Broadcasting Public Notice CRTC 2005-8

Ottawa, 27 January 2005

Incentives for original French-language Canadian television drama

In this public notice, the Commission reviews the comments received in response to Proposed measures to ensure that French-language Canadian drama remains a key component of peak time viewing - Call for comments, Broadcasting Public Notice CRTC 2004-38, 8 June 2004, and announces revised measures to encourage the attainment of its objective of maintaining, within the programming broadcast during peak time by French-language television licensees, a proper balance of original French-language drama, including a minimum number of high-cost programs or series. The appendix provides a summary of the incentive program applicable to original French-language Canadian drama and describes the terms for its implementation.

A review of the comments received in response to Proposed incentives for English-language Canadian television drama - Call for comments, Broadcasting Public Notice CRTC 2004-32, 6 May 2004, announcing incentives for English-language Canadian drama is the subject of Incentives for English-language Canadian television drama, Broadcasting Public Notice CRTC 2004-93, 29 November 2004.

Background

1. In Support for Canadian television drama - Call for comments, Broadcasting Public Notice CRTC 2003-54, 26 September 2003 (Public Notice 2003-54), the Commission sought comment on actions it might take to ensure that high quality, original French-language Canadian drama programming remains a key component of the peak viewing period.

2. The Commission reviewed all the comments received in response to Public Notice 2003-54. Subsequently, in Proposed measures to ensure that French-language Canadian drama remains a key component of peak time viewing - Call for comments, Broadcasting Public Notice CRTC 2004-38, 8 June 2004 (Public Notice 2004-38),the Commission sought public comment on a series of proposed incentives designed to ensure that quality, original French-language Canadian drama programming remains a key component of peak time broadcasting by French-language television licensees.

3. Public Notice 2004-38 proposed four types of original French-language Canadian drama broadcast by conventional television stations or specialty services that would qualify for the proposed incentives and rewards. The proposal can be summarized as follows:

Type (a): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original drama funded by the Canadian Television Fund (CTF) with a production budget of at least $800,000 per hour and minimum licence fees, as set by the CTF.

Benefit: three minutes of additional advertising for each original hour of drama broadcast.

Type (b): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original CTF-funded drama with a production budget of less than $800,000 per hour and minimum licence fees, as set by the CTF.

Benefit: two minutes of additional advertising for each original hour of drama broadcast.

Type (c): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original French-language drama not funded by the CTF, with a production budget of at least $800,000 per hour and licence fees consistent with CTF standards.

Benefit: seven minutes of additional advertising for each original hour of drama broadcast. In addition to the three minutes indicated as a reward for Type (a) programming, there will be an additional four minutes for not accessing CTF funding.

Type (d): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original French-language drama, not funded by the CTF, with a production budget of less than $800,000 per hour and licence fees consistent with CTF standards.

Benefit: six minutes of additional advertising for each original hour of drama broadcast. In addition to the two minutes indicated as a reward for Type (b) programming, there will be an additional four minutes for not accessing CTF funding.

No additional advertising minutes will be awarded for the production of original drama subsidized through ownership transfer benefits or commitments tied to the awarding of a new licence.

The utilization of additional advertising minutes must be limited, during broadcast hours, to a maximum of 14 minutes per hour.

For each type of drama, the hourly production budget would be evaluated on the basis of CTF guidelines. Implementation of the triggers and benefits would be by condition of licence.

Licensees would be required to submit a detailed report to the Commission at the end of each broadcast year. Information contained in this report would be cross-checked against the Commission's logs.

4. In Public Notice 2004-38, in addition to the considerations relating to the proposed incentives, the Commission asked questions regarding:

the definition of an original broadcast within the context of a future incentive program;
broadcast times for drama directed to children;
the number of additional advertising minutes proposed as a reward for the various types of drama that would qualify; and
measures to ensure that revenues derived from the four advertising minutes awarded for non-CTF-funded drama are actually used for the production of drama.

5. In this public notice, the Commission reviews the comments received in response to Public Notice 2004-38 and sets out a series of revised measures designed to facilitate the achievement of its objective.

6. The incentives set out in this public notice apply only to French-language licensees. A series of measures designed to encourage the achievement of the Commission's objectives with respect to English-language Canadian television drama is set out in Incentives for English-language Canadian television drama, Broadcasting Public Notice CRTC 2004-93, 29 November 2004 (Public Notice 2004-93).

Review of comments received in response to Public Notice 2004-38

7. The Commission received 15 submissions in response to Public Notice 2004-38, including:

five from broadcasters: TVA Group Inc. (TVA), TQS inc. (TQS), the Canadian Broadcasting Corporation (CBC), Astral Média inc. (Astral), and Télé-Québec;
six from industry associations: the Canadian Association of Broadcasters (CAB), the Association des producteurs de films and de télévision du Québec (APFTQ), the Union des artistes (UDA), the Société des auteurs de radio, télévision et cinéma (SARTEC), the Quebec Council of the Directors Guild of Canada (the Guild), and the Association of Canadian Advertisers;
four from the general public.

8. The submissions consisted of comments of a general nature on the objective and the soundness of the proposed measures, and comments dealing more particularly with specific adjustments to the proposed measures that the Commission should consider in order to achieve the desired objective.

Comments of a general nature

9. TVA was very much in favour of the Commission's proposal, provided certain adjustments were made. TVA was of the view that these incentives are an original and effective tool for ensuring that drama continues to occupy an important place in French-language television broadcasting. However, TVA maintained that these measures should be restricted to private broadcasters.

10. TQS was opposed to an increase in advertising minutes as an incentive. In its view, any incentives for French-language drama programming should not be introduced at the expense of the other programming categories, specifically those that are recognized as priority programming. TQS maintained that it should not be subject to the same requirements that would apply to TVA.

11. Astral was opposed to giving advertising minutes as an incentive for the broadcast of all original Canadian drama. It proposed instead to limit advertising minute credits to the broadcast of original Canadian drama over and above the average number of hours broadcast by the licensee over the previous three years. In this regard, Astral asked Cossette Média inc. (Cossette) to carry out a study of the impact of the proposed incentives on the French-language television market in Quebec. According to Astral, this study demonstrated the disruptive and harmful effects the incentives would have on the French-language broadcasting system.

12. The CAB stated that the private broadcasters agree that it is not appropriate to increase regulatory obligations in order to meet this challenge. Instead, new mechanisms should be found to support the production of drama. However, in light of the divergent positions of French-language broadcasters, there was no consensus among CAB members on the advertising-based incentives. Consequently, the CAB chose not to adopt a position. The CAB pointed out that the CBC has publicly stated that it is not seeking additional advertising revenues. The CAB therefore maintained that, if the Commission decides to institute incentives based on additional advertising minutes for each hour of original television drama, the CBC should not be allowed to avail itself of such incentives.

13. The CBC stated that the Commission's current proposals would not result in a satisfactory resolution of the basic problem, which is one of funding. In its view, as for the French-language market, this model cannot generate the substantial levels of advertising revenues predicted by the Commission. According to the CBC, the Commission should revisit the role of private production funds and encourage or require that the amounts paid out under the Commission's policy on "tangible benefits" be put directly into the CTF's budget or into its envelope for television drama.

14. Télé-Québec was of the view that the Commission's new proposals contain a number of positive elements, and it was pleased that the Commission recognizes the important role played by drama series directed to youth. Télé-Québec specified that in its case the 12-minute advertising cap per hour does not apply, and that the proposed additional minutes should be added to its current authorized maximum of eight minutes per hour.

15. A number of interveners, including the APFTQ, the UDA and the Guild, submitted comments on the Commission's objective. These organizations proposed that the objective should instead be to increase the number of hours of original French-language Canadian television drama during peak viewing times. In their view, over the past several years there has been a significant reduction in the number of hours of television drama offered by French-language broadcasters. They expressed concern that, because the incentives proposed by the Commission reward all hours broadcast, they could result in a reduction in the number of hours of original Canadian television drama, rather than help maintain the status quo or bring about any increase in the number of hours. They were of the view that the Commission should award advertising minute credits only for the broadcast of additional hours of original Canadian television drama over and above the broadcaster's average over the preceding three years.

Adjustments to the proposed incentives

16. A number of interveners proposed amending or broadening the definitions of original and first run programming. The UDA proposed notably to include programs that were filmed in both languages through double shooting as original programming in both markets because they are considered as such by the CTF. TVA proposed that a program aired previously by a Canadian specialty or pay service should qualify, provided the broadcaster had pre-purchased the program in question.

