ARCHIVED - Decision CRTC 84-654

Decision

Ottawa, 16 August 1984

Decision CRTC 84-654

First Choice Communications Corporation (First Choice) - 841167000

Allarcom Limited (Allarcom) - 841168800

Aim Satellite Broadcasting Corporation (Aim) - 841169600

Ontario Independent Pay Television Limited (OIPT) - 841170400

Table of Contents Pages

A. REORGANIZATION OF ENGLISH-LANGUAGE  GENERAL INTEREST PAY TELEVISION NETWORKS

1.  Description of Applications 1

2.  Background

 a) Decision CRTC 82-240 2

 b) CRTC Policy Statement of 3 5 January 1984: A Review of the General Framework for a Distinctive Canadian Pay Television System

3.  Reasons for Proposed Reorganization 5

4.  Issues Raised at the 24 July 1984 6 Public Hearing

5.  Objectives, Market Structure and  Regulatory Framework for Pay  Television

 a) Objectives 10

 b) Market Structure 11

 c) Programming 12

 d) Marketing 14

B.  DECISION

1. Allarcom Pay Television Limited 18

 Applications by:  Allarcom Limited - 841168800;  Aim Satellite Broadcasting  Corporation - 841169600;

 Ontario Independent Pay  Television Limited - 841170400

2. Application by First Choice 24  Communications Corporation  - 841167000

3. Appendices A to D

 A. Conditions of licence for  Allarcom Pay Television Limited

 B. Conditions of licence for  First Choice

 C. Conditions of approval with  respect to First Choice, specified  in Decision CRTC 83-959

 D. Condition of approval with  respect to First Choice's licence  amendment application  under consideration

A. THE REORGANIZATION OF ENGLISH-LANGUAGE  GENERAL INTEREST PAY TELEVISION NETWORKS

1. Description of Applications

At a Public Hearing in the National Capital Region on 24 July 1984, the Commission heard related applications from the English-language general interest pay television network licensees noted above to reorganize their services. Approval of the proposal, granted herein, will result in a restructuring of these national and regional licensees into two general interest pay television licensees: First Choice Canadian Communications Corporation (First Choice) and Allarcom Pay Television Limited (APT), each controlled by separate and distinct ownership groups. First Choice will reduce its service area from all of Canada to Eastern Canada (Ontario, Quebec and the Atlantic provinces) and the three licensees currently authorized to serve Ontario, the Prairies and British Columbia will amalgamate to form a single undertaking to serve Western Canada (Manitoba, Saskatchewan, Alberta, British Columbia, and the Yukon and the Northwest Territories).

The reorganization affects the operations of the English-language general interest pay television services only. The French-language national general interest service, and the obligations of First Choice to support that service, remain unchanged.

2. Background

a)  Decision CRTC 82-240

In Decision CRTC 82-240 of 18 March 1982, the initial pay television decision, the Commission stated:

 that the introduction of pay television, with its potential to stimulate the additional importation of popular U.S. mass appeal programs such as feature films, poses a challenge to the maintenance of a distinct Canadian identity. However, it [the CRTC] is determined to use its powers under the Broadcasting Act to meet this challenge by fostering the development of a distinctive pay television system that will further the objectives of the broadcasting policy set out in the Act.

As emphasized at the 24 July 1984 Public Hearing, the primary objective of Canada's pay television system is to offer a distinctive Canadian service that will evolve over time. This fundamental objective underlies all of the Commission's pay television licensing decisions to date.

To attain its objectives, the Commission favoured a competitive scenario whereby not more than two discretionary general interest services in each official language would be available in any given region. Considering the broadcasting environment in Canada and the United States at the time of the 24 September 1981 Public Hearing and the licensees' own financial and marketing projections, the Commission considered that a general framework based on a competitive market structure involving the licensing of two services would create new opportunities for regional expression, enhance diversity and new opportunities for consumer choice. The initial pay television decision emphasized, however, that the services authorized therein constituted a first step in the development of a distinctive Canadian pay television system that was expected to evolve over time.

b) CRTC Policy Statement of 5 January  1984: A Review of the General  Framework for a Distinctive Canadian  Pay Television System

The 29 November 1983 Public Hearing provided the Commission with an opportunity to re-examine its general framework for pay television and the major factors affecting the industry's development. The hearing also afforded an opportunity for a wideranging discussion on the evolution of pay television in a market that was proving to be unpredictable.

