ARCHIVED -  Decision CRTC 95-904

Decision

Ottawa, 20 December 1995

Decision CRTC 95-904

The Partners of Viewer's Choice Canada

Eastern Canada - 952042000

New, regional, direct-to-home, English-language pay-per-view television programming undertaking - Approved

Following a Public Hearing held in the National Capital Region beginning on 30 October 1995, and in accordance with Public Notice CRTC 1995-217 which accompanies this and other related decisions issued today, the Commission approves the application by the partners of Viewer's Choice Canada (Viewer's Choice) for a broadcasting licence to carry on a regional, English-language, direct-to-home (DTH) pay-per-view (PPV) television programming undertaking. The licensee will provide a general interest pay-per-view service for distribution exclusively by licensed DTH satellite distribution undertakings, to subscribers in Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland.

The Commission will issue a licence to carry on a regional, general interest DTH PPV television programming undertaking to the partners of Viewer's Choice, expiring 31 August 2002. The licence will be subject to the conditions set out in the appendix to this decision and in the licence to be issued.

Ownership

Viewer's Choice is a general partnership consisting of TMN Networks Inc. (TMN), Rogers Pay-Per-View Inc. (Rogers) and Labatt Communications Inc. (LCI).

TMN holds a controlling interest in the partnership, and is the licensee of the existing English-language pay television programming undertakings operating in Eastern Canada known as "The Movie Network" (TMN) and "MOVIEPIX" and operates the pay television service offering a pay-per-view service known as "Viewer's Choice". It holds a controlling interest in the national, French-language pay television licensee (Premier Choix:TVEC Inc.). It also owns 50% of The Family Channel Inc., licensee of the national, English-language pay television service for children, youth and families. TMN is controlled indirectly by Astral Communications Inc. (Astral), a Montréal-based company active in the production and distribution of feature films in Canada and elsewhere.

Rogers is a company that is ultimately controlled by Mr. Edward S. Rogers of Toronto, who, through Rogers Communications Inc., has extensive holdings in Canada's cable television, broadcasting and telecommunications industries.

LCI was ultimately controlled by John Labatt Limited (JLL); JLL remained a publicly-traded company until July of 1995, when it was acquired by Interbrew S.A./N.V., a non-Canadian company. Due to the requirement that broadcasting undertakings in Canada be owned and controlled by Canadians, the broadcasting properties owned by LCI were placed in trusteeship with Mr. Donald G. Campbell, pursuant to a voting trust approved by the Commission. LCI will remain in trust until such time as the Commission approves an application transferring the ownership of LCI to a third party.

Nature of service

As proposed, the service shall consist of programming to be drawn from the categories set out in Item 6 of Schedule I of the Pay Television Regulations, 1990 (the pay television regulations).

The new service will make available for distribution by licensed DTH distribution undertakings, as many as 22 channels of programming as well as a "barker" channel. The programming will consist, for the most part, of feature films but will also include sporting events, musical concerts, educational programming, and packages of team sports.

The licensee shall, by condition of licence, adhere to the pay television regulations, with the exception of paragraphs 3(2)(d), (e) and (f). Because DTH pay-per-view television programming undertakings represent a new class of programming undertaking, the definition of "licensee" contained in subsection 2(1) of the pay television regulations shall also not be applicable in the case of this licensee.

Paragraph 3(2)(d) of the pay television regulations prohibits the inclusion of commercial messages in pay television programming. The Commission's decision not to apply this prohibition to the licensee is in recognition of the fact that the sports programming the licensee proposes to acquire will often contain commercial messages which it would not be practical or cost-effective for the licensee to delete, given that they form an integral part of a live feed.

Accordingly, the licensee is required, by condition of licence, to ensure that commercial messages contained in the programming it assembles for distribution by licensed DTH distribution undertakings are restricted to those contained in the live feed of out-of-market programming in the category of sports.

Moreover, it is a condition of licence that the licensee not sell, or accept compensation for, any commercial message on the service.

Paragraphs 3(2)(e) and (f) of the pay television regulations prohibit the licensee of a pay television undertaking from distributing programming, other than filler programming, that is produced by itself or by a person related to the licensee. In this regard, the Commission notes that it has issued a public notice calling for comments on an amendment to the pay television regulations that would permit pay television licensees, by condition of licence, in certain circumstances, to include programming in their services that is either produced by themselves or by others to whom they are related.

