ARCHIVED -  Decision CRTC 96-598

Decision

Ottawa, 4 September 1996

Decision CRTC 96-598

3210073 Canada Inc.

Across Canada - 199600776

"TELETOON" - Approved

Following a Public Hearing held in the National Capital Region beginning on 6 May 1996, the Commission approves the application by 3210073 Canada Inc. (the licensee) for a broadcasting licence to carry on a national English and French-language programming undertaking (Specialty Television Service) to be known as "TELETOON".

This service will be delivered via satellite to all broadcasting distribution undertakings across the country. It will be available on three feeds, one to serve the Francophone market and the two others to serve the Anglophone markets in eastern and western Canada. In the case of those distribution undertakings that are subject to the Commission's distribution and linkage requirements, it will be available on a modified dual status basis, as explained in Public Notice CRTC 1996-120, which introduces this and other decisions released today, and in accordance with the provisions set out in the distribution and linkage public notice also issued today (Public Notice CRTC 1996-121). As proposed by the licensee, and, by condition of licence, the authorized maximum monthly wholesale rate in Francophone and Anglophone markets shall be $0.35 per subscriber, when the service is distributed as part of the basic service. The Commission notes that the licensee will discount its price when both the English- and French-language feeds of the service are carried.

The Commission will issue a licence expiring 31 August 2003. The licence will be subject to the conditions stipulated in the appendix to this decision and in the licence to be issued.

Since the Access Rules have immediate application to TELETOON, the service of the programming undertaking must, by condition of licence, be in operation within 12 months of this decision unless the service provider, prior to the expiry of this period, applies and receives an extension of time within which to commence operations.

Ownership

3210073 Canada Inc. ("TELETOON") is a corporation owned by The Family Channel Inc. (53.3%), YTV Canada Inc. (26.7%), Cinar Films Inc. (10%) and Nelvana Limited (10 %). The Family Channel Inc. will control the corporation.

The Commission has concerns whenever a cable company participates in the ownership of a specialty service, as reflected in its Convergence Report of 19 May 1995. As YTV Canada Inc., one of TELETOON's shareholders, is owned and controlled by Shaw Communications Inc., the second largest cable operator in Canada, the issue of preferential treatment or access is of concern. Consequently, the Commission expects that TELETOON will not be given preferential treatment or access to distribution systems by any distributor that holds an ownership interest in the licensee company.

Further, Cinar Films Inc. and Nelvana Limited, shareholders in TELETOON, are the two largest producers of animation in Canada. The principal shareholders of The Family Channel Inc. (Astral Communications Inc. and WIC Western International Commu-nications Ltd.) are also involved in the financing of animated productions from time to time. As well, YTV Canada Inc. is a significant producer of children's programming.

Because the licensee's shareholders include some of the major players in Canadian animation, the Commission has serious concerns regarding the access to the service that would be provided to independent producers and distributors of animation programming who are not associated with TELETOON. In order to alleviate these concerns, the licensee offered a series of safeguards to ensure that the independent production community will have fair and equitable access to the service.

The Commission notes the licensee's commitment that primary responsibility for the development, acquisition and investment in programming for the service will be held by TELETOON's President and the Senior Director of Programming, neither of whom will be employees or principals of any shareholders.

Another measure proposed by the licensee is a commitment that 25% of TELETOON'S overall Canadian programming in its first year of operation will be produced or financed by parties other than TELETOON, its shareholders, their owner companies, or any of their affiliates. This amount will increase by increments of 5% each year to reach a level of 50% in year 6, where it will remain in each subsequent year. The licensee will adhere to this commitment by condition of licence.

The licensee also made a commitment to expend $42 million over the licence term on the development and creation of new programming. Of that amount, the licensee shall, by condition of licence, set aside the following minimum percentages for projects to be undertaken by parties other than the licensee, its shareholders, their owner companies, or any of their affiliates: 25% in its first year of operation, increasing by increments of 5% each year, to a minimum of 50% in year 6 and in each subsequent year.

The licensee also stated that all of the program development funds allocated by TELETOON would be reserved for parties other than its shareholders, their owner companies, or affiliated corporations. The licensee will adhere to this commitment by condition of licence.

The Commission notes the licensee's commitment to submit an annual confidential report to the Commission, illustrating its compliance with the conditions of licence regarding the exhibition of programs produced or financed by parties not affiliated with the licensee, and indicating the amounts paid for Canadian programs.

In recognition that Canadian producers and distributors of animation not affiliated with the licensee may have concerns about the disclosure of sensitive or confidential information to the shareholders or their representatives on the board of TELETOON, the Commission expects the licensee to adhere to its commitment that the Board of Directors or shareholders of the service not be privy to the line-item programming budget and the recoupment schedule for specific proposed programming. These are to be treated as confidential by the Senior Director of Programming, and the President of TELETOON.

