ARCHIVED -  Decision CRTC 96-250

Decision

Ottawa, 21 June 1996

Decision CRTC 96-250

YTV Canada, Inc.

Lions Bay, Sunset Beach and Brunswick; North and West Vancouver; and White Rock, British Columbia - 952692200 - 952693000 - 952694800Across Canada - 952697100

Acquisition of Assets and Transfer of Control - Approved

Following a Public Hearing in Vancouver beginning on 25 March 1996, the Commission approves the applications by Rogers Cablesystems Limited (Rogers) for authority to acquire the assets of the cable distribution undertakings serving Lion's Bay, Sunset Beach and Brunswick; North and West Vancouver; and White Rock from Shaw Cablesystems Ltd. (formerly Shaw Cablesystems (B.C.) Ltd.) (Shaw), and for broadcasting licences to continue the operation of these undertakings.

The Commission will issue licences to Rogers expiring 31 August 2000, (the current expiry date) upon surrender of the current licences. The operation of these undertakings will be regulated pursuant to Parts I, II and IV of the Cable Television Regulations, 1986 (the regulations). The authority granted herein is subject to the same conditions as those in effect under the current licences, as well as to any other condition that may be specified in the appendix to this decision or in the licences to be issued.

The Commission also approves the application by YTV Canada, Inc. (YTV) for authority to transfer 31,073 common shares (34.3%) in the capital of YTV from Rogers Programming Services Inc. to Shaw Communications Inc. (SCI) (on its own behalf or on behalf of a wholly owned subsidiary).

The purchase price relating to Rogers' acquisition of the assets of Shaw's three cable systems serving the communities noted above is approximately $113.4 million, before adjustments. The purchase price relating to the transfer of YTV's shares from Rogers Programming Services Inc. to SCI is about $30 million. Based on the evidence filed with the applications, the Commission has no concerns with respect to the availability or the adequacy of the required financing for either transaction.

The two transactions approved herein are tied to applications approved today in Decision CRTC 96-251 which will result, in part, in the transfer of effective control of CFCN Communications Inc., licensee of CFCN-TV Calgary and CFCN-TV-5 Lethbridge, from Rogers Communications Inc. (RCI) to Baton Broadcasting Incorporated. RCI will receive approximately $75 million from that transaction.

Concentration of ownership in the broadcasting distribution industry

Shaw, the vendor of the three cable systems serving parts of Vancouver and some surrounding communities, is a wholly-owned subsidiary of SCI, the second largest cablecaster in Canada. Through its subsidiary cable companies, SCI owns or holds effective control of numerous cable distribution undertakings in British Columbia, Alberta, Saskatchewan, Manitoba and Ontario, including systems serving approximately 37% of all cable subscribers in British Columbia. SCI is controlled through a voting trust agreement by James R. Shaw of Edmonton.

Rogers, the purchaser of these three cable systems, is a wholly-owned subsidiary of RCI, one of the largest corporate groups in Canada's communications industry and the largest cable operator in the country. RCI currently holds indirect ownership or effective control of cable distribution undertakings in Ontario and British Columbia. In the case of British Columbia, Rogers serves approximately 45% of the cable subscribers in that province. RCI is effectively controlled by Edward S. Rogers of Toronto.

In its report entitled "Competition and Culture on Canada's Information Highway: Managing the Realities of Transition" dated 19 May 1995, the Commission, in recognition of the changes occurring in the Canadian broadcasting system as a result of market forces and new technologies, stated that it would encourage competition among distribution undertakings. More recently, in its call for comments concerning a proposed approach for the regulation of broadcasting distribution undertakings (Public Notice CRTC 1996-69 dated 17 May 1996), the Commission indicated that it will continue to assess applications for authority to transfer ownership or effective control of broadcasting distribution undertakings to ensure that approval is in the public interest, taking into account any concerns related to, among other things, "... concentration of ownership to the extent that it lessens competition in the market".

The Commission notes that, although approval of these applications increases concentration of ownership in B.C.'s cable industry, such approval will bring about no decrease in either the existing level of competition, or in the potential for new competition, in any of the affected cable markets.

Historically, many of the Commission's traditional concerns about concentration of ownership in the cable industry have been tied to the negative impact that could be felt by the broadcasting industry as a whole, should a dominant player abuse its influence by engaging in self-dealing or by granting preferential treatment in the choice of services to be distributed on its undertakings. Although there will need to be ongoing scrutiny by the Commission to ensure that such practices do not occur, it is satisfied that any concerns regarding such potential abuse can be effectively addressed under the access rules recently announced by the Commission in Public Notice CRTC 1996-60 dated 26 April 1996.

In light of the foregoing, the Commission has no concerns with regard to the increase in concentration of ownership resulting from its approval of these applications.

