ARCHIVED -  Public Notice CRTC 1996-120

Public Notice

Ottawa, 4 September 1996

Public Notice CRTC 1996-120

INTRODUCTORY STATEMENT - LICENSING OF NEW SPECIALTY AND PAY TELEVISION UNDERTAKINGS

Table of Contents

I BACKGROUND

II LICENSING CRITERIA

a) Carriage Arrangements
b) Exhibition of Canadian Programming
c) Expenditures on Canadian Programming
d) Marketing Strategy
e) Impact on Existing Services
f) Financial Viability

III POLICY OBJECTIVES

a) Increasing the Canadian Programming Menu
b) A Strong and Viable System
c) Consumer Choice

IV LICENSING FRAMEWORK

a) General
i) Satellite Capacity
ii) Cable Capacity
iii) CRTC Access Rules
iv) Carriage Status
v) Financial Matters
b) English-language Framework
c) French-language Framework
d) Third-language Framework

V OTHER MATTERS
a) Exhibition of Canadian Programs
b) Expenditures on Canadian Programming
c) The CAFDE Proposal
d) Launch Considerations
e) Closed Captioning
f) Integration of Distribution Undertakings and Programming Undertakings
g) Integration of Programming Undertakings and Production and Distribution Functions

VI FUTURE LICENSING ACTION

APPENDIX: Dissenting Opinion

INTRODUCTORY STATEMENT - LICENSING OF NEW SPECIALTY AND PAY TELEVISION UNDERTAKINGS

Following a Public Hearing commencing 6 May 1996 in the National Capital Region, the Commission today announces its decisions respecting the licensing of new Specialty and Pay Television undertakings.

In Decisions CRTC 96-595 to 96-617, the Commission has approved applications for authority to carry on programming undertakings to provide the services listed below:

English-language Pay Television

Sports/Specials Pay-per-view (3216195 Canada Inc.)

English-language Specialty

The Comedy Network (1155636 Ontario Inc.)
CTV N1, Headline News (CTV Television Network Ltd.)
TELETOON, licensed as a service providing separate English- and French-language signals (3210073 Canada Inc.)
The History and Entertainment Network (Alliance Communications Corporation OBCI)
Canadian Learning Television (Canadian Learning Television Ltd.)
S3 Regional Sports (2952939 Canada Inc.)
Report on Business Television (ROBTV) (The Partners of the Report on Business Television)
TreeHouse TV (D. Martin Abel OBCI)
Prime TV (The Partners of Prime TV)
Space: The Imagination Station (CHUM Limited)
Outdoor Life (1163031 Ontario Inc.)
HGTV-TV Canada (Home & Garden Television) (Your Channel Television Inc. OBCI)
Star-TV (CHUM Limited OBCI)
Pulse 24 (Pulse 24 Inc.)
Sportscope Plus (Sportscope Television Network Ltd.)
MuchMoreMusic (CHUM Limited)
Talk-TV (1155637 Ontario Inc.)

French-language Specialty

Le Canal Vie (Radiomutuel inc.)
Musimax (MusiquePlus inc.)
Le Canal Nouvelles (Télé-Métropole inc.)
TELETOON, licensed as a service providing separate English- and French-language signals (3210073 Canada Inc.)

Third-language Specialty

Odyssey (Peter Maniatakos OBCI)
SATV (South Asian Television Canada Limited)

In Decision CRTC 96-618, the Commission has denied the remaining applications considered at the public hearing.

Two related public notices have been released today. Public Notice CRTC 1996-121 sets out the amended distribution and linkage requirements. Public Notice CRTC 1996-122 indicates that the Commission is prepared to entertain sponsored requests to amend the Commission's Lists of Eligible Satellite Services.

In a public notice to be issued shortly, the Commission intends to publish for comment, a proposed amendment to the Cable Television Regulations, 1986 that would incorporate, by reference, the revised distribution and linkage requirements announced in Public Notice CRTC 1996-121.

I BACKGROUND

In Public Notice CRTC 1994-59 dated 6 June 1994, the Commission announced the licensing of two English-language pay television services, six English-language specialty services and two French-language specialty services. One of the constraints that curtailed the number of services licensed in 1994 was the limited amount of analog channel capacity of most cable systems.

In that notice, the Commission stated that it would re-assess the channel capacity of the cable industry following the launch, in January 1995, of the new services licensed therein, and that it would closely monitor developments relating to digital video compression (DVC).

Consequently, the Commission stated in that notice that no new service could be accommodated before January 1997, and invited applicants to submit new proposals by 30 June 1995.

Subsequently, in Public Notice CRTC 1995-29 dated 22 February 1995, the deadline for the filing of new submissions was extended to 11 January 1996, based on a finding that it was taking longer than initially forecast to determine the degree of consumer acceptance of the services launched in 1995.

II LICENSING CRITERIA

In Public Notice CRTC 1995-29, and later in Public Notice CRTC 1995-205 dated 30 November 1995, the Commission set out in detail its approach to the consideration of applications for new pay and specialty services.

a) Carriage Arrangements

The Commission indicated it had a predisposition in favour of proposals based on discretionary carriage, which could mean carriage on a low penetration tier or on a stand-alone basis. Applicants requesting carriage on the basic service or on a high penetration tier were cautioned that their proposals should 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 (the Act).

