ARCHIVED - Decision CRTC 84-32

Decision

Ottawa, 24 January 1984

Decision CRTC 84-32

First Choice Canadian Communications Corporation and Télévision de l'Est du Canada (TVEC) Inc., on behalf of a company to be incorporated under the name of "Premier Choix: TVEC"

Montreal, Quebec - 840004600First Choice Canadian Communications CorporationToronto, Ontario - 840006100

Following a public hearing in Montreal on 13 January 1984, the Canadian Radio-television and Telecommunications Commission announces that it approves the application submitted jointly by First Choice Canadian Communications Corporation (First Choice) and by Télévision de l'Est du Canada (TVEC) Inc. (TVEC) for authority to consolidate the two French-language pay television undertakings, currently in operation in Canada, into a single company to be incorporated under the name "Premier Choix: TVEC".

The application, submitted on behalf of the company to be incorporated, requested the authority to acquire the assets of the two existing French-language discretionary pay television services, these being the national service operated by First Choice and the regional service, TVEC, serving Quebec, Ontario and the Atlantic provinces; and for a licence to carry on a new national, French-language, general interest pay television network under which the two separate French-language discretionary pay television services will be consolidated into a single service, operated 24-hours a day.

The Commission will issue a licence to the company to be incorporated upon surrender of the current licence issued to TVEC, and upon the receipt by the Commission of documentation showing that the company has been incorporated in accordance with the application in all material respects. The licence will expire on 1 March 1987 and will be subject to the terms and conditions specified in this decision, in Appendix A attached hereto, and in the licence to be issued.

The Commission also approves the application by First Choice to amend its pay television licence by deleting the condition requiring it to distribute its discretionary French-language program service on a national, 24 hour-a-day basis, distinct from its English-language program service and by substituting the following condition therefor:

 The licensee shall invest in and support through all reasonable means the operations and undertaking of the French-language program service licensed to "Premier Choix: TVEC".

The Commission's approval of this amendment is subject to the further requirement set out later in the decision and in Appendix B attached hereto.

The Commission has considered these applications in the context of its recently-published review of the general framework for pay television, taking into account its past decisions on pay television and the Commission's analysis of the evolution of pay television in Canada during its first year of operation (see the Introductory Statement to Decisions CRTC 84-1 to CRTC 84-4 and Public Notices CRTC 1984-1 to CRTC 1984-3 related to pay television dated 5 January 1984).

In this statement, the Commission reiterated its commitment to the principle of a distinctive Canadian pay television system, and to the major objectives set out in its initial decision on pay television (Decision CRTC 82-240). These objectives relate to the contribution of pay television to the diversity and quality of programming available to Canadians, and to the new opportunities to be provided to Canadian producers for the development of programs originating in the various regions of Canada, as well as for the production of new programs in both official languages.

At the same time, taking into account the rapidly evolving conditions of the pay television industry, the uncertainties which characterize this emerging industry and the need to be responsive to such a fluctuating environment, the Commission stated that "this may require adjustments in the structure or regulatory framework for pay television and the Commission will continue to be responsive to proposals, provided they are consistent with its objectives for a distinctive Canadian pay television service."

During its review the Commission examined the respective roles and responsibilities of its national and regional pay television licensees in order to ensure fair and equitable regulatory treatment among all general interest licensees. It also emphasized "the requirement to provide distinct national services in the two official languages remains an important element of the national general interest licensee's obligations."

In Decision CRTC 82-240 licensing First Choice to provide a national French-language pay television service, the Commission noted the absence of a regional French-language service and invited interested parties to submit applications for the provision of such service. In a subsequent decision issuing a licence to TVEC (Decision CRTC 82-1023) the Commission noted that, in proposing a pay television service reflective of the cultural distinctiveness of French-language Canadians, TVEC's programming concept was consistent with the Commission's fundamental objectives for pay television. With respect to TVEC's financial plans, however, the Commission expected the licensee to take the necessary measures to strengthen substantially its cash flow, and noted TVEC's statement at the hearing regarding the possibility of obtaining funding from the Société de développement des industries de la culture et des communications (SODICC). This financial support by SODICC failed to materialize despite the Commission's administrative approval of an application by TVEC in May 1983, which authorized the restructuring of TVEC's share capital and the acquisition by SODICC of 20% of the licensee's shares.

