ARCHIVED -  Decision CRTC 94-280

Decision

Ottawa, 6 June 1994

Decision CRTC 94-280

Phyllis Yaffe (on behalf of a company to be incorporated)

Across Canada - 931541700

"Showcase" - Approved

Following a Public Hearing held in the National Capital Region beginning on 14 February 1994, the Commission approves the application by Phyllis Yaffe (on behalf of a company to be incorporated) for a broadcasting licence to carry on a national, English-language programming undertaking (Specialty Television Service). This service will be available to cable television affiliates across the country for distribution on a modified dual-status basis for Class 1 licensees, and on a dual status basis for Class 2 licensees as explained in Public Notice CRTC 1994-59 which introduces this and the other decisions issued today, and in accordance with the provisions outlined in the distribution and linkage public notice accompanying this decision (Public Notice CRTC 1994-60). The Commission notes that the applicant proposes to use two separate transponders (Pacific and Eastern) to deliver the service to cable affiliates.

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

This authority will only be effective and the licence will only be issued at such time as the Commission receives documentation establishing that the company has been incorporated in accordance with the application in all material respects.

Ownership

The applicant is controlled by Alliance Communications Corporation (Alliance), a public company, which holds 55% of the voting shares. Alliance, which itself is effectively controlled by Robert Lantos, is one of Canada's largest independent producers and distributors.

The Canadian Broadcasting Corporation (CBC) holds 20% of the voting shares. In lieu of equity investment, and in accordance with the terms of the program supply agreement giving Showcase a right of first option to acquire CBC drama programs, the CBC will purchase its shares by waiving 50% of its licence fees for such programs, up to a maximum of $891,304. Since 20% of Showcase's projected program acquisition budget in the first two years of operation represent the costs of CBC programs, the CBC expects to have fully paid for all its voting shares, beginning in the third year of operation.

Productions La Fête Inc., an independent producer, holds 17% of Showcase's voting shares, and the remaining 8% is held by 11 other independent Canadian producers.

Approximately 24% of Showcase's program inventory will originate with the CBC; about 11% with Alliance; and approximately 4% with the other independent producers who are shareholders of the proposed service.

At the hearing, the Commission discussed with the applicant the concern that Showcase's shareholders could have preferred access to opportunities to supply programming for the proposed service. In response, the applicant outlined its commitments to ensure that Canadian independent producers who are not shareholders in Showcase will have an equitable opportunity to supply programming for the service.

Specifically, the applicant made a commitment to licence all suitable Canadian drama made by independent producers since 1984, and that has or will have been seen on pay and conventional television. It noted that "well over half of our Canadian drama ... well over 2,500 hours ... will come from the independent producers across Canada who are not our shareholders".

The applicant also committed to set up a management team, headed by Phyllis Yaffe, to operate the proposed service on a stand-alone basis from its investors. It will also establish a Fairness and Access Committee to set guidelines for Showcase management on the acquisition of programming and on the payment of licence fees. The applicant made a commitment that, throughout the licence term, a minimum of five of the Committee's nine members will be Canadian independent producers who are not shareholders of Showcase, and indicated that the Committee's recommendations regarding the formulae for setting licence fees will be binding upon management.

Finally, the applicant made a commitment that Showcase will not air any first-run broadcasts of programs produced by a Showcase shareholder.

Nature of Service

Showcase will offer an all-fiction programming service consisting of the best of independently-produced movies, drama, comedy and mini-series from Canada and around the world. As proposed by the applicant, and as set out as conditions of licence in the appendix to this decision, a minimum of 95% of all the programming offered by Showcase shall be from program category 7 (drama), as defined in the Specialty Services Regulations, 1990. In addition, 95% of the programming broadcast by Showcase shall have been produced outside the United States.

Programming

Showcase will offer a wide range of drama programming, encompassing both serious drama and situation comedies. Programming will be grouped into program blocks on the basis of the intended audience (children, families or adults) or the type of production (such as festival films, French-Canadian drama productions and international features). In view of the applicant's commitment that 95% of Showcase's schedule will be devoted entirely to the under-represented category of drama programming, the Commission is satisfied that the licencing of this new specialty programming service will contribute significantly to achieving the objective of increasing the diversity of programming available to Canadians.

Initially, Showcase will offer programming over an 18-hour day, increasing to 24 hours beginning in the fifth year of the licence term. On average, the programs broadcast by Showcase will be repeated six times within a year. Series broadcast on Showcase will be "stripped"; that is, they will be broadcast beginning with the first episode and running to the last episode, at the same time every weekday.

