ARCHIVED -  Decision CRTC 88-774

Decision

Ottawa, 27 October 1988

Decision CRTC 88-774

Allarcom Pay Television Limited

Edmonton, Alberta -880309000

Following a Public Hearing in the National Capital Region commencing 13 June 1988, the Commission renews the licence issued to Allarcom Pay Television Limited (APT) to carry on an English-language pay television network operation (which is known as Superchannel) in western Canada (Manitoba, Saskatchewan, Alberta, British Columbia, the Yukon Territory and the Northwest Territories), from 1 November 1988 to 31 August 1993, subject to the conditions of licence specified in the appendix to this decision and in the licence to be issued.

This term, the end of which conforms with the end of a broadcast year, will enable the Commission to consider the renewal of this licence at the same time as that of other Canadian pay and specialty licences.

At the 13 June 1988 hearing, the Commission also considered an application by APT to amend its existing licence in order to be able to offer its pay television service directly to individual satellite dish owners on a national basis. For the reasons set out later in this decision, the Commission denies this application.

APT is wholly-owned by Allarcom Limited which is itself ultimately controlled by Dr. Charles Allard of Edmonton, Alberta who, through Allarcom Limited, also holds a 100% interest in CITV-TV, an independent television broadcasting undertaking located in Edmonton. APT also holds a 50% ownership in The Family Channel, the English-language national general interest pay television service for children, youth and families.

I. APT'S LICENCE RENEWAL APPLICATION

The Commission requested each licensee whose renewal application was under consideration at the June 1988 hearing to provide a precise description of the programming it proposed to offer during the new licence term. Specifically, the Commission sought assurances that each of the Canadian pay television and specialty networks will continue to provide an attractive range of quality programming within a specific format, while avoiding any undue siphoning or duplication of the program material provided by other members of the Canadian broadcasting system.

APT proposed that its service be defined as an English-language general interest pay television network service, consisting primarily of "dramatic programs, including but not limited to feature films, of other music and entertainment programs of various duration, of sports programs and of information programs."

In response to an intervention from The Sports Network (TSN) concerning the amount of sports programming which APT could offer, the licensee submitted that sports events coverage was important to its service and that its sports programs would emphasize major events.

Given the discretionary nature of the service provided by the general interest pay television networks and the relatively small impact of such services on conventional television and specialty services, the Commission is willing to allow APT a certain amount of flexibility with respect to that portion of its program schedule consisting of other than dramatic programming. Nevertheless, in light of the important mandate of the pay television licensees to contribute to diversity and to provide new opportunities and revenue sources for the Canadian film and video production industry, the Commission considers that APT should refrain from relying too heavily on sports programming to make up its schedule. The Commission notes that, in its renewal application, APT had indicated that it would only program sports occasionally.

Accordingly, after taking into account the licensee's proposal and the discussions at the hearing, the Commission has attached as a condition of APT's licence the requirement that at least 50% of its programming schedule consist of dramatic programs, with no more than 5% of the program schedule averaged over a six-month semester being devoted to sports programming.

In the interest of flexibility, and within the 5% limit, the Commission will permit the licensee to distribute up to a maximum of 20 hours of sports programming in any week, including repeats. This will permit the licensee to provide coverage, for example, of a specific sports tournament. At the same time, the Commission expects the licensee not to siphon sports programming currently being distributed by a Canadian specialty network or by a Canadian conventional television licensee.

APT's Performance

Approximately 80% of APT's current program schedule is comprised of feature films and feature-length dramatic programming. Of the three Canadian general interest pay television services, however, APT devotes the most time to other types of programming, including children's programming, short films, music concerts, variety specials, documentaries, sports, promotion and bridging material (interstitials).

At the hearing, APT filed month-end subscriber figures for the period September 1984 to April 1988 which showed an increase of 31% over that time, from 152,461 to 200,865 subscribers.

In Decision CRTC 86-813 dated 2 September 1986, the Commission required APT by condition of licence to devote 30% of the total time during prime viewing hours (defined for the purpose of this licensee as being the period from 7:00 p.m. to 11:00 p.m. Mountain time) and 20% of the remainder of the day to the distribution of Canadian programming. In addition, APT was required, by condition of licence, to devote 50% of this Canadian programming time to the distribution of dramatic programming including, but not limited to, dramatic feature films.

APT reported that, during each of the three six-month semesters from 1 September 1986 to 29 February 1988, it surpassed its minimum levels of compliance concerning the exhibition of Canadian programming, averaging better than 32% in prime viewing hours and 26% over the remainder of the day. In terms of actual numbers, APT stated:

We have licensed and exhibited virtually all Canadian programs that would be acceptable under the Pay Television Standards and Practices. We have exhibited over 15,000 hours of Canadian programming to the end of May 1988; 2,400 hours in prime viewing hours. Canadian dramatic production has benefitted immensely from this window.

