Secteur télévision spécialisée et payante > Archives TVSP > Mémoires

June 23, 1997


Mme Jocelyne Bourgon
Clerk of the Privy Council
and Secretary to the Cabinet
Langevin Block
80 Wellington Street
Ottawa, Ontario
K1A 0A3


Dear Mme Bourgon:

Re: Petition to the Governor in Council
Subsection 28(1) of the Broadcasting Act
Broadcasting Decision CRTC 97-193

Introduction

This is a petition by the Specialty and Premium Television Association/Association de la télévision specialisée et payante (“SPTV”) to the Governor in Council under section 28(1) of the Broadcasting Act. SPTV represents 80 percent of Canada’s 54 specialty and premium television services by revenue, including the majority of 22 newly licensed services yet to be launched. There are currently 32 Canadian specialty and premium services on air and at least 11 more will be operational this fall. The balance must wait until advances in digital technology make it technically possible to distribute more services.

By this petition, SPTV seeks an order of the Governor in Council to refer Decision CRTC 97-193 (attached) back to the Canadian Radio-television and Telecommunications Commission (“CRTC”) for reconsideration and hearing. Although this decision was issued together with Telecom Decision CRTC 97-12, SPTV does not seek an order with respect to the latter decision.

In Decision CRTC 97-193 (the “Decision”), the CRTC approved applications by TELUS Cable Holdings Inc. (“TELUS”) for licenses to carry on broadcasting (cable) distribution undertakings to conduct market and technical trials in areas of Calgary and Edmonton. TELUS is an affiliate of the dominant local telephone service provider in Alberta, TELUS Communications Inc.

The Decision represents an unprecedented departure from the CRTC’s long-standing rules governing the distribution of U.S. satellite programming services by Canadian cable licensees. Until this Decision, U.S. satellite programming services had been authorized for distribution only when linked to Canadian specialty or pay television programming services. Now, for the first time, a Canadian distributor will be permitted to distribute U.S. satellite programming services on an individual basis, or even potentially as a part of a package of programming services that would not contain a single Canadian specialty or pay television service, subject in both cases only to a requirement that each subscriber receive a preponderance of Canadian services.

The CRTC decision has already unintentionally signalled a precedent to the marketplace, leading to an application by Shaw Cable for equivalent rules in the Calgary market.

As outlined in more detail below, the distribution and linkage rules promote the Canadian broadcasting policy objectives set out in subsection 3(1) of the Broadcasting Act, by using the popularity of U.S. specialty services to the overall benefit of the Canadian broadcasting system. In fact, only two months ago, the CRTC confirmed the importance of these rules in the future competitive environment following a lengthy public process. The Decision threatens this critically important regulatory mechanism that is central to achieving Canadian broadcasting policy objectives.

Canadian specialty and premium channels make substantial investment in Canadian programming, as we will show. American services make no such contribution. The responsibility imposed on Canadian services is linked to a regulatory benefit: U.S. services can only be packaged with Canadian services. Yet this backdoor policy decision threatens this balance.

The specialty and premium television industry is supportive of evolution in the regulatory environment but believes that policy must serve the objectives of the Canadian broadcasting system.

Distribution and linkage rules have been instrumental in building Canada’s specialty and premium television industry, and Canada’s film and television industry.

The CRTC’s distribution and linkage rules are a regulatory success story that have allowed Canada, with a population of 30 million people, to enjoy more than 30 specialty and premium television services showcasing extensive Canadian programming, with the promise of more to come. The strength of this sector of the broadcasting system, owing in large part to the distribution and linkage rules, has produced a unique set of paired, French and English specialty television networks such as Newsworld/RDI, TSN/RDS, The Weather Network/Météomédia, Teletoon and Much Music/Musique Plus. Quebec alone is served by nine French-language specialty and premium channels of its own with four more to be launched this fall.

Canada’s large variety of dedicated national specialty and premium services, despite our population size and proximity to inexpensive American services, stems from linkage rules which harness the strength and appeal of U.S. specialty services as packaging partners, instead of competitors, to Canadian services. American channels can afford low pricing strategies in Canada because they can cover their costs in the United States’ 63 million cable household market.

The distribution and linkage rules provide that for every Canadian specialty service in a package or “tier” of channels offered to consumers, one American service may be offered. American specialty services cannot be offered on a stand-alone basis or in an all- American package. In addition, all Canadian pay television services may be packaged together with up to five U.S. services, including a number of U.S. superstations. These U.S. superstations are exclusive to the premium tiers to provide added incentive and value for consumers.

