ARCHIVED - Public Notice CRTC 84-81

Public Notice

Ottawa, 2 April 1984

Public Notice CRTC 1984-81

Specialty Programming Services

Following a Public Hearing in Hull, Quebec, from 24 January to 8 February 1984, the Canadian Radio-television and Telecommunications Commission issues the following notice and decisions concerning the introduction and licensing of specialty programming services in Canada.

Table of Contents Pages

I. Background 1

II. The Public Hearing 4

a) Introduction 4 b) Applications for Canadian Specialty Services 5 c) Youth Programming Services 7 d) French-language Programming Services 9

III. Regulatory Framework for the Introduction of Specialty Services in Canada 9

a) Timing 9 b) Service Formats 11 c) Number of Services 14 d) Tiering - Linkage 15 e) Role of Cable 18 f) Commercial Deletion - Advertising 20

IV. Licensing Action 21 Decisions CRTC 84-338 CRTC 84-339 CRTC 84-340

APPENDIX

I. Background

In Public Notice CRTC 1983-93 dated 4 May 1983 announcing the call for applications for network licences to distribute new Canadian discretionary specialty programming services, the Commission acknowledged the increasingly competitive nature of the communications environment brought about by the rapid expansion of a variety of technologies, and the consequent need for prompt action with regard to the introduction of new programming services to provide diversity and expand the range of discretionary services offered on cable systems.

The Commission noted that, in its assessment of proposals for new programming services, it would be guided by certain general principles and objectives similar to those for the introduction of pay television. Specifically, the new services should:

a) contribute to the realization of the objectives set out in the Broadcasting Act and strengthen the Canadian broadcasting system;

b) increase the diversity of programming available to Canadians; and

c) make available high quality Canadian programming from new programming sources by providing new opportunities and revenue sources for Canadian producers currently unable to gain access to the broadcasting system.

The Commission stated that the new services should be offered "on a discretionary basis at the option of the subscriber" and should, by definition, consist of narrowcast television programming and be complementary to existing services, and noted that:

 although some degree of foreign components in Canadian services will be acceptable to the Commission, it believes that the objectives of the Broadcasting Act will be best achieved by licensing those who maximize the Canadian element in their programming schedules.

With respect to ownership, the Commission considered that "in view of the specialty nature of the programming ....a degree of integration of production and distribution may be the most economically viable means of operation for the new Canadian specialty programming services." Accordingly, the Commission encouraged broadcasters, producers and other public and private entrepreneurs "to use their experience and knowledge of the Canadian programming industry to develop innovative approaches for specialty programming services."

In Public Notice CRTC 1983-244 dated 26 October 1983 which announced the 24 January 1984 public hearing, the Commission noted that, for various reasons, many of the 41 applications submitted in response to Public Notice CRTC 1983-93 did not meet the terms of the call. Some proposed the distribution of foreign rather than Canadian services, while other applications were predicated on the distribution of services on a subscriber non-discretionary basis as opposed to the discretionary user-pay model called for by the Commission. Accordingly, the Commission allowed all applicants until 10 November 1983 to amend their proposals.

In that same notice, the Commission stated that it was willing to allow the cable carriage of certain non-Canadian specialty services which would add diversity to the overall mix of programming services available to Canadian cable subscribers, provided that such services "contribute to, and do not adversely affect, the development of the Canadian broadcasting system."

The Commission proposed that the introduction of non-Canadian specialty services be subject to certain conditions, whereby cable operators would be permitted to distribute a maximum of five such services chosen from a list to be published by the Commission. The composition of the list would depend, among other things, on the nature and scope of the licensed Canadian specialty services. In addition, the Commission proposed that, for an initial period of two years, each non-Canadian service would be tiered with a minimum of one of the Canadian pay television or specialty programming services. The Commission emphasized, however, that it would not authorize the carriage of any non-Canadian superstation, premium pay service or other programming services that would be incompatible with its stated policies. Comments directed to the proposed conditions for the introduction of non-Canadian specialty services were invited for consideration at the public hearing.

