ARCHIVED -  Decision CRTC 99-150

Decision

Ottawa, 17 June 1999

Decision CRTC 99-150

Cable Atlantic Inc.

Corner Brook; and St. John's, Newfoundland - 199807104 - 199807096

Applications processed by
Public Notice CRTC 1998-136
dated 23 December 1998

Summary

The Commission, by majority vote, denies the applications by Cable Atlantic Inc. (Cable Atlantic) for relief from the requirements of section 29 of the Broadcasting Distribution Regulations (the regulations).

The Commission also denies Cable Atlantic's request for authorization to direct a portion of the budget for local expression from the St. John's undertaking, its largest system, to each of its three smaller systems: the Class 1 undertaking at Corner Brook and the Class 2 systems at Grand Falls and Gander.

The Commission notes that Cable Atlantic is a multiple system operator in Newfoundland. It operates on a for-profit basis. Having examined all of the arguments raised in the applications, the Commission considers that Cable Atlantic has not shown that a derogation from the requirements of section 29 of the regulations would be warranted. The Commission considers that the split between contributions to local expression and recognized production funds set out in section 29 of the regulations is appropriate for this commercial cable licensee.

The licensee will, therefore, continue to be required to devote a minimum of 5% of gross revenues derived from broadcasting activities to Canadian programming, on an annual basis for each undertaking. A portion of this money may be allocated to community programming with the remainder going to production funds, according to the formula set out in the regulations.

The requirements of section 29

1.  Section 29 of the regulations provides that Class 1 broadcasting distribution undertakings (BDUs) must contribute at least 5% of their gross revenues derived from broadcasting activities to Canadian programming unless a condition of licence provides otherwise. BDUs may use a portion of the contribution to support local expression, such as the community channel, if they elect to provide such a service. The balance of the 5% contribution must be remitted to funds that support the production of Canadian programming. The specific allocation between the amount of money that supports local expression and the amount of money directed to production funds varies according to the class of undertaking and the number of subscribers.

Cable Atlantic-Corner Brook

2.  Cable Atlantic-Corner Brook operates a Class 1 cable system with fewer than 20,000 subscribers. The regulations provide that, for this undertaking, Cable Atlantic-Corner Brook must make the contributions set out below to funds supporting the production of Canadian programming.

3.  For the broadcast year ending 31 August 2000 and in each broadcast year after, Cable Atlantic-Corner Brook must contribute not less than the greater of:

·  5% of gross revenues derived from broadcasting activities in that year, less any contribution to local expression made in that year; and

·  1.5% of gross revenues derived from broadcasting activities in that year.

4.  Accordingly, if Cable Atlantic-Corner Brook elects to operate a community channel, it may:

·  for the broadcast year ending 31 August 2000 and in each broadcast year after, deduct up to 3.5% of gross revenues derived from broadcasting activities from the total 5% contribution it would otherwise be required to make and direct them to the operation of its community channel. In such a case, it must contribute a minimum of 1.5% of such revenues to funds supporting the production of Canadian programming.

Cable Atlantic-St. John's

5.  Cable Atlantic-St. John's operates a Class 1 cable system with more than 20,000 but fewer than 60,000 subscribers. Pursuant to the regulations, Cable Atlantic-St. John's must make the contributions set out below to funds supporting the production of Canadian programming.

6.  For the broadcast year ending 31 August 2000, and each broadcast year thereafter, Cable Atlantic-St. John's must contribute not less than the greater of:

·  5% of gross revenues derived from broadcasting activities in that year, less any contribution to local expression made in that year; and

·  3% of gross revenues derived from broadcasting activities in that year.

7.  Accordingly, if Cable Atlantic-St. John's elects to operate a community channel, it may:

·  for the broadcast year ending 31 August 2000 and for each year thereafter, deduct up to 2% of gross revenues derived from broadcasting activities from the total 5% contribution it would otherwise be required to make and direct them to the operation of its community channel. In such a case, it must contribute a minimum of 3% of such revenues to funds supporting the production of Canadian programming.

8.  In Public Notice CRTC 1997-150, which was issued with the revised regulations, the Commission stated that it would allow exceptions to section 29 of the regulations on a case-by-case basis related to the special circumstances of a licensee's operations. The regulations provide that such exceptions may be granted by condition of licence.

The applicant's position

9.  With regard to its Corner Brook undertaking, Cable Atlantic asked for authorization to contribute 5% of its gross revenues derived from broadcasting activities to local expression starting in the broadcast year beginning 1 September 1999. Under this proposal, there would be no contribution to production funds, as section 29 provides.

10.  As for its St. John's undertaking, Cable Atlantic sought permission to direct 4% of its gross revenues derived from broadcasting activities to local expression and 1% to the Canadian Television Fund. Cable Atlantic further proposed to redirect a portion of its budget for local expression from its St. John's undertaking to each of its smaller systems: the Class 1 undertaking at Corner Brook and the Class 2 systems at Grand Falls and Gander. Moreover, Cable Atlantic proposed that, for its St. John's system, it would project its contributions to production funds for the entire budget year, taking into account its anticipated expenditures on local expression. The licensee would remit its payments to the funds on a monthly basis in accordance with those projections and, at the end of each broadcast year, direct any shortfall to the appropriate funds.

11.  Cable Atlantic argued that there is a pronounced lack of local programming in Newfoundland and that funding for local expression would make a greater contribution to Canadian programming than would allocations to production funds. It stated that approval of these applications would allow it to invest more money in the community channel and thereby improve the quality and variety of community programming.

