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ARCHIVED -  Broadcasting Decision CRTC 2003-65

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Broadcasting Decision CRTC 2003-65

Ottawa, 21 February 2003
Craig Broadcast Systems Inc. on behalf of 3844161 Canada Ltd.,
licensee of Connect (MTV Canada) and 3850099 Canada Ltd.,
licensee of Music 5 - Pop (MTV2)

Across Canada
Applications 2001-1062-7 and 2001-1229-3
Broadcasting Public Notice CRTC 2002-6, Item 3
6 February 2002

Change in the ownership structure of MTV Canada and MTV2, and the Commission's findings concerning complaints regarding the compliance of these services with their licensing decisions

In this decision, the Commission approves the applications by Craig Broadcast Systems Inc. (Craig), on behalf of 3844161 Canada Ltd. and 3850099 Canada Ltd., that will result in a transfer of control of 3844161 Canada Ltd. and 3850099 Canada Ltd.
The approval will, however, only be effective when:
  • Craig files, within 30 days, or any other timeframe that the Commission may accept as reasonable, an amended version of the Joint Venture Agreement (JVA), of the Intellectual Property Licence Agreement (IPLA) and of the Program Supply and Consulting Agreement related to the transfers, and the Commission issues a statement that the amended agreements are satisfactory. Appendix B sets out recommended amendments to the JVA and the IPLA.
  • Craig files, within 30 days, an application to amend the nature of service definition of MTV2 to add a definition of "pop" that will ensure the service is operated in accordance with the Licensing framework policy for new digital pay and specialty services, Public Notice CRTC 2000-6, 13 January 2000. This condition is addressed in the second part of this decision, which deals with complaints received by the Commission concerning Craig's compliance with its licensing decisions.
The Commission also finds, Commissioner Cram dissenting, that Craig is not carrying on the MTV Canada service in accordance with the terms and conditions of its licence and requires Craig to report within 90 days of the date of this decision on the steps that it has taken to come into compliance.

Introduction

1. In Connect - a new specialty channel, Decision CRTC 2000-462, 24 November 2000 with reasons that followed on 14 December 2000 (Decision 2000-462), the Commission approved an application by Craig Broadcast Systems Inc. (Craig), on behalf of a company to be incorporated, for a Category 1 digital specialty service to be known as Connect. On the same day, the Commission also approved several applications by Craig for Category 2 digital services, including one for a package of five music video services - Pop, Dance, Urban, R&B, and Hot Hits - to be known as Music 5. This service was approved in Music 5, Decision CRTC 2000-539 (Decision 2000-539).

2.

Craig's Category 1 service, Connect, launched under the brand name MTV Canada (MTV Canada). The Category 2 service Music 5 - Pop launched under the brand MTV2 (MTV2).

3.

On 10 September 2001, the Commission received applications by Craig requesting authority to effect a change in the ownership structure of the two services, MTV Canada and MTV2. Public comment on these applications was sought in Broadcasting Public Notice CRTC 2002-6, 6 February 2002. Part 1 of this decision deals with those applications.
4. In January 2002, the Commission received a complaint by CHUM Television (CHUM), a division of CHUM Limited, supported by a letter of complaint from MusiquePlus inc. (MusiquePlus), alleging that MTV Canada was violating its nature of service conditions of licence and contravening the Licensing framework policy for new digital pay and specialty services, Public Notice CRTC 2000-6, 13 January 2000 (the digital licensing framework). The second part of this decision provides the Commission's findings with respect to these complaints.

Part 1 - Applications to effect a change in ownership

The licensees' current ownership structure

5. The authorized ownership structure for MTV Canada, as approved in Decision 2000-462, is as follows:
  • 3844161 Canada Ltd. (Licensee 161) is the licensee of MTV Canada, with John D. Craig, Stuart M. Craig and Thomas B. Craig (the Craig family), through 3794512 Canada Ltd. (Craig 512), indirectly holding 67.04% of the voting shares, and TD Capital Group Ltd. directly holding the remaining 32.96% of the voting shares.
6. The authorized ownership structure for MTV2, as approved in Decision 2000-539, is as follows:
  • 3850099 Canada Ltd. (Licensee 099), a wholly-owned subsidiary of Craig, is the licensee of MTV2.
7. Licensee 161 and Licensee 099 are collectively referred to in this decision as the Licensees.

The applications

8. On 10 September 2001, Craig applied for authority to effect a transfer of control of the Licensees. This followed the conclusion of a Joint Venture Agreement (JVA), signed on 16 August 2001, between MTV Networks (MTVN) and Craig, as well as with Licensee 161, 3744159 Canada Ltd. (Holdco 159), 3848388 Canada Ltd. (Holdco 388), Licensee 099 and 3844234 Canada Ltd. (Craig 234), subsidiaries directly and indirectly owned by the Craig family. As a result of the JVA, two new holding companies of the Licensees would be introduced, as follows:
  • Holdco 159 would become the parent corporation of Licensee 161; and
  • Holdco 388 would become the parent corporation of Licensee 099.
9. The ownership structure of Holdco 159 and Holdco 388, collectively referred to in this decision as the Holdcos, would be as follows:
  • Holdco 159 would be a wholly owned subsidiary of Craig 234, which in turn, would be controlled by Craig 512, with a voting interest of 67.04%. Craig 512 is owned by the Craig family, with each of the three members having a 33.3% voting interest.
  • Holdco 388 would be a wholly owned subsidiary of Craig 512.
The proposed ownership structure for both Licensees, pursuant to the JVA, is illustrated in Appendix A.

Involvement of MTVN

10. MTVN is a wholly owned subsidiary of Viacom International Inc. (Viacom), a non-Canadian corporation.

11.

Viacom is a leading global media company with a broad array of media-related holdings in conventional and cable television, motion picture production and distribution, radio, outdoor advertising and online media. Its most recognized brands include CBS, MTV, Nickelodeon, VH1, BET, Paramount, Famous Players, Blockbuster, TNN, CMT, Showtime and Simon & Schuster.

12.

While MTVN does not hold shares in the Licensees, the Holdcos or Craig 512, it has certain important rights under the terms of the JVA. It also has a number of rights under the Intellectual Property Licence Agreement (IPLA) dated 16 August 2001 between MTVN and the Licensees, and under the Program Supply and Consulting Agreement (PSCA) of the same date and between the same parties. The rights have raised the issue of the degree of influence that MTVN, as a non-Canadian corporation, could exercise over the Licensees' broadcasting undertakings.

The Direction to the CRTC

13. Under the Direction to the CRTC (Ineligibility of Non-Canadians) (the Direction), the Commission is not permitted to issue a licence or grant an amendment or renewal to a non-Canadian, which includes an entity that is controlled by a non-Canadian. The definition of a "qualified corporation" in the Direction indirectly provides for ownership restrictions on the voting shares of a licensee by a non-Canadian. It also includes provisions to govern the case where a qualified corporation is a subsidiary corporation. These include the requirement that the holding company, if more than 20% of its voting shares are owned by non-Canadians, not exercise control or influence over any programming decisions of the subsidiary corporation.
14. The Direction defines "control" as "control in any manner that results in control in fact, whether directly through the ownership of securities or indirectly through a trust, agreement or arrangement, the ownership of a corporation or otherwise."