Consistent with that proposed approach, it is a condition of licence that, except as may otherwise be authorized by the Commission upon application, the licensee not distribute programming, other than filler programming, that is produced by the licensee after today's date, or that is produced by a person related to the licensee after the later of today's date and the day on which the person becomes related to the licensee.

This condition allows the licensee to apply to the Commission and present arguments for an exception to the terms of the condition, thus enabling the licensee potentially to include, as part of the service, programs that are produced by itself or by a person related to it.

Control of the Undertaking

One of the important issues considered by the Commission in assessing this application was the question of whether Viewer's Choice, if licensed, would be in a position to exercise control over all programming it planned to distribute in Eastern Canada, given its arrangement with the DTH PPV programming undertaking licensed to Allarcom Pay Television Limited (Allarcom), whose application to serve Western Canada is also approved today (Decision CRTC 95-905).

In their respective applications, Viewer's Choice and Allarcom set out their plans to cooperate in the scheduling of programming to be offered on both services.

By virtue of their arrangement, both licensees will uplink 11 channels of programming that will be available to the other for incorporation into its service. As a result, each undertaking will be in a position to distribute up to 22 channels of programming to its respective subscribers (Viewer's Choice in Eastern Canada and Allarcom in Western Canada).

In light of the evidence presented and the discussions held at the hearing, the Commission is satisfied that Viewer's Choice will exercise an acceptable level of control over all of the programming distributed to its subscribers, regardless of the source of transmission.

Specifically, the Commission considers that Viewer's Choice has demonstrated that it will, at all times:

 a) be separately accountable to the Commission for all programming distributed to the subscribers within its territory;

 b) maintain adequate control over the entire pay-per-view offering in its territory, including control over the availability of the programming to its subscribers; and

 c) secure the necessary rights for all programming distributed in its licensed territory.

Canadian Content and Carriage Arrangements

Viewer's Choice proposed to maintain a minimum Canadian to non-Canadian ratio of 1:20 for feature films and a ratio of 1:7 for events. The Commission considers these ratios to be reasonable. It is therefore a condition of licence that the licensee, through its agreements with the licensees of DTH distribution undertakings, in each broadcast year, ensure that a minimum Canadian to non-Canadian ratio of 1:20 for first-run film titles, and 1:7 for events is maintained on each channel used for their exhibition.

In accordance with the licensee's commitments, it is also a condition of licence that the licensee, in each broadcast year, ensure, through the agreements noted above, that a minimum of 12 Canadian feature films (including all new Canadian feature films that are suitable for pay-per-view exhibition and meet the "Pay Television Programming Standards and Practices Code") are distributed.

The Commission further expects the licensee to adhere to its commitments to ensure that Canadian films and events receive the promotion, numbers of showings and frequency of rotation equivalent to that given to non-Canadian films and events. It also expects the licensee to fulfil its commitment to ensure that Canadian programming is available evenly throughout all time periods, and that the exhibition window for Canadian films is at least equal to the minimum exhibition window given to non-Canadian films.

In Public Notice CRTC 95-217, the Commission has set out its expectation that DTH distribution undertakings carry at least one Canadian DTH pay-per-view programming undertaking. The choice of which DTH pay-per-view service to be carried by each distribution undertaking will depend on technical compatibility and marketing factors, as well as costs. The Commission notes that increased costs, as well as the ownership links between the newly-licensed DTH distribution and programming undertakings, Power DirecTv and Power DirecTicket, respectively, make it unlikely that Power DirecTv will elect to carry general interest DTH PPV undertakings other than Power DirecTicket. For this reason, and in accordance with commitments made by ExpressVu at the public hearing, the Commission understands that the DTH pay-per-view programming service Viewer's Choice will be carried on the DTH distribution undertaking licensed to ExpressVu.

Production Fund

In its application, Viewer's Choice made a commitment to contribute to the independent organization, the Fund to Underwrite New Drama (FUND), a minimum of 5% of the gross annual revenues of the new undertaking.

As stated in Public Notice CRTC 1995-217, the Commission has decided to require the licensees of all DTH distribution undertakings and of all DTH PPV television programming undertakings to make contributions representing no less than 5% of their gross annual revenues to fund Canadian program production. In the interest of cost effectiveness and efficiency, the Commission specified that such contributions should be made to an existing, independently- administered Canadian production fund.

Accordingly, by condition of licence, the licensee is required to contribute a minimum of 5% of the gross annual revenues earned by its DTH PPV programming undertaking to the Canadian program production fund noted above. The licensee, as part of this condition, is required to remit its first contribution no later than 45 days following the end of the month in which it commences operations; contributions thereafter shall take the form of monthly installments remitted within 45 days of month's end and representing a minimum of 5% of that month's gross revenues.