II. The Public Hearing

a) Introduction

The public hearing on specialty programming services, which took place from 24 January to 8 February 1984, was conducted in essentially two parts. In accordance with public hearing procedures outlined by the Commission in Public Notice CRTC 1984-9 dated 13 January 1984, the Commission began with the consideration of special representations; a total of 30 were received, 20 of which appeared during the first stage of the hearing to elaborate on their views. These represented a broad spectrum of interested groups, including various Canadian over-the-air broadcasting, pay television and cable television licensees, broadcasting and cable television industry associations, representatives of the Canadian film, production and recording industries, performing arts organizations, the Ontario Ministry of Transport and Communications, and a number of U.S. specialty and pay television service operators.

The hearing provided an opportunity to assess the development of discretionary services in Canada and the U.S., to further review the experiences encountered by Canadian pay television licensees during their first year of operation, and to examine in depth the many related concerns with respect to the introduction of discretionary specialty services.

The submissions touched on such recurring themes as the potential competitive threat to the Canadian broadcasting system posed by the introduction of non-Canadian discretionary specialty services, and the urgent need for cable television licensees to be able to compete with the proliferation of U.S. signals on Satellite Master Antenna Systems (SMATV's) by providing new Canadian and U.S. satellite services. Concerns were also expressed for the viability of the Canadian pay television services in this competitive environment, and the need for a strong cooperative effort on the part of all parties concerned to ensure that the Canadian discretionary services are given a fair opportunity to succeed.

In light of the important and far-reaching implications of the matters under consideration, the Commission was greatly encouraged by the positive tone of the proceedings, the effort and preparation evident in the many submissions and the broad range and depth of the discussion.

The Commission acknowledges the contribution made by all parties to these proceedings. The sharing of their views and experiences, and the various survey findings and other information made available during the hearing, have all been of great assistance in enhancing its understanding and appreciation of these matters. The Commission has carefully considered all of these representations in its deliberations on the important and fundamental issues related to the introduction and licensing of discretionary specialty programming services in Canada.

b) Applications for Canadian Specialty Services

In his introductory remarks at the hearing, the Chairman emphasized the Commission's expectation that discretionary specialty or vertical services, offered on a national user-pay basis will add to the variety of programming available and complement, rather than duplicate, existing television or pay TV services. It is also expected that these services will stimulate the Canadian independent production industry, and that they could, if linked to Canadian pay, facilitate its marketing.

On the agenda for consideration during the hearing were 17 applications for licences to provide a variety of Canadian discretionary specialty programming services. These were the subject of 209 interventions, of which 23 were presented orally at the hearing.

While the applications on the agenda of the public hearing met the terms of the Commission's call, the Chairman noted that evidence of financial ability was often incomplete and, in some instances, radically deficient. He stressed that the Commission's immediate concern was directed to the "... financial integrity and viability of any application to be licensed without which the programming ambitions and plans clearly cannot be realized" and noted that the licensing of undercapitalized enterprises lacking the assurance of continuing funds to allow them to survive the early years of operation would not be in the public interest.

Consequently, due to serious financial deficiencies in their proposals, two applicants requested that their applications be withdrawn and, for similar reasons, at the request of the applicants, four other applications were adjourned (see Appendix).

The Commission advises those applicants whose requests for adjournment were granted at the hearing that, should they wish to amend and complete their applications, the material must be filed with the Commission by 1 September 1984.

The Commission considered a total of 11 applications in such various formats as music video, sports, arts and public affairs, video publishing, and third-language programming.

In the decisions accompanying this notice, the Commission approves one application for a licence to provide a new Canadian music video service and one for a new sports specialty service, and denies two competing applications for a music video service. Two other proposals for an arts and public affairs service and for a video publishing service are denied on the grounds of inadequate financing.

