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Broadcasting Decision CRTC 2003-522
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Ottawa, 23 October 2003
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SuperChannel Ltd. and MovieMax! Ltd.
Western Canada
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Applications 2002-0779-7 and 2002-0780-5
Broadcasting Public Notice CRTC 2003-12
7 March 2003
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Licence amendments for SuperChannel and MovieMax!
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In this decision, the Commission approves applications by the licensees of two English-language pay television programming undertakings serving western Canada for licence amendments that vary the application of the regulatory prohibition against the exhibition of programming produced by themselves or by persons related to them.
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Background
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1.
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In Call for Applications for Pay Television Service, CRTC - Public Notice 1981-35, 21 April 1981, the Commission foresaw a number of benefits that could derive from the establishment of a Canadian pay television industry, including the availability of "high quality Canadian programming from new programming sources [and] new opportunities and revenue sources for Canadian producers currently unable to gain access to the broadcasting system". The Commission described the creation of new revenues for the Canadian production industry as "a fundamental objective to be achieved by pay television", an objective that was "necessarily predicated on ensuring access to pay television by independent producers".
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2.
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Accordingly the Commission stated that:
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.applicants proposing a pay television service involving integration of the production and distribution functions should be prepared to demonstrate the benefits to be realized and the means by which any such proposal will ensure access for independently-produced Canadian programs to the proposed service.
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3.
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At the same time, the Commission noted that the introduction of pay television was to occur at a critical time in the evolution of the Canadian broadcasting system. For this reason, and taking into account the Commission's determination that the industry should provide a new and unique contribution to that system, the Commission anticipated that the process would be "evolutionary and, to some extent experimental".
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4.
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The Commission published rules governing pay television in Regulations Respecting Pay Television Broadcasting Undertakings, Public Notice CRTC 1984-275, 8 November 1984. Consistent with the Commission's goal of ensuring access to the pay television industry by independent producers, these rules included a general prohibition against the distribution by licensees of "any programming, other than filler programming, produced after the date of authorization either by itself or by any associate". These rules were incorporated by the Commission into the Pay Television Regulations, 1990 (the Regulations) in Regulations respecting pay television networks, Public Notice CRTC 1990-10, 31 January 1990.
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5.
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In Amendments to the Pay Television Regulations, 1990, Public Notice CRTC 1996-117, 23 August 1996 (Public Notice 1996-117), the Commission announced that it had made amendments to the Regulations that would permit a pay television licensee to apply for relief from the general stipulation set out above. Specifically, sections 3(2)(e) and (f) of the Regulations now provide that, except as otherwise permitted by condition of licence, no pay television licensee shall distribute programming that was produced, either by itself after the date of publication in the Canada Gazette of the Commission decision granting the pay television licence, or by a person related to the licensee after the later of the above date and the date on which the two became related. This prohibition does not apply to filler programming.
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6.
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Earlier, in the public notice calling for comment on the proposed amendments described above (see Proposed Amendments to the Pay Television Regulations, 1990, Public Notice CRTC 1995-209, 8 December 1995 (Public Notice 1995-209)), the Commission proposed, as a matter of policy, that "where a licensee seeks a condition of licence to vary the application of the prohibition against the distribution of programming produced by itself or by a related person, the onus will be on the licensee to demonstrate, among other things, adequate safeguards to ensure fair access by independent producers".
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The applicants
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7.
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SuperChannel Ltd. (SuperChannel) and MovieMax! Ltd. (MovieMax!) are the licensees of two English-language pay television programming undertakings authorized to serve western Canada. The licensees provide programming that is packaged by theme for delivery by broadcasting distribution undertakings to their subscribers on multiplexed program channels. SuperChannel's four multiplexed program channels feature more recent film releases, while the programming packaged on the two MovieMax! channels consists primarily of feature films copyrighted at least five years prior to the year of their exhibition on the service. Both licensee companies are owned by Corus Entertainment Inc. (Corus). Corus also owns 100% of the voting shares of Nelvana Ltd. and YTV Productions Inc., which are companies active in the production of programming targeted primarily to younger audiences. Of the two, only Nelvana Ltd. is currently involved in the production of feature length Canadian films, and only to a limited extent.