The Commission noted that a second tier had been introduced by many cable undertakings serving English-language markets, and that a third tier might develop, using either analog or digital technology. The Commission also observed that penetration levels could be affected by the introduction of DVC decoder boxes, as well as by other distribution undertakings that might employ digital technology. Accordingly, applicants were advised to assess projected subscriber levels realistically.

The Commission noted further that the particular nature of French-language markets has resulted in the availability of a high penetration discretionary tier in some Francophone cable markets. A second, lower penetration tier has not been available. Consequently, the Commission indicated that it was prepared 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.

b) Exhibition of Canadian Programming

The Commission indicated that applicants proposing services for carriage on a fully discretionary basis should be prepared to commit to appropriate minimum levels of Canadian content, regardless of actual subscriber penetration and noted that such commitments could increase with subscriber growth. Applicants proposing services predicated on their being given carriage on the basic service or on a high penetration tier were advised that they would be required to meet Canadian content commitments equivalent to those of conventional television broadcasters, unless the specialized nature of the proposed services made this impracticable.

c) Expenditures on Canadian Programming

All applicants were expected to make appropriate financial commitments based upon reasonable revenue projections. The approach taken by the Commission with the licences for specialty and pay television services granted in 1994 was to establish requirements for expenditures based on a percentage of the previous year's revenues. The percentages were calculated 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 indicated its view that a similar approach may be appropriate for future applications.

d) Marketing Strategy

Each applicant was required to provide a detailed marketing strategy demonstrating the consumer demand for the proposed service, including its proposed programming concepts, packaging scenarios and retail costs.

e) Impact on Existing Services

Applicants proposing services whose formats would compete directly with existing English-language specialty services were advised to be prepared to discuss the impact the proposed new service may have on the ability of the existing services to fulfil their licence obligations.

Because new French-language specialty services, when carried on a high penetration tier, could have a significant impact upon existing French-language conventional and specialty licensees, the applicants proposing such services were expected to address this issue at the hearing.

f) Financial Viability

Each applicant was expected to provide evidence that clearly supported the financial viability of its proposed service, including financial projections of revenues, expenses and capital costs, and all underlying assumptions used to prepare projections.

III POLICY OBJECTIVES

a) Increasing the Canadian Programming Menu

In its consideration of these applications, and of the related policy issues, the Commission was guided by the objectives contained in the Act. The Act states in sub-paragraph 3(1)(d)(ii) that the Canadian broadcasting system should:

...encourage the development of Canadian expression by providing a wide range of programming that reflects Canadian attitudes, opinions, ideas, values and artistic creativity, by displaying Canadian talent in entertainment programming and by offering information and analysis concerning Canada and other countries from a Canadian point of view...

Further, paragraph 5(2)(c) of the Act provides that the Canadian broadcasting system should be regulated and supervised in a flexible manner that "is readily adaptable to scientific and technological change."

The rapid pace of technological development presents considerable challenges and opportunities for the Canadian broadcasting system. The digital distribution of programming services promises unprecedented choice in service offerings and in distribution alternatives such as direct-to-home (DTH) satellite and "wireless cable". At the same time, the integrity of the system, and particularly those of its elements that enable Canadian companies and individuals to fund, produce and distribute distinctively Canadian programming, are threatened by the unauthorized entry of the services of non-Canadian DTH distributors into Canada through the grey market.

In order to ensure a strong Canadian presence in an environment that is rapidly moving toward expanded channel capacity and choice, the Commission has decided to authorize as many attractive Canadian niche programming services as possible, provided that they meet the Commission's licensing criteria and make commitments to provide appropriate levels of contribution toward Canadian programming.

b) A Strong and Viable System

In previous public notices, including Public Notice CRTC 1993-74 issued following the Structural Public Hearing (the Structural Notice), the Commission indicated that one of its primary objectives is to ensure that the Canadian broadcasting system remains strong and financially viable in the face of increasing globalization in the communications sector.

A number of applicants expressed the view that, for new services to be viable in a more competitive and fragmented market, economies of scale were needed to maintain high quality services at affordable prices. Conventional broadcasters seeking specialty licences noted that existing services need to find new ways to fund programming, for example, by leveraging their existing program rights and by maximizing use of their existing infrastructures.

In the licensing decisions announced today, the Commission has borne in mind the goal of ensuring a balance between the need for competitive voices and the requirement for adequately-financed and experienced programmers.

The Commission's deliberations have been tempered by a recognition that greater consumer choice means that financial viability cannot be guaranteed.

c) Consumer Choice

Consumers have demonstrated a healthy appetite for additional programming choices, both foreign and domestic. In Canada's English-speaking markets, more than 90% of Class 1 cable subscribers have chosen to subscribe to the first tier of specialty services, while nearly 60% have subscribed to the second tier of specialty services launched in early 1995.

In the Structural Notice the Commission stated that "the implementation of addressability on a universal basis for the provision of broadcasting services to Canadians is a significant public policy objective." DTH distributors will employ digital decoders providing universal addressability from the outset, while some cable distributors expect to roll out addressable digital decoders gradually, commencing as early as this year. Thus, many of the new programming undertakings licensed today will launch into a DVC environment that will give consumers significantly greater choice among packages of services. The Commission notes further in this regard the expressed intention of cable operators to offer the new services on a positive option basis.