17. TVA proposed that the trigger threshold for the three advertising minutes (high-cost drama) be set no higher than $500,000, instead of $800,000. Télé-Québec did not feel that the $800,000 threshold reflected the reality of the French-language market.

18. The Guild stated that a broadcaster should not qualify for the two-minute credit unless the drama that it is airing has a production budget of at least $250,000 per hour.

19. The incentive for original Canadian drama directed to youth generated a great deal of interest. Most interveners were pleased that the Commission recognizes the important role this type of drama plays. The APFTQ noted that the Commission has limited itself to programming directed to children (2 to 12 years) and stated that programming directed to teenagers (12 to 17 years) should benefit from the same treatment. Several interveners, including TVA and Télé-Québec, were of the view that broadcasters should determine the broadcast times that are suitable for children.

20. The CAB proposed that the Commission bring back the 150% credit for 10-point television drama directed to youth, in accordance with the terms first set out in Recognition for Canadian programs, Public Notice CRTC 1984-94, 15 April 1984 (Public Notice 1984-94). The CAB was of the view that any broadcaster that airs a program in the first two years following its original airing and who participated in the funding of the program should also be entitled to this credit.

21. The CBC supported the incentives that have been proposed to stimulate drama productions funded without accessing the CTF, provided that the expected advertising revenues materialize. If the Commission should decide to go that route, the CBC expected that its internal drama productions could be recognized as productions funded without CTF assistance, since it assumes all of its own production costs.

22. The APFTQ suggested that the Commission develop a separate incentive for theatrical feature films (Category 7(d)) that takes into account its special funding method and the principle of orderly sequential showings in multiple windows. The APFTQ pointed out that, based on the current definition, the first window broadcast of a drama on pay television (video-on-demand, pay-per-view, and pay television) will automatically deprive the "non-pay" broadcaster (conventional or specialty) of the credit for the second window broadcast. This separate incentive should allow advertising minute credits for the first "non-pay" broadcaster to show the film, provided that the broadcaster has paid significant broadcast licence fees toward the film's budget and that this feature film raises the licensee's average in this regard over the preceding three years. The UDA also supported this particular incentive aimed at the broadcast of Canadian feature films shown for the first time on non-pay television.

23. Astral was of the view that the third level of advertising minute credits proposed by the Commission could lead to a breakdown in the ordered and sequential market for the production of feature films broadcast on television because, according to the proposal, a drama film that is not supported by the CTF could qualify for additional credits over and above the initial credit of four advertising minutes per hour.

24. Astral pointed out that the best way to encourage maintaining the contribution made by pay television to the funding of development and production is to maintain the existing rules regarding equity investments by pay television services in theatrical feature films.

Call for additional comments: impact of the proposed incentives on the advertising market

25. In response to Public Notice 2004-38, Astral submitted a study carried out by Cossette demonstrating that the proposed incentives would have a significant impact on the current French-language advertising market. The study estimates that the implementation of the proposed incentives would have generated revenues of between $24 million and $30 million in 2003. The study was also intended to show that a portion of these revenues would have been diverted from the advertising revenues of French-language specialty services.

26. Because this study contained data and hypotheses that were likely to raise a number of questions, primarily from the principal interveners, the Commission invited all interveners who submitted comments as part of the proceeding relating to Public Notice 2004-38 to review the study submitted by Astral and, if they wished, to submit their comments to the Commission, with a copy to Astral, no later than 27 August 2004. Astral then had one week in which to prepare its response to those comments.

27. Four interveners responded with additional comments: TVA, TQS, the CBC and the APFTQ. In general, the interveners reiterated their respective positions, as set out in their submissions in response to Public Notice 2004-38. In its comments, TVA submitted a study by Carat Expert (Carat) designed primarily to demonstrate that the impact from the implementation of the incentives would be more of the order of $12 million, and not in the range described by Cossette.

28. In its response, Astral brought forward a number of clarifications and corrections to the data contained in the study prepared by Carat and submitted by TVA. However, in referring to the findings in the Cossette study, Astral maintained that [translation] "the incentives proposed by the Commission would have resulted in an increase in revenues to the conventional French-language networks of from $24 million to $30 million . that these tens of millions of dollars in advertising revenues would be shifted from the specialty services, primarily, and from the conventional broadcasters who place few programs in the weekly top-rated 30 programs to the dominant broadcasters in the field, namely TVA and, to a lesser extent, the CBC . that these are substantial amounts that will result in serious disruptions in the advertising market . that these disruptions and negative effects will be produced without a single additional minute of original Canadian drama being added to the existing supply."

29. In view of the positions set out by the interveners and the significant discrepancy between the data submitted following the call for additional comments, the Commission then asked TVA, the CBC, TQS and Télé-Québec to submit detailed data relating to original television drama aired by them during the last three broadcast years, as well as their projections for the broadcast of original drama for the year 2004-2005.

Examination of the issues involved

30. The Commission appreciates the submissions received as part of the second stage of the current proceeding and the cooperation of the interveners and broadcasters during the additional information process designed to evaluate the impact of the proposed incentives on the French-language advertising market.

31. In the analysis that follows, the Commission reviews whether it should re-examine the proposed objective, considers the adjustments proposed by the interveners, proposes a number of adjustments or clarifications required before the program can be implemented, and attempts to assess the impact of the revised measures on the French-language advertising market.

32. More specifically, in the sections that follow, the Commission presents its analysis and findings with regard to the following issues:

the Commission's objective
incentives vs. regulatory approach
the definition of French-language "original program" and "drama program"
incentive program eligibility threshold
the impact of the proposed incentives
hourly production costs - eligibility criteria
original drama programming directed to youth
Télé-Québec
eligibility criteria and rewards for drama programming that is not funded by the CTF
funding of drama programming through ownership transfer benefits
drama programming produced in house by licensees
investment in drama programming
licence fee "top-ups"
implementation of the drama incentive program
evaluation of the incentive program

a) The Commission's objective

33. In Public Notice 2004-38, the Commission proposed the following objective:

To maintain, within the programming broadcast during peak time by French-language television licensees, a proper balance of original French-language drama, including a minimum number of high-cost programs or series.

34. Several interveners, notably industry associations such as SARTEC, the UDA and the Guild, were of the view that the Commission should instead have as its objective to encourage the production and broadcasting during peak viewing times of a higher number of original French-language Canadian drama programs. In their view, the incentives are not enough to ensure that drama programming maintains a key role during peak viewing hours.

The Commission's analysis and determination

35. In Public Notice 2004-38, the Commission recognized that "in the last two years, with the introduction of new types of television programming that, like drama, are capable of attracting large audiences, the peak time programming schedules of conventional private broadcasters have changed."

36. However, the Commission established that, given the amount of expenditures devoted to drama production and French-language drama viewership results, its concern was not the resolution of a problem, but the maintenance of a significant contribution by conventional French-language broadcasters to the production of original drama programming.

37. Since the publication of Building on success - A policy framework for Canadian television, Public Notice CRTC 1999-97, 11 June 1999 (the television policy), the Commission has recognized a significant contribution to all priority programs. Unlike conventional English-language broadcasters, conventional French-language broadcasters are not constrained by the simultaneous broadcast of U.S. programs during peak viewing times. Accordingly, there is generally a large number of Canadian priority programs broadcast during the week on Canadian French-language stations in peak viewing hours.

38. In Public Notice 2004-93, the Commission noted that there is a particular need in the English-language market to increase the number of hours and the expenditures on original Canadian drama programming in order to increase the audiences for this type of production.

39. Although the number of original dramas offered by conventional French-language broadcasters is declining, the Commission considers that the current level of such programming and the viewership results it generates are such that it is unnecessary at this time to apply the same objectives to the French-language market as those that have been set for the English-language market.

40. As indicated in Public Notice 2004-38, drama remains one of the key scheduling drivers for conventional French-language broadcasters. In light of the television policy set out in the television policy and the present program of incentives to encourage original Canadian drama, the Commission is of the view that conventional French-language broadcasters will continue their efforts to maintain a proper balance between the different types of Canadian priority programs aired during peak viewing times.

