ARCHIVED -  Decision CRTC 97-285

The Commission’s policy objectives for this and four other VOD programming undertakings whose licence applications are approved today are set out in the accompanying Public Notice CRTC 1997-83.

Subject to the requirements of this decision, the Commission will issue a licence expiring 31 August 2003. This licence will be subject to the conditions specified in 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 construction of the undertaking is completed and it is prepared to commence operation. If the construction is not completed within 18 months of the date of this decision or, where the applicant applies to the Commission within this period and satisfies the Commission that it cannot complete construction and commence operation before the expiry of this period, and that an extension of time is in the public interest, within such further periods of time as are approved in writing by the Commission, the licence will not be issued. The applicant is required to advise the Commission (before the expiry of the 18-month period or any extension thereof) in writing, once it has completed construction and is prepared to commence operation.

The applicant is to be operated as a General Partnership between Alliance Communications Corporation (Alliance) and Shaw Communications Inc. (Shaw), each having a 50% interest. Alliance is a public company deemed to be effectively controlled by Robert Lantos through his ownership of 22.1% of the company’s voting shares and his ability, pursuant to voting agreements, to vote an additional 8.7% of these shares. Alliance is Canada’s largest independent film and television production and distribution company. Its current broadcast holdings include controlling interests in two specialty television programming undertakings.

Shaw is effectively controlled by J.R. Shaw, Sr. through equity held personally and through a voting trust agreement, representing 79.8% of the company’s Class "A" voting shares. Shaw is a diversified communications company with extensive holdings in the radio and cable distribution industries. It is also active in direct-to-home (DTH) distribution and pay audio, and has ownership interests in five specialty programming services

As part of its application, the applicant submitted a Memorandum of Understanding (MOU), which sets out certain terms and conditions governing the ownership structure. The applicant indicated that, if the application is approved, a formal partnership agreement will be prepared that will incorporate the terms of the MOU and will not depart in any material way from the MOU. As discussed at the hearing, the Commission will not issue a licence until the applicant has executed and filed with the Commission a partnership agreement that is acceptable to the Commission.

As well, in light of the business interests of Shaw and Alliance in cable and film distribution, respectively, and as agreed to by the applicant at the hearing, the Commission has imposed two conditions of licence. One requires the licensee to operate the undertaking in a manner that is independent and separate from the operation of both Alliance and Shaw. The other prohibits the licensee from disclosing information, other than publicly available information, to any representative of these companies or their affiliates.

The licensee shall, by condition of licence, adhere to the Pay Television Regulations, 1990 (the pay television regulations), with the exception of section 4, which relates to the keeping of logs and records. Rather than being subject to section 4 of the pay television regulations, the licensee is required, by condition of licence, to maintain for a period of one year, and to submit to the Commission, upon request, a detailed list of the inventory available on each file server, identifying each program by programming category and by country of origin, and indicating the period of time that each program was on the server and available to subscribers.

The licensee will provide a general interest VOD service featuring programming that will consist, for the most part, of feature films. It may also include programming from all categories set out in item 6 of Schedule I to the pay television regulations. The Commission notes the licensee’s statement that the service will offer between 500 and 600 titles at launch.

The Commission expects the licensee to adhere to its commitments to ensure that all Canadian titles are given treatment that is at least equal to that given comparable foreign product in the menu-based navigation system. The Commission notes that the navigation system will employ a fully bilingual design. It expects the licensee to ensure that the exhibition window for Canadian films is at least equal to the minimum exhibition window given to non-Canadian films.

In addition to their access to on-screen menu ordering, subscribers will be able to order films through a toll-free telephone line. The licensee will also maintain an Internet web site as yet another means for subscribers to order films, and as a vehicle for promotion of the service. The Commission notes the licensee’s commitment to promote specific Canadian titles by underwriting the production and distribution of co-operative advertising in various venues.

As stated in Public Notice CRTC 1997-83, the Commission has decided to require the licensees of all VOD programming undertakings to make contributions representing no less than 5% of their gross annual revenues to fund Canadian program production. In the interest of cost effectiveness and efficiency, the Commission requires that such contributions be made to an existing, independently-administered Canadian program production fund.

Accordingly, by condition of licence, the licensee shall contribute a minimum of 5% of the annual gross revenues earned by its VOD programming undertaking to an existing Canadian program production fund administered independently of the undertaking. The licensee is also required to report to the Commission, before the service commences operations, identifying the name of the existing fund or funds to which it will remit its contributions.

As part of its application, the applicant proposed to distribute commercials and infomercials, and requested relief from paragraph 3(2)(d) of the pay television regulations, which prohibits pay television undertakings from distribution of any commercial messages.

Paragraphs 3(2)(e) and (f) of the pay television regulations prohibit a licensee from distributing programming, other than filler programming, that is produced by itself or a person related to the licensee. In its application and at the oral hearing, the applicant indicated that it wished to be able to distribute programming produced by one or both of the licensee’s partners, and therefore requested relief from the application of paragraphs 3(2)(e) and (f).

The Commission approves this request. Accordingly, by condition of licence, the licensee is authorized to distribute programming that is produced by itself or a person to whom it is related, provided that no more than 25% of the non-theatrical titles made available by the licensee over the broadcast year are produced by the licensee or a person related to the licensee.

