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ARCHIVED -  Decision CRTC 87-905

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Decision

Ottawa, 1 December 1987
Decision CRTC 87-905
Susan Douglas Rubes, on behalf of a company to be incorporated - "The Family Channel" - 871197000
The Commission approves the application by Susan Douglas Rubes, on behalf of a company to be incorporated under the name "The Family Channel" for a network licence to provide an English-language national general interest pay television services with target audiences of children, youth to age 17, and families in conjunction with such children and youth. This satellite-to- cable service will be available to cable affiliates and to subscribers as a discretionary service, in accordance with the provisions outlined in the Public Notices accompanying this decision (Public Notices CRTC 1987-260 and CRTC 1987-261). The licence, which will be issued and be effective on 1 September 1988, will expire 31 August 1993 and will be subject to the conditions specified in the appendix to this decision and in the licence to be issued.
The authority will only be effective and the licence will only be issued at such time as the Commission receives documentation establishing that the company has been incorporated in accordance with the application in all material respects.
In providing the Commission with a more precise description of the nature of its programming service, the applicant indicated that the Family Channel is deigned for family viewing and has as its target audiences children, youth up to age 17, and families in conjunction with such children and youth. The service will not include any programming with an "Adult" or "Restricted" (or equivalent) rating from the Ontario Film Review Board, nor will it offer any news, religion, formal education of sports programs. By condition of licence, the applicant will be required to abide by this description of service.
The Commission notes that, of the 22 applications considered at this heating, the Family Channel is the only applicant to ask to be distributed to cable subscribers as a discretionary service. As a pay television service, it will be available to be distributed to pay subscribers in accordance with the special linkage criteria established by the Commission for pay television licensees, as set out in Public Notice CRTC 1987-261 of today's date.
The applicant indicated that it would provide an attractive blend of quality Canadian programming, which will occupy a minimum of 25% of its 133-hour-per-week schedule, combined with up to 60% which will originate from The Disney Channel, the U.S. family-oriented pay television service, and the balance (a further 15%) to be made up of "the best the world has to offer for family audiences".
Ownership
The Family Channel is to be jointly owned by Allarcom Pay Television Limited (APT) and First Choice Canadian Communications Corporation (First Choice), the licensees of the existing English-language general interest pay television network undertakings operating respectively in western and eastern Canada, each of which will hold 500 common shares in the Family Channel. APT is 100% owned by Allarcom Limited which is itself ultimately controlled by Dr. Charles Allard of Edmonton, Alberta who, through Allarcom Limited, also holds 100% interest in CITV-TV, an independent television broadcasting undertaking located in Edmonton.
First Choice, although indirectly owned equally be Hees International Corporation (the Bronfman family) and Abgreen Holdings Limited (the Greenberg family), is controlled by its executive committee on which those representing the Greenberg interests have majority representation. The ownership of First Choice is governed ultimately by an agreement pursuant to which the indirect owners of Abgreen Holdings Limited have an option to acquire the Hees interest.
First Choice holds 100% ownership in 129610 Canada Inc. which, in turn, has 39.9% ownership of Premier Choix: TVEC Inc., the French-language general interest pay television network operating in eastern Canada.
APT and First Choice are bringing to this application not only their experience and expertise in Canadian broadcast production and in the operation of pay television networks, but also unqualified financial, technical and marketing support. The proposed President of the Family Channel, Mrs. Susan Rubes, is a landed immigrant who has taken the necessary steps to obtain Canadian citizenship. In a letter to the Commission dated 10 June 1987, she confirmed that:
  If for any reason I have not obtained Canadian citizenship by the time of the issuance of the licence, The Family Channel will proceed with other officers so that the company will be at all times in full compliance with the Direction [to the CRTC re eligible Canadian corporations].
Mrs Rubes is well-know in the Canadian cultural community because of her initiative and commitment to children's and family entertainment. She founded the Toronto Young people's Theatre in 1964 and served a Heas of CBC Radio Drama for over five years, with responsibility for more than 250 hours of programming each year.
Demand
In support of their application, the co-owners emphasized their long-term interest in developing a discretionary family service to complement their existing pay television services and provided the Commission with evidence to support their contention that there is both a demand and a market for this type of service.