Five other applications for third-language specialty services were considered (see Appendix). The Commission has not, however, completed its deliberations and will rule on these applications in a subsequent decision.

c) Youth Programming Services

There was considerable discussion during the hearing regarding the need to encourage the development of new sources of Canadian programs designed for Canadian youth. An application by Roger Price, representing a company to be incorporated, proposed such a specialty service but was adjourned at the applicant's request, due to insufficient funding. During his presentation at the hearing, Mr. Price spoke eloquently of his concerns regarding the limited availability of this type of programming on conventional television, and of his plans for the development of high-standard programming directed to the distinct needs and interests of young audiences.

In a special representation, TV Ontario described its deep frustration and concern at the continuing financial difficulties encountered over the last few years in its efforts to market the Galaxie children's service to cable television licensees across Canada. Based on this experience, TV Ontario expressed its conviction that the distribution, on a subscriber-discretionary basis, of a specialty service of high-standard designed specifically for Canadian youth will not generate revenues sufficient to allow the service to survive, and urged the Commission, as a special case, to reconsider its policies with respect to the cable distribution of Canadian youth specialty services.

The Commission shares the concerns expressed by the above-noted parties with respect to the limited programming availability of these services. It further acknowledges the value and desirability of developing quality Canadian services which will provide Canadian youth with a reflection of their own society and culture. On numerous occasions, the Commission has urged its licensees to make every effort to remedy this serious programming imbalance in the broadcasting system, and it intends to continue to pursue this matter with them in the context of their licence renewal applications.

The Commission further recognizes the special circumstances and difficulties associated with the development of TV Ontario's high standard Galaxie service and the value of this service for children.

The Commission intends to issue a notice shortly calling for proposals for the establishment of a Canadian programming service of high quality that will attract and challenge young cable audiences across Canada.

d) French-language Programming Services

In view of the absence of a French-language specialty service, the Commission strongly encourages all cable television licensees serving predominantly Francophone communities to consult with the Canadian specialty licensees, to arrive at some reasonable arrangement for the provision of French-language specialty services in their markets. The Commission will be prepared to give early consideration to any suitable plans which may result from such negotiations, and will wish to receive a report from the specialty service licensees on any progress made in this regard within three months of the date of this decision.

III. Regulatory Framework for the Introduction of Specialty Services

a) Timing

At the hearing, the cable and pay television industries proposed the immediate introduction of non-Canadian specialty services. The pay television licensees were of the view that new services tiered with pay television would enhance the value of their services to subscribers and thus increase penetration and help them retain their current subscribers.

The Canadian Cable Television Association (CCTA) argued that the early carriage of these services would allow cable operators to compete more effectively with SMATV systems and would provide a useful marketing tool for the Canadian pay television industry. They also contended that the early introduction of non-Canadian services would effectively pave the way for Canadian specialty services by creating a market for the new services and by ensuring that equipment is in place for their distribution once they become operational.

Some concern was raised, however, regarding the ability of the Canadian specialty services to compete for subscribers if they were launched after the introduction of foreign services. Some proposed the simultaneous introduction of foreign and domestic services in the fall of this year, while others suggested that the carriage of non-Canadian specialty services on a cable system not be allowed until affiliation agreements between the cable licensee and the Canadian specialty licensees have been signed. The Commission has determined that this last option has the potential to create a favourable climate for the pay television industry while, at the same time, encouraging cable licensees to act swiftly to conclude affiliation carriage agreements with the Canadian specialty licensees.

Accordingly, cable licensees will be permitted carriage of non-Canadian specialty services as soon as they have signed their affiliation agreements with the licensees of the music and sports specialty services, licensed today in Decisions CRTC 84-338 and 84-339. The Commission expects all parties involved to cooperate fully to ensure that such negotiations are not unduly delayed, so as to provide the maximum opportunity for the enhanced marketing of Canadian pay television. The Commission will wish to be kept closely advised of developments.

b) Service Formats

In Public Notice CRTC 1983-244 the Commission announced that foreign specialty services that may be authorized for cable distribution will not include any foreign superstation, premium pay service or other programming service that would be incompatible with Commission stated policies.