41. Accordingly, the Commission reiterates that its objective for the French-language market is to maintain, within the programming broadcast during peak time by French-language television licensees, a proper balance of original French-language drama, including a minimum number of high-cost programs or series.

b) Incentives vs. regulatory approach

42. SARTEC, and the French-language professional associations in general, favoured a regulatory approach rather than a series of incentives.

43. For its part, however, the CAB argued that private broadcasters do not wish to see an increase in the number of regulatory requirements in order to meet this challenge, but would rather see new means brought in to support the production of drama programming.

The Commission's analysis and determination

44. In light of the significant historical contribution by conventional French-language broadcasters to original Canadian drama and of the commitments given by these broadcasters when their network licences were last renewed, the Commission is of the view that the incentives, as modified in this public notice, will be sufficient to maintain a proper balance of original drama programming during peak viewing hours. However, it will analyze the results of the licensees involved, notably when it comes time for their licences to be renewed, and particularly with respect to their network licences.

c) The definition of French-language "original program" and "drama program"

45. In Public Notice 2004-38, the Commission invited interveners to comment on a possible definition for "original program," and proposed the following definition:

An original program is a program that has never before been distributed by any licensee of a broadcasting undertaking and that will be distributed for the first time by the licensee.

46. Virtually all the interveners submitted comments, in one form or another, on the question of the definition. The CAB recommended modifying the definition of an original program to allow the first airing of a program by each broadcaster who participated in the funding at the pre-production stage to qualify.

47. TVA proposed to broaden the definition of "first run" to allow a program that had been previously distributed by a Canadian specialty or pay service to qualify, provided that the broadcaster had pre-purchased the program in question.

48. TQS proposed to allow for greater flexibility, primarily for new television genres, such as hybrids and reality programs requiring a certain amount of scripting and staging, while still allowing for improvisation.

49. The CBC defined as original, a program that is distributed for the first time by the licensee and that has never before been distributed by another broadcasting undertaking licensee in the same language market, including a production funded through, among other things, licence fees from a number of broadcasters sharing the exhibition windows.

50. The APFTQ submitted that it would prefer that an original program be defined as a program that no licensee of a conventional television or specialty undertaking has previously distributed in the same language and that the licensee is distributing for the first time.

51. The UDA suggested the following definition: [translation] "a program that has never been previously distributed by another licensee of a broadcasting undertaking and that is distributed for the first time by the licensee. The program must have been written and presented in French by Canadian artists." The UDA added that programs filmed through double shooting should be considered original programs in both markets, because they are deemed as such by the CTF.

52. SARTEC requested that the definitions of "original program" and "first run" be tightened. It was satisfied with the definition of original program, but argued that in the case of French-language service, this definition should apply only to the broadcast of a program [translation] "written and shot in French." The definition of first run should also apply to specialty and pay services.

53. The Guild stated that an original program is a program that has never been previously distributed by any broadcasting undertaking licensee and that is being distributed for the first time by a licensee. Original programs include productions that are distributed in the language in which they were originally shot, as well as programs shot simultaneously in English and in French. The definition of first run set out in the television policy for specialty services includes programs shot in English, then translated into French. The Guild was of the view that, were the incentive model applied to specialty services, programs translated from English into French should be excluded from the definition of original program, because they provide no work opportunities for Francophone artists.

The Commission's analysis and determination

54. The definition of "original program" proposed by the Commission in Public Notices 2004-38 and 2004-32 limits access to incentive program rewards to a single broadcaster. There seems to be a consensus among the interveners that the definition should include broadcasters who participate in the financing of a drama prior to the start of production and that, if in fact more than one broadcaster is involved at this stage, then each one should qualify for the incentive credit on its first broadcast. In the case of Canadian feature films, a specialty service or conventional television broadcaster could provide a second window after a first run on a pay television service. These two elements fall within the objectives that have been set, and in view of the production costs for this type of production, should normally, subject to specific benchmarks, encourage increased production of original drama programs.

55. The Commission also notes that the definition proposed in Public Notice 2004-38 does not sufficiently clarify the issue of original drama programs produced in the French language or the distinction to be made between double shooting and synchronized dubbing. These issues need to be examined in order to ensure that the incentive program actually achieves its desired objective.

56. Allowing English-language Canadian drama programs broadcast in their dubbed versions by a French-language broadcaster to qualify would go against the stated objective, which is to encourage the maintenance of a proper balance of original drama produced in the French language, and could have the direct impact of significantly reducing the number of original drama programs produced in the French language.

57. However, the Commission points out that implementing incentives for original French-language drama does not in any way affect the Canadian content credit given to broadcasters for airing Canadian dramatic films in their original language or in the dubbed version.

58. The Commission is of the view that the reservation mentioned above regarding Canadian dramatic films aired in their dubbed versions should not apply to productions filmed through double shooting, which involves shooting separately in each of the two official languages. In this case, it is obvious that the production includes two originals, and that each of these originals should be recognized in their respective markets.

59. In light of the above, the Commission has determined that, for the purpose of the incentive program, the definition of an "original program" is as follows:

An "original program" is a program that, at the time of its broadcast by a licensee, has not been previously broadcast by the licensee or, subject to the exceptions set out below, by any other licensee.

A licensee may also count a program as an original program, for the purpose of the drama incentive program where:

the licensee contributed to the program's pre-production financing, and the program has only been previously broadcast by another licensee that also contributed to its pre-production financing;
the program has only been previously broadcast by a licensee of a pay television, pay-per-view or video-on-demand undertaking;
the licensee has contributed to the pre-production financing of the program and the program has previously been broadcast by no more than one conventional television service or one specialty service within the licensee's multi-station ownership group, except that where a multi-station ownership group owns or controls more than one conventional television service the program may only be counted as original on one of those conventional television services; or
the program has been previously broadcast in English by a licensee, but was produced originally in both English and French and otherwise satisfies the definition of original program; a program that was originally produced in English only will not qualify as an original program even when it is broadcast with a French-language sound track or with French-language captioning.

For the purpose of this definition,

A "conventional television service" means a service composed of

one conventional television station; or
more than one conventional television station in which the programming broadcast during peak time, exclusive of commercial messages, and any part of the service carried on a subsidiary signal, is the same on each station at least 80% of the time, whether or not a network licence has been issued.

A "multi-station ownership group" means a group of stations and/or services owned or controlled by the same person or entity, and is composed of

more than one conventional television station;
one or more conventional television stations and one or more specialty services; or
more than one specialty service.

60. With respect to the definition of "drama program," the Commission notes that in Appendix II of Definitions for new types of priority programs; revisions to the definitions of television content categories; definitions of Canadian dramatic programs that will qualify for time credits towards priority programming requirements, Public Notice CRTC 1999-205, 23 December 1999, the Commission set out its definitions of drama programs that would be eligible for the 150% time credit as follows:

The Commission will award a 150% time credit against the required hours of priority Canadian programming for each category 7(a) to 7(e) dramatic program broadcast during the peak viewing period (7 p.m. to 11 p.m.) which:

is aired for the first time on television on or after 1 September 1998;
has a duration of at least one half-hour, including a reasonable amount of time for commercial breaks;
is recognized as a Canadian program, qualifies for either a C number or an SR number from the Commission and achieves 10 points related to the key creative positions; and
contains a minimum of 90% dramatic content.

61. The Commission considers that the incentive program for Canadian drama should define "drama program" in a manner consistent with existing incentive programs. Accordingly, the Commission considers that, for the purpose of the drama incentive program, "drama program" means a program that:

is described by a category from 7(a) to 7(e), as set out in Schedule I to the Television Broadcasting Regulations, 1987;
has a duration of at least one half-hour, including the time devoted to permitted advertising material;
contains a minimum of 90% dramatic content; and
qualifies as a Canadian program as defined in the Television Broadcasting Regulations, 1987.

d) Incentive program eligibility threshold

62. In Public Notice 2004-38, the Commission set out the criteria that it wished to adopt to make original French-language drama programming eligible for the incentive program. It proposed to associate the relevant rewards with all programs that meet these criteria in a broadcast year, regardless of the number of hours of Canadian drama programming the licensees have aired in previous years.

63. A number of interveners indicated that the Commission may not meet its stated objective if it were to allow all original drama hours aired by broadcasters to qualify for the credits without regard to the number of hours of drama programming they aired in previous years. The incentives proposed by the Commission could even result in a reduction in the number of hours of original Canadian drama, rather than help maintain the status quo or bring about an increase in the number of hours, since they would be rewarding all hours broadcast.

