ARCHIVED -  Decision CRTC 94-602

Decision

Ottawa, 12 August 1994

Decision CRTC 94-602

Les Associés de "Le Réseau des Sports", namely TSN Enterprises (a partnership consisting of Labatt Brewing Company Limited and 2765845 Canada Inc.) and Labatt Brewing Company Limited

Montréal, Quebec - 931953400

Licence renewal for "Le Réseau des Sports"

Following a Public Hearing in the National Capital Region beginning on 25 April 1994, the Commission renews the broadcasting licence for the French-language specialty programming undertaking known as "Le Réseau des Sports" (RDS) from 1 September 1994 to 31 August 2001, subject to the conditions specified in the appendix to this decision and in the licence to be issued.

RDS is available to cable affiliates in eastern Canada (part of Manitoba and all provinces east) for distribution on a dual status basis.

The Commission first authorized RDS in 1987 (Decision CRTC 87-898), and the service commenced operations on 1 September 1989. The April 1994 hearing was the Commission's first public examination of RDS's performance over these initial four and a half years of operation.

The RDS service is devoted exclusively to sports and to physical and outdoor activities, as prescribed in the condition of licence in the appendix to this decision. At the hearing the licensee stated that, from the outset, RDS has provided an attractive service to Francophone cable subscribers and has earned a consistently high satisfaction rating from these subscribers.

The licensee stated that it has met or exceeded all conditions of its licence since it was established, including requirements regarding Canadian content, expenditures on Canadian programs, and the distribution of programs produced in Quebec. It also noted its successful ongoing collaboration with the Canadian independent production industry, a relationship that has resulted in the production of over 140 special programs or series.

The licensee stated that it intends to pursue this same course during the new licence term, so as to enhance the value and overall quality of its service, and to increase its attractiveness to subscribers. To that end, it made a commitment to increase the minimum level of Canadian programming during the evening broadcast period from 50% to 60%. Adherence to this commitment shall be required by condition of licence. The licensee also made a commitment to increase, from 19% to 25%, the amount of non-Canadian programs distributed by RDS and obtained from non-North American sources, and to gradually increase the amount of closed-captioned programming for the deaf and hearing impaired to 2,500 hours a year by the end of the new licence term.

The Commission notes that one objective of the RDS programming policy is to cover all aspects of amateur sport. The Commission encourages the licensee to provide for the best possible exposure of amateur sports by offering live broadcasts or by scheduling such programming in periods when it is likely to attract the largest number of viewers.

As part of this application, the licensee proposed to raise the wholesale rate charged to cable operators distributing RDS on the basic service from $1.21 to $1.33 on 1 January 1995 and to $1.39 on 1 January 2000.

At the hearing the Commission discussed with the licensee the justification for the proposed rate increases and the possibility of a condition of licence requiring RDS in each broadcast year to spend a set percentage of its gross revenues from the previous year on Canadian programming. With regard to such expenditures on Canadian programming, the licensee stated that its level of spending in this area during the next licence term will be contingent upon Commission approval of the proposed rate increases.

When it renewed the licences of some specialty programming undertakings in 1992, the Commission indicated that it would examine proposed wholesale rates against the background of the service's contribution to the Canadian broadcasting system and of the Commission's concerns regarding the affordability of basic cable service. These concerns are particularly acute with respect to French-language services like RDS, which derive most of their subscriber revenues from within Quebec. The Commission notes that specialty programming services in Quebec are usually distributed on the basic tier, with the result that basic cable subscriber fees are normally higher in that province than in other parts of Canada, where specialty services are usually offered on a high-penetration discretionary tier.

When considering rate increase applications from specialty programming services, the Commission also takes into account the fact that such undertakings can expand their income from other sources, particularly advertising. It was noted earlier that RDS is a relatively new undertaking, having been in operation for less than five years. As the licensee acknowledged in its licence renewal application, RDS has not yet attained full maturity in terms of advertising income. The licensee indicated that the undertaking should reach its maximum maturity in this regard in 1997-1998, when advertising sales should be more than 40% greater than in 1993, not counting inflation and real economic growth. If inflation and economic growth are factored in, total RDS advertising revenues in four or five years could be at least 70% greater than last year; as a result, any need for additional subscription revenues would be less acute than the licensee has projected.

In assessing these rate increase proposals, the Commission also took account of the fact that RDS has enjoyed an economic advantage over other services since it was established. With its initially authorized rate and the annual increases allowed during its first four years, RDS has been able to deliver an attractive service without having to exploit its advertising potential in full and, more importantly, without incurring any losses (before interest and taxes) other than in its first year of operation. Conse- quently, RDS has accumulated a total of over $4 million in profits before interest and taxes during this period, despite the recessionary economy.

Pursuant to its general practice outlined above, and having considered all of the evidence on file, the Commission denies the RDS requests for rate increases. Accordingly, the RDS licence will continue to include the condition of licence set out in the appendix to this decision prescribing a maximum monthly wholesale rate of $1.21 where the service is distributed on the basic service, or a combined wholesale rate of $1.50 per subscriber per month where the Commission authorizes RDS and TSN to be distributed together on the basic service. The Commission encourages the licensee to expand its advertising revenues within the existing parameters.