The cable industry, however, urged the Commission to reconsider its position, and to authorize cable to carry superstations and multi-format (omnibus) services, such as the Satellite Programming Network or the U.S.A. Network. It claimed that the carriage of these services would not cause any significant erosion of conventional broadcasters' advertising revenues since they would be carried on a user-discretionary basis, and argued that they are needed to enable cable to compete effectively with SMATV operations. Further, on the grounds that the cable industry needs the flexibility to meet the demands of subscribers, the CCTA proposed that all non-Canadian services which do not duplicate, or are not identical to, Canadian services should be allowed.

The broadcasting industry was not persuaded by these views, emphasizing its concerns regarding the potential cable carriage of either foreign or Canadian superstations in terms of audience fragmentation and associated loss of revenue.

There was general agreement among the representatives of the Canadian broadcasting and production industries that non-Canadian services which compete with Canadian conventional broadcasting services or with any of the discretionary services should not be allowed cable carriage. There was much discussion and little accord, however, regarding which specific services should thus be eliminated from consideration.

The pay television industry took the view that only specialty services consisting of thematic or vertical programming aimed at narrow audiences should be allowed entry and noted that this would exclude those services containing significant amounts of film and variety programming targeted towards broad general audiences. It stressed that a service such as "The Disney Channel" would be competitive with Canadian pay services since it is a general interest premium pay television service aimed at the broad family audience.

It was further noted that many of the non-Canadian services currently in operation consist of a mix of programming from a number of different categories including music, sports, older films, business news and others, all in various combinations and proportions. While only a few of these omnibus services might be construed as being wholly competitive with existing or potential Canadian discretionary services, they contain significant portions of material which would be considered competitive.

After assessing these and other representations made at the hearing, the Commission has determined that it would not be in the interest of the Canadian broadcasting system to allow the carriage, at this time, of non-Canadian specialty programming services which, in the Commission's opinion, could be considered either totally or partially competitive with Canadian discretionary services. In addition, the Commission's view that non-Canadian superstations, premium pay, and any other services that would be incompatible with stated Commission policies should be excluded, remains unchanged.

Moreover, should the Commission license, in the future, a Canadian service in a format competitive to an authorized non-Canadian service, the latter will be replaced by the Canadian service. If a non-Canadian service becomes competitive, by virtue of a change in its own format or by a change in format of a Canadian specialty service, the authority for its cable carriage will be terminated.

While the Commission is prepared, in principle, to authorize the carriage of a non-Canadian health and lifestyle service, it will not issue its authority for such carriage at this time. In this context, the Commission notes that one of the applications adjourned at the hearing proposed a Canadian health and lifestyle specialty service. The applicant has been given until 1 September 1984 to amend and complete irs application. If no such amendment is filed with the Commission by that date, then the Commission will approve the carriage of non-Canadian services in this format.

Further, the Commission will not authorize the carriage of a non-Canadian children's or youth service and, as stated earlier in this notice, will soon issue a notice in this regard.

In light of the above, the Commission has identified a list of the non-Canadian specialty services which will be permitted for carriage on cable (see Appendix A to Press Release of today's date). Cable television licensees should note, however, that, in light of the criteria outlined earlier in this section with respect to formats, this list will be subject to periodic review.

c) Number of Services

In Public Notice CRTC 1983-244, the Commission stated that the number of foreign specialty services would be limited to five.

The cable industry urged the Commission to allow all non-duplicate services to be carried. Certain cable licensees suggested that a variety of non-Canadian services could be packaged and offered on single channels. Many argued that the number of non-Canadian services carried on an undertaking should only be governed by a balance criteria, to ensure that the non-Canadian services do not exceed the Canadian services carried on any undertaking.

In response to the proposals put forward at the hearing, and in order to allow the cable industry greater flexibility in marketing these services, the Commission has decided to modify the criteria for carriage of non-Canadian specialty services proposed in Public Notice CRTC 1983-244. Accordingly, and subject to the linkage requirements set out below, cable licensees will now be allowed to allocate up to five available channels for the distribution of non-Canadian discretionary services. There will, however, be no limitation placed on the number of non-Canadian specialty services that may be carried on these channels. The Commission will also permit cable licensees to distribute U.S. independent and duplicate network television signals already authorized for over-the-air reception, as part of this discretionary tier. However, each U.S. duplicate network or independent signal must occupy a full channel.