64. To remedy this situation, a number of interveners, including Astral and the APFTQ, proposed to limit advertising minute credits to the hours of original Canadian drama programming that exceed the average number of hours broadcast by the licensee over the three preceding years.

65. For its part, TVA indicated its support for the incentives as proposed, specifying that [translation] ". the proposed incentives will only compensate for a portion of the overall negative trends that are currently working to reduce TVA's ability to contribute to the future success of drama programming."

66. Among the major trends affecting the role played by drama in its programming schedule, TVA noted the following:

a substantial growth in the number of specialty services, which fragment the viewing audiences, advertising revenues and public funding for drama productions;
a considerable increase in drama production costs; and
a reduction in the public funding of drama programming aired on private French-language stations.

The Commission's analysis and determination

67. The Commission considers that, in the French-language market, incentives must be based on the objective of maintaining a proper balance of drama programming during peak hours. After examining the past performance of certain conventional French-language broadcasters with respect to drama, the Commission considers that awarding additional advertising minutes for all hours of original drama programming aired may not achieve this objective.

68. Commission logs indicate the number of hours of drama programming broadcast by each licensee, but there is no distinction made between programs produced with the support of the CTF and other 10-point Canadian drama programs, nor is there any indication of the number of points obtained by a program for Canadian content or whether the program was funded through ownership transfer benefits.

69. To add to its data, the Commission asked conventional broadcasters TVA, the CBC, TQS and Télé-Québec to submit detailed figures for eligible original drama they aired in the last three broadcast years, as well as their projections for the broadcast of original drama for the year 2004-2005.

70. As noted earlier, the approach proposed by Astral involves establishing an eligibility threshold based on the average number of hours of original drama programming broadcast over the past three years. However, taking into account the data received and the declining trend in the broadcast of drama programming over the past several years described by the industry associations, the Commission considers that such an approach could result in a situation where no French-language broadcaster would be able to take advantage of the proposed incentives and, thus, would not invest any additional revenues to neutralize some of the major negative trends that have been described, notably by TVA. Such an approach could therefore result in the continuance of this downward trend, which is particularly evident in the production of high-cost drama.

71. The Commission considers that the incentives must first aim to neutralize the downward trend that has been noted, particularly in the private sector, and attempt to motivate conventional French-language broadcasters to maintain their significant contributions to original drama programming. In proposing an incentive designed to attenuate, through additional advertising revenues, the impact of some of the trends described by the interveners, the Commission is of the view that it will be able to meet its objective without causing significant changes likely to affect the current balance in the French-language advertising market.

72. The Commission considers that setting an eligibility threshold of 65% of the average number of qualifying drama hours broadcast over the past three years by French-language broadcasters should make it possible to achieve its goal and inject sufficient sums of money in the form of additional advertising revenues to encourage these broadcasters to maintain their significant contributions to this type of programming, without adversely affecting the current balance in the French-language advertising market.

73. The eligibility threshold for each licensee shall be determined by the Commission in the context of its consideration of licence amendment applications to enable licensees to take advantage of the incentive program. Unless otherwise specified by the Commission, the eligibility threshold established for each licensee shall remain the annual reference threshold in subsequent broadcast years.

74. In order to qualify for inclusion in the calculation of the eligibility threshold, an eligible drama program must meet the definitions of "original program" and "drama program," must not have been either fully or partially funded through ownership transfer rewards or commitments made on the issuance of a new licence, and must have been aired during peak viewing hours (7 p.m. to 11 p.m.), except if the program is directed to children or youth (2 to 17 years). In such cases, the drama must comply with the criteria and the broadcast times established for this category of programming.

e) The impact of the proposed incentives

75. As demonstrated by the broadcasters during the supplementary information process, the potential impact of the proposed incentives will depend on a number of economic variables. The variables will depend on a number of factors, including the degree of participation by the broadcasters in the incentive program, their individual programming strategies, the number of eligible drama programs that are produced, their production costs, advertising rates that are set and the revenues they generate.

76. Based on the data provided, the Commission estimates that the additional revenues that could be generated by these incentives will be of the order of between $4 million to $6 million for the 2004-2005 broadcast year. If that were to be the case, the estimated additional revenues for the French-language market would represent less than 1% of the total television advertising envelope and approximately 1/3 of the projected growth in advertising revenues for 2004-2005.

77. The Commission is of the view that, when converted into licence fees for the production of original drama programming, the injection of an additional $4 million to $6 million could prove to be an economic incentive that will slow the downward trend in the broadcast of original drama programming noted in the past several years, without affecting the balance in the French-language advertising market.

f) Hourly production costs - eligibility criteria

78. In view of the fact that average production costs are lower in the French-language market, TVA proposed that the trigger level for accessing the three additional advertising minutes should be no higher than $500,000. Télé-Québec argued that the $800,000 threshold would not reflect the reality of the French-language market. The Guild stated that a broadcaster should not qualify for the two-minute credit unless the drama program it broadcasts has a production budget of at least $250,000 per hour.

The Commission's analysis and determination

79. In Public Notice 2004-38, the Commission emphasized that incentives were "aimed at maintaining a proper balance of original French-language drama programming during peak time, including a minimum of high-cost programs or series."The Commission expressed concern with maintaining a minimum amount of high-cost drama described by the CTF as having minimum production requirements of $800,000 per hour.

80. The incentive program proposed for the French-language market does not exclude drama productions costing between $500,000 and $800,000, but awards three additional minutes of advertising only for high-cost drama, and two additional minutes of advertising to any drama program having a production cost of under $800,000 per hour.

81. The analysis that led to Public Notice2004-38 emphasized the Commission's concern with the decline in the number of high-cost drama series, which are a driving force in the Quebec film and television industry. Because the production budget is not the only indicator of viewership success in Quebec and because high-cost productions are likely to be the first to be withdrawn from production planning, the Commission has determined that the three additional advertising minutes will only be available for drama programs that have a minimum production cost of $800,000 per hour.

82. With respect to the proposal put forward by the Guild suggesting that drama programs of less than $250,000 be ineligible, the Commission points out that, historically, the television industry working in the French-language market has demonstrated a remarkable degree of creativity in producing drama programming at a cost level that is much below the Canadian average, while still producing appreciable viewership results. Further, the Commission would not want to exclude certain drama series, especially in the field of programming intended for youth, where the average hourly budget could be slightly less than $250,000.

83. In light of the growth in production costs over the past several years and of the importance of viewership results to broadcasters, the Commission does not expect that broadcasters will abuse the limited budget category of drama programming in an attempt to access the two additional advertising minutes.

84. Since all conventional, educational and specialty broadcasters are eligible for the incentives, the Commission wishes to encourage all broadcasters to maintain or increase the broadcast of drama programming in their respective programming schedules. It has therefore decided that the two additional minutes of advertising will be available for all qualifying drama productions with an hourly cost of less than $800,000.

g) Original drama programming directed to youth

85. In Public Notice 2004-38, the Commission proposed to include in the incentive rewards Canadian drama productions directed to children (2 to 12 years), when such programs are broadcast at appropriate viewing times for children. The Commission sought comments as to whether these hours should be specified.

86. The majority of interveners were pleased that the Commission recognizes the important role of original Canadian drama directed to children. Among the comments received, TVA and Télé-Québec were of the view that broadcasters should be allowed to determine the viewing hours that are suitable for children. Only the Guild specified that the appropriate viewing times for children should be between 4 p.m. and 9 p.m.

87. The APFTQ noted that the Commission limited its proposal to programming for children (2 to 12 years) and stated that programming directed to teenagers (12 to 17 years) should benefit from the same treatment. The CAB proposed that the Commission reinstate the 150% credit for 10-point drama programming directed to youth, based on the terms originally set out in Public Notice 1984-94. According to the CAB, all broadcasters who airing a program in the first two years following its initial airing and who participated in the funding of the program should also be entitled to this credit.

The Commission's analysis and determination

88. The Commission acknowledges that prior to the publication of the television policy, drama programming directed to children broadcast at appropriate times for that audience qualified for a 150% time credit. In the television policy, this policy was changed, with the result that only eligible drama programming broadcast between 7 p.m. and 11 p.m. qualified for the new credit.

89. The CTF defines a drama program as any entertainment program in the field of fiction. Dramas directed to children or youth up to the age of 17 fall into the envelope of programming for children and youth, whereas programming directed to the family is considered by the CTF to be part of the drama programming envelope. The CTF is of the view that drama programming directed to the family is distinct from programming directed to children and youth because it seeks to interest an audience of all ages - adults, as well as children and youth, or adults without children.

