Licensing Process
Licensing Framework
Category 1 Services
Category 2 Services
Ownership Restrictions
Eligible Satellite Services List

The Canadian Radio-television and Telecommunications Commission has created two new classes of programming undertakings authorized for digital-only carriage on cable, direct-to-home satellite, and Category 1 and Category 2 digital specialty television services.

The new service classes are designed to expand Canadian viewers' access to new, niche formats. They present significant new investment and brand marketing opportunities for non-Canadians. In its recent call for applications pertaining to these new classes, the commission stated that:

"A diversity of foreign programming is a valuable supplement to Canadian programming in a variety of genres. The commission encourages alliances between Canadian and foreign services as an appropriate way to achieve the objectives of the Broadcasting Act".

Licensing Process

On November 24 2000, after receiving over 450 applications for licences, the commission licensed 283 new Canadian digital specialty programming services. These decisions were guided by the principles established by the commission in Public Notice 2000-6 of January 13 2000.

These principles will apply to future licensing of Category 1 and Category 2 services. In the wake of the commission's first omnibus licensing decision, it appears that applications for such licences may be made on an ad hoc basis and interested parties need not await a formal call for applications.

The preconditions to licensing are set out below. While additional Category 2 services have already been licensed, it is unclear whether the commission will license any additional Category 1 services.

Licensing Framework

In its Licensing Framework, the commission indicated that it would license a variety of new programming services for distribution on a digital-only basis, except in limited circumstances. The commission concluded that restricting the availability of the new services to consumers who subscribe to digital distribution is warranted, given the limitations of analogue capacity and the fact that Canadian viewers would be provided with incentives to switch to digital technology.

Category 1 Services

In its November 2000 licensing decision the commission licensed 21 Category 1 specialty (ie, cable) services. In the Licensing Framework the commission described Category 1 services as "specialty services that make a strong contribution to the development, diversity and distribution of Canadian programming and (that) are the most attractive services for early digital distribution".

Category 1 services are guaranteed carriage on Canadian distribution undertakings (eg, cable, direct-to-home satellite and multipoint distribution system) and must commit to broadcasting a reasonable level of Canadian programming in each year of the licence term, leading to a minimum of 50% Canadian programming by the end of the first seven-year licence term, and minimum spending levels on Canadian programming. Moreover, the commission indicated that it will not license any future services that compete directly with a licensed Category 1 service.

Category 2 Services

The commission has developed a more streamlined approach with respect to the licensing of Category 2 services. In addition to the licensing of 262 Category 2 services in November 2000, the commission has indicated that it will consider applications for new Category 2 services on an ongoing basis. In the Licensing Framework the commission described Category 2 services as

  • "services offering niche programming to particular audiences, services that provide multiple viewing opportunities for particular types of programming, and services that repackage existing programming in creative ways".
  • Unlike Category 1 services, Category 2 services have no carriage rights and so will have to compete with one another for distribution and customers. Moreover, while the commission will not license a Category 2 service that is directly competitive with a Category 1 licensee or an analogue pay or specialty service, it will license Category 2 services that compete with other Category 2 services, thus increasing subscriber choice.

    Like Category 1 services, Category 2 services must commit to minimum Canadian content exhibition levels (ie, 35% by the end of the third year of operation) and minimum levels of spending on Canadian programming.

    While scores of Category 2 services were licensed, it is expected that far fewer will launch. This is partly due to the costliness of establishing a new undertaking (especially when coupled with anticipated low consumer uptake levels) and also due to the fact that distributors are expected to carry only between 30 and 40 new services, including a number of mandatory carriage Category 1 services.

    Ownership Restrictions

    Direct and indirect investments in licensed Canadian broadcasting undertakings, including Category 1 and 2 services, are restricted by a Cabinet direction to the commission which rules that only Canadians are eligible to hold broadcasting licences.

    In order for a corporation to be qualified to hold a Canadian broadcasting licence:

    • at least 80% of its voting equity and votes must be controlled by Canadians;
    • at least 80% of its directors must be Canadians;
    • it must be incorporated under the laws of Canada; and
    • it must have a Canadian chief executive officer.

    Where the licensee is a subsidiary, its parent company may have somewhat broader foreign ownership. Specifically, up to 33% of the parent company's voting shares and votes may be held by non-Canadians. However, where foreign ownership at the parent level exceeds 20% an independent programming committee must make all programming decisions of the licensee.

    Finally, in order to be licensed, the commission must be satisfied that a broadcasting undertaking is not controlled in fact by non-Canadians.

    While there are restrictions on foreign ownership in Canadian broadcast licensees, a number of non-Canadian companies have made minority investments in new Category 1 and Category 2 services. Most of these investments were made by foreign broadcasters seeking to extend their brands into Canada. Usually, a non-Canadian broadcaster partners with a Canadian company to apply for a Canadian version of an existing foreign service. The non-Canadian takes a minority stake in the Canadian licensee and arranges to license it its brand, trademarks and programming. This type of arrangement is quite common in Canada and was encouraged in the Licensing Framework. It is also hoped that brand recognition of new Canadian services will be heightened by such relationships.

    Foreign investment and licensing opportunities are not restricted to new applicants. In their efforts to distinguish themselves from other such services and thereby secure distribution, existing Category 2 specialty services may well be interested in acquiring non-Canadian trademarks, brands, know-how and capital by seeking a non-Canadian minority partner or licensee.

    Eligible Satellite Services List

    While non-Canadians cannot own a majority voting interest in or control Canadian broadcast licensees, they can apply to have their non-Canadian programming services carried by broadcasting distribution undertakings in Canada. The commission has authorized the carriage of a number of such services on the so-called 'eligible satellite services' lists.

    To be included in the lists, a non-Canadian service must demonstrate that it does not compete with any licensed Canadian specialty or pay service. Moreover, non-Canadian services must provide a statement to the effect that they will have all the necessary rights to deliver the service in Canada and an undertaking that they will not take an exclusive Canadian licence to programming.

    Recently a new list has been introduced, permitting a number of previously unauthorized non-Canadian services to be distributed on a digital basis only. These newly listed services may be packaged with new Category 1 and Category 2 services that launch. With the licensing of increasing numbers of new Canadian digital specialty services, it is likely to become increasingly difficult for US services to attain inclusion on the lists.

    For further information on this topic please contact Lorne H Abugov, Cynthia A Rathwell or Kevin J Goldstein at Osler, Hoskin & Harcourt LLP by telephone (+1 613 235 7234) or by fax (+1 613 235 2867) or by e-mail ([email protected], [email protected] or [email protected]).

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