Based on 1986 figures compiled by Mediastats Inc., the Family Channnel estimates that it can achieve a penetration level of 4.7% of cable subscribers during the first year of operation, increasing to a 9% level by the end of year five. While noting that actual subscriber levels would depend on a number of factors outside its control, such as retail price, effective marketing, tiering and packaging by cable affiliates, ant the licensing of a number of new specialty programming services on basic cable, the Family Channel concluded that a 9% penetration level of English-language cable subscribers (436,00 subscribers) was a reasonable target for a discretionary family programming service.
The applicant's projections were also based on a March 1987 audience survey conducted by Research Management Group for the applicant which indicated that 27% of those surveyed would be extremely or very interested in subscribing to the Family Channel. The study also revealed that among households with children at home, 49% expressed interest in receiving such a service.
The applicant stated that through discussions it has had with representatives of the cable industry, it is satisfied that there is both support for the service and the capacity to exhibit the Family Channel as a discretionary service:
  We are satisfied that ... cable licensees will be eager to enter into suitable affiliation agreements with the Family Channel in time for the planned launch of the service.
   Furthermore, we believe that cable operators will find it most advantageous to offer the Family Channel to their subscribers in order to increase viewer satisfaction and compete more effectively with the direct satellite reception of U.S. services.
Programming
In describing the nature of its service, the Family Channel stressed that its programming is designed to supplement what is currently available for children and youth on conventional television and to provide viewing opportunities for all family members "from very young children to elderly persons". Emphasizing that the service would not include any material rated "restricted" or for adult audiences, the applicant further elaborated:
  The concept of a "family" audience has tow important aspects to it. The first is that there should be programming that is designed to serve and to appeal to each segment of the family including pre-schoolers, youth, young adults, parents and grand-parents. But second and just as important, we believe there is a real need for programs that knit the family together and that would be appropriate for the whole family to watch.
The Family Channel will offer Canadian families 19 hours a day of entertainment and educational programming including movies, animation features, live-action dramas, documentaries, continuing series and specials.
In establishing its programs schedule, the Family Channel has undertaken to exhibit its Canadian material at times when it would be seen by the largest number of viewers. Accordingly, it has proposed to feature 30% Canadian programming in the hours from 5:00 to 9:00 p.m. each evening, and to schedule Canadian children's programs on weekends from 9:00 a.m. to noon, when young viewers are most likely to be watching television, as well as from 3:00 to 5:00 p.m. on Saturday and Sunday. The Commission considers, however, that the early evening viewing hours, between 6:00 p.m. and 10:00 p.m. are the time of day when family members are most likely to view television together. For this reason, it has imposed conditions of licence whereby the Family Channel is required to devote a minimum of 25% of its total programming time in each semester (1 September to the last day of February and 1 March to 31 August) and a minimum of 30% of the time between 6:00 p.m. and 10:00 p.m. to the distribution of Canadian programs.
Mr. Richard Davies, Vice-President of Programming for APT, explained at the hearing that "as a percentage of the overall program schedule, we have about 35% geared to children, about 25% geared to youth, about 15% as family series and ... the remaining 25% of the schedule is made up of general audience features."
The applicant estimated that it would spend one-fifth of subscriber revenue, or "between $18 million and $24 million over five years" on Canadian productions, depending on retail rates and subscriber levels:
  In the first year of operation, we expect that the Family Channel will be able to pre-licence or invest in new productions representing at least 62 half-hours of new original production. By the fifth year, it is quite reasonable to expect that the number of original hours of production that could be invested in would have more than doubled.
The application specified that 5% of the funds to be allocated for Canadian productions, as cited above, will be devoted to script and concept development. The commission will require the Family Channel, as a condition of licence, to abide by this commitment.
In explaining its five-year plan for Canadian program acquisition and investment, the Family Channel stated that as a fully discretionary pay television service, it is precluded, by regulation, from producing any of its own programming. It stressed, however, the benefits of its intended participation with the Canadian independent production industry, noting:
  We will be purchasing a limited pay window for quality programs. Since we will reach only 9% of cable homes we will not present competition to conventional broadcasters who will be free to run the same programs after our window and get a whole new audience for them.
  That fact is very important to the financing of quality programs. Our licence fees can be added to those of conventional broadcasters, not just substituted. We expect to march or exceed a broadcaster's typical licence fee commitment of 15% to 25% of the budget. If Telefilm makes an equivalent contribution, over two-thirds of the financing will be in place from these three sources alone.
