ARCHIVED -  Decision CRTC 94-278

Decision

Ottawa, 6 June 1994

Decision CRTC 94-278

Allarcom Pay Television Limited

Western Canada - 931543300Eastern Canada - 931552400

Approval of New Pay Television Services: "The Classic Channel" and "MOVIEMAX"

Following a Public Hearing in the National Capital Region commencing 14 February 1994, the Commission approves the applications by Allarcom Pay Television Limited (APT), and by First Choice Canadian Communications Corporation (First Choice), for broadcasting licences to carry on new English-language (Pay Television) programming undertakings, whose services will be financed entirely by subscription revenues, and will be delivered to cable systems for distribution on a fully-discretionary basis to cable subscribers in Western Canada and in Eastern Canada, respectively.

The Commission will issue licences expiring 31 August 2000, subject to the conditions specified in the appendices to this decision and in the licences to be issued.

Nature of the Services Proposed

Both applicants propose to offer programming consisting of Canadian and foreign feature films copyrighted at least five years prior to the broadcast year in which they are distributed and other related programming materials, as described in the conditions of licence set out in the appendices to this decision.

Ownership

APT is the licensee of the existing English-language, general interest discretionary pay and pay-per-view services operating west of the Ontario-Manitoba border, and known as "SuperChannel" and "Home Theatre", respectively. It also owns 50% of The Family Channel Inc., licensee of the national, English-language general interest pay television service for children, youth and families. APT is a wholly-owned subsidiary of WIC Western International Communications Ltd.

First Choice is the licensee of the existing English-language, general interest pay television service operating in Eastern Canada known as "The Movie Network" or "TMN". It holds a controlling interest in the partnership licensed to provide a pay-per-view service in Eastern Canada ("Viewer's Choice") and in the national, general interest French-language pay television licensee (Premier Choix:TVEC Inc.). It also owns the remaining 50% of The Family Channel Inc. First Choice is controlled indirectly by Astral Communications Inc. (Astral), a Montréal-based company active in the production and distribution of feature films in Canada and elsewhere.

Licensing Objectives

In Decision CRTC 82-240 dated 18 March 1982, the Commission summarized its objectives for pay television as follows:

 Through its capacity to generate revenue, pay television should contribute significantly to the broadcasting system by increasing the diversity of programming available to all Canadians from coast-to-coast and by enhancing  the quality and distinctiveness of Canadian programs. Pay television should provide new opportunities and revenue sources for the program production industry in Canada, particularly for producers currently unable to gain access to the broadcasting system. Pay television should also provide new opportunities for developing programs that reflect the various regions of Canada....

The importance attached to achieving these particular objectives was underscored by the Commission in Public Notice CRTC 1993-74 dated 3 June 1993, which was issued following the Structural Public Hearing held in March of that year. Specifically, the Comission noted the need to ensure the availability of a diverse and attractive package of Canadian services, including pay television services, to compete against the expected influx of non-Canadian pay-per-view services delivered via such new technologies as high-powered Direct Broadcast Satellites (DBS).

The Commission is satisfied that licensing of the services proposed by First Choice and APT is consistent with these goals.

The Commission notes that the new services will be available for distribution by cable licensees at a stand-alone wholesale rate of between $5.00 and $6.00 per month. At the hearing, however, each licensee confirmed its intention to promote the sale of its new service as part of an attractive, complementary and affordable package that would include its existing pay service. As clarified in Public Notice CRTC 1994-59, which serves as introduction to these and other decisions, and in Public Notice CRTC 1994-60, which sets out revised distribution and linkage requirements, such a package may also include as many as, but no more than, five foreign specialty services.

The Commission expects each licensee, consistent with its business plan, not to permit its service to be offered as part of any unencrypted high penetration tier.

According to the applicants, when distributed as part of a larger discretionary package, the new services would have a per-subscriber wholesale rate in the range of $2.00 to $2.50. This is a reasonable wholesale rate, in the Commission's view, and reflects the fact that most of the programming on each service will consist of older movies, the rights to which may have already been acquired by First Choice and APT as part of larger purchases from film distributors. Many of these older films, therefore, will have already been distributed on SuperChannel and TMN, or have simply been left unshown by the licensees.