In a related decision published today (Decision CRTC 96-603), the Commission has also approved an application for new specialty service to be known as TreeHouse TV, which will provide programming for children. In interventions and at the hearing, a number of parties raised concerns about the implications of licensing both TELETOON and TreeHouse TV. The argument was made that the parties involved in the ownership of these two services would form a virtual "cartel" in children's programming and could unduly influence the supply, distribution or exhibition of children's programming in Canada. The Commission has carefully considered these concerns and is satisfied that the advantages flowing from the synergies that will result from the licensing of both services, in combination with the extensive series of safeguards proposed by the parties involved in the two services, will strongly outweigh any perceived negative consequences of licensing the two services. Moreover, the Commission considers that these synergies will allow for the production of more and better Canadian children's programming for viewing both in Canada and around the world.

Programming

Nature of Service

Consistent with the application, the licensee shall, by condition of licence, provide a national specialty service with both English-language and French-language feeds. With the exception of programs drawn from category 12 (Filler programming), a minimum of 90% of all programs shall be animated programs drawn from category 7(d) (Feature films/Theatrical releases) or shall be drawn from category 7(e) (Animated television programs or films), as set out in Schedule I to the Specialty Services Regulations, 1990.

With regard to the separate English- and French-language feeds, the Commission notes the licensee's statement at the hearing that the two feeds "would be similar in nature and programmed with a similar attitude towards them. But for the reasons of rights availability, for the reasons of the question of advertising to children in Québec and for the reason of dealing with the differences in the market, there might be variations in the services offered." The Commission requires the licensee to maintain separate logger tapes for its English-language and French-language feeds.

With respect to TELETOON's general plans for programming, the Commission notes the licensee's commitment that the service "will create a unique 'safe haven' for young children throughout the day" and that "TELETOON will broadcast twelve hours of programming every weekday from 6:00 a.m. to 6:00 p.m. suitable for unsupervised viewing by young children." The Commission also notes the licensee's statement that "programmers commissioning new animation will require all programs to be free of stereotyped portrayals and provide positive role models. Both females and males will be principal characters and they will represent a range of backgrounds."

The programs to be broadcast by TELETOON will provide significant variety, within the animation field. In this regard, the Commission notes the licensee's statement that the service will provide "animation in all its forms: traditional cell animation; new and existing forms of computer animation; films drawn directly on film stock, pixillation, animation using clay, sand and other materials, programs featuring puppets, marionettes, other fabricated creatures, and any other form of animation developed with new or existing technologies."

Canadian Content

As discussed at the hearing, the licensee made a commitment to a Canadian content exhibition level of at least 40% in the first broadcast year. That level will increase to at least 60% of the broadcast year and at least 60% of the evening broadcast period, during the seventh year of operation. The licensee shall adhere to these commitments, by condition of licence, as set out in the appendix to this decision.

The Commission notes the licensee's commitment to commission a minimum of 78 half-hours of new Canadian production each year, for a total of approximately 546 half-hours of new Canadian productions over the seven-year licence term. The Commission further notes the licensee's statement that it plans to eventually acquire and broadcast all animated Canadian feature films produced.

The Commission also notes that additional diversity in animation will be provided by the licensee's commitment that at least one-third of all foreign programs broadcast by TELETOON on weekdays between 6:00 a.m. and 6:00 p.m. will originate outside of North America.

Canadian Programming Expenditures

Consistent with the approach outlined by the Commission in Public Notice CRTC 1996-120 concerning requirements for Canadian programming expenditures, and as discussed at the hearing, TELETOON shall expend a minimum of $5,216,000 on Canadian programs in the broadcast year following the first year of operation. Further, in each subsequent broadcast year the licensee shall expend on Canadian programs a minimum of 40% of the previous year's gross revenues derived from the operation of the service. The condition of licence appended to this decision allows some flexibility in accounting for these expenditures.

While the licensee indicated that it is prepared to commit to a minimum annual spending requirement for Canadian programs, it submitted that any such requirement should be expressed only as a percentage of revenue and not as a fixed amount as required by the Commission for year two. Nonetheless, the Commission considers it appropriate and fair to follow the same approach it has taken with the other specialty services licensed today under the same conditions.

The Commission notes the licensee's commitment to spend a total of $64,840,000 on Canadian program acquisition over the seven year licence term.

Advertising

Consistent with the licensee's commitments, TELETOON may distribute a maximum of 12 minutes of advertising material, plus a maximum of 30 seconds of unpaid public service announcements, in each clock hour of the broadcast day, with some flexibility for the placement of advertising material in longer programs. Conditions of licence to this effect are set out in the appendix to this decision.

The Commission notes the licensee's commitment that 25% of the overall broadcast day will be commercial-free.

Other Matters

Closed Captioning

The Commission expects the licensee to adhere to its commitment to close caption a minimum of 60% of the programming on the English-language version of its service and a minimum of 40% of the programming on the French-language version of its service by the end of the licence term.

The Commission recognizes the current limited availability of animated programs that are captioned and notes the licensee's commitment to ensure that all new programs are captioned, to use its "best efforts" to acquire captioned versions of existing programs, and to spend a total of $2 million over the course of the licence term on captioning programs.