IV LICENSING FRAMEWORK

a) General

i) Satellite Capacity

In light of the uncertainty arising from the recent technical difficulties experienced with the Anik E1 satellite, Telesat Canada appeared at the public hearing to provide information on the expected availability of satellite capacity. Telesat Canada assured the Commission that, by using both its existing C-band and Ku-band facilities, it would be able to accomodate as many as 36 new television signals.

ii) Cable Capacity

In order to obtain an accurate forecast of cable channel capacity prior to the Access Hearing, and to assist in its consideration of the applications for new specialty and pay television programming services, the Commission, in Public Notice CRTC 1995-174, requested all cable systems serving more than 20,000 subscribers to provide the following information for the public file:

· the details of their current channel line-ups
· for each exempt programming service carried, the date on which the service was first distributed on the system, as well as the owner/operator of the service
· the projected channel capacity of their systems as of 1 September 1996 and 1 September 1997

· the proposed time frame for the roll-out of DVC technology

At the February 1996 Access Hearing, there was some discussion of the channel capacity information that had been filed and how it should be interpreted. It was also noted that a number of cable systems had made changes to their line-ups since the original data was submitted. In view of the concerns expressed, the Commission requested the Canadian Cable Television Association (CCTA) to file for the public record, an update on the available channel capacity by 31 March 1996. The original data filed, the March update, and the data filed for the specialty hearing itself, formed the basis for the Commission's estimate of distribution systems' capacity to deliver analog and digital services.

In 1994, limited availability of analog capacity was a key consideration in the Commission's determination of how many new specialty services should be licensed. Although much in the way of system upgrades has been undertaken since that date or is planned for the near term, the availability of analog capacity has once again acted as a constraining influence in the Commission's consideration of the current applications. According to the Commission's own calculations, systems serving approximately 80% of Class 1 cable subscribers currently have six to eight unused analog channels.

However, distribution systems are moving beyond a strict reliance on analog capacity. For example, new players employing digitally-based multipoint distribution system (MDS) and DTH technology have recently been licensed. Wireless systems are under active development. Bell Canada has announced plans to undertake tech-nology and market trials of new methods of distribution, and Canada's two largest cable operators - Rogers Cablesystems Limited and Shaw Cablesystems Ltd. - have confirmed their intentions to add digital capacity. All of these develop-ments will provide alternatives to analog distribution in the near future.

iii) CRTC Access Rules

Following a two-stage written process and an oral public hearing conducted in February 1996, the Commission released Public Notice CRTC 1996-60, entitled Access Rules for Broadcasting Distribution Undertakings. The key aspects of the Commission's Access Rules are outlined below.

The Access Rules apply to DTH distribution undertakings, to Class 1 cable distribution undertakings, and to radiocommunication distribution undertakings having the size and operating under circumstances comparable to those of Class 1 cable undertakings and using broadband technologies such as MDS and local multipoint communications systems.

The guiding principle of the Access Rules is that, subject to available channel capacity, each broadcasting distribution undertaking should be required, as a general rule, to distribute the services of all licensed Canadian programming undertakings, appropriate for its market, as set out in Public Notice CRTC 1996-60.

Further, the services of licensed programming undertakings should be given priority over the services of exempt programming undertakings. At the moment, there is little capacity on most cable systems that could be devoted to the distribution of exempt programming services; however, with the roll-out of DVC technology by cable and other competitive distribution undertakings, many of the concerns about access that are raised by limited capacity will be alleviated.

The Commission also stated in Public Notice CRTC 1996-60 that, at the time it first licenses a programming undertaking, it may specify, by condition of licence, the circumstances that must be present in order to make carriage of the programming undertaking's service a requirement under its Access Rules. The Commission noted at that time that such circumstances might be tied to the availability of DVC capacity within a distribution undertaking reaching a specified penetration level.

iv) Carriage Status

Most of the six English-language and two French-language specialty programming undertakings licensed in 1994 were licensed to be carried on Class 1 cable systems on a modified dual status basis. Modified dual status means that, where a service having this status is distributed on a distribution undertaking, it must be carried as part of a discretionary tier unless both the distribution undertaking and the programming undertaking agree to the service's carriage as part of the basic service.

Class 2 cable licensees with 2000 or more, but fewer than 6000 subscribers were required to distribute the services of the specialty programming undertakings licensed in 1994 on a dual status basis. Dual status means that, where a service having this status is distributed, it must be carried as part of the basic service, unless the programming undertaking agrees in writing to its service being distributed on a discretionary tier.

With respect to the distribution of the new specialty services by Class 1 distribution undertakings, the Commission has granted modified dual status to all of the new English- and French-language services. The two that will offer new ethnic services will be distributed on a purely discretionary basis. The Commission has also determined that modified dual status, as accorded the new English- and French-language specialty services, will also govern their distribution by Class 2 distribution undertakings with more than 2000 subscribers. Although the Commission recognizes that its Access Rules do not apply to these smaller distribution undertakings, it has determined, given the discretionary nature of these new services, that the objectives of maximizing the distribution options for the distributor and maintaining affordibility of the basic service would best be achieved by extending modified dual status to these new specialty services in respect of their distribution, both on Class 1 undertakings, and on Class 2 undertakings with 2000 or more subscribers.

