ARCHIVED -  Public Notice CRTC 1994-59

Public Notice

Ottawa, 6 June 1994

Public Notice CRTC 1994-59

INTRODUCTORY STATEMENT - LICENSING OF NEW SPECIALTY AND PAY TELEVISION SERVICES

Table of contents Pages Table des matières

1. BACKGROUND 2 I. HISTORIQUE

a) Licensing History 2 a) L'attribution des licences
b) The Structural Policy 4 b) L'énoncé de politique sur la
Statement structure de l'industrie
c) Call for Applications 6 c) Appel de demandes

II. THE PUBLIC HEARING 7 II. L'AUDIENCE PUBLIQUE

III. REGULATORY FRAMEWORK 8 III. CADRE RÉGLEMENTAIRE

a) CCTA ACCESS COMMITMENT 8 a) ENGAGEMENT RELATIF À L'ACCÈS
DE L'ACTC
b) Channel Capacity Limitations 9 b) Limitations de la capacité de transmission
c) Cable Distribution of 11 c) Télédistribution de services
Specialty Services spécialisés

i) Anglophone Markets 11 i) Marchés anglophones
ii) Francophone Markets 13 ii) Marchés francophones

d) Approach to Conditions of 14 d) Démarche à l'égard des condi-
Licence tions de licence

i) Nature of Service 15 i) Nature du service
ii) Exhibition of Canadian 16 ii) Distribution d'émissions
Programs canadiennes
iii) Expenditures on Canadian 16 iii) Dépenses au titre des
Programming émissions canadiennes
iv) Wholesale Rates 16 iv) Tarifs de gros
v) Advertising 18 v) Publicité
vi) Adherence to Industry 18 vi) Respect des codes de
Codes l'industrie

IV. GENERAL LICENSING CONCERNS 19 IV. PRÉOCCUPATIONS GÉNÉRALES
CONCERNANT L'ATTRIBUTION DE
LICENCES

a) Cost to the Consumer 19 a) Coût pour le consommateur
b) Channel Capacity 20 b) Capacité de transmission
c) Capacity of the Advertising 21 c) Capacité du marché publici-
Market: Impact on Existing taire : Incidences sur les
Services services en place

V. LICENSING CRITERIA 21 V. CRITÈRES RELATIFS A L'ATTRIBUTION
DE LICENCES

a) Diversity and Innovation 22 a) Diversité et innovation
b) Exhibition of Canadian 22 b) Distribution d'émissions
Programming canadiennes
c) Expenditures on Canadian 23 c) Dépenses au titre des émissions
Programming canadiennes
d) Consumer Demand 25 d) Demande des consommateurs

VI. SERVICES AUTHORIZED 25 VI. SERVICES AUTORISÉS

a) English-language Pay 25 a) Services de télévision payante
Television de langue anglaise
b) English-language Specialty 26 b) Services spécialisés de langue
anglaise
c) French-language Specialty 27 c) Services spécialisés de langue
française
d) French-language Pay-per-view 29 d) Service de télévision à la carte
de langue française

VII. OTHER ISSUES 29 VII. AUTRES QUESTIONS

a)Vertical Integration 29 a)Intégration verticale

i) Integration of Cable 29 i) Intégration des entreprises
Distribution Undertak- de télédistribution et des
ings and Programming entreprises de programma-
Undertakings tion
ii)Integration of Program- 30 ii) Intégration des entreprises
ming Undertakings and de programmation et des
Production and Distri- fonctions de production
bution Functions et de distribution

b) Closed Captioning 31 b) Sous-titrage codé
c) Employment Equity 31 c) Équité en matière d'emploi

VIII. FUTURE LICENSING ACTION 32 VIII.ATTRIBUTION DE FUTURES
LICENCES

Following a Public Hearing commencing 14 February 1994 in the National Capital Region, the Commission today announces its decisions respecting the licensing of new Specialty and Pay Television Services.

In Decisions CRTC 94-278 to 94-286, the Commission has licensed undertakings to provide the following services:

English-language Pay Television

Movie Max (Allarcom Pay Television Limited)
Classic Channel (First Choice Canadian Communications Corporation)

English-language Specialty

YOU: Your Channel (Your Channel Television Inc.)
Showcase (Phyllis Yaffe OBCI)
Bravo! (CHUM Limited)
Lifestyle Television (Linda Rankin OBCI)
Discovery (The Partners of Adventure Unlimited)
The Country Network (The Partners of MH Radio/Rawlco)

French-language Specialty

Le Réseau de l'information (Canadian Broadcasting Corporation)
Arts et Divertissement (Premier Choix: TVEC Inc.)

In Decision CRTC 94-287, the Commission has denied the remaining applications considered at the public hearing.

Public Notice CRTC 1994-60 sets out the revised distribution and linkage rules. Public Notice 1994-61 announces the Commission's Revised Lists of Eligible Satellite Services, in which the Commisison stipulates that, given the competi- tiveness of the U.S. Country Music Television service (CMT) with the new Canadian service, The Country Network, authority for the distribution of CMT shall cease at such time as The Country Network first becomes available to affiliates.

In a public notice to be issued shortly, the Commission intends to publish for comment, proposed amendments to the Cable Television Regulations, 1986 that would, among other things, incorporate, by reference, the changes to the distribution and linkage rules.

