ARCHIVED -  Decision CRTC 97-287

Decision

Ottawa, 2 July 1997

Decision CRTC 97-287

Electronic Digital Delivery Inc.

Across Canada - 199614459

New national video-on-demand service - Approved

1. Following a Public Hearing in the National Capital Region beginning on 17 March 1997, the Commission approves the application for a broadcasting licence for a national, digital, English- and French-language video-on-demand (VOD) programming undertaking. The service will be delivered, via satellite or other links, to affiliated terrestrial distribution undertakings, and onwards to individual subscribers.

2. 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.

3. 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.

4. 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.

Ownership

5. Electronic Digital Delivery Inc. (EDD) is owned 80% by WIC Western International Communications Ltd. (WIC), a company with extensive holdings in Canada's over-the-air television and radio industries. Either directly, or through subsidiaries such as Allarcom Pay Television Limited, (Allarcom), WIC holds ownership interests in three pay television undertakings, a pay-per-view (PPV) and a direct-to-home PPV undertaking, two specialty programming services, a broadcasting relay distribution undertaking (Cancom), and a pay audio undertaking. Allarcom's application for a licence to carry on another national, English- and French-language VOD programming service, also considered at the 17 March 1997 public hearing, is approved today in Decision CRTC 97-286.

6. The remaining 20% of the applicant company is owned by Electronic Digital Delivery Canada Ltd., a wholly-owned subsidiary of Entertainment Made Convenient (Emc3) International Holding B.V., a company incorporated in The Netherlands.

Control of the undertaking

7. As part of its application, the applicant included a Memorandum of Agreement (MOA), which set out the proposed shareholders' understanding of the key terms and actions that would be incorporated into a formal shareholders' agreement, should the Commission approve the application. The applicant indicated at the hearing that this approach was adopted so that the agreement can take into consideration the unique features of the service as licensed. As discussed at the hearing, the Commission will not issue a licence until the applicant has executed and filed with the Commission a shareholders' agreement that is acceptable to the Commission.

8. At the hearing, the Commission also raised its concerns pertaining to certain provisions contained in the MOA relating to whether or not the proposed licensee would be effectively controlled by Canadians. The requirement for such control is set out in paragraph 3(1)(a) of the Broadcasting Act.

9. The Commission reminds the applicant that, in assessing the executed shareholders' agreement, the Commission will pay particular attention to sections having the potential to provide Electronic Digital Delivery Canada Ltd., a non-Canadian shareholder, with a veto power over the operation of the applicant, including matters such as the licensee's budgeting process.

Nature of service

10. 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.

11. 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.

12. Consistent with the licensee's commitment, it is a condition of licence that the inventory available to subscribers contain, at all times, at least one Canadian feature film for each 20 non-Canadian feature films, including all suitable new English- and French-language feature films. By condition of licence, the inventory shall also contain, at all times, at least one Canadian title for each ten non-Canadian titles of all programs other than feature films. In addition, it is a condition of licence that not less than 25% of the titles promoted on the licensee's weekly video guide of "hot hits" be Canadian titles.

13. 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. It also 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.

14. EDD will provide promotional clips of Canadian programming appearing as a head and tail on all programming ordered by customers. To promote specific Canadian titles, EDD will underwrite the production and distribution costs of co-operative advertising in various venues.

15. According to EDD, the proposed VOD service will launch with no less than 500 titles in its inventory. Within two years of beginning operation, the service will offer no less than 2,000 titles. EDD will provide customers, without charge, a monthly printed guide of the proposed service's inventory as well as a weekly "hot hits" video guide. Where authorized by rights holders, EDD will acquire English and French dubs of all programming, as appropriate.

16. For ordering of titles, EDD will offer an on-screen menu and a toll-free phone centre. As an alternate means of ordering and promoting its titles, EDD will also offer customers an Internet web site.

17. The Commission notes EDD's commitment to offer options that will enable parents to control their children's viewing of the programming on the proposed service. One such option will give the customer the ability to integrate a confidential personal identification number.

18. The Commission also notes EDD's commitment to assist broadcasting distribution undertakings that distribute the proposed VOD service in their purchase of remodulators.

Contributions to Canadian programs

19. 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. In its application, EDD made a commitment to make a contribution in excess of 5% of its gross annual revenues to the Canadian program production fund independently administered by WIC Entertainment Ltd.

20. 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 the Canadian program production fund noted above.

21. The Commission notes EDD's commitment that one-third of the monies reserved for the fund will be invested in the creation of new French-language programming.

22. By condition of licence, the licensee shall remit to the rights holders of all Canadian films 100% of revenues earned from the exhibition of these films.

Exclusivity and preferential rights

23. 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, 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 EDD'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.

24. 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

25. 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.

26. 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.

Closed captioning

27. 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.

Employment equity

28. 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.

Other matters

29. 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.

30. 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.

31. 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.

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

This decision is to be appended to the licence.

Laura M. Talbot-Allan
Secretary General

This document is available in alternative format upon request.

Appendix to Decision CRTC 97-287

Conditions of Licence for the VOD Programming Undertaking operated by Electronic Digital Delivery Inc.

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

(b) a minimum of 1:10 ratio of Canadian to non-Canadian titles for all other program categories.

5. The licensee shall contribute to the Canadian program production fund administered by WIC Entertainment Ltd., for the support of independently-produced Canadian programming, a minimum of 5% of its gross annual revenues earned by its VOD programming undertaking. The licensee is 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 the minimum percentage of that month's gross revenues.

6. The licensee shall ensure that not less than 25% of the titles promoted on its weekly video guide of "hot hits" are Canadian titles.

7. The licensee shall not enter into an affiliation agreement with the licensee of a distribution undertaking unless the agreement incorporates a prohibition against linkage of Electronic Digital Delivery Inc.'s service with any non-Canadian discretionary service.

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

9. 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.

10. The licensee shall remit to the rights holders of all Canadian films 100% of revenues earned from the exhibition of these films.

11. 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.

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

13. 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.

DEC97-287_0