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ARCHIVED -  Decision CRTC 2000-217

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Decision CRTC 2000-217

Ottawa, 4 July 2000
Alliance Atlantis Communications Inc., on behalf of a company to be incorporated
Across Canada - 199910815
21 February 2000 Public Hearing in Vancouver

New specialty television service "Food Network Canada" replaces the U.S. service "TV Food Network"

1.

The Commission approves the application by Alliance Atlantis Communications Inc. (AACI), on behalf of a company to be incorporated, for a broadcasting licence to carry on a national, English-language programming undertaking (specialty television service). It will provide information and entertainment related to food and nutrition, and will be known as Food Network Canada. The new service will replace the United States (U.S.) specialty service, TV Food Network.

2.

Subject to the requirements of this decision, the Commission will issue a licence expiring 31 August 2006. This licence will be subject to the conditions specified in this decision and in the licence to be issued.

The new service

3.

As noted above, Food Network Canada will offer entertaining, informative and instructional programming about food and nutrition. Programs will cover such topics as the culture of food, food selection, preparation and presentation, cooking instruction and entertaining. Feature films on the new service will be restricted to theatrical releases with food as a central theme, and no more than one such film shall be broadcast each week.

4.

A minimum of 50% of Food Network Canada's schedule will be made up of Canadian programs. In the first year of operation, a minimum of 175 hours of original Canadian programs will be broadcast. That level will increase over the licence term, to a minimum of 350 hours per year by 2006.

5.

Of the 50% non-Canadian content on the service, 90% will be acquired from the U.S. Food Network, and the remaining 10% will come from other foreign distributors of food-related programming.

6.

Conditions of licence related to Canadian programming, levels of original Canadian programming, and the nature of Food Network Canada's service are set out in the appendix to this decision.

Ownership

7.

Food Network Canada is the result of an agreement dated 5 August 1999 among AACI, Corus Entertainment Inc. (Corus) and Television Food Network G.P. (TVFN), setting out the equity position of the parties in the company to be incorporated and the relationship among them after incorporation (the Letter of Agreement). AACI will acquire 51% of Food Network Canada and will control the service. TVFN will acquire 29.8% of the service, representing a 19.8% voting interest, and Corus will acquire a 20% interest in Food Network Canada, of which 10% will be a voting interest. Pursuant to the Letter of Agreement, any increase in Corus' voting interests would be subject to Commission approval.

8.

AACI is a leading Canadian producer of television programming and feature films. Corus is a diversified entertainment company in radio, television and specialty television, and is affiliated with Shaw Communications Inc. (Shaw), the parent company of the second-largest cable distributor in Canada. TVFN owns the American specialty service TV Food Network. As part of the agreement, TVFN has committed to request the removal of its service, which is currently carried by some broadcasting distribution undertakings in Canada, from the lists of eligible satellite services, once the proposed Canadian service is launched.

Control by TVFN

9.

Based on all the evidence available to it, the Commission is satisfied that, while TVFN will play a significant role in the operation of Food Network Canada, ultimate control will reside with the licensee. The Commission bases its conclusion on the fact that AACI will be the majority shareholder and will have the majority representation on the board of directors. Furthermore, based on the Letter of Agreement, there are no veto rights or privileges granted to the minority shareholders. Finally, the Commission notes the fact that Food Network Canada will have no obligation to air specific TVFN programming and that final decisions regarding the airing of specific programs will remain in the hands of Canadians.

10.

The Commission notes that its conclusion in this matter is based upon the Letter of Agreement, and has imposed a condition of licence, set out in the appendix to this decision, requiring that any material change to that agreement be subject to prior Commission approval.

Horizontal and vertical integration

11.

The participation by a program producer such as AACI in Food Network Canada's ownership structure raised concerns related to program supply and the potential for "gate-keeping"vis-à-vis other producers. The ownership position of Corus raises the question of equity in a specialty service by an affiliate of a cable company, with attendant concerns for undue preference/undue disadvantage that could result (in the absence of sufficient capacity on cable networks) through the exercise of the market power of large cable companies, such as Shaw Cablesystems Ltd.