Subsequently, in submissions presented at hearings on 10 November and 29 November 1983, TVEC informed the Commission that it had entered into discussions with First Choice regarding the possible consolidation of their respective French-language pay television services. On 15 December 1983, First Choice and TVEC concluded an agreement in principle, the "Protocole d'entente" (the protocole) regarding the consolidation of their two pay television services into a single service under a new corporate entity, Premier Choix: TVEC. SODICC, itself a party to this protocole, undertook to invest in the new company through a convertible debenture. This protocole was amended on 3 January 1984 with the consent of all parties.

The applications in question were then filed with the Commission in accordance with the terms of the protocole and in response to Public Notice CRTC 1983-283 dated 22 December 1983. In view of the uncertain financial situation of TVEC, these applications were scheduled for consideration on short notice, at the 13 January 1984 public hearing in Montreal.

Under the protocole, the majority of the shares of the new company will be owned by Quebec interests and its head office and principal place of business will be in the province of Quebec. Following the reorganization, First Choice will hold four (4) million voting and two (2) million non-voting shares while TVEC will hold three (3) million voting shares. Premier Choix: TVEC will issue a debenture to SODICC in the amount of three (3) million dollars which may be converted at any time into three (3) million voting and three (3) million non-voting shares. In accordance with the terms of the agreement, the outstanding creditors of the two currently licensed French-language services will be reimbursed over time under specific financing arrangements. In addition, to provide the cashflow necessary during the initial period, a line of bank credit in the amount of $3,000,000 is being negotiated and will be guaranteed, if necessary: $2,000,000 by SODICC and $1,000,000 by First Choice.

Other terms of the protocole provide that the board of directors of the new company will be composed entirely of Quebec residents, four of whom will be nominees of First Choice, three of TVEC and three of SODICC. One of the three directors nominated by the latter will come from outside SODICC and will represent the Quebec film industry. The protocole further specifies that at least 65% of the votes will be required to ratify a decision, with the result that the 40% of votes held by First Choice will be equivalent to a power of veto in relation to each of the other two parties with 30% each. On the other hand, First Choice will be unable to pass resolutions without the support of one of the other parties to the protocole.

A five-member executive committee will be established consisting of two representatives of First Choice, one from each of TVEC and SODICC, and the president and chief executive officer of the new company. SODICC will also be part of the selection committee responsible for choosing the president and chief executive officer whose selection must have the unanimous support of the three parties.

In past decisions, the Commission has emphasized the professional expertise and experience in communications, broadcasting and program production represented on the board of directors of the two applicants; it notes this expertise will continue to be available to the board of directors of the new company. The Commission is satisfied the new licensee will develop a national pay television service that reflects the cultural distinctiveness of Francophone Canadians. As discussed at the hearing, however, in order to reflect the presence and the interests of the one million Francophone Canadians resident outside of Quebec, the Commission expects the composition of the board of directors to include representation from this important segment of the population.

At the hearing the Commission focused on the role and participation of SODICC in the new company. SODICC is a provincial Crown Corporation established by Quebec statute, c. S-10.01, Lois refondues du Québec, for the specific purpose of assisting, through the provision of loans or loan guarantees, the creation and development of provincially-based cultural industries, including undertakings in the fields of radio, television and cable distribution. It is specifically prohibited from making grants or subsidies. As an agent of the Crown in right of the province of Quebec, it is entirely financed from public funds by way of shares issued to and held by the Minister of Finance. Its board of directors is appointed by the government and consists of nine members, two of whom may be drawn from government departments or agencies. Its books and accounts must be audited by the provincial Auditor-General. In addition, the SODICC is subject to directions which may be issued by the Minister of Cultural Affairs who is further entitled to all notices and minutes of meetings of the board of directors of SODICC as well as any other information pertaining to its activities.

The Commission acknowledges the co-operation extended by the president and chief executive officer of SODICC, Pierre A. Deschênes, who provided the Commission with the necessary information to clarify SODICC's role and objectives. The Commission has considered these objectives, SODICC's potential involvement as a minority shareholder of the new company, its minority position on the board of directors, the executive committee and other committees of the new licensee company, and is satisfied that approval of these applications does not contravene either the letter or the spirit of the Direction to the CRTC respecting the eligibility to hold broadcasting licences (Consolidated Regulations of Canada C.377).

Considering this Direction, it is a condition of Premier Choix: TVEC's licence that there not be any proportional increase by SODICC of its voting equity participation in, or representation on the Board of Directors of, the broadcasting undertaking licensed herein, without prior approval by the Commission.