The participants at the November 1983 hearing identified the following factors as negative influences on the development of pay television: the perceived similarity of the general interest services, high subscriber fees, unexpected expenses associated with head-to-head marketing, a delay in the establishment of regional services in certain areas, unfavourable economic conditions, and the limited marketing experience on the part of the pay television network licensees and cable operators. Participants also noted that potential subscribers were deterred by a perception that pay television offered many programs depicting violence and sexual explicitness and that such programs were scheduled during day-time and early evening hours. Some participants suggested that restrictive regulatory measures in connection with the exhibition of pay television previews, promotional channels and stereo pay television had been further limiting factors in the development of pay television services.

The Commission announced its decisions relating to the issues and applications considered at the November 1983 hearing on 5 January 1984. In an Introductory Statement to the decisions, the Commission expressed its concern about the stability of the pay television industry in view of rapidly evolving conditions. Given the risk and uncertainty that characterize this new industry, and the need to be responsive to an unstable environment, the Commission reiterated its intention to maintain a flexible approach with minimum regulation. In this regard, the Commission initiated measures (Public Notices CRTC 1984-1 and 1984-2) to alleviate the specific regulatory concerns relating to previews, promotional channels and the distribution of pay television in stereo. The Commission also recognized that further adjustments might be required to the structure and regulatory framework for pay television and said it would "continue to be responsive to proposals, provided they are consistent with its objectives for a distinctive Canadian pay television service."

3. Reasons for Proposed Reorganization

By April 1984, it was apparent that pay television subscription levels had entered a no-growth period at a time when the licensees were continuing to sustain substantial operating losses. At the July 1984 hearing, the applicants indicated that they had incurred losses of more than $40 million to date with on-going losses in excess of $2 million per month, which they expected would continue unless the applications were approved.

Given the financial difficulties faced by the industry and the various competitive pressures rapidly altering the nature of their operations, First Choice and the Allarcom-related companies negotiated a proposal for reorganization.

They summarized the reasons underlying the reorganization as follows:

 efficiency, financial stability, public confidence in pay television, continuity with the regulatory objectives and ... our survival...

 The reorganization makes possible effective cooperation between the two groups in a number of important areas such as cross-licensing of new Canadian productions, program guides, promotion and marketing of pay television generally and, jointly, a commitment to the Canadian production industry.

4.  Issues Raised at the 24 July 1984  Public Hearing

The Commission received thirty representations from various interested parties in industry and government.

The interveners submitted a variety of viewpoints concerning the evolution of the pay television industry and the proposed reorganization. Reiterating some of the views advanced at the November 1983 public hearing with respect to the factors that have affected the success of pay television, most interveners agreed that a fundamental restructuring of the industry is now appropriate. However, considering the overwhelming financing and marketing difficulties encountered by the licensees, some interveners suggested the proposals did not go far enough to solve the existing problems, and that alternative changes in ownership, program content, and the regulatory framework should be considered.

Seven interveners appeared at the hearing, including the Director of Investigation and Research, Combines Investigation Act, Consumer and Corporate Affairs Canada; a representative of the Minister of Transportation and Communications of the Government of Ontario (Government of Ontario); The Star Channel Services Limited; CUC Limited; the Alliance of Canadian Cinema, Television and Radio Artists (ACTRA) representing six related organizations; the Canadian Film Television Association; and Cineplex Corporation.

There was general agreement that the Canadian general interest pay television network licensees are operating in a highly competitive home entertainment market. The rapidly growing popularity of video cassette tapes which make many new film releases accessible to the public before they are available for distribution on pay television, the proliferation of "television receive only" earth stations (TVROs) and satellite MATV systems, the growing availability of made-for-television feature film presentations on conventional television, and the imminent introduction of new Canadian and non-Canadian specialty pay television services have intensified competitive pressures on the general interest licensees.