90. According to the CTF, "programming directed to youth" is defined as programming intended specifically for youth aged 13 to 17. It should have young people as the lead performers and should reflect the reality of that age group. In the case of programming directed to children and youth, the CTF defines peak viewing hours as the period in which the broadest audience of children and youth is accessible.

91. In the French-language market, the CBC and Télé-Québec play a significant role in the production and broadcasting of Canadian drama programming directed to children and youth.

92. As pointed out by the APFTQ and other interveners, based on the criteria set out in Public Notice 2004-38, drama series directed to youth, such as Randam from Télé-Québec and Watatatow from the CBC, which are not shown during peak viewing times, cannot be considered eligible for the incentive program.

93. The Commission recognizes the importance that public French-language broadcasters attribute to the 13 to 17 age group by producing and broadcasting drama programs that reflect the reality of this age group. Although programs such as Randam and Watatatow are not directed to children (2 to 12 years) and are not broadcast during peak viewing hours, they have historically been recognized as high quality programming directed at young people.

94. In light of the interventions, and based on French-language market considerations, the Commission agrees to include drama programming directed to the 13 to 17 age group in original Canadian drama programs directed to children and youth that are eligible for additional advertising minute rewards, despite the fact that they are not broadcast during peak hours, provided that the programs meet the following criteria:

they reflect and address the realities of this age group;
the lead performers are from this same age group; and
the programs are aired at times appropriate to this audience.

h) Télé-Québec

95. In its intervention, Télé-Québec pointed out that it was authorized to air only eight minutes of advertising per hour, compared with the conventional 12 minutes. It stated that it appreciated being allowed to qualify for the program and assumed that the additional minutes would be added to the eight minutes already authorized by condition of licence.

96. In Public Notice 2004-38, the Commission proposed a restriction limiting advertising to a maximum of 14 minutes in any clock hour. In actual fact, this cap restricts the broadcaster to adding only two additional minutes of advertising, which represents a degree of protection for the viewer who, at any given time, will not be subject to more than two additional advertising minutes per hour.

97. The Commission expects Télé-Québec to count the additional advertising minutes credited to it for airing eligible drama programming as being in addition to the currently authorized eight minutes. The Commission also expects Télé-Québec, in its application for a licence amendment enabling it to participate in the incentive program, to consider restricting itself to the broadcast of no more than two additional minutes of advertising in any clock hour, that is, a maximum of 10 minutes of advertising per clock hour.

i) Eligibility criteria and rewards for drama programming that is not funded by the CTF

98. In order to reduce the pressure on the CTF's limited resources, the Commission proposed in Public Notice 2004-38 an additional reward of four minutes of advertising for each hour of 10-point original drama that is broadcast during peak viewing hours (7 p.m. to 11 p.m.) and is not funded by the CTF. These four additional minutes were added to the reward for each eligible hour of Canadian drama. The Commission estimated that, at least for the largest broadcasters, the value of these four minutes of advertising would largely replace the CTF contribution.

99. In the same public notice, the Commission questioned the relevance of such a measure in the French-language market. The majority of interveners indicated that, in the French-language market, it is rare to find a drama production that is not funded by the CTF. However, TVA and the CBC indicated that this measure could effectively be applied to the French-language market and that it would be a source of new funding for the system, while still encouraging the production of drama programming without CTF assistance.

The Commission's analysis and determination

100. The Commission recognizes that an incentive program designed to effectively encourage drama programming that is not funded by the CTF could represent a new source of funding for the French-language market. Although few French-language drama productions are produced without CTF assistance, the Commission notes the comments of TVA and the CBC, which are currently the broadcasters that air the majority of French-language drama, and confirms the proposal set out in Public Notice 2004-38 designed to add four additional minutes to the reward for each hour of eligible drama programming, provided that no funding was received from the CTF.

101. However, the Commission notes that in order to qualify for benefits under this incentive program, the broadcasters will have to fund drama productions themselves and, in fact, replace CTF funding, long before they will be in a position to recover these amounts through the sale of additional advertising minutes.

102. The Commission considers that the most effective means of reducing the risk associated with this incentive and of making this incentive more attractive, is to allow licensees to use the bonus advertising minutes allocated in lieu of CTF funding at the end of the development phase of the production, instead of having to wait until the production is broadcast. Before a licensee would be allowed to use the bonus minutes, a dramatic production must have reached the same stage of development as that which would be necessary for it to qualify for CTF funding. All of an eligible project's funding must be in place and the key members of the creative team identified. Sections C and D of the CTF application form specify the information required. A licensee will be authorized to air the bonus advertising minutes permitted by the incentive and to recover the amounts invested, once all funding requirements equivalent to those of the CTF have been met. Further, and in accordance with CTF guidelines, the production's shooting must begin in the year following the airing of the additional advertising related to incentive reward for the production.

103. Along with their annual reports on the drama production incentives, licensees will be required to submit a report on the status of each of their ongoing projects not funded by the CTF. These reports must also indicate when the advertising resulting from incentive rewards related to projects not funded by the CTF was aired. These reports will enable the Commission to monitor each production and, if it is determined that a production for which additional advertising has already been aired will not be broadcast, the Commission can reduce, by an equivalent amount, at some future date, the number of advertising minutes awarded to the licensee. The Commission considers that this will prevent a licensee from obtaining additional minutes for productions that are never broadcast.

104. Subject to the licensee having met the annual eligibility threshold, the Commission has decided the following:

Licensees who invest in a 10-point original drama program broadcast in peak time, with an hourly production budget of at least $800,000 and licence fees equivalent to those that are normally required by the CTF, but that has not been funded by the CTF, will be authorized to broadcast a total of seven additional advertising minutes for each hour of such drama. The four minutes awarded in exchange for the absence of CTF funding may be broadcast as soon as financing for the production is in place and the key members of the creative team have been identified, in accordance with the applicable sections of the CTF application form. The three remaining minutes must be aired after the production has been broadcast.
Licensees who invest in a 10-point original drama program broadcast in peak viewing time, with an hourly production budget of less than $800,000 and licence fees equivalent to those normally required by the CTF, but that has not been funded by the CTF, will be authorized to broadcast a total of six additional minutes of advertising for each hour of such drama. The four minutes awarded in exchange for the absence of CTF funding may be broadcast as soon as financing for the production is in place and the key members of the creative team have been identified, in accordance with the applicable sections of the CTF application form. The two remaining minutes must be aired after the production has been broadcast.
Principal photography on the project must begin in the broadcast year following the airing of the additional advertising minutes.
In the case of a production funded under this incentive, but not broadcast, the broadcaster will be required to deduct, in the current or following broadcast year, the number of minutes credited for the production from the number of minutes of advertising awarded under the incentives.

105. For each production funded under the non-CTF incentive, the licensee must submit to the Commission, along with its annual report on the drama incentives, the following information obtained from the producer:

a financing structure that meets the requirements of section C of the CTF 2004-2005 application form, clearly specifying the amount received from the licensee and corresponding to the revenues that will be generated by the four additional minutes of advertising;
the names of the key creative personnel, as per section D of the CTF 2004-2005 application form; and
the planned start date for shooting the principal photography.

Safeguards tied to rewards for productions not funded by the CTF

106. In Public Notice 2004-38, the Commission invited comments on how it could best ensure that revenues derived from additional advertising minutes awarded for drama productions not funded by the CTF are used for the production of Canadian drama programming.

107. The Guild indicated that [translation] "it is essential that the revenues generated by the sale of these four additional minutes be directed toward the producers." To ensure that the revenues derived from the four additional minutes are directed to the production of Canadian drama, TVA proposed adopting the solution that Telefilm Canada (Telefilm) currently uses for tax credits, by ensuring that these revenues are included in the financing structure of the production in question.

108. TVA also proposed that, for drama programming not funded by the CTF, the broadcaster's supplementary licence required to complete the financing structure should be recorded as the equivalent in revenues derived from the four minutes of advertising.

109. The APFTQ stated that it cannot predict the effects that the application of the incentives proposed by the Commission would have with sufficient accuracy to either support or oppose it. However, the APFTQ noted that the Commission has not specified whether this measure would apply solely to independent productions. It noted, however, that this interpretation was possible given the Commission's indication that the proceeds from the four additional minutes should be paid to the producer to, in part, replace CTF assistance.

