ARCHIVED -  Public Notice CRTC 1987-121

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Public Notice

Ottawa, 4 May 1987
Public Notice CRTC 1987-121
Related Documents: Public Notices CRTC 1983-93 dated 4 May 1983, 1984-81 dated 2 April 1984, 1986-199 dated 13 August 1986, 1986-347 dated 12 December 1986 and 1987-70 dated 10 March 1987.
Following the filing of a number of applications for licences to provide new specialty programming services, the Commission, in Public Notice CRTC 1986-199, called for applications for network licences to offer new Canadian specialty programming services to be distributed on cable.
The Commission received 23 specialty programming service network applications in response to its August 1986 call, some of which proposed that either a new service or an existing service now distributed as part of a discretionary tier be distributed as part of the basic service on cable.
In Public Notice CRTC 1986-347, the Commission announced the postponement of the public hearing, which had been scheduled for February 1987, to enable applicants to amend their applications in light of the then newly-announced revisions to the Canadian Broadcast Program Development Fund. All applications were returned and a new filing date of 12 March 1987 was established for new or amended applications.
In Public Notice CRTC 1987-70 dated 10 March 1987, in response to several requests for extension of the filing deadline, the Commission announced that it would be in the public's best interest that all submissions be as complete and thorough as possible and, accordingly, decided to extend the deadline for filing applications to 30 April 1987.
As noted earlier, the applications received in August 1986 have drawn public attention to the possibility of the distribution of some specialty programming services as part of the basic service on cable. The Commission points out that this possibility gives rise to numerous related issues. These include the impact that such changes would have upon the composition and price of the basic service and upon the Commission's linkage rules for discretionary tiers. These rules were originally outlined in Public Notice CRTC 1984-81 and later incorporated by reference into the Cable Television Regulations, 1986, the "Regulations", Notice CRTC 1986-182.
The Commission wishes to ensure that applicants and interveners (interested parties) will be prepared to have a thorough discussion of these and a number of other related major issues at the public hearing so as to provide it with as complete a public record as possible. Such discussion will allow the Commission to evaluate the applications and to assess the extent to which the licensing of any new services will have an impact on the present Canadian broadcasting system as well as contribute to the enhancement of the system.
The Commission wishes to stress that this public notice is not a call for comments nor will the Commission expect any written briefs filed as a result of this public notice. Rather, the Commission's intention in this document is, firstly, to inform applicants of some of the issues that it intends to explore at the hearing, to the extent that the issues may be appropriate to each application. Secondly, this notice is intended to provide advance notice to interested parties of issues which the Commission wishes to see addressed, to the extent that the issues may be appropriate to some or all of the applications that will be heard at the hearing.
The Commission reminds all parties to this proceeding that it remains guided by the general principles and objectives that it originally set out in Public Notice CRTC 1983-93 announcing a call for applications for network licences to distribute new Canadian discretionary specialty programming services. This notice stated that new specialty 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 programing 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 hereby invites and encourages all interested parties to address, at the appropriate times that will be set out in a Notice of Public Hearing to be issued shortly, their attention to the issues set out in this notice and to explore and develop to the greatest extent possible the various relevant alternatives that may exist in each case. The Commission notes that a number of relevant background studies were commissioned by the Caplan-Sauvageau Task Force during the past year and were made publicly available by the Department of Communications.
The following issues are considered to be of major importance at the upcoming public hearing:
The Commission notes that a range of new services have been proposed in the specialty network applications filed by the 30 April 1987 deadline. One or more of the applicants contemplate the mandatory distribution of their services as part of the basic service of all cable licensees, accompanied by a mandatory charge to be levied on all subscribers (scenario one). Other applicants propose that their services be optional to cable operators, but if carried, be distributed as part of the basic service (scenario two). The Commission reiterates, as was originally set forth in Public Notice CRTC 1986-199, that as regards any specialty service to be distributed as part of the basic service:
All applicants wishing to offer such services will be required to meet the same Canadian content conditions that are required of conventional Canadian television broadcasters. From the time of their initial licensing, the pay television and specialty networks have developed in an atmosphere of considerable regulatory flexibility, their financial health, in particular, being determined primarily by such factors as market demand, price sensitivity, promotion, and packaging arrangements. These various promotion, packaging, and pricing arrangements for discretionary services have been left to negotiation between the discretionary service network operators and the cable licensees, while the decision whether or not to carry such services rested entirely within the control of individual cable licensees.