On this issue, the Government of Ontario indicated its continuing support for "a competitive approach to the licensing and regulation of discretionary television services" and suggested that future applicants should not be restricted from entering the discretionary television market. It also noted that it is "the Commission's role to allow competition, and not to force it through regulatory restrictions." With respect to the proposed reorganization, the Government of Ontario stated it was satisfied that, if the applications were approved, each of the two licensees would continue to face competition from various market forces in their respective regions.

The Director of Investigation and Research under the Combines Act favoured the retention of the existing competitive pay television market structure. The proposed restructuring into two distinct East/West regional services is, in his view, "a solution of last resort" which will have the effect of lowering the level of competition, well before circumstances have justified such action.

Some interveners, including the organizations represented by ACTRA, considered the reorganization as a "half-merger" and suggested that it would fail to achieve the economic efficiencies of a single national service. To this, the applicants replied that cost savings resulting from this reorganization would be equivalent to approximately 95% of those potentially available from a complete merger, and would be realized from the use of two fewer transponders, reduced origination costs, less expensive tape duplication, shared program production and acquisition expenses, reduced finance, accounting, market and promotional expenses, and others. Such savings, they argued, are of vital importance to ensure the continued viability of the English-language general interest services and their capacity to generate revenues for new Canadian productions.

Several interveners suggested the reorganization would result in the disappearance of a "national" window for Canadian programs for producers and distributors. However, the applicants argued that the new spirit of co-operation between the two groups would benefit all of the parties involved, and would allow both licensees to "work closely together on major Canadian programming projects in a mutually supportive way. Together we will ensure that a national pay window will be available for worthwhile Canadian projects."

Many interveners suggested the Canadian content requirements, particularly those relating to the exhibition time rule, should be lowered in view of the limited availability of Canadian productions at this time. The Director of Research and Investigation, Combines Investigation Act, concurred with this view and suggested "the existing Canadian content time quota coupled with the minimal inventory of available shelf product has resulted in an undesirably high repeat factor for the Canadian portion of the schedule in the order of 30 times per title per year. Consequently, considerable revenues which should have been directed into new productions are being used to acquire over-priced shelf product with minimal redeeming artistic features." The Director claimed the lowering of the Canadian content requirements would provide sufficient savings to obviate the need for a reorganization.

While the applicants noted that the regulation of Canadian content constitutes part of a very complex issue which is not only confined to pay television, and which requires further extensive discussions, they did not require any changes in the existing Canadian content requirements. In fact, the applicants requested that the temporary 45% requirement relating to Allarcom's Canadian content expenditures as a proportion of gross revenues be imposed on a permanent basis as a condition of APT's licence.

Several interveners, such as the representatives of ACTRA et al, the Canadian Film Television Association and Cineplex Corporation claimed that the negative implications of vertical integration between program producers, distributors and the pay television network licensees would be further aggravated if the reorganization were authorized. While the Commission acknowledges these concerns, it notes that Astral Bellevue Pathé, the principal shareholder of First Choice, made important commitments and undertakings to the Commission during the 10 November 1983 Public Hearing preceding the Astral takeover with respect to financing, production, and distribution on First Choice. These commitments and undertakings, which are contained in Decision CRTC 1983-959 of 16 November 1983 as conditions of approval, are still in effect and are specifically addressed further below in dealing specifically with the application by First Choice.

In addition, the Commission has addressed the issue of vertical integration in its proposed regulation respecting pay television broadcasting undertakings (Public Notice 1984-165) which should take effect shortly.

5.  Objectives, Market Structure and  Regulatory Framework for Pay  Television

a) Objectives

The Commission remains committed to the principle of a distinctive Canadian pay television system in Canada that will evolve over time. Furthermore, as noted in earlier pay television decisions, the Commission expects that pay television will contribute to the Canadian broadcasting system by increasing the diversity of programming available to all Canadians and by enhancing the quality of Canadian programs. Pay television should also provide new opportunities and revenue sources for the program production industry in the various regions of Canada, and provide programming in both official languages.

b) Market structure

The Commission maintains the view that a competitive market environment is still desirable.

