ARCHIVED -  Decision CRTC 94-283

Decision

Ottawa, 6 June 1994

Decision CRTC 94-283

The Partners of "Adventure Unlimited"

Across Canada - 931555700

"The Discovery Channel" - Approved

Following a Public Hearing held in the National Capital Region beginning on 14 February 1994, the Commission approves the application by the partners of "Adventure Unlimited" (Adventure), doing business under the name and style of "The Discovery Channel", for a broadcasting licence to provide a national, English-language programming undertaking (Specialty Television Service). This service will be available to cable television affiliates across the country on a modified dual-status basis for Class 1 licensees, and on a dual status basis for Class 2 licensees as explained in Public Notice CRTC 1994-59 which introduces this and the other decisions issued today, and in accordance with the provisions outlined in the distribution and linkage public notice accompanying this decision (Public Notice CRTC 1994-60).

Provided that the requirements set out below regarding ownership are met, the Commission will issue a licence, expiring 31 August 2000. The licence will be subject to the conditions specified in the appendix to this decision and in the licence to be issued.

Ownership

Adventure is a general partnership between Labatt Brewing Company Limited and Labatt Communications Inc. (formerly 2765845 Canada Inc.), duly constituted under the laws of the Province of Ontario. The Commission notes, however, that the Adventure partnership agreement states that the business and affairs of the partnership will be managed by the Partnership Committee, established and granted its responsibilities by an Operating and Option (O&O) agreement between Discovery Communications Inc. (DCI) and TSN Enterprises (TSNE).

DCI, a U.S. communications company, operates The Discovery Channel and The Learning Channel in the United States. The former is a specialty programming service similar to the one being proposed by Adventure. TSNE is a general partnership between Labatt Brewing Company Limited and Labatt Communications Inc., the same two partners of the Adventure partnership.

The Partnership Committee consists of four representatives of the Adventure partners and one representative of DCI. While some business matters, such as approval of contracts and business plans, require only majority approval by the Partnership Committee, other significant matters, such as the determination of the general structure of the partnership and the appointment or removal of the general manager, require unanimous approval by all members of the Partnership Committee.

The Commission considers that the requirement of unanimous approval of certain matters grants DCI an unacceptable level of authority. In effect, complete control of the operation would not reside solely with the two Canadian companies which form the Adventure partnership, but with them and DCI.

Clearly, the Commission can only issue broadcasting licences to those parties that have the direct and entire authority over the direction and business of their operations. Moreover, under the Direction to the CRTC (Eligible Canadian Corporations), the Commission may not issue a broadcasting licence to any applicant that is not a Canadian citizen or an eligible Canadian corporation.

The Commission notes, however, that the O&O agreement gives DCI the option to acquire a 20% equity position in a joint venture company to be incorporated. If DCI chooses to exercise this option, the partners of Adventure would transfer the assets of the partnership to this joint venture corporation. Such a joint venture corporation might address the concerns set out above.

Accordingly, the authority granted in this decision will only be effective, and the licence will only be issued, at such time as the Commission receives documentation confirming that a joint venture corporation has been incorporated as contemplated in the O&O agreement. Furthermore, the Commission must be satisfied that the joint venture corporation meets the Direction to the CRTC (Eligible Canadian Corporations) and that DCI's power in the corporation does not exceed that which would be consistent with a 20% equity position. The Commission requires Adventure to file all documentation pertinent to determining the applicant's eligibility to hold a licence.

Nature of Service

The Discovery Channel will offer a non-fiction programming service presenting programs on the themes of nature and the environment, science and technology, adventure, and people and places. While its chief program format will be documentary, it will also include series and special events programming, magazine shows, commentaries and programs involving audience participation. As described by the applicant, and as set out as a condition of licence in the appendix to this decision, 100% of The Discovery Channel's schedule shall consist of programming from categories 2 (Analysis and Interpretation) or 5 (Formal and Informal Education) as defined in item 6 of Schedule 1 of the Specialty Service Regulations, 1990.

Programming

The Discovery Channel will offer a continuous programming schedule 24 hours a day. It will broadcast programs focusing on topics ranging from the mysteries of science, computers, robotics, software applications and video games to human behaviour, wildlife, gardening, food, travel and programs that highlight the environment and cultures of countries around the world.

"Canada Magazine", The Discovery Channel's major in-house production, will be broadcast Monday to Friday during the evening broadcast period and will feature debates on science issues, math games and puzzles involving viewer participation, advice panels on activities ranging from birdwatching to astronomy, updates on the latest developments in science and technology, short documentaries, previews of major new exhibits in science centres and museums and many other elements.

In making this decision, the Commission has noted the applicant's extensive commitments regarding the broadcast of Canadian programs during the high-audience period between 6 p.m. and 11 p.m. These commitments include, beginning in the first broadcast year, the telecast of:

- five one-hour Canadian documentary series, including two original first-run;

- five half-hour Canadian documentary series, all original first-run;

- seven half-hour Canadian series of other types, including five original first-run; and

- five original first-run hours each week of Canadian magazine programming, 52 weeks a year (Canada Magazine).

