ARCHIVED -  Decision CRTC 97-483

Decision

Ottawa, 22 August 1997

Decision CRTC 97-483

Vidéotron ltée, on behalf of Réseau de Télévision Quatre Saisons inc.

Montréal, Quebec - 199703781

Approval of the alternative application to transfer, on an interim basis, effective control of Réseau de Télévision Quatre Saisons inc. to Vidéotron ltée; Vidéotron ltée expected to file, within three months of this decision, an application to sell this undertaking to a third party.

1. Following a Public Hearing in Montréal beginning on 7 July 1997, the Commission denies the principal application by Vidéotron ltée (Vidéotron), on behalf of Réseau de Télévision Quatre Saisons inc. (RTQS), for authority to acquire effective control of RTQS. For the reasons set out below, the Commission approves the alternative application submitted by the applicant, on behalf of RTQS, for authority to acquire effective control of RTQS on an interim basis. The Commission, however, will not oblige the applicant to comply with the second aspect of this application, under which it would place the shares in the hands of a trustee until the undertaking is sold to a third party.

2. The Commission wished to discuss, at the hearing, concerns raised by the applicant's principal application, in particular the applicant's role, as a distributor, and the important implications this has for its ownership involvement in the Canal Indigo partnership; the withdrawal of TQS inc. (TQS) from ownership of RTQS and, indirectly, of Canal Indigo; and the impact of this withdrawal on the access by TQS to Canal Indigo programming. Finally, the Commission wished to discuss the respective roles that distributors and broadcasters should be expected to play to ensure the success of pay-per-view television, and of Canal Indigo in particular.

THE PARTIES TO THE TRANSACTION

3. RTQS holds a 20% interest in Canal Indigo, a partnership. The sole shareholder in RTQS is CF-12 inc., a corporation created following the privatization of CFCF inc. Canal Indigo operates three licensed undertakings variously providing a pay-per-view television service distributed by direct-to-home satellite, a pay-per-view television service using other means of distribution, and a French-language digital pay-per-view programming service distributed by satellite and other links. Together, the partners of the Canal Indigo general partnership are the licensees of these services.

4. Vidéotron, a subsidiary of Groupe Vidéotron ltée (GVL), is the largest cable undertaking in the province of Quebec and the second largest in Canada in terms of the number of its subscribers. Vidéotron's cable undertakings currently serve some 150 communities in Quebec and more than 25 communities in Alberta. GVL is also a leader in private French-language television broadcasting in Quebec through its other subsidiary, Télé-Métropole inc., which holds a 20% partnership interest in Canal Indigo.

BACKGROUND

5. Factors leading to the creation of the Canal Indigo partnership included a series of Commission decisions, in particular, the denial in June 1994 of competing applications by Les Associés de Canal Première/Viewer's Choice Canada (Canal Première) and by Jean Fortier, on behalf of a company to be incorporated (Chapiteau) (Decision CRTC 94-287). Each of these applications had sought authority to operate a new French-language pay-per-view television (PPV) programming undertaking. The Commission was concerned that approval of one of those applications would have had the effect of excluding one or more major players from participation in the development of a French-language PPV industry in the French-language broadcasting market. The Commission was concerned that this could have compromised the balance within Quebec's television market, and could have been detrimental to both the broadcasting system and the audiences it serves.

6. Following that decision, Canal Première/Viewer's Choice Canada, Cogeco Radio-Télévision inc., RTQS and Télé-Métropole inc., partners in the general partnership doing business under the name of Canal Première (now Canal Indigo), filed an application with a view to establishing the Canal Première PPV service. Following its consideration at a public hearing in September 1995, the Commission approved the application (Decision CRTC 95-900 dated 20 December 1995). The Commission was satisfied that all private, French-language television broadcasters in Quebec as well as public broadcasters, under contract for programming, would participate in either the ownership of the service or of the programming it would distribute.

7. On the same day, in Decision CRTC 95-908, the Commission also approved the application by Canal Indigo to operate a national, general-interest direct-to-home (DTH) French-language PPV programming undertaking. The Commission had again taken into account the fact that all major participants in Canada's French-language broadcasting industry would be involved in the development of a DTH PPV market.

THE APPLICATIONS

8. The principal and alternative applications currently before the Commission were filed following Decision CRTC 97-84 dated 27 February 1997, in which the Commission denied the proposal by GVL to acquire the assets of Télévision Quatre Saisons and the interest of RTQS in Canal Indigo.

Principal application - examination of issues

9. Vidéotron indicated that its principal application, that being for authority to acquire an interest in Canal Indigo, was for the purpose of combining its efforts with those of the programming undertaking Viewer's Choice Canada (a 40% partner in Canal Indigo) to guarantee the success of the latter's programming service in the small French-language broadcasting market.

[TRANSLATION] We believe that if the cable distribution undertaking has the assurance of reaping the fruits of its efforts within a reasonable time through our equity participation, the undertaking will be that much more inclined to innovate and make the efforts necessary to meet the public policy objectives stated in Public Notice CRTC 1993-74 on the structure of the distribution industry, particularly the objective of universal addressability.

10. In reply to a question from the Commission as to the impact of a denial on its commitments to universal addressability, Vidéotron stated:

[TRANSLATION] For us, tomorrow morning, even should you deny our application, we will continue to work in the direction we are now working. We have been aiming at universality for a long time, we will continue to do so, and we will continue to have excellent relations with you.

