On October 30, 2008 at 4 p.m., the Commission issued its much-anticipated new regulatory frameworks governing broadcasting distribution undertakings (BDUs) and pay and specialty television services, and also addressed certain issues that impact over-the-air (OTA) television stations. The new regimes, which are set out in Broadcasting Public Notice CRTC 2008-10, Regulatory frameworks for broadcasting distribution undertakings and discretionary programming services, contain a number of significant changes to the current rules and regulations governing each of these sectors of the Canadian broadcasting system.

The Commission’s public notice is the culmination of a proceeding that was announced in July 2007 with the issuance of Notice of Public Hearing 2007-10, Review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services. Following an extended proceeding that included three rounds of written comments, an oral public hearing in April 2008 and final written submissions, the Commission has now established regulatory frameworks that will govern BDUs and discretionary services for years to come.

A constellation of issues were addressed by the parties in this proceeding, including key regulatory supports and obligations such as genre exclusivity, access rules, preponderance, distribution and linkage, carriage of distant signals and Canadian programming obligations. In addition, the Commission received comments on the obligations imposed on VOD and pay-per-view (PPV) undertakings and sought input with respect to how BDUs and programming services can take advantage of the increasingly important on-demand platform. Perhaps, some of the most contentious issues involved the Commission’s quest to examine new revenue streams for BDUs and programming services. The new revenue opportunities included establishing a feefor- carriage for conventional television stations, eliminating restrictions on advertising for specialty services and authorizing BDUs to insert commercial advertising into local availabilities and community channels.

The key changes that the Commission has made to the regulatory frameworks are outlined below.

OTA Television Framework

Distant Signals

Canadian Distant Signals

The Commission will provide broadcasters with the right to negotiate the terms under which their distant signals will be retransmitted. All licensed BDUs will be required to obtain the consent of OTA licensees prior to distributing their local stations in a distant market. OTA licensees will be permitted to negotiate payment from BDUs for the retransmission of their local stations as distant signals.

However, DTH undertakings will not be required to obtain consent or pay fees for the distribution of mandatory basic OTA services (i.e., those services that the DTH undertaking has chosen to distribute on basic as a result of the new basic distribution regime set out in the public notice) from a given province to subscribers within that province. DTH undertakings will now be required to carry, as part of their basic service, at least one independently-owned station from each province.

This requirement for BDUs to obtain consent for distant signals will apply to licensed BDUs. BDUs that operate under an exemption order will not require consent from the broadcaster.

U.S. 4+1 Signals

BDUs will be authorized to make a second set of U.S. 4+1 signals available to a subscriber, provided that the subscriber also receives at least one signal, originating from the same time zone as the U.S. signals, of each large multi-station Canadian broadcasting group.

Fee for Carriage

The Commission did not have conclusive evidence in order to make a favourable determination on this matter. Accordingly, the Commission rejected the request by OTA broadcasters for a general fee for carriage.

Support for Local Programming in Smaller Markets

Appropriate level of contribution by BDUs to Canadian Programming

The Commission determined that it would be appropriate to increase the required contribution to Canadian programming by licensed BDUs from 5% to 6% of gross revenues derived from broadcasting activities. Further, licensed terrestrial and DTH undertakings will be required to direct the additional 1% – estimated to be approximately $60 million in the first year – to a new fund designed to improve the quality of local programming in nonmetropolitan markets.

The Commission stated that there is no justification for BDUs to pass along any increased costs relating to the local programming improvement fund (LPIF) – estimated to be on average approximately $0.50 per month – to their subscribers.

Local Programming Improvement Fund

The fund will be made available to stations serving markets in which the population with a knowledge of the official language of the station (i.e., English or French) is less than one million. Accordingly, the metropolitan markets of Vancouver, Calgary, Edmonton, Toronto, anglophone Ottawa-Gatineau, and Montréal do not qualify, and stations serving those markets will therefore not qualify for funding from the LPIF.