Considering the extent of competition in the home entertainment industry and the variety of discretionary services that will soon be available in Canadian markets, the Commission is satisfied that a competitive market environment will continue to exist.

Decision CRTC 82-240 of 18 March 1982 expressed the expectation that "while the revenues of any one licensee will be lower under a competitive scenario than a monopoly one, overall revenues available for pay television programming should be higher, if more than one service is licensed, due to increased market penetration and the fact that some consumers will buy more than one service." Because of the perceived similarity of the services of the general interest networks and the small number of dual subscriptions, this expectation has not been realized.

Under the present circumstances, therefore, the Commission is of the opinion that the proposed reorganization of the general interest network services into two distinct licensees, one serving eastern Canada and the other serving western Canada, will better serve the objectives of the Broadcasting Act at this time.

In making its decision, the Commission has carefully considered all of the evidence provided by the licensees and the interveners on the extent of the need for such reorganization, its impact on the licensees' future operations and the implications of the proposed changes on the Commission's objectives for pay television, and is of the opinion that approval of the proposed reorganization is now necessary for the survival of pay television.

As announced in Public Notice CRTC 1984-139 dated 11 June 1984, the Commission intends to hold a public hearing in the fall of this year to consider a number of applications related to the potential introduction of new discretionary special interest services, including youth and family-oriented services, a performing arts channel and an interfaith religious service. The joint applications from First Choice and Allarcom and the application from Star Channel for an English-language, family-oriented pay television service are also scheduled to be considered at this hearing.

The licensing of broadcasting undertakings providing discretionary special interest services which may ensue from this hearing would further enhance the diversity of discretionary services and increase consumer choice.

c) Programming

With respect to Canadian programs, the Commission has noted the concerns raised by interveners with respect to the availability of suitable Canadian product. It also recognizes that the Canadian feature film industry is a relatively new player in the entertainment field and acknowledges the assertions made at the public hearing concerning the pay television licensees' heavy reliance on older shelf product.

The Commission is examining the issue of the availability of suitable Canadian programs for pay television and will consult further with all concerned parties in the near future to ensure that its regulatory requirements with respect to Canadian content achieve the desired objectives of enhancing the quality and distinctiveness of Canadian programming, and generating new opportunities and revenue sources for the program production industry in Canada.

With regard to the distribution and scheduling of Canadian and non-Canadian programs which are violent or explicitely sexual in nature, the Commission notes the licensees' firm commitments to comply fully with their proposed Pay Television Programming Standards and Practices Code which was published in Notice CRTC 1984-46 dated 29 February 1984 for public consideration. The Commission is currently studying the suitablility of this voluntary code and will issue a separate statement on the matter. The Commission will also monitor the extent of the licensees' compliance with this code and its effectiveness in responding to public concerns.

Furthermore, the Commission draws attention to sections 6 and 7 of the Proposed Pay Television Regulations (Public Notice CRTC 1984-165 dated 3 July 1984) which will prohibit the distribution of any sexually abusive programming and will place restrictions on the distribution and scheduling of programming which:

 is not suitable for an audience other than an adult audience by reason of its subject matter or treatment thereof, or any characteristic thereof, including its depiction of violence, nudity or explicit sexual conduct, or by reason of coarse language or other content likely to be offensive to some viewers...

The deadline for receiving comments on the proposed regulation was 1 August 1984. The Commission is now examining the comments received and will soon issue its pay television regulations.

d)  Marketing

The licensees attributed the need for an immediate reorganization of the general interest pay television undertakings primarily to the imminent introduction of the new specialty programming services. In the applicants' words, "it is crucial that the reorganization be put in place in time to launch the reorganized services in the fall of 1984". In effect, additional Canadian and U.S. specialty services will be available this September and will offer both direct and indirect competition to the services of the general interest pay television network licensees. Unless appropriately priced packages are agreed upon with cable operators, the introduction of specialty services could have a negative impact on general interest pay subscription levels.

