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Ottawa, 10 February 1994
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Public Notice CRTC 1994-10
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The Production Fund
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In Public Notice CRTC 1993-74 entitled Structural Public Hearing, the Commission announced the creation of a new production fund that would provide approximately $300 million over 5 years for the production of new Canadian programming.
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The Commission determined that the fund would be financed through an amendment to the Cable Television Regulations, 1986 (the regulations), specifically through changes to the capital expenditure "sunset" provision contained in subsection 18(6) of the regulations:
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...in consideration of the need to provide additional funding for the production of Canadian programming, the Commission, by majority vote, intends to suspend implementation of the reductions required by the "sunset" provision for those licensees who contribute 50% of the amount by which the monthly fee would otherwise be reduced to a new fund for Canadian programming.
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In Public Notice CRTC 1993-137 dated 7 October 1993, the Commission requested comments on proposed changes to the cable regulations which were intended to give effect to this and other policy proposals. Subsequently, in Public Notice CRTC 1994-7 dated 3 February 1994, the Commission announced its decision on its proposed amendments to the cable regulations, including, inter alia, the adoption of an amendment to subsection 18(6) that gives effect to the suspension of the sunset provision. Earlier, in Public Notice CRTC 1993-105 dated 15 July 1993, the Commission called for comments as to what would be the most appropriate policies for program eligibility, access, specific funding mechanisms and administration of the production fund. There were 79 comments submitted, including those from interested members of the public, production companies, production associations, private broadcasters, unions, guilds and associations representing artists and craftspeople, funding bodies, public broadcasters, government, educational institutions, associations representing the cable and television industries, artists, and individuals, groups and associations representing such special interests as the disabled, aboriginal and third language communities.
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The comments represented a wide range of opinion on each of the issues raised in Public Notice CRTC 1993-105, but most particularly with respect to the questions regarding what would constitute the most appropriate funding mechanism and the criteria for access to the production fund.
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Private broadcasters generally considered that the fund should be used to help defray the licence fees paid by themselves to independent producers, so as to reduce the net cost of acquiring Canadian programs to a level that would be more comparable to prices paid for foreign programs. Some suggested that the production fund could serve to achieve this by rebating private broadcasters up to 30% of their costs of acquiring programs from independent producers.
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The independent production community largely held the view that all of the fund's support for independently-produced programs should be in the form of direct grants to the producers themselves. Independent producers did not consider that broadcasters should have access to any part of the fund. This view was also supported by publicly-funded broadcasters. The cable industry proposed that independent producers and broadcasters should both have access to the fund to support the cost of new production, but went on to suggest that the bulk of this support should flow to independently-produced programs.
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The Commission has reviewed all of the submissions, and has reached the following conclusions on the various issues related to the fund's establishment and operation.
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1. Funding Canadian Programming
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In announcing its plans for the creation of a fund, the Commission noted that:
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Canada's small domestic market continues to make it difficult to finance the creation of competitive Canadian programs. Whereas U.S. producers can recover the majority of their production costs through domestic licence fees, the licence fees earned in Canada by most Canadian program producers epresent only a fraction of their total production costs.
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The financial disincentives broadcasters face in acquiring Canadian drama, documentaries and children's programs have resulted in a situation in which such programs are particularly under-represented on Canadian television screens. As a general rule, Canadian programs are not more costly to produce than non-Canadian programs. They are, however, more costly for Canadian broadcasters to acquire. Even if a Canadian and a non-Canadian program draw similar audiences and advertising revenues, the margin between the cost of the Canadian program and the revenues it generates tends to be much smaller than the margin for the equally-popular non-Canadian program, and may even result in a net loss for the broadcaster. The Commission has concluded that the main focus of the production fund should be on facilitating the broadcasting of high quality Canadian programs in under-represented categories in peak viewing periods. To do so, the production fund must support productions which meet these criteria.
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High quality programs require adequate financing. While independent producers have long claimed that licence fees in the Canadian market are too low, Canadian broadcasters have been equally insistent that they are financially unable to increase the licence fees that they pay.