The Commission wishes to ensure, to the maximum extent possible, that subscribers are not forced to pay for additional specialty services as part of the basic service. At the same time, it recognizes that, in some cases, distributors may decide that a more affordable or attractive package of services can be provided by adding some specialty services to the basic service. Therefore, in order to allow maximum flexibility for programmers and distributors alike to design new packages or modify existing packages to meet consumer preferences, the Commission has decided to grant modified dual status rather than solely discretionary status for these services.

v) Financial Matters

Because the new English- and French-language specialty services have been accorded modified dual status, cable licensees may elect, in certain circumstances, to distribute some of them as part of their basic service. In cases where applicants have specified a wholesale fee for basic service distribution, such fees will be regulated by condition of licence. In cases where the applicant did not specify a wholesale rate, no such condition has been imposed. In a departure from the circumstances in the 1994 licensing action, applicants did not anticipate subscriber revenue being calculated on a "make whole" basis, whereby the distributor would remit to the programming undertaking wholesale revenues calculated as though its service were distributed to all subscribers at the wholesale fee, regardless of actual penetration achieved. Rather, the applicants in this proceeding recognized that wholesale revenues should be tied to the programming services' actual penetration levels.

In licensing the new programming undertakings, and in imposing requirements reflecting the commitments made in their applications, the Commission has noted the specifics of each service's business plan, and expects distribution undertakings and programming undertakings to negotiate equitable carriage arrangements.

Furthermore, the Commission expects that, for all distributors, including DTH and other competing technologies, the specialty service licensees will offer comparable rates to those offered to cable distributors.

b) English-language Framework

During the oral phase of the public hearing, the Commission explored three possible licensing scenarios with each specialty applicant proposing an English-language service. In addition, the CCTA proposed its own licensing scenario. Each of these is outlined below.

The first of the Commission's scenarios was premised on licensing a restricted number of services based on the pro-jected analog channel capacity to be available at the time of launch, which is anticipated to occur in September 1997. As stated earlier, according to the Commission's own calculations, this would allow for the licensing of six to eight new services that would have immediate access to approximately 80% of Class 1 cable subscribers. Cable operators could then market these services, on a positive option basis, to this subscriber universe.

The second scenario envisaged licensing all services that met the Commission's licensing criteria, subject only to the provision that no more than one service would be licensed in a given genre. Under this scenario, there would be no consideration given to such restrictions as limited channel capacity. The licen-sees of distribution undertakings that are subject to the Access Rules would be obliged to provide access to as many of the new services as they have available channel capacity to accommodate. Given the limited number of analog channels currently available, however, individual cable operators would have the power to determine which programming services would first be granted access and which would have to wait until additional analog channels became available or digital technology was deployed.

Although scenario three also envisaged licensing the maximum number of services, it differed from the second scenario in that the Commission would determine which services would form a core group that would have an immediate right of access to analog channels. While the remaining services would only have guaranteed access to digital channels, they could negotiate, in the interim, access to any analog channel capacity that remains available after the core group of services had been accommodated.

The CCTA argued for a licensing scenario that would guarantee new services access to digital channels only. During their appearance, however, members of the CCTA were unable to provide detailed forecasts of when DVC technology would be rolled out to an extent that would ensure a sufficient subscriber base to successfully market and sustain the new services.

Throughout the oral phase of the public hearing, the Commission explored the various advantages and disadvantages of these scenarios. Following its further deliberations, and by majority vote, it has decided to adopt what is substantially the third licensing scenario discussed during the oral phase of the public hearing. As a result, consumers will have access to the maximum number of Canadian services possible, the cable industry will have an additional incentive to deploy the DVC technology necessary to launch many of these services, and the Commission will not have to delay licensing new services until after the roll-out of such technology.

Under this licensing framework, the Commission has decided to license only one service per genre, recognizing that, in most cases, competing applicants indicated that their services would not be able to meet their programming obligations if they had to compete with services in similar genres. Accordingly, the Commission has chosen four English-language services to which the Access Rules will have immediate application. These are: The Comedy Network; History and Entertainment Network; TELETOON; and, CTV N1 Headline News. These services should be in operation within 12 months. In order to meet their significant financial commitments, and thus provide high quality programming at an affordable cost, it is necessary for these services to be made available to the largest possible number of subscribers.

In addition to this core group of four services, 13 other English-language specialty programming undertakings have been licensed. As previously noted, the Commission's access policy allows for it to specify, by condition of licence, the circumstances that must be present in order to make carriage of a programming service a requirement under the Access Rules. In the circumstances, the Commission, by majority vote, has determined that the Access Rules shall apply in relation to these services by the earlier of: the deployment of digital technology by the distributor, or 1 September 1999. The latter is the date by which all 13 of the services in the second group should be in operation. Those distributors that have not implemented digital technology by 1 September 1999 must provide access by these services to analog channels at that time, subject to the definition of "available channel capacity" as set out in Public Notice CRTC 1996-60.

At the hearing, many applicants noted the aggravation and annoyance that might be experienced by subscribers should programming services to which they have become attached be removed. The Commission shares this concern. Accordingly, and although the Access Rules generally give priority to the carriage of licensed pay and specialty services over other services, the Commission has determined that distributors should not be required to remove programming services that were distributed as of 6 May 1996 in order to accomodate the new specialty services on analog channels.