The use of LPIF funding must be incremental to the station’s current expenditures on local programming.

BDU Framework

Basic Service – Terrestrial BDUs

The Commission rejected calls to introduce a requirement that BDUs distribute a small, all- Canadian basic service.

The Commission concluded, however, that it is essential to the fulfilment of the objectives of the Act that all Canadians have access, as part of the basic service, to both public and private OTA stations that are licensed on a local and regional basis. The Commission is also requiring terrestrial BDUs to provide the community channel and the provincial legislature when either is offered by a BDU. The services subject to a mandatory distribution order (the 9(1)(h) services) must also continue to be offered on the basic service.

Basic Service – DTH BDUs

The Commission considered that DTH subscribers should have a reasonable diversity of regional and local television services that reflect the issues and concerns relevant to their places of residence. It is, therefore, requiring DTH BDUs to distribute, on the basic service within each province, a selection of provincially-based local television stations, including educational services. Specifically, DTH undertakings will be required to distribute one television station per province, where such a station exists, from each of the major broadcast ownership groups: CBC English, CBC French, Canwest, CTV, Rogers, TQS and TVA.

With respect to independently-owned local stations (i.e. stations not owned by one of the major ownership groups), the Commission determined that DTH licensees should be required to distribute at least one such station from each province where such stations have been licensed. This requirement replaces the current obligation to distribute 13 independent stations.

With respect to the provincial educational programming services, DTH licensees, like other BDUs, will be required to offer these services to subscribers within the applicable jurisdiction.

The 9(1)(h) services must also continue to be offered on the basic service.

Access Rules for Canadian Programming Services

The Commission decided to retain access rights, in the digital environment, for Canadian analog and Category 1 pay and specialty services. In the amended BDU Regulations, services with access rights will be referred to as Category A services. The existing Category 2 services and any new services that the Commission may choose to license without access rights will be referred to as Category B services.

As of August 31, 2011, licensed BDUs will only be required to distribute Category A services on a digital basis; as of that date, BDUs will no longer be required to distribute Category A services on an analog basis. To the extent that BDUs wish to continue providing their subscribers with an analog offering, the Commission will propose rules to cover such offerings when it issues its proposed amendments to the BDU Regulations.

The Commission announced that it is prepared to entertain applications for new Category A services filed on or before 1 April 2010, with a view to issuing decisions (either approvals or denials) in advance of 31 August 2011. In order to qualify for guaranteed access as a Catgeory A service, applicants will have to demonstrate that the proposed service is both unique and of sufficient importance to subscribers. Each application will also be evaluated using objective criteria that take into account the level of Canadian content, the amount of Canadian programming expenditures and other factors.

Access Rules for HD Pay and Specialty Services

The requirement for BDUs to distribute Category A services on a digital basis will apply to either a standard definition (SD) or high definition (HD) version of the service.

Access Rules for Minority-language Services

Beginning on August 31, 2011, the existing minority-language access rules for terrestrial BDUs will be replaced with a single rule stipulating that all licensed terrestrial BDUs be required to distribute one minority-language Category A or Category B service, where licensed, for every ten majoritylanguage services they distribute. DTH undertakings will continue to be required to distribute all Category A services.

Access Rules for Category B, Exempt and Pay Audio Services

BDUs will be required to distribute, regardless of language, three unrelated Category B services for every one related Category B service they distribute. Further, where a BDU is carrying a related Frenchlanguage Category B service, two of the three unrelated Category B services must be Frenchlanguage Category B services.

The Commission will continue to apply the existing access rules for unrelated exempt services and for unaffiliated pay audio and specialty audio services. However, the Commission determined that, for these services to be considered unrelated, the ownership threshold for these services should be reduced to 10% from the existing 15% for exempt services and from the existing 30% for pay audio services.

Preponderance

The Commission concluded that the existing preponderance rule is both simple and effective and will ensure that Canadian subscribers have access to a Canadian broadcasting system with minimal limitations on consumer choice.

