ARCHIVED - Public Notice CRTC 2000-172

Public Notice CRTC 2000-172

Ottawa, 14 December 2000

Introductory statement to Decisions CRTC 2000-733 to 2000-738: Licensing of new video-on-demand and pay-per-view services

In Decisions CRTC 2000-733 to 2000-738, the Commission approved the following applications for new video-on-demand (VOD) and pay-per-view (PPV) undertakings:

Video-on-demand

• An application by Cogeco Cable Canada Inc. (Cogeco) for a new regional VOD service. The service will be distributed by cable systems owned or controlled by Cogeco, all of which are located in Quebec and Ontario.

• An application by Corus Entertainment Inc./On-Demand Inc., OBCI (Corus) for a new national VOD service.

• An application by Rogers Cable Inc. (Rogers) for a new national VOD service.
  

• An application by Videon CableSystems Inc. (Videon) for a regional VOD service for distribution by cable systems owned or controlled by Videon, which are located in the prairie provinces and Ontario.
  

Pay-per-view

• An application by the partners of Bell ExpressVu Limited Partnership (ExpressVu) for a national terrestrial general interest PPV service. This service will be virtually identical to the direct-to-home (DTH) PPV service that ExpressVu currently operates.
  

• An application by David Cobb, OBCI (Breakaway) for a regional terrestrial and regional direct-to-home (DTH) PPV service to be known as "Breakaway." The service will offer NHL hockey games involving the Vancouver Canucks, Edmonton Oilers or Calgary Flames to subscribers of broadcasting distribution undertakings who live in British Columbia and Alberta.

Set out below is the Commission's approach underpinning the approval of these new VOD and PPV services.

Video-on-demand services

The 1997 VOD policy

In Competition and culture on Canada's information highway: Managing the realities of transition, issued on 19 May 1995, the Commission stated that "as licensed video-on-demand (VOD) programming services develop, they should be expected to offer the maximum practicable number of Canadian titles in the program categories offered by the licensee. Further, they should be expected to make a direct contribution to the development and production of Canadian programs. The specific measures for implementing these policies should be determined at the relevant licensing proceedings."

In Decisions CRTC 97-283 to 97-287, the Commission licensed five VOD services. The licences were granted to the partners of Canal Indigo, the partners of Viewer's Choice Canada, Alliance Communications Corporation and Shaw Communications Inc. on behalf of a general partnership, Allarcom Pay Television Limited (now owned by CanWest Global Communications Corp.), and Electronic Digital Delivery Inc. (now owned by Corus Entertainment Inc.)

In Public Notice CRTC 1997-83 Licensing of new video-on-demand programming undertakings, the Commission set out the regulatory framework for the five services licensed at that time. The key elements of the framework were as follows:

• The services were subject to the Pay Television Regulations, 1990 and therefore prohibited from broadcasting advertising.
  

• The services were not granted protection from the licensing of competitive services; the Commission stated that its approach would "foster fair competition and an increased reliance on market forces."
  

• The services were permitted to offer programming from all content categories.
  

• The English-language and bilingual VOD services were required to carry, at all times, a minimum ratio of 1:20 Canadian to non-Canadian feature film titles.
  

• The French-language service, Canal Indigo VOD, was required to carry, at all times, a minimum ratio of 1:12 Canadian to non-Canadian feature film titles.
  

• With respect to non-theatrical films, all five services were required to carry, at all times, a minimum ratio of 1:10 Canadian to non-Canadian titles.
  

• The Commission stated that "because of the potential of VOD programming to expand in nature and scope, the Commission may decide to review the levels of Canadian content provided by these VOD undertakings after their first five years of operations."

• The services were required to contribute 5% of their annual gross revenues to a Canadian production fund that was independent of the licensee.
  

• The services were required to ensure that a minimum of 25% of the titles promoted on their promotional or "barker" channels each month would be Canadian.
  

• The services were prohibited from acquiring exclusive or preferential programming rights.
  

None of the five services approved in 1997 have yet launched.

General approach to the current applications

Although one of the five services licensed in 1997 was affiliated to a distributor (the Alliance/Shaw VOD service), the policy adopted at that time assumed that VOD services would compete with one another for distribution.

Each of the four VOD licensees in the current round is either integrated with or affiliated to a distributor. The Commission considers that the benefits of licensing distributor-integrated or distributor-affiliated VOD services considerably outweigh the disadvantages.

A particular benefit is that an early launch of VOD services may be facilitated. In turn, an early launch would increase the attractiveness of digital technology for Canadian viewers, which should increase the penetration of the new Category 1 and Category 2 specialty services. This will provide Canadians with increased choice and diversity of programming.

The Commission is of the general view that the framework established in 1997 continues to be appropriate. However, a number of framework issues related to the VOD applications were raised at the 14 August 2000 public hearing. These issues and the resulting modifications are addressed below.

Offering programs in packages

In Public Notice CRTC 1994-118, Exemption order respecting experimental video-on-demand programming undertakings, the Commission characterized a VOD service as one that allows individual customers "to select specific programs…at any time of their choosing."