Thus, in dealing with access requests by these new specialty services, the Commission does not intend to consider Canadian and non-Canadian programming services (including network duplicates) that were carried by a distribution undertaking prior to 6 May 1996, to be part of a distributor's "available channel capacity". The Commission notes, however, that exempt programming services, other than those providing coverage of provincial legislatures or of the House of Commons, will still be considered to be "available channel capacity". In the case of Canadian pay-per-view pay television services, and consistent with the Access Rules, the Commission will be guided by, among other things, whether a pay-per-view service is being distributed on more than ten analog channels.

The Commission considers that, in certain instances, the core group of new specialty services might be included in one of the existing high- or medium-penetration tiers. Where the distributor and the specialty service licensee agree, a service could also be included in the basic service.

Licensees of the remaining services could negotiate for their distribution under any of the above alternatives, or they may form part of a digital package as DVC technology is introduced; however, these specialty services will not have carriage priority over exempt or non-programming services distributed on analog channels until 1 September 1999.

Finally, the Commission has licensed one pay television programming undertaking, to be known as Sports/Specials Pay-per-view. This service has been authorized solely for digital distribution and will be marketed exclusively on a discretionary basis. The service should be in operation by 1 September 1999.

The Commission believes that the group of services licensed today will provide a broad range of programming directed to Canadians of all ages and tastes, ranging from pre-schoolers to mature adults; from fans of comedy and science fiction to consumers of news and sports programs. It further considers that the licensing framework responds to the demonstrated desire among Canadians for access to attractive, high quality programming at an affordable cost.

c) French-language Framework

In licensing the new specialty programming undertakings in 1987, the Commission attempted to reduce the imbalance between the number of English- and French-language specialty services. This was intended, in part, to limit the migration of Francophone audiences to English-language services by creating attractive French-language programming alternatives.

In licensing two additional French-language specialty services in 1994, the Commission tailored the package of services to reflect consumer demand for, and the ability of the marketplace to support, these services. Due to its limited size, the Francophone market could not support as large a package of services as that licensed for the Anglophone market.

In the introductory statement to its 1994 licensing decisions, the Commission indicated that the characteristics of the Quebec market necessitated that a different approach be taken to the distribution of specialty services.

Instead of introducing a high penetration discretionary tier as in English-language markets, Quebec cable operators had included all French-language specialty services in the basic cable service. While this has assured the financial viability of these services, it is also one reason why basic service rates in Quebec are generally higher than in comparable Anglophone markets.

Following the licensing in 1994 of the new specialty services, certain cable licensees serving French-language markets have offered a package of discretionary programming services on a high penetration discretionary tier.

The programming services authorized today, to be distributed on a modified dual status basis by those distribution undertakings subject to the Commission's distribution and linkage requirements, will offer attractiveness, diversity and affordability. Télé-Métropole inc. is licensed to provide a headline news channel, which is a new format for Quebec; and Le Canal Vie will offer lifestyle programming which is also a format not currently available in the French-language market. Musimax will offer music programming for the 35-54 age group; and the French-language version of the TELETOON service will offer an animation service for children and adults of all ages.

The licensing of these programming undertakings takes into account the evolution of the broadcasting system and will provide an increased presence for French-language services in the multi-channel universe.

As required by the Access Rules, the distributors subject to these rules must carry all the new French-language specialty services, subject to available channel capacity. The new services shall therefore have immediate priority over exempt programming services, except for those providing coverage of the proceedings of provincial legislatures or of the House of Commons.

The Commission is also confident that the majority of Class 2 and Part III broadcasting distribution undertakings in Quebec will distribute all the new French-language services.

Considering the current distribution environment in Quebec, in particular the relatively low penetration of cable service in the Montréal area, the Commission expects Class 1 cable licensees in Francophone markets to distribute the new services where available, when distributed on a discretionary basis, on a high penetration tier.

In granting a licence to Télé-Métropole inc. for Le Canal Nouvelles (LCN), the Commission took into consideration the ownership of the licensee. LCN will be solely owned by Télé-Métropole inc. which in turn is owned by Le Groupe Vidéotron ltée.

As noted in the decision issuing the licence to Télé-Métropole inc., the Commission expects distribution undertakings operated by Le Groupe Vidéotron ltée to carry the other new French-language specialty services equitably and on the same basis as LCN.

d) Third-language Framework

In today's decisions, the Commission has authorized two third-language services. SATV is intended to serve Ontario residents who trace their cultural heritage to the countries of the Indian subcontinent. Odyssey is targeted to Ontario residents of Greek descent. These services join three existing ethnic specialty services, Telelatino, Talentvision and Fairchild Television, and will be subject to the Commission's ethnic policy entitled "A Broadcasting Policy Reflecting Canada's Linguistic and Cultural Diversity".

Third-language specialty services, due to the niche nature of their target audiences, are authorized for distribution on a purely discretionary basis. This means that they can be marketed on a stand-alone basis or as part of a discretionary tier, but may not be included as part of the basic service on distribution undertakings subject to the Commission's distribution and linkage requirements. Both applicants expressed confidence that they would be able to arrive at mutually-agreeable carriage arrangements with distributors.