The concern has been expressed that the attractiveness and perceived value of some services or packages could be diminished if the Commission were to authorize the mandatory or optional distribution of certain specialty programming services as part of the basic service, while other specialty programming services would have to remain in discretionary tiers for which a separate fee is charged.
The Commission requests that during the hearing, applicants, especially those who propose distribution of their service as part of the basic service, and that interveners, in their interventions, address their particular attention to the following questions:
1. How can the distribution of specialty programming services as part of the basic service on cable be reconciled with the concerns of those consumers who do not wish to receive such narrowcast additional services or to be charged for them as part of the basic monthly fee?
2. How likely is it that subscribers will disconnect from cable service should the basic monthly fee increase as a result of the distribution of specialty services as part of the basic service? What is the price elasticity of demand for basic service on cable given the current fees and number of services offered?
3. What is the probable impact upon conventional over-the-air broadcasters, or upon pay television network operators, should specialty services be distributed as part of the basic service (scenario one) or as an optional service (scenario two)? How would this affect existing licensees' respective roles within the overall Canadian broadcasting system?
4. Certain proposals envisage that revenues will be derived from a combination of subscriber fees and advertising income. What impact would such combined revenue sources have upon existing over-the-air broadcasters' advertising revenues or upon existing specialty service advertising revenues? What impact would there be upon the programming capabilities of broadcasters or discretionary service network operators? Interested parties who claim that there would be a serious negative impact upon the advertising revenues or upon the programming capabilities of existing and new licensees should be prepared to demonstrate the potential damage with empirical data wherever possible.
5. The Commission issues, from time to time, public notices wherein it lists those Canadian or non-Canadian satellite services that are authorized for distribution by cable licensees. Public Notice CRTC 1986-183 contained those lists which are curently in effect. If a new Canadian specialty programming network were to be licensed in a program format similar to that already provided by an authorized non-Canadian service, should the Commission remove the non-Canadian service from such list of eligible satellite services as may then be in effect?
6. In which cases may the Commission, and subject to what conditions should the Commission, require a cable licensee to distribute a Canadian specialty service under scenario one as part of its basic service?
7. In which cases and subject to what conditions should the Commission authorize cable licensees to distribute a Canadian specialty service under scenario two as an optional service on their basic service?
8. In the two scenarios referred to in questions 6 and 7 above, should the amount paid by the cable licensee to the Canadian specialty service network be authorized by the Commission and treated as a pass-through under section 18(3) of the Regulations?
9. What structure or method of pack aging services, including both existing basic and discretionary services and potential new services, would best ensure maximum subscriber programming choice and significant contributions to the financial viability of the Canadian broadcasting system?
The Regulations stipulate that, generally, specialty services must be provided as discretionary services, except for Part III licensees. Part III licensees are generally those licensees operating small cable systems that provide service to underserved areas of Canada.
Currently cable licensees distribute, depending on local circumstances, a number of mandatory services as required by the carriage priority provisions of the Regulations. Considerable flexibility to distribute additional optional services, both Canadian and foreign, is afforded to licensees once they have met the requirements of the carriage priority provisions. The distribution of additional services, either conventional broadcasting services or discretionary services including pay television and specialty programming services, is at the option of individual cable licensees.
The Commission has elected, at this time, not to regulate the rates charged by cable licensees for discretionary services such as pay television, specialty, and non-programming services. This policy places the responsibility on cable licensees, as part of their "gatekeeper role", to ensure that Canadian discretionary services have ready access to the Canadian marketplace so that each may contribute to the objectives set out in the Broadcasting Act. It is to be noted, as was stated by the Commission in Public Notice CRTC 1986-199 that:
 In those cases where the viability of the service is dependent in whole or in part on subscriber revenue, the Commission will wish to see evidence of commitments for carriage on cable systems. In the event that these commitments are not available, the Commission will expect applicants to indicate the reasons. The Commission expects representatives of the cable industry to appear before it to comment on the accuracy of the estimated projections and how they propose to deal with these prospective licensees.