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8.
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SuperChannel and MovieMax! are each subject to various conditions of licence, including one that establishes minimum annual requirements for expenditures on the acquisition of or investment in Canadian programming. The required minimum for each service is calculated as a percentage of the revenues earned by the service in the previous year. In the case of SuperChannel, the required percentage falls within a range of between 18% and 31% of revenues, and varies directly with fluctuations in the average number of subscribers that the service had in the previous year. In the case of MovieMax!, the required expenditures are fixed at a minimum of 25% of the previous year's revenues.
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9.
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Both licensees are also subject to conditions of licence that specify minimum requirements for the exhibition of Canadian content. For SuperChannel, the minimum percentages are 30% of all programming exhibited during the hours of 6:00 p.m. to midnight, and 25% for the remainder of the time that the service is in operation. For MovieMax!, the required minimum level of Canadian content is set at 20% during both of these time periods.
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10.
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Under SuperChannel's condition of licence for the exhibition of Canadian content, the licensee is awarded a credit of 150% for time during which the licensee distributes a new Canadian production that commences between 6:00 p.m. and 11:00 p.m. (Mountain time) or, in the case of a new Canadian production intended for children, at an appropriate viewing hour between 6:00 a.m. to 9:00 p.m. This credit also applies in respect of each subsequent showing of such a production, in the specified time periods, within a two-year period of the date of its first exhibition by the licensee. In accordance with a commitment made by the licensee in the context of its last application for licence renewal, SuperChannel is further required by condition of licence to spend $1 million per year on script and concept development.
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11.
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As pay television licensees, SuperChannel and MovieMax! are also subject to the requirements of sections 3(2)(e) and (f) of the Regulations. In their current applications, the two licensees have requested that their licences be amended by the addition of the following condition of licence:
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The licensee is authorized to distribute programming, other than filler programming, which is produced by the licensee or by a person related to the licensee, but such programming shall not exceed 25% of its Canadian overall programming schedule.
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Rationale supporting the applications
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12.
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Corus, the owner of the two licensees, submitted as the rationale underlying the above requests that it was unfair that subscribers of SuperChannel and Moviemax! be deprived of access to high quality Canadian productions merely on the basis of their having been produced by the licensees or by a related person. Corus noted that past Commission decisions have varied with respect to the maximum limits they have set on the amounts of programming that video-on-demand (VOD), pay-per-view (PPV) and specialty services are permitted to obtain from related producers. Corus noted, however, that the 25% level it has proposed would be consistent with the maximums set in many of those decisions, and suggested that such a level would be reasonable and appropriate in the case of its pay television services.
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13.
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Corus further suggested that the Commission's 1996 decision to amend the Regulations and permit pay television licensees to apply for relief from the requirements of sections 3(2)(e) and (f) was essentially an acknowledgement of the changing broadcasting landscape, in particular of the growth in the number of specialty and pay services, the resultant demand for additional Canadian programming and the prosperity this has brought to the Canadian independent production industry.
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14.
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Corus also identified various safeguards that, in its view, would be responsive to the Commission's policy enunciated in Public Notice 1995-209 by ensuring "fair access by independent producers" to the services of SuperChannel and MovieMax! The proposed safeguards are as follows:
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- the existing requirement set out in section 6.1 (1) of the Regulations that no licensee "shall give an undue preference to any person, including itself, or subject any person to an undue disadvantage";
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- the 25% maximum limit specified in the proposed condition of licence on the amount of programming produced by the licensees or by related persons that they may claim toward meeting their annual obligations for the exhibition of Canadian programming;
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- a commitment that all of the $1 million per year that SuperChannel is required by its current conditions of licence to invest in script and concept development be directed to persons other than itself or related to it; and
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- a further commitment in respect of each of the two pay television services that they will exhibit every Canadian feature film that is suitable for exhibition on that service.
