ARCHIVED - Broadcasting Decision CRTC 2002-350

Broadcasting Decision CRTC 2002-350

Ottawa, 6 November 2002

Sextant Entertainment Group Inc., on behalf of a corporation to be incorporated
Across Canada

Application 2001-1136-0
Public Hearing at Québec, Quebec
18 February 2002

The Hallmark Channel (Canada) - Category 2 specialty service

In this decision, the Commission approves the operation of a new Category 2 specialty television service.

The application

1.

The Commission received an application by Sextant Entertainment Group Inc., on behalf of a corporation to be incorporated (Sextant, OBCI) for a broadcasting licence to operate a national English-language Category 2¹ specialty television service to be known as The Hallmark Channel (Canada).

2.

The applicant proposed to offer programming designed for youth and family audiences, consisting of adaptations of literary classics, historical dramas, adventure and romance. It indicated that it would select the programming primarily from the Hallmark Entertainment Library (the Hallmark Library).

3.

The applicant indicated that the voting interest would be held 100% by HOLDCO Inc., a company to be incorporated (HOLDCO). The common shares in HOLDCO would be held by three parties: Sextant Entertainment Group Inc. (Sextant), Corus Entertainment Inc. and Crown Media Holdings Inc. (Crown), each holding 33.33% of the shares. Crown is a non-Canadian company and three of the seven members of Sextant's current board of directors are non-Canadians.

4.

The applicant stated that, if its application were approved, it would take measures to ensure that HOLDCO would comply with the Direction to the CRTC (Ineligibility of Non-Canadians) (the Direction) P.C. 1997-486, 8 April 1997 as amended by P.C. 1998-1268, 15 July 1998. Specifically, the applicant stated that it would appoint an independent programming committee in accordance with the draft resolution submitted with the application in order to ensure that Crown not exercise control or influence over any programming decisions and that HOLDCO comply with the definition of a qualified corporation set out in the Direction. Once the resolution had been passed by the board of the licensee company, the applicant would provide the Commission with a certified copy as well as the names and the positions of the first members of the committee. The applicant also confirmed that two of the non-Canadian members of Sextant's board of directors would resign in order to comply with the Directionwhich specifies that the chief executive officer and not less than 80% of the members of the board of directors of a licensee must be Canadians ordinarily resident in Canada.

Intervention

5.

The Family Channel Inc., licensee of The Family Channel, a national English-language pay television programming undertaking providing a general interest service targeted to children, youth to age 17, and families in conjunction with such children and youth, filed an opposing intervention. The intervener argued that the service proposed by the applicant would be directly competitive with The Family Channel with respect to the themes and target audiences. In support of its claim, the intervener stated that, of a list of 70 program titles included in a sample of titles to be broadcast on the proposed service, 12 are currently airing or have been previously broadcast on The Family Channel.

6.

The intervener further submitted that the applicant's current proposal is essentially identical to an earlier application denied by the Commission in Applications for licences for Category 1 and Category 2 specialty television services - Denied, Decision 2000-739, 24 November 2000.

The applicant's reply

7.

In response, the applicant maintained that its proposed service would not be competitive with The Family Channel. The applicant pointed out that The Family Channel is a general interest pay television service that exhibits feature films produced by The Walt Disney Company and other Hollywood studios, cartoons, music specials and other forms of programming. The proposed Hallmark Channel, on the other hand, would feature made-for-television programs, many of which would be adapted from literary classics and other programs unique to the Hallmark Library, a substantial number of which are produced in countries other than the U.S., including Canada. In addition, the applicant stated that the Hallmark Library contains over 1,100 titles, the vast majority of which have never been licensed to a Canadian distributor. It further noted that Pacific Motion Pictures, now a wholly-owned subsidiary of Sextant Entertainment Group Inc. and the exclusive representative of the Hallmark Library in Canada, has not licensed any titles from this library to The Family Channel over the past five years.