In describing their operation, which is scheduled to begin 1 February 1984, the applicants indicated they will use TVEC's studio and some satellite uplink facilities in Montreal for the origination of a national 24-hour-a-day French-language service which will provide programming of quality and diversity with a view to attracting a wide range of Francophone subscribers across Canada.

The service will consist of a mix of Canadian and foreign feature films as well as a variety of other programming, including sporting events, children's programs and premium special presentations. As specified in the conditions of licence accompanying this decision, and based on the application submitted, the licensee shall initially devote not less than 30% of total viewing time to Canadian programs. The applicants have indicated the balance of viewing time will be equally divided between programs originating in the United States and those originating in other countries, such as France and Italy. They stated that up to 25% of the total Canadian programming content will originate outside Montreal.

The applicants emphasized that Premier Choix: TVEC will offer a service that is complementary to, rather than competitive with, that of conventional broadcasters. They also indicated it will distribute approximately 14 hours a week of sports programs providing French-language commentary. These programs will not be available on conventional television.

The Commission requires the licensee to ensure that adult programming will not be scheduled before midnight and, in accordance with the terms of the protocole, that such programming "will not contain pornographic material". Premier Choix: TVEC is also required to ensure that appropriate program content standards and practices, particularly with regard to sexually-explicit material, are implemented by it, and that the programming Code of Ethics which is currently being developed by the pay television licensees in consultation with the Commission, will be faithfully adhered to.

The applicants stated they would honour all the commitments made at the 10 November 1983 Public Hearing in connection with the transfer of control of First Choice, including the current conditions of licence of First Choice in respect of its distinct English and French language services, with regard to gross revenues and time allocated to Canadian programs. The conditions of licence to be imposed on Premier Choix: TVEC are set out in Appendix A to this decision.

Premier Choix: TVEC intends to reduce its reliance on shelf-product; some of the new projects will be accomplished in co-operation with First Choice. While most of the investment will involve Quebec productions, Premier Choix: TVEC will also involve Francophone producers outside of Quebec. In this regard, the Commission expects the licensee to make every effort to provide opportunities for regional production outside Quebec by acquiring Canadian material from regional sources.

The Commission acknowledges the quality of some of the Canadian dramatic productions with which the parties to this application have been associated, and expects that their professional expertise will contribute to the development of a dynamic Canadian production industry. The Commission is therefore confident the new service will provide the programming necessary to attract large numbers of subscribers to a discretionary service such as pay television.

As stated at the hearing, Premier Choix: TVEC will establish a script and concept development fund to which it will contribute a minimum of 5% of the gross revenues generated by its pay television service over the term of this licence. The applicants also indicated their intention to establish a consultative committee with representation from Quebec's film producers and distributors that will meet at least every six months to ensure the concerns of the film production and distribution industries are adequately considered.

The applicants stated that all decisions relative to the investment and acquisition of programs will be made by Premier Choix: TVEC's own board of directors. A programming committee will be responsible, at the outset, for the identification and formulation of general policies and guide-lines concerning programming for the consideration of the board of directors which will make the final decisions on these matters. Such decisions will be implemented by the president and chief executive officer of the company, who will also be a member of the programming committee.

According to the applicants' statements at the hearing, the projected number of subscribers to the new service would increase from about 75,000 subscribers on 31 January 1984 to 140,000 on 31 January 1985 and 240,000 by January 1989. However, it was admitted that these projections were optimistic, at the "high end" of the applicants' expectations.

In response to questioning by the Commissioners at the hearing, the applicants outlined a number of considerations underlying these projections. They referred to the rapid growth in the subscription levels of Premier Choix since August 1983, the absence of competition in the market to be serviced by the proposed operation, and a greater willingness on the part of cable operators to participate in the marketing of pay television services. They also proposed higher quality service including sports programs, less reliance on shelf material, an immediate reduction in the repeat factor by 25% and larger investments in Canadian films. In addition, they expect to benefit from a more efficient advertising and promotional effort in the light of information gathered from past experience, and various forms of support from First Choice including the use of their offices outside of Quebec, at no cost, and pooled marketing expenses. The applicants indicated the Western Canadian market will receive more attention than in the past.

With respect to the marketing of the service, the Commission wishes to reiterate the concerns raised in its pay television decisions released on 5 January 1984 in connection with the relatively high fees charged for pay television services and encourages both distributors and exhibitors to find ways of reducing the cost of pay television to subscribers. It also expects cable television licensees across Canada to facilitate access to this national French-language pay television service.