The Commission is convinced that the new services, when marketed as part of larger, discretionary pay television packages, will significantly enhance the perceived value of the existing premium pay services among consumers, will strengthen the ability of the pay television industry to compete with pay-per-view services provided by foreign DBS, and will thus allow First Choice and APT to continue to make their expected contributions to the Canadian broadcasting system. The Commission considers that MOVIEMAX and The Classic Channel will further benefit the system as a whole by serving to speed the roll-out of universal addressability by the cable television industry.

The Commission also notes that, because they fall under the same ownership as the existing English-language premium pay services operating in Eastern and Western Canada, the new services will have no competitive impact on these existing services or otherwise affect their ability to meet the programming obligations established for them by the Commission. Nor should the new services have any appreciable direct impact on other broadcasting services, since the proposed programming will include no commercial advertising material and will consist, for the most part, of films that have already been broadcast on conventional television.

Cable Access and the Issue of Channel Capacity

APT plans to launch its service on 1 January 1995; this would coincide with the projected start-up date for most of the six new English-language specialty services licensed by the Commission today in Decisions CRTC 94-279 to 94-284. First Choice, on the other hand, indicated that it would be ready to make its service available to subscribers as early as 1 September of this year.

In Public Notice CRTC 1994-59, the Commission draws attention to the fact that some cable systems will not have the channel capacity sufficient to distribute all of these new specialty and pay services immediately. As announced earlier in Public Notice CRTC 1994-55 dated 16 May 1994, the cable industry's ACCESS COMMITMENT will help ensure the availability, on most cable systems, of a sufficient number of channels to distribute this group of new pay and specialty services. Nevertheless, the Commission expects that the channel capacity limitations of some cable systems will prevent a certain percentage of cabled households from having access to all of the new pay and specialty services for a period of time following their launch.

Clearly, having immediate access to the largest possible number of cable subscribers is more critical to the business plans and ultimate viability of the new specialty services than it is to either APT or First Choice, whose purpose is to complement their existing pay and pay-per-view services, and whose start-up costs and programming expenses will, by comparison, be far lower. Consequently, and as expressed by the Commission in its introductory notice as a matter of policy, it will expect cable licensees, first, to provide access on their systems to all of the newly-licensed specialty services before making channel space available for the distribution of either MOVIEMAX in Western Canada or The Classic Channel in Eastern Canada. The Commission is satisfied that both of these new pay television services will be able to withstand this limited, short-term constraint on the size of their respective potential subscriber base.

Support for Canadian Dramatic Films

At the hearing, the Commission discussed with the applicants their plans and commitments with respect to providing financial support to, and exposure for, Canadian dramatic films. The Commission notes in this regard, the commitment by First Choice to allocate to Canadian dramatic programs, each year, between 69% and 84% of its total expenditures on the acquisition of, or investment in, Canadian programs. For its part, APT's commitment to expenditures on Canadian dramatic programs was in the roughly-equivalent range of between 75% and 80% of its total annual Canadian programming expenditures.

The Commission notes the further commitment by First Choice to allocate funds each year for the restoration and conservation of Canadian films. Consistent with this commitment, the Commission expects the licensee to expend, in the broadcast year commencing 1 September 1994, not less than $50,000 for such restoration and preservation; the licensee shall increase this contribution by not less than $5,000 in each subsequent broadcast year of the licence term, representing a minimum total expenditure over that period of $375,000.

The Commission questioned the applicants at the hearing regarding what Canadian films they would consider to be "suitable" for distribution on their respective services. Both had made use of the term in their written applications; at the hearing, both indicated that one of their criteria for identifying a suitable Canadian film would be that it must first have received theatrical distribution. Given the perennial difficulties that confront members of the Canadian film industry in finding broad theatrical exposure for their product in this country, the Commission strongly encourages First Choice and APT, for the purposes of their definition of what constitutes a suitable Canadian film, not to limit themselves just to those films that have already received theatrical distribution.