APT also indicated in its application that it has consistently exceeded its condition of licence requiring 50% of its Canadian programming to be in a dramatic format, reporting that in the three six-month semesters from 1 September 1986 to 29 February 1988, its Canadian dramatic programming amounted on average to about 72% of all Canadian programming hours and to nearly 68% of the time devoted to Canadian programming between 7:00 p.m. and 11:00 p.m. Mountain time.

Pursuant to a condition of its licence and in line with its commitment, APT has been required to distribute a minimum of 16 hours each week of programming produced or acquired in its licensed area. This total is further divided into 8 hours from British Columbia and the Yukon Territory, 6 hours from Alberta and the Northwest Territories, and 2 hours from Manitoba and Saskatchewan. The licensee indicated that it had not fulfilled this requirement. It explained its failure as follows:

[APT] has substantially met or exceeded all of its conditions of licence, except for the time condition of licence for the exhibition of regionally produced or acquired programming. We must stress, however, that we have exhibited virtually all available films and premium programming that would qualify as being produced or distributed by western Canadians. We have faced a lack of existing product, a not yet mature production industry, stiff competition from conventional broadcasters and limited cross-licensing opportunities for non-feature length dramatic and non-dramatic productions.

APT reported that, over the term of its licence, it had distributed on average nine hours per week of western Canadian programming. This average was made up of higher levels in the early years of its licence and lower levels more recently.

Decision CRTC 86-813 also required APT by condition of licence to expend 20% of its annual gross subscriber revenues on investment in or acquisition of Canadian programming. In its application, APT reported that it spent some $25.5 million on Canadian programming from the time it was licensed to 31 August 1987, including a total of almost $8 million over the broadcast years 1985/86 and 1986/87. This latter figure represents expenditures of 21% and 24% of the licensee's gross subscriber revenues in the two years, respectively.

According to figures supplied in its application, APT has spent $1.9 million on script and concept development since 1984. This figure represents just under the level of 2.7% of gross subscriber revenues which APT is required to expend on script and concept development by condition of licence and includes the costs associated with regional creative development offices which are located in Vancouver, Edmonton and Yorkton, Saskatchewan. At the hearing, the licensee attributed the shortfall to an error in reporting and claimed that it had, in fact, met this condition.

Prior to Decision CRTC 86-813, APT had projected a cumulative deficit of $44.9 million by 31 August 1990. In its present application, APT indicated that it became profitable in 1985 and that, as of 31 August 1987, its cumulative deficit had been reduced to $14.6 million.

Financial Projections for the New Licence Term

APT projected that the number of subcribers to its service will grow over the course of its next licence term at an annual rate of 10%, such that its subscribers will number 300,141 at the end of year four (1991/92) and 330,155 at the end of year five (1992/93). In explaining its optimistic projections, the licensee stated that APT had achieved a 12% gain in subscribers since September 1987. It considered that, by packaging its service with The Family Channel at an attractive price to consumers, it would be able to achieve its predicted growth. Based on its subscriber projections, the licensee predicted that its cumulative deficit will be completely recovered in year four of the new licence term.

Programming Plans

The Commission acknowledges the success of APT in overcoming its financial difficulties. In evaluating APT's proposals and commitments for the new licence term, the Commission has taken into account the distinct characteristics of the pay television marketplace and has given consideration to the licensee's past performance, the assumptions underlying its subscriber and revenue projections, and its plans for the new licence term.

The Commission has also taken into account the more than 120 interventions received from individuals, representatives of the film, cable and broadcast industries, and from government bodies with respect to APT's application for the renewal of its licence and has taken these comments into account in arriving at its decision.

The conditions of licence and the specific expectations contained in this decision reflect the Commission's general concerns with respect to all Canadian pay and specialty services; they are also in line with the licensee's own commitments, as set out in its application and presentation, and as subsequently increased during the hearing.

(i) Exhibition of Canadian Programming

APT committed in its application to continue to devote a minimum of 30% of its prime viewing hours and 20% of the remainder of its program schedule to the distribution of Canadian programs.

APT also committed to license for distribution every Canadian feature film that complies with the general interest pay television licensees' Pay Television Standards and Practices Code. In this respect, it indicated that "at least 80%" of the Canadian projects it intends to license each year will be new productions rather than existing shelf material.