The applicants indicated the Premier Choix: TVEC service would be distributed by means of the Anik C satellite, which, for national distribution, requires the use of two full-period half-Canada RF satellite channels. In view of the relatively few subscribers currently served by the Western satellite channel, the applicants proposed to retain only one RF channel to serve Eastern Canada and to replace the existing Western satellite service with a tape-delivery system to cable systems located west of Manitoba for local origination. Under this arrangement, the tape delay programming would consist of the full schedule of the service which cable affiliates in the East would continue to receive by satellite. However, according to the applicants' proposal, subscribers in the West would receive the schedule one week later.

In discussing this proposal, the applicants said the obligation of First Choice to provide a national French-language pay television service did not specifically require, as a condition of licence, the use of a satellite to distribute the service to cable affiliates. They argued that a tape bicycling system to serve the West, in conjunction with continuing satellite service to the East, would satisfy the requirement. The applicants further suggested that, because of the current very low penetration of the French-language service in the West, the tape bicycling system would result in substantial cost savings even though, in implementing the proposed tape delay system, Premier Choix: TVEC was prepared to assume certain capital costs at its own origination centre and defray incremental capital and operating charges that would otherwise be incurred by cable affiliates.

The applicants recognized, however, that "if there are other [cable] systems in the West that suddenly decide or elect to ask us to furnish them a French service, there will be a crossover point where it would be more effective to go back to satellite because in fact if there are only four or five sub-systems, the cost of a replay system would not maybe make as much sense".

While the Commission is mindful of the need to limit costs on the part of all pay television licensees, the proposed tape bicycling system does not adequately fulfill the obligation of providing a national service. The provision of a single service of high quality to all parts of the country on a undifferentiated basis is the essential characteristic of a national network undertaking. The tape bicycling system will, with its one-week delay in respect of the programming to be received in the West, result in two separate and different services and therefore will not satisfactorily give effect to the operation of such a network.

In addition to this regulatory issue, the Commission is not satisfied that the one-week delay in programming will be acceptable to Western cable affiliates or their subscribers and is concerned that there would even be less incentive for cable television licensees to market this service. This will be most significant in respect of sports or other live events which cannot be provided nationwide on a tape-delay basis. Live sports programming is currently offered by both Premier Choix and TVEC and will be continued and expanded by the new licensee.

Accordingly, taking into account the fact that a national satellite-to-cable French-language service is currently in operation and the improved overall financial situation of the applicants as a result of this consolidation, the licence to be issued to Premier Choix: TVEC will be subject to the condition that the service to be offered must be a single service that will be made available to all parts of the country on an undifferentiated basis as to content or time, other than allowing for normal delays associated with time zones differences. The licensee is invited to give consideration to the use of alternative satellite facilities for this purpose.

The Commission questioned First Choice at some length during the hearing on the implications of its application to delete the existing condition of its licence requiring that:

 "the licensee shall, for a period of two years from April 1st, 1983, or for such longer period as the Commission may direct, distribute its French-language program service on a national 24-hour-a-day basis distinct from its English-language program service"

and to substitute therefor:

 "the licensee shall invest in and support through all reasonable means the operations and undertaking of the French-language program service licensed to Premier Choix: TVEC."

The Commission sought assurance from the licensee that appropriate safe-guards would be established to ensure the ongoing provision of a viable national French-language pay television service. The Commission is encouraged by First Choice's statement that it is fully committed to meet its obligation in respect of the provision of a national French-language service and by its undertaking to provide significant support to the new company by "all reasonable means", including marketing assistance, the co-operative investment in the acquisition of programs and additional funding of the service. However, the Commission remains concerned that the ongoing French-language service must be assured, should unforeseen circumstances cause the new company to cease operations. In this regard, the Commission notes First Choice's commitment at the hearing that:

 "If the scenario develops that the new entity Premier Choix: TVEC, for internal reasons or other reasons actually ceases operation, the licence condition, the amendment to our licence condition would, on that day or the day after or something along this line, automatically revert back to its original form, which would give First Choice the authority, and in fact the obligation as well, to recommence service directly out of its existing licence".

The Commission considers that First Choice should remain so obligated. Consequently, the application by First Choice to amend its condition of licence regarding the provision of a distinct French-language service is approved, as proposed by it but with the additional requirement that:

 the substitution of the new condition will cease to have effect, and the existing condition set out as condition #6 at page 83 of Decision CRTC 82-240 will be restored, upon the cessation of the national service by Premier Choix: TVEC, unless otherwise determined by the Commission upon application.

The new condition of licence is set out in Appendix B to this decision.