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 its application, the licensee indicated that it has developed its own policy in this regard. The Commission encourages the licensee to consider equity issues in its hiring practices and in all other aspects of its management of human resources. In particular, the Commission encourages the licensee to promote equitable representation in on-air staff positions and in voice-overs of station-produced commercial messages. The Commission will review the licensee's performance in implementing employment equity practices at the time of licence renewal.

Conclusion

The Commission is satisfied that the TELETOON service will offer Francophones and Anglophones attractive programs that will contribute to the enrichment and diversity of the Canadian broadcasting system. In approving this application, the Commission considers that there is a clear demand for a service such as that proposed, and that the expertise of and resources available to the licensee will ensure its success.

The Commission acknowledges and has considered the interventions submitted with respect to this application.

Allan J. Darling
Secretary General

APPENDIX / ANNEXE

Conditions of Licence for "TELETOON"

1. The licensee shall provide a national specialty service with both English-language and French-language feeds. With the exception of programs drawn from category 12 (Filler programs), a minimum of 90% of all programs shall be animated programming drawn from Category 7(d) (Feature Films/Theatrical releases) and shall be drawn from Category 7(e) (Animated television programs or films), as set out in Schedule I to the Specialty Services Regulations, 1990.

2. (a) In its first year of operation, the licensee shall devote to the distribution of Canadian programs not less than 40% of the broadcast year, and not less than 40% of the evening broadcast period.

(b) In its second year of operation, the licensee shall devote to the distribution of Canadian programs not less than 45% of the broadcast year, and not less than 45% of the evening broadcast period.

(c) In its third year of operation, the licensee shall devote to the distribution of Canadian programs not less than 50% of the broadcast year, and not less than 50% of the evening broadcast period.

(d) In each of its fourth and fifth years of operation, the licensee shall devote to the distribution of
Canadian programs not less than 55% of the broadcast year, and not less than 55% of the evening broadcast period.

(e) In each subsequent year of operation, the licensee shall devote to the distribution of Canadian programs not less than 60% of the broadcast year, and not less than 60% of the evening broadcast period.

3. In accordance with the Commission's position on Canadian programming expenditures as set out in Public Notices CRTC 1992-28, 1993-93 and 1993-174:

(a) In the broadcast year following its first year of operation, the licensee shall expend on Canadian programs not less than $5,216,000.

(b) In each subsequent broadcast year, the licensee shall expend on Canadian programs not less than 40% of the previous broadcast year's gross revenues, derived from the operation of this service.

(c) In the broadcast year following its first year of operation and in each subsequent broadcast year, excluding the final year, the licensee may expend an amount on Canadian programs 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 broadcast year,
in addition to the minimum required expenditure for that year, the full amount of the previous year's underexpenditure.

(d) In the broadcast year following the first year of operation, and in each subsequent broadcast year where the licensee expends an amount on Canadian programs that is greater than the minimum required expenditure for that year set out in or calculated in accordance with this condition, the licensee may deduct:

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

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

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

4. (a) Subject to subsections (b) and (d), the licensee shall not distribute more than twelve (12) minutes of advertising material during each clock hour.

(b) In addition to the twelve 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 national paid 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. (a) The following minimum percentages of all Canadian programs broadcast on TELETOON shall be financed by parties other than the licensee, its shareholders, their shareholders, or any of their affiliates:

. 25% in the first year of operation;
· 30% in the second year of operation;
· 35% in the third year of operation;
· 40% in the fourth year of operation;
· 45% in the fifth year of operation; and
· 50% in subsequent years of operation.

(b) Of the $42 million to be expended on the development and creation of new programs, the following minimum percentages shall be set aside for parties other than the licensee, its shareholders, their shareholders, or any of their affiliates:

· 25% in the first year of operation;
· 30% in the second year of operation;
· 35% in the third year of operation;
· 40% in the fourth year of operation;
· 45% in the fifth year of operation; and
· 50% in subsequent years of operation.

6. The licensee shall not remit any program development funds to its shareholders or affiliated corporations.

7. From the date of commencement of service, the licensee shall charge each exhibitor of this service in Francophone and Anglophone markets a maximum wholesale rate of $0.35 per subscriber per month when the service is distributed as part of the basic service.

8. This undertaking shall be in operation within twelve (12) months of the date of this decision, or, where the licensee applies to the Commission within this period and satisfies the Commission that it cannot complete implementation before the expiry of this period and that an extension is in the public interest, within such further period of time as is approved in writing by the Commission.

9. 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.

10. The licensee shall adhere to the provisions of the "Broadcast Code for Advertising to Children", published by the CAB, as amended from time to time and approved by the Commission.

11. 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 year", "evening broadcast period" and "clock hour" shall have the same meaning as those set out in the
Television Broadcasting Regulations, 1987; "first year of operation" shall mean the first broadcast year in which TELETOON is in operation for a period exceeding 90 days, excluding any free trial period; and "paid national advertising" shall mean advertising material as defined under the Specialty Services Regulations, 1990 and that is purchased at a national rate and receives national distribution on the service.