As a related matter, but with specific regard to First Choice, the Commission noted earlier in this decision that effective control of this applicant resides with Astral. The Commission expects First Choice, in selecting Canadian films for distribution on its service, to treat all distributors on an equitable and non-discriminatory basis, with no preferential treatment being given to the films produced or distributed by Astral.

Other Matters

The Commission notes APT's commitment to fund the production of closed captions for the Canadian films distributed on its service through expenditures increasing from $30,000 in year 1 to $34,600 in year 6. APT also undertook to ensure that closed-captioned versions of films would be acquired whenever available, and that all original programming it commissions will have closed captions.

First Choice committed to ensure that all of the Canadian films distributed on its service will be closed captioned. The applicant will allocate for this purpose a minimum of $95,000 in year 1, rising to $104,000 in year 6. First Choice further committed to acquire the captioned version of non-Canadian product whenever it is available. All original Canadian productions that First Choice acquires for the service will also have closed captions.

The Commission considers that the greater financial commitment by First Choice for the provision of closed captions is not unreasonable, given that it will serve a much larger potential market than APT. The Commission expects both applicants to meet their commitments directed to providing service to the hearing impaired, and encourages them to exceed these commitments over the licence term.

In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled "Implementation of an Employment Equity Policy", the Commission announced that the employment equity practices of broadcasters would be subject to examination by the Commission. The Commission notes the applicants' commitments to develop plans to ensure employment equity in their operations. The Commission will review with the applicants at the time of licence renewal their performance in implementing these practices and plans regarding employment equity.

In the appendices attached to this decision, the Commission sets out the various conditions of licence, specific to each of the two new pay services. These conditions, which were discussed with the applicants at the hearing and which are consistent with their commitments, include requirements that the licensees adhere to the Pay Television Standards and Practices Code and to specific definitions concerning the nature of the service to be provided by each. Other conditions specify minimum quantitative requirements for the exhibition of, and expenditures on, Canadian programming.

Allan J. Darling
Secretary General

Allarcom Pay Television Limited
Western Canada - 931543300

First Choice Canadian Communications Corporation/Société canadienne de communications Premier Choix
Eastern Canada - 931552400

APPENDIX I / ANNEXE I

Conditions of Licence Concerning the Pay Television Programming Undertaking to Be Carried on by APT (MOVIEMAX)

 Nature of the Service

1. The licensee shall provide a regional, English-language general interest pay television programming service in British Columbia, Alberta, Saskatchewan, Manitoba, Yukon and the Northwest Territories. The service shall consist of feature films and theatrical releases (subcategory 7(d) of Item 6, Schedule I of the Pay Television Regulations, 1990) copyrighted at least five years prior to the broadcast year in which they are distributed by the service, and filler programming (category 12). Other programming shall be limited to programs that are feature-film-related and intended to set in context the feature film or films they accompany in the schedule.

 Exhibition of Canadian Programs

2. During the period between the date that operations commence and 28 February 1995, and during each semester thereafter throughout the licence term, the licensee shall devote to the exhibition of Canadian programming not less than

 a) 20% of the time from 6:00 p.m. to 11:00 p.m. (Mountain Time), and

b) 20% of the remainder of the time during which the service is in operation.

 Expenditures on Canadian Programming

3. In the broadcast year commencing 1 September 1995, the licensee shall expend in relation to this service not less than $1,115,000 on the acquisition of or investment in Canadian programming. In each of the subsequent broadcast years of the licence term, the licensee shall expend on the acquisition of or investment in Canadian programming not less than 22.75% of its revenues earned during the previous year.

 In the broadcast year commencing 1 September 1995 and in any subsequent year of the licence term, excluding the final year, the licensee may expend an amount on Canadian programming that is up to 5% less than the minimum required expenditure for that year, as set out or calculated in accordance with the terms contained in the first paragraph of this licence condition. Should the licensee avail itself of this flexibility in any year, it shall spend in the subsequent year of the licence term, in addition to the minimum required expenditure for that year, the full amount of the previous year's underspending.