YTV and the issue of access

a) Policy considerations

YTV is a national English-language children, youth and family-oriented specialty programming undertaking. Currently, YTV's ownership structure consists of Rogers Programming Services Inc. (34.3%), Shaw (34.3%), Atlantis Kids Broadcasting Inc. (28.10%) and YTV Management Purchase Plan (3.3%). As a result of this transaction, SCI will increase its ownership interest in YTV to 62,146 common shares (68.6%), thereby gaining effective control of this undertaking.

In its report, "Competition and Culture on Canada's Information Highway: Managing the Realities of Transition" dated 19 May 1995, the Commission stated that:

 ...until there is sufficient capacity on cable networks, and until transparent access rules are in place to prevent undue preference, affiliates of cable licensees should not generally be granted licences to operate, nor should they be permitted to acquire ownership of programming undertakings other than over-the-air radio and television services.

In the case of YTV, the Commission notes that Canada's two largest cable operators, SCI and RCI, currently ultimately own 68.6% of the programming undertaking's common shares, and that involvement in YTV by these cable distributors predates the policy announced in the May 1995 report.

b) Exhibition of programming

At the hearing, the Commission questioned SCI on how it would ensure that its cable undertakings across Canada do not give preferential treatment to YTV in terms of packaging, pricing, channel position and marketing. The Commission also discussed with SCI its commitment to grant access on its cable undertakings to other Canadian specialty services, and, in particular, to any Canadian children's specialty services that may be licensed in the future.

In response, SCI reiterated its commitment made at the Commission's 5 February 1996 public hearing on access issues. Specifically, SCI stated that, on its Class 1 cable systems, it will carry the services of all licensed specialty undertakings and that, if channel capacity is a problem, it will take whatever steps are necessary to provide carriage for all Canadian specialty services within one year. SCI also stated that it will carry the services of all licensed specialty undertakings on its Class 2 and Part III cable systems as soon as it becomes technically feasible to do so. In addition, SCI confirmed that channel placement on its cable systems of any future Canadian children's specialty services will be as favourable as that assigned to YTV, and that SCI will market the service of any new licensed undertaking with the same, or even greater, level of resources that it devotes to promoting YTV.

The Commission has noted SCI's commitments with regard to providing fair access to its distribution undertakings by programming services. In this regard, the Commission has also taken into account the fact that SCI's Class 1 cable undertakings are subject to the access rules set out in Public Notice CRTC 1996-60.

In light of all of the foregoing, the Commission is satisfied that approval of this application is not contrary to the policy set out in its 19 May 1995 report.

c) Independent producers' access to funding available from SCI and YTV

In addition to exhibiting children's programming on its specialty programming undertaking, YTV also finances and produces Canadian children's programming through its wholly-owned subsidiary Geoffrey R. Conway Productions (GRC Productions). As part of the benefits package proposed in this application, SCI made a commitment to provide $3 million in funding, incremental to programming expenditures currently required of YTV by condition of licence, for the production of new Canadian children's programming.

According to the applicant, this new programming is to be produced by the independent production sector. However, the production of this new programming will be administrated "through GRC Productions, YTV's program production subsidiary".

SCI is also involved in the financing and production of Canadian children's programming through the Shaw Children's Programming Fund (the Skippy Fund). SCI stated that, since the Skippy Fund was established in 1993, it has helped to produce 32 television programs and series, representing some 200 hours of programming having a production value of approximately $80 million. In addition, SCI recently committed $17.5 million to the Dr. Geoffrey R. Conway Programming Fund (the Conway Fund) for the development and production of new Canadian children's programming.

At the hearing, the Commission discussed with the applicant the measures it will put in place to ensure that independent producers are assured fair access to financing for program production from the three sources of funding described above.

SCI indicated that the Conway Fund will be managed by a separate, independent board of directors, the majority of whom will:

 be independent people interested in children's programming, interested in education ... and just making sure that we do not have a conflict of interest.

SCI also stated that the Conway Fund "will not fund any application where YTV is the sole broadcaster, or the majority investor in production".

For its part, YTV stated that, currently, it spends over $6 million each year on independent productions and stressed that the Skippy and Conway Funds operate independently of YTV itself. Specifically, YTV stated:

 The funds are accessed by the producers directly and not by YTV. ... The producers must access the fund to top up their production requirements, and YTV has no direct relationship with those funds.

d) YTV's relationship with independent producers

YTV noted, as an example of the positive relationship it has maintained with Canada's independent production community over the years, that it has never had to make use of the Fairness Committee, which it had established in its early years of operation to arbitrate problems that might arise with independent producers. With regard to independent producers' access to YTV to exhibit their programming, the licensee stated that:

 In terms of cumulative hours since 1988, we will, by the end of next production season, have approached nearly 1,000 hours of first-run Canadian co-production from all genres....

