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PrimeTime Canada, on behalf of a company to be incorporated
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Across Canada - 199712089
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Application for a broadcasting licence to carry on a satellite relay distribution undertaking - Denied
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1. Following a Public Hearing in the National Capital Region beginning on 16 February 1998, the Commission denies the application by PrimeTime Canada (PTC), on behalf of a company to be incorporated, for a broadcasting licence to carry on a satellite relay distribution undertaking (SRDU) across Canada. For the reasons set out in this decision, the Commission has determined that the company to be incorporated would have been effectively controlled by PrimeTime 24 Joint Venture (PT 24), a non-Canadian entity. The applicant is thus not eligible to hold a Canadian broadcasting licence.
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2. In related decisions released today, the Commission has renewed the SRDU licence for Canadian Satellite Communications Inc. (Cancom) (Decision CRTC 98-171) and issued a licence for a new SRDU undertaking to Star Choice Television Network Incorporated (Star Choice) (Decision CRTC 98-172). Both licences have terms of two years. The Commission also issued Public Notice CRTC 1998-60 setting out a policy framework for a competitive SRDU industry in Canada and called for comments on a policy proposal under which Class 2 and Class 3 broadcasting distribution undertakings would be permitted to access the U.S. 4+1 network signals directly from U.S. service providers, using U.S. satellites.
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3. The Commission, in determining whether a company is eligible to hold a broadcasting licence, applies the Direction to the CRTC (Ineligibility of Non-Canadians) P.C. 1997-486 (the Direction). To hold a broadcasting licence, a minimum of 80% of a company's issued and outstanding voting shares and 80% of its voting rights must be owned and controlled by Canadians. The chief executive officer (CEO) or, where there is none, the person performing a similar function, and a minimum of 80% of the company's directors must be Canadians, ordinarily resident in Canada. If the licensee is a subsidiary company, 66 2/3 % of the parent company's issued and outstanding voting shares and voting rights must be owned by Canadians. The Commission notes that PTC's application satisfies these requirements of the Direction.
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4. The Direction also provides that no broadcasting licence may be issued to an applicant that is controlled by a non-Canadian, whether on the basis of personal, financial, contractual and business relations or any other considerations relevant to determining control.
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5. On this issue of effective control, the Commission notes that the Canadian investors in PTC are all operators of broadcasting distribution undertakings serving small markets. They are knowledgeable about the broadcasting distribution industry, and have a common interest in obtaining U.S. 4+1 signals reliably and inexpensively. PT 24 is a provider of U.S. television signals to cable and direct-to-home subscribers. Its principal activity is delivering services in the U.S., and it does not need a Canadian market to support its U.S. operations. The Commission notes the Canadian investors' motivation and their commitment to PTC's success as personal factors relevant to indicating that PTC would have been controlled by Canadians.
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6. The Commission, however, examined other factors that could have affected control. For example, PTC would have been financed entirely by its shareholders through the issuance of voting and non-voting shares. According to the application, as initially filed, PT 24 would have provided a minimum of 50% of the total funding, and possibly as much as 89%, if the Canadian shareholders were to fail to provide funding after the first cash call. At the hearing, however, the applicant announced that PT 24's participation in the funding would be limited to 50% of the non-voting equity.
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7. The Commission is also concerned by some of the proposed contractual and business relationships between the parties. Under the terms of the shareholders' agreement and the distribution agreement, as long as PT 24 was a shareholder and party to the distribution agreement, PT 24 would have remained the sole source of the U.S. 4+1 signals to be obtained by PTC for distribution in Canada. Article 3.8 of the distribution agreement would have prohibited PTC from distributing U.S. 4+1 signals from another source, unless PT 24 agreed to waive its rights under certain sections of article 3 of the agreement. PT 24 would not be obliged to allow PTC to distribute other U.S. 4+1 signals, and could, therefore, have controlled the U.S 4+1 signals distributed by PTC. In view of the fact that, initially, PTC's core activity would have been selling and distributing U.S. 4+1 signals, various sections of the distribution agreement would have given PT 24 a degree of control over PTC's major function.
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8. Furthermore, the terms of the shareholders' agreement would have required approval of at least 50.3% of the shareholders, including PT 24, for any action that would have resulted in an amendment to the broadcasting licence. The Commission notes that any such amendment would have likely been related to the choice of signals to be distributed, including the addition of Canadian signals to its line-up. Allowing PT 24 a veto over making applications for licence amendments would have given it additional control over PTC's signal selection and would have given the U.S. company an added degree of control over PTC's primary activity.
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9. Under the terms of the shareholders' agreement, PT 24, alone, would have had a veto over the confirmation of appointment, or renewal of the CEO of both PTC and its parent company. The Commission is concerned that such a veto might have unduly influenced the CEO to act on PT 24's behalf, thus giving the non-Canadian entity control over another important aspect of the undertaking.
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10. The shareholders' agreement also stipulates that the quorum for the applicant's board of directors must include at least one PT 24 nominee. The Commission is concerned that this requirement might have allowed PT 24 to frustrate the board's will by refusing to send a representative to a meeting of the board of directors. Such a situation would have given PT 24 a further degree of control over PTC.
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11. In summary, PTC's sole, initial activity would have been to distribute U.S. 4+1 signals. PT 24 would have been the exclusive supplier of these signals and PTC would not have been able to distribute other U.S. 4+1 or Canadian signals unless the U.S. company agreed. Any action that would have resulted in a licence amendment would have required PT 24's approval. The presence of PT 24's nominee would have been required as part of the quorum of the licensee's proposed board of directors and PT 24 would have had a veto over the appointment and renewal of PTC's CEO.
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12. In view of the foregoing, the Commission finds that PT 24 would have been in a position to exercise effective control of PTC. The Commission, therefore, has determined that the applicant would have been effectively controlled by a non-Canadian. By virtue of the Direction, PTC is, therefore, deemed to be a non-Canadian, and, accordingly, is not eligible to hold a Canadian broadcasting licence.
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13. The Commission acknowledges the interventions submitted with respect to this application and has considered the comments contained therein. The Commission has noted the applicant's responses thereto.
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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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