APT stated that the launch of The Family Channel pay television network and of YTV, the optional-to-basic children's and youth specialty network, on 1 September 1988 would likely mean that it would reduce the amount of its children's programming, although it intended to retain its children's and family movies. On that basis, APT anticipated that its feature film content would increase from 80% to about 85%.

The licensee did not apply to change the existing requirement that at least 30% of the time between 7:00 p.m. and 11:00 p.m. (Mountain time) be devoted to Canadian programs. Nevertheless, as stated in the decisions renewing the pay television licences of First Choice Canadian Communications Corporation and Premier Choix:TVEC Inc., (Decisions CRTC 88-772 and 88-773 issued today), it is the Commission's opinion that a measure of flexibility in the calculation of the prime viewing hours of each of the general interest pay licensees is desireable in the interests of maximizing the exposure of Canadian feature films which are designed to appeal to different audiences. Accordingly, the Commission has determined that APT's prime viewing hours should be defined as the period between 6:00 p.m. and 11:00 p.m. Mountain time. This new definition, which extends the period by one hour, will allow APT greater flexibility to schedule Canadian programs at times appropriate to specific target audiences.

In light of the improved financial performance of APT and given the importance of increasing the amount of Canadian programming distributed during prime viewing hours, the Commission has determined that, during the first four years of the new licence term, APT will be required by condition of licence to devote 25% of the newly-defined prime viewing period to the exhibition of Canadian programs. This condition will result in an increase in the time devoted to Canadian programming each semester over that required under the existing condition of licence, as well as that proposed by APT in its renewal application. Specifically, APT will be required to distribute a minimum of 8.75 hours of Canadian programs on average per week during prime viewing hours.

In the fifth year of the new licence term, APT will be required, by condition of licence, to devote 30% of prime viewing hours to the exhibition of Canadian programs, for a total of 10.5 hours of Canadian programs on average each week.

At the hearing, APT agreed to increase the number of hours devoted to Canadian programming outside of prime viewing hours to a miminum of 25% in the fifth year of its licence term. Accordingly, APT will be required by condition of licence to devote 20% of the remainder of its program schedule to Canadian programs in years one through four, increasing to 25% in year five. The specific details of these conditions are set out in the appendix to this decision.

In Decision CRTC 86-813, the Commission established that the licensee would be awarded a 150% time credit for each new Canadian first-run dramatic production scheduled to commence in prime viewing hours or, in the case of a production intended for children, scheduled to commence at an appropriate viewing time. In order to encourage the distribution of such programming, the Commission has determined that the 150% time credit will continue to apply in the new licence term.

The Commission expects the licensee to continue to license for distribution all Canadian feature films that comply with the general interest pay television licensees' Pay Television Standards and Practices Code and to schedule these films evenly throughout its programming day. The Commission also expects APT to co-operate with other Canadian pay television licensees to achieve the widest possible distribution of Canadian feature films and other Canadian programming, including the distribution of sub-titled or dubbed versions of French-language Canadian productions.

As the Commission considers that dramatic programs should remain the major component of the Canadian programs distributed by APT, the licensee will also be required by condition of licence to ensure that at least 50% of its Canadian programs each year are dramatic programs.

In its application, APT requested the deletion of its condition of licence relating to the distribution of programming from western Canada. It stated, however, that it "will do ... whatever it takes to get productions made in western Canada".

The Commission is satisfied that the present shortage of western Canadian product renders it impossible for the licensee to meet this condition of licence and that deletion of this condition is appropriate. Nevertheless, the Commission recognizes the important contribution which APT has made and should continue to make in fostering feature film production in western Canada, as acknowledged in the many interventions received from producers and writers based in the western provinces. The Commission therefore expects the licensee to distribute all feature film, dramatic and other programs that originate in western Canada and that comply with its standards and practices and to schedule these programs in a reasonable manner.

ii) Expenditures on Canadian Programming

In its application, APT committed to continue expending at least 20% of its gross revenues annually on the investment in or acquisition of Canadian programming. The licensee projected that this would result in the expenditure over the new licence term of some $26 million on Canadian programming. As indicated in the appendix to this decision, APT is required to adhere to this commitment by condition of licence. The Commission expects APT to ensure that it maintains in each year of the new licence term the ratio of Canadian to foreign programming expenditures found in its application.

Further, the licensee reiterated its commitment, which was translated into a condition of its current licence, to re-invest 100% of its profits in Canadian programming. It indicated that it would be in a position to meet this commitment once its cumulative deficit is eliminated.

