ARCHIVED -  Decision CRTC 95-906

Decision

Ottawa, 20 December 1995

Decision CRTC 95-906

Joel Bell, on behalf of a company to be incorporated

Across Canada - 952061000

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

Following a Public Hearing in the National Capital Region commencing 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 for a broadcasting licence to carry on a national, English-language, general interest, direct-to-home (DTH) pay-per-view (PPV) television programming undertaking. As proposed, the service will be known as Power DirecTicket and will be distributed across Canada exclusively by licensed DTH satellite distribution undertakings.

The Commission will issue a licence to carry on a national, general interest DTH pay-per-view television programming undertaking, expiring 31 August 2002. The licence will be subject to the conditions specified in the appendix to this decision and in the licence to be issued.

This authority will only be effective, and the licence will only be issued, at such time as the Commission receives documentation establishing that an eligible Canadian corporation has been incorporated in accordance with the application in all material respects, and that it may be issued a licence.

Ownership

The licensee will be effectively owned and controlled by Power Broadcasting Inc. (Power) through its ownership of 80.01% of the company's issued voting shares. Power is the licensee of 22 radio and television stations in Ontario and Quebec, and holds a controlling interest in Télévision de la Baie des Chaleurs Inc. (CHAU-TV Carleton, Quebec and its associated television transmitters). Power is indirectly controlled by Paul Desmarais of Montréal.

The remaining 19.99% of the licensee's issued voting shares will be owned by DirecTv Inc., a non-Canadian corporation engaged in, among other things, the satellite delivery of pay-per-view programming in the U.S. market.

Nature of service

The service will include between 60 and 70 channels of programming distributed via satellite by licensed DTH distribution undertakings. The programming to be distributed on these DTH channels will be available 24 hours per day. Programming on four of the channels, including a "barker" channel, will consist entirely of Canadian programming assembled in Canada and distributed to subscribers using a Canadian satellite; the remaining channels will be delivered by U.S. satellite, and will be made available by DirecTv Inc. to Power DirecTicket.

At the hearing, noting the potential for cost savings among other things, the applicant proposed an alternative approach, whereby the four channels of programming it had initially proposed for distribution by Canadian satellite would be distributed by U.S. satellites. In the Commission's view, the applicant's alternative proposal would not be consistent with the government's Canadian satellite usage policy. Further, the Commission does not consider that the applicant has made a convincing case for an exception to this policy and, accordingly, denies the alternative approach proposed by the applicant.

As proposed, the service shall consist of programming to be drawn from the categories set out in Item 6 of Schedule I to the Pay Television Regulations, 1990 (the pay television regulations). The programming, as described in the application, will consist of feature films for the most part, but will also include some four or five special events per month, such as concerts, cultural events and coverage of live sports matches.

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 applicant to delete, given that they form an integral part of a live feed.

By condition of licence, the licensee shall ensure that commercial messages contained in the programming it packages 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 would allow 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 Power, its controlling shareholder, or by a person related to Power.

Control of the undertaking

The Commission questioned the applicant at the hearing on whether it would be in a position to exercise control over all of the programming it would make available for distribution to pay-per-view subscribers across Canada. The applicant stated that it would have complete control over the content of programming on the channels to be distributed via Canadian satellite, and would have the ability to authorize or de-authorize the distribution of any program, or part thereof, contained in the signal stream it would make available to subscribers within Canada from the U.S. satellite. While the licensee would not be able to dictate the film titles and other programs that are uplinked to the U.S. satellite or how they are scheduled, it would have the ability, for any of these programs, not to authorize them for reception in Canada.

The Commission is satisfied that the applicant has demonstrated, and committed to maintain, a sufficient level of control to satisfy the requirements of paragraph 3(1)(a) of the Broadcasting Act.

Revenue splits

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

At the hearing, certain parties argued that competition among PPV services could produce a situation in which licensees would be required to pay a greater portion of their revenues to foreign rights holders than is currently the case in the cable PPV market.

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

Consistent with the conditions that have been imposed on licensees of the two other English-language, general interest, DTH pay-per-view television programming undertakings whose applications are approved today, the licensee shall ensure, by condition of licence, that the pay-per-view 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 section 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 any 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.

Acquisition of program rights

 (i) Non-proprietary rights

The Canadian Association of Film Distributors and Exporters (CAFDE) submitted an intervention to this 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 productions other than the exceptions specified in the current Investment Canada policy, which defines proprietary rights as those where the worldwide distribution rights 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 therefore decided to include this requirement in all licences for general interest DTH PPV programming undertakings.

The applicant agreed to abide by such a requirement, but stipulated that it should be applied equally to the licensees of pay-per-view services distributed on cable. The Commission notes in this regard that, licensees of cable-delivered, general interest pay-per-view services have the same ownership as those licensed today to provide general interest DTH pay-per-view services, and would therefore purchase rights for both services in tandem.

Accordingly, it is a condition of licence that Power DirecTicket purchase non-proprietary exhibition rights, as defined above, for feature films from Canadian distributors.