Events

The application originally submitted by Viewer's Choice included a commitment to produce 15 Canadian-based events per year. At the hearing, the licensee sought to alter its proposal, stating that its minimum annual commitment would instead be three events, increasing to five per year over the licence term.

The Commission has considered the licensee's proposal to alter its commitment, but is not willing to approve a reduction to three events per year. Accordingly, and consistent with the requirements imposed on the licensees of other general interest DTH pay-per-view television programming undertakings whose applications are approved today, the Commission requires Viewer's Choice, by condition of licence, to exhibit, at a minimum, four Canadian-based events per year.

The licensee shall, by condition of licence remit to the rights holders of all Canadian films, 100% of the revenues earned by the licensee from the exhibition of these films. In the broadcast year commencing 1 September 1996, and in each subsequent broadcast year, the licensee shall, by condition of licence, remit to the rights holders of two Canadian-based events, 100% of the revenues earned by the licensee from the exhibition of these events.

Revenue Splits

In Canada, the revenues derived from the distribution of existing cable- delivered non-Canadian pay-per-view programming are generally divided in the following manner. For every dollar paid by a subscriber to a DTH distributor, 1/3 generally stays with that distributor, 1/3 is collected by the licensed programming undertaking who assembles the service, and 1/3 is passed on to the rights holder.

The Commission considers that the "1/3 split" serves to promote market stability by ensuring that no licensee is unduly pressured to accept escalating programming costs. Because contributions to Canadian program production funds are to be based on the gross revenues collected by Canadian DTH distributors and on those earned by licensees of DTH PPV undertakings, a predictable 1/3 split will also ensure the maximum levels of contributions to Canadian production funds.

Accordingly, by condition of licence, the licensee is required to ensure that the gross PPV revenues earned by any feature film are equally split three ways among itself, the licensee of the DTH distribution undertaking and the rights holder.

Exclusivity and Preferential Rights

By virtue of paragraph 5(a) of Order-In-Council P.C. 1995-1106, dated 6 July 1995 (the Order), the Commission is required "to prohibit, by appropriate means, [DTH pay-per-view programming undertakings] from acquiring exclusive or other preferential rights to pay-per-view distribution of feature films and other programming within Canada". Most of the participants who addressed this issue at the hearing were of the view that a condition of licence would constitute the most appropriate means of implementing this component of the Order. The Commission agrees with this approach and, accordingly, the licensee will be prohibited, by condition of licence, from acquiring exclusive or other preferential rights to pay-per-view programming exhibited as part of its service.

The term "preferential rights" is broad in scope and could be the subject of different interpretations in light of the particular circumstances at hand. For this reason, the Commission considers that, in dealing with complaints relating to the acquisition of preferential rights, it is preferable to allow the parties to frame the issues as they see fit, and to put forward their respective views as to what might constitute a breach of the condition of licence, on a case-by-case basis.

Non-Proprietary Rights

The Canadian Association of Film Distributors and Exporters submitted an intervention to the Viewer's Choice and other applications, requesting that the Commission require all general interest DTH pay-per-view licensees to purchase non-proprietary exhibition rights for feature films from Canadian distributors. This would include any production other than the exceptions specified in the current Investment Canada policy, which defines proprietary rights as those where the worldwide distribution rights to the program are owned by the licensor, or where the licensor has provided not less than one-half of the cost of the creation of the film.

The Commission considers that such a requirement would provide strong support for Canada's film distribution industry, which is an important element of the broadcasting system. The Commission has decided to include this requirement as a condition of licence with respect to all licences for general interest DTH pay-per-view programming undertakings.

At the hearing, Viewer's Choice stated that it had no objection to such a requirement, and noted that this was the practice followed with its existing pay television services. Accordingly, it is a condition of licence that Viewer's Choice purchase non-proprietary exhibition rights, as defined above, for feature films from Canadian distributors.

Closed captioning

At the hearing, the Commission discussed with the licensee its plans with respect to providing service to deaf and hard-of-hearing viewers. The Commission notes the licensee's commitment to air the closed captioned version of every film and event on the new service, with the exception of concerts, musical events and team sports. The licensee also confirmed that it has acquired and installed a telecommunication device for the deaf (TDD). The Commission expects the licensee to publicize the availability of this equipment and the telephone number used to access it.