I. BACKGROUND

a) Licensing History

Following a public hearing held in January 1984 the Commission licensed undertakings to provide the first specialty programming services, which were to be distributed on a purely discretionary basis. Licences were issued to provide two English-language services, MuchMusic and TSN, and two ethnic services, Telelatino and Chinavision (now called Fairchild Television).

In the absence of any applications proposing French-language specialty services, the Commission encouraged existing licensees to collaborate with Quebec cable operators with a view to providing some specialty programming in Francophone markets. In March 1986 the Commission amended the licence issued to CHUM Ltd. to permit MuchMusic the partial substitution of its signal by MusiquePlus, and authorized Vidéotron Ltée, on a short-term, experimental basis, to operate the youth service Télé des jeunes.

During a public hearing in the summer of 1987 the Commission considered 17 applications proposing new specialty services and one pay television service. At that hearing the Commission also explored a number of policy issues related to the distribution of specialty programming services on the basic cable service, the rate regulation for these services, and the differences between the Anglophone and Francophone markets. The Commission also considered amendments to the licences of undertakings providing the MuchMusic, TSN and Telelatino services to permit them to be distributed on a dual status basis, that is to say, to be distributed on the basic cable service unless the specialty licensee consents to distribution on a discretionary basis.

The Commission subsequently awarded licences to undertakings to provide four French-language services: Canal Famille, TV5, Réseau des sports and MusiquePlus; one bilingual specialty service, Météomédia/The Weather Network; three English-language specialty services: Vision TV, Newsworld and YTV; and, one pay television service: The Family Channel.

All the specialty services were deemed "optional to basic" with respect to their carriage by cable licensees in their majority language markets. That is, their distribution was not mandatory, but where carried, they had to be distributed as part of the basic cable service and not on a purely discretionary basis. Furthermore, MuchMusic and TSN were authorized for dual carriage status, allowing them to be distributed on the basic service unless they consented, in writing, to distribution on a discretionary basis; Telelatino was denied this dual status option in light of its narrower, third-language target market.

While some consumers originally objected to the resulting increase in the size and cost of basic service, these programming services have now attained a high degree of public acceptance.

Furthermore, with the broad implementation in English Canada of a high penetration unencrypted discretionary tier, often referred to as the "extended tier", subscribers have benefited from the ability to choose whether or not to take a package of domestic and foreign specialty services at a relatively low cost. In Quebec, the Consumer Protection Act has been interpreted as prohibiting the marketing techniques used elsewhere to ensure high penetration of a discretionary tier, and this has been a contributing factor in causing all the French-language specialty services to be distributed as part of the basic cable service in Quebec.

b) The Structural Policy Statement

On 3 June 1993, the Commission issued Public Notice CRTC 1993-74 setting out its policy objectives and revised regulatory framework following the Structural Public Hearing held during March 1993.

The Commission noted that pending developments in the communications environment, in particular the advances in new delivery systems such as high-powered Direct Broadcast Satellites (DBS) and the implementation by the cable industry of digital video compression (DVC), were generating new challenges for the broadcasting system. The Commission concluded that prompt action was necessary to ensure a strong Canadian presence in the multi-channel universe. This included the provision of a diverse and attractive package of Canadian conventional, specialty, pay television and pay-per-view services offering high quality Canadian programming.

To ensure this Canadian presence, the Commission introduced a mechanism that would create a production fund with the potential to generate as much as $300 million in the first five years for new, high-quality Canadian programming. The Commission also issued a call for applications for new pay television, pay-per-view and specialty services.

The Commission also concluded that universal addressability should be a public policy objective and put in place amendments to the Cable Television Regulations, 1986 to provide incentives to attain this objective.

The Structural Policy resulted in amendments to the linkage requirement from the current ratio of two non-Canadian satellite services for each Canadian specialty service, to one-for-one effective 1 January 1995. Rather than causing a decrease in the number of existing foreign services, this change allows for the distribution of additional domestic services licensed as a result of the 14 February Public Hearing. The current 8-channel limit on non-Canadian satellite services will also be eliminated to coincide with the launch of the newly-licensed specialty services on 1 January 1995.

Another key change flowing from the Structural Hearing was the application of the "dual status" carriage approach for all existing specialty services authorized on an optional-to-basic basis. This will allow these services to be distributed as part of the basic service or, with written consent of the licensees concerned, as part of a high penetration "extended tier". As described later in this Public Notice, the Commission has now adopted a "modified dual status" approach for all but two of the new specialty services. This approach will require discretionary distribution by Class 1 cable systems of the majority of specialty services, unless both the cable licensee and the provider of the specialty service agree to carriage on the basic service.

In order to ensure the broadest possible carriage of new specialty services, the Commission also directed the cable industry to undertake a public process to review and strengthen its access guidelines for Canadian programming services.

c) Call for Applications

In Public Notice CRTC 1993-77 dated 3 June 1993, the Commission announced that it was inviting applications for licences to carry on undertakings to provide Canadian specialty, pay television and pay-per-view programming services.

The Commission set out certain general principles and objectives. Specifically, the Commission stated that the new programming services should:

* contribute to the realization of the objectives set out in the Broadcasting Act and strengthen the Canadian Broadcasting system;

* increase the diversity of high quality programming available to Canadians and provide new opportunities and revenue sources for Canadian program producers and creative talent; and,

* exemplify innovative programming concepts that are not directly competitive with existing Canadian programming services.

