ARCHIVED - Public Notice CRTC 2001-57

Public Notice CRTC 2001-57

Ottawa, 25 May 2001

Principles for the launch of Category 1 and 2 digital services

This notice sets out the joint principles developed by the industry for the purpose of guiding programmers and distributors in their negotiation of agreements for the carriage of the new digital services.

The Digital Code Working Group

In Introductory statement - Licensing of new digital pay and specialty services, Public Notice CRTC 2000-171, 14 December 2000, the Commission noted that an industry code developed and accepted by both programmers and distributors could provide additional guidance to facilitate the negotiation of affiliation agreements for the carriage of the new digital programming services. These services are expected to launch in September of 2001. The Commission therefore requested the licensees of pay and specialty programming undertakings, those of broadcasting distribution undertakings, and their respective industry associations, to develop a code that would address such matters as equitable terms of carriage, including launch arrangements, and undue preference or disadvantage for the new digital services.

Subsequently, a Digital Code Working Group was formed. The working group consisted of representatives of the Canadian Association of Broadcasters (CAB), the Canadian Cable Television Association (CCTA), Bell ExpressVu Limited Partnership (ExpressVu) and Look Communications Inc. (Look). On 9 March 2001, the Commission received submissions from each of the working group participants advising that they had been unable to agree on a detailed industry code with regard to the negotiation of affiliation agreements. In their submissions, however, three of the parties (CAB, CCTA and ExpressVu) noted that they had reached agreement among themselves on a number of joint principles to govern many aspects of such negotiations. Moreover, each of the four individual working group participants filed its own code for the provision and distribution of digital programming services. Look, who indicated that it had been unable to agree to all of the items on the list of joint principles, stated that it had incorporated into its code all of the principles that were, from its perspective, acceptable.

In addition to the submissions of working group members, the Commission received comments from Craig Wireless International Inc., the owner of SkyCable Inc.

Joint principles for the digital launch

Although participants in the Digital Code Working Group were unable to develop a comprehensive code, the Commission considers that the joint principles filed by the CAB, the CCTA and ExpressVu are evidence of a considerable degree of consensus. Further, in areas where the participants have not been able to agree, they have clarified or narrowed the issues.

The joint principles are set out in the appendix to this notice. The Commission is satisfied that the joint principles will be of assistance to programmers and distributors in their negotiation of agreements for the carriage of the new digital services. The Commission will also have reference to the joint principles in resolving disputes that may be brought before it concerning the terms and conditions of such carriage. The Commission, however, wishes to comment on certain specific issues to which the joint principles give rise.

First, with respect to section 2.1 of these principles, it is stated that:

.each distributor will, where required by regulation, distribute all Category 1 services appropriate for its market, subject only to available digital capacity and the execution of mutually satisfactory affiliation agreements.

In Licensing framework policy for new digital pay and specialty services, Public Notice CRTC 2000-6, 13 January 2000, the Commission stated that it would require distributors who make use of digital technology to distribute all Category 1 services appropriate to their market. The Commission did not state that this requirement was subject to available channel capacity. Rather, the Commission indicated that it would consider allowing exceptions by condition of licence to address situations where a distributor has insufficient digital capacity. The Broadcasting Distribution Regulations have now been amended to implement this policy (Public Notice CRTC 2001-17).

The Commission reminds distributors that, notwithstanding section 2.1 of the joint principles, if they do not have sufficient capacity to distribute all Category 1 services, they will have to apply for and receive relief from the Commission's requirement that they distribute all such services.

In section 3.1 of the joint principles, distributors have agreed to offer subscribers the option of receiving an all-inclusive package of digital programming services, with "digital programming services" defined for these purposes as all services offered by a distributor on a digital basis.

The Commission reminds programmers and distributors that the distribution of certain Category 2 services (e.g., adult services) is subject to the requirement that they not be packaged in a manner that obliges subscribers to purchase them in order to purchase any other programming service. The Commission considers that the effect of this requirement, combined with section 3.1 of the joint principles, is that distributors who carry one or more such services must offer at least two packages, including one that does not contain any such service.

The Commission notes that several of the joint principles would require that one entity be accorded treatment no less favourable than that accorded another entity, "all other commercial considerations being similar and equitable". The Commission notes that it assesses whether or not an undue preference has been conferred by reference to the public interest in the broadest sense, and not solely by reference to commercial considerations. In assessing whether or not an undue preference has been conferred in connection with the carriage of a Category 1 or 2 service, the Commission will continue to have reference to the public interest, and will not limit itself to commercial considerations.

The Commission notes that the working group has developed and agreed to joint principles to govern dispute resolution (sections 7.1 to 7.4). These sections provide, among other things, that distributors and digital programming services may refer disputes to an independent mediator. Consistent with the joint principles, and with Practices and procedures for resolving competitive and access disputes, Public Notice CRTC 2000-65, 12 May 2000, the Commission encourages parties to avail themselves of alternative methods to resolve any disputes that may arise, prior to submitting them to the Commission. Consistent with the previous paragraph, the Commission will take into account any public interest concerns in resolving disputes.