Public process

15. In Broadcasting Public Notice CRTC 2002-6, 6 February 2002 (Public Notice 2002-6), the Commission sought comments on the applications, and in particular on:
  • the potential influence that the non-Canadian company (MTVN) might exercise over the Licensees; and
  • the potential impact of the proposed ownership structure on the programming of the services and their competitiveness with other Canadian services.
16. In addition, the Commission noted, in Public Notice 2002-6, that it had received complaints from CHUM and MusiquePlus raising concerns about Craig's compliance with the nature of service definitions of MTV Canada and MTV2.
17. A total of 12 interventions were filed by the Canadian Independent Record Production Association (CIRPA), the Directors Guild of Canada, the Writers Guild of Canada, CHUM Limited, the Society of Composers, Authors and Music Publishers of Canada (SOCAN), Corus Entertainment Inc., Friends of Canadian Broadcasting, the Canadian Film and Television Production Association (CFTPA), Alliance Atlantis Broadcasting Inc., the Association des Producteurs de films et de télévision du Québec (APFTQ), MusiquePlus and the Global Television Network Inc.
18. All interveners raised concerns about the degree of influence that MTVN might exercise over the operations of the Licensees' broadcasting undertakings and about the potential for de facto control by non-Canadians. They also provided arguments concerning the potential impact of the new ownership structure on the nature of the services, specifically the Category 1 service, and the integrity of the digital licensing process.
19. The interveners called upon the Commission to:
  • re-examine the provisions of the JVA, of the IPLA and of the PSCA, including Craig's proposed amendments thereto submitted during the process leading to Public Notice 2002-6, and
  • ensure that the programming offered by Craig complied with the Commission's licensing decisions.

The control issue

20. A determination regarding control under the Direction is made on the basis of a review of several factors. For example, the Commission examines the degree of influence that a shareholder or any other person can exercise under the provisions of relevant agreements (e.g. a shareholder agreement, trademark licence agreement or programming supply agreement) to determine whether de facto control over the licensee or its broadcasting undertaking could be exercised.
21. To determine whether the changes proposed by Craig meet the requirements of the Direction, the Commission has examined whether MTVN is in a position to exercise a level of influence sufficient to lead to effective control over the Licensees' services by a non-Canadian. In this respect, the Commission has considered the provisions of the JVA, the IPLA and the PSCA, and amendments proposed thereto by Craig, and the interpretation given to them by the applicant and the interveners.

Qualified corporation: Joint Venture Agreement
Sections 3 and 5 - Option and Programming Committee

22. Although MTVN does not hold any shares in the Licensees, or in their parent corporations, it has an option, pursuant to section 3.1 of the JVA, to acquire up to 51% of the shares of the Licensees and of the Holdcos at any time at its sole discretion.
23. To assure the Commission that MTVN would not exercise its option at any time, Craig proposed, during the deficiency process, to amend section 5.7 of the JVA. The amendment would, according to Craig, clearly restrict the option so that MTVN could only acquire up to 20% of the voting shares of either Licensee and up to 33.3% of either Holdco, as allowed under the Direction.
24. Considering that MTVN would have an option to acquire up to a 33.3% interest in the Holdcos, the Commission explored with the applicant, during the deficiency process, a requirement for the Licensees to set up a mechanism that would ensure that neither Holdco nor its directors would control or influence programming decisions, to ensure compliance with the Direction. The applicant agreed to further amend section 5.7 of the JVA by including a provision for the establishment of an independent programming committee in the event that MTVN should acquire, directly or indirectly, a greater than 20% interest in any Holdco. The establishment of the programming committee would be conditional on prior approval by the Commission of the membership of the committee.
25. The Commission did not receive comments on this matter from interveners.
26. The Commission has determined that section 3.1 of the JVA must be amended to ensure that MTVN does not acquire, at any time, a voting interest in either the Holdcos or the Licensees beyond the limits permissible under the Direction. The recommended wording, set out in Appendix B, will give an option to MTVN to acquire, at any time, a voting interest up to the limits permitted under the Direction in either the Licensees or the Holdcos.
27. In addition, it is necessary to ensure that MTVN does not participate in the programming decisions of the Licensees, in the event that the option under the amended section 3.1 of the JVA is exercised. Accordingly, the Commission requires a further amendment to the JVA. This provision would stipulate that all decisions regarding the programming on the service would be within the exclusive power of the Licensees and their officers and Board. If MTVN were to exercise its option to acquire directly or indirectly 20% or more of the voting shares of holdcos Craig 234 and Craig 512, the Holdcos and their Boards would neither be involved in nor participate in programming decisions of the Licensees, subject to any change in the restrictions on ownership that would so permit them.

De facto control: Joint Venture Agreement
Section 3.6 - Shareholder Agreement

28. Certain sections of the JVA provide an indication of how MTVN would be involved in the operation of the broadcasting services. Section 3.6 of the JVA requires the negotiation of a shareholder agreement at such time as MTVN exercises its option to acquire 15% of the shares of the Holdcos and/or the Licensees. Such a shareholder agreement could contain clauses allowing MTVN a greater involvement in the operation of the broadcasting services.
29. CHUM argued that, given the potential for control by MTVN, a shareholder agreement should be finalized prior to the Commission's approval of these applications.
30. The Commission determines, as agreed to by Craig, that the JVA must include the stipulation that the Shareholder Agreement will be subject to the Commission's prior approval.

Joint Venture Agreement
Section 5 and Approval right - Schedule A: Pre-emptive rights

31. Pre-emptive rights generally allow existing shareholders to maintain their level of ownership in a corporation when new shares are issued. In this respect, section 5.4 of the JVA provides MTVN with the right of first opportunity to acquire any equity that the Holdcos decide to issue before any other party, including Craig and its related corporations, as long as the appropriate approval from the Commission has been obtained.
32. According to Craig, this provision simply requires that, in the event that MTVN acquires 15% or more of the Holdcos' voting interest, and at such time as the existing shareholders look for a third party investor, MTVN would have the first opportunity to acquire the shares to be sold.
33. Craig submitted that, if MTVN were to acquire 15% or more of the Holdcos' voting interest, Schedule A of the JVA provides for approval rights for the minority shareholders. It also describes the approval process for changes affecting the Holdcos or the Licensees, for example, any change to the number of members on the Board of Directors of the Holdcos or the Licensees, and the redemption, purchase or other acquisition of any shares by the Holdcos or the Licensees.
34. The interveners did not address this matter in their comments.
35. In light of Craig's position with respect to the two provisions, and considering that they will only apply when MTVN acquires 15% of the Holdcos, the Commission finds that section 5.4 of the JVA is consistent with other agreements involving the participation of a non-Canadian as a minority shareholder that it has found to be appropriate. Further, in the event that MTVN were to exercise its option to acquire 15% or more of the voting interest in the Holdcos, the JVA requires that a shareholder agreement be put in place. This agreement would require the Commission's prior approval. The Commission would therefore be in a position to re-evaluate the level of influence that MTVN may exercise through section 5.4 and Schedule A of the JVA at the time that it examines the Shareholder Agreement.

Joint Venture Agreement:
Section 7 - Information requirements

36. Section 7.1 of the JVA deals with the monitoring and financial reporting requirements, whereby the Licensees would provide MTVN with specific information on items such as the number of subscriptions, ratings, marketing strategies, gross expenses and gross revenues.
37. According to Craig, it is common for the holder of an equity option, such as MTVN, to have such rights. Craig argued that the holder of an option has a valid interest in monitoring the financial situation of the company to determine whether it wants to exercise its option. Craig further argued that, because MTVN's trademark licence fees are based on revenues, it has an interest in reviewing the financial information related thereto. Craig further submitted that, as the owner of the MTV brand, MTVN has an interest in monitoring the results of the marketing of its brand by Craig in Canada.
38. The applicant subsequently proposed to amend section 7.1 to eliminate the financial reporting requirements, thereby excluding the submission of monthly reports on gross revenues, expenses and consulting fees.
39. In considering the applicant's proposed amendment, interveners argued that all the reporting obligations should be removed on the basis that such obligations would provide MTVN with an unreasonable level of influence over the Licensees. In this regard, the interveners highlighted the size of its parent corporation, Viacom.
40. The Commission has considered the proposed amendment in light of similar arrangements involving the participation of a non-Canadian as a minority shareholder that it has found appropriate and finds that section 7.1 of the JVA, as amended, provides MTVN with legitimate reporting information, and is acceptable in the circumstances.

