ARCHIVED -  Decisions CRTC 90-78

Decision

Ottawa, 5 February 1990

Decision CRTC 90-78

Allarcom Pay Television Limited (SuperChannel)

Edmonton, Alberta - 891835100

Related Documents: Decision CRTC 82-240, dated 18 March, 1982; Public Notices 1984-140 dated 11 July, 1984, 1986-110 dated 13 May, 1986, 1986-313 dated 4 November 1986 and 1988-173 dated 27 October 1988; and CRTC Notice of Public Hearing 1988-32 dated 15 April 1988.

Following a Public Hearing held in the National Capital Region beginning on 24 October 1989, the Commission approves the application by Allarcom Pay Television Limited (APT) for a network licence for the purpose of providing an English-language pay-per-view service, on an experimental and temporary basis, to subscribers of its discretionary pay television service, SuperChannel.

The Commission will issue a network licence to Allarcom Pay Television Limited expiring 2 February 1992 and the licence will be subject to the terms and conditions set out in Appendices A and B to this decision and in the licence to be issued. As proposed by APT, the service will only be distributed by three cable television undertakings serving three locations in the province of Saskatchewan (Regina, Saskatoon and Yorkton).

BACKGROUND

When the Commission first licensed networks for the distribution of discretionary pay services in 1982, it chose to adopt a 'pay-per-channel' model although pay-per-view (PPV) models had been contemplated. In response to applications filed and industry interest, the Commission issued public notices in 1984 and 1986 stating that it considered the licensing of networks for PPV services to be premature given the potential negative impact such services could have on pay-per-channel services, and cited a lack of demonstrable demand. In 1988, in the context of the renewal of the licences of the general interest pay television networks, the Commission invited comments on the relative merits of PPV models and stated in Public Notice CRTC 1988-173, which accompanied the renewal decisions, that it would be prepared to deal with PPV proposals 'provided they reflect the existing pay television structure'. The current application by APT is the first PPV proposal filed in response to the afore-mentioned public notice.

THE APT PROPOSAL

i)Experimental Provisions

APT proposed, and the Commission has accepted, that the PPV model being put forward was for the purpose of experimentation, and APT has stated that it does not have a reasonable expectation that the licence will be renewed at the end of the 24-month licence term. APT stated at the hearing:

  '... it is our understanding that traditionally when a licence is awarded and it comes up for renewal, that the licensee has some reasonable expectation that the licence will, in fact, be renewed in the absence of any kind of problem .... perhaps what we might do in this instance is, in words, waive that sort of accrued right and say that when we come back to you, we will come back as if it were a new licence application'.

As was discussed at the hearing, the Commission expects APT to ensure that all subscribers to the service are adequately advised of the terms and of the limited duration of the experimental SuperChannel Main Event (SME) service.

The Commission wishes to make it clear that its approval of the PPV structure proposed by APT does not imply that the Commission necessarily endorses this structure as the most appropriate model for network PPV, or that its approval precludes the licensing of applications which propose alternative structures or approaches to the provision of PPV services. In this regard, APT stated at the hearing: 'This is not an application which precludes another application from a third party'. Further, approval of this experimental PPV application is not intended to imply that the Commission, in approving the APT application, has made a determination with respect to the type or adequacy of the contributions to the Canadian broadcasting system which may be required of future applicants. The Commission advises that future applicants will be required to address the Commission's stated concerns for the structure of the existing pay television services and clearly outline how their proposed PPV services would contribute, in a meaningful manner, to the Canadian broadcasting system, and, particularly to the development and exhibition of Canadian programming.

ii)Overview

APT proposes to offer SME through its cable television affiliates, to the approximately 20,000 SuperChannel subscribers in the test markets of Regina, Saskatoon and Yorkton. Feature films, supplemented by sporting and cultural events, will be offered on five channels between the hours of 7:00 PM and 1:00 AM weekdays and between the hours of 2:00 PM and 1:00 AM on Saturdays and Sundays. APT intends to exhibit 20 new or 'first month' titles each month comprised of approximately 18 non-Canadian and two Canadian feature films supplemented by one or two special event programs. It indicated that approximately 25% of the service will consist of titles offered in previous months. APT will be responsible for acquiring the SME product and providing scheduling and marketing assistance to the cable television affiliates.

