ARCHIVED -  Decision CRTC 96-603

Decision

Ottawa, 4 September 1996

Decision CRTC 96-603

D. Martin Abel (OBCI)

Across Canada - 199600784

TreeHouse TV - Approved

Following a Public Hearing held in the National Capital Region beginning on 6 May 1996, the Commission, by majority vote, approves the application by D. Martin Abel, on behalf of a company to be incorporated (the licensee), for a broadcasting licence to carry on a national English-language programming undertaking (Specialty Television Service). The new service will be known as TreeHouse TV.

This service will be available via satellite to all broadcasting distribution undertakings across the country. 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, where TreeHouse TV is distributed as part of the basic service, shall be $0.20 per subscriber. The Commission notes the licensee's intention to commence operations on 1 September 1997, and its intention to offer a 12-month free viewing period.

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

This authority will only be effective and the licence will only be issued at such time as the Commission receives documentation establishing that an eligible Canadian corporation has been incorporated in accordance with the application in all material respects and that it may be issued a licence.

In Public Notice CRTC 1996-120, the Commission outlined a licensing approach that grouped English-language services into two categories. The Access Rules will apply to the second group of services, to which TreeHouse TV belongs, at the earliest of the following: the deployment of digital technology by the distributor, or 1 September 1999. The service of this programming undertaking must, by condition of licence, be in operation within 36 months of the date of this decision unless the service provider, prior to the expiry of this period, applies for and receives an extension of time within which to commence operations.

Ownership

The licensee will be 100% owned by the existing specialty service YTV. YTV is in turn controlled by Shaw Communications Inc. (Shaw), the second-largest cable operator in Canada.

When a cable company participates in the ownership of a specialty service, the Commission considers that a concern is raised. In its report, "Competition and Culture on Canada's Information Highway: Managing the Realities of Transition" dated 19 May 1995, (the Convergence Report) the Commission stated that, until there is sufficient channel capacity on cable networks, and until transparent access rules are in place to prevent undue preference, cable companies are not permitted to control programming undertakings, other than over-the-air radio and television undertakings. The Commission is satisfied that the Access Rules, announced in Public Notice CRTC 1996-60 dated 26 April 1996, can address any potential abuse with regard to cable shareholders granting preferential treatment to programming services in which they hold an equity interest. Nevertheless, the Commission still has concerns regarding the adequacy of channel capacity on cable systems across Canada at the present time.

At the hearing, the Commission questioned the licensee regarding the measures it would take to ensure that Shaw will not give TreeHouse TV preferential treatment on its cable systems over competing programming services in the pricing, placement and packaging of services. In response, representatives of Shaw noted the Commission's new Access Rules, and stated:

 As a result of that policy, we will ensure that we will carry all the services that are licensed. As we go through a transition period in terms of carrying those services, we will make sure that all of the services are treated equitably...if we did have, in the short term, a capacity issue to deal with, we would make sure that we made available the services to an equal number of subscribers so that we would balance it out as we introduced the services...We would want to be measured on that; that we would give equitable treatment to those services, which I think is what your Access Policy very much clears the way for.

The Commission expects that TreeHouse TV will not be given preferential treatment or access to distribution systems by any distributor that holds an ownership interest in the licensee company.

In a related decision published today (Decisison CRTC 96-598 - the Teletoon decision), the Commission has also approved an application for a new specialty service to be known as TELETOON, which will provide animated programming. In interventions and at the hearing, concerns were raised about the implications of licensing both TreeHouse TV and TELETOON. Parties with ownership interests in one or both of these services, which include The Family Channel Inc., WIC Western International Communications Ltd., Nelvana Limited, CINAR Films Inc.,
and YTV Canada Inc., are some of the most significant suppliers of children's programming in Canada. The argument was made that, if both services were licensed, these parties 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 TELETOON and TreeHouse TV, in combination with the extensive series of safeguards outlined here and in Decision CRTC 96-598 will strongly outweigh any perceived negative consequences. The Commission considers that these synergies will allow for the production and export of more and better children's programming in Canada.

