ARCHIVED - Broadcasting Decision CRTC 2013-643

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Ottawa, 29 November 2013

TELUS Communications Company/Société TELUS Communications
Across Canada

Certification of the TELUS Fund as an independent production fund

The Commission certifies the TELUS Fund as an independent production fund. Accordingly, broadcasting distribution undertakings and video-on-demand undertakings may direct a portion of their required annual contribution to the production of Canadian programming to the TELUS Fund.

However, the Commission denies the request to spend 8% of contributions to the TELUS Fund on administration during the first three years of operation. The TELUS Fund must limit spending on administration to a maximum of 5% of contributions during each broadcast year.

The Commission also requires TELUS Communications Company/Société TELUS Communications (TCC) to pay all outstanding contributions relating to the accrual of certified independent production fund monies in the 2010-2011, 2011-2012 and 2012-2013 broadcast years to the Canada Media Fund. TCC must make these payments and submit proofs of payment to the Commission by 27 February 2014.

The proposal

1. TELUS Communications Company/Société TELUS Communications^[1] (TCC) requested that the Commission certify the TELUS Fund as an independent production fund. Upon certification, broadcasting distribution undertakings (BDUs) and video-on-demand undertakings could direct a portion of their annual contribution to the production of Canadian programming to the TELUS Fund.

2. The TELUS Fund would receive contributions from BDUs, including TCC’s BDUs known collectively as Optik TV, which would finance the creation of programming portraying social and technological innovation in the field of health and wellness.

3. The Commission first set out its criteria for determining what constitutes an eligible independent production fund in Public Notice 1997-98. It clarified the criteria in Public Notice 1999-29 and amended them in Broadcasting Regulatory Policy 2010-833. In accordance with the Commission’s criteria:

the TELUS Fund would be a permanent fund. In the event of dissolution, monies held by the fund would be transferred to another certified independent fund;

• revenues would be reinvested in the financing of more Canadian productions and would be spent within two years of the date that the money is received;
• programs in categories 1 (News), 3 (Reporting and Actualities) or 6 (Sports) would be ineligible for funding;
• productions receiving funding would achieve eight out of ten points for Canadian content certification as set out in Public Notice 1996-51 and would have obtained a licence fee from a Canadian programming service; and
• funding of standalone digital media productions would be limited to 10% of BDU contributions.

4. Further, in accordance with the Commission’s criteria, the TELUS Fund’s By-law No. 1 provides that:

• all members of the Board of Directors (the Board) must be Canadian;
• no more than one third of the members of the Board may be members representing BDUs;
• representatives of BDUs shall have the right to cast no more than one third of the votes in a meeting;
• all decisions must be made by majority vote; and
• the Board shall:
  
  • ensure that all monies are directed to fund eligible productions;
  • have sole and exclusive responsibility for its funding decisions;
  • establish a process to examine funding applications; and
  • supervise the implementation of its funding decisions.

5. TCC has, however, requested one exception to the Commission’s criteria. It has asked that the Commission permit the TELUS Fund to spend up to 8% of contributions on fund administration for the first three years of operation. The Commission’s criteria provide that no more than 5% of contributions may be spent on administration. TCC indicated that the TELUS Fund would be in compliance with the 5% guideline beginning in the fourth year of operation.

6. TCC further indicated that it expected to transfer unpaid contributions to independent production funds that had accrued in the 2010-2011, 2011-2012 and 2012-2013 broadcast years to the TELUS Fund.

Issues

7. The Commission finds that the TELUS Fund, as proposed by TCC, meets all criteria for certification as an independent production fund except for the percentage of contributions that would be spent on administration. Accordingly, the Commission considers that the issues it must address are:

• TCC’s request to spend 8% of contributions on fund administration during the first three years of operation; and
• TCC’s proposal to transfer unpaid contributions to independent production funds that accrued during the 2010-2011, 2011-2012 and 2012-2013 broadcast years to the TELUS Fund.

Spending on fund administration

TCC’s position

8. In support of its request to spend 8% of contributions to the TELUS Fund on administration during the first three years of operation, TCC submitted that:

• The contributions that the TELUS Fund would receive from Optik TV would be much lower than the contributions received by other independent production funds from incumbent cable and satellite companies. This is because Optik TV currently has less than a quarter of the subscribers of its main competitor.
• Many expenses have unavoidable fixed costs, such as audit and director’s liability insurance fees. These costs have a disproportionate impact on a small budget.
• There is a greater need for marketing and promotion of a new fund in the first few years of operation in order to attract good quality applications for funding in the under-represented genre of health and wellness.
• TCC has absorbed significant start-up costs related to the launch of this new independent production fund. These include incorporation of the fund and the preparation of documents.

9. TCC indicated that, if the Commission were to deny its request, the TELUS Fund would significantly reduce its promotion and outreach budget. This could affect the number of quality applications that the fund receives. Further, in order to ensure that administration costs remain within a 5% limit, TCC may provide some facilities and services to the TELUS Fund, which would be overseen by an administrator to ensure independence.