12.  With regard to its request concerning the calculation of its contributions to Canadian programming, Cable Atlantic interpreted the guidelines respecting contributions to Canadian programming set out in CRTC Circular No. 426, as requiring BDUs to calculate their actual expenditures on local expression monthly, and to contribute any shortfall from the permissible deductible amount set in the regulations to programming production funds. According to Cable Atlantic, this method fails to take into consideration the fact that expenses for local expression vary from month to month, depending on specific programming and operational requirements. It also claimed that, under this arrangement, community channels cannot distribute their already limited resources throughout the year in the most effective manner.

Interventions

13.  The Commission received numerous interventions from individuals, organizations and public officials supporting these applications. The Commission also received opposing interventions from such organizations as the Canadian Television Fund, the Canadian Film and Television Production Association, the Canadian Association of Broadcasters (CAB), the Directors Guild of Canada (Directors Guild), Alliance Atlantis Communications Inc., Newfoundland Broadcasting Company Limited (Newfoundland Broadcasting), Epitome Pictures Inc., Great North Communications Inc., as well as Keg Productions Limited and its parent company, Ralph C. Ellis Enterprises Limited.

14.  Most of the opposing interveners argued that approval would significantly reduce the monies made available through the Canadian Television Fund for high-quality Canadian programming. They also expressed concern that acceptance of these applications would set an unfortunate precedent that would encourage similar demands from other cable licensees. In addition, they pointed out that the Commission, in several previous public proceedings, has already thoroughly examined the appropriate level of contributions by BDUs to the development of Canadian programming. The Directors Guild further noted that, when the Commission set the minimum requirements for contributions to the production of Canadian programming, it had already considered the specific needs of smaller cable systems.

15.  Cable Atlantic responded, among other things, that Newfoundland's particular circumstances warrant approval. It noted that Newfoundland is not served by a large multiple system operator that benefits from economies of scale, nor does it have an educational broadcaster.

The Commission's decision

16.  Section 3(1)(e) of the Broadcasting Act (the Act) stipulates that "each element of the Canadian broadcasting system shall contribute in an appropriate manner to the creation and presentation of Canadian programming." The regulations provide that distributors must contribute a minimum of 5% of their gross annual revenues derived from broadcasting activities as a means to achieve this fundamental objective, unless a condition of licence provides otherwise.

17.  The Commission explored, during an extensive public process that resulted in the publication of Public Notice CRTC 1997-150 and the adoption of the regulations which came into force on 1 January 1998, the appropriate allocation between the amount of money that may be allocated to local expression and the amount that would be remitted to production funds at a national and regional level.

18.  The Commission appreciates the important service that community channels provide, especially in areas where they are the only source of local television programming. That is why section 29 of the regulations allows smaller cable systems to reduce their contributions to production funds if they operate community channels. In this context, the Commission notes the interventions on these applications submitted by community members and organizations, as well as public officials, indicating that Cable Atlantic's community channels are important sources of local news and information.

19.  The Commission, however, continues to believe that contributions by broadcasting distribution undertakings to production funds provide essential support for the production of Canadian programming. Such support is necessary if Canadian programming is to continue to have a strong presence in a more competitive broadcasting environment. The Commission considers that subscribers will benefit from higher quality and more diverse Canadian programming on the services offered by distribution undertakings as a result of these contributions. It therefore wants to ensure that production funds receive broad support from the distribution sector.

20.  The Commission notes that Cable Atlantic is a multiple system operator in Newfoundland. It operates on a for-profit basis. Having considered all of the arguments raised in the applications, the Commission considers that Cable Atlantic has not shown that a derogation from the requirements of section 29 of the regulations would be warranted. The Commission considers that the allocation between contributions to local expression and recognized production funds set out in section 29 of the regulations is appropriate for this commercial cable licensee. The Commission therefore denies Cable Atlantic's applications.

21.  Since Cable Atlantic's application to contribute less than required to Canadian production funds has been denied, the Commission also denies the applicant's request to direct a portion of the budget for local expression from the St. John's undertaking to three smaller systems. The Commission reminds Cable Atlantic that the amounts set out in the regulations are minimums. Accordingly, once a licensee has complied with these minimum requirements, it may direct more funds to local expression or to its other systems.

22.  With regard to its request concerning the calculation of its expenditure requirements, the Commission considers that Cable Atlantic should continue to respect the guidelines set out in Circular No. 426 regarding the method of payment to production funds. By basing the expenditure requirements on actual monthly broadcast revenues earned, the intent of the guidelines is to ensure a monthly flow of funding to production funds that is as close as possible to what is required by the regulations. To vary from the guidelines would, in the Commission's opinion, increase the likelihood of funding short falls and result in a less consistent flow of monies to Canadian programming during the broadcast year.

23.  Although the regulations do not require terrestrial distributors to provide a community channel, were a licensee elects to provide one, the expenditures must be made as evenly as possible over the course of the broadcast year. The Commission does however recognize that production schedules and thus expenditure levels will vary from month-to-month over the broadcast year. For this reason, monthly fluctuations in expenditures on local expression may occur and where a licensee contributes less to its community channel than the minimum level set out in the regulations, it is not immediately required to contribute the short fall to a production fund. Rather, the licensee may carry the short fall forward to (a) subsequent month(s) as the level of local expression production activity dictates, but not from one broadcast year to the next. Licensees must, therefore, take care to ensure that any short fall to the miminum permissible amount to a community channel at the end of a broadcast year is contributed, as applicable, to a Canadian production fund in accordance with section 29 of the regulations.

Related CRTC documents

 Public Notice 1997-150 dated 22 December 1997: Broadcasting Distribution Regulations

 Decision CRTC 99-86: Cogeco Câble Canada inc. (denial of section 29 application)

 Decision CRTC 99-85: Westman Media Co-Operative Ltd. (approval of section 29 application)

 Decision CRTC 99-84: Campbell River TV Association (approval of section 29 application)

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Secretary General