In essence, the distribution and linkage rules ensure that appealing U.S. services are used to add value to Canadian discretionary tiers. These services have helped to maximize consumer interest in cable subscriptions, and to build the foundation of the Canadian specialty and premium television industry. About 90 percent of Canadian cable subscribers opt for full-service packages. In Western Canada where this trial will be held, over 90 per cent of subscribers opt for pay-TV with linkage partners.
Clearly, the distribution and linkage rules give priority to Canadian specialty and premium television services over U.S. services. The benefits of this priority treatment are two-fold. First the rules ensure that the popularity of U.S. services contributes to, rather than diminishes, the distribution opportunities for Canadian services. Unlike the advertiser-supported conventional television stations which are broadcast locally over the air, specialty and premium services are heavily dependent on subscription revenues from cable distribution. To the extent that U.S. programming services make discretionary packages of programming services more attractive to subscribers, Canadian services directly benefit.

Second, the rules leverage the overall contribution made by these Canadian services to the Canadian film and television production industries -- both by means of exhibition opportunities, and through direct financial contributions. Specialty channels are national niche services, whose programming is focussed in special interest areas, such as news, public affairs, weather, sports, science, children’s programming, music or drama. Canada’s specialty services have Canadian content levels of up to 100 percent, showcasing the best of Canadian arts, entertainment, news and information and helping to tell Canadians about themselves and the world. Canadian pay television plays a unique role in terms of the production and exhibition of Canadian feature films. Canadian specialty and premium services, unlike their U.S. counterparts, make very substantial direct and indirect contributions to Canada’s film and television production industries:

• Since 1991, Canada’s specialty and premium television services have invested more than $1 billion in Canadian programming - a total of $258 million last year alone;
• On average, specialty and premium services reinvest more than 40% of their revenues in Canadian production and spend 50 percent more than conventional broadcasters on independent production;
• In 1995/96 specialty and premium services spending on independent acquired Canadian programming exceeded conventional broadcasters by more than $30 million - an important indication of future trends;
• Premium pay television services, which carry no advertising, give important profile to Canadian films. A key element in the economics and exhibition of Canadian film production, Canada’s premium services contribute several times more to the revenue of a Canadian film than it makes on theatrical release, and, in aggregate, more than a third of the total revenue earned from Canadian movies;
• In 1995, Canadian specialty and premium television services provided 2,200 direct jobs representing a payroll of approximately $100 million. Indirect job creation has been estimated as high as 15,000 jobs.

These substantial benefits to the Canadian broadcasting system and to the Canadian production industry would not arise without regulatory policies, including the distribution and linkage rules, that encourage the wide distribution of Canadian specialty and premium television services.

How the TELUS experiment creates new policy

The CRTC decision gives TELUS the ability to operate outside linkage rules, providing a preponderance or majority of services taken by any consumer are Canadian. After buying a package of basic services (including local and CBC channels), consumers are free to choose services “à la carte” or one by one. This strategy relieves American channels from making even an indirect contribution to the Canadian broadcasting system. It stops harnessing U.S. services for the benefit of the Canadian system, and it cuts loose Canadian premium channels from the benefit of exclusive partners.

The preponderance requirement is admittedly an important safeguard. However, since distribution undertakings such as TELUS are required to carry a number of Canadian basic television services, preponderance does not necessarily preclude bypassing all Canadian specialty and premium services for the purchase of some U.S. specialty services.

Without linkage rules, the health of the specialty and premium industry would be jeopardized, and with it our many contributions to Canadian culture and the economy. SPTV welcomes the opportunity to participate in marketing trials that will further the success of Canadian services. However, we are opposed to a type of trial that cannot further Canadian broadcasting policy objectives as defined in the Broadcasting Act.

In its Decision, the CRTC was careful to state that the TELUS experiment is not intended to set a policy precedent. The CRTC also stated that it remained convinced that the objectives of the distribution and linkage rules remain valid. We do not believe that permitting one distribution undertaking to derogate from the very rules that the CRTC continues to uphold can serve any useful purpose. Moreover, derogating from the distribution and linkage rules, even on a trial basis, will unleash two powerful dynamics that will ensure a de facto policy precedent.

The Principle of Competitive Equality

First, a basic premise of the government’s regulatory agenda for competition in broadcasting distribution is setting the same rules for all players. The drive for competitive symmetry, or “level playing field”, ensures that powerful competitors such as cable, DTH, wireless and telephone multimedia services will not stand by while any advantage is conferred to another.