As early as 26 October 1983, when the 24 January 1984 Public Hearing was announced (Public Notice CRTC 1983-244), the Commission stated that the cable carriage of certain complementary non-Canadian specialty services would be allowed, provided they "contribute to, and do not adversely affect, the development of the Canadian broadcasting system."

Representatives of the cable television industry, at the November 1983 public hearing, emphasized the following:

 the whole focus [of the introduction and tiering of specialty services] would be value enhancement on the pay and on the consequent Canadian production, rather than try and make money of the incremental services that we would like to tier with pay...

 The tiered services would be solely to enhance the pay service, rather than the other way around.

At the January 1984 public hearing on specialty services, First Choice and Ontario Independent Pay Television Limited claimed that mandatory linkage of specialty subscriptions to general interest pay television subscriptions would increase the number of general interest pay subscribers and reduce the volume of subscriber disconnections. However, they claimed the absence of such a linkage would substantially increase the number of pay television susbcriber disconnects and slow the industry's growth to a dangerous level.

Although opposing mandatory linkage, the cable television industry agreed that the packaging of specialty services with the Canadian general interest pay services would provide a strong lift for the pay services. It also recognized the need for greater cooperation between the cable and pay television licensees, and argued that improving the penetration of general interest pay services was the cable industry's highest priority.

At the January 1984 hearing, the cable industry stated:

 We are convinced that specialty services can and will help Canadian pay television services to achieve greater penetration of the markets...

Based on the expressed willingness of the parties to cooperate in this area, in Public Notice CRTC 1984-81, the Commission underlined its desire and expectation that the cable television licensees:

 take all necessary measures to ensure that pay television services are marketed vigorously and effectively and that all Canadian discretionary services are given the maximum opportunity to succeed.

It also said:

 The Commission underlines the cable industry's increased obligations to the successful development of Canadian discretionary services, and expects cable television licensees to ensure that all Canadian discretionary services, particularly general interest pay television, are priced fairly, packaged attractively, and marketed effectively and without discrimination.

The Commission reiterates its desire and expectation that every effort be made in this regard and it will continue to monitor the situation closely to ensure that the concerns noted above are met. If necessary, measures will be taken to deal with problems as they arise.

During the July 1984 hearing, the applicants noted that no agreement had yet been reached with the cable television licensees. Subsequent to the hearing, however, the Commission has received indications that an agreement was reached whereby some cable companies serving a large proportion of Canadian cable subscribers had agreed to market a "satisfaction package" of three Canadian discretionary television services, including one general interest pay television service, for $15.95, a rate unchanged from that now charged for the general interest service alone.

The Commission is confident that all parties are now in a position to organize their efforts to ensure the success of the services offered by the Canadian general interest and specialty pay television networks, and expects both the cable television licensees and the general interest pay television licensees to assume their full share of responsibility in marketing these services vigorously and effectively.

The Commission intends to continue to maintain a flexible regulatory approach and to consider necessary adjustments, provided they are consistent with the Commission's objectives for the development of a distinctive Canadian pay television system.

B. DECISION

1. Application by Allarcom Limited  (Allarcom) - 841168800

 Application by Aim Satellite  Broadcasting Corporation (Aim) - 841169600

 Application by Ontario Independent  Pay Television Limited (OIPT) - 841170400

The Commission approves the applications by Allarcom, Aim and OIPT for the transfer of the pay television assets of Allarcom to a wholly-owned subsidiary company, Allarcom Pay Television Limited (APT), which will be amalgamated with OIPT and Aim, and for the issuance of a licence to APT to carry on an English-language, 24-hour-a-day, general interest pay television network undertaking in British Columbia, Alberta, Saskatchewan, Manitoba, the Yukon and the Northwest Territories.

The Commission will issue a licence to APT upon amalgamation of Aim and OIPT with APT in accordance with the application in all material respects and upon the surrender of Aim's licence to serve British Columbia and the Yukon, Allarcom's licence to serve Alberta, Saskatchewan, Manitoba and the Northwest Territories, and OIPT's licence to serve Ontario. The new licence will expire 1 March 1987, and will be subject to the conditions specified in the Appendix A to this decision and in the licence to be issued.

