ARCHIVED -  Public Notice CRTC 1995-205

Public Notice

Ottawa, 30 November 1995

Public Notice CRTC 1995-205

The Commission's Approach to Applications for New Specialty and Pay Television Services

Introduction

In Public Notice CRTC 1995-29 dated 22 February 1995, the Commission postponed the deadline for filing applications for new Canadian specialty and pay television programming undertakings until 11 January 1996. The Commission determined that such a delay was warranted in view of the difficulties experienced by many cable undertakings in introducing the new services licensed in 1994 and in light of the delays encountered by the cable industry with respect to the introduction of digital video compression and addressable decoders. Public Notice CRTC 1995-29 set out the Commission's basic position with regard to carriage arrangements and licensing criteria for new services, and indicated that applications that do not include the required information regarding business plans, financing guarantees, ownership, marketing strategy and programming plans would be considered incomplete and would be returned to the applicant.

Since the issuance of Public Notice CRTC 1995-29, many changes have taken place in the Canadian broadcasting environment. On 19 May 1995, the Commission released its report entitled Competition and Culture on Canada's Information Highway: Managing the Realities of Transition, which responded to questions raised in the government's Order in Council directive, P.C. 1994-1689. Moreover, barriers to competition between telephone and cable companies are in the process of being removed; other forms of broadcast distribution, such as DTH, MDS and CellularVision are in various stages of operation, licensing or development; and, more detailed information regarding consumer acceptance of the new specialty and pay services launched in late 1994 is now available.

With these factors in mind, the Commission considers it to be in the public interest, and in the interest of potential applicants, to set out in more detail its approach to the consideration of applications for new Canadian specialty and pay television services.

Licensing Criteria

a) General

In assessing applications, the Commission will continue to place importance upon the ability of the proposed service to contribute to the realization of the objectives set out in the Broadcasting Act and to strengthen the Canadian broadcasting system. Specifically, applicants proposing new services should be prepared to demonstrate how their proposals will increase the diversity of high quality programming available to Canadians, will meet a demand on the part of Canadians, and will provide new opportunities and revenue sources for Canadian program producers and creative talent.

b) Carriage Arrangements

The Commission underlines its statement in Public Notice CRTC 1995-29 that it has a predisposition in favour of proposals based exclusively on discretionary carriage. This could mean carriage either on a stand-alone basis or on a low penetration tier.

Introduction of a second tier has been occurring increasingly on cable undertakings serving English-language markets, and information is now available with regard to subscriber levels for that tier. The possibility exists that a third tier may develop, in either an analogue or digital format. In addition, penetration levels may be affected by the roll-out of digital video compression (DVC) boxes by cable licensees, as well as through the availability of other distribution undertakings using addressable, digital technology. Applicants are therefore advised to assess projected subscriber levels realistically, with careful attention to the level of acceptance their services are likely to achieve with consumers and distributors alike.

The particular nature of French-language markets, and the ability of these markets to support new services, have resulted in the availability of some French-language specialty services on a high penetration discretionary tier in some cable markets. In these markets, additional low penetration tiers have not been made widely available. The Commission is prepared, therefore, to consider carriage of French-language services on a modified dual status basis, whereby cable licensees would be required to distribute the service on a high penetration tier on a discretionary basis unless both parties agree to its distribution as part of the basic service.

Applications that are premised on carriage on basic service, or on a high penetration discretionary tier, must be justified on the basis of agreements with distributors or the exceptional importance of the proposed service to the achievement of the objectives of the Broadcasting Act.

c) Support for Canadian Programming

The Commission expects each new programming undertaking to make a significant contribution to the exhibition and financing of Canadian programs.

 i) Exhibition

The Commission expects applicants proposing services for carriage on a completely discretionary basis to commit to an appropriate minimum level of Canadian content, regardless of actual subscriber levels. For many services, Canadian content commitments could increase in proportion to subscriber growth. Applicants predicating their business plans on carriage on basic service, or on a high penetration tier, will be required to meet Canadian content requirements equivalent to those imposed on conventional Canadian television broadcasters, unless the specialized nature of the service makes this impracticable.

A completed Promise of Performance (Part II of the application form) is a requirement for each application.

 ii) Expenditures

With regard to expenditures on Canadian programs, all applicants will be expected to make appropriate financial commitments based upon reasonable revenue projections. The Commission notes the approach taken with those specialty and pay services licensees whose applications were approved in June 1994 and on whom a condition of licence formula was imposed based on an appropriate percentage of the previous year's gross revenues. This percentage was derived by dividing the applicant's total projected Canadian programming expenditures over the 7-year licence term by the projected total gross revenues for the same period. The Commission considers that a similar approach may be appropriate for future applications.

d) Marketing Strategy

Each application must include a detailed marketing strategy demonstrating the demand for the proposed service, including its programming concepts, packaging scenarios and retail costs. The marketing strategy should include information concerning the area(s) to be served by the proposed service, target audiences, commercial inventory, advertising rates and projected sell-out rates.

e) Impact on Existing Services

With respect to English-language services, applicants proposing services that would directly compete with existing Canadian specialty services will be expected to discuss the impact the proposed new service may have on the ability of the existing service(s) to fulfil licence obligations.

New French-language specialty services would be expected to have a significant impact upon existing conventional and specialty licensees when carried on a high penetration tier. Given the fragility of the French-language television market, applicants for French-language services will be expected to discuss the impact the proposed new service may have on existing French-language conventional and specialty services.

f) Financial Viability

Each applicant will be expected to provide evidence that clearly supports the financial viability of its proposed service. This must include a detailed business plan, including financial projections of revenues, expenses, capital costs and all underlying assumptions used to prepare projections. Specifically, there must be identification of sufficient funding within the business plan to finance both the start-up and on-going costs of operations until such time as the proposed undertaking becomes profitable. In addition, applications must include documentary evidence that all of the proposed funding within the business plan will be unequivocally available on or before the date the Commission renders its decision on the application (detailed guidelines regarding adequate financing requirements are available from the Commission). The Commission expects that applicants will file only one business plan with their application.

In the case of applications predicated on carriage on basic service or within high penetration tiers, the Commission will wish to discuss the impact of the wholesale rates proposed on the affordability of basic service or of high penetration tiers.

g) Ownership

Documentation providing full and complete details regarding the proposed ownership and control of the undertaking are a requirement for each application. Applicants should take note of the Commission's recommendations restricting the ownership of discretionary video programming undertakings by cable affiliates, as contained in its report to the government of 19 May 1995.

Applicants should also take note of the announcement made on 23 November 1995 by the Minister of Canadian Heritage regarding policy changes to the foreign investment rules for broadcasters. The new rules will be published shortly in amendments to the 1968 Direction to the CRTC (Eligible Canadian Corporations).

Completeness of Applications

In keeping with its past practice, the Commission advises applicants that applications failing to include the required information set out above in relation to support for Canadian programming, marketing strategy, financial viability and ownership will be deemed incomplete and returned to the applicant. Further, the Commission will not accept significant changes to an application after it has been filed, unless such changes have been made in response to a specific request from the Commission.

Filing of Applications

As indicated in Public Notice CRTC 1995-29, applications for new Canadian specialty and pay television services must be filed with the Secretary General of the Commission on or before 11 January 1996.

At a later date, the Commission will announce details of the public hearings at which these applications will be heard.

Allan J. Darling
Secretary General