Employment Equity

In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled "Implementation of an Employment Equity Policy", the Commission announced that the employment equity practices of broadcasters would be subject to examination by the Commission. In this regard, the Commission encourages the licensee to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

Other matters

It is a condition of licence that the licensee shall not enter into an affiliation agreement with the licensee of a DTH distribution undertaking, unless the agreement incorporates a prohibition against linkage of Viewer's Choice with any non-Canadian discretionary service.

It is a condition of licence that the licensee 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.

By condition of licence, the licensee shall adhere to the "Pay Television Programming Standards and Practices Code", as amended from time to time and approved by the Commission.

By condition of licence the licensee shall also adhere to the "Pay Television and Pay-Per-View Programming Code Regarding Violence", as amended from time to time and approved by the Commission.

The Commission acknowledges, and has considered, the interventions submitted in respect of this application.

Allan J. Darling
Secretary General

APPENDIX TO DECISION CRTC 95-904

Conditions of Licence

1. The licensee shall adhere to the Pay Television Regulations, 1990, with the exception of paragraphs 3(2)(d), (e) and (f). The definition of "licensee" contained in subsection 2(1) is not applicable.

2. The licensee shall ensure that commercial messages contained in the programming it assembles for distribution by licensed DTH distribution undertakings are restricted to those contained in the live feed of out-of-market programming in the category of sports.

3. The licensee shall not sell, or accept compensation for, any commercial message on the service.

4. Except as may otherwise be authorized by the Commission upon application, the licensee shall not distribute programming, other than filler programming, that is produced by the licensee after today's date, or that is produced by a person related to the licensee after the later of today's date and the day on which the person becomes related to the licensee.

5. The licensee shall not enter into an affilation agreement with the licensee of a DTH distribution undertaking, unless the agreement incorporates a prohibition against the linkage of the Viewer's Choice Canada service with any non-Canadian discretionary service.

6. The licensee shall, through its agreements with the licensees of DTH distribution undertakings, ensure that, in each broadcast year, the following is made available by these licensees to their pay-per-view subscribers:

a) a minimum of 12 Canadian feature films (including all new Canadian feature films that are suitable for pay-per-view exhibition and meet the "Pay Television Standards and Practices Code"),

b) a minimum of four Canadian- based events,

c) a minimum 1:20 ratio of Canadian to non-Canadian first-run film titles, and

d) a minimum 1:7 ratio of Canadian to non-Canadian events.

7. The licensee is required to ensure that, during the period between the date the service commences and 31 August 1996, the Canadian content of the films and events within the overall service, as made available by the licensees of affiliated DTH distribution undertakings to their pay-per-view subscribers, respects the requirements specified in the licence condition respecting Canadian content (Number 6). With regard to that condition's requirements under a) and b), compliance will be assessed on an pro-rated basis.

8. In the broadcast year commencing 1 September 1996, and in each subsequent broadcast year, the licensee shall remit to the rights holders of two Canadian-based events, 100% of the revenues earned by the licensee from the exhibition of these two events.

9. The licensee shall remit to the rights holders of all Canadian films, 100% of the revenues earned by the licensee from the exhibition of these films.

10. The licensee shall contribute to the Fund to Underwrite New Drama (FUND), for FUND'S equity investment in Canadian films, a minimim of 5% of the gross annual revenues earned by its DTH PPV programming undertaking in the following manner. The licensee is required to remit its first contribution no later than 45 days following the end of the month in which it commences operations; contributions thereafter shall take the form of monthly installments remitted within 45 days of month's end and representing a minimum of 5% of that month's gross revenues.

11. The licensee shall ensure that the gross PPV revenues earned by any feature film are equally split three ways among itself, the licensee of the DTH distribution undertaking, and the rights holder.

12. The licensee shall not acquire exclusive or other preferential rights to pay-per-view programming exhibited as part of its service.

13. The licensee shall purchase non-proprietary distribution rights for feature films from
Canadian distributors. This includes any production other than the exceptions specified in the current Investment Canada policy, which defines proprietary rights as those where the worldwide distribution rights to the program are owned by the licensor, or where the licensor has provided not less than one-half of the cost of the creation of the film.

14. 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.

15. The licensee shall adhere to the "Pay Television Programming Standards and Practices Code", as amended from time to time and approved by the Commission.

16. The licensee shall adhere to the "Pay Television and Pay-Per-View Programming Code Regarding Violence", as amended from time to time and approved by the Commission.

For the purpose of the above conditions of licence, "broadcast year" means the period between 1 September in any year and terminating the following 31 August.