The Commission received a supporting intervention from Ontario Independent Pay Television Ltd. (Superchannel Ontario). It also received interventions from a broad spectrum of Quebec's cinematographic milieu encompassing film and video producers, distributors and technicians. The interveners were generally in support of the consolidation and endorsed the applications.

The Commission is confident the principals in this application are capable of meeting their financial obligations and it is satisfied this consolidation will provide the needed strength and stability for the development of a distinctive French-language service of high quality for all Canadians.

J.G. Patenaude
Secretary General

APPENDIX A

PREMIER CHOIX: TVEC

Conditions of Licence

Interpretation

1. In these conditions:

 "evening viewing hours" means, in relation to any location within

  the Eastern time zone, the hours between 6:00 P.M. and 10:00 P.M.;

 "semester" means a period of six consecutive months ending on the last day of June and December in each year.

Programming

2. The licensee shall, from the date of commencement of service until 30 June 1984, and in each semester commencing 1 July 1984, and until 31 December 1985, devote not less than 30% of the total time (i) during which programming is distributed on its undertaking and (ii) during evening viewing hours as defined above, to the distribution of Canadian programs.

3. The licensee shall, in each semester commencing 1 January 1986 and during the remainder of the term of this licence, devote not less than 50 % of the total time (i) during which programming is distributed on its undertaking and (ii) during evening viewing hours as defined above, to the distribution of Canadian programs.

4. Not less than 50% of the time allocated by condition of licence to the distribution of Canadian programs shall be devoted to the distribution of dramatic programs including, but not limited to, dramatic feature films.

5. The licensee shall, in each year during the term of this licence commencing 1 February 1984, expend on the investment in, or acquisition of, Canadian programs:

 (i) not less than 45% of total revenues from its operations under this licence; and  (ii) not less than 60% of total expenditures made by it to invest in or acquire programming.

6. Not less than 50% of the monies required by condition of licence to be expended by the licensee on the investment in, or acquisition of, Canadian programs shall be expended on dramatic programs.

Ownership

7. The prior approval of the Commission is required with respect to any act, agreement or transaction which will, directly or indirectly

  (a) result in a change of or materially affect the ownership or effective control of the broadcasting undertaking licensed hereby;

 (b) transfer or enlarge a bloc of securities designated herein as subject to this requirement;

 (c) result in the transfer of any securities of the broadcasting undertaking licensed hereby to any person who, directly or indirectly, has any pecuniary or proprietary interest in an undertaking engaged in the exhibition of pay television or in a broadcasting receiving undertaking licensed by the Commission; or

 (d) result in the proportional increase by SODICC of its voting equity participation in, or representation on the Board of Directors of, the broadcasting undertaking licensed hereby.

8. The ownership or effective control of the broadcasting undertaking licensed hereby shall be deemed to be materially affected where, inter alia,

 (a) a person obtains control of a sufficient number of the voting securities of the licensee or of a corporation which has, directly or indirectly, effective control of the licensee, so as to result in control of not less than 10% of all issued voting securities thereof by that person, or by that person together with one or more of his associates; or

 (b) a person, or a person together with one more of his associates, having control of at least 10% but less than 40% of the issued voting securities of the licensee or of a corporation which has, directly or indirectly, effective control of the licensee, obtains control of a further bloc of securities thereof representing at least 10% of the total of all such issued securities.

9. The definitions outlined in the CRTC Public Announcement of 7 January 1980, entitled TRANSFERS OF OWNERSHIP OF LICENSED BROADCASTING UNDERTAKINGS, will apply and form an integral part of the condition set out herein.

10. The service to be provided by the licensee shall be a single service made available to all affiliated broadcasting undertakings without differentiation as to program content or time, other than as may be required by reason of time zones.

11. Except as authorized by the Commission, the broadcasting undertaking licensed hereby shall be operated in fact by the licensee itself.

12. This licence shall not be transferred or assigned.

APPENDIX B

FIRST CHOICE CANADIAN COMMUNICATIONS CORPORATION AMENDMENT TO CONDITION OF LICENCE The new condition of licence will read as follows:

 The licensee shall invest in and support by all reasonable means the operations of the French-language program service and the undertaking licensed to "Premier Choix: TVEC". The condition will cease to have effect, and the following condition will be restored, upon the cessation of the national service by Premier Choix: TVEC, unless otherwise determined by the Commission upon application:

  "the licensee shall, for a period of two years from April 1st, 1983, or for such longer period as the Commission may direct, distribute its French-language program service on a national 24-hour-a-day basis distinct from its English-language program service"