The applicant further noted that the monies that it intends to expend on Canadian productions over five years, either through direct investment or licence fees, will "be leveraged three or four times" with the participation of other broadcasters and the Federal Government's Broadcast Program Development Fund, resulting in at least $80 million worth of new Canadian programming. While its Canadian content component for the first year of operation will consist almost exclusively of shelf product, in each subsequent year most of its Canadian programming will be created with the assistance of its own funds. In this regard, the application states that the major portion of the Family Channel's Canadian program acquisition budget will be allocated to new production, rising from 60% in year 1 to 85% by year 5.
The principals of the Family Channel agreed at the hearing to increase their expenditures on Canadian programs from the level initially set out in the application, provided projected subscriber penetration levels are achieved.
Accordingly, as set out in the appendix to this decision, the Commission will require, as a condition of the Family Channel's licence that no less than 20% of its annual gross revenues be expended for investment in and/or acquisition of Canadian programming during each of the first three years of operation. These expenditure levels must, however, increase to 22.5% or 25% of annual gross subscriber revenues in the fourth and/or fifth year of operation should subscriber penetration levels of 326,552 or 378,552 respectively be achieved.
In response to concerns raised by Canadian independent producers and program distributors, the Family Channel has undertaken to ensure an exhibition window for quality Canadian programming as well as additional revenues for the canadian program production industry. Accordingly, it proposes to provide "meaningful" licence fees ranging from 15% to 25% and to enter into contractual arrangements permitting the subsequent scheduling of higher-cost children's programming on conventional Canadian television services.
In calculating the time devoted to the distribution of Canadian programs, the Family Channel shall be awarded a 150% credit for new Canadian production in accordance with the scheduling criteria set out in the appendix to this decision and the criteria for Canadian program recognition set out in the appendix to Public Notice CRTC 1984-94 dated 15 April 1984. Also, in line with the applicant's firm commitment, by condition of licence, no more than 60% of the total program schedule in each semester (as defined above) may be comprised of programs from The Disney Channel.
The Family Channel considers its association with The Disney Channel to be a significant benefit for Canadian viewers. It has negotiated a ten-year contract with the American organization which ensures the applicant exclusive Canadian access to programs which are currently part of the extensive Disney library (consisting of more than 250 feature films, close to 100 specials and 26 series) as well as new material produced by or for The Disney Channel. The agreement also permits the applicant to make use of Disney names and characters for marketing and promotional purposes.
Stressing the fact that The Disney Channel's products ate internationally acclaimed for their demanding standards, high production values, and suitability for family viewing, the applicant described its exclusive program supply arrangement with The Disney Channel noting that:
  the Family Channel would not be siphoning programming away from other Canadian broadcasters. The Disney Channel will make available its programming for exhibition on the Family Channel during the same pay television window as for its service in the United States and without affecting any of the existing rights already secured by broadcasters in Canada or the subsequent exposure of these programs in other media ...
Viability
The total financing required for this proposal is $4.2 million, and the partners in this undertaking have guaranteed that these expenses will be borne equally by APT and First Choice, through $1 million in equity investment, a bank loan of $1.1 million for capital equipment and a $2 million operating line of credit. in addition, APT and First Choice have made a commitment to cover any additional financial requirements of the Family Channel.
In response to questions suggesting that common ownership of the existing pay movie channels and the family programming service could be perceived as a monopolistic situation, the applicant explained that the Family Channel would be "fully differentiated" and that these services can co-exist and reinforce each other. It characterized this proposal as " the final resolution of the original pay [television] licensing [process] ... namely, the offering of a complementary, fully-discretionary service which all of the members of the family could watch together". Mr. Greenberg emphasized the "the ability to be able to have clearly-defined programming [services] to augment each other [on the discretionary tier], and not on a competitive basis, is a plus factor [in terms of] the ability to create programming." A further benefit of this proposal as stated by the applicant is that, through their experience with the marketing of discretionary television services, the owners have devised a business plan that takes into account subscriber price sensitivity and they have committed the full support of the First Choice and APT services to assist with the launch of the Family Channel.
The applicant has undertaken to allocate a budget of approximately $21,668,000 over five years for marketing and promotion (including licence fees to the Disney organization for use of its properties and characters); program acquisition costs of more than $35 million, of which at least $18 million or more than half will be spent on the acquisition and production of Canadian material, with a further $11 million for royalties to The Disney Channel and $6,00,00 for the acquisition of other non-Canadian programming; and operating expenses of some $23.3 million, including satellite transponder and uplink fees totalling $13.7 million over the licence term.