 In the broadcast year commencing 1 September 1995 and in any subsequent year of the licence term, including the final year, the licensee may expend an amount on Canadian programming that is greater than the minimum required expenditure for that year as set out or calculated in accordance with the terms contained in the first paragraph of this licence condition; in such case, the licensee may deduct

a) from the minimum required expenditure for the next year of the licence term, an amount not exceeding the amount of the previous year's overspending; and

 b) from the minimum required expenditure for any subsequent year of the licence term, an amount not exceeding the difference between the overspending and any amount deducted under paragraph a) above.

 Notwithstanding the above, during the licence term, the licensee shall expend on Canadian programming, at a minimum, the total of the minimum required expenditures, as set out or calculated in accordance with the terms contained in the first paragraph of this licence condition.

 Industry Standards and Practices Code

4. The licensee shall adhere to the Pay Television Programming Standards and Practices Code as amended from time to time and approved by the Commission.

 Definitions

In these conditions:

"broadcast year" means the period from 1 September to 31 August and each twelve-month period thereafter beginning 1 September.

"expend" means actual cash outlay.

"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, 1990, 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 a loan; and
"expenditure on investment" has a comparable meaning.

"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 each six-month period beginning in September and March.

APPENDIX II / ANNEXE II

Conditions of Licence Concerning the Pay Television Programming Undertaking to Be Carried on by First Choice (The Classic Channel)

Nature of the Service

1. The licensee shall provide a regional, English-language general interest pay television programming service in Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland. The service shall consist of feature films and theatrical releases (subcategory 7(d) of Item 6, Schedule I of the Pay Television Regulations, 1990) copyrighted at least five years prior to the broadcast year in which they are distributed by the service, and filler programming (category 12). Other programming shall be limited to programs that are feature-film-related and intended to set in context the feature film or films they accompany in the schedule.

 Exhibition of Canadian Programs

2. During the period between the date that operations commence and 28 February 1995, and during each semester thereafter throughout the licence term, the licensee shall devote to the exhibition of Canadian programming not less than

 a) 20% of the time from 6:00 p.m. to 11:00 p.m. (Eastern Time), and

 b) 20% of the remainder of the time during which the service is in operation.

 Expenditures on Canadian Programming

3. In the broadcast year commencing 1 September 1995, the licensee shall expend in relation to this service not less than $1,877,000 on the acquisition of or investment in Canadian programming.

 In each of the subsequent broadcast years of the licence term, the licensee shall expend on the acquisition of or investment in Canadian programming not less than 22% of its revenues earned during the previous year.

 In the broadcast year commencing 1 September 1995 and in any subsequent year of the licence term, excluding the final year, the licensee may expend an amount on Canadian programming that is up to 5% less than the minimum required expenditure for that year, as set out or calculated in accordance with the terms contained in the first paragraph of this licence condition. Should the licensee avail itself of this flexibility in any year, it shall expend in the subsequent year of the licence term, in addition to the minimum required expenditure for that year, the full amount of the previous year's underspending.

 In the broadcast year commencing 1 September 1995 and in any subsequent year of the licence term, including the final year, the licensee may expend an amount on Canadian programming that is greater than the minimum required expenditure for that year as set out or calculated in accordance with the terms contained in the first paragraph of this licence condition; in such case, the licensee may deduct

 a) from the minimum required expenditure for the next year of the licence term, an amount not exceeding the amount of the previous year's overspending; and

 b) from the minimum required expenditure for any subsequent year of the licence term, an amount not exceeding the difference between the overspending and any amount deducted under paragraph a) above.

 Notwithstanding the above, during the licence term, the licensee shall expend on Canadian programming, at a minimum, the total of the minimum required expenditures, as set out or calculated in accordance with the terms contained in the first paragraph of this licence condition.

 Industry Standards and Practices Code

4. The licensee shall adhere to the Pay Television Programming Standards and Practices Code as amended from time to time and approved by the Commission.

 Definitions

In these conditions:

"broadcast year" means the period from 1 September to 31 August and each twelve-month period thereafter beginning 1 September.

"expend" means actual cash outlay.

"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, 1990, 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 a loan; and "expenditure on investment" has a comparable meaning.

"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 each six-month period beginning in September and March.