12.

With respect to program supply, the licensee proposed to abide by a condition of licence requiring that 75% of all Canadian programming be produced using independent producers. The Commission is satisfied that such a condition reduces the potential for gate-keeping, so long as the meaning of an independent producer is clear. In the appendix to this decision, a condition of licence is set out which requires a 75% level of independent production, and specifies that only those production companies of which AACI owns less than 30% of the equity will be considered independent producers.

13.

With respect to the presence of Corus in the ownership structure, there were concerns raised about its links with Shaw.

14.

In an intervention to this application, the Specialty and Premium Television Association (SPTV) supported the application, on the condition that Corus be required to divest of its proposed ownership interest due to Corus' affiliation with Shaw Communications Inc. and the potential for undue preference.

15.

In reply to the concern expressed by the SPTV, Corus argued that it is structurally separate and independent of Shaw, and that its shares are publicly traded. Corus also noted that its ownership position is small, at 10%, and suggested that the undue preference provision (section 9) of the Broadcasting Distribution Regulations (BDU regulations) would be sufficient to address any concern the Commission might have.

16.

On 19 May 1995, the Commission published its report to the government entitled Competition and Culture on Canada's Information Highway: Managing the realities of Competition (the Convergence Report). In that report, and in recent decisions, the Commission established that cable companies or their affiliates should generally not be permitted to acquire ownership of, or to increase the size of their holdings in, discretionary programming undertakings until there is sufficient capacity on cable networks to prevent undue preference.

17.

The Commission notes in this regard that the equity participation of Corus in the proposed corporation will be 10%. The Commission also notes that under the Specialty Services Regulations, 1990 distributors are allowed to acquire up to 10% of the voting interests of a licensee of a specialty service without prior approval. Given the strong ownership of AACI in the proposed corporation, given as well the safeguards against undue preference in the BDU regulations, the Commission is satisfied that the proposed 10% equity participation by Corus is not cause for concern.

18.

Nevertheless, in the absence of sufficient analog channel capacity on cable networks, and thus the Commission's continuing concern for undue preference, it is not prepared to permit the ownership interest in the licensee company held by Corus or by any affiliate of Corus to increase beyond the threshold of 10%.

19.

In light of the foregoing, the Commission has imposed a condition of licence restricting ownership in the licensee by Corus or by any affiliate of Corus to no more than 10% of the voting shares without the prior approval of the Commission. This will enable the Commission to review the implications of any increased ownership interests in the licensee by Corus or by any of its affiliates.

Application of the access rules

20.

Food Network Canada will be licensed as a discretionary service, on a modified dual status basis. It will replace the U.S. service TV Food Network, which is carried by some Canadian distribution undertakings. As noted above, the U.S. service has agreed to request its removal from the lists of eligible satellite services, as of the launch of the new Canadian service.

21.

Under section 18(5) of the BDU regulations, all Class 1 distribution undertakings are required to carry all licensed Canadian specialty services appropriate to their market, subject to available channel capacity. Since Food Network Canada will replace a foreign service not carried by all BDUs, the applicant suggested that the Commission adopt a different approach to the carriage arrangements for Food Network Canada.

22.

The applicant proposed that only those cable licensees carrying the U.S. Food Network on an unscrambled analog channel as of the date of licensing Food Network Canada be required to carry the new service on the same unscrambled analog tier. At the hearing, the applicant emphasised that it wished the access rules to apply only where the U.S. service was already carried, and stated "we are willing to only accept analog carriage on Class 1 operators where they were already carrying the U.S. service".

23.

The Commission is satisfied that the applicant's proposal to limit its access rights contributes to fairness of carriage. In the appendix to this decision, the Commission sets out a condition of licence to the effect that only those Class 1 BDUs that were distributing the U.S. Food Network on an analog basis as of the date of this decision are subject to the requirement pursuant to section 18.5 of the BDU regulations to distribute Food Network Canada.