In Order-In-Council P.C. 1995-1106 dated 6 July 1995 (the Order), the Governor in Council required the Commission to prohibit, by appropriate means, direct-to-home (DTH) PPV programming undertakings "from acquiring exclusive or other preferential rights to pay-per-view distribution of feature films and other programming within Canada." In subsequent decisions approving applications for licences to carry on DTH PPV undertakings, the Commission imposed such a prohibition on applicants by condition of licence. The Commission is satisfied that a similar prohibition is warranted in the case of VOD undertakings. Accordingly, and consistent with the licensee’s commitment, the licensee is prohibited, by condition of licence, from acquiring exclusive or other preferential rights to any programming exhibited as part of its service.

The term "preferential rights" is broad in scope and could be the subject of different interpretations in light of the particular circumstances at hand. For this reason, the Commission considers that, in dealing with complaints relating to the acquisition of preferential rights, it is preferable to allow the parties to frame the issues as they see fit, and to put forward their respective views as to what might constitute a breach of the condition of licence, on a case-by-case basis.

Non-proprietary rights

The Canadian Association of Film Distributors and Exporters submitted an intervention to this and other VOD applications, requesting that the Commission require all VOD licensees to purchase non-proprietary exhibition rights for feature films from Canadian distributors. This would include any production other than the exceptions specified in the current Investment Canada policy, which defines proprietary rights as those where the world-wide distribution rights to the program are owned by the licensor, or where the licensor has provided not less than one-half of the cost of the creation of the film.

The Commission considers that such a requirement would provide strong support for Canada’s film distribution industry, which is an important element of the broadcasting system. The Commission has therefore decided to include this requirement as a condition of licence applicable to this and all other general interest VOD programming undertakings.

The Commission expects the licensee to adhere to its commitment to ensure that all new Canadian and non-Canadian feature films it distributes, as well as virtually all other feature films, are closed captioned. The Commission also expects the licensee to publicize the availability of its telecommunication device for the deaf (TDD), and the telephone number used to access it.

Consistent with its Public Notice CRTC 1997-34, entitled Amendments to the Commission’s Employment Equity Policy, the Commission encourages the licensee to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

It is a condition of licence that the licensee adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' Sex-Role Portrayal Code for Television and Radio Programming, as amended from time to time and approved by the Commission.

By condition of licence, the licensee shall adhere to the Pay Television Programming Standards and Practices Code, as amended from time to time and approved by the Commission.

Also by condition of licence, the licensee shall adhere to the Pay Television and Pay-Per-View Programming Code Regarding Violence, as amended from time to time and approved by the Commission.

The Commission acknowledges and has considered all of the interventions submitted in respect of this application.

Conditions of Licence for the VOD Programming Undertaking operated by Alliance Communications Corporation and Shaw Communications Inc., on behalf of a general partnership, (Alliance/Shaw)

1. The licensee shall adhere to the Pay Television Regulations, 1990, with the exception of section 4 (logs and records).

2. The licensee shall maintain for a period of one year, and submit to the Commission upon request, a detailed list of the inventory available on each file server, identifying each program by programming category and by country of origin, and indicating the period of time that each program was on the server and available to subscribers.

3. Except as authorized by the Commission, the broadcasting undertaking licensed herein shall be operated in fact by the licensee itself.

4. The licensee shall ensure that the inventory available to subscribers contains at all times:

a) a minimum 1:20 ratio of Canadian to non-Canadian feature film titles, including all available new Canadian feature films in both French and English, that are suitable for VOD exhibition, and which meet the Pay Television Programming Standards and Practices Code; and

5. The licensee shall contribute a minimum of 5% of the annual gross revenues earned by its VOD programming undertaking to an existing Canadian program production fund administered independently of the undertaking. The licensee is also required to report to the Commission, before the service commences operations, identifying the name of the existing fund or funds to which it will remit its contributions. The licensee is further required to remit its first contribution no later than 45 days following the end of the month in which it commences operations. Contributions made thereafter shall take the form of monthly instalments to be remitted within 45 days of month’s end, and representing a minimum of 5% of that month’s gross revenues.

6. The licensee shall ensure that not less than 25% of the titles promoted each month on its barker channel are Canadian titles.

7. The licensee is authorized to distribute programming that is produced by the licensee or by a person related to the licensee, provided that no more than 25% of the non-theatrical titles made available by the licensee over the broadcast year are produced by the licensee or a person related to the licensee.

8. The licensee shall not enter into an affiliation agreement with a licensee of a distribution undertaking unless the agreement incorporates a prohibition against linkage of Alliance/ Shaw’s service with any non-Canadian discretionary service.

9. The licensee shall not acquire exclusive or other preferential rights to any programming exhibited as part of its service.

10. The licensee shall purchase non-proprietary exhibition rights for feature films from Canadian distributors. This includes any production other than the exceptions specified in Investment Canada’s current policy which defines proprietary rights as those where the world-wide distribution rights to the program are owned by the licensor, or where the licensor has provided not less than one-half of the cost of the creation of the film.

12. The licensee shall operate its undertaking in a manner that is independent of and separate and distinct from the operations of both Alliance Communications Corporation and Shaw Communications Inc. and all companies or entities controlled directly or indirectly by these two companies.

13. The licensee shall not disclose information, other than publicly available information, to any representative of Alliance Communications Corporation or Shaw Communications Inc. or their affiliates.

14. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters’ Sex-Role Portrayal Code for Television and Radio Programming, as amended from time to time and approved by the Commission.

15. The licensee shall adhere to the Pay Television Programming Standards and Practices Code, as amended from time to time and approved by the Commission.

16. The licensee shall adhere to the Pay Television and Pay-Per-View Programming Code Regarding Violence, as amended from time to time and approved by the Commission.