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Interventions
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15.
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The applications, announced in Broadcasting Public Notice CRTC 2003-12, 7 March 2003, were the subject of interventions by the Canadian Film and Television Producers Association (CFTPA) and the Alberta Motion Picture Association (AMPIA), both of which expressed conditional support for the proposed licence amendments, and by the Directors Guild of Canada (DGC), which opposed the applications. A fourth intervention was filed by Mr. David Ross of Sooke, British Columbia, who expressed concerns not directly related to the present applications.
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16.
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One objection of the DGC was that the proposed maximum limit of 25% on the amount of programming that the two licensees might acquire from either themselves or related persons was too high. According to the DGC, the maximum amount should be set at 5%. It added that even this limited relief from regulatory requirements should be extended only to the channel of SuperChannel's four multiplexed channels that is branded as Movie Central and is dedicated primarily to blockbusters and exclusives. The CFPTA was also concerned that the proposed maximum limit of 25% was too high, suggesting that a level of 12% would be more suitable, given the limited participation by Nelvana Ltd. in feature film production. The CFPTA further proposed that SuperChannel should not be permitted to claim the 150% time credit in respect of the exhibition of new Canadian productions obtained from itself or related parties.
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17.
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The AMPIA joined the DGC and the CFPTA in expressing a further concern that approval of the present applications could prompt similar proposals by Astral Broadcasting Group Inc. (Astral). Astral is the licensee of the English-language pay television services that it operates in eastern Canada under the brand names The Movie network (TMN) and MoviePix. The interveners suggested that, were SuperChannel, MovieMax! and Astral each permitted to meet 25% of their obligations for the exhibition of Canadian programming through product acquired from themselves or related persons, and should agreements then be struck between them for the exchange of rights to this same programming, the potential result was that as much as 50% of the Canadian programming exhibited by these pay television services could be other than independently produced.
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18.
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The DGC and the AMPIA also claimed that Corus could confer an undue preference upon itself by paying greater licence fees for programming acquired from itself or from related persons than it would normally pay for rights to comparable product acquired from independent producers. The DGC therefore suggested that, in each year, the percentage of overall Canadian programming expenditures that each of the pay television licensees directs to programming acquired from itself or from a related person should not be permitted to exceed the percentage of its overall Canadian programming schedule that is devoted to such programming.
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19.
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As a means to verify the licensees' compliance with any limits the Commission may set for the acquisition of Canadian programming produced by themselves or by related persons, the CFPTA and the AMPIA proposed that the Commission impose requirements for the filing of annual reports that would indicate the Canadian productions that have been exhibited, identify those that were self-produced, and include information about the license fees paid to related parties and to independent or unaffiliated producers.
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Applicants' response to interventions
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20.
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In responding to the interventions, Corus submitted that the proposed 25% limit should be assessed, not through reference to the amount of programming produced by Nelvena Ltd. that might consequently find exhibition on either service, but on the basis of the limits that the Commission has established for other Canadian television services in respect of their exhibition of programming that has been either self-produced or produced by related persons. Corus also questioned the logic of opposition to the applications based on hypothetical concerns that approval might prompt similar applications by Astral.
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21.
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With respect to the interveners' submission that approval of the applications would create the potential for undue preference, Corus argued that the prohibition against undue preference contained in section 6.1 (1) of the Regulations should effectively dismiss this as a concern. Further, Corus argued that section 6.1 (1) of the Regulations, together with the other safeguards it had outlined in the applications, eliminated the need for the annual reporting requirements that had been recommended by certain interveners. Corus also pointed to these safeguards as rendering unnecessary the removal of the 150% time credit in respect of the exhibition of programming that was self-produced or produced by a related person.
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The Commission's determination
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22.
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As mentioned at the beginning of this decision, one of the principal objectives that was to be served by the creation of a Canadian pay television industry in the early 1980s was the provision of new opportunities and revenues for independent producers. Although this remains a central Commission objective for pay television, the Commission considers that the many specialty television services that have become part of the Canadian broadcasting system over the intervening two decades also share in the responsibility for serving this objective, and have done so by expanding significantly the demand for new, independently-produced programming.