The Commission notes that, should APT's cumulative deficit be fully recovered as projected, the re-investment of its profits is expected to increase its Canadian programming expenditures by $511,000 in year four and by $2.9 million in year five. This would result in the licensee's total Canadian program budget amounting to $6.4 million or 21.7% of its gross revenues in year four rising to $9.2 million or 28.9% of its gross revenues in year five.

Accordingly, once APT has fully recovered its cumulative deficit, it will be required by condition of licence to expend each year on the acquisition of or investment in Canadian programs an amount equal to its operating profit after tax. In this respect, the Commission expects the licensee to make every effort to pay off its cumulative deficit as quickly as possible. In calculating its cumulative deficit, the licensee may include the cumulative deficits of its two predecessor corporations, Aim Satellite Broadcasting Corporation and Ontario Independent Pay Television Limited.

As noted in the Public Notice of today's date that introduces this and the other pay television network renewal decisions, many of the interventions received from members of the independent production community emphasized that they would much prefer the general interest pay television licensees to allocate a greater proportion of their program budgets to licence fees rather than to equity investments.

In light of these interventions, the Commission discussed with APT the allocation of a minimum amount of its total Canadian programming budget to be spent on Canadian acquisitions. According to the licensee, the needs of producers in western Canada differ from those of producers in eastern Canada in that, at this stage in the development of the western Canadian independent production industry, "the producers in western Canada require investment money". The Commission also notes that APT must rely on returns on its film investments in order to return money to its own investors, given its commitment to re-invest 100% of its profits in Canadian programming.

Nevertheless, APT indicated that it would accept a condition of licence requiring that, in each of the fourth and fifth years of its licence term, at least 60% of its expenditures on the acquisition of or investment in Canadian programs, excluding profits re-invested after recovery of its deficit, would be allocated to Canadian acquisitions. APT indicated that the re-invested funds will augment its investment monies to respond to the specific needs of western Canadian productions.

Accordingly, a requirement reflecting this commitment has been established by condition of licence, as set out in the appendix to this decision. In order that the Commission may measure the licensee's performance prior to the expiry of the new licence term, however, the condition will apply to the 18-month period from 1 September 1991 to 28 February 1993. During the remainder of the 1992/93 broadcast year, the Commission will expect APT to continue to adhere to its commitment.

At the hearing, the licensee also discussed with the Commission the type of expenditures that would be considered to be acquisitions or investments for the purpose of calculating whether its commitments have been met. These expenditures are set out in the attached conditions of licence.

The Commission has concluded that the artistic community will benefit more if such expenditures are measured in terms of cash outlays in a particular year rather than in terms of the amortization in that year of part of the capitalized costs of acquiring or investing in Canadian programs. This cash outlay approach will be introduced as of 1 September 1989 to allow licensees to take full advantage of any unamortized portions of previous expenditure on Canadian programs.

Concerning its commitment to script and concept development, APT indicated that it intends to continue to operate its regional development offices in Vancouver, Edmonton and Yorkton, since they have been well received by the western independent production community. It requested an amendment, however, to its condition of licence respecting script and concept development expenditures such that it would be required to spend annually the greater of 1.7% of its gross subscriber revenues or $500,000. It proposed that overhead costs and travel expenses associated with the three regional offices would be included up to a maximum of 50% of the total script and concept development budget in each year.

According to APT, the "major challenge" in western Canada is not necessarily a lack of scripts, but "a lack of money" to produce those scripts. It stated that its funding proposal would give it "the flexibility of expending more, either through licence fees or equity investments" without reducing its actual dollar contributions to script development.

The Commission, however, is not convinced that the level of APT's commitment over the licence term would adequately respond to the needs of script writers within its licensed area. In this respect, the Commission notes that a number of interveners, including the Writers' Guild of Alberta and the Alberta Writers Guild/Northern Alberta Performers Guild emphasized the importance that western script writers attach to APT's contributions to script and concept development. The Commission considers that the licensee's contributions to script development should increase over the course of its licence term to reflect the projected improvement in APT's financial position.

Moreover, the Commission considers that it is appropriate to impose on APT a condition of licence specifying the minimum level of actual dollars to flow directly to writers for script development, excluding monies which would go toward overhead costs.

Accordingly, APT is required by condition of licence to expend a minimum of $275,000 on script and concept development, excluding overhead, in year one, rising to $500,000 by year five. The actual minimum expenditures required for each year are set out in the appendix to this decision.

Based on the licensee's representations respecting the benefits of its regional development offices, the Commission expects that APT will maintain these offices during the new licence term.

APT is also required by condition of licence to devote at least 50% of its total Canadian programming expenditures each year to dramatic programs.