Programming

Nature of Service

The licensee proposes to provide commercial-free programming for pre-school children up to six years of age, between the hours of 6:00 a.m. and 9:00 p.m. After 9:00 p.m., programs will be targeted to families, parents and caregivers, and will contain advertising. This block of programming, to be known as "The Big TreeHouse", will feature a mix of information and entertainment for parents, including magazine and call-in programs on family issues, as well as "vintage family entertainment". Conditions of licence related to the nature of the TreeHouse TV service are set out in the appendix to this decision.

Programming on TreeHouse TV during the day will feature on-air hosts to link programs, encourage interactivity and provide familiarity through repetition. One six-hour block of children's programs will be broadcast each weekday from 6:00 a.m to 12:00 noon, and then repeated from noon to 6:00 p.m. Between 6:00 p.m and 9:00 p.m., some elements of the first six hours will be augmented with additional programs. Similarly, weekend programming will feature a mix of programs previously aired during the week and other programming.

The Commission notes the licensee's statement at the hearing that programs will "reflect the cultural diversity of the audience", and further notes the licensee's commitment to "offer blocks of copyright-cleared programming and pre-school targeted media literacy materials for in-school or day-care use across Canada".

In view of the common ownership of TreeHouse TV and YTV, and to further ensure diversity in quality children's programming, the Commission proposed a condition of licence requiring non-concurrence of programs on TreeHouse TV and YTV which the licensee agreed to accept. In the appendix to this decision, the Commission has set out a condition of licence requiring that none of the programs broadcast on TreeHouse TV be broadcast on YTV in the same month.

Canadian Content

In its application, the licensee made the following commitments related to Canadian content. In the first two years of operation, at least 60% of the programs broadcast on TreeHouse TV, during the broadcast year, and not less than 50% of the evening broadcast period, will be Canadian. In the third and fourth years of the licence term, the levels will be increased to 65% overall during the broadcast year and 55% in the evening broadcast period. In the fifth year of the licence term, the Canadian content will again increase, to 70% throughout the broadcast year, and 60% in the evening broadcast period, and it will remain at these levels in each subsequent year of the licence term. The licensee shall adhere to these commitments, by condition of licence, as set out in the appendix to this decision.

Canadian Programming Expenditures

Consistent with the approach outlined by the Commission in Public Notice CRTC 1996-120 with respect to requirements for Canadian programming expenditures, and as discussed with the licensee at the hearing, it is a condition of licence that TreeHouse TV shall expend on Canadian programs, in the broadcast year following the first year of operation, and in each subsequent broadcast year, a minimum of 32% of the previous year's gross revenues derived from the operation of the service. Some flexibility in the accounting of these expenditures is provided for in the conditions of licence attached to this decision.

The Commission also notes the licensee's commitments to spend a total of $3.6 million on program acquisition over a seven-year period and to commission a total of 325 half-hours of original Canadian production over the same seven-year period.

With further respect to program production, the Commission notes the licensee's statement that:

 YTV, Family Channel and Canal Famille have enjoyed our relationships with co-production and co-licensing partners like Global and, when appropriate, we will continue to seek these, as we recognize that it is simply a good way to conduct business.

Advertising

The licensee describes the day-time programming of TreeHouse TV as a "commercial-free" service targeted to pre-school aged children (up to six years of age). During the periods targeted to children, the licensee proposes to make limited use of on-air sponsorship announcements, instead of traditional commercial messages.

Consistent with the licensee's commitments, it is a condition of licence that all paid advertising material distributed on TreeHouse TV shall be national advertising, and shall be restricted to two minutes per hour between 6 a.m. and 9 p.m., and twelve minutes per hour between 9 p.m. and midnight, with some flexibility for the placement of advertising material in longer programs. In addition, no advertising material longer than 15 seconds in duration may be broadcast between 6 a.m. and 9 p.m.

Other Matters

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 had developed its own policy in this regard. The Commission notes the licensee's statement at the hearing that "our TreeHouse personnel and productions will reflect the diverse cultural backgrounds of Canada and ensure representation of visible minorities and the physically challenged" and encourages the licensee to implement these plans. The Commission will review the licensee's performance in implementing its Employment Equity practices at the time of licence renewal.