During the hearing, the VOD applicants outlined plans to sell programs both on an individual basis and in packages. As an example, one applicant suggested that it might offer three movies over a weekend for a single price of $4.99.

In its intervention, the Canadian Association of Broadcasters (CAB) expressed concerns about proposals by VOD applicants to offer packages of programming. The CAB stated:

The Specialty and Premium Television Association (SPTV) expressed a similar concern, but indicated that PPV and VOD services should have flexibility to bundle sports events and feature films.

During the hearing, the VOD applicants argued that these concerns were unrealistic. They were of the view that the high cost of offering programs on a VOD basis would prevent VOD services from establishing pricing structures similar to those of specialty services. For example, Videon stated that, due to the high cost of distributing programming on a VOD basis, it would not be practical for them to offer a package of unlimited children's programming for $9.95 a month. After careful consideration, the Commission has determined that the VOD services should have the flexibility to offer packages of programming to their customers with appropriate safeguards.

Corus suggested that the Commission establish a time limit for programming packages offered by VOD licensees, such as 12 hours. Other applicants also submitted that VOD licensees should be permitted to make packages of programming available for a limited period of time.

The Commission considers that a time limit is an appropriate safeguard but is of the view that a 12 hour or one day limit would be overly restrictive. The Commission considers that it would be consistent with the nature of VOD services to permit the VOD services to offer programming packages where the total period during which the programming may be viewed does not exceed one week.

Exhibition of Canadian programming

The Commission considers that a minimum of 5% of English-language feature films and a minimum of 8% of French-language feature films carried by each VOD service at any time should be Canadian. The Commission also considers that the VOD services should make available all Canadian feature films suitable for VOD exhibition. A condition of licence to this effect has been imposed on each of the new VOD licensees. These minimum levels are close percentage equivalents to the 1:20 and 1:12 minimum Canadian to non-Canadian ratios used in the 1997 decisions.

For all programming other than feature films, the Commission considers that a minimum of 20% of the titles available at any time must be Canadian. A condition of licence to this effect has been imposed on each of the new VOD licensees.These levels are higher than the obligations placed on the VOD services approved in 1997. However, the Commission is satisfied, based on the record of this proceeding, that there is an adequate supply of Canadian programming to allow licensees to meet a 20% requirement.

Financial support for independent production

Consistent with the policy framework set out in Public Notice CRTC 1997-83, the Commission is requiring each licensee to 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 its undertaking. Thus, the contribution may be made to the Canadian Television Fund or to an independent production fund, as defined in the Broadcasting Distribution Regulations.

When a VOD service offers programming through a distributor to a customer, a portion of the price paid by the customer goes to the distributor. The breakdown of revenue between the distributor and the VOD service is set out in an agreement between the two parties. At the hearing, the Commission explored with applicants how it could fairly determine the gross revenue of a VOD undertaking in cases where the VOD service is affiliated to or integrated with the distributor carrying the service. Specifically, each VOD applicant was asked if it would accept an approach under which the gross revenue of the VOD service for transactions between it and affiliated or integrated distributors would be deemed to be 50% of the total retail revenues received from customers.

Rogers and Videon considered that this would be an appropriate approach. Cogeco indicated that it would be prepared to make its contribution on the assumption that 100% of the retail price would be the gross revenue of the VOD service for the purposes of calculating its financial support for independent production. Corus was of the view that the 50% provision was not necessary in its case because its VOD service was a separate legal entity and would operate independently from any distributor that carried it.

Given the competitive model under which these services will operate, the Commission considers that they should be subject, as much as possible, to similar rules. Accordingly, in the case of a VOD service that is affiliated to or integrated with a distributor, for the purposes of calculating its financial support for independent production, the VOD service's gross annual revenues will be deemed to be 50% of the total retail revenues received from customers.

Corus and Shaw operate within the same ownership group. The Commission therefore considers that the 50% rule outlined above should apply to determine the gross revenue of the Corus VOD service where that revenue results from distribution of VOD programming on Shaw's cable systems.

Length of licence term

Some applicants suggested that concerns about the possible impact of VOD services on pay and specialty services could be addressed by issuing short-term licences with flexible terms and conditions. The Commission would then review the terms and conditions at licence renewal time to determine if they were still appropriate in light of developments in the broadcasting industry.

The Commission considers that the safeguards set out in this decision are sufficient to address the interveners' concerns and is not persuaded that short-term licences are appropriate. Accordingly, the licences that are issued will be for a term ending on 31 August 2007.

Bell ExpressVu general interest terrestrial pay-per-view service

General approach to general interest PPV

When it licensed VOD services in 1997, the Commission acknowledged that such services would compete with existing PPV services. Given that VOD services and PPV services will compete in the terrestrial distribution environment, the Commission considers that the regulatory approach to general interest PPV and VOD services should generally be consistent.

Offering programs in packages

In light of the likely competitive pressure on PPV services to experiment arising from, among other things, the anticipated launch of VOD services, the Commission considers it important that PPV services have as much packaging flexibility as VOD services. Accordingly, with the exception identified in the paragraph below, the Bell ExpressVu service may offer programming packages where the total period during which the programming is to be viewed does not exceed one week.