ARCHIVED - Decision CRTC 2001-371

Decision CRTC 2001-371

Ottawa, 21 June 2001

3403688 Canada inc. (Canal Évasion inc.)
Across Canada 1999-1842-1

Application processed by Public Notice CRTC 2000-174 dated 15 December 2000

Denial of the request to reduce Canal Évasion's required expenditures on Canadian programming in the second year of operation

The Commission, by majority vote, denies the application to amend Canal Évasion's condition of licence respecting its requirement for expenditures on Canadian programming in the second year of operation. The effect of this amendment would have been to reduce the licensee's required expenditures in that year from $4,489,000 to $583,688.

Background

Canal Évasion is a French-language specialty television service dedicated to programs on travel, tourism and adventure. It and three other new French-language specialty services were licensed on 21 May 1999 following a competitive process (Decisions CRTC 99-109 to 99-112). One of the key elements that the Commission considered in its evaluation of the 17 applications it examined as part of this process was each applicant's proposed commitment to expenditures on Canadian programming in the second year of operation.

In approving the four new services, the Commission imposed conditions of licence on each licensee requiring them to devote a specific amount, based on their individual commitment, to expenditures on Canadian programming in year two. In the case of Canal Évasion, it must spend at least $4,489,000 on the acquisition of and/or investment in Canadian programs in the broadcast year following its first year of operation. All four licensees must, in each subsequent broadcast year, spend on Canadian programming a specific percentage (50% for Canal Évasion) of the previous year's gross revenues derived from the operation of their individual services.

The four new services were launched in January 2000 as a discretionary package.

Ownership

3403688 Canada inc. (Canal Évasion) is a corporation whose ownership is shared as follows: Bell Globemedia Inc. (50.1%), Serdy Direct Inc. (19.9%), TVA Group Inc. (10%), Media Overseas (10%) and Pathé/Canal Voyages France (10%).

BCE Inc. has legal control of Canal Évasion. Bell Globemedia Inc. is owned by BCE Inc. (70.1%), Canada's largest telecommunications company, and by the Thomson Group (29.9%). Bell Globemedia Inc.'s holding include CTV Inc. which operates a number of conventional television stations and, which has an interest (direct and indirect) in a number of pay and specialty services.

The application

The applicant asked the Commission to revise Canal Évasion's condition of licence on Canadian programming expenditures. Rather than spending a fixed amount of $4,489,000 in year two, the applicant proposed to expend 50% of the gross revenues achieved in its first year of operation. Under this proposal, the applicant's required spending on Canadian programming in its second year would have been reduced by $3,905,312.

The Commission notes, however, that the licensee's application indicated that its projected expenditures on Canadian programming for year two would be $2,932,000.

In support of its request, the applicant stated that it had encountered difficulties in negotiating terms for the distribution of Canal Évasion. It also noted that, in the first year of operation, the service's penetration rate was much lower than anticipated. As a result, Canal Évasion generated significantly lower monthly revenues at the beginning of the licence term than those projected in its original licence application.

Interventions

The Directors Guild of Canada intervened in opposition to this application. The Association des réalisateurs et réalisatrices du Québec supported the Guild's intervention.

The Guild stated that Canal Évasion was licensed following a highly competitive process and should be required to fulfil its commitments, particularly in view of BCE Inc's extensive resources and significant broadcast holdings. In the Guild's view, the Commission licensed Canal Évasion with the intention of strengthening the French-language component of the Canadian broadcasting system. Allowing Canal Évasion to reduce its expenditures on Canadian programming would only lead to fewer opportunities for the creation of French-language productions and, consequently, weaken rather than strengthen the system.

In response, the applicant reiterated the difficulties it had faced in concluding distribution arrangements for its service. It also stated that, even though it is part of BCE Inc., it is responsible for ensuring the viability of its own undertaking.

The Commission's findings

The Commission considers that an applicant who is successful in acquiring a broadcasting licence has a responsibility to respect the commitments made at the time it obtained its licence. Such responsibility is essential to safeguard the integrity of the licensing process, particularly when a licence has been granted as the result of a competitive process, as in the case of Canal Évasion. While being sensitive to the challenges facing new services, the Commission places particular importance on an applicant's commitments to expenditures on Canadian programming as a means of ensuring the production of high-quality Canadian programming.

Furthermore, as noted earlier in this decision, all four of the French-language specialty services licensed in May 1999 are subject to a condition of licence that requires them to spend a fixed amount on Canadian programming in the second year of operation. Since they are distributed together in a discretionary package, they all, initially, encountered the same difficulties in arranging for distribution of their respective services. Accordingly, the Commission considers that Canal Évasion's proposal raises questions of fairness with respect to these three other licensees.

Based on all of the foregoing, the Commission has, by majority vote, denied Canal Évasion's application.