Packaging Rules

The current rule restricting BDUs from offering a package consisting only of non-Canadian services will be eliminated.

The current packaging rules requiring BDUs to offer all Category 1 digital services in a package before offering them on a stand-alone basis will be maintained.

The requirement for cable BDUs operating in French-language markets to offer their digital subscribers a package that includes all of the Frenchlanguage specialty services approved prior to the 2000 digital licensing framework will be maintained. The Commission also decided that this rule should be extended to include the three existing digital French-language Category 1 services (Mystère, Argent and Réseau Info Sport) and should be applied to all licensed BDUs operating in French-language markets.

The Commission concluded that the existing mirroring requirements for analog packages onto digital are unnecessarily complex for the new regulatory environment.. Accordingly, the Commission determined that there will be no need for mirroring requirements following the implementation of the amended BDU Regulations on August 31, 2011.

Third Language Services

The Commission noted that the market for thirdlanguage services in Canada, although relatively small, is growing, and that these services make a valuable contribution. For that reason, the Commission determined that the current rules providing regulatory support for third-language Canadian services will continue to apply to the distribution of third language services. Specifically, all BDUs distributing any of the following ethnic services – Telelatino, Odyssey, Talentvision, Fairchild and Asian TV Network – as of the date of the public notice will be required to continue distributing them. Terrestrial BDUs will be required to distribute the appropriate above-noted ethnic services when 10% of the population in the service area of the terrestrial BDU is of the ethnic origin targeted by the services. Non-Canadian thirdlanguage services can only be offered in a package with Canadian ethnic/third-language services in the same languages, if one exists, in a ratio of one Canadian service to up to three non-Canadian services.

New Forms of Advertising Available to BDUs

The Commission indicated that it would amend the BDU Regulations to enable BDUs to insert new forms of advertising, such as targeted advertising that allows advertisers to address different audience segments, into the signals of programming services. This can only be done in accordance with an agreement with a programming service.

Advertising on Local Avails

The Commission announced that it will explore this issue in a separate proceeding.

Dispute Resolution

The Commission will amend the BDU Regulations in a manner that will reverse the onus of proof in relation to undue preferences in section 9.

The Commission also intends to insert undue preference provisions into the Television Broadcasting Regulations, 1987.

Signal Sourcing and Transport

The Commission will remove the requirement to obtain certain services from a licensed SRDU from the BDU Regulations by amending the Lists of eligible satellite services (the Lists).

The Commission will continue to license SRDUs and will incorporate the satellite transport of Canadian pay and specialty services by SRDUs into SRDU licences.

As for the costs of transporting specialty and pay services, the Commission concluded that Category A services should bear the responsibility with respect to the costs of transporting either SD or HD signals to a BDU’s head end or uplink centre.

Small System Exemption

The Commission will exempt, under a single exemption order, all terrestrial BDUs serving fewer than 20,000 subscribers, including cable, DSL and multipoint distribution system (MDS) undertakings, and will introduce a single class of licence for those BDUs that are not eligible for exemption. Terrestrial BDUs that serve 20,000 or more subscribers or that compete in a market with another BDU that serves 20,000 or more subscribers will continue to have to be licensed.

Other Issues Relating to BDUs

The requirement to distribute certain services beginning with the basic band will be eliminated.

The requirement to buy through basic will be maintained. The exception for exempt services will also be maintained. The exception for PPV and VOD services will be addressed in an up-coming proceeding.

BDUs will remain subject to a requirement that the majority of audio channels received by a subscriber are devoted to the distribution of Canadian programming services.

Commercial Relationships and Disputes

The Commission will amend the Pay Television Regulations, 1990 and the Specialty Services Regulations, 1990 to require that programming undertakings not withhold their signals from BDUs in the event of a dispute.

