|
|
|
Ottawa, 25 June 1993
|
|
Public Notice CRTC 1993-94
|
|
LICENSING OF TWO NEW SATELLITE-TO-CABLE AUDIO PROGRAMMING UNDERTAKINGS
|
This public notice serves as introduction to Decisions CRTC 93-235 and 93-236 of today's date, in which the Commission approves applications by Shaw Cablesystems Ltd. (Shaw), on behalf of DMX Canada Ltd. (DMX), and by Cogeco Radio-Télévision Inc. (Cogeco) for licences to carry on new broadcasting undertakings of a type to be licensed as "Pay Audio Programming Undertakings".
|
|
Background
|
|
In 1992, the Commission received applications by Shaw, on behalf of DMX, and by Cogeco, for broadcasting licences to carry on new pay audio programming undertakings. Both applicants proposed services consisting of music, primarily digitally-recorded, that will be delivered by satellite to cable distribution undertakings across Canada and made available to their subscribers on a discretionary basis for a fee of approximately $10.00 per month.
|
|
Both services are designed to appeal to audiences representing a broad spectrum of tastes and preferences, including those for music in categories not readily accessible on radio. The music, delivered without commercials and with little or no spoken word, is to be packaged by format or theme, each carried on its own digital audio channel. DMX, a Canadian corporation, is effectively owned and controlled by Shaw through its ownership of 80% of the company's voting shares. The remaining 20% of the voting shares of DMX are owned by International Cablecasting Industries Inc. (ICI), a non-Canadian corporation. Shaw, a well-established Canadian broadcaster with extensive holdings in both the radio and cable television industries across Canada, is effectively controlled by James R. Shaw of Edmonton.
|
|
Cogeco is the licensee of several radio and television programming undertakings in the Province of Quebec. It is effectively owned and controlled indirectly by Mr. Henri Audet of Montréal, whose holding companies own a number of cable distribution undertakings, serving more than 160 communities across Canada.
|
|
DMX proposed a service that, initially, would include three channels of digital audio programming produced in Canada by the applicant, and thirty channels produced in the United States by ICI, the proposed 20% shareholder in DMX. At this time, ICI is one of two companies operating competing satellite-to-cable audio programming services in the United States. The applicant proposed to increase the number of Canadian-originated channels by one in each of the first two years of operation, for a proposed total of five such channels. The proposed Canadian content levels of the programming produced in Canada ranges from 30% for a "Contemporary" channel, which will feature new releases in a variety of formats, to 100% for a "DISCovery" channel, which will showcase the studio recordings of unknown Canadian artists. The applicant has yet to confirm details regarding service delivery. Its tentative plans, however, were to arrange for the use of Canadian satellite facilities to transmit the Canadian-originated channels to the cable head ends of its affiliates. The non-Canadian channels produced by ICI would be transmitted to these head ends separately from a U.S. satellite.
|
|
The DMX application, received by the Commission before the Cogeco proposal was submitted, raised certain licensing and policy issues which the Commission decided would be best canvassed with the applicant and interested parties in the context of a public hearing. The Commission decided against issuing a call for competing applications, based on the applicant's assertion that its proposal was not predicated on the service being offered on an exclusive basis. Specifically, DMX stated that it would have no objections to the licensing of other similar services, and that it would not act to impede or prevent access by such services to cable distribution, whether on Shaw's cable systems or on other cable systems that might also be affiliated with DMX. The DMX application was heard at a public hearing in the National Capital Region, commencing 21 September 1992.
|
|
Cogeco intervened to the DMX application and informed the Commission of its intent to file a similar application. Cogeco noted in its intervention that its proposed service would not be premised on exclusive distribution. Based upon its understanding that the DMX service, if approved, would also be offered on a non-exclusive basis, Cogeco stated that it would not oppose the DMX application, nor would it object to consideration of its own proposal as part of a separate public process.
|
|
Subsequent to the September 1992 hearing of the DMX application, the Commission received Cogeco's application. The proposed service package includes thirty-one digital channels of music programming produced in the United States, and six additional channels of music programming produced in Canada. Cogeco also committed to add a seventh Canadian-originated channel in year two of operation. The minimum Canadian content of the Canadian-originated channels will be 50% in most cases, and 100% in the case of the two channels identified by the applicant as "Talent Canada/La Relève" and "Canada Rocks". The programming produced in the United States will be acquired by Cogeco from Digital Cable Radio (DCR), which currently competes against ICI for American cable subscribers.