The Decision has already triggered an application by a local cable company in Calgary to also be relieved of tiering and linkage rules. Shaw Communications has made an eloquent demand to be relieved from linkage requirements so it can effectively compete with TELUS during the roll-out of its digital technology in Calgary. More such applications can be expected from other distributors using new technologies, such as DTH and MMDS, as well as from powerful established players.

Consumer Expectations are a Powerful Force

Second, consumer expectations raised by this substantial commercial experiment will make any reversal of the TELUS “free choice” model difficult if not impossible following the trial. Despite the Commission’s best intentions as set out in the Decision, removing services is not an easy matter. There is an overwhelming consumer backlash to the removal of offerings consumers were accustomed to receiving. For example, the negative option billing revolt in 1995 was largely triggered by consumers forced to pay more for new cable packages in order to retain preferred services. Furthermore, the TELUS service will be so heavily marketed over the two-year trial period, that consumers in neighbourhoods adjacent to the trial area will feel substantially cheated by their local cable company if it is not granted equivalency.

Canada’s specialty and premium industry has distinguished itself as a forward-looking sector, which uses innovative marketing techniques and pioneers new technologies. Our members are anticipating the digital era and its interactive capabilities, and many are investing heavily in multimedia and Internet value-added services. We welcome experiments in marketing, providing that our members can contribute their years of expertise to its design, and believe the CRTC should continue to provide pockets of flexibility for testing. SPTV applauds Bell Canada’s experiment design for parts of London, Ontario and Repentigny, Quebec which the CRTC approved along with the TELUS trials (Decision CRTC 97-192). However, Bell’s design was created after extensive consultation with the industry and works within the parameters that have fostered our success. It is noteworthy that Bell Canada did not request an exemption from the distribution and linkage rules to conduct its market trials.

In the TELUS case, we can predict only a significant downside to testing the removal of linkage rules both for specialty and premium services and for the film and television production industry we nurture.

History and trend of rules

24. The adoption of the distribution and linkage rules in 1984 followed a comprehensive public process designed to assess the potential development of discretionary services in Canada and the U.S.

25. In adopting the rules, the CRTC was motivated by three principle concerns:

• fair competition among various types of broadcasting distribution undertakings;
• the need to include U.S. programming services in the Canadian broadcasting system in a way that harnesses their popularity; and
• the need for cooperation to ensure that Canadian programming services have a fair opportunity to succeed.

The distribution and linkage rules have developed since 1984 in a way that is consistent with these concerns.

26. Over the past five years, the CRTC has held three full policy hearings which examined and confirmed the importance of the distribution and linkage rules to the Canadian broadcasting system. The CRTC has also extended these rules to apply to new types of distribution undertakings such as DTH and MMDS.

27. For example, in Public Notice CRTC 1993-73 the CRTC announced its conclusions following a comprehensive review of the state of the existing and future structure of the Canadian broadcasting system (the “Structural Hearing”). One of the key issues considered by the CRTC at that hearing was the potential for the new digital communications environment to expand consumer choice. The CRTC noted that this future environment “will not be without risk for the Canadian broadcasting system.” Accordingly, the CRTC, in its own words, “attempted to focus on developing policies that will support strong Canadian programming and, at the same time, ensure that the Canadian distribution system is technologically competitive.” In anticipation of these developments, the CRTC further strengthened the distribution and linkage rules by lowering the linkage ratio of U.S. satellite services to Canadian specialty services to 1 to 1. In 1984, the CRTC had established a 2 to 1 linkage ratio.

28. As recently as two months ago, the CRTC confirmed the importance of the distribution and linkage rules in the new competitive environment among distribution technologies. In Public Notice CRTC 1996-69, the CRTC called for comments on a proposed regulatory framework that would apply to all broadcasting distribution undertakings. All existing and potential broadcasting distribution undertakings were notified of the CRTC’s intention to maintain the existing distribution and linkage rules:
“The Commission considers that the distribution and linkage rules continue to fulfil an essential role in promoting the success of Canadian pay and specialty services, while meeting the demands of subscribers for access to a broad range of domestic and non-Canadian services."

Following a two-stage written comment process and a full oral hearing, the CRTC released Public Notice CRTC 1997-25 (this past March) in which the CRTC stated its intention to maintain the existing rules -- except for relatively small amendments to ensure parity between terrestrial and satellite distribution. It is important to note that TELUS Communications Inc. participated fully in these hearings and proposed that the existing rules be scrapped. At that time, the CRTC rejected this radical approach.

