Ever since the pandemic hit Canada in March, battering both the production and broadcasting industries, one of the major questions facing the sector has been what the domestic content sector will look like post-pandemic.

The regulatory part of this high-stakes debate got underway last month, with the CRTC publishing a filing in which the Canadian Association of Broadcasters (CAB) requested relief as a result of challenges associated with the pandemic.

In the filing, CAB proposed the notion of “deemed compliance,” whereby broadcasters would automatically fulfil their regulations and conditions of licence (COLs) for the 2019/20 broadcast year, regardless of their level of spending. CAB also argued that any spending shortfalls related to the 2019/20 broadcast year should be written off, and not have to be made up in subsequent years.

The commission issued a call for comments on the CAB application, with around 60 interested parties, including broadcasters, funders, guilds and associations, submitting ahead of last week’s deadline.

Of course, this regulatory tussle – with the broadcasters on one side, and producers and creators on the other – is a familiar one. However, the pandemic has magnified many of the existing fissures in the Canadian film and TV landscape, and the Commission’s handling of the situation could have a significant impact on the level of Cancon spending in the years ahead.

In their interventions, groups representing producers, writers, directors and actors, argued that lowering or writing off Canadian production expenditure (CPE) requirements for broadcast groups would have a severe impact on the sector as it struggles to rebuild after sets were forced to close in March.

The broadcasters, meanwhile, said their position has never been so precarious as they deal with the vast impact of the pandemic, in addition to the accelerating erosion of their audience share by digital platforms, which still aren’t subject to domestic regulation.

Producers against overly broad solution 

In its intervention, the Canadian Media Producers Association (CMPA) argued CAB’s application is “fundamentally flawed” because it doesn’t account for the fact that revenue declines are already built into broadcasters’ regulatory obligations. “Required spending on Canadian programming, programs of national interest (PNI), and independent productions are all based on a broadcaster’s gross revenues from the previous year. Decreased revenues in the 2019-2020 broadcast year translate into decreased required spending on Canadian programming, PNI, and independent productions in the 2020-2021 broadcast year. In other words, regulatory relief is already coming,” read the filing, which also argued the CAB application is overly broad and doesn’t recognize that each broadcaster has different obligations and circumstances.

Instead, the producers association said the Commission should give large private broadcast groups two years to meet their various COLs and regulatory obligations related to the 2019/20 broadcast year.

Broadcasters call for pandemic relief 

Canada’s private broadcasters shared their support for deemed compliance, arguing it is unreasonable to expect them to be able to make up for CPE underspending in 2020 due to the heavy revenue losses they’ve incurred due to loss in advertising. Several noted that the majority of businesses have had to absorb losses to survive the pandemic.

“Like other Canadian businesses, broadcasters should have the opportunity to write off our pandemic-related losses and move on,” wrote Corus Entertainment. “It is especially important for us to be able to do so as our foreign digital competitors have continued to increase their subscriber base during the pandemic, and they will carry no pandemic-related expenditure obligations into the future.”

Bell Media argued that current CPE obligations were set “based on the revenue licensees were expected to generate during the licence term,” and do not account for the possibility of a dramatic revenue loss triggered by the pandemic.

Both Corus and Bell Media warned of a potential “windfall” for independent producers, who have had access to emergency relief funding from the government, as well as the additional $50 million dedicated to address COVID-19 insurance exclusions. Private broadcasters, on the other hand, have received little to zero pandemic relief, they argued.

Corus also noted that the Commission itself has set the understanding that CPE requirements allow for a “quality over quantity” approach to creating Cancon. “Respectfully, characterizing CPE as simply ‘contributions to Canada’s creative and artistic sectors’ is incompatible with this approach,” wrote Corus. “Moreover, it is antithetical to the interests of private broadcasters who operate on the premise that Canadian programming expenditures represent investments in assets, which can be monetized. In Corus’ case, these investments constitute a significant portion of our total corporate cost structure. Thus, it is imperative for us to be able to make these expenditures with a market-driven focus, undergirded by the principle of ‘quality over quantity.'”

Bell Media added that there has been “increased service production of foreign film and television companies” since production restarted, giving producers another opportunity for revenue, noting that “already-greenlit CPE projects are competing for scarce studio space and production crews, causing substantial backlogs.”

Most private broadcasters agreed that if the Commission does not adopt CAB’s deemed compliance proposal, the best possible solution would be to allow broadcasters five years to make up for CPE underspending, even if the extension goes beyond their licence term. As the country is currently facing a second wave of the pandemic, there is a real possibility of further production shutdowns, the broadcasters noted, which would have a ripple effect on their budgets.

A precedent for the extension was set in 2005, according to the broadcasters, as the CRTC allowed Rogers to pay under-expenditures for Sportsnet following the NHL lockout in the 2004-05 season.

Rogers Sports & Media made a separate proposal that the Commission allow broadcasters to direct their PNI underspend to news programming, arguing that they would have to funnel money out of their newscast budget to afford CPE requirements on programming. “Allowing us to expend our 2019-2020 PNI shortfall on news programming would give us critical financial support, protect news budgets and enable us to continue producing quality news content,” wrote Rogers.

Unions members fear for existing regulations 

Meanwhile, the WGC, ACTRA and DGC opposed CAB’s request to introduce a policy for deemed compliance, with the writers’ guild calling the measure “overbroad, sweeping, and extreme,” and arguing that there is no evidence to suggest broadcasters need a greater period of time to meet their regulatory obligations for the 2019/20 broadcast year.

“To be clear, this is a proposal that takes the central pillar of regulatory support for Canadian programming and effectively eliminates it for a broadcast year,” said the WGC.

ACTRA argued that the deemed compliance proposal could create uncertainty. “How would broadcasters account for Canadian spending they did make in 2019/20? Since expenses on independent production can be amortized over several years, will they seek to allocate more of this spending to the 2020/21 broadcaster year and beyond, rather than to a year in which they are deemed to have complied? Such a system could also disadvantage broadcasters who made significant expenditures in the first half of the 2019-20 broadcast year while unduly benefiting others who may have made only modest or few such expenditures,” ACTRA noted.

Elsewhere in the DGC, WGC and ACTRA’s proposals, the organizations argued: CAB’s filing provided inadequate information regarding current advertising sales and broadcaster spending for 2019/20; the application doesn’t consider the differences between each broadcaster’s circumstances and regulatory obligations; and that current turmoil and financial stresses are being used to diminish or abolish existing broadcast regulations.

The WGC also said the urgency expressed by CAB’s application no longer applies as the 2019/20 broadcast year has already closed. The goal now, according to the WGC, should be to determine the extent of non-compliance that occurred in 2019/20 and ensure it is solved “by the end of the licence term, at the latest.”

Meanwhile, ACTRA said “the fairest and simplest solution” for spending requirements was to permit each private broadcaster to fulfil its CPE, PNI and tangible benefits over the entire term of its existing licence. It also said it is prepared to consider a proposal to lengthen each licence term by one year if this is essential to the ability of broadcasters to adapt to a post-pandemic business environment.

Both the DGC and WGC outlined some of the challenges faced by its own members. The director’s guild said that for March and April 2020 alone, its members lost $13.7 million in income, and that currently the total losses represent over $100 million in income. The WGC said there was a 25% decrease in writer earnings during March through August, and that for the 2019 calendar year, the median income for its members was $28,284.

Now that the deadline for interventions has passed, parties that filed interventions are able to reply to matters raised during the intervention phase by Oct. 29. Following that, the Commission will review all of the written submissions and make a call on whether a full hearing is required or whether it will issue a decision based on the interventions and applications already filed.

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