The Commission's analysis and determination

110. The data provided in the interventions by the broadcasters, particularly in the Cossette and Carat studies, which are part of the public record, included a number of possible estimates as to the value of a 30-second commercial break broadcast by the various conventional broadcasters. The Commission considers that these estimates provide a starting point for negotiations between broadcasters and producers. Furthermore, as part of their drama incentive reports, broadcasters will be required to file with the Commission information specifying the licence fee and the amount advanced as a result of the four additional advertising minutes for each eligible drama program.

111. The annual reports on drama production incentives will be protected by the Commission's guidelines on the handling of confidential information. These reports will provide the Commission with the information needed to monitor the results of the incentives in order to ensure that drama programming not financed by the CTF is given a fair financial contribution from broadcasters.

j) Funding of drama programming through ownership transfer benefits

112. In Public Notice 2004-38, the Commission proposed that drama programs funded by a licensee as part of an ownership transfer benefit or a commitment made at the time of licensing should not qualify for the drama incentive program.

113. TVA indicated that the Commission should award additional advertising minutes for the broadcast of original drama programming funded within the context of tangible benefits. According to TVA, [translation] "If the Commission and those who support its drama programming objectives truly want to encourage the production of drama, they must recognize that including ownership transfer benefits is an excellent way to do this. Otherwise, the motivation for proposing such benefits will be reduced in the future."

The Commission's analysis and determination

114. The Commission notes that the expenditures linked to ownership transfer benefits ensure that the Commission receives the best possible proposals for ownership transfers, taking into account the size and nature of the proposed transaction. Accordingly, these benefit-related expenditures and the resulting programs represent an obligation that licensees are required to meet, regardless of any participation in the Commission's incentive program. In the Commission's view, licensees should not be rewarded for complying with an existing obligation.

115. The Commission therefore concludes that drama programming funded in whole or in part through benefits or commitments made at the time of licensing will not qualify for the original broadcast hours incentive. In calculating the expenditure incentive, drama expenditures associated with commitments made at the time of licensing or ownership transfer benefits will be excluded.

k) Drama programming produced in house by licensees

116. In its intervention, the APFTQ raised a number of questions:

Do drama programs produced in house by the CBC or Télé-Québec (which, by definition, do not qualify for CTF assistance) qualify for the four additional minutes? If so, what weight should be given to the fact that they are intended in principle to partially replace CTF assistance?
Do programs produced in house by a producer affiliated with a private broadcaster, and that are not funded by the CTF, qualify for the four additional minutes? If so, what weight should be given to the fact that the proceeds from these four minutes are supposed to go to the producer?

117. Other comments received in response to the incentive model proposed by the Commission for French-language broadcasters also raised the issue of whether drama produced in house by a broadcaster should qualify for the benefits provided under the incentive program, and particularly for the additional advertising minutes relating to drama programming not funded by the CTF.

The Commission's analysis and determination

118. The Commission reiterates that when Public Notice 2004-38 was published, its objective was to ensure that the revenues derived from the proposed additional minutes for eligible drama programming not funded by the CTF revert to the producers, and are not counted as Canadian programming expenditures in the annual reports filed by licensees with the Commission.

119. The Commission recognizes the efforts of broadcasters who produce selected drama programming in house and have these programs qualify for the two- or three-minute advertising credit, depending on their respective production budgets. However, in light of its objective and the monitoring mechanisms designed to ensure that revenues relating to the bonus four minutes are remitted to independent production, the Commission confirms that original drama programs produced in house by a licensee will not qualify for the four additional minutes of advertising allowed for Type (c) and Type (d) drama programs.

120. In order to include drama programs produced in house by a broadcaster without CTF funding, the Commission adds the following two types of drama to the four existing eligible ones:

Type (e): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original drama, produced in house by a broadcaster, with a production budget of at least $800,000 per hour.

Benefit: three minutes of additional advertising for each original hour of drama broadcast.

Type (f): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original drama, produced in house by a broadcaster, with a production budget of less than $800,000 per hour.

Benefit: two minutes of additional advertising for each original hour of drama broadcast.

l) Investments in drama programming

121. In Public Notice 2004-38, the Commission proposed to authorize specialty services to record their equity investments in drama programming, as a means to encourage the few specialty services that commission Canadian drama productions to make capital investments. The Commission therefore requested comments on the best means of ensuring that a broadcaster's investments are truly at risk, and do not take the place of licence fees.

122. As part of the process relating to Public Notice 2004-32 involving English-language drama, the CAB, CHUM Limited (CHUM) and Global supported the Commission's proposal. In their view, cases where capital investments should qualify as expenditures for Canadian programming under the incentive program are as follows:

the equity investment cannot be an advance or a loan and must be truly at risk; and
the equity investment must be the result of a separate and distinct negotiation, that is, the producer must not require equity participation as a precondition to the licensing of the production.

123. With regard to investments by specialty services, Astral did not believe it was relevant or necessary to amend the current rules, which permit both specialty services and conventional services to record, as Canadian programming expenditures, any net losses arising out of such investments.

124. With regard to feature films, Astral was of the view that the best way to encourage the maintenance of the exceptional contribution made by pay television to the funding of development and production, as well as to the acquisition, promotion and distribution of Canadian theatrical feature films, is to maintain the current rules regarding pay television service investments in theatrical feature films.

125. The APFTQ was of the view that the current criteria whereby investments made by specialty services can be recorded as Canadian production expenses are equitable. It was firmly opposed to the proposal to allow specialty (or conventional) services to record the full amount of their investments as Canadian production expenses, without regard to the returns made on those investments.

126. According to the APFTQ, the floor for Canadian production expenses imposed as a condition of licence frequently constitutes a ceiling. In such situations, allowing the deduction of the full amount invested as Canadian production expenses would reduce the portion of overall Canadian programming expenditures that would be allocated to licence fees in a given year. This would result in a progressive decline in the commercial value of Canadian programs on the Canadian market.

127. The CAB noted that, apart from certain exceptions, because of the limited earning potential of French-language drama productions on the open market, private French-language broadcasters do not tend to invest significant amounts of equity capital. Otherwise, the CAB had no comment on this issue.

128. Telefilm did not object to the Commission's proposal to authorize specialty services to record their capital investments that are truly at risk as expenditures for Canadian programs under the incentive program. Telefilm pointed out its expertise in the handling of equity capital and proposed to work with the Commission to help establish the appropriate benchmarks. Telefilm noted the importance of emphasizing that a broadcaster's capital investments do not confer on it any more rights than its share in the copyrights or the recovery rights. The distribution agreements and the negotiations for broadcast rights must remain separate.

The Commission's analysis and determination

129. The Commission notes that, in Public Notice 2004-38, the concept of equity at risk is clearly defined as "... equity investments in drama productions that have no guarantee of a return."

130. The Commission understands the concerns of certain interveners regarding the need for measures to ensure that these investments are truly at risk. Amounts that are placed with a guaranteed return constitute a form of loan rather than an at risk investment. Since such returns reduce the level of risk, such investments should not fall within the definition of equity at risk. Further, as was pointed out by the Canadian Film and Television Production Association (CFTPA) and Telefilm, in the case of English-language drama programs, the negotiations for these investments should remain separate from those for licence and distribution fees.

131. In light of the comments received as part of the process related to Public Notices 2004-38 and 2004-32, the Commission agrees that it is essential to properly define an equity investment that is truly at risk, using appropriate criteria. As noted by the CAB, CHUM and the CFTPA, a guaranteed return on an investment is the mark of an advance or a loan, and should not qualify as an investment that is "at risk." The Commission supports the positions of the CFTPA and Telefilm whereby equity investments by broadcasters must be separate and distinct from licensing fee and distribution rights negotiations.

132. In light of the foregoing, the Commission has determined that "at risk" equity investments in Canadian French-language drama will qualify as eligible Canadian program expenditures when the following conditions have been met:

the investment is truly at risk and does not constitute the equivalent of an advance or a loan. Any investment with guaranteed or effectively guaranteed revenues will not be counted as an equity investment for the purpose of this incentive; and
in keeping with normal industry practice, distribution and other rights must be negotiated and defined separately from any equity investment.