8.

The applicant stated that the Commission has previously shown considerable flexibility in determining whether a proposed Category 2 service is competitive with an existing analog pay or specialty service and noted that there are a number of examples of overlap in both themes and target audiences between the Category 2 digital services licensed to date and the existing analog services. According to the applicant, the Commission permits such flexibility in order to provide Canadians with the broadest possible choice of programming for the new digital tiers and to ensure that these tiers achieve adequate subscriber penetration.

9.

With respect to the intervener's argument that this application is largely identical to the one denied in Decision 2000-739, the applicant stated that the present submission contains much more detailed programming information and, therefore, provides a more accurate depiction of the nature of the service. The applicant further noted that there have been changes in the ownership of the proposed service.

The Commission's analysis and conclusion

10.

As stated in Public Notice 2000-171, the Commission, in licensing Category 2 digital services has been as open and flexible as possible, to encourage the development of Canadian programming options that will serve the needs and interests of the broadest possible range of viewers. The Commission, nevertheless, seeks to ensure that newly licensed Category 2 digital services do not compete directly with any existing pay or analog specialty television service or with any Category 1 digital service. In determining whether a proposed Category 2 digital service should be considered as directly competitive with an existing analog service or Category 1 digital service, the Commission has adopted a case-by-case approach, taking into consideration the proposed nature of each service and the unique circumstances of the genre in question.

11.

In the present case, the Commission notes that the applicant proposed to select its programs primarily from the Hallmark Library which contains over 1,100 titles, most of which have never been licensed to a Canadian service, and none of which have been licensed to The Family Channel over the past five years. Furthermore, the applicant does not intend to broadcast any programs from category 7e (Animated television programs and films). The Commission's analysis of The Family Channel's programming grid reveals that 60% of the programs broadcast on the service originate with The Disney Channel and that a majority of the programs aired between 6:00 a.m. and 6:00 p.m. are animated programs. Based on the foregoing, the Commission concludes that the programming that would be offered by the proposed new Category 2 digital service would not significantly duplicate that broadcast by The Family Channel.

12.

While the Commission acknowledges that the proposed The Hallmark Channel (Canada) service may appeal to the same general demographic as that currently served by The Family Channel, the Commission considers that the youth and family programming genre is broad and that the proposed Category 2 digital service would be complementary rather than competitive with the existing service.

13.

The Commission further agrees with the applicant that the present application differs in significant respects with the previous proposal denied in Decision 2000-739 and is a better record from which the Commission can make a determination on competitiveness.

14.

For the reasons set out above, the Commission is satisfied that this application is in conformity with all applicable terms and conditions announced in Introductory statement - Licensing of new digital pay and specialty services - Corrected Appendix 2, Public Notice CRTC 2000-171-1, 6 March 2001 (Public Notice 2000-171-1). The Commission approves the application by Sextant, OBCI for a licence to operate The Hallmark Channel (Canada) programming service.

Conditions of licence

15.

The licence will expire 31 August 2009, and will be subject to the conditions set out in Public Notice 2000-171-1 as well as to the following conditions:

For the purposes of the conditions of this licence, broadcast day shall have the same meaning as that set out in section 2 of the Television Broadcasting Regulations, 1987.

Issuance of the licence

16.

A licence will be issued once the licensee has satisfied the Commission, with supporting documentation, that the following requirements have been met:

• an eligible Canadian corporation has been incorporated in accordance with the application in all material respects and with all of the Commission's ownership requirements, including the Direction;

• the licensee has entered into a distribution agreement with at least one licensed distributor; and

• the licensee has informed the Commission in writing that it is prepared to commence operations. The undertaking must be operational at the earliest possible date and in any event no later than 36 months from the date of this decision, unless a request for an extension of time is approved by the Commission before 6 November 2005. In order to ensure that such a request is processed in a timely manner, it should be submitted at least 60 days before this date.

Secretary General