The Commission notes that the applicant proposes to redress the lack of viewing opportunities for Canadian drama by committing to creating a service that is predominately and distinctively Canadian. The applicant describes Showcase as a "service based on the notion of a second window" that will reprise the best of Canadian drama. For example, Showcase will provide viewers another opportunity to see classic and archival CBC drama productions, such as "Wojeck", "Empire Inc.", "Wayne & Shuster", "Street Legal" and "King of Kensington". As noted earlier, Showcase will also broadcast all suitable English-language drama series, specials and feature films made by Canadian independent producers since 1984. To give English-language Canadians the opportunity to view high-quality programming from Quebec, Showcase will broadcast, in a dubbed or sub-titled format, one hour each day, (with one repeat of this hour daily), of popular Canadian French-language drama series. The applicant expects to spend in excess of $100 million over the licence term on the purchase of rights to Canadian fiction programs.

The applicant made a commitment that Showcase will broadcast only Canadian programming between 7:00 p.m. and 10:00 p.m., the peak viewing hours of the evening broadcast period. In addition, the applicant has committed, to broadcast a minimum of 60% Canadian content over the broadcast year and a minimum of 60% Canadian content during the evening broadcast period. Adherence to these levels shall be required by condition of licence.

While most of the programming broadcast on Showcase will consist of programs previously aired by Canadian broadcasters, the applicant proposed to spend $4.5 million in licence fees over a seven-year licence term for the production of 18 half-hour original Canadian drama programs by independent producers. In view of the licence term of approximately six years accorded in this decision, the applicant is hereby required, by condition of licence, to expend a minimum of $3.75 million in licence fees for the production of 15 half-hour original Canadian drama programs by independent producers. The applicant plans to pay a licence fee of $250,000 for each of these half-hour programs, which will be called "Showcase Originals".

The applicant also made a commitment to spend $6.5 million in licence fees over a seven-year period to independent producers for the production of interstitials, the "wrap-around" segments that will introduce and comment on the programs.

As noted earlier, all of the Showcase Originals and all of the wrap-around interstitial programming will be produced by independent producers who are not Showcase shareholders.

As proposed by the applicant, and as required by the condition of licence set out in the appendix to this decision, the applicant will, in the second year of the licence term, spend a minimum of $10,081,000 on Canadian programming, and in each subsequent year of the licence term, a minimum of 42% of the previous year's total revenues. Consistent with the Commission's approach regarding conventional television broadcasters, the condition of licence gives the applicant some flexibility in the accounting of these expenditures.

Showcase will broadcast top-rated series and critically-acclaimed films from countries around the world. Programming in languages other than English will be dubbed or subtitled.

As noted earlier and as set out in the condition of licence describing the nature of the service, no more than 5% of Showcase's schedule will consist of programs or feature films from the United States. The applicant also made a commitment that spending on U.S. programming will not be disproportionate to the number of hours in the overall program schedule that will be used for the exhibition of such programming. At the hearing, the applicant stated that the U.S. programming broadcast on Showcase will consist of "unique" drama that will "not duplicate what is already existing on all of the other channels". According to the applicant, by limiting the amount of U.S. programming broadcast on the proposed service, Showcase will assist in correcting "the serious imbalance in the Canadian broadcasting system in regard to fiction programming".

Financial Matters

Should there be a shortfall in the initial funding provided by any of the other 13 shareholders, Alliance committed to provide the full amount of the necessary funding (some $8.7 million). Thereafter, the applicant expects to generate revenues for the service through two streams - advertising and subscriber fees. The applicant's revenue projections indicate that subscriber revenues will decrease as a proportion of total revenues in each year of the licence term, and that advertising revenues will increase proportionately.

The Commission notes that the application included a business plan, which is based, in part, on the assumption of a specific wholesale fee. The applicant assumed a wholesale rate in Anglophone markets of $0.32 per subscriber per month in the first year of the licence term, increasing to $0.37 in the sixth year, and of $0.10 increasing to $0.12 in Francophone markets, when the service is distributed as part of the basic service.

The applicant also noted that its wholesale rate would fluctuate by system, dependent upon the penetration of the tier on which it is carried. Accordingly, in its business plan, the applicant has assumed that the subscriber rate charged for the service when it is distributed on a high penetration discretionary tier will be "made whole". The Commission notes that these foregoing assumptions form the basis of the applicant's financial projections and programming commitments.

As noted in Public Notice CRTC 1994-59 accompanying this decision, the Commission is not pre-disposed to allow increases in wholesale rates during the term of a licence. Therefore, the applicant is hereby authorized, by condition of licence, to charge a wholesale rate, over the entire licence term, of $0.32 in Anglophone markets and of $0.11 in Francophone markets, when the service is distributed on the basic service. The Commission considers that these rates are adequate to allow the applicant to meet its programming commitments.

With regard to advertising, the applicant proposed, and is hereby authorized by condition of licence, to distribute a maximum of eight minutes of paid advertising in each clock hour, all of which shall be paid national advertising material.

The Commission is satisfied that, with these two revenue streams, the applicant will have sufficient resources to maintain the service until it achieves a positive cash flow. Furthermore, based on the evidence presented at the hearing, the Commission is satisfied that there is a significant consumer demand for the proposed service.