133. The Commission notes that specialty services are not currently required to file with the Commission program expenditures broken out by genre. Therefore, the Commission is unable to determine the annual spending by specialty services on Canadian drama and, as a consequence, these services are not able to benefit from the incentive to increase expenditures on Canadian drama. If, in the future, specialty services include spending by program genre in their CRTC annual returns, the Commission could make the necessary adjustment to the drama incentive program.

134. Licensees who wish to take advantage of the new benefits with regard to Canadian program expenditure requirements must apply for an amendment to their relevant conditions of licence.

m) Licence fee "top-ups"

135. The CTF awards financial support to qualifying Canadian television productions (commonly known as "licence fee top-ups") in the form of top-ups to licence fees paid by broadcasters to producers. Pursuant to Public Notice 2003-54, the Commission received a number of requests to modify the definition of eligible Canadian programming expenditures to exclude licence fee top-ups. Subsequently, in Public Notices 2004-38 and 2004-32, the Commission determined that changing this policy would require a public process and would not ensure an increase in Canadian programming expenditures. Consequently, the Commission proposed to retain its current approach.

136. In its comments filed pursuant to Public Notice 2004-32, Telefilm argued that licence fee top-ups effectively reduce broadcasters' Canadian program expenditure requirements.

137. The Commission notes that, in 2002, licence fee top-ups amounted to less than 5% of the total expenditures devoted to Canadian programming by all specialty, pay or pay-per-view services. Furthermore, the Commission considers that, given the increased expenditures on Canadian programs that may result from allowing equity at risk to count as an eligible expenditure, the concern expressed by Telefilm will be alleviated.

138. Accordingly, the Commission will not amend its policy with respect to licence fee top-ups.

n) Implementation of the drama incentive program

139. The drama incentive program set out in the appendix to this public notice will be implemented by way of condition of licence. Conventional television licensees that wish to participate in this incentive program will therefore be required to apply for a condition of licence that would, in most instances, permit the licensees to broadcast advertising minutes over and above the 12 minutes per hour permitted under section 11 of the Television Broadcasting Regulations, 1987, up to a maximum of 14 minutes in any clock hour.

140. Any licensee that is subject to a condition of licence that limits the authorized number of advertising minutes may request an amendment to that condition in order to participate in the drama incentive program.

141. Any French-language broadcaster wishing to take advantage of the incentives set out in this notice must, in filing its application for a licence amendment, file information or confirm the information it has previously filed with the Commission, in order to determine the eligibility threshold that will apply to its licence. To do this, the broadcaster will be required to supply a list of all eligible drama programs aired during the 2001-2002, 2002-2003 and 2003-2004 broadcast years, specifying any information required to confirm the number of hours of eligible drama programming.

142. Conventional television licensees may use the following text in applying for an amendment to a condition of licence:

In addition to the 12 minutes of advertising material during any clock hour in a broadcast day permitted by subsection 11(1) of the Television Broadcasting Regulations, 1987, the licensee may broadcast such additional minutes of advertising material calculated in accordance with Incentives for original French-language Canadian television drama, Broadcasting Public Notice CRTC 2005-8, 27 January 2005, as may be amended from time to time.

143. Licensees may accumulate reward minutes for the broadcast of qualifying drama aired since l September 2004. However, licensees will not be permitted to broadcast these reward minutes until the appropriate conditions of licence have been approved by the Commission. The Commission expects those licensees who wish to participate in the drama incentive program to apply for the appropriate condition of licence or amendment as soon as possible.

o) Evaluation of the incentive program

144. In Public Notice 2004-38, the Commission proposed to monitor the results of licensees participating in the incentive program through a combination of the annual drama incentive report, the licensee's annual returns and the Commission's own logs.

145. The Commission considers that full and transparent annual reporting is essential to the success of its incentive program. The annual drama incentive reports, if sufficiently detailed and made public in a timely manner, will provide both the Commission and interested parties with the necessary tools to evaluate the program and to monitor compliance with its provisions. At the same time, requesting an onerous level of detail or making public information that would otherwise be protected by the Commission's confidentiality guidelines could discourage licensees from participating in the incentive program.

146. Accordingly, the Commission has determined that each licensee that chooses to take advantage of the incentive program will be required to file, along with its annual report, a report describing its use of the incentives. This report must include the following elements:

data showing that the licensee has met the eligibility threshold established in the application to amend a condition of licence allowing it access to the incentive program;
data on the advertising minute credits for qualifying programs; and
data on the use of accumulated advertising credits.

147. For each qualifying program, the licensee must supply the following information:

Information about the program
- The type of program (pilot, one-off, made-for-television movie, mini-series or high-cost series), final title of the program, duration of the program excluding commercial breaks (in the case of a series, the number of episodes, the duration of each episode, and whether it was a seasonal program or the continuation of a series).
- The names and addresses of any and all production houses.
- The date and time of the broadcast on each conventional channel and specialty service controlled by the licensee.
- The production budget determined in accordance with CTF standards, specifically with respect to accounting, reporting, producer's fees and the corporate overhead policy. This document, which is to be filed by the licensee (although it may be prepared by the producer at the licensee's request) will be protected under the Commission's confidentiality policy.
- The Canadian Audio-Visual Certification Office (CAVCO) certification letter identifying the number of Canadian content points awarded to the production and, where applicable, the CRTC certification number.
- The title of the type of benefit reward for the program from the list published in the appendix to this notice.
- For the 10-point programs produced with the help of incentives, that is, original drama programming not funded by the CTF, the following information must be supplied by the producer:
  - the production's financial structure, presented according to the standards set out in section C of the CTF 2004-2005 application form, or its equivalent in future years, separately identifying the amount awarded by the broadcaster for the four additional advertising minutes;
  - the key creative personnel - as per section D of the CTF 2004-2005 application form, or its equivalent in future years;
  - the date on which principal photography will commence; and
  - the status of each project in development for which the incentive advertising minutes have been broadcast by the licensee under the incentive program.
Information on additional advertising minutes in the programming schedule
- An abbreviated analysis of the total advertising minute credits qualifying for broadcast in the broadcast year of each conventional television station and each specialty service, in accordance with this public notice, including the additional minutes awarded under the incentives.
- The title, time and date of broadcast of the programs in which the additional advertising minutes were aired, as well as the number of minutes aired within each of the programs broadcast for each conventional television station and specialty service.

148. If necessary, Commission staff will meet with licensees in the 2004-2005 broadcast year in order to help harmonize the presentation of the required reports.

149. The annual drama incentive reports must be filed with the Commission no later than 30 November of each year, in conjunction with the annual returns. Subject to its confidentiality policy, the Commission will do its utmost to place the reports on its Internet site by the beginning of the following year.

150. In an attempt to harmonize this drama incentive program with the limitations on the sale of advertising set out in the Television Broadcasting Regulations, 1987 and conditions of licence, the Commission intends to institute a monitoring program based on spot checks of various licensees' program logs. These spot checks will compare a licensee's logger tapes to the Commission's computer logs in order to determine:

whether the logs are an accurate reflection of the programs aired; and
whether the programming broadcast complies with the applicable regulations and conditions of licence.

151. Should a spot check reveal possible non-compliance, a letter will be sent to the licensee concerned providing an opportunity to comment on the results of the spot check. In such cases, the Commission will take whatever measures are necessary to ensure compliance.

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 Broadcasting Public Notice CRTC 2005-8

Summary of the incentive program for original French-language Canadian television drama

The following is a summary of the Commission's incentive program for French-language Canadian television drama. It is intended to serve as a convenience to the reader, to be read in conjunction with the public notice it accompanies. The incentives summarized below will be effected by condition of licence.

Objective

To maintain, within the programming broadcast during peak time by French-language television licensees, a proper balance of original French-language drama, including a minimum number of high-cost programs or series.

Definitions

In addition to the definitions found in the applicable regulations that apply hereto, the following definitions apply for the purpose of the implementation and monitoring of the incentive program for French-language drama.

"eligible drama program" is a program that meets the definitions of "original program" and "drama program" and that

has not been financed, either in whole or in part, through benefits arising out of the transfer of ownership or commitments made at the time of licensing; and
was broadcast during peak viewing hours, namely between 7 p.m. and 11 p.m., except in the case of programming directed to children or youth (ages 2 to 17).
In such cases, the drama must meet the applicable criteria and be broadcast during the applicable air times for these program categories, as described in this Broadcasting Public Notice CRTC 2005-8.

