Ted Kelterborn is a member of the KNOWlaw Group of the Toronto law firm McMillan Binch.

Last year, the crtc sought input on the development of an appropriate framework to be used in considering applications for new pay and specialty channels. The details of this new framework are expected to be announced shortly, and will be carefully studied by all interested parties, from broadcast distributors to programming services to program producers.

To be certain, the new framework will be of most interest to applicants for new pay and specialty services. More than 70 applications were received in response to the crtc’s last call for applications and revised versions of many of these applications, together with an as yet-unknown-number of new applications, will be submitted in response to the next call for applications, anticipated shortly after the framework announcement.

The big question on everyone’s mind is how the crtc proposes to deal with the expected deluge of applications.

New licensing framework

At the heart of the crtc’s framework announcement will be a detailed consideration of several issues, namely:

* Whether digital or analog licensing is the most appropriate for any new services to be licensed.

* The extent to which access rules should apply to any new services to be licensed.

* The appropriate tiering, packaging and linkage rules to apply to any new services to be licensed.

New licensing criteria

Without question these big-picture issues are certainly of great significance. However, once these issues have been wrestled into a regulatory framework, what will become even more significant are the specific licensing criteria that will be applied within that framework. For example, if the crtc were to determine that new licences will be awarded in a digital format only, and that all licensees must be given access by all distribution undertakings, it must still decide which applications should be licensed.

The crtc’s call for comments on the new licensing framework invited comments regarding ‘possible licensing criteria that may be appropriate in any consideration of applications for new pay and specialty services.’

The criteria suggested by the crtc for consideration were: (i) the ability of a proposed service to contribute to the policy objectives contained in the Broadcasting Act; (ii) competitive and financial factors; (iii) ownership by a distribution undertaking; (iv) ownership by groups with other broadcasting-related interests or program production companies; and (v) a service’s proposed wholesale fee.

Contribution to

policy objectives

The crtc will always consider the ability of a proposed service to contribute in some manner to broadcasting policy objectives. In the past, this contribution was largely determined by the level of exhibition and expenditure to be made on Canadian programming by a proposed licensee. It is most likely that the crtc will continue to require any proposed licensee to make some level of commitment to Canadian programming in order to demonstrate the service’s contribution to broadcasting policy objectives.

Competitive and

financial factors

To date, the crtc has not licensed services within a specific programming genre that are directly competitive. It has also required all applicants to demonstrate financial viability.

In the 1994 specialty and pay television services licence decision (which included Life Network, Showcase, Discovery), the crtc selected from among all applicants the particular programming genres it felt were desirable and licensed the best applicant within the genre.

In the 1996 specialty and pay decision (which included HGTV Canada, History, Teletoon), it licensed one applicant from almost every genre of programming for which it received an application and only selected between applicants if they were competing in the same genre.

Whether the crtc will break with tradition and license competing services within the same genre will in part depend on whether it is prepared to break with its tradition of requiring applicants to demonstrate financial viability.

One approach suggested by the crtc is to license all services that meet certain minimum standards and allow consumers to choose between competitive services. While this seems like a perfectly sensible idea, care must be taken to balance consumer choice with the need to develop financially strong and attractive services to drive consumer acceptance of digital cable. Allowing new services to cannibalize one another may leave no one standing and may not be the best approach in the early days of digital.

Cable ownership

In two recent decisions, each involving the proposed acquisition by a cable operator of an interest in a specialty television service, the crtc denied the applications on the basis that there was a potential for undue preference to be conferred by the cable operators on the services in question. While these so-called ‘gate-keeping’ issues in their purest form are unlikely to continue to be a problem given the increased capacity of a digital delivery environment, there will continue to be concerns about the potential for undue preference in channel placement, carriage fees, marketing and promotion.

If all licensees are guaranteed access on a digital basis, it may be that the best approach at this early stage is for the crtc to deal with undue preference complaints on a case-by-case basis, rather than adopting a blanket policy of denying licences to proposed pay and specialty services with cable or other distributor ownership.

Cross-ownership issues

The crtc has, in the past, granted specialty and pay television licenses to services owned by corporate groups that own conventional television stations or other broadcasting-related interests. It has also granted specialty and pay television licences to services owned by corporate groups that own program production and distribution companies. There are certain advantages to these arrangements, including the ability to consolidate some administrative and infrastructure expenses. There is also a potential for independent producers to have their access to these programming services limited.

These issues have been addressed in previous licensing decisions by the imposition of specific conditions of licence, for example, requiring a licensee with program production or distribution cross-ownership to schedule certain amounts of programming produced by independent producers.

As with distribution undertaking ownership issues, a case-by-case approach to these cross-ownership issues may be the best approach at this early stage in the evolution of the digital environment.

Wholesale fee

The crtc has traditionally regulated the wholesale rate that specialty services may charge distributors when they are included as part of a basic service. Wholesale rates of services offered on a discretionary basis are not regulated.

The crtc has said that the small number of subscribers to digital programming services may make the matter of wholesale fees one that is properly the subject of negotiation between the programming service and the distribution undertaking. This process would hopefully balance the need to maximize revenues from a small initial subscriber base against the need to attract new subscribers by offering an attractively priced service.

However, once a significant number of subscribers have been switched to digital, it may be appropriate for the crtc to examine wholesale rate regulation in order to ensure affordable access to consumers, particularly if the concept of a digital basic tier emerges.

Enormous challenge

Establishing a workable framework for licensing new pay and specialty services will be an enormous challenge for the crtc. Done right, it could quickly move Canada closer to the reality of a 500-channel universe. Done wrong, it could leave us mired in the analog Stone Age. Let’s cross our fingers and hope they get it right.

(This article contains general comments only. It is not intended to be exhaustive and should not be considered as advice on any particular situation.)