As noted in Public Notice CRTC 1983-245, cable licensees will be permitted to reassign U.S. duplicate network and independent signals to discretionary tiers, provided the core 3+1 services remain as part of the basic tier. The Commission reminds cable licensees that "if optional services are removed from the basic tier, this should be reflected in its price."

d) Tiering - Linkage

In its criteria for the linkage of discretionary services on tiers, (Public Notice CRTC 1983-244), the Commission proposed that "each foreign service be tiered with one or more Canadian discretionary services."

During the hearing, First Choice Canadian Communications Corporation and Ontario Independent Pay Television Limited, in a joint presentation, introduced the results of a Nielsen survey as evidence to support their claim that, while mandatory linkage of the Canadian pay services with specialty services would be effective in increasing the number of pay subscribers and reducing the amount of "churn", the absence of such a linkage requirement would substantially increase the number of subscriber disconnects and slow the industry's growth to a dangerous level.

They argued that, as a minimum, subscription to one of the available pay television services must be a prerequisite for access by cable subscribers to any non-Canadian specialty service; they contended that otherwise, a package of specialty services could be assembled which would be unfairly competitive with the pay services.

The cable television industry was unanimously opposed to the proposed linkage requirements. They agreed that the packaging of specialty services with the Canadian pay services would provide a strong lift for pay. They also agreed that there was a need for greater cooperation between the cable and pay television industries, and that improving the penetration of pay services was the cable industry's highest priority. However, they considered mandatory linkage, or enforced packaging as being an unjustifiable restriction.

The Commission has assessed the views presented by the above-noted parties and considers it important, at this time, to ensure that development of the Canadian pay television services is adequately supported through equitable marketing practices. The Commission has therefore decided that the authorized non-Canadian specialty services should be packaged, on a non-discriminatory basis, with Canadian pay television and/or with Canadian specialty services, subject to the following linkage requirements:

1) a Canadian pay television service may be packaged with up to five channels containing a variety of non-Canadian specialty services;

2) each Canadian specialty service may be packaged with up to two channels containing a variety of non-Canadian specialty services;

3) cable licensees will have the option to use any of the above-noted channels for the carriage of U.S. duplicate network and independent television signals already authorized for over-the-air reception;

4) cable licensees will not be permitted to offer a tier containing only non-Canadian services;

5) in no case can a single discretionary tier contain more than five channels of non-Canadian services, regardless of the number or nature of Canadian services included in that tier.

In this context, the Commission has decided that, as a matter of policy, the overall number of television channels allocated to the distribution of Canadian services on any cable undertaking, excluding the community channel and the Canadian alpha-numeric services channel, must be greater than the number of channels allocated to the distribution of non-Canadian services. In cases of limited channel capacity, priority must be given to the distribution of Canadian discretionary services.

Furthermore, Canadian specialty services may be made available to subscribers, on a stand-alone basis, or tiered with one or more Canadian pay or other Canadian discretionary services.

The above linkage requirements will be reviewed after two years and, where necessary, adjustments will be made. In the interim, these requirements should satisfy the concerns raised by the pay television licensees and by the applicants for Canadian specialty services, and allow cable licensees sufficient flexibility to market an attractive range of programming choices at reasonable rates.

e) Role of Cable

At the hearing, it was suggested that responsibility for negotiating all contractual arrangements for the cable carriage of non-Canadian specialty services should be placed in the hands of a broker or agent, rather than left up to individual cable operators. One pay television licensee proposed that the pay television industry be given this role so that they would have some degree of leverage in negotiating the pricing and packaging of their services in tiers with the other discretionary services. It was also suggested that this role could equally be assumed by a separate consortium of various interested parties, including the Canadian specialty licensees. Specifically, the pay television licensees were concerned with the potential harm to their interests if control over the pricing and packaging of tiers was left entirely in the hands of the cable operators.