Intellectual Property Licensing Agreement

41. The IPLA grants the Licensees the right to use the MTV and MTV2 trademarks.
42. CHUM and MusiquePlus raised concerns about the provision of the IPLA that requires MTVN's prior approval before each use of the trademarks. Without that approval, the Licensees would not be able to use the trademarks. According to these interveners, such a provision would give sole discretion to MTVN over the use of the trademarks by the Licensees, and the right to withdraw the MTVN trademarks.
43. In its reply, the applicant argued that many precedents in Canada confirm the acceptability of such arrangements.
44. The Commission finds that, with the exception of the right to terminate the use of the trademarks, which is addressed below, the other provisions of the agreement are consistent with those of other agreements related to Category 1 and Category 2 digital specialty services that have been found to be acceptable.

Intellectual Property Licensing Agreement
Section 12 - Right to Terminate

45. Section 12.1A of the IPLA provides MTVN and the Licensees with different termination rights. In the case of MTVN, its right can be triggered by a wide-ranging set of circumstances, giving MTVN influence over the services, even if MTVN has no equity or has not yet exercised its option pursuant to the amended section 3.1 of the JVA. For example, MTVN would have the right to terminate the IPLA agreement, upon termination of the PSCA, if either Licensee made use of the trademarks without the prior approval of MTVN, or in the event of the non-renewal of the Category 1 licence for MTV Canada.
46. The Licensees' right to terminate can be triggered by a different set of events. For example, certain rights can only be triggered following an amendment to the Direction.
47. In CTV Inc. on behalf of The Sports Network Inc. (TSN), Le Réseau des Sports (RDS) Inc. (RDS), and 2953285 Canada Inc. operating as The Discovery Channel, Decision CRTC 2000-86, 24 March 2000, concerning a transaction between CTV Inc./NetStar Communications Inc. and ESPN Inc. (ESPN), the Commission concluded that the section dealing with ESPN's right to terminate the use of the ESPN brand had to be amended to provide mutuality of terms under which ESPN or CTV Inc. may terminate the agreement.
48. The Commission finds that the right to terminate granted to MTVN is not equivalent to the right to terminate granted to the Licensees. As a result, the Commission determines that section 12 of the IPLA requires an amendment to provide mutual terms under which the parties may terminate the agreement for as long as MTVN is subject to Part I of the amended section 3.1 of the JVA. This will alleviate the uncertainty surrounding the rebranding and remarketing of MTV Canada, in the event MTVN decides to exercise its rights to withdraw the right to use the trademarks.

Programming Supply and Consulting Agreement

49. The PSCA governs the terms under which MTVN supplies the Licensees with MTV programming, including music video clips.
50. According to CHUM and MusiquePlus, the PSCA gives MTVN too much leverage over the Licensees with respect to the acquisition of MTV programming. For example, under section 2.8, the Licensees have the right of first opportunity to acquire exclusive specialty television exhibition rights for all new MTV original programming. However, MTVN has the ability to sell such programming to a third party if Craig does not agree to purchase, on MTVN's terms and conditions, all such programming.
51. In its reply, the applicant argued that it was not obligated to rely solely on MTVN for programming or to acquire the programming offered by MTVN. It submitted that the PSCA made the MTV program library available to Craig and gave Craig the first right to acquire the programs from this library. It further argued that sections 2.8 (Right of First Opportunity), 3.1(d) (Delivery of Programs) and 3.2(b) (Live Award Shows) made it abundantly clear that program acquisition decisions were entirely in Craig's hands.
52. Following an examination of the above-noted sections, the Commission finds them acceptable and consistent with the provisions of similar agreements governing other Category 1 and Category 2 digital specialty services.

The Commission's conclusion

53. The Commission determines that, subject to the amendments discussed above, the proposed ownership structure of the Licensees would be consistent with the Direction. The Commission is satisfied that Craig will have control over both Licensees, while MTVN will only have a minority position if it decides to exercise its option, in terms of both voting rights and equity.
54. In light of the above, the Commission approves the applications by Craig that will result in a transfer of control of the Licensees. The approval, however, will only be effective when
a) Craig files, within 30 days, or any other timeframe that the Commission may, upon application by Craig, accept as reasonable:
  • An amended and restated version of the Joint Venture Agreement that reflects changes proposed by Craig and any other changes discussed in this decision. The necessary amendments are set out in Appendix B to this decision. In addition, the agreement must reflect the changes to the corporate structure proposed by Craig in its letter of 26 October 2001.
  • An amended and restated version of the Intellectual Property Licence Agreement that reflects the changes proposed by Craig and any other changes discussed in this decision. The necessary amendments are set out in Appendix B to this decision. In addition, the agreement must reflect the changes to the corporate structure proposed by Craig in its letter of 26 October 2001.
  • An amended and restrated version of the Programming Supply and Consulting Agreement that reflects the changes to the corporate structure proposed by Craig in its letter of 26 October 2001.
b) The Commission issues a statement indicating that the amended agreements are satisfactory to it.
Further, the approval is contingent upon the filing of an application by Craig on the terms set out in Part 2 of this decision, at paragraph 122.

Other matters

55. Several interveners raised concerns about MTVN's compliance with its licensing decision and with the digital licensing framework. The Commission considers these concerns in Part 2 of this decision.

Part 2 - Complaints concerning the programming of MTV Canada and MTV2

56. On 9 January 2002, CHUM filed a complaint with the Commission to the effect that MTV Canada was operating in violation of its conditions of licence and in contravention of the digital licensing framework. With respect to MTV2, CHUM argued that the service was operating as a general interest music video service, rather than focussing on "pop" music, as required by its conditions of licence.
57. In a letter dated 17 January 2002, MusiquePlus indicated its support for CHUM's complaint. MusiquePlus stated that the change in MTV Canada's focus had already had a direct competitive impact on MusiquePlus, limiting its ability to acquire programming from MTV.

Complaint concerning MTV Canada

58. CHUM's position can be summarized as follows.
MTV Canada has become a music-oriented service, with over 60% of its schedule devoted to music-related programming, thus contravening its nature of service definition that designates it as a broadly based teen channel.
MTV Canada was not abiding by its conditions of licence, specifically:
  • it was airing well over 10% music videos;
  • it was not meeting its educational programming obligations; and
  • it was not actually targeting teens.
MTV Canada was not providing program diversity and was directly competitive with MuchMusic, in clear contravention of the digital licensing framework.
59. In assessing CHUM's complaint, the Commission examined four specific elements of MTV Canada's programming, each of which is reviewed in detail below:
  • the focus of the service with respect to music versus non-music programming;
  • the number of music videos aired on the service;
  • the educational programming on the service; and
  • the service's viewing demographics, in light of its target audience.

Focus: Music versus non-music programming

CHUM's position

60. In its complaint, CHUM argued that, instead of a broad service providing a wide range of programming for teens, MTV Canada was offering a narrow service consisting predominantly of music programming. CHUM estimated that over 60% of the programming offered on MTV Canada consisted of music videos or music related programming. CHUM argued that, as a result, the service was operating outside of its nature of service definition and was directly competitive with MuchMusic, in contravention of the digital licensing framework.

Craig's position

61. In reply, Craig argued that MTV Canada was not a music video service and was operating in full compliance with its conditions of licence. It submitted that it had adopted the MTV brand as the brand synonymous with teen culture the world over, and that the brand and programming were entirely consistent with the youth-oriented lifestyle service described in Craig's application for the service. Craig further argued that there were no conditions prohibiting MTV Canada from airing programs from category 8a - Music and dance or from airing programs from non-music program categories, simply because they may be music related.

The licensing of MTV Canada

62. MTV Canada was licensed in the context of the Commission's digital licensing framework. The digital licensing framework provides, among other things, that Category 1 services such as MTV Canada must contribute to diversity and cannot be directly competitive with each other or with existing pay and specialty services.
63. Craig's application for the service now known as MTV Canada was approved in Decision 2000-462. In that decision, the Commission noted that the new service would provide programming targeted primarily to teens aged 12-17, with a secondary audience of young persons between 18 and 24. The Commission addressed the diversity of programming that would be broadcast as follows:

Connect will bring added diversity to the Canadian broadcasting system with a service targeted to a currently underserved group. According to the licensee, the audience for Connect is too old for most children's programming, and not generally well served by the programming aimed at adults.

