ARCHIVED -  Decision CRTC 96-75

Decision

Ottawa, 6 March 1996

Decision CRTC 96-75

A. Gordon Craig, on behalf of The Sports Network Inc., Le Réseau des sports (RDS) Inc., 2953285 Canada Inc., and Labatt Communications Inc.

Across Canada - 952083400 - 952084200 - 952085900 - 952278000

 Transfer of control of TSN, RDS, and the Discovery Channel, and the transfer of the partnership interest of one of the partners in Viewer's Choice Canada

Following a Public Hearing in the National Capital Region beginning on 30 November 1995, the Commission approves the applications for authority to transfer effective control of The Sports Network Inc. (TSN), Le Réseau des sports (RDS) Inc. (RDS), and 2953285 Canada Inc., operating as The Discovery Channel (The Discovery Channel), through the transfer of all shares held by the Trustee, Mr. Donald G. Campbell to Canadian Telacquisition Inc. (CTI).

The purchase price for the shares in TSN, RDS and The Discovery Channel is $485,584,000. 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.

The Commission also approves the application on behalf of Labatt Communications Inc. (LCI) for authority to transfer its 24.95% interest in Viewer's Choice Canada, a general partnership (VCC), from LCI to 3156303 Canada Limited, following the winding up of LCI into 3156303 Canada Limited. The Commission will issue a licence to the new partners of VCC (3156303 Canada Limited, Rogers Pay-Per-View Inc. [Rogers] and TMN Networks Inc. (TMN() expiring 31 August 2001, (the current expiry date), to continue the operation of the English-language pay television undertaking engaged in the distribution of a pay-per-view service, upon surrender of the current licence issued to the former partners of VCC (LCI, Rogers and TMN). The licence will be subject to the same terms and conditions as those in effect under the current licence, as well as to any other condition specified in the licence to be issued.

The properties which are the subject of the approvals granted herein were all owned, in whole or in part, by LCI, which was, in turn, ultimately controlled by John Labatt Limited (JLL); JLL remained a publicly-traded company until 26 July 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 as trustee, pursuant to a voting trust approved by the Commission 21 July 1995.

CTI will be owned by prominent shareholders, including the Bronfman Family Trust, Reitmans Inc., Capital Communications CDPQ Inc. (a subsidiary of the Caisse de Dépôt du Québec), and 3167488 Canada Inc., a subsidiary of ESPN, a U.S. sports specialty channel (ESPNSub).

Benefits

In Public Notice CRTC 1992-42 dated 15 June 1992, titled "Assessment of the Impact of the Benefits Test Applied at the Time of Transfers of Ownership or Control of Broadcasting Undertakings", the Commission set out its policy that "because the Canadian broadcasting system makes use of frequencies that are public property, the Commission has a responsibility to ensure that the best possible use is made of those frequencies at the time of licensing, licence renewal, and transfers of ownership or control". In that public notice, the Commission also set out its conclusion that, "....in the absence of a competitive process, application of the benefits test remains the best method of ensuring that applications for transfer of control or ownership are the best possible proposals under the circumstances, and are beneficial to the public served by the undertakings and to the Canadian broadcasting system as a whole".

In particular, the Commission must be satisfied that the benefits, both those that can be quantified in monetary terms and others that may not easily be measured in terms of dollar value, are commensurate with the size of the transaction and take into account the responsibilities to be assumed, the characteristics and viability of the broadcasting undertakings in question, and the scale of the programming, management, financial and technical resources available to the purchaser.

The Commission has assessed the various projects and initiatives totalling approximately $43.1 million, put forward by CTI as being benefits associated with these applications.