V OTHER MATTERS

a) Exhibition of Canadian Programs

In response to the Commission's stated predisposition in favour of proposals based exclusively on discretionary carriage, either on a stand-alone basis or as part of a low penetration tier, many applicants came forward with proposed Canadian content levels below those required of conventional broadcasters. Others, assuming a range of potential distribution possibilities, provided sliding scales for the exhibition of Canadian programming, based on subscriber penetration levels.

These commitments were a key determining factor in deciding which of the several competing applications within a given genre were licensed, or whether a given application had met the minimum requirements set out in the licensing criteria.

Licensees are required, by condition of licence, to meet minimum Canadian content requirements for the broadcast year and during the evening broadcast period. These requirements vary depending on the nature of the service and the availability of domestic product in any given genre or program category. In some cases, the amount of Canadian programming increases over the term of the licence or as subscriber levels increase.

b) Expenditures on Canadian Programming

Each licensee (except CTV N1, Le Canal Nouvelles, Pulse 24, Musimax and MuchMoreMusic) is required, beginning in the second year of operation, to meet minimum yearly financial commitments with regard to the production or acquisition of Canadian programming.

For each of those undertakings that have immediate access guarantees to analog channel capacity, the second year expenditures are a fixed dollar amount, based on the licensee's financial projections contained in its application. For the remaining programming undertakings, the second year expenditures are based on a percentage of the previous year's total revenues. For all licensees, the third and subsequent years' expenditures are based on a percentage of the previous year's total revenues; this percentage has been derived by dividing the licensee's total projected Canadian programming expenditures over the term of licence by the total projected revenues over the same period.

The dollar amounts so calculated must be expended on Canadian programming in accordance with the Commission's position on Canadian programming expenditures as set out in Public Notices CRTC 1992-28, 1993-90 and 1993-174.

CTV N1, Le Canal Nouvelles and Pulse 24 will provide services offering 90% to 100% Canadian programming. In accordance with its approach to expenditures for other national news services, namely CBC Newsworld and RDI, the Commission has decided that these news-oriented services will not be subject to an expenditure requirement.

Both Musimax and MuchMoreMusic are required to make financial contributions to VideoFact for the purpose of supporting the production of Canadian music videos.

c) The CAFDE Proposal

In its intervention, the Canadian Association of Film Distributors and Exporters (CAFDE) requested, among other things, that the Commission require, by condition of licence, that all successful applicants acquire or license 'non-proprietary' feature films from bona fide Canadian film distributors. A 'non-proprietary' feature film is defined by CAFDE as a feature film other than one for which the world-wide distribution rights are owned by the licensor or for which the licensor has provided not less than one half of the cost of the creation of the film.

The Canadian Motion Picture Distributors Association (CMPDA) appeared at the public hearing to argue that the Commission lacked statutory and constitutional jurisdiction to impose the condition of licence requested by CAFDE.

It should be noted that the CMPDA concurrently made similar arguments before the Federal Court of Appeal, in its request for a judicial review of the Commission's decision to impose the same 'non-proprietary' feature films condition of licence on newly licensed DTH PPV programming undertakings. On 26 June 1996 the Federal Court of Appeal dismissed, by unanimous judgements, the applications brought by the CMPDA and others. The language of these judgements makes it clear that the CMPDA's allegations concerning the Commission's lack of jurisdiction have failed to pass legal scrutiny.

The Commission has, however, deter-mined that, in the circumstances of the applications it has approved, the condition of licence proposed by the CAFDE is neither appropriate nor necessary. In this regard, the Commission notes that, for the most part, the number of films that the new licensees propose to offer represent a very small portion of their programming schedules. Furthermore, none of the licensees will be offering first-run feature films. The licences, therefore, will not be subject to the condition of licence proposed by CAFDE.

d) Launch Considerations

During the oral phase of the public hearing, most applicants emphasized the need for a co-ordinated marketing plan between the new programming service providers and distributors in order to have a successful launch of the new services.

The Commission notes that all of the new services made significant commitments to marketing that include both the allocation of funds and free viewing periods, and encourages all parties to negotiate their marketing, preview and launch plans with a view to facilitating a smooth and successful launch of the new services.

In the oral phase of the public hearing, representatives of small cable systems noted that the cost of the Integrated Receiver Decoder (IRD) necessary for the reception of each service at their respective head ends was an inhibiting factor to the distribution of these services.

Applicants proposed a variety of initiatives that would provide financial support for small cable systems in acquiring the necessary IRDs. The Commission encourages all programming undertakings to explore appropriate ways to make their services available to as many Canadians as possible.

e) Closed Captioning

Each applicant was required to make specific commitments in its Promise of Performance for the provision of closed captioning of its programming. These commitments included projected funds to be allocated for the production of captioning or the acquisition of captioned versions of purchased programs, as well as the number of hours of captioned programming that would be available on an annual basis.

As set out in the licensing decisions, most of the new English-language programming undertakings whose projected gross revenues exceed $10 million by the end of their licence terms, are required to caption 90% of their programming by year seven of the licence term. Other English-language services are either expected or encouraged to meet these commitments based on whether their earnings are between $5-10 million or less than $5 million annually. This requirement parallels the commitments placed upon conventional broadcasters.

Given the nature of their programming and/or the availability of captioned material, the Commission has allowed exceptions from this general approach for TELETOON, Treehouse, MuchMoreMusic, SATV and Odyssey.

In the case of CTV N1 Headline News, the applicant committed to caption 100% of its programming beginning in the first year of operation, and this commitment is reflected in that decision.