64. The decision further noted the broad array of programming that the service would provide:

The plans for Connect indicate that the programming on the new service will be focused on topics that are of interest to the target audience, such as health, sex, relationships, careers, news, music, fashion and trends.

65. Decision 2000-462 imposed the following conditions of licence to define the nature of the service that would be provided:
  • The licensee shall provide a national English-language Category 1 specialty television service, targeted to an audience aged 12-24. All programs exhibited shall comply with the licensee's Code of Ethics.
  • The programming must be drawn exclusively from the following categories, as set out in Schedule I to the Specialty Services Regulations, 1990: 1 - News; 2a - Analysis and interpretation; 2b - Long-form documentary; 3 - Reporting and actualities; 4 - Religion; 5a - Formal education and pre-school; 5b - Informal education/recreation and leisure; 6a - Professional sports; 6b - Amateur sports; 7a - Ongoing dramatic series; 7b - Ongoing comedy series (sitcoms), 7c - Specials, mini-series, made-for-TV feature films; 7d - Theatrical feature films aired on TV; 7e - Animated television programs and films; 7f - Programs of comedy sketches, improvisation, unscripted works, stand-up comedy; 7g  - Other drama; 8a - Music and dance other than music video programs or clips; 8b - Music video clips; 8c - Music video programs; 9 - Variety; 10 - Game shows; 11 - General entertainment and human interest; 12 - Interstitials; 13 - Public service announcements; 14 - Infomercials, promotional and corporate videos.
  • Not less than 15% of all programming broadcast during each broadcast week shall be devoted to material drawn from category 5b - Informal education/recreation and leisure.
  • No more than 10% of all programming broadcast during each broadcast week shall be devoted to material drawn from category 8b - Music video clips.
  • No more than 15% of all programming broadcast during each broadcast week shall be devoted to material drawn from category 7e - Animated television programs and films.
  • No more than 15% of all programming broadcast during each broadcast week and no more than 15% of the evening broadcast period shall be devoted to material drawn from category 7d - Theatrical feature films aired on TV.
  • No more than 10% of all programming broadcast during each broadcast week shall be devoted to material drawn from categories 6a - Professional sports and 6b - Amateur sports.
  • Not less than 75% of all programming shall be directed to youth aged 12-17 and no more than 25% of all programming shall be directed to the age group 18-24.
66. For the purpose of the above conditions, a broadcast week was defined as seven consecutive broadcast days, beginning on Sunday. A broadcast day is a 24 hour period beginning at 6:00 a.m. each day.

The Commission's analysis of MTV Canada's programming

67. The Commission conducted an analysis of MTV Canada's programming schedule for the broadcast week beginning 20 January 2002 to determine the extent to which the programming was oriented to the presentation of music videos and music related programming.
68. The Commission has defined the term "music related" in conditions of licence for music video services such as MuchMusic and MusiquePlus as follows:

"music related" shall be defined as about the music or recording industries, or about musical artists, concerts and musical performances, compositions or events.

69. The Commission's analysis demonstrated that, during the broadcast week in question:
  • MTV Canada logged 21.5 hours of category 8 music programming, representing 13% of the schedule. This included 2 hours of music video clips each day, plus 7.5 hours of Unplugged, which consisted of acoustic concert performances.
  • Programming that was clearly music related, including Making the Video, Biorhythm, Fanatic, Becoming, Ultrasound and The Road Home, represented 15 hours, or 9% of the schedule.
  • Select - which included a music video count down and visits from musicians and other celebrities - aired 5 times and was repeated 4 times each day, and Best of Select aired 8 times on the weekend, representing 49.5 hours, or 30% of the schedule.
  • Other music related programming (i.e. programming with a focus on music, musicians and/or the music industry - namely, Cribs, Diary and Total Britney Live) represented an additional 20.5 hours or 12% of the schedule.
70. Music related programming thus represented just over 100 hours, or 63.4% of the week examined by the Commission. The remaining 61.5 hours, or 36.6% of the week, were composed of programming that was not music related, namely, Fusion, Spy Groove, Real World, Road Rules, True Life, Jackass, Senseless Acts of Video, Electric Playground, and Ride Guide (identified as After Hours in the program schedule supplied to the Commission).

The Commission's determination

71. The Commission recognizes that music is an important component of teen culture and that music was a planned element of the proposed service. However, Craig filed an application for a broadly-based teen channel with a broad range of information and entertainment programming. It stated that the service would provide a diverse mix of content including movies, sports, news, magazine shows and educational programming developed for a youth audience.
72. In fact, the application emphasized a broad array of unique, informative programming with almost no reference to music. In several instances, Craig described any music videos on the proposed service as "limited" or "measured" and clearly indicated that music videos would represent a small proportion of the schedule and would not be a focus of the service. The application further stated ".as Connect will carry only a limited number of music videos, the impact on MuchMusic will be minimal."
73. The Commission's analysis of MTV Canada's schedule demonstrates that the service being offered by Craig is predominantly focused on music, with over 60% of the week examined by the Commission devoted to music or music related programming. The Commission is of the view that this focus prevents Craig from providing the full range of teen-oriented information and entertainment programming proposed in the original application and approved by the Commission.
74. The Commission considers that this change in focus not only calls into question whether or not Craig is providing the service for which it applied, but also raises the issue of the extent to which the service is competitive with MuchMusic, as well as the extent to which the service contributes to increased programming diversity in the broadcasting system. The Commission finds, on the basis of these three elements, that the service does not reflect that described in Craig's application for licence and in Decision 2000-462.

Music videos

CHUM's position

75. In its complaint, CHUM stated that MTV Canada was offering more video clips than the 10% limit set out in its nature of service conditions of licence. CHUM noted that MTV Canada was providing a daily 2-hour slot of music video clips, representing approximately 8.4% of the weekly schedule. However, CHUM argued that, when the music video clips contained in the program Select were included in the count, MTV Canada was in clear violation of the 10% limit.

Craig's position

76. In reply, Craig stated that MTV Canada was broadcasting two hours per day of music video clips, representing 8% of the weekly schedule. It argued that counting any other music video clips towards the 10% limit, regardless of the program context in which the clip appeared, would be inappropriate and cumbersome from a logging perspective. However, Craig stated that, if the Commission were to require that the time devoted to music video clips be counted separately regardless of the context of the program in which they appeared, the level of video clips broadcast would be somewhere between 18% and 20%.

The MTV Canada licence requirements regarding music video clips

77. As noted above, in Decision 2000-462 the Commission attached conditions of licence relating to the nature of service that Craig's Category 1 service could provide, including the following limitation on the broadcast of music video clips, as proposed by Craig in its original application:

No more than 10% of all programming broadcast during each broadcast week shall be devoted to material drawn from category 8b - Music video clips.

78. The Commission notes that Definitions for new types of priority programs; revisions to the definitions of television content categories; definitions of Canadian dramatic programs that will qualify for time credits towards priority programming requirements, Public Notice CRTC 1999-205, 23 December 1999 (Public Notice 1999-205) defines music video clips as follows:

Category 8b) Music video clips
Short film or videotape productions or concert excerpts (clips) not produced primarily for the particular program in which they are presented, which normally contain one musical selection with visual material.

The Commission's analysis of music video clips broadcast by MTV Canada

79. To assess this aspect of CHUM's complaint, the Commission reviewed tapes for 23 January 2002, starting at midnight. The Commission's analysis demonstrated that, during that 24-hour period, MTV Canada aired the following music video clips:
  • 26 music video clips during the two hour slot identified as Music Videos (logged as category 8c), representing approximately 91 minutes;
  • 11 music video clips in the program Select, totalling over 35 minutes, which aired five times, representing approximately 175 minutes;
  • 3 music video clips in other programs (e.g. Making the Video), representing almost 11 minutes; and
  • 5 miscellaneous (unlogged) music video clips representing approximately 18 minutes.
80. In total, during this one day, MTV Canada broadcast 89 music video clips, representing almost five hours of the day's schedule. Extrapolated to a week, this would represent over 20% of the schedule, clearly higher than the 10% limit imposed on the service by condition of licence.
81. The Commission confirms that the 10% limit on music video clips broadcast by MTV Canada applies to all music video clips broadcast, regardless of the type or category of program in which they are found.
82. While it is clear to the Commission that MTV Canada is not operating as a music video service per se, it is also clear that the service broadcasts more music video clips than permitted under its conditions of licence. The Commission considers that the high number of music video clips broadcast by MTV Canada contributes to a focus on music that is inconsistent with the type of service originally licensed, and makes the service competitive with other specialty services oriented to the presentation of music video clips.