In addition, and pursuant to written and oral comments submitted during the Structural Hearing, the Commission noted that it would consider a number of factors as significant criteria in assessing applications. These included the market demand for the proposed services; the financial viability of applicants and their proposals; the potential impact on existing licensees; the degree of financial support for, and exhibition of, Canadian programming; the revenue sources, including the amount of advertising; and modes of distribution, such as dual carriage status, purely discretionary and carriage on basic cable.

The Commission noted that, where applicants envisaged any distribution on the basic cable service, it would examine carefully the proposed wholesale subscriber fees, taking into account its stated concerns regarding the affordability of basic cable service.

For the purpose of assisting discussion at the public hearing, the Commission placed on the public file two documents prepared by the Canadian Cable Television Association (CCTA). One was a proposed ACCESS COMMITMENT developed by the CCTA, as requested by the Commission at the release of the Structural Policy. The other was a report on the results of a channel capacity survey of Class 1 cable licensees. The Commission supplemented this latter survey with its own, system-specific survey of all cable undertakings serving 20,000 or more subscribers, and placed this on the public file as well.

II. THE PUBLIC HEARING

The hearing took place from 14 February to 10 March 1994, at which time 48 applications were considered.

A broad range of English-language services were proposed, including pay-per-view sports; country and MOR music videos; women's; adults over 50; information; regional, business and headline news; comedy; entertainment; drama; performing arts; documentary; crime, law and security; nature; travel; educational; animation; health; lifestyle; and classic movie pay television.

French-language proposals considered were: pay-per-view movies, events and other programs; arts and entertainment; documentary; news and headline news; information; performing arts; animation; and MOR music.

There were four phases to the hearing. During Phase I, the applicants presented their proposals. Following each presentation, the Commission questioned the applicants as to how they met the objectives and criteria set out in the call for applications. In Phase II, applicants presented their oral interventions to other applications. Phase III provided the opportunity for oral interventions from the public, interested parties, special interest groups and associations. During Phase IV applicants had the opportunity to respond to both the oral and written interventions filed to their applications.

The Commission extends its appreciation to all those who contributed to this process, including the applicants, the 33 appearing interveners and those who filed over 6,800 written interventions.

III. REGULATORY FRAMEWORK

a) CCTA ACCESS COMMITMENT

Pursuant to the Commission's request that the CCTA revise and improve its access guidelines for the carriage of specialty, pay television and pay-per-view programming services, a proposed ACCESS COMMITMENT was placed on the public file prior to the public hearing, and a final version of the document was filed with the Commission on 2 May 1994.

In Public Notice CRTC 1994-55 dated 16 May 1994, the Commission formally accepted the revised ACCESS COMMITMENT. The commitment provides that all Class 1 cable television licensees "will provide access to every licensed Canadian specialty, pay television and pay-per-view service, except where the cable licensee can demonstrate it has no available channel capacity." This commitment is premised on discretionary distribution.

As a result of the limited channel capacity of some cable systems, it is likely that not all of the services authorized today will initially be carried by all cable systems. In this regard, the Commission would expect that, as a matter of policy, the new specialty services will have carriage priority over the new pay television services. However, the Commission's estimation of the channel capacity that will be available by January 1995 indicates that the new English-language pay television licensees should still have access to Class 1 cable systems representing approximately 3.8 million subscribers.

b) Channel Capacity Limitations

As a preliminary matter, the issue of satellite capacity was addressed by Telesat Canada, the first appearing intervener whose representatives described the rescue mission for the ANIK E2 satellite which had been damaged by a solar storm in January. They assured the Commission that the satellite would be fully operational by mid-summer of this year, and would have the capacity "to accommodate the equivalent of more than 90 channels of analog television" and therefore "the Company believes that satellite capacity need not be an issue at this Hearing." Telesat went on to urge the Commission to authorize as many services as it feels are financially viable and will make a positive contribution to the Canadian broadcasting system.

CHUM Limited, which was involved in eight proposals for new specialty services, acknowledged the short-term problem of restricted channel capacity for cable systems. It, nevertheless, encouraged the Commission to license all worthwhile applicants, suggesting that those with lower revenue requirements could launch with fewer subscribers, cognizant that their subscriber base would gradually increase over time as cable systems upgraded their channel capacity and converted to DVC.

In contrast, the CCTA cited the current channel capacity limitations of the cable industry as a caution against issuing too many licences.

Representatives of the cable industry also explained that the introduction of DVC will be delayed due to the absence of a technical standard for the decoders. They estimated that these addressable decoders will begin to be introduced by mid-1995. The CCTA noted that the cable industry was committed to "a plan of investment of $6 to $10 billion over a period of seven years, through to the year 2001".

There was general agreement that there would be a transition period over the next few years and that the immediate channel capacity limitations would eventually disappear. As some cable systems will provide increased capacity before others, there is no predictable, single date when the industry as a whole will overcome the current capacity limitations. Furthermore, the existing constraints vary from market to market. Some systems have only two or three available channels at the moment, while others have ten or more.

Although the Commission expects that DVC will be implemented in a gradual fashion starting in 1995, the multi-channel universe is still several years away. Furthermore, it is likely that the cable industry will largely continue, for some time, to market specialty services in attractive packages rather than on an à-la-carte, stand-alone basis.