In Francophone markets, closed captioning has historically been more expensive than in Anglophone markets. Although this situation has improved significantly over the past few years, the Commission is not prepared, at this time, to impose the same requirements on the French-language services as on the English-language services.

Therefore, the French-language programming undertakings, Musimax, Le Canal Vie and Le Canal Nouvelles, will be expected to meet their commitments as filed or as discussed at the hearing, and will be encouraged to exceed them.

f) Integration of Distribution Undertakings and Programming Undertakings

In previous public hearings into the licensing of specialty and pay television undertakings, the Commission has sought to mitigate any potential conflict of interest arising from the integration of ownership between distribution and programming undertakings by obtaining firm commitments from the distributor that it would not give undue preference to the distribution of any programming undertaking in which it had an ownership interest.

In its Convergence Report issued following the public hearing examining the Information Highway, the Commission determined that "no cable company affiliate should be permitted to hold a licence for a discretionary video programming undertaking." The Commission indicated that this general restriction should remain in place until comprehensive access rules are established to prevent preferential treatment, and there is sufficient channel capacity to ensure that unaffiliated broadcasters would have access comparable to that provided to cable-owned services.

Since that report was released, the major cable operators have indicated their intentions to begin implementation of DVC technology later this year or in 1997. Furthermore, with the issuance of the Access Rules earlier this year, the Commission is satisfied that the two pre-requisites noted in the Convergence Report have generally been met.

Nevertheless, applicants whose ownership structure contained some degree of cable interest were required to provide additional assurances during the public hearing and these are reflected in the relevant decisions.

In particular, the Commission notes its concern respecting the potential for preferential treatment where a cable licensee has the option of choosing from several services in the second group for possible distribution on an unscrambled analog tier, or possibly on the basic service. In such circumstances, the Commission strongly expects these distributors to act in a fair and equitable manner.

g) Integration of Programming Undertakings and Production and Distribution Functions

In the past, the Commission, either by conditions of licence or through its regulations, has generally sought to avoid conflicts that could arise through the integration of the production and exhibition sectors.

In 1994, the Commission issued licences to operate two specialty programming undertakings that were controlled respectively, by Alliance Communications Corporation and Atlantis Television Ventures Inc., both major producers and distributors of programming.

At that time, the Commission stated that it considered it necessary to ensure fair access by independent producers and to maximize the exhibition opportunities for independently-produced Canadian programs. In this context, the licensees were required to put in place adequate safeguards to ensure fair access by independent producers.

A number of programming undertakings licensed today are owned in part by production companies. As set out in each of the decisions pertaining to such undertakings, the Commission has expressed the expectation that the undertaking will put in place strict safeguards to avoid concerns of preferential treatment and to ensure fair access by non-integrated producers.

VI FUTURE LICENSING ACTION

In adopting the licensing framework described earlier for English-language services, the Commission has licensed a large and comprehensive group of new services, some of which should be in operation in September 1997 and others that should have commenced operation by no later than 1 September 1999.

Given the inherent uncertainties surrounding the introduction and packaging options of all of the programming undertakings licensed today, the Commission is of the view that no additional programming services could be readily accommodated for analog distribution in Anglophone markets.

The Commission, by majority vote, considers that applicants proposing new English-language specialty services should generally be prepared to accept licensing under terms governing their access to distribution undertakings similar to the terms that have been applied to the second group of English-language programming undertakings licensed today; and that such applications should not generally be directly competitive with specialty services already licensed.

While the Commission does not intend to issue a call for applications for new specialty and pay television programming services, it will consider them on a case-by-case basis.

Related Documents

Introductory Statement - Licensing of New Specialty and Pay Television Services (Public Notice CRTC 1994-59); Extension of the Deadline for Submissions of Applications for Licenses to Carry on New Canadian Specialty and Pay Television Programming Undertakings (Public Notice CRTC 1995-29); 19 May 1995 Convergence Report - Competition and Culture on Canada's Information Highway; The Commission's Approach to Applications for New Specialty and Pay Television Services (Public Notice CRTC 1995-205); and, Access Rules for Broadcasting Distribution Undertakings (Public Notice CRTC 1996-60).

Allan J. Darling
Secretary General

Dissent of Commissioner Andrée Wylie to Decisions CRTC 96-600 to 96-612

I cannot agree with the decision of the majority of the Commission to exclude from the application of its recently-issued Access Rules, possibly for a period of three years, and potentially longer, 13 of the 17 English-language specialty services for which broadcasting licences will be issued. I am therefore opposed to Decisions CRTC 96-600 to 96-612 I would have licensed instead no more new services than the Commission can reasonably forecast could be distributed in accordance with the Access Rules.

My opposition is not intended in any way as a comment on the merits of the applications involved or on any of the parties involved.

The practical consequence of the decision of the majority is twofold: (1) it effectively leaves to cable distribution licensees the power to determine if, when, and in what circumstances, any of 13 programming services licensed by the Commission is delivered to Canadian homes; and (2) it licenses 13 programming services whose implementation depends on distribution by other licensees, without any reasonable evidence as to whether, when, and in what circumstances, they will in fact be distributed. Neither is, in my view, consistent with Commission policy. Neither is, in my view, in the public interest.