 The upcoming public hearing will provide an opportunity to examine alternative approaches to the distribution of specialty programming services. The Commission asks that interested parties address their particular attention to the following questions:
1. In Public Notice CRTC 1984-81, the Commission indicated that it "expects the cable television licensees to take all necessary measures to ensure that pay-television services are marketed vigorously and effectively and that all discretionary services are given the maximum opportunity to succeed". To what extent has this expectation been realized? What steps, if any, should cable operators or discretionary service network licensees or the Commission take to ensure that the Commission's expectation in this regard is fulfilled?
2. To what extent is the current channel capacity of cable systems able to accommodate additional new services? In responding to this question, interested parties are asked to provide specific data and relevant research to support their claims.
3. Under what conditions should the Commission respond favourably to individual cable licensee requests that, because of existing or anticipated channel capacity limitations, seek special treatment allowing them to depart from the Commission's cable priority carriage regulations and linkage rules?
4. Some specialty programming service proposals envisage services in which cable licensees are involved in the ownership of the proposed service. Should such ownership be permitted? If so, what criteria should the Commission employ to ensure, where such integration of distribution and exhibition functions exists, that there will be fair and equitable treatment for all specialty services, particularly in terms of cable access and marketing arrangements?
5. Should the Commission permit different distribution arrangements for French-language specialty programming services relative to English-language specialty programming services in recognition of the different market conditions between the two?
The Commission's linkage rules, first set out in Public Notice CRTC 1984-81 and now incorporated by reference in the Regulations, have been in effect for over two years and have been established to ensure that Canadian services are successful in the discretionary marketplace and that the orderly introduction of non-Canadian specialty programming services would contribute to their success.
The main elements of these rules are:
1) a Canadian pay television service may be packaged with up to five channels containing a variety of non-Canadian specialty programming services;
2) each Canadian specialty programming service may be packaged with up to two channels containing a variety of non-Canadian specialty programming services;
3) cable licensees have the option to use any of the channels used for non-Canadian specialty services for the carriage of U.S. duplicate network and independent television signals already authorized for over-the-air reception;
4) cable licensees are not permitted to offer a discretionary tier containing only non-Canadian services;
5) in no case can a cable system provide on a discretionary basis more than five channels of non-Canadian services, regardless of the number of Canadian discretionary services that may be provided or the number of discretionary tiers which may exist.
The upcoming public hearing will provide the opportunity for interested parties to review and comment upon these linkage rules. Interested parties should demonstrate that any proposed amendments to the linkage rules would benefit the Canadian broadcasting system as a whole and would enhance the future viability of Canadian pay television and specialty services in particular. They should also demonstrate that cable licensees would thereby have improved access to arrange and diversity of options which would enhance the level of programming choices available to subscribers.
It is essential that the Commission be provided with clear and concise arguments, including whatever surveys, data or other research materials as may be available to illustrate and substantiate the need for any proposed amendments to the existing linkage rules.
The Commission would therefore ask that interested parties address their particular attention to the following questions:
1. What changes, if any, should be made to the current linkage rules to enhance the financial viability of existing Canadian pay television and specialty programming services or of any new Canadian specialty programming services for the purpose of benefiting, in general, the Canadian broadcasting system, particularly with respect to the provision of improved programming choice for subscribers?
2. What changes, if any, should be made to the current linkage rules if Canadian specialty programming services are distributed as part of the basic service?
The Commission will issue shortly the Notice of Public Hearing announcing the details of the applications to be considered at the hearing, currently scheduled to be held in the National Capital Region, commencing 20 July 1987. The specific date for receipt of interventions will be indicated in that notice.
The Commission reiterates that interveners should address their particular attention to the issues and concerns that have been set out in the body of this notice, to the extent that the issues may be appropriate to some or all of the applications on the agenda of this hearing.
Fernand Bélisle Secretary General

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