Finally, the Commission notes that the joint principles developed by the working group consist solely of principles for the negotiation of affiliation agreements, and do not provide for programmers and distributors to take into account issues of concern to the consumer. The Commission expects both programmers and distributors to be vigilant in respecting the interests of consumers, and to ensure, in particular, that the choices available to the consumer, and the associated charges and terms of service, are reasonable and clear.

Pricing and interactivity

The Commission notes that the Digital Code Working Group reached no consensus with regard to pricing and interactivity, and that the joint principles do not address these issues. However, the CAB, the CCTA and Look included provisions related to pricing in their individual codes, and all four participants included provisions related to interactivity.

The CCTA stated that it would be inappropriate to establish any detailed pricing formula in a code for digital programming services. Rather, it argued that wholesale rates must be negotiated on a bilateral basis between individual distributors and programming undertakings. In the CCTA's view, the rates ultimately negotiated will reflect the specific circumstances of each distributor's market, including competitive circumstances, consumer demand for the service in question, and the nature and size of the package or packages in which a particular service is offered.

The CAB submitted that the code should recognize the dependence of wholesale pricing on a number of factors, including the penetration levels achieved. In section 4.2 of its individual code, the CAB included a provision stating that wholesale rates for Category 1 services will be consistent with those proposed in the licence applications and noted in the licensing decisions. Look's Code (section 5.3) specifies that digital programming services should charge wholesale rates equivalent to, or lower than, the wholesale rate contained in the licence application upon which the licence was awarded.

The Commission's Category 1 licensing decisions noted the wholesale rates that were specified in the related applications. This, however, was not to suggest that, in their affiliation agreements or in the negotiations leading up to those agreements, programmers and distributors are to see themselves as bound by the wholesale rates (or related financial projections) specified in the Category 1 and 2 licence applications. Similarly, the Commission will not consider those rates (or related financial projections) determinative in resolving any disputes as to wholesale prices that may be brought before it. The Commission encourages programmers and distributors to work together to arrive at pricing arrangements that are acceptable to both sides, and that also take into account the interests of consumers.

As for interactive services, the Commission agrees with parties who submitted that it is too early to develop principles specific to this type of service. The Commission expects that there will be developments in this area in the short to medium term that will clarify the issues to be addressed. To this end, the Commission encourages both programmers and distributors to work together in such areas as the development of technical standards.

Interim approach for carriage of existing services on digital tiers

The Commission notes that distributors may wish to distribute pay and specialty services currently carried on analog tiers on a digital basis as well, and to package them with new Category 1 and 2 services. In Public Notice CRTC 2001-58 of today's date, the Commission has established an interim approach with regard to the question of whether or not the programmer's consent is required for such carriage. As stated in that notice, the Commission considers that, until a final policy is adopted, the duplication of existing analog services on digital tiers must have the prior consent of the programmer.

As announced in PN 2001-58, the Commission is also initiating processes to deal with issues related to the carriage of existing pay and specialty services on digital tiers, including development of a final policy concerning the question of whether the programmer's consent should be required for such carriage.

The Commission thanks the working group participants for the progress they have made. It encourages programmers and distributors to work together with a view to ensuring the successful launch of the new digital services to the benefit of all concerned, including consumers.

Secretary General

This document is available in alternate format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca 

Appendix to Public Notice CRTC 2001-57

Principles for the Fair Provision and Distribution of Digital Programming Services

1.0 Objectives

1.1 To provide a reciprocal code of conduct for both broadcasting distribution undertakings and licensed Category 1 and Category 2 services (digital programming services) that will lead to the provision and distribution of digital programming services on fair and equitable terms.

1.2 As both distribution and exhibition of Canadian programming are essential to the Canadian broadcasting system, this code is intended to be fair and equitable to digital programming services and distributors alike. Both distributors and digital programming services agree to adhere to the code in order to contribute to the successful launch, distribution and exhibition of digital programming services.

2.0 General Principles

2.1 Digital programming services and distributors acknowledge that all Category 1 specialty services are to be supplied and distributed on a digital basis, on fair and equitable terms, including terms relating to pricing, packaging, promotion, marketing/promotional costs and free preview periods.

• Each distributor will, where required by regulation, distribute all Category 1 services appropriate for its market, subject only to available digital capacity and the execution of mutually satisfactory affiliation agreements. If a signed affiliation agreement is not executed with a particular Category 1 service by the launch date, a distributor will distribute the service pending further negotiations or dispute resolution.