In its applications, the Family Channel emphasized that the service will be totally commercial-free and dependent only upon subscriber fees for its revenue. Its operational plans and financial forecasts are based on "an average revenue per subscriber significantly lower than that applicable to the existing general interest [pay] services" but the applicant expressed satisfaction that its subscriber and revenue projections "should be easily achieved, particularly if the new service can be retailed at a price significantly lower than the existing movie services as a stand-alone and under the $20 benchmark if packaged with [them] or other discretionary services".
The Family Channel projects subscriber revenues of $10.4 million in year 1, based on an estimated 4.7% penetration of English-language cable households, rising to $25 million and 9% penetration by year 5. Given the discretionary nature of this service, the fact that it will not be competing for advertising revenue, and that its agreement with The Disney Channel does not prevent access to these programs by conventional television broadcasters, the Commission is satisfied that the impact of this service on conventional broadcasters will be negligible.
The service proposes to make use of two satellite transponders to distribute the Family Channel's programming to the eastern and western parts of the country, in eastern and mountain time respectively. In order to save costs, the origination centre and uplink facilities will be co-sited with those used by the existing pay television services.
Conclusion
In approving this application, the Commission has given considerable weight to the following factors: the objectives and orientation of the proposed programming concept; the evidence submitted concerning audience demand for such a service; the quality and attractiveness of the proposed programs; the applicant's commitments with respect to the investment in Canadian program production; and the viability of the proposal in terms of its financial, and marketing projections.
The Commission has examined the issue of concentration of ownership resulting from the common ownership of the Family Channel by APT and First Choice and is satisfied that the significant advantages accruing to subscribers and to the viability of the existing Canadian pay television services through the licensing of this complementary discretionary service, which is designed to appeal to the viewing needs of children, youth and their families, far outweigh any such concerns.
As to the potential impact that the licensing of this service may have on existing broadcasters in terms of audience fragmentation and erosion of advertising revenues, the Commission has examined the evidence and information presented by the applicant, particularly the fact that the Family Channel, as a pay television service, will not be financed by advertising revenue nor be competing with either conventional broadcasters or the existing pay television licensees for program material. The Commission notes the applicant's assertion that after five years it penetration is projected to be approximately 9% of English-language cable homes in Canada. It has also assessed all of the comments and studies available in the context of this hearing and, after careful consideration, has concluded that the impact on conventional broadcasters will be negligible.
It has also determined that the addition of this complementary programming service to the discretionary tier will be an attraction for both existing and potential pay television audiences. The Family Channel stated at the hearing in this regard that its research indicates that up to 7% of new pay television subscribers who would be attracted specifically because of the Family Channel service have also expressed interest in subscribing for the existing movie channels.
While the Commission regards the applicant's revised minimum commitments related to Canadian content expenditures as reasonable taking into account the level of Canadian programming the Family Channel is required to exhibit, it emphasizes that these are minimum commitments which it is expected to exceed during the licence term, as funds become available.
With regard to issues of public concern, the Commission requires the Family Channel, by condition of licence, to abide by the CAB's self-regulatory guidelines on sex-role stereotyping.
The Commission further expects the Family Channel, in line with the commitment given by the applicant at the hearing, to ensure that its programming reflects realistically the participation of multicultural minorities in Canadian society.
The Commission also wishes to reiterated that it shares the public's on-going concern with respect to violence in television programming, particularly when it relates to children's programming. It will wish to be assured therefore that the Family Channel exercises particular care and discretion in the presentation and scheduling of its programming, and refrains from broadcasting programs depicting scenes of violence.
With respect to closed captioning, the applicant indicated at the heating that it would take appropriate measures to ensure that all new productions it would participate in would be closed captioned. Mrs. Rubes specifically stated:
  What we would do is ask the producer to include the fee for the closed captioning into the general budget. And that producer I am sure, would take advantage of the Telefilm money that is available for closed captioning. It is something that we believe should be with all programming eventually and, I am sure, will be.
The Commission will follow with interest the applicant's progress in developing this discretionary programming service for children, youth and their families.
In granting a licence to the Family Channel, the Commission has taken into account the views expressed by the many interveners who supported this application, including The Animation House Ltd. and Armstrong/ Clydesdale Casting, which consider the applicant's commitment to support films and television programming intended for family viewing as an impetus to the Canadian production industry. In addition, the Commission notes the support for this application in interventions from the cable industry. Shaw Cable, Western Cablesystems, Saskatoon Telecable Ltd., Westman Media Co-operative Ltd., Rogers Cablesystems Inc., the Ontario Cable Television Association and the Cable Television Association of Alberta filed comments with respect to the additional viewer choice this complementary discretionary service will provide and of its potential wide appeal.