Until universal addressability is substantially in place, cable licensees will continue to utilize trapping technology to create and secure the "extended tier". In order to accommodate the new specialty services, and the possible displacement of non-programming or exempt services, it will be necessary for cable licensees to alter their channel line-ups. Some will have to replace existing traps or add new traps to accommodate the increased size and composition of the "extended tier", or the creation of a second high penetration unscrambled tier.

c) Cable Distribution of Specialty Services

i) Anglophone Markets

In its call for applications on 3 June 1993, the Commission stated that, "in licensing a new specialty undertaking, the Commission will generally be prepared to accord dual carriage status for its cable distribution, unless the nature of the service is such that it would be more appropriately distributed on a discretionary basis only."

All but one of the applicants proposing English-language specialty services had based their business plans on dual carriage status. The vast majority anticipated their proposed services would receive minimal carriage on basic cable and would be carried predominantly as part of the high penetration discretionary tier.

Moreover, in light of the CCTA's revised ACCESS COMMITMENT, most applicants were confident that they could meet their financial projections if they were distributed as discretionary services, under the understanding that they would be included in a high penetration discretionary tier and "made whole". Many applicants, however, did point out that not all cable systems offered an "extended tier", and that the Commission should therefore allow such systems the necessary flexibility to place services on basic if that was the most appropriate means of accommodating them until universal addressability was in place.

The Commission has often stated its concern that the cost of basic service remain affordable. In this regard, the Commission's preference is that all new English-language specialty services be distributed as part of one or more high penetration discretionary tiers so that cable subscribers generally have the choice of whether to subscribe to them or not. Notwithstanding this principle, the Commission acknowledges that some flexibility is necessary during the transition to universal addressability.

Accordingly, the Commission has decided to adopt a modified dual carriage policy for all but one of these new English-language specialty services. As The Country Network will be made available to cable affiliates at no charge when distributed as part of the basic service, the Commission's concern for cost is not an issue in this case.

With respect to the other specialty services authorized today, the Commission's concerns with regard to the affordability of basic service and the matter of allowing some flexibility during the transition period are both addressed by the modified dual status these services have been accorded.

In Public Notice CRTC 1994-60 released today, the Commission sets out its revised distribution and linkage requirements to reflect these and other changes to the cable carriage framework. In a public notice to be issued shortly, the Commission will propose amendments to the cable regulations to incorporate, by reference, these changes.

ii) Francophone Markets

Characteristics of the Quebec marketplace, in particular its size, comparatively low cable penetration, restrictions relating to marketing, and the limited attractiveness of U.S. satellite services as packaging partners, have resulted in a different approach to the distribution of specialty services.

Instead of introducing a high penetration discretionary tier as in English Canada, one that typically consists of two or three Canadian specialty services and four to six U.S. satellite services, Quebec cable operators have included all French-language specialty services in the basic cable service. This is one reason why basic service rates in Quebec are generally higher than in comparable Anglophone markets.

However, during the 1993 Structural Hearing, Cogeco Radio Télévision Inc. raised the possibility of developments that could lead to the implementation of an "extended tier". Furthermore, CF Cable TV Inc. noted in its intervention that it favours distribution of specialty services on a discretionary tier, utilizing traps or addressable decoders, and that it could successfully market such a tier under the existing Quebec Consumer Protection Act. Both Cogeco and CF Cable, which each serves about a quarter of Quebec households, are involved in discussions to explore these possibilities.

Vidéotron Ltée, the largest cable operator in Québec, explained during its appearance that it believes no French-language specialty services can be viable on a stand-alone basis. This multi-system operator added that, in order to create an unscrambled tier, it would have to spend over $10 million in trapping technology; it considered such an expenditure counter-productive in view of the fact that it has already committed to heavy investment in "Videoway", a more advanced addressable technology that would be available to 80% of its subscribers by the year 2000. Further, Vidéotron Ltée stated that high-penetration would be difficult to achieve for the reasons mentioned earlier.

Under such circumstances, Vidéotron Ltée stated that it was hesitant to introduce a tier of specialty services at this time. However, it reiterated its commitment to distribute all the French-language specialty services on the basic service.

The majority of applicants that proposed French-language specialty services based their business plans on carriage on the basic service, while Arts et Divertissement assumed carriage on a high penetration discretionary tier.

In consideration of the current distribution environment in Quebec, and in view of the amended policies resulting from the structural hearing, the Commission has determined Le Réseau de l'information will have dual carriage status. Consistent with its request to be distributed on a discretionary basis, Arts et Divertissement will be accorded modified dual carriage status.

d) Approach to Conditions of Licence

The Commission has taken a flexible approach to the regulation of specialty services, and has regulated such matters as the permissible amount of advertising and the exhibition and expenditure requirements for Canadian programming on a case-by-case basis through conditions of licence. By definition, conditions of licence are designed to reflect the particular circumstances of individual licensees.

In today's decisions, the Commission has limited the number of conditions of licence to those considered necessary. It considers that conditions of licence should be effective and measurable and should address specific objectives.

Prior to the public hearing, the Commission sent letters to all applicants in which it proposed conditions relating to the nature of service and to expenditures on Canadian programming. The Commission considered these proposed conditions to be accurate reflections of the intentions and commitments contained in their applications. These, and other possible conditions of licence, were then fully explored during the applicants' presentations.

i) Nature of Service

In Public Notice CRTC 1986-199 the Commission defined specialty programming services as narrowcast services offering thematic or vertical programming, often targeting a specific demography and having a well-defined genre, such as news, sports or music.

In order to foster diversity, and to ensure that specialty licensees adhere to their commitments to provide programming within a specific genre, the Commission has prescribed the nature of service as a condition of licence.