Finally, in order that the Commission may monitor the Canadian productions exhibited each year by APT, the licensee will be required to provide, as part of its annual return, details on its Canadian programming, including information on such matters as the producer, costs, date of release, etc. An abridged version of this report, in which acquisition and investment expenditures will be identified and compared in relative percentages, will be placed on the public file of APT.

Other Matters

Closed Captioning

APT indicated in its application that it would make every effort to exhibit captioned program versions wherever they are available and stated that its licensing agreements with program suppliers require that the available captioned versions be provided to it. It also informed the Commission that it had communicated with two interveners who have offered to create captioned versions of films for its service.

The Commission expects the licensee to take such measures as are necessary to ensure that a reasonable number of its programs are captioned so as to respond to the needs of the deaf and hearing-impaired. In this respect, the Commission notes that Premier Choix:TVEC Inc. is proposing to set up a special fund to finance the costs of captioning 25 to 30 films a year, while First Choice will require the provision of a closed-captioned print prior to committing to fund a production.

The Commission expects the licensee within the first year of the new licence term to make use of the Line 21 text capability to inform deaf and hearing-impaired subscribers to its service who are equipped with a decoder permitting the reception of captioned information, of the time at which closed-captioned programs are scheduled to appear and to advise viewers of APT whenever technical difficulties prevent scheduled captioned programming from being presented.

The Commission encourages the licensee to distribute English captions of French productions that have been dubbed into English, when available. The Commission further encourages the licensee within the first year of the new licence term to install a Telephone Device for the Deaf to provide for better communication between itself and the deaf and hearing-impaired.

Sex-role Stereotyping and Violence

All of the general interest pay television licensees adhere, on a voluntary basis, to the Pay Television Standards and Practices Code, which addresses sex-role stereotyping, violence and scheduling. The Commission expects the licensee to continue to adhere to this code as amended from time to time. In this regard, the Commission notes that APT proposed to review its standards and practices on a regular basis with Commission staff. The Commission looks forward to this continuing co-operation.

Regulatory Provisions

As noted in the Public Notice of today's date which introduces this and the other pay television network renewal decisions, the Commission intends early next year to publish for comment proposed amendments to the Pay Television Regulations relating to ownership and other matters. Pending the enactment of these amendments, the Commission expects APT to comply with section 14 of the Television Broadcasting Regulations, 1987, as well as the commitment made at the hearing with respect to the transfer of its shares to persons having more than a 5% interest in a cable television system or other undertaking engaged in the exhibition of pay television.

Interventions

The Commission has taken into account the views expressed by the many interveners who supported APT's renewal application. Representatives of the independent production industry, particularly those from western Canada, emphasized the support their projects have received from APT and stressed the vital role this pay television network plays in ensuring the production, promotion and exhibition of Canadian films and in developing new scriptwriting and production talent. In general, they consider that APT is now in a position to improve its contributions to the Canadian broadcasting system. The Public Notice introducing the renewal decisions released today summarizes these interveners' comments in general terms.

The Commission also considered the comments of the cable television industry as expressed by the Canadian Cable Television Association, various western Canadian cable operators and a number of Canada's largest cable licensees. These interveners spoke of their continued commitment to the development and growth of Canada's pay television services.

In addition, the Commission acknowledges the intervention from Exile Productions Limited opposing APT's renewal application on the grounds that the licensee has not met its commitment to support the film community in British Columbia.

II. THE DTH APPLICATION

At the 13 June 1988 hearing, the Commission also considered an application by APT to amend its existing licence to allow it to provide its pay television service directly to individual satellite dish owners on a national basis. Its application thus proposed that its programming service also be made available, on a direct-to-home (DTH) basis, to subscribers residing outside its licensed territory, which is restricted to the western provinces, the Yukon and the Northwest Territories.

Background

In Decision CRTC 84-654 dated 16 August 1984, the Commission approved the reorganization of the then-existing English-language national and regional general interest pay television networks into two licensees serving two distinct geographic markets. APT was authorized to distribute its pay television service in British Columbia, Alberta, Saskatchewan, Manitoba, the Yukon Territory and the Northwest Territories, while the licensed service area of First Choice was reduced from that of a national service to a regional one serving eastern Canada, including Ontario, Quebec and the Atlantic provinces.

According to the Commission's policy on Direct-to-Home satellite systems, set out in Public Notice CRTC 1987-254 dated 26 November 1987, licensees delivering authorized services by satellite under a network licence may deliver those services directly to subscribers without any additional licensing action where the DTH service does not extend beyond the territory covered by the network licence. In cases where the DTH service would extend beyond the licensed service area, however, an application must be made to extend the service area.