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Independent producers outside of Quebec generally agreed that some form of grant or equity investment mechanism would be desirable to make up the shortfall in their earnings from licence fees. They acknowledged, however, that under Quebec's Tax Credit program, the tax credits of an independent producer in that province would be reduced by the amount of any grant, thus cancelling out its benefit.
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With respect to equity investments, the Commission notes that independent producers in the past have frequently expressed the concern that such investments, whether coming from broadcasters or from a fund, can serve to dilute the producer's control over the production. Of further concern to independent producers is that equity investments, unlike licence fees, are repayable in the long term, and thus do not serve to attract additional private investment.
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Accordingly, the Commission has determined that increased licence fees would be the most appropriate means of stimulating Canadian production, by serving to maintain and increase the quality of programming and by attracting private investment through increasing the revenue stream generated by Canadian programs. At the same time, the Commission acknowledges that, to be fully effective, the production fund should precipitate benefits to both the producers and the broadcasters. In recognition of the fact that broadcasters often find themselves paying more for Canadian programming than they can hope to earn in advertising sales, the Commission considers that the production fund should cover a portion of the increased licence fees that would be required to trigger its participation.
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2. Fundamental Operating Principles
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a) Eligible Categories of Programs
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Programs that will be eligible for support from the production fund are restricted to drama, music and dance and variety as defined in Appendix A to the Television Regulations, 1987; to programs aimed at children aged twelve and under; and, provided they conform to Telefilm Canada's definition, to documentary programs.
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Telefilm Canada defines documentaries as:
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... creative works in which a topic is presented from the author's point of view through an original narrative and visual construction. Eligible documentaries are those which treat a specific topic, and their duration should be at least 30 minutes.
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This does not include sponsored programs, magazines, talk shows, public affairs, broadcasts (factual programs, often used as inserts and generally intended to be part of an information program or news bulletin, dealing with current events or topics based on journalistic investigation, which may have an editorial bias), or productions that are part of an educational program. (emphasis added) Programs in the categories of news, reporting and actualities, sports, game shows, and human interest are not eligible for contributions from the production fund.
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b) Emphasis on Drama
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Not less than 80% of the disbursements from the production fund should be for drama and children's programming, and a maximum of 20% of disbursements may be for documentary, variety and music and dance programming.
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c) Point Score
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In general, to qualify for financial support from the fund, programs must earn a minimum of 8 points on the scale used by the Commission and by the Canadian Audio-Visual Certification Office (CAVCO) in certifying Canadian productions.
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Some argued in their comments that, in addition to the above criteria, there should be special consideration given to programs that feature an identifiably-Canadian protagonist and location and that are based on a Canadian literary work or historical event.
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While the Commission does not consider that such additional criteria are necessary, it notes that control and responsibility for decisions relating to the visual production of a program, from beginning to end, resides in the producer function. It is thus essential that the producer, or all individuals fulfilling producer-related functions, be Canadian, subject to such exemptions as are customarily permitted by CAVCO and by the Commission.
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Notwithstanding the foregoing, official co-productions and co-ventures with foreign producers may be admissible provided they meet the minimum 8 point requirement noted above.
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On the subject of Canadian control, the Commission is concerned that Canadians maintain beneficial ownership in the programs that they produce. Accordingly, the Commission considers that the production fund should not provide funds to foreign controlled productions when considering applications. This would likely be accomplished most effectively through collaboration by the fund's administration with other funding bodies where possible, and/or by examining relevant contracts and other documents related to a production in order to ensure that Canadians have long term beneficial ownership in projects supported by the production fund.
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d) Peak Viewing Hours
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Financial support from the production fund shall be contingent upon the presence of provisions in the licence agreement that all categories of program other than children's must be broadcast during the peak viewing hours of 7:00 p.m. to 11:00 p.m. Programs targeted to children must be aired when the largest audiences of children are available.
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e) Closed Captioning
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Financial support from the production fund shall be contingent upon the provision of closed captioning for programs with narrative, dialogue or lyrics in either official language. Since some aboriginal languages do not use the Roman alphabet, captioning is not mandatory for programs in aboriginal languages.
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f) Canadian Licence Fees
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Disbursements from the fund may only be triggered by a licence fee from a licensed Canadian programming undertaking representing, depending upon the program and as prescribed below, a minimum percentage of the budget for the program. The production fund should permit access to applicants in respect of programs intended for airing by private and by public broadcasters.