24.

The Commission notes that, with respect to digital carriage, and analog carriage on BDUs that do not currently carry TV Food Network, the licensee is free to negotiate such carriage with all distributors.

Canadian programming expenditures

25.

A condition of licence specifying the revenue-based contribution to the production of Canadian programming is set out in the appendix to this decision. In keeping with the Commission's standard practice in licensing specialty services, the licensee will be required to expend yearly, a minimum of 40% of the previous year's gross revenues on Canadian programs.

Wholesale rate

26.

As part of this application, AACI proposed a monthly wholesale rate of $0.12 per subscriber per month, when Food Network Canada is carried as part of the basic service of a broadcasting distribution undertaking.

27.

In assessing the reasonableness of the proposed basic rate, the Commission attempted to balance the objective of an affordable basic service and the revenue needed by the service to fulfil its obligations. In this case, based on the financial documentation provided by the licensee, the Commission is not convinced that a wholesale rate of $0.12 for Food Network Canada is justified.

28.

The Commission is of the opinion that the proposed wholesale rate would contribute to a profitability level exceeding that of the industry as a whole. The Commission is satisfied that a rate lower than that proposed would not unduly affect the applicant's ability to negotiate mutually satisfactory terms with its affiliates and to meet its obligations.

29.

Accordingly, the Commission approves in part, the portion of this application related to the wholesale rate, by authorising the licensee to charge a wholesale rate of $0.10 per subscriber per month, where Food Network Canada is carried on the basic service. This rate will be considered a "pass-through portion", as defined in section 45 of the Broadcasting Distribution Regulations.

30.

Under the circumstances provided for in these regulations and in the amendments regarding basic service set out in Public Notice CRTC 1999-108, approval of this application will allow distributors to make the appropriate filings in order to recover from subscribers the cost of providing the service where Food Network Canada is carried on the basic service.

Other matters

Cultural diversity

31.

In Public Notice CRTC 1999-97 entitled Building on success - A policy framework for Canadian television, the Commission expressed its confidence that the Canadian broadcasting system could "better reflect the presence of minority groups in Canadian society, and.portray them accurately and fairly." The Commission encourages the licensee to recognize, respect and actively promote diversity.

32.

In this regard, the Commission notes the applicant's statements that all original Canadian programming will reflect Canada's diverse regions and peoples, that the service will strive to ensure that all programming meets Food Network Canada's policy of portrayal equity, and that it will pay special attention to these issues in its selection of programming from the U.S. Food Network.

Employment equity

33.

In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled Implementation of an Employment Equity Policy, the Commission announced that the employment equity practices of broadcasters would be subject to examination by the Commission. In this regard, the Commission encourages the licensee to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources. The Commission notes that the applicant stated that it will develop a comprehensive Employment Equity plan based on the practices adopted and enforced by AACI.

Service to the hearing impaired

34.

In its application, Food Network Canada stated that 90% of its original Canadian programming would be captioned by the end of the licence term. It also noted that, while Food Network Canada would not caption acquired programming, attempts would be made to acquire captioned programming to the greatest extent possible. Consistent with commitments made by the licensee at the hearing, it is a requirement that a minimum of 90% of all programming during the broadcast day be captioned by the end of the licence term.

Service to the blind and visually impaired

35.

AACI, through its broadcasting division, has established an on-going relationship with the National Broadcast Reading Service (NBRS) and its division VoicePrint, Audiovision Canada and AlternateMedia Canada, to assist the non-profit organization in publicizing and raising awareness about its services for blind, low-vision and print-handicapped Canadians.

36.

The Commission commends AACI's efforts in this regard and encourages it to continue to work with representatives of the blind, including the NBRS, to ensure that its services respond to the needs of the visually impaired.

Industry codes

37.