At present, APT does not provide its general interest pay television service on a DTH basis. At the hearing, it explained that it has been working on a plan to make its service available to underserved and non-cabled households in its licensed territory for over two years. It explained further that it approached Canadian Satellite Communications Inc. (CANCOM) to distribute and market its service because CANCOM "was the first network in North America to implement a scrambling system for its various signals, and because CANCOM is already in the business of marketing a relevant and balanced direct-to-home service in both official languages".

CANCOM was licensed by the Commission in 1981 (Decision CRTC 81-252) to make available broadcast signals via satellite to cable or subscription television systems in remote or underserved areas of the country. A subsidiary of CANCOM also provides DTH service to some 5,500 individual dish owners equipped with C-band TVRO receivers, and has utilized the Oak/Orion scrambling system for this purpose since 1982.

APT initially proposed to move its signal from its present location on Ku-band (Anik C-3, western beam) to the C-band (Anik D-1) so that it could be received together with the other signals already marketed as part of the CANCOM DTH package. It offered to pay First Choice "the profit portion derived from eastern subscribers".

On 21 March 1988, First Choice announced that it also planned to make its signal available on a C-band (Anik D-2) satellite. First Choice already distributes its service to DTH subscribers in eastern Canada on a Ku-band (Anik C-3, eastern beam) satellite. It has chosen to utilize the Videocipher II (VCII) scrambling system for its signal, which is the system most widely used by the North American DTH industry.

APT's Application

On 24 March 1988, subsequent to the 12 February 1988 filing of its initial application for the renewal of its pay television network licence, APT submitted documentation to the Commission on a proposed agreement between CANCOM, DTH Satellite Services Inc. (DSS) and APT concerning the establishment of a national DTH service on a C-band satellite to distribute the APT signal as part of a signal package for DTH subscribers. DSS is a wholly-owned subsidiary of CANCOM which has been established to operate the delivery of services on a DTH basis.

Under the agreement, APT agreed to shift the distribution of its general interest pay television service to a C-band satellite (Anik D-1) and to allow DSS to include the service in its DTH package available to private residential units on a national basis. APT, however, reserved the right to sell its programming directly to SMATV units, subscription television undertakings and Part III cable licensees.

APT targeted April 1989 as the projected launch date of its DTH service. It indicated, however, that if the Commission did not approve its proposal on a national basis, it would proceed with its DTH plans in western Canada only.

APT's application stated that "the availability of a Canadian general interest movie service as part of the CANCOM package of DTH services should help to consolidate the Canadian broadcasting system and generate new subscriptions to Canadian discretionary services generally". It projected that the addition of its pay television service to the DTH package would increase the number of subscribers to the package to 9,838 by 31 August 1989 and to 45,478 by 31 August 1993.

APT did not anticipate that its DTH proposal would have an adverse impact on existing Canadian programming services. Instead the licensee submitted that, by making available an attractive package of DTH services which includes a Canadian movie-based service, CANCOM would be able to repatriate many households that currently receive unauthorized American movie services through video piracy by means of decoders that have been tampered with or fraudulently obtained.

It further indicated that, since the APT service would be available to households equipped to receive C-band satellite signals, there would be no conflict with First Choice's DTH signal which is delivered on the Ku-band. While acknowledging that the APT DTH signal would be in direct competition in eastern Canada with First Choice's signal delivered on the C-band, APT argued that its application was filed in response to the competitive situation existing in western Canada where, it claimed, illegal reception of the First Choice signal is already widespread.

At the hearing APT stated that, "because the First Choice C-band signal would cover all of western Canada and be readily available through reception by all tampered Videocipher [decoder] units, we had no choice but to apply for the extension of our direct-to-home service throughout Canada if [our arrangement with CANCOM] has any chance to succeed".

APT further argued that First Choice should also be required to file an application before delivering its DTH service on Anik D-2, since the First Choice service would be receivable in the West, beyond First Choice's licensed territory.

Intervention by First Choice

First Choice filed an intervention in opposition to APT's application to extend its DTH service into eastern Canada, submitting that the application is inconsistent with the orderly development of the DTH market and is contrary to established CRTC policy.

First Choice pointed out that there are clauses in certain of its new contracts with U.S. movie studios which stipulate that the studios can remove First Choice's exclusive program rights for eastern Canada should the Commission authorize a competing pay television service within its licensed territory. Should this exclusivity be removed, First Choice claimed that non-Canadian as well as Canadian programmers could bid competitively for the right to distribute programs on a DTH basis in Canada, thereby leading to higher costs or precluding First Choice from distributing these programs.