Educational programming

CHUM's complaint and Craig's reply

83. In its complaint, CHUM raised questions about Craig's commitment to educational programming. CHUM stated that only two hours of such programming were broadcast during normal viewing hours, and the remaining 28 hours were broadcast between 2 a.m. and 6 a.m. CHUM stated: "This is hardly an attractive or appropriate time for educational programming for young teens."
84. CHUM's comments were made in response to a statement by Craig that its "informal education programming is fulfilled in part with the broadcasting of Ride Guide and Fusion, (30 hours per week)." Craig did not specifically address this aspect of CHUM's complaint.

Craig's commitments to educational programming

85. In its original application, Craig highlighted its intention to provide educational programming and stated that "educational programming from independent educational authorities will be an integral part of the schedule."Further, Craig proposed, and the Commission accepted, a condition of licence stipulating that at least 15% of the broadcast week be composed of programming from category 5b - Informal education.

The Commission's analysis of MTV Canada programming

86. In Public Notice 1999-205, the Commission defined category 5b as follows:

Category 5b) Informal education / Recreation & leisure

Programs presenting information on recreation, hobby and skill development, recreational sports and outdoor activities, travel and leisure, employment opportunities, and talk shows of an informative ("how-to") nature.

87. The Commission's review of category 5b programming in MTV Canada's schedule during the broadcast week beginning 20 January 2002, and in its program logs for January 2002, demonstrated the following:
  • According to the logs submitted by the licensee, category 5b programming represented over 15% of each broadcast week in January, which is in line with the condition of licence.
  • The programs logged by MTV Canada in this category were:

    ° Fusion - a half hour program about extreme sports, which aired four times over the week (2 hours or 1% of the week), and

    ° Ride Guide - a half hour program on BMX, mountain-biking and/or snowboarding, which aired 56 times over the week (28 hours, 17% of the week).

  • All of the Ride Guide programs were aired in the block identified by MTV Canada as After Hours, specifically between 4 a.m. and 8 a.m. EST (2 a.m. to 6 a.m. MT).
88. The Commission has a number of concerns with respect to these results. First, while the programming qualifies as "recreation and leisure," and thus technically fulfils the condition of licence, it is clearly not the informal educational programming promised by Craig in its application and at the public hearing that resulted in the licensing of the service.
89. Second, the schedule includes no programming from independent educational authorities, as described in the original application. In fact, during the week examined by the Commission, Craig did not appear to have offered any programming that could be characterized as educational.
90. Third, the Commission notes that Craig broadcasts its category 5b programming almost exclusively during the overnight hours.
91. Accordingly, the Commission finds that the programming on MTV Canada is not consistent with that proposed in the original application regarding educational programming.
92. The Commission, therefore, expects Craig to re-examine this aspect of its programming to ensure that it is meeting its commitments to provide educational programming for teens, and to ensure that its scheduling of such programming is consistent with the reasonable viewing habits of its target audience, i.e. youth between 12 and 17 years old and adults between 18 and 24 years old.

Target audience

CHUM's complaint

93. In its complaint, CHUM argued that MTV Canada was not targeting its programming primarily to a teen audience. In support of its argument, CHUM submitted that when some of MTV Canada's programs had been broadcast by other services, the viewing data showed that teens made up only a small portion of the programs' total audience. CHUM also suggested that the advertising on MTV Canada was not specifically directed to teens, since it included advertisements from, among others, Kokanee beer, car dealers, and St. Ives Wrinkle Cream.

Craig's reply

94. Craig submitted that it was not valid for CHUM to cite the level of tuning by teens that MTV Canada programs received when they were broadcast on other services that were not targeted to teen audiences. Craig also stated that the advertisers noted in CHUM's complaint were all advertisers on Craig's A-channel television service that had received the spots on MTV Canada as a bonus. Craig submitted that several other advertisers had specifically come to MTV Canada as a teen buy, for example, Pepsi, Hostess and Maybelline.
95. Craig stated that MTV Canada's program schedule was built to appeal to teens. Specifically, it indicated that the daily premiere of Select was scheduled to coincide with the time that its audience was getting home from school, and that the programming department regularly met to determine the suitability of programming for the 12 to 17 demographic.
96. Craig also pointed out that, according to BBM data, during the free preview period, MTV Canada had garnered the highest share of the 12-17 audience (12.9%) of all of the digital services.

MTV Canada's condition of licence relating to target audience

97. In Decision 2000-462, the Commission imposed the following condition of licence on MTV Canada with respect to its target audience:

Not less than 75% of all programming shall be directed to youth aged 12 to 17 and no more than 25% of all programming shall be directed to the age group 18 to 24.

The Commission's analysis and determination

98. It is difficult to assess the extent to which Craig is meeting its conditions of licence with respect to target audience. However, the Commission notes BBM data for Fall 2001 indicated that 54% of viewers to MTV Canada were between 12 and 24. Most of MTV Canada's viewing during that time period was therefore by those within MTV Canada's approved target audience. However, 43% of viewers were older, suggesting that the service also has a broader appeal.
99. In this context, the Commission notes that the target audience is an important component of the nature of service definition, particularly in terms of ensuring that the service continues to respect the digital licensing framework.
100. The Commission reminds Craig that it must continue to respect this condition of licence to ensure that the service remains focused on providing a broadly based teen-oriented channel.

Conclusion

101. The digital licensing framework under which MTV Canada was approved clearly maintained the Commission's longstanding policy of licensing only one service per genre. This policy was designed to ensure that new services contribute to programming diversity and do not compete directly with existing services.
102. Craig filed its application in full knowledge of the Commission's digital licensing framework. It was on the basis of the details included in Craig's original application, which described a broadly based teen service with a "limited" or "measured" amount of music programming, that the Commission considered and ultimately approved the proposal.
103. The commitments Craig made throughout the licensing process were reflected in the licensing decision, and, by reference, in the licence itself. Indeed, the licence states: "This licence is granted on the basis of the particulars contained in the approved application."
104. In light of its review and analysis of the programming broadcast on MTV Canada, the Commission finds, Commissioner Cram dissenting, that Craig is carrying on a service that is not consistent with its original application, and does not fully reflect the service approved and described by the Commission in Decision 2000-462. Specifically,
  • MTV Canada is offering a music-based service rather than a broadly-based teen channel;
  • MTV is broadcasting in excess of 10% music video clips;
  • MTV is not meeting its commitment to provide educational programming for teens, nor is it providing any programming from independent educational authorities.
105. The Commission confirms that Craig must operate the MTV Canada service in accordance with the terms and conditions set out in Decision 2000-462 and its licence, taking into account the Commission's findings and the clarifications provided in this decision. Craig must also report within 90 days of the date of this decision on the steps it has taken to bring the operations of MTV Canada into compliance with its licence.

Other Matter - Clarification regarding the categorization of music video programs

106. The correspondence between CHUM and Craig revealed a need for the Commission to clarify whether or not advertising is counted when determining if a program falls into category 8 c) - Music video programs.
107. Public Notice 1999-205 defines this category as follows:

Category 8c) Music video programs

Programs consisting primarily (i.e. more than 50%) of music videos and in some cases including a host and other programming elements.

108. The Commission determines that, in evaluating whether a program is composed of over 50% music videos and should therefore be logged as a category 8c program, the time devoted to advertising should be excluded from the calculation.