When asked at the hearing about the merits of its proposed 'buy-through' approach, APT stated that existing SuperChannel subscribers already have the necessary addressable equipment in their homes and that it considers that such a model responds to the Commission's stated concern that a PPV service reflect the existing pay-per-channel structure. It also remarked that this concept was proposed to APT by a cable television licensee who wished to take take advantage of APT's experience with program acquisition, scheduling and marketing acquired through the operations of SuperChannel. Further, APT stated that there would be economies of scale to be realized by utilizing SuperChannel's administrative resources. It also considers that a PPV service structured in this manner may prevent an erosion of subscribers from SuperChannel resulting from the introduction by cable television licensees, of low-price options for specialty services. Moreover, APT stated that a PPV service should be attractive to home video users because of its convenience, thereby repatriating to the Canadian broadcasting system monies currently being spent outside the broadcasting system on movie rentals.

By virtue of the fact that APT, which is the licensee providing the pay television service SuperChannel, is the proposed network operator and that the PPV service will be available only to SuperChannel subscribers, the Commission is of the view that the model proposed by APT is a reasonable approach to address the Commission's concerns relating to the impact of PPV on existing pay-per-channel services.

iii) Commitments to Canadian Programming

In its application, APT proposed that the Commission impose a condition on its PPV network licence requiring APT to schedule any new Canadian dramatic production which exceeds 75 minutes in duration, that is suitable for PPV exhibition and that meets the Pay Television Standards and Practices. It defined 'suitable' as meaning programs that possess high production values and which have not been exhibited by a pay or conventional television broadcaster. A further provision proposed is that principal photography be completed subsequent to the publication of this decision. APT estimates that there will be sufficient programming produced to exhibit two new Canadian feature films per month, although it did not wish to accept such a monthly exhibition quota as a condition of licence. It also argued that because of the nature of PPV services, any requirement specifying a percentage of time to be devoted to the broadcast of Canadian programs would serve only to 'ghettoize' Canadian productions and cause the few available Canadian films to be over-exposed. Moreover, it stated that repeated showings on a PPV model would not necessarily generate additional revenues.

With respect to expenditures for Canadian programming, APT proposed a condition of licence obligating it to invest in Canadian programming 100% of the after-tax profits derived from the PPV test. It anticipates that the PPV experiment will not create enough business to allow for a condition of licence to be imposed which would require that a percentage of gross revenues be expended for Canadian programming.

In Appendix A to this decision, the Commission has set out conditions of licence relating to the distribution of Canadian programs and expenditure requirements which it considers to be appropriate for this PPV test. In this regard, the Commission has accepted an investment commitment based on profits rather than gross revenues because of the experimental nature of this application. The Commission encourages APT to meet its objective to make two new Canadian dramatic programs available on SME each month.

The Commission remains concerned about the ability of PPV to contribute in a meaningful manner to the exposure and viewing of Canadian programming and advises that it will carefully review the contribution which this experiment and other PPV proposals, if any, will make to the Canadian broadcasting system.

APT asked the Commission to impose a condition of licence establishing a formula for the distribution of gross revenues among the network licensee, the cable television affiliates and the program supplier. The Commission advises that consistent with its mandate and with past practice, it does not regulate rates to be paid to third parties such as program suppliers, and, accordingly, it declines to impose the condition of licence proposed by APT.

In arriving at its decision to approve the SME service, the Commission has taken into consideration the seven interventions submitted with respect to this application. It notes that only two interveners, Acme Video Inc. and Mr. Garry Gelowitz were completely opposed to the concept of testing a PPV service and that this opposition was related to concern for the home video market. The remaining interveners, including the Canadian Broadcasting Corporation and Rogers Canada Inc., which made presentations at the hearing, expressed qualified support for the testing of a PPV service. They were concerned, however, about the reporting methodology proposed by APT or feared that the Commission may limit the scope of future PPV applications if it approved the proposal by APT. In Appendix B to this decision, the Commission has outlined reporting requirements which it considers will permit the collection of data essential to the evaluation of this PPV experiment.