Rather than return to head-to-head competition, First Choice advocated that the pay television licensees work "together on a regional non-competitive basis to meet the real competition -home video and the illegal reception of foreign networks".

First Choice also submitted that the entry of APT's pay television service into the eastern Canadian DTH marketplace would be the "thin edge of the wedge" that would eventually have repercussions in the cable marketplace. In this sense, First Choice feared that cable operators would seek the same flexibility as TVRO dealers to choose between offering their subscribers either First Choice or APT's service, or both. First Choice also expressed concern about the effect that the availability of the APT service would have on its efforts to market its own service.

Further, it submitted that, unlike the Videocipher II scrambling system, the Oak/Orion method does not have the capability to distribute two languages simultaneously, nor the means of offering pay-per-view or the transmission of message data.

Finally, First Choice argued that in Public Notice CRTC 1987-254 the Commission had not obliged network licensees to use a particular satellite to distribute their services on a DTH basis. Moreover, First Choice submitted that since it did not market or sell its service outside of its licensed territory, it did not require an amendment to its licence.

Conclusion

In the Commission's opinion, the regional concept adopted in 1984 for the English-language general interest pay television licensees remains the best approach for ensuring the orderly and continued development of Canadian pay television services. The Commission also considers that the reasoning behind the adoption of the regional concept applies equally to all methods of distribution of these general interest services, including DTH distribution. The Commission is of the view that the status quo should be maintained not only to avoid potential head-to-head competition between the two English-language general interest pay television licensees, but also to avoid a situation whereby, because existing exclusivity rights would no longer apply, foreign programmers or movie services could preclude Canadian exhibitors from obtaining the rights to distribute feature films in Canada.

The Commission recognizes that, despite repeated attempts, APT and First Choice have been unable to reach an agreement on the logistics of a national DTH service which would prevent the potential pitfalls noted above, primarily because of the different scrambling system to which each licensee is committed. While the Commission is in favour of a scrambling system that will offer satisfactory protection to rights holders, it does not intend to prescribe the specific type of technology that must be employed by its licensees. The Commission encourages the licensees to continue their negotiations with these considerations in mind and is hopeful that they may reach a mutually satisfactory agreement.

Accordingly, the Commission denies the application by APT to amend its licence to allow the DTH distribution of its pay television service on a national basis.

Should the licensees proceed with their plans to offer their respective services on a DTH basis, they are reminded that they are authorized to provide their service only in their own licensed area and that, should their signal extend beyond this area, they are only to seek or accept subscribers from within their licensed area. In this respect, it is the Commission's opinion that the presence in western Canada of First Choice's signal on Anik D-2 does not require Commission authorization at this time since the licensee is not seeking or accepting subscribers beyond its licensed area.

The licensees are also reminded that the service offered on a DTH basis is to be identical in terms of programming and scheduling to that of the service which each distributes through affiliated Canadian cable systems.

The Commission has taken into account the views expressed by the more than 30 interveners who filed interventions in respect of APT's DTH application. Nine of these interveners appeared at the hearing. Those supporting APT's application highlighted the benefits of adding a Canadian movie-based service to the CANCOM DTH package and considered that APT's proposal would help to combat piracy of unauthorized U.S. services. Those who opposed APT's application did so primarily on the basis that the licensee's choice of the less widely-used Oak/Orion descrambling system would deny many DTH subscribers access to a Canadian movie-based service. Many of the interveners provided valuable information on the status of the Canadian DTH industry and the Commission has benefited greatly from their participation.

Fernand Bélisle
Secretary General

ALLARCOM PAY TELEVISION LIMITED

Conditions of Licence

Nature of the Service

1. The licensee shall provide a regional general interest pay television network service in English, with programming intended for all audiences. The licensee shall not distribute programming from categories 1 (news), 4 (religion) or 5(A) (formal education) of item 6 of Schedule I to the Television Broadcasting Regulations, 1987 and shall not devote more than 5% of its programming schedule during each semester to programming from category 6 (sports) of item 6, with a maximum of 20 hours in any week. The licensee shall devote at least 50% of its programming schedule during each semester to dramatic programs.

Exhibition of Canadian Programs

2. (a) During each semester from 1 November 1988 to 31 August 1992, the licensee shall devote to the distribution of Canadian programs not less than

(i) 25% of the time from 6:00 p.m. to 11:00 p.m. (Mountain time) and

(ii) 20% of the remainder of the time during which it distributes programming.

(b) During each semester from 1 September 1992 to 31 August 1993, the licensee shall devote to the distribution of Canadian programs not less than

(i) 30% of the time from 6:00 p.m. to 11:00 p.m. (Mountain time) and

(ii) 25% of the remainder of the time during which it distributes programming.