Complaint concerning the programming of MTV2

CHUM's position

109. In its complaint, CHUM submitted that Craig's Category 2 service MTV2 was operating as a general interest music video service, rather than a narrower "pop" channel. CHUM referred to the press release announcing the launch of MTV2, which stated: "MTV2 features a wider and deeper mix of pop music programming that ranges from rock to rap to electronica, and everything in between." CHUM also stated that, during a typical day, the service featured a Pop Hour, a Rock Hour and a HipHop Hour. CHUM argued that a service dedicated to pop music should have no need for such distinctions. CHUM also stated that, if all currently popular music runs on MTV2, nothing would distinguish that service from the Hot Hits service Craig was also authorized to provide.
110. CHUM proposed the following definition for "Pop," to be applied to the MTV2 service:

Not less than 95% of music video clips broadcast on the channel shall consist of Pop Music Videos.

A "Pop Music Video" is a music video clip of a performance that is listed or has been listed within the preceding 4 months on a recognized trade publication's "Pop" music chart. Acceptable trade publications and associated charts would consist of those widely consulted by the music industry, currently, Billboard (Top 40 Mainstream list) and/or Canadian Music Network (CHR Top 50 Spins list).

111. CHUM later indicated that, if the Commission found the four month period set out in the above definition too limiting, it could choose an eight or a twelve month limit.

Craig's position

112. In reply, Craig stated that MTV2 was similar to contemporary hit radio (CHR) in that its focus was on currently popular selections from a variety of genres that have crossed over to mainstream popular formats. MTV2 therefore played selections that may have originated in other genres such as rock, rap, or rhythm and blues, but received airplay on CHR/Pop radio stations and appeared on Top 40 and CHR charts.
113. With respect to the definition of pop suggested by CHUM, Craig responded that its format drew on the most popular selections from a variety of genres and charts. Craig argued that CHUM's definition would be too restrictive, suggesting that it would limit MTV2 to only 50 videos. Craig did not put forward a counter proposal.

The licensing of MTV2

114. As part of the digital licensing process, the Commission approved 27 Category 2 applications for services devoted to music and music videos. Among these were four applications by Craig: Jazz & Blues TV, The MET (rock music), Music 5 (pay) and Music 5 (specialty).
115. The Music 5 specialty service was proposed as a package of five separate music channels, each focused on a specific musical niche: Pop, Dance, Urban, R&B, and Hot Hits.
116. To maximize flexibility for distributors, the Commission chose to approve all five musical genres as individual services, rather than as a single service comprised of five channels. However, neither the applicant nor the Commission specified how the individual musical genres would be defined.
117. Craig launched MTV2 under the authority granted to Music 5 to offer a pop music video service.

The Commission's analysis and determinations

118. The Commission recognizes the difficulty of determining what constitutes "pop," given that music increasingly tends to cut across different genres. Neither Billboard nor Canadian Music Network, the two key trade publications referred to by the Commission for its analyses, currently specifically identifies "pop" as a genre. Billboard has dozens of charts, in several genres. Canadian Music Network has four key genres - rock, contemporary hit radio (CHR), adult contemporary (AC), and country - as well as top 100 lists (across all genres).
119. A review of the tapes of MTV2's programming shows that the videos that are broadcast are fairly eclectic in terms of genre. However, in the absence of a clear definition, it is difficult to assess whether MTV2 is currently operating as a pop service or not.
120. Within the context of the digital licensing framework and the Commission's one-per-genre policy, the Commission considers that MTV2 must be distinguishable from existing music video services. In that context, and taking into account the licensee's new ownership structure and agreement with MTVN discussed above, the Commission considers that a specific definition of "pop" would be appropriate to ensure that the service continues to adhere to its licence as well as the principles of the digital licensing framework and the Commission's one-per-genre policy.
121. The Commission notes Craig's description of MTV2 as a service that draws from selections that may have originated in other genres, but receive airplay on CHR/Pop radio stations and appear on Top 40 and CHR charts. The Commission has examined a variety of sources to develop a definition of pop, including leading trade publications, and considers that the definition of pop proposed by CHUM would, for the most part, be appropriate. At the same time, the Commission wishes to provide Craig with some flexibility in the programming of its Category 2 music video service.
122. In light of the above, the change in ownership for Craig approved earlier in this decision will only be effective when Craig applies, within 30 days of this decision, for an amendment to the nature of service definition for MTV2 to add the following:

Not less than 95% of music video clips broadcast on the channel shall consist of Pop Music Videos.

A "Pop Music Video" is a music video clip of a performance of a musical selection that is listed or has been listed within the preceding 12 months on the following trade publication charts: Billboard's Top 40 Tracks and/or Canadian Music Network's CHR Top 50 Spins, and/or CHR Top 50 Audience, or other charts as may be approved by the Commission.

123. Should Craig decide to launch other music video services, the Commission expects Craig to file similar proposed amendments to the nature of service definitions, as appropriate, to ensure that they continue to respect the digital licensing framework.
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: http://www.crtc.gc.ca
 

Appendix A to Decision CRTC 2003-65

 

Proposed Ownership structure - MTV Canada and MTV2

The original decision includes a chart which illustrates the proposed ownership structure for Craig as described in paragraphs 8 and 9.

 

Appendix B to Broadcasting Decision CRTC 2003-65

 

Commission's required amendments to Craig's agreements

Joint Venture Agreement1

Provisions

Required amendments

Section 3.1 Grant of Options

Amendment of Section 3.1 by including the wording in [ ]:

(a) Holdco 1 hereby grants an irrevocable option to MTVN to acquire up to [33.3%] of the Holdco 1 Shares (the "Holdco 1 Option") at a price equal to the Fair Market Value of such shares at the time the Holdco 1 Option is exercised, as determined in accordance with Section 3.5.

(b) Holdco 2 hereby grants an irrevocable option to MTVN to acquire up to [33.3%] of the Holdco 2 Shares (the "Holdco 2 Option") at a price equal to the Fair Market Value of such shares at the time the Holdco 2 Option is exercised, as determined in accordance with Section 3.5.

(c) Licensee 1 hereby grants an irrevocable option to MTVN to acquire up to [20%] of the Licensee 1 Shares (the "Licensee 1 Option") at a price equal to the Fair Market Value of such shares at the time the Licensee 1 Option is exercised, as determined in accordance with Section 3.5.

(d) Licensee 2 hereby grants an irrevocable option to MTVN to acquire up to [20%] of the Licensee 2 Shares (the "Licensee 2 Option" and together with Holdco 1 Option, the Holdco 2 Option and the Licensee 1 Option, collectively referred to herein as the "Options") at a price equal to the Fair Market Value of such shares at the time the Licensee 2 Option is exercised, as determined in accordance with Section 3.5.

[Notwithstanding the terms set forth in section 3.1 (a), (b), (c) and (d), in the event that the Restrictions on ownership change as a result of an amendment to the Direction to the CRTC:

i) Holdco 1 hereby grants an amount to MTVN in excess of 33.3% and up to 51% of the Holdco 1A Shares (the "Holdco 1A Option") at a price equal to the Fair Market Value of such shares at the time the Holdco 1A Option is exercised, as determined in accordance with Section 3.5.

ii) Holdco 2 hereby grants an amount to MTVN in excess of 33.3% and up to 51% of the Holdco 2 Shares (the "Holdco 2A Option") at a price equal to the Fair Market Value of such shares at the time the Holdco 2A Option is exercised, as determined in accordance with Section 3.5.

iii) Licensee 1 hereby grants an amount to MTVN in excess of 20% and up to 51% of the Licensee 1 Shares (the "Licensee 1A Option") at a price equal to the Fair Market Value of such shares at the time the Licensee 1A Option is exercised, as determined in accordance with Section 3.5.

iv) Licensee 2 hereby grants an amount to MTVN in excess of 20% and up to 51% of the Licensee 2 Shares (the "Licensee 2A Option") at a price equal to the Fair Market Value of such shares at the time the Licensee 2A Option is exercised, as determined in accordance with Section 3.5.]

The shares to be issued pursuant to the exercise of the Options are collectively referred to herein as the "Option Shares".