11. The Commission notes in this regard the important leadership role played by Vidéotron in recent years in the development of the Canadian broadcasting system by guaranteeing access by Canadians to licensed specialty services through cable distribution. At the hearing, the Commission also noted the confidence that underlies its relations with Le Groupe Vidéotron ltée and emphasized its wish to see this maintained.

12. In support of this application, the applicant stated at the hearing that [TRANSLATION] "the primary mission of Indigo is to offer an additional distribution window for French-language products, for Canadian products..." The applicant also indicated that, although it was aware that approval of its application would have the effect of removing TQS from the Canal Indigo partnership, it [TRANSLATION] "was prepared to file a motion [...] to guarantee TQS access to that window of distribution."

13. The Commission considers that the motion proposed by Vidéotron is positive, but falls short of dispelling the Commission's serious concern that all Quebec players in television broadcasting must have equitable participation in Quebec's PPV industry to provide balance and ensure its success in Quebec's television market.

14. As for the respective roles that broadcasters and distributors must play to ensure the success of PPV, the applicant expressed the view that the success of

Canal Indigo depends largely on increased distribution of this service.

15. It also stated that, in the area of programming, [TRANSLATION] "VCC (Viewer's Choice Canada) continues to act responsibly in its capacity as a programmer." With respect to the arrangements whereby Canal Indigo obtains programming, the Commission recognizes that Canal Indigo is currently well served; it emphasizes the importance it places on this situation being maintained.

16. As for the distribution of Canal Indigo, the Commission notes that the role played by GVL, through Télé-Métropole, already ensures a degree of vitality in that respect.

17. In Decision CRTC 97-482, issued today, the Commission also approves the transfer of control of TQS, a company to be incorporated, to a corporation that, itself, will be controlled by Communications Quebecor inc. The Commission is satisfied that the Canadian broadcasting system could benefit from the dynamism and experience represented within this new player, which should bring new vitality to Quebec's television industry.

18. The Commission also considers that it is not appropriate to change the nature of the Canal Indigo general partnership only eight months after it has been created, at a time when PPV in Quebec is in the very early stages of development. The Commission considers Vidéotron's argument that its interest in the ownership of Canal Indigo and its presence on Canal Indigo's board of directors could provide incentives for the distribution of this service, does not justify compromising the synergies existing in the present corporation.

The alternative application

19. In anticipation of the possibility that its principal application might be denied, the applicant filed an alternative application. It stated at the hearing that the essential goal of this alternative application is [TRANSLATION] "specifically to ensure that, in any event, we can be relieved of the condition precedent" relating to the sale of TQS and CFCF-TV Montréal to third parties not related to GVL, imposed in Decision CRTC 97-84. It added: [TRANSLATION] "The mechanism for placing the shares in RTQS in the hands of a trustee would facilitate the Commission's task in relieving us of the condition precedent."

20. The alternative application was filed in the context of a corporate restructuring proposed by GVL to separate the broadcasting and television distribution undertakings under CF-12 inc. in order to sell them to third parties. Specifically, it will result in the removal of CF-12 inc. as owner of RTQS so that CF-12 inc. may, in turn, be sold to a company to be controlled by WIC Television Ltd. (WIC). This corporate restructuring and the sale of CF-12 inc. are the subject of separate decisions issued today (Decisions CRTC 97-482 and CRTC 97-484).

21. At the hearing, however, the Commission indicated that it might be inclined, in the circumstances, to approve the alternative application to transfer effective control of RTQS to Vidéotron, subject to an expectation that RTQS be sold by Vidéotron as quickly as possible. When asked whether it would be willing to abide by such a decision, the applicant replied in the affirmative. The Commission therefore expects Vidéotron to adhere to its commitment to submit to the Commission an application for the sale of RTQS. This application must be filed within three months of this decision. This renders it unneccessary for the sale to be made through a trustee, or for the shares in RTQS to be held by a trustee. The Commission notes, however, that the value assigned to the undertaking by Vidéotron is $250,000.

INTERVENTION BY THE CONSORTIUM QUEBECOR

22. The Consortium Quebecor submitted an intervention opposing the transfer of control of RTQS to Vidéotron ltée. The intervener stated at the hearing that approval of this application would indirectly cause the withdrawal of TQS from the partnership in Canal Indigo and that [TRANSLATION] "A partnership between private broadcasters and the licensee of French-language pay television in Quebec would preserve the balance among the various players in the operation of French-language pay-per-view television." The intervener maintained that approval of this application would not be in keeping with the Commission's rationale reflected in Decisions CRTC 94-287, 95-900 and 97-84.

23. It also stated that RTQS is essential to its own interests, not only for the broadcasting window it offers for TQS programs, but also for the strategic and equitable positioning it provides in the face of competition:

[TRANSLATION] TQS will want to benefit from all the distribution windows for its products on an equal basis with Télé-Métropole, and that will be facilitated by its participation in the Indigo partnership.

CONCLUSION

24. In the light of all the foregoing, the Commission has decided to deny the principal application and approve the alternative application without requiring Vidéotron to place the shares in RTQS in the hands of a trustee pending sale of the undertaking to a third party. Nevertheless, it expects the applicant to address, in a timely manner, the Commission's expectation regarding the resale of RTQS, so that the balance of forces within the PPV industry is maintained.

This decision is to be appended to the licence.

Laura M. Talbot-Allan
Secretary General

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