As discussed with the applicant, the Commission is applying conditions of licence requiring that the licensee adhere to the Canadian Association of Broadcasters' codes relating to gender portrayal, advertising to children and violence in television programming. The texts of these conditions are set out in the appendix to this decision.

Authority

38.

The licence will only be issued and effective when the undertaking is ready to begin operation. When the licensee is prepared to commence operation, it must advise the Commission in writing. If the undertaking is not ready to operate within 12 months of today's date, extensions to this time frame may be granted provided that the licensee applies in writing to the Commission before the 12-month period or any extension of that period expires.

Interventions

39.

The Commission acknowledges the interventions submitted concerning this application and has considered all of them in reaching its decision.
Secretary General
This decision is to be appended to the licence.  It is available in alternative format upon request, and may also be examined at the following Internet site: www.crtc.gc.ca

 

Appendix to Decision CRTC 2000-217

1.a) The licensee shall provide a national English-language specialty service that is dedicated solely to the broadcast of entertaining, informational, and instructional programming about food and nutrition, specifically related to: (i) the culture of food; (ii) food selection, and preparation, and cooking instruction; and (iii) presentation and entertaining.
b) The licensee shall only broadcast programs that fall within the following categories: 2(a) (analysis and interpretation), 2(b) (long-form documentary), 3 (reporting and actualities), 5(b) (informal education/recreation and leisure), 7(d) (theatrical feature films aired on television), 9 (variety), 10 (game shows), 11 (general entertainment and human interest), 12 (interstitials), 13 (public service announcements), and 14 (infomercials, promotional and corporate videos) as set out in item 6 of Schedule 1 of the Specialty Services Regulations, 1990, as amended.
c) The licensee shall not broadcast more than one feature film (category 7(d)) per broadcast week. All films must have food as a central theme.
2.a) The licensee shall devote not less than 50% of each broadcast year and not less than 50% of the evening broadcast period to the broadcast of Canadian programs.
b) Beginning in the first year of the licence term, 60% of all Canadian programs broadcast in the broadcast year must be original Canadian programs. By the end of the licence term, 80% of all Canadian programs broadcast in the broadcast year must be original Canadian programs.
3.a) For the purpose of this condition, "expend on Canadian programs" shall have the same meaning as that set out in Public Notices CRTC 1993-93 and 1993-174, dated 22 June and 10 December 1993, respectively.
b) In the second broadcast year, and in each subsequent broadcast year, the licensee shall expend on Canadian programs not less than 40% of the previous year's gross revenues derived from the operation of this service.
c) In the second broadcast year, and in each subsequent broadcast year excluding the final year, the licensee may expend an amount on Canadian programs that is up to five percent (5%) less than the minimum required expenditure for that year set out in, or calculated in accordance with, this condition; in such case, the licensee shall expend in the next broadcast year of the licence term, in addition to the minimum required expenditure for that year, the full amount of the previous year's underspending.
d) In the second broadcast year, and in each subsequent broadcast year where the licensee expends an amount on Canadian programs that is greater than the minimum required expenditure for that year set out in or calculated in accordance with this condition, the licensee may deduct:
i) from the minimum required expenditure for the next broadcast year of the licence term, an amount not exceeding the amount of the previous broadcast year's overspending; and
ii) from the minimum required expenditure for any subsequent broadcast year of the licence term, an amount not exceeding the difference between the overexpenditure and any amount deducted under paragraph i) above.
iii) Notwithstanding the above, during the licence term, the licensee shall expend on Canadian programs, at a minimum, the total of the minimum required expenditures set out in or calculated in accordance with the licensee's conditions of licence.
4. A minimum of 75% of all Canadian programs broadcast by the licensee shall be produced by independent production companies. For the purposes of this condition, an "independent production company" is defined as a production company of which Alliance Atlantis Communications Inc. owns or controls, directly or indirectly less than 30% of the equity.
5.a) Except where otherwise provided herein, the licensee shall not broadcast more than 12 minutes of advertising material during each clock hour.
b) In addition to the maximum of 12 minutes of advertising material referred to in subsection (a), the licensee may distribute, during each clock hour, a maximum of 30 seconds of additional advertising material that consists of unpaid public service announcements.
c) Where a program occupies time in two or more consecutive clock hours, the licensee may exceed the maximum number of minutes of advertising material allowed in those clock hours if the average number of minutes of advertising material in the clock hours occupied by the program does not exceed the maximum number of minutes that would otherwise be allowed per clock hour.
d) The licensee shall not distribute commercial messages during any program that has as its target audience children up to 5 years of age.
e) The licensee shall not distribute any advertising material other than national paid advertising.
f) For the purpose of this condition, advertising material does not include a promotion for a Canadian program to be broadcast by the licensee notwithstanding that a sponsor is identified in the title of the program or is identified as a sponsor of that program, where the identification is limited to the name of the sponsor only and does not include a description or representation of the products or services or any attributes of the sponsor's products or services.
6. The licensee shall charge each distributor of this service a maximum wholesale rate of $0.10 per subscriber per month, where the service is distributed as part of the basic service.
7.a) The licensee shall be governed by the 5 August 1999 Letter of Agreement among Alliance Atlantis Communications Inc., Corus Entertainment Inc., and Television Food Network G.P. (TVFN)
b) The licensee shall obtain the prior approval of the Commission in respect of i) any material change to the 5 August 1999 Letter of Agreement, ii) any shareholders agreement, iii) any trademark licence agreement with TVFN and iv) any program supply agreement with TVFN.
8. In addition to the requirements set out in section 10 of the Specialty Services Regulations, 1990, the licensee shall obtain the prior approval of the Commission in respect of any act, agreement or transaction that directly or indirectly would result in Corus Entertainment Inc., by itself or with an affiliate, owning or controlling more than 10% of the voting shares of the licensee. For the purposes of this condition, "affiliate" means a person who controls Corus, or who is controlled by Corus or by a person who controls Corus.
9. For the purposes of section 18(5) of the Broadcasting Distribution Regulations, the licensee is only authorised to provide its service to the licensed service area of Class 1 cable distribution undertakings that were distributing the U.S. service TV Food Network on an analog basis on 4 July 2000.
10. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) Sex-role portrayal code for television and radio programming, as amended from time to time and approved by the Commission.
11. The licensee shall adhere to the provisions of the CAB's Broadcast code for advertising to children, as amended from time to time and approved by the Commission.
12. The licensee shall adhere to the guidelines on the depiction of violence in television programming set out in the CAB's Voluntary code regarding violence in television programming, as amended from time to time and approved by the Commission.