 (ii) Program rights acquired through DirecTv Inc.

The applicant had proposed to acquire a portion of its programming from its 19.99% U.S. shareholder, DirecTv Inc. At the hearing, the applicant addressed its DBS Services Agreement with DirecTv Inc., and acknowledged:

 The most frequently cited advantage is our program acquisition deals. I would invite you to take that away by your [decision], if you feel that is necessary. We would accept, as a condition of licence, that we would not be able to make use of that portion of the contract. We would be prepared to excise it from the contract. The fact is, we expect to have to negotiate all of those deals on our own...

Accordingly, it is a condition of licence that the licensee not acquire any programming, either direct or indirect, from DirecTv Inc.

Canadian content, and promotion of Canadian programming

In keeping with the applicant's further commitments, either as proposed in the written application or as amended at the hearing, the licence shall be subject to the additional conditions and expectations set out below. The Commission notes that these conditions and expectations are similar to those contained in today's decisions approving the two other applications for licences to carry on new, general interest, English-language, DTH pay-per-view television programming undertakings.

It is a condition of licence that Power DirecTicket, 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.

The licensee is also required, by condition of licence, 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 above licence condition concerning Canadian content requirements. With regard to that condition's requirements under a) and b) above, compliance will be assessed on a pro-rated basis.

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.

The Commission notes the applicant's statement that all programming, including Canadian programming, but excluding events, "...will receive exposure throughout the day in all time periods.... Canadian programs will not be treated any less favourably than any other programming on the service". The Commission expects the licensee to adhere to this commitment and, further, to ensure that Canadian films receive the promotion, number of showings or repeats, and frequency of rotation within the overall service in the schedule equal to that given to non-Canadian films.

The Commission also notes, and expects the applicant to adhere to its commitments to ensure that the exhibition window to be given Canadian films will be at least equal to the minimum length of the window given to non-Canadian films, and that "Canadian programs will receive the same marketing and promotional support as similar foreign programs on the service".

Production fund

In its application, Power DirecTicket committed to contribute 5% of its gross annual revenues to the funding of "Canadian cultural events and drama". Although the written application proposed that these contributions be directed to a new fund to be known as "The Fund for the Advancement of Canadian Entertainment" (FACE), the applicant indicated at the hearing that it would be open to suggestions as to how and by whom its contributions would be administered.

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 pay-per-view 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 Canadian program 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 pay-per-view programming undertaking to an existing, independently-administered, Canadian program production fund. The applicant indicated that it expects the operations of Power DirecTicket to commence in June 1996. Accordingly, as part of this condition, the licensee is required to report to the Commission, within six months of the date of this decision, identifying the name of the existing fund to which it will remit its contributions. The licensee is further 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.

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 the linkage of the Power DirecTicket service with any non-Canadian discretionary service.

With respect to this preceding condition of licence, the Commission notes that, in further decisions issued today, it has approved applications by the current applicant (the company to be incorporated) and by ExpressVu Inc. for broadcasting licences to carry on national DTH distribution undertakings that will compete with each other. In the accompanying Public Notice CRTC 1995-217, the Commission has made it a requirement that each of these two DTH distribution undertakings must distribute the service of at least one English-language, general interest, DTH pay-per-view undertaking.

In its application, Power DirecTicket made a commitment:

  ...to acquire programming for exhibition (foreign and domestic) that is closed captioned whenever possible and to effect closed captioning on any Canadian programming which requires it, prior to exhibition on the service. This includes live events (except music) as well as sports and drama to a maximum of $50,000 per year.

The Commission expects the licensee to adhere to this commitment as a minimum. It also expects Power DirecTicket to acquire a telecommunication device for the deaf (TDD), and to publicize the availability of this equipment and the telephone number used to access it.

By condition of licence, 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.

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 95-906

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 ensure that the gross pay-per-view revenues earned by any feature film are equally split three ways among itself, the licensee of the DTH distribution undertaking, and the rights holder.

6. The licensee shall not acquire any programming, either direct or indirect, from DirecTv Inc.

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

8. The licensee shall purchase non-proprietary exhibition 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 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.

9. The licensee, through its agreements with the licensees of DTH distribution undertakings, shall 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.

10. 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 above licence condition concerning Canadian content requirements. With regard to that condition's requirements under a) and b) above, compliance will be assessed on a pro-rated basis.

11. 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.

12. 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 events.

13. The licensee shall contribute a minimum of 5% of the gross annual revenues earned by its DTH pay-per-view programming undertaking to an existing, independently-administered, Canadian program production fund. As part of this condition, the licensee is required to report to the Commission, within six months of the date of this decision, identifying the name of the existing fund to which it will remit its contributions. 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.

14. The licensee shall not enter into an affiliation agreement with the licensee of a DTH distribution undertaking, unless the agreement incorporates a prohibition against the linkage of the Power DirecTicket service with any non-Canadian discretionary service.

15. 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.

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

17. 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.