• Digital programming services acknowledge that distributors have the right to expect access to their product as soon as practicable and on terms and conditions that are comparable to those accorded other digital distributors, all other commercial considerations being similar and equitable. If a signed affiliation agreement is not executed with a particular distributor by launch date, a Category 1 service will not withhold its service from that distributor pending further negotiations or dispute resolution.

2.2 Digital programming services and distributors will enter into affiliation negotiations at the earliest practicable time to ensure the timely launch of the new digital programming services. Parties agree to use reasonable commercial efforts to negotiate mutually satisfactory affiliation agreements prior to the September 2001 launch.

2.3 Digital programming services and distributors acknowledge that unaffiliated undertakings should be accorded terms and conditions that are no less favourable than those accorded to affiliated undertakings, all other commercial considerations being similar and equitable. For the purposes of this code, a distributor and digital programming service are "affiliated" if the distributor controls, directly or indirectly, more than 10% of the equity of the programming undertaking.

2.4 Distributors will give reasonable commercial consideration to distributing Category 2 services, having particular regard to the viability, marketability and program diversity of the services in question, as well as the demands of subscribers and the amount of available channel capacity. Further, all other commercial considerations being similar and equitable, those unaffiliated Category 2 services that a distributor elects to distribute will be accorded terms that are no less favourable than those accorded to affiliated Category 2 services, including terms relating to pricing, packaging, promotion, marketing/promotional costs and free preview periods.

2.5 Programmers acknowledge that the distribution of Category 2 services is discretionary and that the terms and conditions of carriage of Category 2 services may not be identical to those of Category 1 services.

2.6 Distributors acknowledge that a digital programming service is entitled to receive, at its expense and on an annual basis, independently verified subscriber numbers for the service in question to validate the basis for programmer compensation.

2.7 Distributors will distribute the audio and video signal of an unaffiliated digital programming service in a quality that is consistent with industry practice and comparable to that afforded affiliated digital programming services, all other commercial considerations being similar and equitable.

2.8 A digital programming service will provide its video and audio signals to all distributors in a quality that is consistent with industry practice.

3.0 Packaging Principles

3.1 Distributors agree to develop packaging strategies that maximize subscriber penetration and revenue generation. Distributors agree to offer to their subscribers the option of receiving an all-inclusive package of digital programming services.¹

3.2 Distributors agree to consult with a digital programming service in advance of any packaging change involving that service. In the case of new services and packages, distributors commit to take reasonable commercial consideration of the digital programming service's packaging comments prior to service launch.

4.0 Promotion Principles

4.1 With respect to marketing and/or promotional activities, both distributors and digital programming services will treat unaffiliated undertakings no less favourably than affiliated undertakings, all other commercial considerations being similar and equitable.

4.2 Distributors and digital programming services agree to work co-operatively together with respect to marketing and promotional efforts associated with the launch of digital programming services. This includes fair and commercially reasonable sharing of costs associated with marketing/promotion.

4.3 Distributors will not require an unaffiliated digital programming service to pay higher marketing/promotional costs or to provide longer free preview periods than an affiliated digital programming service, all other commercial considerations being similar and equitable. Further, digital programming services will treat all distributors fairly and equitably in terms of their contributions, if any, to marketing/promotional costs, all other commercial considerations being similar and equitable.

4.4 Where a digital programming service contributes to the costs of marketing and promoting the launch of digital programming services, it is entitled to receive, at its expense, an independently verified accounting in respect of its contributions.

5.0 Pricing Principles

The Working Group was unable to come to a consensus with respect to pricing principles.

6.0 Principles relating to Interactive Programming

The Working Group was unable to come to a consensus with respect to principles relating to the provision and distribution of interactive programming.

7.0 Dispute Resolution

7.1 Prior to referring a dispute to the Commission, distributors and digital programming services agree to use commercially reasonable efforts to resolve any dispute arising from the interpretation or application of this code.

7.2 Where a distributor and Category 1 service are unable to agree on the terms and conditions of distribution, or upon renewal of the terms and conditions of distribution of a Category 1 service, either party may indicate to the other in writing its desire to refer the dispute to an independent mediator. The parties will have 10 business days to jointly appoint an independent mediator from a roster of possible mediators created for this purpose.

7.3 The independent mediator will act as quickly as practicable to facilitate and encourage an expeditious resolution to the process. The independent mediator will have up to a maximum of 45 days to mediate the dispute. At any time during this time period, the independent mediator can advise the parties that mediation will not facilitate a resolution of the dispute and that the matter should be referred to the Commission on a final offer basis. Where the matter remains unresolved after mediation, the independent mediator will be required to prepare for the Commission a report outlining the issues in dispute and the position of the respective parties. The report, along with parties' positions and supporting information, will be forwarded for final resolution to the Commission within 5 business days after the 45 day mediation period ends or after the independent mediator advises the parties that mediation will not facilitate a resolution, whichever is applicable.

7.4 The parties to the mediation process set out in s. 7.3 will share equitably the costs of mediation.