A regulated approach to commercial relationships, which would require parties to enter into written affiliation agreements (including a "default agreement" that would set out terms, carriage, packaging, channel placement, notice requirements and audit rights) and/or specifying particular terms in these agreements, including most favoured nations (MFN) clauses, would, according to the Commission, be administratively burdensome and unnecessarily intrusive in the commercial relationship between distributors and programmers.

As for audit rights, the Commission concluded that the right of a programming service to perform an audit on BDU subscriber information is essential to ensure that programmers receive the correct compensation from BDUs. It intends to amend the BDU Regulations to require BDUs to permit audit access by programming services.

Pay and Specialty Services

Authorization of Non-Canadian Services

The Commission found the current approach to authorizing non-Canadian, English- or Frenchlanguage services to be effective and proposed no substantial change to that approach.

With respect to non-Canadian news services, however, the Commission considered that a more open-entry approach would be consistent with the importance it places on a diversity of editorial points of view.

With respect to its current approach to unlaunched Canadian Category 2 (now Category B) services, the Commission considered that, generally, it should no longer take into consideration unlaunched services when assessing the competitiveness of English- or French-language non-Canadian services, unless such a service presents evidence that launch is imminent.

The Commission has also decided to simplify and consolidate the Lists to result in a single list for services authorized for either analog or digital distribution by all BDUs.

Genre Exclusivity – Canadian Services

The Commission recognized that, in certain popular genres such as news and sports, there is already considerable competition between Canadian services despite differences in the nature of service set out in their respective conditions of licence.

Accordingly, the Commission will introduce competition in those genres where it is convinced that a competitive environment will not significantly reduce either the diversity of services available to viewers or their contribution to the creation of Canadian programming.

In order to determine the ability of a programming genre to sustain competition, the Commission will consider the following criteria:

a) Economic health of the services in a genre;

b) Popularity;

c) Programming availability;

d) Diversity that exists within a genre; and

e) Other consequences that might result from relaxing genre exclusivity.

The Commission determined that it would be appropriate to immediately introduce competition between Canadian services operating in the genres of mainstream sports and mainstream national news. However, the Commission is prepared to consider competitive applications in other genres should an applicant demonstrate that the genre met the criteria elaborated above.

Once a genre has been opened for competition, the following rules will apply to all services within the genre:

a) A common and standard nature of service definition;

b) Common Canadian programming exhibition and spending obligations, as well as original programming obligations, where appropriate; these would be set at levels consistent with conditions that currently apply to the incumbent services;

c) No access rights (except where the service benefits from a mandatory distribution order under section 9(1)(h) of the Act, although undue preference provisions (including the new reverse onus provision) would continue to apply);

d) No regulated wholesale fee; and

e) Continued genre exclusivity from non-Canadian and Category B services.

The Commission will permit all Category A services to draw programming from all program categories, thereby providing these services with greater flexibility in this regard. However, to ensure that this change does not permit services to morph into other established programming genres, the Commission will establish a standard limitation of 10% of the broadcast month for the following categories:

  • 2(b) - Long-form documentary; 
  • 6(a) - Professional Sports; 
  • 7 – Drama and comedy; 
  • 7 (d) – Theatrical feature films aired on television; 
  • 7 (e) – Animated television programs or films; and 
  • 8 (b) and (c) combined – Music video clips and Music video programs.

Where a licensee is currently permitted to broadcast more than these standard limitations, it may continue to do so.

Advertising Limits for Specialty Services

The Commission will maintain the current limits on advertising on specialty services.

Follow-up Proceedings

The Commission announced a number of follow-up and related proceedings to the Public Notice.

These include three additional public notices that were issued on October 30, 2008 to initiate proceedings that will continue into 2009 (on conditions of licence for competitive services, local avails and VOD), information bulletins that will be issued by April 1, 2009 on procedural matters, various calls for comments that will be issued by April 1, 2009 on measures to implement determinations made in the Public Notice, and requests or requirements to provide further information. The Commission has also advised that current licensees of Category A services may apply for amendments to their conditions of licence so as to implement the simplified rules respecting their nature of service definitions.