Commission’s analysis and decisions

10. Based on the budget provided by TCC in confidence, the Commission notes that the TELUS Fund has designated significant amounts in the first year of operation for industry and community outreach, as well as for marketing and promotion. This causes administrative costs to increase. These costs decrease significantly in subsequent years. Given that the TELUS Fund would have a small budget, the Commission is not convinced that the proposed levels of spending on outreach, marketing and promotion of the fund would represent the best use of the TELUS Fund’s resources.

11. The Commission further notes that the costs to launch the Fund are initial, one-time expenses that are unrelated to the fund’s ongoing operation. As such, the Commission does not consider that these expenses justify TCC’s request to expend additional amounts over a three-year period.

12. The Commission considers that the provision of certain facilities and services by TCC to the TELUS Fund as a means to keep administrative fees below the 5% threshold would not undermine the Fund’s independence. In this regard, the Commission notes that, according to the Fund’s By-law No.1, no more than one third of its board members may represent a BDU, and that TCC owns no programming services that could benefit from the TELUS Fund. The Commission further notes that any support that TCC provides to the TELUS Fund would be overseen by an administrator and would not affect the independence of the fund.

13. In light of the above, the Commission certifies the TELUS Fund as an independent production fund. However, the Commission denies TCC’s request to spend 8% of BDU contributions to the TELUS Fund on administration during the first three years of operation. The TELUS Fund must limit spending on administration to a maximum of 5% of contributions during each broadcast year.

Accrual of contributions to Canadian programming

TCC’s position

14. TCC stated that it did not contribute the full amounts to Canadian programming required under the Broadcasting Distribution Regulations (the Regulations) in 2010-2011, 2011-2012 and 2012-2013 broadcast years. TCC indicated that it intended to direct the funds earmarked for certified independent production funds that had accrued in those broadcast years to the TELUS Fund to support its first year of operation.

15. In support of this approach, TCC stated that the initial contributions to the TELUS Fund from Optik TV would be insufficient to support the costs of launching a new independent production fund. TCC was of the view that creating its own independent production fund would best serve the interests of independent producers and would allow the TELUS Fund to promote health and wellness programming. TCC expressed concern that the TELUS Fund would not be able to launch successfully without the money that had accrued.

16. TCC further considered that it was in compliance with the Regulations since all of the funds that have accrued would be spent on Canadian programming. TCC further indicated that it had, on its own, imposed a two-year limit on the time during which it would accrue contributions to Canadian programming. It had therefore recently made a payment to the Canada Media Fund (CMF) to cover a portion of the accruals from the 2010-2011 broadcast year. TELUS also noted that it has been forthright in making these accruals known to the Commission through an explanatory note on its annual returns.

Commission’s analysis and decisions

17. Pursuant to section 34 of the Regulations, TCC’s Optik TV BDUs must make annual contributions to Canadian programming based on that year’s broadcasting revenues. At least 80% of the contribution, excluding contributions to local expression, must be to the CMF and up to 20% may be directed to one or more independent production funds.

18. Sections 36 and 37 of the Regulations set out how payments are to be calculated and made. In particular, pursuant to these sections, BDU licensees are required to make monthly payments based on the previous year’s revenues. Once the current year is complete and its revenues have been determined, any over-contributions in the monthly payments made during that year may be carried forward to the next year; however, if there is a shortfall in the monthly payments, the licensee must remedy the shortfall by 31 December of the broadcast year immediately following that in which the shortfall was due.

19. TCC has indicated that it had reserved portions of its required payments to Canadian programming dedicated to certified independent production funds for the 2010-2011, 2011-2012 and 2012-2013 broadcast years to fund initial operations of the TELUS Fund. The Regulations, however, provide that contributions to Canadian programming must be made in full by 31 December of each year. Accordingly, the Commission finds TCC in non-compliance with the Regulations with respect to contributions to Canadian programming for the 2010-2011, 2011-2012 and 2012-2013 broadcast years.

20. Although TCC indicated that it intends to make its full contribution to a certified independent production fund, it was not required to launch its own fund in order to comply with the Regulations nor was its intention to launch such a fund sufficient to discharge its obligations under the Regulations for past broadcast years. While acknowledging that not permitting TCC to use the accrued contributions for the TELUS Fund might delay the start of the fund, the Commission considers that allowing TCC to transfer the accrued amounts to the TELUS Fund would deprive other production funds of contributions due them for the past three broadcast years.

21. In light of the above, the Commission requires TCC to pay all outstanding contributions relating to the accrual of certified independent production fund monies for the 2010-2011, 2011-2012 and 2012-2013 broadcast years to the CMF. TCC must make these payments and submit proofs of payment to the Commission by 27 February 2014.

Secretary General

Related documents

• Contributions to Canadian programming by broadcasting distribution undertakings, Broadcasting Regulatory Policy CRTC 2010-833, 9 November 2010
• Contributions to Canada programming by broadcasting distribution undertakings, Public Notice CRTC 1999-29, 16 February 1999
• Contributions to Canadian programming by broadcasting distribution undertakings, Public Notice CRTC 1997-98, 22 July 1997
• Amendment to the "8 out of 10" point count criterion for funding from the Cable Production Fund (CPF) with respect to its application to treaty co-productions, Public Notice CRTC 1996-51, 3 April 1996

Date modified:

2013-11-29