For the purposes of condition number 2, 150% credit will be given for time during which the licensee distributes a new Canadian production which commences between 6:00 p.m. and 11:00 p.m. (Mountain time) or, in the case of a new Canadian production intended for children, at an appropriate children's viewing time, and the licensee will receive such a credit for each showing of such a production within a two-year period from the date of first showing by that licensee.

3. In each broadcast year during the term of this licence, the licensee shall devote to the distribution of Canadian dramatic programs not less than 50% of the time that it devotes to the distribution of Canadian programs.

Expenditures on Canadian Programs

4. The licensee shall, in each broadcast year during the term of its licence, expend not less than 20% of its gross revenue for that year on the acquisition of or investment in Canadian programs.

5. In addition to the requirement set out in condition number 4, the licensee shall

(a) in the broadcast year where it no longer has a cumulative deficit expend on the acquisition of or investment in Canadian programs an amount equal to its operating profit after tax for that year less any amount used to reduce the deficit and

(b) in each subsequent broadcast year during the term of its licence expend on the acquisition of or investment in Canadian programs an amount equal to its operating profit after tax for that year.

6. The licensee shall expend not less than the following amounts on script and concept development, excluding overhead costs:

1 November 1988-31 August 1989/1er novembre 1988-31 août 1989 $250,000
1 September 1989-31 August 1990/1er septembre 1989-31 août 1990 $350,000
1 September 1990-31 August 1991/1er septembre 1990-31 août 1991 $400,000
1 September 1991-31 August 1992/1er septembre 1991-31 août 1992 $450,000
1 September 1992-31 August 1993/1er septembre 1992-31 août 1993 $500,000

7. From 1 September 1991 to 28 February 1993, the licensee shall devote to the acquisition of Canadian programs not less than 60% of its expenditures on the acquisition of or investment in Canadian programs made during that period, pursuant to condition number 4.

8. In each broadcast year during the term of this licence, the licensee shall allocate to Canadian dramatic programs at least 50% of its expenditures on the acquisition of or investment in Canadian programs for that year.

9. In making the calculations required for the purposes of conditions number 4 to 8 for the period from 1 September 1989 to 31 August 1993, there shall be taken into account only actual cash outlays. Prior to that period, there may be taken into account any current expenditures or any unclaimed expenditures made during the previous licence term for the acquisition of or investment in Canadian programs.

10. Definitions

In these conditions:

"broadcast year" means the period from 1 November 1988 to 31 August 1989 and each 12-month period thereafter beginning on September 1.

"Canadian program" means a program that qualifies as a Canadian program in accordance with the criteria established by the Commission in the appendix attached to Public Notice CRTC 1984-94 entitled "Recognition for Canadian Programs" and the appendix and schedules attached to Public Notice CRTC 1988-105 entitled "Amendments to the definition of a Canadian program as it relates to certain types of animated productions and as it relates to expenditures on all productions."

"cumulative deficit" means the cumulative deficit of AIM Satellite Broadcasting Corporation, APT and Ontario Independent Pay Television Limited and excludes any deficit from DTH operations.

"dramatic program" means a program described in categories 7(A) to 7(F) of item 6 of Schedule I of the Television Broadcasting Regulations, 1987, SOR/87-49.

"expend on acquisition" means

(a) expend to acquire exhibition rights for the licensed territory, excluding overhead costs;

(b) expend on script and concept development, excluding overhead costs; or

(c) expend on the production of filler programming, as defined in section 2 of the Pay Television Regulations, SOR/84-797 including direct overhead costs

and "expenditure on acquisition" has a comparable meaning.

"expend on investment" means expend for the purposes of an equity investment or an advance on account of an equity investment but not overhead costs or interim financing by way of loan

and "expenditure on investment" has a comparable meaning.

"new Canadian production" means

(a) a dramatic Canadian program which exceeds 75 minutes in duration and in relation to which all financial expenditures made by the licensee were made prior to the commencement of principal photography or taping and in which principal photography or taping was completed after 1 January 1985 or

(b) a Canadian program intended for children which exceeds 25 minutes in duration and in relation to which all financial expenditures by the licensee were made prior to the completion of principal photography or taping and which is a program that has never been broadcast in English in the licensed territory.

"revenue" means revenue from residential, bulk and SMATV subscribers and does not include revenue from DTH subscribers or any return on an investment in programming.

"semester" means the four-month period from 1 November 1988 to 28 February 1989 and each six-month period thereafter beginning in March and September.