YTV also pointed out that many independent producers submitted interventions supporting this application.

The benefits test

In Public Notice CRTC 1996-69, the Commission announced that, for all applications published after 17 May 1996 requesting authority to transfer the ownership or effective control of a broadcasting distribution undertaking, it will no longer require prospective purchasers to identify the significant and unequivocal benefits that will result if the transaction is approved (the benefits test). Since the applications approved in this decision were published before 17 May 1996, the Commission has applied the benefits test in assessing these proposals.

The Commission has assessed the benefits packages identified by the applicants as flowing from each transaction and, in general, is satisfied that the proposed benefits are significant and unequivocal, and that approval of these transactions is in the public interest.

According to Rogers, the intangible benefits to result from approval of its applications include enhanced customer service which will expand subscribers' access to business and customer services to include Saturdays as well as weekdays, a 24-hour trouble service, and more convenient scheduling of installations. Among the proposed tangible benefits totalling $11,000,000, the Commission notes, in particular, Rogers' commitment to spend $5,875,000 on technical improvements to the cable systems serving the North Shore and White Rock.

Among the proposed tangible benefits totalling $3,200,000 related to YTV's transfer of control to SCI, the Commission notes, in particular, the applicant's commitment to provide $3 million for the production of two new children's series: "YTV's Treehouse Presents", an entertainment series presenting Canadian performers in concert with a minimum of twenty-two, 30-minute episodes, and "YTV Wise Files", a mystery series consisting of thirteen 30-minute episodes aimed at nine to twelve year-olds. The Commission notes that the programming expenditures for these series are incremental to YTV's current commitments for programming expenditures.

The Commission expects Rogers and SCI to ensure that the commitments identified as benefits of the transactions approved herein are implemented in accordance with the schedule outlined in the applications.

The Commission acknowledges the numerous interventions submitted in support of these applications. The Commission also acknowledges the concerns expressed in two interventions opposing Rogers' applications and is satisfied with the applicant's responses thereto.

This decision is to be appended to the licence.

 Allan J. Darling
 Secretary General

Appendix to Decision CRTC 96-250 dated 21 June 1996

Conditions of Licence for the Cable Distribution Undertakings serving Lions Bay, Sunset Beach and Brunswick; North and West Vancouver; and White Rock, British Columbia

Lions Bay, Sunset Beach, Brunswick; and North and West Vancouver

In addition to the services required or authorized to be distributed pursuant to the applicable sections of the Cable Television Regulations, 1986 (the regulations), the licensee is authorized, by condition of licence, to continue to distribute, at its option, KIRO-TV (IND), KCTS-TV (PBS), KING-TV (IND) and KOMO-TV (ABC) Seattle, KSTW-TV (IND), KCPQ-TV (FOX) Tacoma and KVOS-TV (IND) Bellingham, Washington, received via microwave, as part of the basic service of each undertaking.

The licensee is relieved, by condition of licence, of the requirement of section 12 of the regulations to distribute the signal of CHEK-TV Victoria on an unrestricted channel of each undertaking. Should the quality of the signal deteriorate significantly, the Commission expects the licensee to undertake immediate corrective action including, if necessary, the distribution of the service on another channel.

White Rock

In addition to the services required or authorised to be distributed pursuant to the applicable sections of the regulations, the licensee is authorised, by condition of licence, to continue to distribute, at its option, KIRO-TV (IND), KCTS-TV (CBS), KOMO-TV (ABC), KING-TV (NBC) Seattle as well as KSTW-TV (IND) and KCPQ-TV (FOX) Tacoma, received via microwave, as part of the basic service.

The licensee is relieved, by condition of licence, of the requirement of section 12 of the regulations to distribute the signals of CHEK-TV, CFRO-FM Vancouver and CFSR-FM Abbotsford, British Columbia on unrestricted channels. Should the quality of a signal deteriorate significantly, the Commission expects the licensee to undertake immediate corrective action including, if necessary, the distribution of the service on another channel.

Lions Bay, Sunset Beach, Brunswick; North and West Vancouver; and White Rock

The licensee is authorised, by condition of licence, to insert, at its option, certain promotional material as a substitute for the "local availabilities" (i.e. non-Canadian advertising material) of non-Canadian satellite services. At least 75% of these local availabilities must be made available for use by licensed Canadian programming undertakings for the promotion of their respective services, for the promotion of the community channel and for unpaid Canadian public service announcements. A maximum of 25% of the commercial availabilities may be made available for the promotion of discretionary programming services and packages, customer service information, channel realignments, cable FM service and additional cable outlets.