As a result, APT will be the only English-language general interest pay television network licensee operating in Western Canada at this time.

APT will be owned 78.5% by Allarcom which is itself ultimately controlled by Dr. Charles Allard of Edmonton. The remaining shares will be owned by existing investors in OIPT ( 16. 5%), and by Harking Investments Ltd. (5%) which is owned by Mr. H. King of Vancouver.

Allarcom was first licensed to serve Alberta in Decision CRTC 82-240. It was subsequently authorized to extend its service to Saskatchewan, Manitoba and the Northwest Territories (Decision CRTC 83-576) and, on an interim basis, to British Columbia and the Yukon (Decision CRTC 84-3). In Decision CRTC 84-2, the Commission approved the transfer of control of Aim to Allarcom.

In each of these decisions, requirements were imposed by the Commission, either as conditions of licence or conditions of approval, and various commitments were given by Allarcom. Together, these comprised the obligations which were to be met by Allarcom in the performance of its role as a general interest pay television licensee in Western Canada.

At the July 1984 Public Hearing, APT stated that, subject to certain changes which it indicated were necessary to reflect the applicants' particular circumstances, it would assume responsibility for fulfilling the commitments given by Allarcom and would adhere to the conditions imposed on Allarcom in the earlier decisions. As confirmed by Mr. Douglas Holtby of Allarcom:

 Allarcom Pay Television recognizes the diversity of needs within each region of western Canada. We have therefore proposed ... that Allarcom Pay Television assume all the obligations and various commitments of Aim and Allarcom for British Columbia and the Yukon, on the one hand, and the Prairies and the Northwest Territories on the other hand.

The changes to the commitments previously given by Allarcom were identified as follows:

1. Canadian program expenditures: it was a condition of Allarcom's original licence that not less than 35% of its gross revenues be expended on the investment in, or acquisition of, Canadian programs. In Decision CRTC 84-3, which authorized Allarcom to extend its service to British Columbia and the Yukon on an interim basis, it was made a condition of approval that Allarcom increase its expenditures on Canadian programs to 45% of its gross pay television revenues during the interim period.

In the current application APT committed to achieve the higher percentage requirement on a permanent basis.

2. The ownership structure of Aim: in Decision CRTC 84-2, which authorized the transfer of 80% of Aim's shares to Allarcom, it was made a condition of approval that Allarcom implement its commitment to transfer up to 30% of the issued and outstanding Aim shares to residents of British Columbia and the Yukon at the earliest feasible date, so that Allarcom's shareholdings would be reduced to no more than 50% of Aim.

At the July 1984 hearing, Dr. Charles Allard described Allarcom's unsuccessful attempts to comply with this condition, and to ensure that the remaining 20% shareholders retain their investment in Aim. Dr. Allard stated that, confronted with Aim's urgent requirement for additional funding and the unwillingness on the part of existing or potential shareholders in British Columbia and the Yukon to make the necessary investments, and given the prevailing investment climate for pay television, Allarcom was obliged to subscribe for additional shares to the extent that its ownership position has increased from 80% to approximately 99% of Aim.

The Commission acknowledges Allarcom's unsuccessful efforts to comply with the requirement contained in Decision CRTC 84-2, and in view of the limited participation in the ownership of APT by British Columbia interests, places great importance on the fact that two of the licensee's seven-member Board of Directors will be British Columbia residents. The Commission notes that British Columbia and Yukon interests will also be reflected through the activities of the creative development office and the program advisory council to be established and maintained in that region by APT.

3. Program advisory councils: the conditions of approval contained in Decisions CRTC 83-576 and CRTC 84-3 required Allarcom to establish independent program advisory boards in each of British Columbia, Alberta, Manitoba and Saskatchewan. The Commission notes that under the current proposal, APT will establish two program advisory councils, one to serve the interests of British Columbia and the Yukon, and the other to serve the interests of the Prairies and the Northwest Territories.

The Commission expects the program advisory councils to play an effective role in developing recommendations for the use of the program production fund, to promote the use of creative talent and production facilities in each area. With respect to the composition of the councils, as initially proposed by Allarcom, the Commission notes that they will include representation from the creative development offices, as well as from the independent production industry, public organizations and the exhibitors of the APT service in each area.

