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Decision
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Ottawa, 25 May 1989
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Decision CRTC 89-290
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Simon Dean, on behalf of a company to be incorporated (CHSC/Le Club) Inc. - 880401500 - 880402300
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Following a Public Hearing on 7 February 1989 in the National Capital Region, by majority decision, the Commission denies the applications by Simon Dean, on behalf of a company to be incorporated (CHSC/Le Club), for network licences for the provision of national, English- and French- language, 24-hour-per-day, tele-shopping specialty programming services, using full motion video.
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Background
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The sole prospective shareholder of the company to be incorporated is Canadian Home Shopping Network (CHSN) Ltd. (CHSN), which is, in turn, controlled by Rogers Communications Inc. A tele-shopping service produced by CHSN is currently distributed by satellite in both French and English and has been provided to a number of cable television operators across Canada for well over a year without full motion video. In return for distributing the service to subscribers, each cable company receives a percentage of all tele-shopping sales made to residents of its service area.
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Under the Cable Television Regulations, 1986 (the regulations), so long as this or any other service remains an alphanumeric service, it may be distributed by cable television licensees without Commission authorization. An alphanumeric service is defined in the regulations as consisting of:
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letters, numbers, graphic designs or still images, or any combination thereof, that may be accompanied by back-ground music, the programming service of a licensed A.M. station or licensed F.M. station other than an educational radio programming service the operation of which is the responsibility of an educational authority, the service of Weather Radio Canada or spoken words that simply and briefly explain or describe what is represented by the letters, numbers, graphic designs or still images. (Emphasis added).
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The current applications were submitted following Public Notice CRTC 1988-26 dated 24 February 1988. That notice, entitled "Enquiries and Complaints about the Canadian Home Shopping Network (CHSN) Service Distributed by Some Cable Licensees", contained the Commission's finding that the tele-shopping service, as it was being operated in late 1987, did not fall within the definition of an "alphanumeric service".
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Specifically, in reviewing tapes of the tele-shopping service distributed in mid-October and early December 1987, the Commission found that the video portion of the service, on occasion, depicted the items being offered for sale as moving in slow rotation or in an abrupt and unnatural manner. Further, the Commission noted that the audio portion of the service contained virtually continuous talk, including repetitious descriptions of the items for sale and telephone conversations with tele-shopping club members and prospective purchasers, often on such extraneous topics as the weather.
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The Applications
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CHSN's principal business activity is the merchandising in Canada, by means of a live, televised shop-at-home service, of a variety of products, including jewellery, ceramic collectables, health aids, cosmetics, toys, fashions, electronics and small applicances.
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The specialty programming services proposed by the applicant are intended to replace the existing services offered by CHSN. The applicant considers that the use of full motion video would increase the quality of the service, as perceived by viewers, thus increasing sales and ensuring the long-term viability of the tele-shopping business. According to the applicant, full motion video would permit it:
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... to offer a wider variety of products since some items, such as clothing, cannot be exhibited adequately within the current still image format (and) will render much of the current audio portion of the service unnecessary. At the present time, the on-air hosts ... must stress the attributes of the products being displayed to overcome the still images.
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The Commission has examined the current applications using the policy criteria enunciated in Public Notice CRTC 1986-199 dated 13 August 1986. In that notice, entitled "Call for Applications for Network Licences to Offer Canadian Specialty Programming Services", the Commission stated that specialty programming services should, in particular, "contribute to the realisation of the objectives set out in the Broadcasting Act and strengthen the Canadian broadcasting system" and "increase the diversity of high quality programming to Canadians and provide new opportunities and revenue sources for Canadians, in particular producers and artists".
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CSHC/Le Club noted the large annual payments, currently amounting to approximately $7.6 million, which the tele-shopping service makes to the Canadian telecommunications industry in return for satellite, uplink and telephone services, and the additional $2 million per year it pays in commissions to cable television licensees. The applicant also emphasized the direct employment that the service provides for approximately 430 individuals, including some 30 broadcast technicians. It also noted the jobs created by the service in the parcel delivery business, as well as for those employed by numerous Canadian manufacturers and wholesalers. Moreover, the applicant suggested that its decision to invest in the proposed teleshopping service rather than in the oil and gas industry, for example, represented a positive contribution to the Canadian broadcasting system.
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In the Commission's view, however, while several of the potential advantages claimed by the applicant may well benefit the Canadian communications industry, they would not necessarily strengthen the Canadian broadcasting system in any meaningful way or contribute significantly to the realisation of the objectives of the Broadcasting Act.
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The applicant suggested that it would contribute in the diversity of services available to Canadians. The applicant, however, failed to demonstrate to the Commission's satisfaction that the tele-shopping service, when operated as a specialty programming service, would offer any more diversity than that represented by the alphanumeric tele-shopping service.