The Commission advises that the requisite applications to be filed by the three licensees of the proposed affiliated broadcasting receiving undertakings, will be processed as expeditiously as possible in order to provide them and APT with a sufficient time-frame in which to experiment with scheduling, pricing, programming, marketing and the technology associated with a pay-per-view service. Guidelines and expectations related to applications to be filed by the cable television affiliates are set out in Appendix C to this decision.

Fernand Bélisle
Secretary General

'APPENDIX A' TO DECISION CRTC 90-78

TERMS AND CONDITIONS OF THE PPV LICENCE AND EXPECTATIONS OF THE COMMISSION

1. It is a condition of licence that the PPV model approved by this decision be structured in accordance with the 'buy-through' approach proposed by APT whereby PPV subscribers must be subscribers to the general interest pay television service SuperChannel.

2. It is a condition of licence that the PPV test be conducted with Regina Cable Co-operative, Saskatoon Telecable Ltd. and Northeastern Cablevision Ltd., only in the Saskatchewan markets of Regina, Saskatoon and Yorkton.

3. It is a condition of licence that APT file reports with the Commission every six months during the term of this licence and that the first report be filed six months from the date of this decision. It is also a condition of licence that the reports to be filed adhere to the reporting requirements set out in Appendix B to this decision and that concurrent abridged reports providing aggregated financial and other data be filed in order that they may be placed on the public file.

4. It is a condition of licence that APT schedule and distribute on the SME service, each and every dramatic Canadian program (as defined in the Television Broadcasting Regulations, 1987):

 a) which exceeds 75 minutes in duration;

 b) in which principal photography was completed after 5 February 1990;

 c) which is suitable for a PPV service;

 d) which is suitable for exhibition under the Pay Television Programming Standards and Practices.

5. It is a condition of licence that for each of the two years of this licence, the licensee will expend on the investment in Canadian programs an amount equal to its net income after taxes resulting from the exhibition of the SME service for each such year. For this condition of licence, the definition of 'Canadian program' is as set out in the Television Broadcasting Regulations, 1987 as amended. Further, '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 a loan.

6. It is a condition of licence that the programming supplied not contain:

 a) anything in contravention of the law;

 b) any abusive comment or abusive pictorial representation that, when taken in context, tends or is likely to expose an individual or a group or class of individuals to hatred or contempt on the basis of race, national or ethnic origin, colour, religion, sex, age or mental or physical disability; and,

 c) any commercial message as defined in the Television Broadcasting Regulations, 1987.

7. It is a condition of licence that:

 a) the licensee shall ensure that it has access to clear and intelligible audio-visual recordings of each program distributed on the five pay-per-view channels for a period of four weeks after the date of the distribution or, where it receives a request by the Commission before the expiry of that four-week period, for a period of eight weeks after the date of distribution;

 b) where, before the expiration of the applicable period referred to in subsection a), the Commission requests from the licensee a clear and intelligible audio-visual recording of the programming supplied by the licensee, the licensee shall furnish the recording to the Commission forthwith.

8. The Commission expects APT to ensure throughout the term of this licence, that where a program to be distributed on the SME service is not suitable for an audience other than an adult audience by reason of its subject matter or treatment thereof, or any characteristic thereof, including its depiction of violence, nudity or explicit sexual conduct, or by reason of coarse language or other content likely to be offensive to some viewers, the viewing audience be so advised through the provision of an appropriate indication thereof at the beginning, and in all promotion, of the program.

9. The Commission expects APT to adhere, at all times, to the Pay Television Programming Standards and Practices in offering the SME service.

'APPENDIX B' TO DECISION CRTC 90-78

APT'S REPORTING REQUIREMENTS FOR THE PPV EXPERIMENT

APT, as the network operator, is required to file semi-annual reports to the Commission on the progress and results of the PPV experiment authorized by this decision. APT is expected to advise the Commission, at the earliest possible date, preferably at the time of the filing of its second semi-annual report, of its intentions regarding its involvement in PPV. Specifically, the Commission will wish to be informed whether APT will seek a renewal of the licence granted by this decision in order to continue the testing of PPV, whether it will submit an application for authority to operate a permanent PPV service or whether it will allow the licence to lapse.