Notwithstanding the foregoing, in no event shall MTVN be entitled to acquire, pursuant to the exercise of any of the Options:

i) In excess of a 51% equity interest (including both direct and indirect interests) in either Licensee 1 or Licensee 2; or

ii) Shares carrying in excess of 51% of the votes attaching to the then issued and outstanding shares of any of Holdco 1, Holdco 2, Licensee 1 or Licensee 2.

Notwithstanding the foregoing, if MTVN, alone or together with its Affiliates, acquires Control of any of Holdco 1, Holdco 2, Licensee 1 or Licensee 2 (the "MTVN Controlled Entity"), then, anytime following such acquisition by MTVN but prior to the earlier of (i) two years following the exercise of the Option, and (ii) the termination of any of the Category 1 CRTC Licence or the Category 2 CRTC Licences, the Parent of the MTVN Controlled Entity is entitled to require MTVN to acquire all, but not less than all, of its shares in the MTVN Controlled Entity at a price equal to the price at which MTVN (or its designated Affiliates) acquired the last of its shares in the MTVN Controlled Entity. Nothwitstanding anything herein contained, the provisions of this paragraph shall survive the termination of this Agreement.

Section 3.6 Shareholder Agreement

Amendment of Section 3.6 by including the applicant's proposed amendments (as per letter 8 November 2001) and to add the wording in [ ]:

"If MTVN acquires upon exercise of the Option, common shares in Holdco 1, Holdco 2, Licensee 1 or Licensee 2 (for purposes of this Section 3.6, each of them referred to as an "Affected Entity", as the case may be) such that the aggregate number of shares of the Affected Entity held by MTVN is equal to or greater than 15% of the outstanding common shares of such Affected Entity, MTVN, the Affected Entity, the Parent of the Affected Entity and, if the Affected Entity is Licensee 1 or Licensee 2, such Parent's Parent will negotiate in good faith the terms of a unanimous shareholder agreement. The unanimous shareholder agreement will be subject to CRTC [prior] approval and will contain, among other things the following .."

Section 3.7 Cooperation

Amendment of Section 3.7 by including the applicant's proposed amendment (as per letter dated 12 October 2001):

Each of the Parties will consult with each other with respect to, and will use all reasonable efforts to:

a) secure all consents, approvals and waivers that may be required in connection with the sale or issuance of the Option Shares;

b) appoint an appraiser if required in accordance with Section 3.5, and supply any information reasonably requested by, and to otherwise such to assist any appraiser appointed under Section 3.5 in determining the Fair Market Value of Option Shares; and

c) negotiate any shareholder agreement referred to in Section 3.6.

Section 5.3 Annual Business Plans

Amendment of Section 5.3 by including the wording in [ ]:

Annual and long-range business plans and capital budgets for Holdco 1, Holdco 2, Licensee 1 and Licensee 2 will be prepared by their respective management on an annual basis and, no later than sixty (60) days prior to the end of Holdco 1's, Holdco 2's, Licensee 1's and Licensee 2's fiscal year, submitted to Craig 3844, Craig 3794 and MTVN for review. [Approval of such plans and budgets requires a majority of the directors of the Licensees.] Although annual and long range business plans and capital budgets are at the discretion of the boards of directors of the respective corporations, nevertheless Craig 3844 and Craig 3794 acknowledge the substantial importance that MTVN attributes to these matters and agrees that, through the board of the relevant corporation or in direct communication by Craig 3844 or Craig 3794 with MTVN, MTVN will be provided with as extensive a right of consultation in this regard as is reasonably possible and that such right will be extended no later than 30 days prior to the submission of the matter to the board of the respective entity. Craig 3844 and Craig 3794 further agree that they will consider in good faith any reasonable proposals put forward by MTVN and that any such business plan, capital budget or amendment or modification thereto that is proposed by Craig 3844 or Craig 3794 will be reasonable and intended to serve the best interests of the business of the respective entity.

Section 5.4 Pre-Emptive Rights

Amendment of Section 5.4 by including the applicant's proposed amendment (as per letters dated 12 October and 8 November 2001):

(e) Notwithstanding the foregoing, the provisions of this Section shall not apply to the issuance of Holdco 1 Shares to Holdco 1 employees, Holdco 2 Shares to Holdco 2 employees, DELETION OF Licensee 1 Shares to Licensee 1 employees and/or Licensee 2 Shares to Licensee 2 employees, pursuant to an employee stock option plan or similar plan pursuant to which not more than 5% of the issued and outstanding shares of the corporation may be issued pursuant to such plans in the aggregate.

Section 5.7 Canadian Foreign Ownership Regulations

Amendment of Section 5.7 by including the applicant's proposed amendment (as per letters dated 12 October, 8 November and 23 November 2001) and by adding the wording in [ ]:

[Notwithstanding any other provision of this Agreement, the Parties recognize that under the Direction to the CRTC, a non-Canadian entity is not permitted to own more than 33.3% of the voting securities in a holding company of a broadcasting undertaking nor is such entity permitted to control such a holding company. Therefore, during the period of time that the Direction to the CRTC is in effect, each of the Parties will comply with the Restrictions.]

MTVN's right to acquire shares under Sections [3.1], 5.4, 5.5 and 5.6 is subject to the Canadian Foreign Ownership Regulations. Without limiting the foregoing, the exercise by MTVN of an option to acquire up to 19.9% of the Voting Common Shares in either Holdco 1 or Holdco 2 is unconditional. The exercise by MTVN of an option to acquire 20% or more of the Voting Common Shares in either Holdco 1 or Holdco 2 is conditional on prior CRTC approval [of the membership of an independent programming committee] unless CRTC policies and/or the Canadian Foreign Ownership Regulations existing as of the date hereof, are amended so as to not require establishment of an independent programming committee where non-Canadians own 20% or more of the parent corporation of a subsidiary corporation which is a broadcast licensee, in which event the parties agree that prior CRTC approval will be limited to circumstances in which MTVN exercises an option to acquire a percentage ownership in the parent company equal to or more than the percentage, if any, which would otherwise trigger the establishment of an independent programming committee.

Section 7.1 Revenue Reports

Amendment of Section 7.1 by including the applicant's proposed amendment (as per letter dated 8 November 2001):

[DELETION OF Within fifteen (15) Business Days after the end of each calendar month in each Term Year, Licensee 1 and Licensee 2 will furnish MTVN with an unaudited written report prepared in accordance with Canadian generally accepted accounting principles (the "Revenue Report") detailing, in respect of the relevant month and Term Year, all Gross Revenues received or receivable by Licensee 1 and Licensee 2 and all expenses paid or payable including the Licence Fees, Consulting Fees and other amounts paid or payable to MTVN. The written report will be presented in a form as reasonably requested by MTVN. MTVN acknowledges that such accounting may be subject to adjustment in accordance with Licensees' finalised year-end financial statements.]

On a regular basis, no less frequently than once each month, Licensee 1 and Licensee 2 will cause their respective managing directors each to provide MTVN with a report (the "Operations Report") that includes up to date subscription numbers and ratings figures, a discussion of marketing strategies and issues and press clippings of articles that relate to either the Category 1 Service or the Category 2 Services or that contain information or statements about Licensee 1, Licensee 2, Craig 3844 or Craig 3794 that will or may potentially affect the Category 1 Service or the Category 2 Services. In addition, Licensee 1 and Licensee 2 will provide such further information as may reasonably be requested by MTVN in connection with its monitoring of the MTV Brand in Canada. In addition, on not less than 10 Business Days notice in writing, MTVN may require Licensee 1 or Licensee 2, or both, to include in the Operations Report details of the Category 1 Service's or the Category 2 Services', as appropriate, operations, including progress in expanding the distribution of the Category 1 Service or the Category 2 Services in the Territory, penetration rates of the Category 1 Service or the Category 2 Services, quality control and technical issues, advertising, promotions issues, information on other channels in the Territory and any other matter raised by MTVN in its request.

