APTN’s annual returns and publically-available financial statements, as of August 31, 2017 (the most recent period for which information is available) the service is in a favorable financial position and has generated significant profits over the current licence term. Pre-tax profits over this five year period equal $16.8M. In addition, APTN has generated levels of cash which allowed prepayments of $1.4M, $3M and 0.6M to be made towards its mortgage in November 2016, August and November 2017 respectively. APTN states in reply to the Giganomics report that ‘At the end of 2016, APTN's commitments to producers and others to acquire film and TV rights totaled some $19.1 million. At the end of 2017, the amount increased to $21.1 million.’ While this shows that APTN is in fact investing significant amounts towards programming, it also shows that APTN is directing significant funds towards paying down an increased debt load.
- Please provide a more detailed description of the $21.1M which has been committed to acquire film and TV rights, specifically outlining the amounts spent on original and acquired Canadian film and TV rights, as well as the amounts dedicated to independent producers.
- Please describe the payment plan for the remaining balance of the mortgage including any effects the prepayments have on programming.
- Please discuss the appropriateness of the requested rate increase given the amount of profit generated by the service during the current licence term, as well as the use of the cash proceeds in order to pay down an increased debt load.
APTN stated in its reply to the Giganomics report that approximately $2M in business development costs related to First Peoples Radio and APTN’s All Nations Network (ANN) initiatives are included in the financial statements.
- Please discuss the appropriateness of including the expenses of these services in the APTN results and the impact that this inclusion has on the reported profitability of the APTN discretionary television service over the current licence term. Stated differently, please explain why it is appropriate to consider these expenses when establishing a wholesale rate to be paid for distribution of APTN’s discretionary television service?
- Is it correct to state that if these services and the related $2M in expenses are removed from the APTN results, this indicates that the APTN television service was in fact $2M more profitable than is shown currently in the financial statements. If not, please explain why this is not the case and quantify, with supporting justification, the impact that the removal of these amounts would have on the profitability of APTN’s licensed television service.
- Please describe how the First Peoples Radio and APTN’s ANN initiatives will be financed in the prospective licence term.
APTN stated that, via revenues generated by its licensed broadcasting service, APTN continues to develop and exploit digital media and digital platforms to ensure that audio-visual programming is widely available to Canadians and to better position APTN to meet evolving technology and audience demands.
- In the financial information provided to the Commission in the context of the current proceeding, have you aggregated costs and revenues as between your licensed undertakings and your digital media undertakings?
- Please provide a breakdown of APTN’s revenues, operational expenses and capital expenditures relating to its digital media undertakings, for each year of the current licence term.
- Please provide a breakdown of APTN’s projected revenues, operational expenses and capital expenditures relating to its digital media undertakings for each year of the prospective licence term, for both the scenario that the service is renewed with mandatory distribution with and without its proposed rate increase. Further, please describe the potential impact for every $0.01 reduction from your proposed rate increase.
- Please describe how APTN has allocated – or proposes to allocate - advertising revenues as between its licensed undertaking and its digital media undertakings. In answering this question, explain the methodology used to allocate the revenues and provide all necessary supporting documentation to support your proposed allocation.
- Please identify and describe all costs categories grouping costs that benefit both the licensed undertaking and the digital media undertakings, including fixed costs such as rent and salaries of individuals whose tasks are not restricted to the operations of the licensed undertaking. Furthermore, describe how APTN has allocated – or proposes to allocate – such costs as between its licensed undertaking and its digital media undertakings. In answering this question, explain the methodology used to allocate the costs and provide all necessary supporting documentation to support your proposed allocation.
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