The reports to be filed by APT should provide a clear breakdown, where applicable, between Canadian and non-Canadian programming and between feature films, event programs and any other programming. The reports are to include the following information recorded on a monthly basis, as well as any other relevant information:

i)  number of PPV subscribers relative to the number of basic and 'SuperChannel' subscribers in each of the test markets;

ii)  number and titles of feature films and events broadcast, including the number of showings (Canadian and non-Canadian);

iii) number and titles of 'first-run' showings of feature films and events (Canadian and non-Canadian);

iv)  number of households in each system purchasing feature films and events (Canadian programs and non-Canadian programs) by category, by time of day and by retail rate;

v)  the retail rate charged for feature films and events (Canadian and non-Canadian origin);

vi)  description of scheduling and pricing strategies for the service and their results, particularly for Canadian programs;

vii) gross revenue earned by

 a) feature films (Canadian and non-Canadian); and,

 b) events (Canadian and non-Canadian);

viii) distribution of revenue to Canadian and non-Canadian program suppliers by

 a) feature film (Canadian and non-Canadian); and,

 b) event (Canadian and non-Canadian);

ix)  expenses incurred for

 a) programming (Canadian and non-Canadian);

 b) events (Canadian and non-Canadian);

 c) marketing, feature films vs events (Canadian and non-Canadian);

 d) promotion, feature films vs events (Canadian and non-Canadian); and,

 e) administration, feature films vs events (Canadian and non-Canadian);

x)  operating profit (loss) and net income (loss), in each month, and in aggregate for the year, for the pay-per-view service;

xi)  the buy-rates of any shared programming activity between the PPV service and 'SuperChannel';

xii) report on the availability and acquisition of Canadian programming in the marketplace for pay-per-channel and pay-per-view services;

xiii) report on investment activity in Canadian programs and in the PPV service by APT and the cable affiliates;

xiv) report on the impact of the PPV service on 'SuperChannel' pay television subscription and viewing levels; and,

xv)  report on subscriber feedback.

'APPENDIX C' TO DECISION CRTC 90-78

GUIDELINES AND EXPECTATIONS WITH RESPECT TO RELATED APPLICATIONS

With a view to ensuring that the requisite applications to be submitted by SME's proposed cable television affiliates in Regina, Saskatoon and Yorkton may be processed by the Commission expeditiously, thereby allowing a sufficient time-frame in which to experiment with the PPV service, the Commission offers the following guidelines and expectations relating to such applications.

a) The Commission is of the opinion that there should be a contribution made by the SME affiliates to the Canadian broadcasting system. Accordingly, the Commission expects that the broadcasting receiving undertaking licensees will commit, in their applications to distribute the SME service, to reinvest any profits back into the operation. Such investment may involve, for example, additional marketing or technical support for the experimental service during the term of the licence issued for the SME service. The Commission will wish to be advised of the methods and extent of such contributions on a regular basis throughout the term of the experiment.

b) The Commission expects that, in their applications, the broadcasting receiving undertaking licensees will commit to maintain monthly logs and records of material broadcast on their respective undertakings pertaining to the SME service and that they will commit to submit reports on this matter to the Commission on a semi-annual basis, commencing six months from the date of implementation of the service.

c) The Commission advises the proposed affiliates that they should review all of the terms and conditions relating to the licence which will be issued to APT for the SME service in order to determine whether concurrent terms and conditions should be applicable to any licences which may be granted to them.

With respect to the above, the Commission draws the attention of the proposed cable television affiliates to the fact that it considers any commitments made by them in their applications should be for the duration of the SME experiment. Further, it wishes to emphasize that should the applications put forward by the proposed affiliates be approved, the Commission is not thereby precluding alternative approaches or different levels of commitments by broadcasting receiving undertaking licensees in any subsequent applications for PPV licences.