29. Now, in this Decision released less than two months after the completion of this exhaustive policy review process, the CRTC has approved a trial that challenges the principles of the same rules that it so recently confirmed. Until this Decision, the CRTC had consistently upheld, and even strengthened, the distribution and linkage rules. This new policy approach, even on a trial basis, represents a substantial amendment to regulatory policy that has been introduced as an incidental matter in a licensing hearing. As outlined above, it is extremely doubtful, once the rules have been abridged for one broadcasting distributor, even on a trial basis, that they may be restored to their full effectiveness.

Derogation from the attainment of broadcasting policy objectives

30. SPTV believes that the change in policy approved in the Decision will derogate from – not further – Canadian broadcasting policy objectives. Subsection 5(1) of the Broadcasting Act requires the CRTC to regulate and supervise the broadcasting system with a view to implementing the following objectives outlined in subsection 3(1):

• safeguarding, enriching and strengthening the cultural, political, social and economic fabric of Canada [s.3(1)(d)(i)];
• encouraging the development of Canadian expression [s.3(1)(d)(ii)];
• serving the needs and interests, as well as reflecting the circumstances and aspirations of Canadian men, women and children [s.3(1)(d)(iii)];
• ensuring adaptability to scientific and technological change [s.3(1)(d)(iv)];
• ensuring that each broadcasting undertaking makes maximum use, and in no case less than predominant use, of Canadian programming resources (emphasis added) [s.3(1)(f)]; and
• requiring broadcasting distribution undertakings to give priority carriage to Canadian programming services and to local Canadian stations in particular [s.3(1)(t)(i)].

Although the Decision contemplates a trial, its significance is far wider. Most importantly, its abrogation of the distribution and linkage rules fails to fulfil any of the above policy objectives and has the following negative consequences:

• In its Decision the CRTC has signalled a new policy approach that does not encourage the development of Canadian expression. Inspired by TELUS's example, other broadcasting distribution undertakings are applying to the CRTC to relax these long-standing rules that have, undisputedly, benefitted the Canadian broadcasting system;
• Since Canadian programming services are threatened, the substantial direct and indirect support that such services give to the Canadian cultural sector and to other sectors of the economy are also threatened;
• A decrease in the exhibition of Canadian specialty or premium television services would eliminate opportunities that now exist for showcasing Canadian expression;
• The Decision does not seek to adapt Canadian regulatory policy to technological change, rather it abandons proven policies in the face of change;
• The Decision does not require TELUS to make maximum use of Canadian programming resources. Rather, the decision permits TELUS to maximize the exhibition of non-Canadian services while meeting the minimum possible Canadian carriage requirement;
• Lastly, the Decision, if anything, permits a broadcasting undertaking, for the first time, to give preferential access to non-Canadian programming services over Canadian services. It will be possible to distribute non-Canadian services on a stand-alone basis, or as a part of a tier consisting exclusively of non-Canadian services.

To summarize, a combination of circumstances have left us with no choice but to appeal this Decision:

• although the Decision has approved an exemption from the normal rules solely on a trial basis, it will be exceedingly difficult to resist similar applications because the the Decision establishes a de facto precedent in the absence of formal government recommitment to tiering and linkage in light of the trial;
• an application has been filed with the CRTC for similar treatment on the grounds of competitive fairness and the CRTC may well grant that application thereby further eroding linkage policy; there is no government policy statement to preclude this action;
• there is no guarantee under existing CRTC and government policies that the scope of the trial will not be extended even further by the Commission over the course of the two-year experiment;
• the Decision, although it is simply a licensing decision, effects a substantial shift from a long-established, and highly successful regulatory policy and;
• all of this represents a back door amendment via a trial to linkage policy.

For all of the foregoing reasons, the Decision, insofar as it exempts TELUS from the distribution and linkage rules, derogates from the attainment of the policy objectives set out in the Broadcasting Act. We therefore request the Governor in Council to refer the Decision back to the CRTC for reconsideration.

Yours truly,


Jane Logan
President

The “Structural Hearing” (Public Notice CRTC 1993-73); the hearing initiated by Order in Council P.C. 1994-1689 which resulted in the CRTC’s report on convergence, Competition and Culture on Canada’s Information Highway; and the regulatory framework hearing held to establish a common set of regulations for all types of broadcasting distribution undertakings which was concluded by the issuance of Public Notice CRTC 1997-25 (discussed below).

Specialty and Premium Television Association / Association de la télévision spécialisée et payante
46 Elgin Street, Suite 200
Ottawa, Ontario K1P 5K6
Tel: (613) 233-8690

Fax: (613) 236-9546