Among the various proposals, the Commission notes a new Western Broadcast Centre to be built in the lower mainland area of British Columbia. The new Broadcast Centre will be equipped to function as a western base of operations for both TSN and the Discovery Channel, at a cost of approximately $6.9 million. The applicant also proposed to acquire a new mobile production vehicle equipped to produce programming in wide aspect ratio, at a projected cost of approximately $8 million, to produce programming for TSN, RDS and the Discovery Channel. A new mobile production vehicle will also be acquired at a cost of $2 million. This vehicle will serve the Québec market, through RDS, independent producers and other broadcasters. The applicant further proposed the development of an Internet website for the Discovery Channel to be titled the "Explorer Site" at a projected cost of $5 million, and full televised coverage on TSN and RDS of the Canada Games to be held in 1997, 1999 and 2001, at a projected cost of $5.9 million. Other proposed benefits include the digital upgrade of RDS facilities, at a cost of $4.5 million, and $500,000 to be spent on French-language sports documentaries to be broadcast on RDS.

The Commission has noted a trend in recent applications for authority to transfer ownership or control, including this one, towards the offering of benefits which are largely directed to the applicant itself, rather than to third parties or to the Canadian broadcasting system as a whole. Based on its assessment of the proposed benefits of these transactions, the Commission has concluded that proposals representing expenditures of approximately $30 million, or 69% of the total, relate to initiatives where the major positive effect of their implementation is on the applicant itself. Examples of such benefits include the digital upgrade of RDS facilities at a cost of $4.5 million, and the proposal to expend $300,000 on a Digital File Server to improve the operation of the LCI Broadcast Centre. While the Commission notes that these projects (among others), meet the letter of the benefits policy, it questions their conformity to the spirit of that policy, and while the Commission has accepted these projects as tangible benefits of this transaction, it will in the future assess such proposals in light of the concerns expressed above.

The Commission reminds the applicant in this transaction, as well as future applicants, that while the Commission will continue to assess benefits of applications on a case-by-case basis, it will also examine the proportion of benefits that are directed to either third parties or the Canadian broadcasting system as a whole.

The Commission notes that among the proposed benefits, the applicant planned to introduce two non-programming sports information services to be known as "The TSN Scoreboard" and "The RDS Scoreboard", at a total projected cost of approximately $6.2 million.

An intervention with respect to the "TSN Scoreboard" and "RDS Scoreboard" proposals was submitted by Sportscope Television Network Limited (Sportscope). Sportscope produces a sports information channel, featuring sports news and information, 24 hours a day, seven days a week. The Sportscope service is offered free of charge to cable television licensees, who then may sell and insert local advertising.

Sportscope has no objection to the introduction of the TSN and RDS Scoreboards, and considers that its own service, while similar to the proposed services, would be equally attractive to cable licensees. Sportscope, however, expressed the concern that, should the Commission consider the Scoreboards to be tangible benefits of these applications, the Scoreboards would have a competitive advantage over the Sportscope service.

In response, CTI argued that, in its view, Sportscope would not be in direct competition with the Scoreboards, since Sportscope is not digital video, which the Scoreboards would be. CTI also noted that Sportscope is carried only by approximately 20% of the cable market, and suggested that there would be room for some competition in such a situation. CTI further noted that the acceptance or rejection by the Commission of a proposed project as a tangible benefit would have little bearing on the decision of any cable licensee to carry the Scoreboards.

The Commission has decided not to accept the cost of the proposed Scoreboards as a tangible benefit of these applications because the Scoreboards will be non-programming services, which will be unregulated. Due to the limited channel capacity on most cable systems, the Commission is uncertain that these initiatives would generally be available to the public in the near future, if at all.

The Commission expects the applicant to ensure that all of the $43,156,000 in proposed expenditures included in the tangible benefits package are made, and that those expenditures related to accepted benefits are made in accordance with the schedule outlined in the applications. The Commission is satisfied that the proposed benefits it has accepted in this case are significant, unequivocal, and commensurate with the size of the transaction, and that approval is in the public interest.

Foreign Investments

An intervention was submitted by the Director's Guild of Canada (DGC) in which DGC expressed a concern related to the fact that one of the CTI shareholders, ESPNSub, is a subsidiary of a foreign-owned company. ESPN, through its subsidiary, currently holds an approximate 20% interest in CTI. The Direction to the CRTC (Eligible Canadian Corporations) (the Direction) provides that the Commission may not grant a licence to a person who is not a Canadian citizen or eligible Canadian corporation. Under the Direction, an eligible Canadian corporation must be a corporation of which at least 80% of the voting shares are beneficially owned by Canadian citizens or corporations other than corporations that are controlled directly or indirectly by non-Canadians. A change to the Direction, allowing a higher level of foreign corporate ownership, has been proposed, but not yet adopted by the Governor-in-Council. The DGC in its intervention, however, points out that ESPNSub holds a convertible debenture, which, if fully converted, subject to a revised Direction, could increase ESPNSub's holdings to 33.3% of CTI's voting shares.