Closed Captioning

In accordance with the policy announced in Public Notice CRTC 1996-120 and recognizing the particular challenges associated with providing closed captioning in programming aimed at pre-schoolers, the Commission requires the licensee to close caption not less than 90% of the programming it broadcasts that are not targeted to pre-schoolers, during the broadcast day, by the end of the licence term.

Conclusion

In licensing TreeHouse TV, the Commission has taken into particular account the licensee's plans for largely commercial-free and narrowly-focused programming appropriate for pre-school aged children. The Commission is satisfied that, given the nature of the proposed service, TreeHouse TV will attract a distinct audience and will contribute significantly to increased viewing choices for Canadian families.

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

This decision is to be appended to the licence.

Allan J. Darling
Secretary General

APPENDIX/ANNEXE

Conditions of licence for TreeHouse TV

1. The licensee shall provide a national English-language specialty service.

(a) All programs broadcast by the licensee between 6:00 a.m. and 9:00 p.m. shall have as its target audience children up to 6 years of age.

(b) A minimum of 80% of the programs broadcast by the licensee between 9:00 p.m. and 6:00 a.m. that is drawn from category 7 (Drama) shall be copyrighted at least 10 years prior to the broadcast year in which it is broadcast by the licensee.

2. In any month, none of the programs broadcast by the licensee shall be broadcast by the specialty service YTV.

3. The licensee shall devote to the distribution of Canadian programs:

(a) In each of its first and second years of operation, not less than 60% of the broadcast year, and not less than 50% of the evening broadcast period.

(b) In each of its third and fourth years of operation, not less than 65% of the broadcast year, and not less than 55% of the evening broadcast period.

(c) In each subsequent year of operation, not less than 70% of the broadcast year, and not less than 60% of the evening broadcast period.

4. 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 the first year of operation, and in each subsequent broadcast year, the licensee shall expend on Canadian programs not less than 32% of the previous broadcast year's gross revenues derived from the operation of the service.

(b) In the broadcast year following the first year of operations 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 calculated in accordance with this condition; in such case, the licensee shall expend in the next broadcast year of the licence term, in addition to the minimum required expenditure for that year, the full amount of the previous year's underspending.

(c) 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 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, an amount not exceeding the difference between the overspending and any amount deducted under paragraph (i) above.

(d) Notwithstanding the above, during the licence term, the licensee shall expend on Canadian programs, at a minimum, the total of the minimum required expenditures calculated in accordance with the licensee's conditions of licence.

5. (a) Subject to subsections (c) and (g), the licensee shall not distribute more than two (2) minutes of advertising material during each clock hour between 6 a.m. and 9 p.m.

(b) Subject to subsections (c) and (g), the licensee shall not distribute more than twelve (12) minutes of advertising material during each clock hour between 9 p.m. and midnight.

(c) In addition to the two (2) minutes of advertising material referred to in subsection (a) and the twelve (12) minutes of advertising material referred to in subsection (b), the licensee may distribute, during each clock hour, a maximum of 30 seconds of additional advertising material that consists of unpaid public service announcements.

(d) The licensee shall not distribute any advertising material longer than 15 seconds in duration between 6 a.m. and 9 p.m.

(e) All advertising material distributed by the licensee between 6 a.m. and 9 p.m. shall conform to the definition of restricted advertising set out in Public Notice CRTC 1992-38.

(f) The licensee shall not distribute any paid advertising material other than national paid advertising.

(g) 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.

6. From the date of commencement of service, the licensee shall charge each exhibitor of this service, where the service is distributed as part of the basic service, a maximum monthly wholesale rate of $0.20 per subscriber.

7. This undertaking shall be in operation within thirty-six (36) 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.

8. The licensee may require access to distribution undertakings in accordance with the Access Rules contained in Public Notice CRTC 1996-60 at the earliest of the following:

a) at such time as the distribution undertaking makes use of digital technology for the delivery of programming to subscribers; or

b) 1 September 1999.

9. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB's) "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; "month" shall mean any calendar month; "first year of operation" shall mean the first broadcast year in which the licensee is in operation for a period exceeding 90 days, excluding any free trial period; and "paid national advertising" shall mean advertising material as defined in the Specialty Services Regulations, 1990 and that is purchased at a national rate and receives national distribution on the service.