I share the Commission's endorsement of competition in the distribution of programming services to Canadians. I also share the Commission's desire to encourage the deployment of digital video compression (DVC) technology in cable networks, so as to increase channel capacity and the consumer's ability to choose. However, in licensing new specialty programming services, the Commission has the duty, in my view, to take into account the circumstances surrounding the capacity of the distribution system as it finds them, or as they can be forecast with reasonable accuracy, at the time of licensing.

The evidence before the Commission indicates that specialty licensees will likely remain dependent on analog cable distribution for their viability for the immediate future. Further, DVC decoders will likely not be available to cable subscribers in sufficient number and at a cost which will permit the successful and sustainable DVC launch of a national English-language specialty service until some time after September 1999. In fact, the best estimates of members of the Canadian Cable Television Association at the hearing were that only some 290,000 DVC decoders would be available by late 1997 for the approximately 5.9 million cable homes in English-language markets in Canada. Moreover, it is difficult to predict if, and to what extent, analog capacity may be expanded in the interim.

In April 1996, the Commission established Access Rules (Public Notice CRTC 1996-60) in which it determined that larger cable undertakings should distribute, as a general rule, the services of all licensed specialty and pay television undertakings appropriate for their market, subject to available channel capacity as defined in the Rules. The general rule may admit of exception. However, in my view, the Commission's intent was to ensure, by regulation, transparently fair and equitable access for Canadian programming services, in recognition of the continued dominant, and in many cases the monopoly, power of the cable industry in the distribution of Canadian video programming.

It is also for these reasons that, in its 1995 Convergence Report, "Competition and Culture on Canada's Information Highway: Managing the Realities of Transition", the Commission recommended that no cable company affiliate be permitted to hold a licence for a specialty service until: (1) issues of channel capacity are resolved; and (2) comprehensive access rules are in place, in order to ensure non-preferential and comparable access for all licensed specialty services.

My specific concerns with the licensing regime approved by the majority include the following:

· To the extent that analog capacity in excess of what is required to distribute 4 of the 17 services licensed is available during the next 3 years, cable operators will have the discretion to decide which, if any of the other 13 services is granted access.

· The majority has established as a trigger for the application of the Access Rules the earlier of 1 September 1999 and "at such time as the distribution undertaking makes use of digital technology for the delivery of programming to subscribers", the latter without specification. In my view, access to the DVC capacity of any one cable system will not in fact constitute access unless sufficient DVC decoders are available in that cable system and DVC capacity and DVC decoders are available in a sufficient number of cable systems to permit a viable launch.

· There is no assurance that there will be sufficient analog or DVC capacity to provide a commercially-viable subscriber base by 1 September 1999, and possibly longer, to all 13 specialty services licensed. The cable operators will determine which of the services are granted access during that period.

· The business plans of licensees who do not gain early cable access may not remain relevant, particularly as some services will have enjoyed an earlier launch. Such plans provided the basis for the programming and other commitments accepted by the Commission in a licensing process which was competitive to the extent that the Commission decided to license only one service in any given programming genre. The successful applicant in a particular genre may thus have been granted a licence on the basis of a plan that is no longer feasible when access becomes possible.

· I am concerned that the general goal of the Commission's Access Rules and of its Convergence Report to ensure, in a transparent manner, non-preferential access for all licensed services will not be met while the application of the Access Rules has been suspended given that, of the 13 services vying for cable access in a world of capacity constraints,

a) one service is wholly-owned by the second-largest cable operator in Canada;

b) two services have significant cable ownership; and

c) five services are controlled by a company who already holds licences for two specialty services, a situation which could provide an opportunity for additional leverage in negotiating cable access.

· The authority to give a higher priority to foreign, exempt and non-programming services over 13 licensed programming services for a period of 3 years is not consistent, in my view, with the recently established Commission policy in the Access Rules or with the Commission's view in "Regulation of Broadcasting Distribution Undertakings that Provide Non-Programming Services", Telecom Decision CRTC 96-1, dated 30 January 1996, that non-programming services should be subject to pre-emption for the distribution of broadcasting services.

· The majority has referred to the need for a co-ordinated marketing plan between distributors and new programming services in order to ensure a successful launch for a new service. As additional analog capacity and/or DVC deployment will occur unevenly in cable territories over the next few years, it will be difficult to include many of the 13 services in a co-ordinated launch. The success of those unable to negotiate early access may be jeopardized on this ground alone.

As already noted and for the reasons outlined, I would have licensed only the number of English-language specialty services that the Commission can reasonably expect could be distributed nationally within the usual 12-month period granted for implementation, given the evidence before it with respect to available distribution capacity, and in light of the generally applicable requirements of the Cable Television Regulations, 1986 and of the recently issued Access Rules. I would have left it to a future Commission panel to issue licences for additional specialty services when capacity for the distribution of programming services has actually increased. The terms and conditions imposed on the new services would thus be related to the circumstances that can be known or reasonably forecast at the time of licensing, as required by the Broadcasting Act.

I am not indifferent to the financial and regulatory burden involved in the process just completed for the additional unsuccessful applicants that would have resulted from my preferred licensing scenario. I note, however, that those who responded to the Commission's invitation to submit applications for new programming services were aware of the risk involved. I also note that, as and when distribution capacity is actually expanded, the Commission can review its licensing policies with a view to lightening and expediting its licensing process for discretionary programming services.