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23.
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The Commission has weighed the arguments of the applicants and the interveners concerning the reasonableness of the applicants' request that they be permitted to fulfil as much as 25% of their overall requirements for the exhibition of Canadian content through the exhibition of productions that they or related persons have produced.
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24.
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The Commission notes that granting the licensees some measure of relief from the full requirements of sections 3(2)(e) and (f) of the Regulations would enable the licensees to provide their subscribers with access to programming that may not now be exhibited because it was produced by the licensees or by a related person. An appropriate measure of flexibility could have the further benefit of providing Nelvana Ltd. an incentive to increase its activity in the production of feature-length Canadian drama programming suitable for exhibition by the licensees and by others. In the circumstances, holding SuperChannel and MovieMax! to the full requirements of the Regulations may no longer be appropriate, provided suitable safeguards are in place to ensure that independent producers continue to have fair access to the two pay television services.
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25.
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The Commission thus examined the adequacy of the commitments and other measures identified by the applicants as safeguarding access to the pay television services by independent producers. It is the Commission's finding that, with these safeguards in place alongside the further requirement set out below, the requests by SuperChannel and MovieMax! for relief from the requirements of sections 3(2)(e) and (f) of the Regulations are reasonable. Accordingly, the Commission approves the applications by SuperChannel and MovieMax! by adding to their respective licences the following condition of licence:
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The licensee may exhibit programming that has been produced by the licensee or by a person related to it, provided that in each year, the amount of such programming, exclusive of filler programming, does not exceed 25% of its overall Canadian programming schedule.
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26.
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The Commission considers appropriate the suggestion put forward by interveners that there should also be a cap on the licensees' annual expenditures on programming acquired from themselves or related persons. Accordingly, the licences for SuperChannel and MovieMax! shall each be subject to the additional condition of licence set out below:
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In each year, the amount spent by the licensee on programming that has been produced by it or by a related party, exclusive of filler programming, shall not exceed 25% of its annual expenditures on Canadian programming.
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27.
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Consistent with their commitments, the Commission expects each of SuperChannel and MovieMax! to exhibit every Canadian feature film that is suitable for exhibition on its service.
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28.
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Consistent with the further commitment given by SuperChannel, the Commission amends the condition of licence with respect to its requirements for the funding of script and concept development, as set out in Licence renewal for SuperChannel, Decision CRTC 2001-736, 29 November 2001, to read as follows:
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The licensee shall expend on script and concept development not less than $1,000,000 in each broadcast year, excluding overhead costs. No portion of these required expenditures shall be directed to the licensee or to a person related to the licensee.
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29.
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The Commission is satisfied that the above licence conditions and expectations, together with the further protection afforded by the prohibition against the granting of an undue preference contained in section 6.1 (1) of the Regulations, will adequately safeguard access by independent producers to the two pay television services.
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30.
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Regarding the interveners' proposal that the licensees be required to file detailed annual reports to allow monitoring of their adherence to these requirements, the Commission notes that the licensees' exhibition of independently-produced programming can be monitored through existing logging mechanisms. In the Commission's view, there is insufficient evidence to conclude that further reporting requirements are warranted.
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31.
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The Commission also considers as inappropriate the suggestion of interveners that SuperChannel not be permitted to avail itself of the 150% time credit in respect of Canadian productions that it acquires from itself or from a related person. The Commission notes that the time credit was granted to SuperChannel for the purpose of encouraging its exhibition of new Canadian programs. The Commission thus considers that the time credit should be available for all such programs, regardless of who has produced them.
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32.
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As for the suggestion of interveners that approval of the current applications could prompt similar proposals by Astral, the Commission considers the proposition to be particularly hypothetical, given that Astral is not currently involved in the production of Canadian programs. Nevertheless, the Commission notes that any such proposal would be examined on its own merits.
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Secretary General
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This decision is to be appended to each 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: 2003-10-23