Dissent of Commissioner Gail Scott to TreeHouse TV decision

This dissent is not intended to reflect adversely on either the merits of the application for the service to be known as TreeHouse TV, or the applicant. TreeHouse TV is wholly owned by YTV, which in turn is wholly owned by Shaw Communications Inc. (Shaw).

Rather, in my view, the majority decision to license this service represents an exception to the Commission's policy guideline established in the context of the Convergence proceeding, only slightly more than a year ago. Such an exception would make that policy difficult to apply again in future.

In the Commission's Convergence Report, titled "Competition and Culture on Canada's Information Highway: Managing the Realities of Transition", dated 19 May 1995, the Commission indicated:

...no cable company affiliate should be permitted to hold a licence for a discretionary video programming undertaking. This general restriction should remain in place until comprehensive access rules to prevent preferential treatment are established and there is sufficient channel capacity to ensure that unaffiliated broadcasters would have access comparable to that provided cable-owned service.

In Public Notice CRTC 1996-60 dated 26 April 1996, the Commission announced its Access Rules for Broadcasting Distribution Undertakings. In that public notice the Commission stated:

A broadcasting distribution undertaking to which the access rules apply should distribute, as a general rule, the services of all licensed specialty and pay television undertakings appropriate for its market, to the extent of available channel capacity.

It was within that framework that the Commission approved the transfer of control of YTV to Shaw. In Decision CRTC 96-250, the Commission noted that the then current ownership of YTV by Canada's two largest cable operators predated the policy announced in May 1995.

In recognition of Shaw's potential ability to give preferential treatment to YTV, the Commission also noted in Decision CRTC 96-250 the company's commitment to treat all existing and future licensed services in an equitable manner on Class 1 and 2 and Part III systems, with regard not only to carriage, but also with respect to channel placement and promotions. The Commission also noted that Shaw's Class 1 undertakings were subject to the Access Rules. In light of the foregoing factors, the Commission determined in that case that there was no departure from the policy set out in its Convergence Report.

All parties agree that cable capacity remains severely constrained. For this reason, the Commission is, in a number of cases, suspending the Access Rules for up to three years. For all but four of the specialty services licensed today, eligibility for carriage under the rules may not become effective until as late as 1999. The services licensed today have been selected to make a specific contribution to the broadcasting system, yet most are without benefit of carriage guarantees, and in an environment of limited capacity. They will be dependent on themselves to negotiate a place within the system at terms which provide for viability. It is unwise, in my view, to waive the policy rule regarding distributor ownership, at the same time that the Access Rules have been suspended because of capacity constraints.

The potential for preferential treatment of a distributor-owned service within the system is significant. Should preferential treatment occur, there is no recourse.

While Shaw has again offered to be measured on its commitment to treat all licensed services in an equitable manner, and the Commission is expecting it to meet that commitment, in the end it is a commitment that would prove difficult to monitor. Moreover, Shaw's interests in children's programming are not limited to its 100 percent ownership of YTV and TreeHouse TV. It also holds a 26.7 percent interest in TELETOON, the English- and French-language animation service licensed today, as well as a substantial investment in the production of children's programming under the umbrella of the Shaw Children's Programming Initiative.

In effect, this means that any members of the production community wishing to provide children's programming to Canadian specialty audiences have little option but to deal with a single corporate group which happens also to be Canada's second-largest cable distributor.

While this issue has been raised during this and other proceedings, in my view it has not been adequately addressed. During the period of transition to unlimited capacity, such a concentration of influence does little to strengthen the integrity of the Canadian broadcasting system.

Dissent of Commissioner Andrée Wylie

Commissioner Andrée Wylie dissents from this and from all of the other decisions issued today in respect of applications for licences to carry on new English-language specialty television programming undertakings whose services fall within the second category, namely those to whom the Access Rules will apply at the earliest of the following: the deployment of digital technology by the distributor, or 1 September 1999. The rationale underlying the Commissioner's dissent is presented at the conclusion of Public Notice CRTC 1996-120.