Other Matters

The Commission notes the applicant's commitment to offer 560 hours of closed-captioned programming during the first year of the licence term at a cost of $100,000, increasing to 940 hours by the sixth year at a cost of $113,000. The applicant stated that it will "strive to make 100% of our Canadian content closed captioned by the end of year 4 and onward". After the fourth year of operation, the applicant will also allocate a budget for producing English-language closed captioning of foreign programs. The Commission expects the applicant to meet these commitments and encourages it to exceed them during 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 applicant's commitment to develop a plan to ensure employment equity in its operations. The Commission encourages the applicant to promote equitable representation in on-air staff, and will review with the applicant at the time of licence renewal its performance in implementing its practices and plans regarding employment equity.

The Commission is satisfied that the applicant has demonstrated that the proposed service meets the Commission's criteria regarding financial viability and market demand and that the new programming undertaking will not have a significant negative impact on existing licensees.

Allan J. Darling
Secretary General

Phyllis Yaffe (on behalf of a company to be incorporated)
Across Canada - 931541700

APPENDIX / ANNEXE

Conditions of Licence for Showcase

For the purpose of measuring compliance with conditions of licence 1 and 2 set out below, the first broadcast year of the licence term will be deemed to commence on 1 September 1994.

1. (a) A minimum of 95% of all programming broadcast by Showcase shall be from category 7 (drama) as defined in the Specialty Services Regulations, 1990.

 (b) 95% of the programming broadcast by Showcase shall have been produced outside the United States.

2. (a) The licensee shall devote not less than 60% of the broadcast year and not less than 60% of the evening broadcast period to the distribution of Canadian programs.

 (b) Over the broadcast year, the licensee shall devote not less than 100% of the broadcast period between 7 p.m. and 10 p.m. to the distribution of Canadian programs.

3. In accordance with the Commission's position on Canadian programming expenditures as set out in Public Notices CRTC 1993-93 and 1993-174, the licensee shall:

 (a) from 1 September 1995 to 31 August 1996, expend onthe acquisition of, or investment in Canadian programs not less than $10,081,000; and

 (b) from 1 September 1996 to 31 August 1997, and in each subsequent broadcast year, expend not less than 42% of its gross revenues for the previous year on the acquisition of, or investment in, Canadian programs.

 (c) In each broadcast year of the licence term, excluding the final year, the licensee may expend an amount on Canadian programming that is up to five percent (5%) less than the minimum required expenditure for that year set out in or calculated in accordance with this condition; in such case, the licensee shall expend in the next year of the licence term, in addition to the minimum required expenditure for that year, the full amount of the previous year's underspending.

 (d) In any broadcast 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 set out in accordance with this condition; in such case, the licensee may deduct:

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

  (ii) 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 (i) above.

 (e) Notwithstanding the above, during the licence term, the licensee shall expendon Canadian programming, at a minimum, the total of the minimum required expenditures set out in or calculated in accordance with the licensee's condition of licence.

4. The licensee shall expend, over the licence term, no less than $3.75 million on licence fees to independent producers who are not Showcase shareholders for the production of 15 half-hour original Canadian drama programs.

5. (a) Subject to subsections (b) and (d) the licensee shall not distribute more than eight minutes of advertising material during each clock hour.

 (b) In addition to the eight minutes of advertising material referred to in subsection (a), the licensee may distribute, during each clock hour, a maximum of 30 seconds of additional advertising material that consists of unpaid public service announcements.

 (c) The licensee shall not distribute any paid advertising material other than paid national advertising.

 (d) Where a program occupies time in two or more consecutive clock hours, the licensee may exceed the maximum number of minutes of advertising material allowed in those clock hours if the average number of minutes of advertising material in the clock hours occupied by the program does not exceed the maximum number of minutes that would otherwise be allowed per clock hour.

6. From the date of commencement of service, the licensee shall charge each exhibitor of this service, the wholesale rate of $0.32 per subscriber per month for exhibition on the basic service in Anglophone markets, and $0.11 per subscriber per month for exhibition on the basic service in Francophone markets, as defined in subsection 18(2.1) of the Cable Television Regulations, 1986.

7. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) "Sex-Role Portrayal Code for Television and Radio Programming", as amended from time to time and approved by the Commission.

8. The licensee shall adhere to the provisions of the CAB's "Broadcast Code for Advertising to Children", as amended from time to time and approved by the Commission.

9. The licensee shall adhere to the guidelines on the depiction of violence in television programming set out in the CAB's "Voluntary Code Regarding Violence in Television Programming", as amended from time to time and approved by the Commission.

 For the purpose of these conditions of licence, the terms "broadcast day", "broadcast month", "broadcast year", "clock hour" and "evening broadcast period" shall have the same meaning as those set out in the Television Broadcasting Regulations, 1987; and "paid national advertising" shall mean advertising that is purchased at a national rate and receives national distribution on the service.