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Circular No. 426
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Ottawa, 22 December 1997
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TO THE LICENSEES OF BROADCASTING DISTRIBUTION UNDERTAKINGS
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Guidelines respecting financial contributions by the licensees of broadcasting distribution undertakings to the creation and presentation of Canadian programming
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The Broadcasting Distribution Regulations (the regulations) issued today in Public Notice CRTC 1997-150 set out the requirements by which the licensees of Class 1 and Class 2 terrestrial broadcasting distribution undertakings and Direct-to-Home (DTH) satellite distribution undertakings must make financial contributions to the creation and presentation of Canadian programming. This circular establishes the guidelines that will govern these contributions, including the permissible division between contributions to qualifying production funds and the expenditures that Class 1 and 2 licensees may elect to devote to local expression.
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Section 29 of the regulations applies to Class 1 and Class 2 terrestrial distribution undertakings. Unless otherwise provided by condition of licence, section 29 requires the following:
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a) Each Class 1 licensee with 60,000 or more subscribers as of 31 August of the previous broadcast year shall make a contribution to qualifying production funds, in the broadcast year, of an amount that is at least equal to the greater of:
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i) 5% of the licensee’s gross revenues derived from broadcasting activities during that broadcast year, minus any contribution to local expression; and,
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ii) 3% of the licensee’s gross revenues derived from broadcasting activities during that broadcast year.
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b) Each Class 1 licensee with at least 20,000 but fewer than 60,000 subscribers as of 31 August of the previous broadcast year shall make a contribution to qualifying production funds, in the broadcast year, of an amount that is at least equal to the greater of:
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i) 5% of the licensee’s gross revenues derived from broadcasting activities during that broadcast year, minus any contribution to local expression; and,
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ii) 2% of the licensee’s gross revenues derived from broadcasting activities in the broadcast year ending 31 August 1998; 2.5% in the broadcast year ending 31 August 1999 and 3% in each broadcast year ending 31 August thereafter.
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c) Each Class 1 licensee with fewer than 20,000 subscribers as of 31 August of the previous broadcast year shall make a contribution to qualifying production funds, in the broadcast year, of an amount that is at least equal to the greater of:
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i) 5% of the licensee’s gross revenues derived from broadcasting activities during that broadcast year, minus any contribution to local expression; and,
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ii) 1.5% of the licensee’s gross revenues derived from broadcasting activities during that broadcast year.
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d) Each Class 2 licensee shall make a contribution to qualifying production funds in each broadcast year of no less than 5% of its gross revenues derived from broadcasting activities during that year, minus any contribution to local expression.
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Section 44 of the regulations requires the licensees of DTH satellite distribution undertakings to make a contribution to qualifying production funds, in each broadcast year, of no less than 5% of their gross revenues derived from broadcasting activities during that same year.
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Because the regulations come into force on 1 January 1998, they provide that contributions to qualifying production funds and to local expression for the 1998 broadcast year are to be based on gross revenues derived from broadcasting activities for the period 1 January 1998 to 31 August 1998, inclusive. Subsequent annual contributions are to be based on the entire 12-month broadcast year.
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For the purpose of these guidelines the following definitions apply:
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"Broadcast year" means the period beginning 1 September of each calendar year and ending on 31 August of the following calendar year.
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"Contribution to qualifying production funds" means a contribution to the Canada Television and Cable Production Fund (CTCPF), or its successor, as well as any independently-administered production fund, in accordance with the requirements set out in Public Notice CRTC 1997-98, Contributions to Canadian Programming by Broadcasting Distribution Undertakings (PN 1997-98), as amended from time to time.
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"Contribution to local expression" means a contribution made in accordance with Public Notice CRTC 1997-25, New Regulatory Framework for Broadcasting Distribution Undertakings.