The Commission further expects the licensee to establish additional councils in each province, as the service develops, to provide a liaison with, and to complement, the creative development offices which will be located in each of these areas.

In line with the Commission's objectives to create new opportunities and sources of revenue for the program production industry in all regions of Canada, APT will assume Allarcom's full responsibilities with respect to the funding of new Canadian programs in Western Canada and the utilization, to the extent possible, of independent production facilities and creative talent available in the regions to be served by APT.

The commitments made in this respect are reflected in the conditions of licence pertaining to APT set out in the Appendix A to this decision.

The Commission expects APT, through the creative development offices it will establish and maintain in each region, to work closely with the independent producers, writers and other creative talent in the different areas with a view to assessing, encouraging, and investing in, high quality productions from each area.

The Commission also expects APT to honour the following commitments initially given by Allarcom in the context of its applications to acquire control of Aim and extend service to British Columbia and the Yukon on an interim basis:

-  to allocate 6% of the total revenues from the pay television network operation for the production or acquisition of regional productions in its new service area.

-  to restrict the distribution of adult movies to a maximum of 12 hours a week, representing 7.1% of the total viewing time, not to be shown prior to 12 midnight Pacific time.

Regarding movies for adult viewing, the Commission notes APT's commitment to comply fully with the pay television programming and scheduling standards and practices proposed by the pay television industry and published by the Commission as an appendix to Public Notice CRTC 1984-46. The Commission will monitor the extent of APT's compliance with this voluntary code and its effectiveness in responding to public concerns.

A further commitment of Allarcom was that children's programming would represent at least 121/2% of the 168 hour-a-week schedule, an amount which 18 also specified in APT's Promise of Performance. The Commission expects APT to adhere closely to this commitment and to continue to present young viewers with attractive programs of high standard.

2. Application by First Choice Canadian Communications Corporation (First Choice) - 841167000

The Commission approves the application by First Choice to amend its English-language general interest pay television network licence by redefining its service area, from all of Canada to include only the regions of Ontario, Quebec and Atlantic Canada.

As a result, First Choice will cease to operate in Western Canada and will be the only English-language general interest pay television network licensee operating in Ontario, Quebec and Atlantic Canada, at this time.

First Choice was originally licensed in Decision CRTC 82-240 to provide two distinct general interest pay television services to the whole of Canada, one in English and one in French. The licence was made subject to a number of conditions, one of which related to the responsibilities of First Choice with regard to its French-language service.

Later, in Decision CRTC 84-32, the Commission approved a joint application by First Choice and Télévision de l'Est du Canada (TVEC) Inc. to consolidate their two French-language pay television undertakings into a single company which now operates under the name "Premier Choix: TVEC". At the same time, the Commission approved an amendment to the licence of First Choice, deleting the condition of licence requiring it to distribute its French-language program service, and substituting therefor, a condition that it invest in and support Premier Choix: TVEC "through all reasonable means".

For reference, the current conditions of licence pertaining to First Choice are published in Appendix B to this decision.

In Decision CRTC 83-959, the Commission approved the transfer of effective control of First Choice to Hees International Corporation on behalf of Astral Bellevue Pathé Inc. (Astral) and other investors. Astral is a company active in the production, distribution and funding of feature films and video productions for theatre, television, pay television and home video markets. Because of the Commission's concerns regarding the integration of the production and distribution functions of pay television, its approval was made subject to the condition that the licensee adhere fully and at all times to a number of specific commitments designed to ensure a strict separation between the activities of Astral and those of First Choice. The Commission's approval of the transfer remains subject to compliance with these commitments which are reproduced in Appendix C to this decision.

At the hearing, First Choice confirmed that it would continue to operate under its current conditions of licence and would assume the same basic obligations, including regional obligations and support for the Premier Choix: TVEC national French-language, general interest pay television service. In response to CRTC questioning at the hearing on whether it would consider all the expectations, requirements, conditions of licence and conditions of approval contained in previous decisions as binding, a representative of First Choice gave this further clarification:

 The expectations, commitments and conditions are all valid with only one exception, and that would be the paragraph relating to the composition of a board of directors, which appeared I think, in the 16 November decision, and that referred to the presence of a B.C. director ... Since we are now reducing to an eastern regional ... it would be more appropriate to have that taken off the commitment list.