The licensee stated at the hearing that, if the Commission denied the proposed rate increases, it might have to make significant changes in its service that would affect program quality. However, given the licensee's financial situation and outlook, the Commission is satisfied that RDS will have the financial resources to continue to improve its programming over the new licence term, despite the denial of these proposed rate increases.

With regard to the funds to be allocated by the licensee to Canadian programming each year, the existing condition of licence prescribes fixed amounts. At the hearing the licensee agreed that this condition of licence could now be based on a formula similar to that applied to conventional broadcasters, that is, on a percentage of the undertaking's gross revenues from the previous year. Following discussions at the hearing concerning the appropriate level of contributions by RDS to this item in the coming years, the Commission requires, by condition of licence, that in each broadcast year the licensee spend at least 50% of the previous year's gross revenues from the operation of this service on investments in or acquisitions of Canadian programs. In accordance with the Commission's practice with respect to conventional broadcasters, this condition of licence allows the licensee some flexibility regarding the actual expenditures made each year.

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. In this regard, the Commission encourages the licensee to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

In 1993, the Commission accepted the Canadian Association of Broadcaster's (CAB) "Voluntary Code Regarding Violence in Television Programming". This code set out a series of guidelines on the depiction of violence in television programming to be used by conventional private television broadcasters and administered by the Canadian Broadcast Standards Council (CBSC).

During the same year, the Commission requested the other members of the Canadian broadcasting industry to submit their own proposed codes on programming violence. Given that RDS's code on violence has not yet been approved by the Commission, the licensee shall adhere by condition of licence to the CAB's "Voluntary Code Regarding Violence in Television Programming", as amended from time to time and approved by the Commission, until such time as the Commission approves RDS's own guidelines on the depiction of violence in programming.

Once the Commission's approval has been received in this regard, RDS will be required to adhere, by condition of licence, to its own code, as amended from time to time and approved by the Commission.

Since RDS, like all specialty services, is not a member of the CBSC, the Commission will oversee the application of any violence code governing RDS.

The Commission acknowledges the many interventions filed with respect to this application.

Allan J. Darling
Secretary General

APPENDIX / ANNEXE

Conditions of licence for RDS

1. The service provided by the licensee shall consist of programming dedicated exclusively to all aspects of sports, from categories 1, 3, 5b, 6 and 11 as set out in item 6 of Schedule I of the Specialty Services Regulations, 1990; that is, programming covering professional and amateur sports events, sports newscasts, magazine shows, interviews, commentaries, documentaries, audience participation programs, instruction and training programs and other programs that promote physical fitness.

2. Over the broadcast year, the licensee shall devote at least 60% of its programming to the distribution of Canadian programs during the broadcast day as well as during the evening broadcast period.

3. The licensee shall devote not less than 25% of the broadcast year to the distribution of programs produced by the licensee in Quebec or acquired from producers carrying on business in Quebec.

4. The licensee shall devote a minimum of 25 % of the hours in which non-Canadian programming is distributed to programming from non-North American sources.

5. (1) 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 expend on the acquisition of and/or investment in Canadian programs, in each broadcast year, not less than 50% of the gross revenues derived from the operation of this service during the previous year;

 (2) In any 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 calculated in accordance with this condition; in such case, the licensee shall expend in the following year of the licence term, in addition to the minimum required expenditure for that year, the full amount of the previous year's underspending;

 (3) 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 calculated in accordance with this condition; in such case, the licensee may deduct:

 (a) from the minimum required expenditure for the following 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;

 (4) Notwithstanding the above, during the licence term, the licensee shall expend on Canadian programming, at a minimum, the total of the minimum required expenditures calculated in accordance with the licensee's condition of licence.

6. (1) Subject to subsections (2) and (4) the licensee shall not distribute more than eight minutes of advertising material during each clock hour over the broadcast day;

 (2) In addition to the eight minutes of advertising material referred to in subsection (1), the licensee may distribute, during each clock hour, a maximum of 30 seconds of additional advertising material that consists of unpaid public service announcements;

 (3) The licensee shall not distribute any paid advertising material other than paid national advertising;

 (4) 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.

7. The licensee shall charge each exhibitor of this service a maximum monthly wholesale rate per subscriber as set out below, for distribution on the basic service:

 (1) A combined wholesale rate of $1.50 per subscriber per month in the case of each Class 1 or 2 cable distribution undertaking that is authorized and chooses to distribute both RDS and TSN as part of the basic service and, in the case of each Part III cable distribution undertaking that chooses to do so;

 (2) A wholesale rate of $1.21 per subscriber per month, in all other cases.

8. 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.

9. 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.

10. (1) 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, until such time as the Commission approves the licensee's own guidelines on the depiction of violence in programming;

 (2) Once submitted by the licensee and approved by the Commission, the licensee shall adhere to its own guidelines on the depiction of violence in programming, as amended from time to time and approved by the Commission.

11. For the purposes of these conditions:

 a) All time periods shall be calculated according to the eastern time zone;

 b) "broadcast day" means a 24-hour period beginning at 6:00 a.m. Eastern Time;

 c) "paid national advertising" means advertising that is purchased at a national rate;

 d) The terms "broadcast month", "broadcast year", "clock hour" and "evening broadcast period" shall have the same meanings as those set out in the Television Broadcasting Regulations, 1987 except they shall be calculated in accordance with the definition of "broadcast day" in paragraph b) above.