|
|
Cogeco proposed to transmit the programming of its Canadian-originated channels either by Canadian satellite facilities or via land line from Montréal to DCR's facilities in New York City. All channels, both Canadian and American, would be uplinked to a U.S. satellite and downlinked as a package to cable affiliates on both sides of the border, and in Mexico. Cogeco's application was considered at a public hearing in Moncton commencing 17 February 1993.
|
In the following section of this notice, the Commission examines the various licensing and policy considerations raised by these applications, and sets out the Commission's determination with respect to each. Conditions of licence and expectations specific to each applicant are contained in today's Decisions CRTC 93-235 and 93-236 pertaining to DMX and Cogeco respectively.
|
|
Licensing and Policy Considerations
|
|
In assessing these applications, the Commission considered a variety of issues concerning, among other things, whether the proposed services are indeed licensable. The Commission also discussed this issue extensively with the applicants at the two public hearings referred to above. Touching on this issue were the comments contained in a number of interventions submitted to the Commission, expressing opposition to one or other or both of the applications. These were filed primarily by industry associations representing the views of Canadian over-the-air radio broadcasters, record producers, artists, composers and publishers.
|
|
Most of these interveners argued either that the number of Canadian channels proposed by the applicants was too small or that the overall ratio of Canadian to non-Canadian musical content within the services was insufficient. Several claimed that the applicants' plans for providing compensation to copyright holders are inadequate. Others argued that the applicants, at least with regard to the Canadian-originated music channels they propose, should be obliged to abide by the same rules as private radio stations with respect to such matters as the use of hits and the reasonable distribution of Canadian material.
|
|
These questions, as well as such other matters as the details surrounding the carriage of the new services on cable, are addressed below.
|
|
a)Canadian Content
|
|
Paragraph 3(1)(f) of the Broadcasting Act (the Act) states that each broadcasting undertaking:
|
|
... shall make maximum use, and in no case less than predominant use, of Canadian creative and other resources in the creation and presentation of programming, unless the nature of the service provided by the undertaking, such as specialized content or format... renders that use impracticable, in which case the undertaking shall make the greatest practicable use of those resources...
|
|
In assessing the applications, the Commission has given particular consideration to the very specialized nature of the musical fare to be offered on each channel of the two services. Because the channels will broadcast music virtually around the clock, without advertising and with little or no spoken word, given as well the fact that the availability of recorded Canadian music in many of the proposed narrowcast categories or formats is limited, the Commission has concluded that it would be impracticable for these undertakings to make predominant use of Canadian creative resources in the creation and presentation of programming. The Commission has therefore determined to accept what it believes to be, in the case of each undertaking, the greatest practicable use of these resources.
|
|
With specific regard to DMX, the Commission has required the applicant, by condition of licence, to provide the three Canadian-originated music channels it committed to offer initially, with the minimum levels of Canadian content it proposed for each, and increase the number of Canadian-originated channels by one in each of the first two years of its licence term, also with the minimum levels of Canadian content for each set out in the application. Further, DMX has been required, by condition of licence, to increase the number of Canadian-originated channels from five to seven by the end of the fourth year of its licence term. The additional two Canadian-originated channels shall each, by condition of licence, have a level of Canadian content of no less than 30%. In light of the nature of the service to be provided by DMX, the Commission considers that the number of Canadian-originated music channels, and levels of Canadian content specified for each, satisfy the requirements of paragraph 3(1)(f) of the Act.
|
|
Similarly, the Commission has required Cogeco, by condition of licence, to adhere to its commitment to provide a minimum of six Canadian-originated channels upon commencing operations, to increase the number of such channels to seven by no later than the end of year four of its licence term, and to provide the minimum levels of Canadian content it has proposed in respect of each channel.
|
|
b)Control
|
|
Paragraph 3(1)(a) of the Act specifies that the Canadian broadcasting system shall be "effectively owned and controlled by Canadians". One of the purposes underlying this requirement is to enable the Commission to assign to individual licensees full responsibility for all material they broadcast (whether Canadian-originated or not), and to hold such licensees fully accountable for any breaches of the Act.
|
|
The Commission expects the applicants, at any time, to be able to describe how they exercise such control, whether through agreements entered into with their affiliates or service providers, or through the distribution technology, or both. Accordingly, in today's decisions, the Commission has imposed conditions of licence stipulating that the new licensees must, at all times, be in control over all of the programming they broadcast.