The licensee indicated that should the Commission authorize the current licence amendment to redefine the territory served by First Choice, the size of its board of directors may be reduced from 14 to 10 members and its composition may be changed. However, the licensee also indicated that any decision to change the size or composition of its board of directors would take into account the Commission's conditions of approval, set out in Decision CRTC 1983-959, requiring that the board of directors of First Choice be independent of the board of directors of Astral.

It is therefore a condition of approval of the present amendment of licence that the ratio of Hees/Astral nominees to the board of directors of First Choice in relation to the total number of members on the board, and the ratio of "outside" directors not drawn from within Hees' or Astral's own directors, officers or employees in relation to the total number of Hees/Astral nominees, remain the same as that set out in Decision CRTC 83-959. Further, it is a condition of approval of this amendment that the First Choice board of directors remain representative of the area it serves. These conditions of approval are set out in Appendix D to this decision.

With regard to the regional obligations of First Choice, the Commission notes the following statement contained in its current application for amendment of licence:

 Under the licence structure adopted in Decision CRTC 82-240, the principal support for regional production was to come from the regional licensees, although First Choice also made a commitment that up to 25% of its Canadian content production would be regional, i.e. would be produced by a firm based outside of Toronto or Montreal, or involve location shooting outside Toronto or Montreal... While production in the provinces of Ontario and Quebec will be accommodated within the existing First Choice structure, First Choice considers it appropriate to devote special time and energy to the support of regional program production in Atlantic Canada. With this in mind, First Choice is prepared to make the following five commitments:

1.  First Choice will continue to have at least one full-time resident of the Atlantic provinces on its board of directors.

2.  A regional advisory committee will be created for the Atlantic provinces which will provide a consultative mechanism for the allocation of funding to Atlantic producers and projects.

3.  A separate creative development department will be set up for the Atlantic provinces.

4.  First Choice will provide The Star Channel Services Ltd. with support payments based on the First Choice Atlantic Canada subscriber base for the remainder of the Star licence term, and make efforts to utilize resources provided by Star's principals, in an effort to repay creditors and restore investor confidence in regional production from Atlantic Canada.

5.  First Choice will work with Atlantic producers to convene a forum on production opportunities and financing in Atlantic Canada in the coming year.

The Commission accepts these commitments and expects the licensee to adhere to them, including its commitment to continue to acquire approximately 25% of its Canadian material from regional sources.

The Commission also expects First Choice to maintain the regional offices it has established in Ontario, Quebec and Atlantic Canada, and to adhere to its commitment noted in Decision CRTC 82-240 to invest 5% of its gross revenues during the last three years of its licence term in script, concept and interim financing arrangements. At the July 1984 hearing, First Choice indicated that its investment in script and concept development, exclusive of interim financing arrangements, would represent 5% of the funds expended on Canadian program investment.

With respect to the licensee's commitment to establish a regional advisory committee for the Atlantic provinces, the Commission encourages First Choice to create a similar committee for Ontario and Quebec to represent the interests of the independent production industry in those provinces.

With respect to movies for adult viewing, the Commission notes the licensee's commitment to comply fully with the pay television programming and scheduling standards and practices proposed by the pay television licensees and published by the Commission as an appendix to Public Notice CRTC 1984-46. The Commission will monitor the extent of the licensee's compliance with this voluntary code and its effectiveness in responding to public concerns.

In its application, First Choice proposed to implement a substantial increase, to a total of 16 hours per week, in programming directed to children and to the family, at least on an experimental basis.

Some of that programming will be acquired from APT so as to ensure that existing Superchannel subscribers in Ontario who are familiar with similar programming are not unduly disrupted. The Commission is pleased to note this commitment and expects First Choice to develop attractive programming of high standard.

Fernand Bélisle Secretary General