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At the hearing, the applicant stated that it would allocate a minimum of $3 million over five years for advertising on small market AM radio stations as a form of assistance for this component of the Canadian broadcasting system. In the Commission's view, the applicant's commitment would have had only a minimal impact on AM radio stations when assessed on a per-market or per-station basis. Moreover, the Commission considers that the proposed assistance should more accurately be considered as an operating expenditure forming part of the cost of doing business for CHSC/Le Club rather than as a contribution or form of assistance to the radio broadcasting industry.
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A further argument advanced by the applicant was that the proposed services would constitute a necessary first stage in the introduction of interactive technology in this country. In its presentation at the hearing, CHSN stated that it "offers state-of-the-art technology through its digitally-oriented broadcast studies and world-class satellite and cable delivery systems". The Commission, however, considers that the combination of existing cable television and conventional telephone technology envisaged under these proposals falls short of placing the applicant at the forefront of innovation in the area of interactive services.
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The Canadian Association of Broadcasters submitted that the applicant's proposal should not be approved "because it asks for 60 minutes per hour of commercial messages and contains no requirement to serve Canadian broadcasting and cultural objectives while, at the same time, private broadcasters are restricted as to the quantity of commercial messages from which they are to derive all their revenue and fulfill a wide range of regulatory and licence responsibilities".
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In reply, the applicant contended that its proposed programming was "fundamentally different than the commercial spots of conventional broadcasters". The Commission, however, considers that the bulk of the applicant's proposed programming would fall within the definition of a commercial message set out in the regulations. Thus, approval of this proposal would constitute an exception to the Commission's general policy not to permit licensees of specialty programming networks to broadcast in excess of 12 minutes of commercial messages per hour. In light of the proposed contributions put forward by the applicant, the Commission does not consider that an exception to its policy is warranted.
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In reaching its decision, the Commission has taken into account CHSN's statement that long-term viability would not likely be attainable if it is only permitted to operate within the definition of an alphanumeric service contained in the regulations, as interpreted in Public Notice CRTC 1988-26. The Commission has not been persuaded to alter its definition of an alphanumeric service which, it notes, was in place well before the launch of CHSN's present tele-shopping service.
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Accordingly, the Commission reminds cable television licensees that they may only distribute the tele-shopping service furnished by CHSN provided it conforms fully to the definition of an alphanumeric service. Specifically, as stated in public Notice CRTC 1988-26, the video portion of any alphanumeric service (other than numbers, letters or other pictorial representation by way of graphic designs) " ... must remain still at all times" and the spoken word component of such a service " ... must not extend beyond a simple and brief description or explanation of what is represented by the video portion of the service".
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Approximately 60 interested parties intervened. Some two thirds of the interventions supported the current applications and were submitted by, among others, individuals, various cable television operators and those whose products have been marketed on the tele-shopping service. The Commission has taken the views of these interveners into account in reaching its decision.
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The Commission also acknowledges the concerns expressed regarding these applications in the other 21 interventions, including those submitted by individuals, certain cable television interests in Quebec, conventional television broadcasters and by various provincial governments.
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Fernand Bélisle Secretary General
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DISSENTING OPINION OF COMMISSIONER ROSALIE GOWER
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In my opinion, it is unreasonable to force CHSN to stay in an alphanumeric service format with its strict limitation on movement and audio components when the service could be made much more attractive and useful to consumers by allowing full video and audio and, at the same time, potential abuses could be avoided through regulatory mechanisms and undertakings made by the applicant.
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Because of Canada's climate and population demographics, a high quality home shopping service could be of real benefit to Canadian consumers. Whatever its admitted serious inadequacies, the present CHSN is a beginning, using currently available technologies, and it should be permitted to evolve in a logical way to meet consumer needs and find a high quality Canadian design between the present nearly catatonic service and the fevered enthusiasm of the high pressure U.S. shopping networks.
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CHSN should not be accommodated through a change to the alphanumeric service definition, but licensed now as a Canadian specialty network or as a new type of programming service network which could be called "Interactive Shopping Services", with a precise definition as to its nature and the imposition of specific conditions of licence to obviate possible negative effects on other aspects of the Canadian broadcasting system. Also noted in the decision would be the consumer-protection related commitments of the applicant, its undertaking not to carry "co-op advertising", and the fact that the service is in English and French, is offered 24-hours-a-day and is closed captioned for the hearing impaired. No fee would be charged to subscribers, and Rogers' commitment that the 5% "price of access" fee would go into regulated revenues and that a non-exclusive licence was being requested for carriage on cable positions below Channel 31 would also be noted.
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The creation of a much more attractive service than presently exists should enable a significant financial contribution to be made to the Canadian broadcasting system, whether by means of the $3 million in advertising revenues to be directed to AM radio, as committed by the applicant at the hearing, or on further reflection, significant contributions directed to other areas.
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In my opinion, to insist on the status quo ensures the continuation of an extremely unattractive service until it withers and dies. I would prefer to give the applicant the tools to improve the service and challenge it to do so and to bring other benefits to the system.
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