This brokerage proposal was rejected by most cable representatives on the grounds that it could increase the cost of foreign specialty services to subscribers, limit the flexibility of cable to implement tiers and market discretionary services effectively, and diminish the ability of cable operators to carry out their responsibilities to their subscribers.

The Commission has assessed the views expressed on this issue and has not been convinced of the benefits of the brokerage proposal. It considers, moreover, that the potential advantages to be derived by the pay television industry from the brokerage proposal have been more than compensated for by the early introduction of a variety of attractive services and by the linkage provisions described above which should substantially enhance the value of the pay television services to subscribers.

The Commission, however, does acknowledge the on-going concerns of the pay television licensees with respect to pricing, packaging and marketing practices, and expects the cable television licensees to 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. The Commission will follow the situation closely to ensure that these concerns are adequately met.

Further, in view of the enhanced role and flexibility accorded to cable television licensees, as the system develops and as cable revenues flowing from the distribution of discretionary tiers increase, the Commission will wish to discuss ways in which further support can be given by the cable industry to the Canadian broadcasting system, in line with the objectives set out in the Commission's original tiering decision.

f) Commercial Deletion - Advertising

Various submissions at the hearing proposed that commercial deletion be mandatory for any non-Canadian specialty service distributed by cable.

The Commission has not been convinced by these arguments. Given the lack of concrete benefits, combined with the high cost and the complex technologies related to the implementation of such a proposal, the Commission has decided that commercial deletion is not practical and will not be imposed at this time.

Some representatives of the cable industry proposed that cable licensees be allowed to sell local advertising for distribution in conjunction with the non-Canadian specialty services. This proposal raises significant policy issues which fall outside the context of the specialty hearing and are therefore not addressed at this time.

IV. Licensing Action

In the accompanying decisions, the Commission announces that it will license, at this time, two applicants for the provision of new Canadian discretionary specialty programming services: CHUM Limited for a music video service and Action Canada Sports Network for a sports service.

The Commission is satisfied that the successful applicants possess the financial resources, programming and marketing expertise necessary to develop and maintain viable and attractive new programming services in their respective formats. The Commission also considers that these services should contribute significantly towards meeting the objectives for the new programming services outlined in Public Notice CRTC 1983-93, particularly by increasing the diversity and quality of Canadian programs and providing new opportunities and revenue sources for Canadian producers.

At the same time, 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 pay television, are priced fairly, packaged attractively, and marketed effectively and without discrimination.

At the public hearing which the Commission intends to hold after the specialty services have been in operation for two years, the Commission will review, with all the parties involved, the measures taken to ensure that the services effectively contribute to the objectives noted in Public Notice CRTC 1983-93.

The decisions that follow deal in detail with the individual applications considered at the hearing.

J.G. Patenaude Secretary General

APPENDIX

a) Applications withdrawn at the public hearing:

Michael Sheridan, representing a company to be incorporated (832433700) - Video Music Programming

Michael Rinaldo, representing a company to be incorporated (832450100) - Health and Medical Awareness Programming

b) Applications adjourned at the public hearing:

F. Andrew Shaw, representing a company to be incorporated (832432900) - Sports Programming

Canadian Health Network Limited (832441000) - Medicine and Health Care Programming

De Janos Enterprises Limited (832430300) - Public and Political Affairs Programming

Roger Price, representing a company to be incorporated ( 832446900 ) - Bilingual Children's Programming

c) Third-language applications for which no decision is taken at this time:

World View Television Limited (832477400) - Multilingual Programming

Chinavision Canada Corporation (832444400) - Chinese Language Programming

Wah Shing Television Ltd. and Partners (832429500) - Chinese Language Programming

MTV Broadcasting System Inc. (832437800) - Multilingual Programming

Emilio Mascia and Jack Price, representing a company to be incorporated (832426100) - Italian and Spanish Language Programming