At the hearing, in response to the concerns raised by DGC in its intervention, the applicant assured the Commission that, in the event of a debenture conversion by ESPNSub, CTI would be willing to amend certain elements contained in the shareholder's agreement, should the Commission determine that such action would be required.

Based on all of the information available to it, the Commission is satisfied that, at this time, CTI is Canadian-controlled, considering the current ownership structure. In arriving at its conclusion, the Commission considered, among other factors, the quality of the investors, their financial background and resources, and their commitment to continued growth in the Canadian broadcasting industry. The Commission notes the applicant's assurance that, if the shareholder's agreement is at any time modified, a copy will be filed with the Commission. The applicant is reminded that, if the Direction is revised to permit more than a 20% level of foreign ownership, and should ESPNSub decide to exercise its right and convert its debenture in such a way to result in ESPNSub holding an equity position of 30% or more, CTI would be required, under the Commission's regulations, to obtain Commission approval, prior to any such conversion. The Commission reminds the applicant that, in the event of any such application, it will wish to examine the potential effect of any such change on the rights of other shareholders.

Non-Broadcast Rights

An intervention in opposition to these applications was submitted by the Canadian Independent Film Caucus (CIFC), an organization representing independent documentary film makers across Canada. In its intervention, the CIFC expressed a concern related to the Discovery Channel's acquisition practices, in respect of the independent production sector. The CIFC stated that the Discovery Channel frequently insists on acquiring non-broadcast rights together with the broadcast rights to independently-produced programs, thereby decreasing the producer's potential revenues from other sources. CIFC argued that this issue was relevant under section 3 of the Broadcasting Act, particularly section 3(1)(i)(v) which calls for a strong Canadian independent production sector.

At the hearing, the CIFC stated that, while talks with the Discovery Channel on this issue were on-going, a solution was not yet at hand.

In response to the intervention from the CIFC, CTI acknowledged that the Discovery Channel's policy of bundling non-broadcast and broadcast fees together in a single licence has caused difficulties, and confirmed that it would not continue such a practice. The Commission notes the applicant's response to the intervener's concerns.

Split Feeds

The CTV Television Network Ltd. (CTV), submitted an intervention to this application in which it raised the concern that TSN "has strayed from its national licence by programming on a regional basis", on a number of occasions. This issue has been the subject of an earlier and unresolved exchange of correspondence between TSN and the Commission.

At the hearing, representatives of TSN confirmed that "split feeds" had occurred in special circumstances on several occasions, in some cases for contractual reasons and in other cases in response to regional preferences. The licensee stated that it believed the TSN licence does not prohibit such a practice. TSN added, however, that if the Commission deems the national licence to prohibit network splitting, it would certainly respect that decision. During discussions of this matter at the hearing, the Commission asked the applicant to describe what it would consider as an exceptional circumstance, requiring a "split feed". The applicant responded in a letter dated 8 December 1995.

 Having considered the earlier submissions, the discussions at the hearing and the letter of 8 December 1995, the Commission is of the view that, pursuant to its current condition of licence, TSN must provide identical programming on its entire national service. However, in limited and exceptional circumstances, namely as a result of blackout restrictions imposed by professional leagues with respect to live sporting events, TSN may provide substituted programming for distribution, at that time, in the relevant geographic area which is subject to the blackout restriction. The Commission notes that the licensee has indicated that the national advertising forming part of both the original and substituted programming would be identical.

 The Commission also acknowledges, and has considered, the numerous interventions submitted in support of these applications.

 A copy of this decision is to be appended to the licences of The Sports Network Inc., Le Reseau des sports (RDS) Inc., The Discovery Channel and Viewer's Choice Canada.

 Allan J. Darling
 Secretary General