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"Gross revenues derived from broadcasting activities" means total revenues, before any deductions (including those for program fees), that are earned directly or indirectly for the distribution of any broadcasting service on an undertaking by the licensee or other entity, where the licensee and other entity are not dealing at arm’s length within the meaning of section 251 of the Income Tax Act. This includes, for example, but without limitation, gross revenues from basic and discretionary service subscriptions, additional outlets, installation and reconnections fees, decoder sales and rentals, commercial messages, as well as revenues from the operators of exempt programming undertakings such as home shopping and real estate services. Gross revenues derived from broadcasting activities exclude revenues earned from telecommunications services such as data delivery and services whose visual images consist predominantly of alphanumeric text, such as Broadcast News, that are regulated under the Telecommuni-cations Act.
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Contributions to qualifying production funds
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All BDU licensees that are required to make a financial contribution to qualifying production funds shall contribute at least 80% of their required contribution to the CTCPF. The remainder, if any, of the required contribution may be made to one or more independently-administered production funds, other than the CTCPF, that meet the criteria set out in PN 1997-98, as amended from time to time.
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Remittances to the CTCPF and to independently-administered production funds must be made on a monthly basis, no later than the fifteenth working day of the month following the month to which the fund remittance pertains. As an example, the remittance for the month of January 1998 must be made no later than the fifteenth working day of February 1998.
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Remittances to the CTCPF are to be directed to the Department of Canadian Heritage.
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Contributions to local expression
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Although terrestrial distributors are not required under the regulations to provide an outlet for local expression, where a licensee elects to provide one, the Commission expects the contributions to be spread out as evenly as possible over the course of the broadcast year.
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Consistent with the policy set out in Public Notice CRTC 1991-59 dated 5 June 1991 (PN 1991-59), licensees must continue to report their levels of direct and indirect expenses, and are expected to dedicate the greatest portion of their expenditures to direct expenses.
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The Commission reminds licensees that the costs associated with services such as a barker channel, Broadcast News and stock market reports are not costs directly or indirectly related to the provision of local expression. These costs should be separately identified, and not included in the allocation to local expression.
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Where a terrestrial distributor elects to provide a community channel as an outlet for local expression, the following additional guidelines are applicable.
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a) Direct expenses are those expenses solely attributable to the acquisition or production of programming. This includes, for example, salaries and benefits paid to staff who work exclusively in the programming department, non-staff talent fees, films, tapes, props, sets, program vehicle operating costs, and any other program-related materials and supplies.
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b) Indirect expenses are those expenses that are not attributable in full to the acquisition or production of programming, but which are nevertheless necessary for the acquisition or production of programming. This includes, for example, a percentage of heat, light and hydro costs related to the building in which the programming facilities are located, a percentage of salaries and benefits paid to staff who do not work exclusively in the programming department, but are, at least on occasion, directly involved in its operation, programming equipment maintenance, and other costs for such things as office cleaning and entertainment related to the community programming department.
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c) Licensees are allowed to claim as direct expenses, in the calculation of their financial contribution to local expression, the depreciation or lease payments, whether on account of capital or operating leases, for equipment used to provide a community channel.
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d) The remainder of the Commission’s community channel policies, as outlined in PN 1991-59, remain in force, including those policies dealing with the role and objectives of the community channel, advertising, bicycling of programming, system interconnection, sharing of the community channel with complementary programming, and access.
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Where a terrestrial distributor intends to provide an outlet for local expression other than a community channel, it shall submit a detailed proposal to the Commission for prior approval. The eligibility of associated direct and indirect expenses will be assessed on a case-by-case basis, at the time the Commission considers each such proposal.
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Reporting of contributions
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Licensees are required, when filing their Annual Returns, to provide a reconciliation of their contributions to qualifying production funds and, where applicable, to local expression, and to have their auditors attest that they have complied with the requirements of sections 29 and 44 of the regulations, as applicable.
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Laura M. Talbot-Allan
Secretary General
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This document is available in alternative format upon request.
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