To the licences issued today, the Commission has attached conditions which restrict the programming content to only the relevant categories of programming as set out in Schedule I of the Specialty Services Regulations, 1990. At the hearing, the Commission established with each applicant the particular categories that would be deemed relevant to the genre of programming it was proposing. In some cases, licence conditions relating to the types of drama or other programming have also been attached.

Filler programming, such as interstitials, is not included in the categories of programming prescribed in conditions of licence setting out the nature of service for specialty licensees; rather, the Commission considers that such filler programming would fall under any of a number of existing categories, and should be logged as such by new and existing licensees alike.

ii) Exhibition of Canadian Programs

Except for undertakings providing music video services, all licensees providing pay television and specialty programming services are required to meet minimum Canadian content quotas for the broadcast year and during evening hours. These quotas vary depending on the nature of service and the availability of domestic programs in any given category. In some cases, the amount of Canadian programming increases over the term of the licence.

 iii) Expenditures on Canadian Programming

Each licensee is required, beginning in the second year of operation, to meet minimum yearly financial commitments with regard to the production or acquisition of Canadian programming. Pay television and most of the specialty licensees will also be extended similar flexibility permitted licensees of conventional stations announced in Public Notice CRTC 1992-89, which generally permits under-expenditures in any year, except the last, of up to 5% to be made up in the subsequent year, and allows the carrying forward of over-expenditures.

iv)Wholesale Rates

The Commission has regulated the wholesale rates for specialty services, when distributed as part of the basic cable service, since they were first permitted basic carriage following the 1987 public hearing. This was necessary to ensure, among other things, that the specialty licensees were able to meet their programming commitments. The Commission also regulates the mark-up that cable operators may charge for specialty services distributed on the basic service to ensure that basic cable service remains affordable.

Because the Commission's modified dual status may, in certain instances, result in cable licensees distributing some or all of the new specialty services as part of their basic service, the wholesale fee for basic service distribution will continue to be regulated. The regulated basic fee will thereby establish the framework for the negotiations between cable and specialty licensees in arriving at the discretionary fee and the mark-up for distribution on the "extended tier".

In each of today's decisions licensing undertakings which will provide new specialty programming services, the Commission has noted the specifics of the business plans regarding the regulated wholesale fee proposed for basic carriage. While some licensees had stipulated a precise fee for the "extended tier", others had indicated that their business plans were based on a "universal payment" or "make whole" formula whereby cable operators would provide remuneration on the basis of 100% of the subscriber base, even though actual penetration of the "extended tier" would be lower.

In certain instances, the Commission has approved a lower wholesale fee than that requested by the licensee where it considered that the proposed fee was higher than what is needed for the licensee to be able to meet its programming commitments and still produce adequate returns for its shareholders.

Where applicants had requested incremental increases to the wholesale fee over the term of the licence, the Commission pursued with them the possibility of establishing an acceptable rate that would be constant over the licence term. In some cases, this approach has been reflected in the condition of licence, while in another case the Commission simply authorized the initial wholesale rate proposed by the applicant and denied any subsequent rate increase. One licensee will be permitted a one-time increase to its fee, and this is to accommodate a substantial increase in expenditures on Canadian programming part-way through the licence term.

The Commission reminds licensees of its policy respecting requests for mid-term fee increases, as noted in the 1992 renewal decisions of certain specialty licensees:

 As a general approach to rate regulation...the Commission has decided not to allow annual increases based on inflationary costs [where such services] have the ability to compensate for inflation, or otherwise to increase their revenues, by maximizing their advertising income [and] by increasing the overall efficiency of their undertakings.

v) Advertising

Consistent with its past practice, the Commission has imposed conditions of licence limiting the maximum number of minutes of paid advertising permitted in each clock hour. A majority of specialty licensees will be permitted the same flexibility accorded conventional broadcasters to accommodate the number of minutes of advertising over two clock hours where a program occupies time in two or more consecutive clock hours. Furthermore, pursuant to a recent amendment to the Specialty Services Regulations, 1990, certain promotions of Canadian programs will not be counted when calculating the number of minutes of advertising. Pay television licensees are not subject to the conditions relating to advertising, since its distribution is prohibited by the Pay Television Regulations, 1990.

vi) Adherence to Industry Codes

The pay television licensees already adhere to the Pay Television Standards and Practices. During the public hearing, the specialty programming applicants agreed to abide, by conditions of licence, to the Code on Advertising to Children, the CAB Sex-Role Portrayal Code for Television and Radio Programming and the CAB Code on Violence on Television. In the case of the licence issued to the CBC, it will be expected to adhere to its own internal Codes, as long as they meet, at a minimum, the standards of the CAB Codes.

IV.GENERAL LICENSING CONCERNS

a)  Cost to the Consumer

In its assessment of individual applications, and in determining the packages of services for Anglophone and Francophone markets, the Commission was mindful of the additional cost to consumers. Although, in most instances, English-language services will be distributed as part of a high penetration discretionary tier, and hence will not be subject to rate regulation, the Commission expects that the regulated wholesale rate of each service will serve as the base of reference in determining the cost, to the cable licensee, of the service on the discretionary tier.