A "drama program" means a program that

is described by a category from 7(a) to 7(e) as set out in Schedule I to the Television Broadcasting Regulations, 1987;
has a duration of at least one half hour, including the time devoted to permitted advertising material;
contains a minimum of 90% dramatic content; and
qualifies as a Canadian program as defined in the Television Broadcasting Regulations, 1987.

An "original program" means a program that, at the time of its broadcast by a licensee, has not been previously broadcast by the licensee or, subject to the exceptions set out below, by any other licensee.

A licensee may also count a program as an original program, for the purpose of the drama incentive program, where:

the licensee contributed to the program's pre-production financing, and the program has only been previously broadcast by another licensee that also contributed to its pre-production financing;
the program has only been previously broadcast by a licensee of a pay television, pay-per-view or video-on-demand undertaking;
the licensee has contributed to the pre-production financing of the program and the program has previously been broadcast by no more than one conventional television service or one specialty service within the licensee's multi-station ownership group, except that where a multi-station ownership group owns or controls more than one conventional television service the program may only be counted as original on one of those conventional television services; or
the program has been previously broadcast in English by a licensee, but was produced originally in both English and French and otherwise satisfies the definition of original program; a program that was originally produced in English only will not qualify as an original program even when it is broadcast with a French-language sound track or with French-language captioning.

For the purpose of this definition:

A "conventional television service" means a service composed of

one conventional television station; or
more than one conventional television station in which the programming broadcast during peak time, exclusive of commercial messages, and any part of the service carried on a subsidiary signal, is the same on each station at least 80% of the time, whether or not a network licence has been issued.

A "multi-station ownership group" means a group of stations and/or services owned or controlled by the same person or entity, and is composed of

more than one conventional television station;
one or more conventional television stations and one or more specialty services; or
more than one specialty service.

"CTF" means the Canadian Television Fund.

The "eligibility threshold" is the number of hours of eligible drama that a French-language broadcaster must broadcast before being able to access the additional advertising minutes provided under the incentive program. This number is 65% of the average number of hours of eligible drama programming broadcast by the French-language broadcaster over the last three broadcast years prior to the announcement of this program and must be confirmed by the Commission at the time of the licence amendment that is required before the broadcaster is eligible to participate in the program. Unless otherwise indicated by the Commission, this eligibility threshold shall remain the annual base reference for subsequent broadcast years.

A "point," in relation to a program, refers to the points a program has earned based on the application of Appendices I and II to Certification for Canadian Programs - A Revised Approach,Public Notice CRTC 2000-42, 17 March 2000.

Incentive program and applicable benefits

Six types of original French-language Canadian drama programming broadcast by conventional television stations or by eligible specialty services that have previously met the eligibility threshold can qualify for additional advertising minutes:

Type (a): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original drama funded by the Canadian Television Fund (CTF) with a production budget of at least $800,000 per hour and minimum licence fees, as set by the CTF.

Benefit: three minutes of additional advertising for each original hour of drama broadcast.

Type (b): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original CTF-funded drama, with a production budget of less than $800,000 per hour and minimum licence fees, as set by the CTF.

Benefit: two minutes of additional advertising for each original hour of drama broadcast.

Type (c): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original French-language drama not funded by the CTF, with a production budget of at least $800,000 per hour and licence fees consistent with CTF standards.

Type (d): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original French-language drama, not funded by the CTF, with a production budget of less than $800,000 per hour and licence fees consistent with CTF standards.

Type (e): the broadcast in peak time (7 p.m. to 11 p.m.) of 10-point original drama, produced in house by a broadcaster, with a production budget of at least $800,000 per hour.

Benefit: three minutes of additional advertising for each original hour of drama broadcast.

Type (f): thebroadcast in peak time (7 p.m. to 11 p.m.) of 10-point original drama, produced in house by a broadcaster, with a production budget of less than $800,000 per hour.

Benefit: two minutes of additional advertising for each original hour of drama broadcast.

General conditions

Original French-language Canadian drama programming directed to children (2 to 12 years) qualifies for the incentive program provided that it is broadcast at viewing hours that are appropriate for children.
Original French-language Canadian drama programming directed to youth (13 to 17 years) qualifies for the incentive program, provided that it is broadcast at times that are appropriate for that audience and that it meets the following conditions:
- it reflects and addresses the realities of that age group;
- the lead performers are from that same age group; and
- it is aired at times appropriate to this audience.
No additional advertising minutes will be awarded for the production of original drama programming financed in whole or in part through ownership transfer benefits or commitments relating to the awarding of a new licence.
Original drama programming produced in house by a licensee cannot be listed as Type (c) or Type (d) programs, and therefore are ineligible for the four additional advertising minutes described as supplementary benefits replacing CTF assistance.

Implementation

The drama incentive program will be implemented by way of condition of licence. Conventional television licensees that wish to participate in this incentive program will therefore be required to apply for a condition of licence that would, in most instances, permit the licensees to broadcast advertising minutes over and above the 12 minutes per hour permitted under section 11 of the Television Broadcasting Regulations, 1987, up to a maximum of 14 minutes in any clock hour.
Any licensee that is subject to a condition of licence that limits the authorized number of advertising minutes may request an amendment to that condition in order to participate in the drama incentive program.
Any French-language broadcaster wishing to take advantage of the incentives set out in this notice must, in filing its application for a licence amendment, file information or confirm the information it has previously filed with the Commission, in order to determine the eligibility threshold that will apply to its licence. To do this, the broadcaster will be required to supply a list of all eligible drama programs aired during the 2001-2002, 2002-2003 and 2003-2004 broadcast years, specifying any information required to confirm the number of hours of eligible drama programming.
Licensees may accumulate reward minutes for the broadcast of qualifying drama aired since l September 2004. However, licensees will not be permitted to broadcast these reward minutes until the appropriate conditions of licence have been approved by the Commission.
For each drama type, the hourly production budget will be evaluated under CTF guidelines.

Annual reports and monitoring

Each licensee participating in the incentive program must file, no later than 30 November of each year, along with its annual report, a report detailing the use of the incentives. This report must include the following elements:

data showing that the licensee has met the eligibility threshold established in the application to amend a condition of licence allowing it access to the incentive program;
data on the advertising minute credits for qualifying programs; and
data on the use of accumulated advertising credits.

For each qualifying program, the licensee must supply the following information:

Information about the program
- The type of program (pilot, one-off, made-for-television movie, mini-series or high-cost series), final title of the program, duration of the program excluding commercial breaks (in the case of a series, the number of episodes, the duration of each episode, and whether it was a seasonal program or the continuation of a series).
- The names and addresses of any and all production houses.
- The date and time of the broadcast on each conventional channel and specialty service controlled by the licensee.
- The production budget determined in accordance with CTF standards, specifically with respect to accounting, reporting, producer's fees and the corporate overhead policy. This document, which is to be filed by the licensee (although it may be prepared by the producer at the licensee's request) will be protected under the Commission's confidentiality policy.
- The Canadian Audio-Visual Certification Office (CAVCO) certification letter identifying the number of Canadian content points awarded to the production and, where applicable, the CRTC certification number.
- The title of the type of benefit reward for the program from the list published in the appendix to this notice.
- For the 10-point programs produced with the help of incentives, that is, original drama programming not funded by the CTF, the following information must be supplied by the producer:
  - the production's financial structure, presented according to the standards set out in section C of the CTF 2004-2005 application form, or its equivalent in future years, separately identifying the amount awarded by the broadcaster for the four additional advertising minutes;
  - the key creative personnel - as per section D of the CTF 2004-2005 application form, or its equivalent in future years;
  - the date on which principal photography will commence; and
  - the status of each project in development for which the incentive advertising minutes have been broadcast by the licensee under the incentive program.
Information on additional advertising minutes in the programming schedule:
- An abbreviated analysis of the total advertising minute credits qualifying for broadcast in the broadcast year of each conventional television station and each specialty service, in accordance with this public notice, including the additional minutes awarded under the incentives.
- The title, time and date of broadcast of the programs in which the additional advertising minutes were aired, as well as the number of minutes aired within each of the programs broadcast for each conventional television station and specialty service.

The Commission intends to institute a monitoring program based on spot checks of various licensees' program logs. These spot checks will compare a licensee's logger tapes to the Commission's computer logs in order to determine:

whether the logs are an accurate reflection of the programs aired; and
whether the programming broadcast complies with the applicable regulations and conditions of licence.

Date modified:: 2005-01-27