Related CRTC documents

. Public Notice 1999-89 - Licensing of new French-language specialty television undertakings - Introductory statement

. Decision 99-112 - Approval of a new French-language specialty television service called "Canal Évasion"

. Decision 99-111 - Approval of a new French-language specialty television service called "Canal Histoire"

. Decision 99-110 - Approval of a new French-language specialty television service called "Canal Z, aux limites du savoir"

. Decision 99-109 - Approval of a new French-language specialty television service called "Canal Fiction"

Secretary General

This decision is available in alternative format upon request, and may also be examined at the following Internet site: www.crtc.gc.ca

Minority opinion of Commissioner Andrée Noël

I participated in the Commission's deliberations and read the reasons for the majority decision regarding the application submitted by 3403688 Canada Inc. (Canal Évasion) for a reduction in the expenditures that the licensee must devote to Canadian programming during its second year of operation.

Contrary to the opinion expressed by the majority, I am convinced that the launch of Canal Évasion at the same time as the three other specialty services, Historia, Série + and Canal Z, all three of which are owned by "Les chaînes Télé-Astral", was significantly handicapped by the positive option. The penetration and revenue forecasts for each station in the French-language services package were based on the negative option.

The applicant, on the basis of the negative option, forecast subscriber revenues of $5.7 million for the first year of operation. It, however, generated only $386,000 during that period, i.e., 6.7% of forecast subscriber revenues, because of the distributors' decision not to choose the negative option for providing the French-language services package to their customers. In March 2000, the penetration rate in the territories served by Vidéotron varied from 8% to 22% throughout Quebec, with the exception of west Montréal, where it varied from 4% to 14%. In view of these disappointing results, the four services renegotiated their affiliation agreements with the cable operators at wholesale prices lower than those forecast in the applications. This strategy solved the penetration problem, but only as of the second year of broadcasting, and at wholesale rates lower than those forecast.

For the second year of operation, Canal Évasion's licence application showed total forecast revenues of $9,571,000, resulting in forecast pre-tax earnings of $882,000, based on Canadian programming expenditures of $4,489,000. The latter fixed amount was based on the premise that it is difficult to use the results of the first year of operation as a basis for the following year.

Given the considerable gap between the forecasts filed with the licence application, the fact that forecasts were revised to reflect penetration rates that were lower than anticipated, and the renegotiated wholesale rates, I find it odd to maintain Canadian programming expenditures of $4,489,000 as a condition of licence when gross revenues from the first year did not even reach $1,200,000. Canal Évasion is therefore requesting that its obligation be reduced to 50% of gross revenues from the first year, i.e., $583,688 ($1,167,375 x 50%). Canal Évasion indicated, however, that even though it is asking for a decrease in its obligation - for the second year of the term only - it still intends to allocate an additional amount to Canadian programming, but without that being stated as a condition of licence. That amount would be $2,348,312 in addition to the $583,688 requested as a condition of licence, for a total of $2,932,800 in Canadian programming expenditures.

Given that Canal Évasion included this amount in its forecast expenditures, I believe that, if the Commission were to find the amount of $583,688 too low under the circumstances, it could exercise discretion and use the expenditure forecast as a basis for the condition of licence regarding Canadian programming expenditures.

Furthermore, I do not believe that we can infer from the fact that the three other specialty services mentioned above did not file applications with the Commission similar to that of Canal Évasion as a valid reason to refuse Canal Évasion's application. The fact that the Télé-Astral services did not decide to take this course of action should not be a factor in refusing Canal Évasion that same measure.

As for the argument that there would be synergies at Canal Évasion because it is owned by the Bell Globemedia group, I find that argument fallacious.

With the exception of RDS, which offers programming that is the complete opposite of Canal Évasion, none of Bell Globemedia's stations broadcast in French. As for RDS, although it broadcasts in French, it no doubt benefits from genre-related synergies with TSN, but has no content-based synergy with Canal Évasion. I do not believe that the use of the same language is a basis for operational synergies. Canal Évasion offers programming devoted to tourism, travel and planning, while RDS targets sports fans with live or delayed broadcasts of sporting events. I do not see how those content differences can generate economies of scale.

On the other hand, it is interesting in this respect to note the applicant's ownership structure, i.e., 50.1% held by Bell Globemedia Inc., (a subsidiary of BCE Inc. (70.1%)), 19.9% by Serdy Direct inc., 10% by Groupe TVA inc., 10% by Media Overseas and 10% by Pathé / Canal Voyages France. Although BCE Inc. has ultimate control, it is curious to note that it is the minority shareholders, all content providers to varying degrees, who will be responsible for 49.9% of the costs relating to the required $4,489,000 investment in Canadian programming expenditures during the second year of the licence.

If we want to maintain viable and diversified television programming in French Canada, I believe it is important to ensure that we do not throw the baby out with the bathwater, and use judgement in establishing expenditure levels, by considering the specific circumstances in which the service was launched and their impact on revenues.

As a result, I would approve in part the application by Canal Évasion to reduce its condition of licence with respect to Canadian programming expenditures to $2,932,000.