It will be a few years before universal addressability allows for the customization of smaller packages of services. Therefore, since specialty services will continue to be marketed in one or two large packages, the Commission wants to ensure that these packages remain affordable and that they maintain high penetration levels. The Commission has rejected suggestions that it should issue licences, at this time, to every applicant demonstrating a sound business plan and acceptable Canadian content quotas, even though certain applicants were willing to accept a gradual implementation over a number of years before achieving full penetration. In the Commission's view, the affordability of the "extended tier" places significant constraints on the number of undertakings that could be licensed.

The regulated cost to subscribers for the package of the six new English-language services will be $1.70, before taxes, when distributed as part of the basic cable service. The Commission expects that, where these services are distributed on the "extended tier", the corresponding retail price, before taxes, should not exceed $3.00.

For the two French-language services, the regulated cost to subscribers is $1.61, before taxes, when distributed on the basic service. As indicated earlier, the Commission notes that these services will generally be distributed as part of the basic cable service until such time as the Quebec cable industry either introduces an "extended tier", or converts to full addressability.

In certain markets where there are significant Anglophone and Francophone populations, cable operators have provided specialty services in both official languages to better serve the public. In the past, the Commission has approved, on a case-by-case basis, applications to reduce the wholesale rates of specialty services to facilitate the affordable provision of both English-language and French-language services. Furthermore, a number of the new licensees have provided for a reduced rate in their secondary market. The Commission intends to continue to facilitate the provision of minority language services as it has in the past.

b)  Channel Capacity

The Commission's analysis of the availability of cable channels indicates that the six new English-language specialty services should have access to more than 80% of the subscribers of Class 1 cable systems serving Anglophone markets as of January 1995.

In Francophone markets, nearly all cable systems will have adequate channel capacity to distribute both new French-language services.

c)  Capacity of the Advertising Market: Impact on Existing Services

The television advertising industry generates annual revenues in the range of $1.7 billion. The Commission estimates that the new specialty licensees could capture a share of these revenues representing as much as $100 million by the end of the century, without having an undue impact on the ability of existing licensees to meet their programming commitments. In the Commission's view, the advertising market will likely be able to sustain the operations of the new undertakings licensed today without unduly affecting the revenues of conventional broadcasters or the operations of existing specialty service providers. The Commission notes that many of the new specialty services have lower limits on advertising than do conventional stations, and that, moreover, narrowcast services often have the ability to attract new, target-specific products and services to the television medium.

Furthermore, since the genres and formats of the new services are not generally duplicative of conventional or existing specialty services, audience fragmentation should be minimal. The Commission notes that in 1993 the existing specialty services cumulatively attracted 4.6% of all hours of viewing by Canadians.

V.  LICENSING CRITERIA

Each of the applicants at the public hearing was questioned with respect to the extent to which its proposal satisfied the objectives of the Broadcasting Act (the Act) and met the various criteria set out in the call for applications. In selecting which applicants to license, the Commission considered how each service individually, and as part of a package, would contribute to the objectives noted earlier and to the following criteria.

a)  Diversity and Innovation

Pursuant to its mandate under the Act, the Commission is required to "encourage the development of Canadian expression by providing a wide range of programming that reflects Canadian attitudes, opinions, ideas, values and artistic creativity".

Specialty services, by their very nature, play a significant role in contributing to the diversity of styles and genres, often within innovative formats of presentation and scheduling practices.

In examining this criterion, the Commission considered the extent to which the proposed services represented new program types, would add innovative scheduling of programming, and would contribute to a diversity of programming voices.

The package of services authorized today represents a rich assortment of specialized genres that will substantially expand the variety and breadth of programming choices available to Canadians.

b)  Exhibition of Canadian Programming

In its call for applications, the Commission noted that applicants requesting distribution on basic cable will be required to meet Canadian content quotas equivalent to those imposed on conventional stations, unless they can demonstrate that the specialized nature of the service makes this impracticable, in which case they should make the most appropriate use of the available resources.

The business plans of most applicants contained the assumption that they would derive subscriber revenues from distribution as part ofthe basic service in some circumstances, but most commonly from their distribution as part of a high penetration discretionary tier. Accordingly, they submitted proposals that reflected the Commission's expectations respecting Canadian content. Other proposals represented genres of programming that would have difficulty sustaining comparable levels without presenting a disproportionately large ratio of repeat to original broadcasts.

In assessing the various proposals, the Commission examined the extent to which they involved the independent production sector in the supply of programming. The Commission also gave consideration to proposals that would provide exposure for Canadian creative and performing talent and to programming produced by conventional broadcasters that otherwise would not receive national exposure. In addition, the Commission examined proposals in respect of the amount of original Canadian programming appearing in the proposed program schedules.

Many of the applicants licensed today have proposed to exceed the Commission's standard Canadian content requirements for over-the-air stations. For example, "YOU:Your Channel" will start with 70% Canadian content and increase to 82.5% over the licence term. "Lifestyle Television" has committed to 70% over the broadcast day and "Showcase" will devote 100% of the peak viewing time from 7:00 to 10:00 p.m. to Canadian drama programming. "Le Réseau de l'information" will devote 90% of its schedule to Canadian programming.

c) Expenditures on Canadian Programming

Applicants are required to set out in their applications firm commitments for expenditures on Canadian programming in each year of the licence term. In the present case, the level of financial contribution to Canadian programming was one of the key factors in determining which applicants should be licensed.

During the hearing, applicants were questioned as to whether their commitments would continue to be met in the event their revenues fall short of projections. Although most applicants were confident that they would meet or exceed their revenue projections, they acknowledged that the rapidly changing environment could have an unforeseen impact on their business plans.