|
|
c)Copyright Fees
|
|
With respect to the copyright issue raised by certain interveners, provision for a mechanism to establish the fees that will be paid by broadcasting undertakings for use of copyrighted material is contained in the Copyright Act, as recently amended by Bill C-88. Nevertheless, the Commission acknowledges that some time may pass before agreement concerning these fees is ultimately reached. It therefore notes the commitment made by both applicants, in the interim, to pay a minimum of 2% of their gross receipts to persons entitled to copyright payments. The Commission notes further, Cogeco's proposal at the Moncton hearing to adopt a sliding scale for such payments, rising from 2% to higher percentage levels as gross receipts achieve certain target levels.
|
|
d)Impact on Conventional Radio
|
|
Some interveners expressed concern that the proposed services would compete for and fragment the audiences of conventional radio stations. They argued that the applicants should thus be required to abide by the same rules as radio.
|
|
Based on the available evidence, the Commission is not convinced that any audience fragmentation that may be created by the introduction of the new pay audio programming services will significantly affect the advertising revenues of conventional radio stations. It notes in this regard the significant differences that exist between conventional radio and the type of discretionary, narrowcast, music-only, non-portable services proposed by the applicants. It also notes the very limited cable penetration achieved to date by similar services operating in the U.S., and the applicants' equally modest projections in this regard.
|
|
As for the suggestion that the applicants should abide by the same requirements as those imposed on conventional radio licensees concerning such things as the use of hits and the reasonable distribution of Canadian content, the Commission considers that the very nature of the proposed services renders these requirements unnecessary.
|
|
The Commission's decisions issued today do include expectations that the applicants arrange their channel packages in such a manner that the Canadian-originated channels are not grouped together at the beginning or end of the decoder dial or other equipment that subscribers will use to tune to the different channels; rather, that they ensure that each such channel is distributed in a suitable manner, alongside or within groups of other channels offering similar musical fare.
|
|
e)Cable Distribution
|
|
Earlier in this notice the Commission made reference to the commitments of both applicants, in their negotiations with potential cable television affiliates, not to insist on the exclusive distribution of their respective services, so as to ensure fair and equitable access by other similar programming services to the same cable distribution facilities.
|
|
The Commission notes that the channel capacity of cable television undertakings across the country may not always be sufficient to accommodate all of the programming channels that will make up the DMX and/or Cogeco services. DMX or Cogeco may therefore decide to negotiate agreements with cable affiliates for the distribution of channel packages consisting of fewer than all of the channels authorized. In that event, the Commission will insist, by condition of licence, that all affiliation agreements reached between either Cogeco or DMX and the licensees of cable television undertakings contain the stipulation that the latter must distribute all available Canadian-originated channels before any non-Canadian channels are distributed.
|
|
The Commission intends soon to publish revised lists of satellite services, adding the proposed services of DMX and Cogeco to those eligible for distribution by licensees of Class 1 and Class 2 cable distribution undertakings and by those of Part III undertakings. Cable licensees may then proceed to enter into contractual arrangements for the distribution of one or other or both of these services. Cable licensees are reminded, however, that in accordance with sections 19 and 25 of the Cable Television Regulations, 1986, the services delivered to them by either DMX or Cogeco may not be altered or curtailed. Licensees of Class 1 and Class 2 undertakings are also reminded that these pay audio services may not be linked to the distribution of any non-Canadian eligible satellite services.
|
|
f)Implementation of Service and Licence Term
|
|
Consistent with the Commission's standard practice in issuing new licences, it has required both applicants, by condition of licence, to be in operation within twelve months of today's date. It notes, however, that DMX and Cogeco intend to be operational well in advance of that deadline.
|
|
The Commission is satisfied that the proposed services will prove to be attractive and complementary additions to those currently available on cable, and that their introduction to the Canadian broadcasting system will not have any significant adverse impact on any conventional services. The Commission also considers that the number of Canadian-originated channels required of both applicants, and the Canadian content levels specified for these channels, are reasonable minimum conditions to be met during the initial years of operation. The Commission's determination in this regard is based in large part on the fact that the marketability of pay audio programming services remains to be tested in Canada. For the same reason, however, the Commission considers it reasonable to issue licences for a term of five years only. This period will enable the applicants to establish their operations and will allow the Commission, at the time of licence renewal, to assess whether the Canadian content requirements noted above should be maintained or increased, taking into account the financial performance of these services in the Canadian cable market.
|
|
Allan J. Darling
Secretary General
|
|
|