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g) Access
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The production fund shall contribute a minimum of 67% of disbursements to programs acquired from independent producers, and a maximum of 33% of disbursements for programs by producers affiliated with private broadcasters.
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However, the production fund may not be used to finance in-house productions of television licensees (productions which are both made and broadcast by the same licensee) or productions by companies affiliated with the CBC and other publicly- funded broadcasters.
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h) The Mechanism
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The Commission has determined that a licence fee from Canadian program undertakings of not less than 35% of the total budget of a program should be required in order to trigger participation by the fund in drama productions. Other types of under-represented programming must obtain licence fees of not less than 15% of the total budget from Canadian licensees. The Commission is satisfied that, in most cases, such fees would represent an increase in the revenues now earned by independent Canadian producers.
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The production fund shall provide payments representing 30% of licence fees. The portion of the licence fee covered by the production fund is to be paid directly to the producer of the program.
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For the purpose of meeting their required Canadian program expenditures as expressed either in expectations or conditions attached to their licences, private broadcasters will be permitted to claim the full amount of the licence fee, including that portion contributed by the fund, as eligible Canadian program expenditures. The CBC and other publicly-funded broadcasters will not be permitted to include the licence fee contribution from the production fund as forming part of their Canadian program expenditures.
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i) Linguistic and Regional Allocations
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A number of proposals were presented regarding what would constitute an appropriate allocation of disbursements from the fund between programs produced in the two official languages and in Canada's different regions. The Commission considers that, since public policy has generally allotted production funding on the basis of one-third for French-language programs and two-thirds for English-language programs, it should accept this same approach for the fund.
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Funds may also be made available for programs in aboriginal languages. While no specific "envelope" is to be set aside for aboriginal programming, funding for such projects, in all eligible categories, may be drawn from the 20 percent of the production fund allocated to categories other than drama or children's programs.
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While some argued for regional allocations, the Commission is concerned that the creation of a number of regional envelopes would tend to dilute the production fund's impact. However, the Commission will expect the fund's administration to be sensitive to the needs of producers and broadcasters in all regions.
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j) Other Funding Bodies
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The production fund shall be acces-sible whether or not productions receive financial assistance from other funding bodies. The participation or lack of participation by other funding bodies should neither serve to qualify nor disqualify an application.
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3. Board of Directors
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a) Nature and Representation of the Board
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The production fund shall be administered by an independent Board made up of representatives from the Canadian production community, the cable industry and Canadian broadcasters in the following numbers:
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The Canadian Association of Broadcasters, and the Canadian Cable Television Association shall each appoint three members to the Board.
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The Canadian Film and Television Producers Association, and the Association des producteurs de film et de télévision du Québec shall collectively appoint three members.
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The Association for Tele-education of Canada and the CBC shall each appoint one member. Licensees of the various pay and specialty programming undertakings shall collectively appoint one member.
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In naming their representatives to the Board, nominators should bear in mind the need to reflect the linguistic and geographic make-up of Canada.
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The Board, at its discretion, may seek representation from other sectors and may increase the size of the Board accordingly.
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Nominators should notify the Commission within 90 days of the date of this notice as to those who will be their representatives on the Board.
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b) Responsibilities of the Board
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The Board should build upon the basic guidelines established by the Commission, and should establish an effective and efficient process to ensure that applications are appraised objectively, without reference to any subjective assessment of the creative merits of individual projects.
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c) Annual Reports
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The Board shall report annually to the Commission on its activities. The first report should cover the period from 1 January 1995 to 31 August 1995 and should be received before the end of the calendar year. Thereafter, the Board shall report on activities for the period from 1 September to 31 August.
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d) Administration Costs
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The Board should endeavor to serve as a model by ensuring that the costs of administering the production fund are kept to a minimum.
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4. Conclusion
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The Commission is satisfied that Canada's independent producers and programming undertaking licensees, comprising two of the most essential components of the broadcasting system, will co-operate with a view to realizing the maximum potential benefit of the production fund for Canadian viewers.
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Allan J. Darling
Secretary General
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