In order to ensure that licensees are able to meet their programming commitments, the Commission has applied an expenditure formula similar to the approach taken with some specialty licensees in the past. In general, from year three to year six, expenditures on Canadian programming will be formulated as a percentage of the previous year's gross revenues. For most of the new licensees, because the first year of operation is expected to be a partial, eight-month year, and given that the first year subscriber penetration levels are somewhat uncertain due to channel capacity limitations, this formula is not appropriate for the first two years of operation. There will be no condition of licence setting out expenditures for the first year. For the second year, licensees will be required to expend the fixed dollar amount set out in their applications.

Based on the foregoing, the Commission has calculated that the ten licensees will make expenditures in excess of $518 million on Canadian programming over the six-year term of licence.

Two services, Bravo! and The Country Network, have made either additional or different commitments in the establishment of funding mechanisms to support Canadian musical and artistic talent development.

d) Consumer Demand

As set out in the call for applications, each applicant was required to submit evidence that clearly supports the market demand for the proposed service.

Although applicants utilized different methods in their research, many were able to demonstrate that there exists significant consumer interest for their specific proposal within their particular target demography. This research is vital in gauging the attractiveness of the proposals to subscribers. The Commission assessed applications against the evidence of the willingness of subscribers to pay the proposed fee as well as the interest in the programming to be offered.

In addition, the CCTA commissioned comprehensive studies in Quebec and elsewhere in Canada that tested subscriber interest in eleven service genres.

These research results, taken as a whole, indicate that the package of services authorized today represents genres of programming that should appeal to a broad range of consumer tastes.

The Commission notes that some members of the cable industry had suggested a free trial period to coincide with the launch of the new services. The specialty applicants, on the other hand, noted that an immediate cash flow will be necessary to meet their programming commitments. However, both the cable industry and the applicants generally acknowledged the value of a cooperative marketing strategy, leading up to and continuing beyond the launch.

VI. SERVICES AUTHORIZED

a) English-language Pay Television

The Canadian pay television and pay-per-view licensees will likely be the most vulnerable to competition from U.S. high-powered DBS venturesproviding dozens of channels of movies on demand. Therefore, the Commission wishes to bolster the pay television tier and ensure that Canadian pay-per-view licensees remain strong.

The Commission has awarded licences for new pay television undertakings to Allarcom Pay Television Limited serving western Canada, and to First Choice Canadian Communications Corporation serving eastern Canada, to provide complementary, low-cost feature film services composed primarily of "classic" and older movies. Both of these licensees currently provide pay television and pay-per-view services offering first-run feature films in their licensed territories.

Each of these services will allow the pay television licensees to enhance the value of their existing premium movie services to subscribers by providing an attractive packaging partner. These services will also complement the existing pay television services by making maximum use of existing product inventories.

b) English-language Specialty

The six new English-language specialty services will increase the diversity of programming choices available to cable subscribers. For example, audiences seeking regular viewing opportunities for documentary and other non-fiction science programming will be well-served by the schedule of The Discovery Channel. YOU: Your Channel will offer documentary and lifestyle programming, while Bravo! and Showcase will satisfy consumer appetite for more drama, entertainment and performing arts programs. The Country Network will serve a large audience and will provide valuable exposure to Canada's growing roster of country music artists. Lifestyle Television will deliver information and entertainment programming of particular interest to women.

c) French-language Specialty

In the licensing in 1987 of undertakings to provide additional specialty services, the Commission attempted to reduce the imbalance between the number of English- and French-language specialty services. This was intended, in part, to limit the migration of Francophone audiences to English-language services by creating attractive French-language alternatives.

With the licences issued today, the Commission has tailored the package of services to reflect the consumer demand for, and ability of the marketplace to support, these services. The limited size of the Francophone market dictates that it cannot support a package of services fully comparable to that licensed for the Anglophone market.

In Quebec, since French-language specialty services are usually distributed on the basic service, the Commission paid particular attention to the limits imposed by the subscriber's capacity to bear the increased cost of cable service, over other factors such as the technological capacity of cable systems.

Furthermore, the Commission had to weigh the amount of advertising dollars likely to be available in this market during the next few years, against the ability of the existing licensees to meet their obligations under the Act. Based on the existing licensees' recent financial results, and projections for Quebec's and Canada's economy over the period to the year 2000, the Commission is of the opinion that there will be only a limited amount of additional advertising dollars available for new services.

Three years following the report of the task force on The Economic Status of Canadian Television, which was triggered by the economic difficulties of the French-language broadcasting industry, many of the concerns highlighted in the report remain factors of the present economy. Taking this into account, together with the further serious limitation noted above, the Commission has determined that there is room to authorize only two new French-language services, one of which is non-commercial.

At the time it licensed the CBC to provide Newsworld in 1987, the Commission asked the CBC to study the feasibility of the Corporation, alone or with partners, developing a French-language news and information service comparable to Newsworld. With the licensing of Le Réseau de l'information, Francophones will now have access to a high quality news service designed to keep them informed on regional, national and international events.

Market studies commissioned by applicants and interveners demonstrate that Francophones wish to have access to a documentary program service over any other program genre. Strong consumer demand was also demonstrated for a performing arts service. In response to these needs, the Commission has authorized a new Canadian service, Arts et Divertissement, that will provide quality documentary programs, and will offer a number of performing arts programs.

In carefully selecting only these two services, rather than a larger number, the Commission considers that the French-language broadcasting industry will be in a better position to consolidate its financial base.

