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Broadcasting Decision CRTC 2003-338
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Ottawa, 30 July 2003
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Canal Évasion inc.
Across Canada
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Application 2002-0926-4
Broadcasting Public Notice CRTC 2003-16
4 April 2003
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Licence amendments for Canal Évasion
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The Commission approves in partthe application submitted by Canal Évasion inc. to amend the conditions of licence of the national French-language specialty television service known as Canal Évasion.
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1.
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Canal Évasion is a French-language specialty television service dedicated to travel, tourism and adventure. It and three other French-language specialty services (Historia, Canal Z and Séries +) were licensed on 21 May 1999, following a competitive process (Decisions CRTC 99-109 to 99-112). The four new services were launched in January 2000 as a discretionary tier offered on an analog basis. Canal Évasion's licence expires 31 August 2005.
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2.
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In Transfer of effective control of Canal Évasion inc., Broadcasting Decision CRTC 2003-22, 23 January 2003 (Decision 2003-22), the Commission approved the transfer of control of this specialty service from Bell Globemedia Inc. to Serdy Direct inc. (Serdy), a founding partner of Canal Évasion, which is also active in the independent production sector through its subsidiary Serdy Vidéo inc.
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3.
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In this application, the licensee proposed:
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- to reduce from 60% to 45% the broadcast of Canadian programs during the broadcast day and the evening broadcast period;
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- to increase from 25% to 45% the amount of its annual budget for acquiring the rights to original Canadian programming that can be spent on programs produced by companies that are shareholders or affiliated companies until the end of the current licence term;
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- to gradually reduce the percentage of gross revenues devoted to investment in Canadian programming from 50% to 42% for an interim period ending
31 August 2007;
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- to add program category 10 (Game shows) to the list of program categories that it is authorized to broadcast.
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4.
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The licensee also proposed to increase the monthly wholesale rate from $0.49 to $0.80, notwithstanding the fact that Canal Évasion's wholesale rate is not regulated by the Commission, but is a matter of negotiation between the programming service and the distribution undertakings, as stated in Decision 99-112.
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5.
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In support of the above-mentioned amendments, the licensee referred to its precarious financial situation and the particular circumstances that have prevented it from meeting the projections contained in its original business plan. It pointed out that, although Canal Évasion, as an analog service, has guaranteed distribution in Quebec, it is distributed on a "positive option" basis. This means that, unlike most other analog services, Canal Évasion must sign up its own subscribers directly. As a result, the service is not distributed as widely as other such services. This has resulted in a slower subscriber sign-up rate, less than expected advertising revenue and a wholesale rate lower than initially planned.
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Interventions
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6.
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The Commission received 42 interventions concerning this application. Thirty-eight of these interventions, of which a number were submitted by small independent producers, supported the amendments proposed by Canal Évasion. Four interveners opposed the application; these were the Canadian Cable Television Association (CCTA), the Association des producteurs de films et de télévision du Québec (APFTQ), the Canadian Film and Television Production Association (CFTPA) and the Directors Guild of Canada (the Directors Guild).
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7.
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Most interveners were primarily concerned about the possible impact of Commission approval of all the amendments proposed by the licensee and the ripple effect of such approval on the other specialty licensees. The APFTQ and CFTPA were not opposed to the proposed reduction in Canadian content as such. However, they did oppose the proposed reduction in gross revenues devoted to investment in Canadian programming. In addition, these two associations and the Directors Guild opposed the proposed increase in programs produced by the licensee's shareholders or affiliates. The CCTA opposed the proposed increase in the monthly wholesale rate.
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The Commission's analysis and determinations
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8.
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The Commission notes that Canal Évasion has been in operation for less than four years and that it was licensed following a competitive process. In such a situation, the Commission wishes to ensure that the licence amendment applications it receives do not call into question the integrity of its licensing process. Only under exceptional circumstances can the Commission give favourable consideration to applications which may change the nature of the licensed service or which are intended to reduce commitments to Canadian content and Canadian programming expenditures.
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9.