The application received qualified support from the Canadian Film and Television Association, which asked the Commission to ensure that the programming to be obtained from independent Canadian producers will be both new and targeted to Canadian children. The National Film Board of Canada considered that while the licensing of this service could result in the loss of some subscribers from the First Choice and Super-channel pay television services, "the additional range of programs would be a useful addition to the discretionary program mix" and that "there is a substantial group of Canadians who would subscribe to a new program service such as the Family Channel" particularly if it offers an alternative to the more adult entertainment offered by the existing movie channels. Some broadcasters, such as CanWest Broadcasting Ltd., expressed concern that the service could have a negative impact on conventional television undertakings in terms of increased program costs.
Fernand Bélisle
Secretary General
APPENDIX
Conditions of Licence
Susan Douglas Rubes, on behalf of a company to be incorporated (The Family Channel)
1. The programming provided by the licensee shall have as its target audiences only children, youth to age 17, and families in conjunction with such children and youth.
2. The licensee shall not provide on the Family Channel any programming with an "Adult", "Restricted" or equivalent rating from the Ontario Film Review Board.
3. The licensee shall not distribute programming from the following categories as set out in Item 6 of Schedule I to the Television Broadcasting Regulations, 1987: news (category 1), religion (category 4), formal education (category 5a) and sports (category 6).
4. The licensee shall, in each semester (defined as 1 September to the last day of February and 1 March to 31 August) devote not less than 25% of the total time during which programming is distributed on the Family Channel and 30% of the total time between 6:00 p.m. and 10:00 p.m. (prime viewing hours) to the distribution of Canadian programs.
 In the calculation of time devoted to the distribution of Canadian programs, a 150% credit shall be awarded for a new Canadian production distributed by the licensee which
   a) is scheduled to commence and be completed within prime viewing hours, as defined above, and
  b) in the case of a new Canadian production intended for children, is scheduled to be completed prior to 10:00 p.m.
 The licensee will receive a new Canadian production programming credit for each showing of such a production within a two-year period from the date of first showing by that licensee.
 For the purposes of this credit "new Canadian production" means a first-run dramatic or children's production which exceeds 75 minutes in duration and in relation to which all financial expenditures made by the licensee were made prior to the commencement of principal photography or taping and in which principal photography or taping was completed after 1 January 1985, or which exceeds 25 minutes in duration and in relation to which all financial expenditures by the licensee are made prior to the completion of principal photography or taping, and which qualifies as Canadian content in accordance with the criteria for Canadian program recognition set out in the appendix to Public Notice CRTC 1984-94 dated 15 April 1984.
5.  a) Subject to paragraph (b) below, in each year commencing on 1 September, the licensee shall expend not less than 20% of the annual gross revenues derived from its operations under this licence on investment in and/or acquisition of Canadian programs.
  b) In respect to he years commencing on 1 September 1991 and following, if the number of subscribers to the service on 31 August of the previous broadcast year exceeds 326,551, the licensee shall expend not less than the percentage set out below of the annual gross revenues derived from its operations under this licence on investment in and/or acquisition of Canadian programming:
  For 326,552 to 378,551 subscribers, expenditure requirement: 22.5%
  For 378,552 or more subscribers, expenditure requirement: 25%
6. The licensee shall, in each year commencing 1 September, expend not less than 5% of its total expenditures on Canadian programs on script and concept development.
7. In each semester, as defined above, the time devoted to the distribution of programs obtained from "The Disney Channel" shall comprise not more than 60% of the total time during which programming is distributed on the Family Channel.
8. In addition to the information required to be filed with the Commission pursuant to section 4 of the Pay Television Regulations, the licensee shall enter in the program log, on a daily basis, the following information:
- the target audience of each program distributed
- the rating of the Ontario Film Revew Board for each feature film distributed
- the category of the program using the categories in Item 6 of Schedule I to the Television Broadcasting Regulations, 1987
- a designation, where applicable, indicating that the program was obtained form "The Disney Channel"
- a designation, where applicable, indicating that a 150% credit was obtained for a new Canadian production.
9. On or before 30 November in each year, the licensee shall file with the Commission the total number of subscribers on 31 August of that year.
10. The licensee shall adhere to the CAB's self-regulatory guidelines on sex-role stereotyping, as amended from time to time and accepted by the Commission.