Definitions

For the purposes of these conditions:
"original Canadian program" is defined as a Canadian program that, when first broadcast by the licensee, had not previously been broadcast by any other Canadian broadcasting undertaking.
"analysis and interpretation (category 2a)" shall, up to and including 31 August 2000, have the same meaning as Analysis and Interpretation (category 2) under the Specialty Services Regulations, 1990.
"broadcast day" means the period of up to 18 consecutive hours, beginning each day not earlier than six o'clock in the morning and ending not later than one o'clock in the morning of the following day, as selected by the licensee.
"broadcast week" means the total number of hours devoted by the licensee to broadcasting during seven consecutive broadcast days beginning on Sunday.
"broadcast month" means the total number of hours devoted by the licensee to broadcasting during the aggregate of the broadcast days in a month.
"broadcast year" means the total number of hours devoted by the licensee to broadcasting during the aggregate of the broadcast months in a 12 month period, beginning on 1 September in any year.
"clock hour" means a period of 60 minutes beginning on each hour and ending immediately prior to the next hour.
"evening broadcast period" means the total time devoted to the broadcast of programs between six o'clock in the afternoon and midnight during the broadcast day.
"national paid advertising" means advertising material that is purchased at a national rate and receives national distribution on the service.
All time periods shall be reckoned according to the eastern time zone.