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The Commission has already recognized the difficult circumstances which characterized the joint launch in January 2000 of the four French-language specialty services as part of a discretionary tier offered on an analog basis. In Licence amendment for Canal Z, Decision CRTC 2001-706, 20 November 2001, the Commission approved a 10% reduction in Canadian content for Canal Z for the current licence term, which expires 31 August 2005. Among the factors considered, the Commission stated:
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In its evaluation of this application, the Commission has also taken into account the difficult circumstances surrounding Canal Z's launch in January 2000 and the negative impact these circumstances have had on the licensee's business plan, particularly in view of the changing marketing approach for this tier.
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10.
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Canal Évasion has also benefited from flexible treatment since its launch. In Licence amendment for Canal Évasion - addition of program categories, Broadcasting Decision CRTC 2002-9, 24 January 2002, the Commission approved Canal Évasion's application for authorization to draw its programming from the same categories as those of the English-language specialty service Travel TV, enabling it to benefit from synergies with that service. In Licence amendment for Canal Évasion concerning its Canadian programming expenditures, Broadcasting Decision CRTC 2002-10, 24 January 2002, the Commission authorized the licensee to spread a shortfall in expenditures on Canadian programming over the next three years. The Commission noted that the licensee had not been able to undertake all of its planned expenditures because of difficulties encountered with respect to the launch and distribution of the service, and because of a lower than expected penetration rate.
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11.
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In Decision 2003-22, in which it approved the transfer of control of Canal Évasion, the Commission also recognized the financial problems currently facing the licensee. The Commission considered that an exception to the Television Policy with respect to tangible benefits was justified under the circumstances, particularly in view of Canal Évasion's precarious financial situation.
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12.
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Decision 2003-22 also took into account the special circumstances of this travel and tourism service. The licensee had submitted that the events of 11 September 2001 and ongoing terrorist activities the world over were having such an impact on the travel industry in general that it did not expect to become profitable for several years.
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13.
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In light of the urgency of the licensee's situation and the special circumstances of the French-language market, the Commission has decided to approve in part the licence amendments proposed by Canal Évasion. Because of these exceptional and largely unforeseen circumstances, the Commission considers that these approvals do not call into question the integrity of its licensing process.
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14.
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The Commission notes that the approvals set out below that relate to the broadcast of and expenditures on Canadian programming apply only to the current licence term, which expires 31 August 2005. At the time of Canal Évasion's next licence renewal, the Commission intends to reassess the overall situation with the licensee.
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Nature of service
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15.
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The licensee proposed to add program category 10 (Game shows) to the list of program categories that it is authorized to distribute. The licensee indicated that the addition of category 10 (Game shows) is necessary because of the removal of this type of programming from category 5(b) as a result of the Commission's revised approach to program categories.
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16.
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The Commission approves the proposal to add category 10 (Game shows) to the programming categories which Canal Évasion is authorized to distribute. The amended condition of licence 1.(b) will therefore read as follows:
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1.(b) The programming must be drawn exclusively from the following categories:
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1 News
2a Analysis and interpretation
2b Long-form documentary
5b Informal education/recreation and leisure
7c Specials, mini-series, made-for-TV feature films
7d Theatrical feature films aired on TV
8a Music and dance other than music video programs or clips
8b Music video clips
9 Variety
10 Game shows
11 General entertainment and human interest
12 Interstitials
13 Public service announcements
14 Infomercials, promotional and corporate videos
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17.
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The Commission reminds the licensee that programs drawn from category 10 must conform to the nature of Canal évasion's service, as stipulated in condition of licence 1.(a), which reads as follows:
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1. (a) The licensee shall provide a national French-language television specialty service that is dedicated exclusively to tourism, adventure and travel;
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Exhibition of Canadian programs
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18.
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The licensee proposed to reduce from 60% to 45% the broadcast of Canadian programs during the broadcast day and the evening broadcast period. The Commission approves a 10% reduction, from 60% to 50%. In light of the facts set out in the application, the Commission considers that a 10% reduction in Canadian content is appropriate. The amended condition of licence 3 will therefore read as follows:
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3. In each broadcast year, the licensee shall devote to the distribution of Canadian programs not less than 50% of the broadcast day and not less than 50% of the evening broadcast period.