In addition, the applicant made a commitment to ensure that the number of one-hour Canadian documentary series broadcast between 6 p.m. and 11 p.m. will rise to eight in the fourth year, including five original first-run.

Each of the series referenced above will consist of at least 13 original episodes each year, plus repeats.

The Commission notes that the applicant intends to co-produce with, and acquire programming from, independent Canadian producers and production organizations in order to fulfil most of these commitments. In this regard, the Commission notes the applicant's statement that "more than seventy percent of the program expenditures for Canadian programming will be spent on programs that are produced or acquired from Canadian independent and freelance producers".

As proposed in the application, and as required by the condition of licence set out in the appendix to this decision, the applicant will spend a minimum of $12,848,000 on Canadian programming in the second year of the licence term and, in each subsequent year of the term, a minimum of 45% of the previous year's total revenues. Consistent with the Commission's approach regarding conventional television broadcasters, the condition of licence gives the applicant some flexibility in the accounting of these expenditures.

The Discovery Channel will broadcast a minimum Canadian content level of 60% over the broadcast year, and 50% during the evening broadcast period (6 p.m. to midnight). Adherence to these levels shall be required by condition of licence.

Financial Matters

The Adventure partners will provide $10,180,000 in advance funding for the service. Thereafter, The Discovery Channel will derive its revenues from two main sources - subscriber fees and advertising. The applicant expects that, by its sixth year of operation, it will generate 72% of its total revenues from subscriber fees, and 25% from advertising sales.

The Commission notes that the application, filed by the Adventure partners, included a business plan, based, in part, on the assumption of a specific wholesale rate. At the hearing, the applicant clarified that, when it submitted its application, it had assumed that the proposed service would be distributed on a high penetration discretionary tier of services offered for a wholesale rate of $0.45 per subscriber per month, rising to $0.49 in the sixth year of the licence term. The applicant, however, agreed to accept a wholesale rate for the entire licence term of $0.36 per subscriber per month for exhibition on the basic service. This rate is hereby authorized as a condition of licence.

The Commission notes the applicant's assumption that the subscriber rate will be "made whole" when the service is distributed on a discretionary tier. The Commission notes that the applicant's financial projections and programming commitments for The Discovery Channel are based on the foregoing assumptions.

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

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

Other Matters

The Commission notes the applicant's commitment to close-caption, in year one of the licence term, a minimum of 300 hours of its own productions and programs co-produced with others, at a cost of $190,000. This will rise to a minimum of 700 hours, at a cost of $309,000, in year six. As well, the Commission notes the applicant's commitment to acquire captioned versions of programs whenever possible. The Commission expects the applicant to meet the commitments set out above and encourages it to exceed these levels.

In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled "Implementation of an Employment Equity Policy", the Commission announced that the practices of broadcasters would be subject to examination by the Commission. The Commission notes that the applicant has made a commitment to develop guidelines for the independent producers providing programming for The Discovery Channel to ensure that the programming broadcast on the service reflects the four designated groups identified under the Employment Equity Act, namely women, aboriginal peoples, persons with disabilities and members of visible minorities. The Commission encourages the applicant to promote employment equity in the representation of on-air staff and in voice-overs of commercials and promotions produced in-house. The Commission will review with the applicant at the time of licence renewal its performance in implementing its practices and plans regarding employment equity.

In view of the applicant's emphasis on the quality of its programs and its commitments to invest in a large number of new Canadian productions, the Commission considers that The Discovery Channel will contribute significantly to enriching the Canadian broadcasting system. Furthermore, the Commission is satisfied that the applicant has demonstrated that the proposed service meets the Commission's criteria regarding financial viability and market demand and that the new programming undertaking will not have a significant negative impact on existing licensees.

Allan J. Darling
Secretary General

APPENDIX / ANNEXE

Conditions of Licence for The Discovery Channel

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

1. 100% of the programming broadcast by The Discovery Channel shall be from categories 2 (Analysis and Interpretation) or 5 (Formal and Informal Education) as set out in item 6 of Schedule 1 of the Specialty Services Regulations, 1990.

2. The licensee shall devote not less than 60% of the broadcast year and 50% of the evening broadcast period to the distribution of Canadian programs.

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

 (a) from 1 September 1995 to 31 August 1996, expend on the acquisition of, or investment in, Canadian programs not less than $12,848,000

 (b) from 1 September 1996 to 31 August 1997, and in each subsequent broadcast year, expend on the acquisition of, or investment in, Canadian programs not less than 45% of the previous year's gross revenues.

 (c) 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 set out in or calculated in accordance with this condition; in such case, the licensee shall expend in the next year of the licence term, in addition to the minimum required expenditure for that year, the full amount of the previous year's underspending.

 (d) In any broadcast year of the licence term, including the final year, the licensee may expend an amount on Canadian programming that is greater than the minimum required expenditure for that year set out in accordance with this condition; in such case, the licensee may deduct:

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

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

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

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

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

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

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

5. From the date of commencement of service, the licensee shall charge each exhibitor of this service the wholesale rate of $0.36 per subscriber per month for exhibition on the basic service.

6. 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.

7. 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.

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

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