During the first licence term, more than $100 million will be invested by these two licensees in Canadian program production and acquisition, of which more than $20 million is earmarked for the independent production sector. The Commission notes that these two services will represent an additional regulated cost to subscribers of $1.61 per month, before taxes. Nevertheless, the Commission is convinced that French-speaking cable subscribers will continue to be among the best-served in the world.

d) French-language Pay-per-view

With regard to the licensing of a French-language pay-per-view service, the Commission has denied the two competing applications as set out in Decision CRTC 94-287 released today.

VII. OTHER ISSUES

a) Vertical Integration

i) Integration of Cable Distribution Undertakings and Programming Undertakings

The issue of the integration of program distributors and program providers was examined at length during the 1987 public hearing which considered several specialty proposals involving cable ownership, including that which led to the licensing of YTV. In the YTV decision, the Commission noted the commitments made by the cable shareholders to develop fairness mechanisms to ensure that there would be no preferential treatment of YTV vis-à-vis other services.

In the current proceedings, the Commission again considered a number of applications involving some degree of ownership by cable undertakings. In some cases, the cable licensee committed to establishing a "Fairness Committee" to ensure access. In another instance, the cable operator suggested that the cable industry's ACCESS COMMITMENT makes adequate provision for mediation of any disputes that may arise.

Two of the newly-authorized undertakings, Linda Rankin (OBCI) and the Partners of MH Radio/Rawlco, have significant degrees of cable ownership. The Commission fully expects the cable shareholders to ensure that other programming services do not suffer from any preferential treatment given to either of these services with respect to access on their related cable undertakings, or any other carriage-related matter.

ii) Integration of Programming Undertakings and Production and Distribution Functions

Over the years, the Commission has generally sought to avoid potential conflicts that could arise through the integration of the production and exhibition sectors. Undertakings licensed to provide The Movie Network and Super Écran, general interest pay television services controlled by Astral Communications, have had conditions of licence prohibiting them from distributing product produced by Astral. Since the time these conditions of licence were imposed, the Pay Television Regulations, 1990 were made which prohibit licensees from distributing programming, other than filler programming, that is produced by the licensee or by a person related to the licensee. In view of this prohibition the Commission now believes that conditions of licence such as those imposed on the licensee companies controlled by Astral Communications are no longer necessary.

In the case of specialty services, although the film and television production industries have evolved and have become more financially secure, the Commission considers it necessary to ensure fair access by independent producers and maximize the exhibition opportunities for independently-produced Canadian programs. Accordingly, the Commission expects that, where specialty licensees are involved in both the production and distribution of programming, or where the distribution of programs produced by affiliated companies is contemplated, the licensee shall put in place adequate safeguards to ensure fair access by independent producers.

b) Closed Captioning

As part of its Promise of Performance, each applicant was required to specify both the number of hours and the amount of funds to be devoted to closed captioning.

During the public hearing, captioning advocacy groups described to the Commission a number of on-going frustrations experienced by the deaf and hard of hearing community. These included the inadequacy of certain captioning technologies to provide acceptable quality, the fact that TDD devices are often not attended other than by an answering machine, and the existence of portions of program schedules that remain uncaptioned.

The Commission expects all licensees to meet their commitments as set out in their Promise of Performance, and they are encouraged to exceed these commitments over the licence term. Furthermore, the Commission expects licensees to utilize captioning technology most appropriate in overcoming the shortfalls in quality noted by the interveners. In this regard, while recognizing that the technology is changing rapidly, the Commission notes the statement by the Canadian Association of Captioning Consumers that the costs of "real time" captioning have fallen in recent years to make it as cost effective as the "live display" technology.

Finally, the Commission is of the view that broadcasters should take a more active role in consulting with the various captioning consumer groups in order to better understand and accommodate their needs.

c) Employment Equity

All applicants whose proposed number of employees would make them subject to the provisions of the Employment Equity Act were required to provide information on their plans for employment equity. Some applicants were part of larger corporate groups that had already filed their policies with the Commission. Others were required to submit their proposed policies and practices.

One of the difficulties in realizing any sustained or widespread progress towards achieving employment equity in the broadcasting industry has been reduced hiring activity brought about by the recession. With the decisions issued today, licensees are provided with a fresh opportunity to address employment equity concerns by virtue of the fact that, in most cases, they will be hiring substantial numbers of new employees. The Commission notes that certain licensees, particularly Linda Rankin (OBCI), have proposed progressive and innovative approaches to this matter.

The Commission expects all licensees to adopt hiring practices that will reflect the demographic composition of contemporary society, for both on-air and behind-the-scenes personnel.

VIII. FUTURE LICENSING ACTION

As noted previously, the Commission considers that the issues of affordability and channel capacity pose significant constraints on the number of services the market can accommodate at this time. Moreover, the Commission will wish to re-assess the channel capacity of the cable industry following the launch of the new services in January 1995 as well as consumer reaction to the new services. The Commission will also closely monitor the developments and implementation schedules relating to digital video compression.

The Commission considers that the Canadian broadcasting system will require a period of time to adjust to these developments, and that no new services could therefore be accommodated before January 1997. Accordingly, any applicants wishing to re-file their proposals should do so by 30 June 1995. Furthermore, all applications currently filed will be returned to permit all applicants to assess the market dynamics and the technological developments prior to finalizing their applications.

Allan J. Darling
Secretary General