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Canadian programming expenditures
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19.
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The licensee proposed a gradual reduction from 50% to 42% in the percentage of its gross revenues devoted to investment in Canadian programming, for an interim period ending 31 August 2007. The Commission approves a gradual reduction of 2% per year until 31 August 2005, the expiry date of the licence. The amended condition of licence 4.(b) will therefore read as follows:
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4.(b)(i) In the broadcast year from 1 September 2003 to 31 August 2004, the licensee shall expend on Canadian programs, including script and concept development expenditures for Canadian programs that are not broadcast, not less than 48% of the previous year's gross revenues derived from the operation of the service;
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(ii) In the broadcast year from 1 September 2004 to 31 August 2005, the licensee shall expend on Canadian programs, including script and concept development expenditures for Canadian programs that are not broadcast, not less than 46% of the previous year' s gross revenues derived from the operation of the service.
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20.
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The Commission also approves the licensee's proposal to increase from 25% to 45% the amount of its annual budget for acquiring the rights to original Canadian programming that can be spent on programs produced by companies that are shareholders or affiliated companies until the end of the current licence term. The amended condition of licence 5 will therefore read as follows:
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5. The licensee must spend no more than 45% of its annual budget for acquiring the rights to original Canadian programming on programs produced by companies that are shareholders of the licensee or its affiliated companies.
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21.
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The Commission notes in this regard that the presence of Serdy Vidéo inc. as an affiliated producer is an asset, considering Canal Évasion's difficult financial situation. The eventual increase in production accomplished in-house or by an affiliated producer could enable Canal Évasion to reduce its production costs, while bringing about an increase in the number of original Canadian programs which the service is able to offer.
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Wholesale rate
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22.
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As mentioned above, the licensee's application proposed increasing the monthly wholesale rate from $0.49 to $0.80. In Decision 99-112, the Commission stated as follows:
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With respect to distribution on a discretionary tier, especially in francophone markets, the Commission notes that, in its business plan, the licensee proposed a wholesale rate of $0.49. The Commission expects the licensee to negotiate with distributors and that such negotiations will permit the licensee to implement its plans and to broadcast programming of the quality contemplated in its application, according to its business plan. The Commission will monitor the situation closely.
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23.
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The licensee stated that the January 2000 scenario to jointly launch the four French-language specialty services on a "positive option" basis had placed considerable downward pressure on the proposed wholesale rates. The resulting rates negotiated with Quebec's major cable companies for distribution of these services as part of a discretionary tier were considerably lower than the wholesale rates proposed in the applications.The licensee added that Canal Évasion's wholesale rate is currently the lowest among comparable services and that an increase is essential to reduce the expected deficit and keep the service in operation.
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24.
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The Commission has elected not to regulate either the wholesale or retail rates charged for discretionary services, such as those offered by pay television and specialty services. This policy has placed the responsibility on licensees of distribution undertakings to ensure that Canadian discretionary services have ready access to the Canadian broadcasting system, so that each may contribute to fulfilling the objectives set out in the Broadcasting Act. The Commission has also provided means for resolving disputes in this regard between licensees of programming undertakings and distribution undertakings, as set out in sections 12 to 15 of the Broadcasting Distribution Regulations.
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25.
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In this case, the Commission notes that Canal Évasion is indirectly linked to Quebec's largest cable company, Vidéotron ltée, through TVA Group Inc. (TVA), which holds an 8.31% interest in Canal Évasion. Furthermore, in Licence amendment for Canal Évasion, Broadcasting Decision CRTC 2003-86, 6 March 2003, the Commission approved an application by TVA, on behalf of Canal Évasion, to delete the condition of licence stipulating that any transaction increasing TVA's ownership of Canal Évasion to more than 10% of voting shares could not proceed without the prior approval of the Commission.
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26.
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In these circumstances, the Commission considers that the above-mentioned approval as well as the current decision should have a positive effect on future negotiations, without the Commission having to intervene.
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Secretary General
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This decision is to be appended to the licence. It is available in alternative format upon request, and may also be examined at the following Internet site: www.crtc.gc.ca
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Date Modified: 2003-07-30