Section 7.2 Other Reports

Amendment of Section 7.2 by including the applicant's proposed amendment (as per letter dated 8 November 2001):

(b) The Parties agree that immediately upon receipt by any one of them of any notice, request or correspondence (the "Request") concerning Licensee 1, Licensee 2, the Category 1 Service or the Category 2 Services from any Canadian regulatory or governmental entity, including the CRTC, such party shall provide a copy of such Request to each of the other Parties. No later than thirty (30) days prior to any date upon which a filing, submission or response (the "Submission") is required pursuant to any Request or, where less than thirty (30) days notice of the requirement or opportunity for such Submission is given, as soon as reasonably practicable, the addressed Party of such Request shall provide a copy of any proposed Submission to all other Parties, [DELETION OF and shall consult in good faith with such Parties as to the content of the Submission and shall consider in good faith any reasonable proposals put forward by the parties concerning such Submissions. The Parties further agree that any such Submission shall be reasonable and intended to serve the best interests of Licensee 1 and Licensee 2.]

Additional provision [Programming Decisions

All decisions regarding the programming on the Licensee 1 and Licensee 2's services are within the exclusive power of the Licensees and their officers and Board. If MTVN exercises its option to acquire 20% or more of the Voting Shares of Holdco 1 or Holdco 2, the Holdcos and their Boards will not be involved in nor participate in programming decisions of the Licensees, subject to any change in the Restrictions that would so permit them.]

[Regulatory Approvals

If any action contemplated by this Agreement is subject to any required CRTC Approval (including CRTC Approval of an independent programming committee as contemplated in section 5.7), upon the reasonable request by any Shareholder, the other Shareholder will co-operate in good faith to proceed with any required CRTC Approval process to permit any such action in a timely manner in accordance with CRTC requirements, and will use its reasonable best efforts to do all things reasonably necessary to complete the CRTC Approval process successfully.]

Additional definition ["Restrictions" means the restrictions on foreign ownership of Holdco 1 and Holdco 2 or Licensee 1 and Licensee 2 as a result of the Direction to the CRTC.]

 

 

Intellectual Property Licensing Agreement

Provisions

 

Section 12.1 Right to Terminate

Amendment to Section 12.1 to address the following:

  • so that section 12 provides mutuality of terms under which the parties may terminate the agreement;

 

Dissenting opinion by Commissioner Barbara Cram

  I respectfully disagree with the majority's disposition of this application and, in particular, with the reliance placed by it on the notion of "music related" program genres.
  Reduced to its basic terms, the accusation levelled by CHUM against MTV Canada is that MTV Canada has unilaterally altered the conditions of its broadcast licence. In my view, this charge was unfounded and remains unproven. Ironically, in taking the opposite view, the majority has done precisely what CHUM has complained of: it has, in effect, unilaterally changed MTV Canada's conditions of licence.
  It would appear, given this decision, that MTV Canada's licence is now to be interpreted such that, in addition to the pre-existing 10% music video clip limitation, MTV Canada must reduce or eliminate its "music related" programming. Given that the majority decision apparently sees "music related" programs as mutually exclusive to MTV Canada's nature of service, it seems a complete elimination is called for. However, it may well simply be a reduction that is called for. And, if it is a reduction, the extent of same is unstated and unclear.
  According to the majority decision, "music related" apparently means anything having to do with music or musicians. To me, this limitation or elimination is contradictory to MTV Canada's terms of licence and the basis for same is more than perplexing. Assuming MTV Canada's licence is to be interpreted as a complete elimination of "music related" programming, six results immediately come to mind:
  a) Notwithstanding that the licence authorizes MTV Canada to air category 8a (music and dance other than music video programs or clips) without restriction, it cannot do so because it is "music related."
  b) Notwithstanding that the initial application referred to a program which "will go 'backstage' to cover leading edge music trends" (page 10 Supplementary Brief), it will not be able to do so because this is "music related."
  c) Notwithstanding the plans for programming at paragraph 2 of the licensing decision, Decision 2000-462, to include topics of interest to teenagers including music, it would appear that this topic can now only be addressed through the 10% allowable music videos.
  d) Notwithstanding that the majority at paragraph 73 says the service should provide "the full range of teen-oriented information and entertainment programming proposed in the original application and approved by the Commission," the word "entertainment" must now mean non "music related" entertainment save for 10% music videos. And even then, if this entertainment program were about a movie star who in the past attempted to warble a few bars, it would appear to be likewise unacceptable.
  e) It would appear that biographical, lifestyle or reality type shows, if they are about a musician are also not acceptable because they are "music related." Total Britney Live is apparently a "This Is Your Life" like show featuring Britney Spears. There are no music or videos in the show; it is about her life, her home, her friends, and how she lives her life. Using this analysis, it would appear that The Osbournes would likewise be "music related," as this is about a music artist, although the program is not about his life as a musician but rather about his ordinary day to day life.
  f) Likewise, programming about someone who wishes to aspire to be a music star, but has no recognized skills or abilities to be so, is again prohibited as it is "music related." The show Becoming is such a show and was analyzed in the majority decision as "music related."
  If the majority decision only calls for a reduction of "music related" programming, then some of the aforementioned "music related" programming may be shown; however the decision doesn't say the amount.
  I remain perplexed as to why an analysis as to "music related" was even done. CHUM says as MTV Canada is "music related" it is directly competitive with MuchMusic. I say it is not. CHUM says if it is "music related," MTV Canada cannot be the teen lifestyle service it was licensed to be. I say the terms are not mutually exclusive.
  IF MTV CANADA IS "MUSIC RELATED," IT IS NOT DIRECTLY COMPETITVE WITH MUCHMUSIC
  MuchMusic was originally licensed in 1984, and its nature of service was to be "only a music video service." No feature films or variety programming were allowed. As time went on, some amendments were allowed. However, consistent with Commission policy, all amendments were in keeping with the initial orientation of the service - music.
  The term "music related" originated in the 1994 renewal of MuchMusic. (Decision CRTC 94-439, 27 July 1994). This definition came about as a result of MuchMusic airing The Partridge Family and asserting that this program fell within its nature of service "consisting only of music or music related programming." The Commission disagreed with this assertion and the characterization of the program and gave MuchMusic a five-year renewal for being in non-compliance. In order to ensure compliance, the Commission added a definition of "music related."
  As a result of the 1994 hearing, MuchMusic's licence was amended somewhat, the relevant terms still being in effect today:
  a) MuchMusic's nature of service consists "only of music OR music-related programming." (the single exception being noted below). [emphasis added by the writer]
  b) It must air a minimum of 65% music videos.
  c) It can air not more than 15% of the broadcast week to music-related drama series (7a) and animated programming (7e) combined, (a total of 25.2 hours/week).
  d) It can air not more than 6 hours per week of music related feature films, and only then in specified categories including documentaries and music artists' biographies. If it were to air feature films, the ratios of music to spoken word were established with music always predominating.
  e) And, as an exception to the nature of service, MuchMusic could air no more than 5% of non music related category 2 analysis and interpretation.
  Of note in this decision was MuchMusic's proposal to change its nature of service from one which is restricted to only music and music-related programming to one which would feature primarily music videos (55% was proposed), and would include lifestyle-related programming and other programming of interest to teens and young adults. While some minor amendments were allowed, the result is as mentioned above. The decision stated:
 

The Commission is confident that the changes herein approved will afford MuchMusic the flexibility needed to respond to its audience's evolving tastes, while ensuring the continued presence of a service that is distinctly oriented towards music, and music videos in particular.

  It is clear that the "music related" definition and concept were intended to act as a means of limiting MuchMusic, not as a shield to protect it by prohibiting another service from broadcasting "music related" programming. The purpose was to confine CHUM to mostly music, not to deny other broadcasters access to things "music related."
  Is "music related" also a shield? Clearly not. Two lines of Commission licensing decisions preclude such an interpretation:
  a) The Commission has licensed other music services in other genres of music such as CMT and MuchMoreMusic and many category 2 music services. They, too, either can or will eventually be allowed to air "music related" programming based on the MuchMusic precedent.
  b) The Commission has licensed services that do implicitly provide "music related" programming. STAR! is not prohibited from "music related" programming; indeed a goodly measure of its programming is about musicians. The Biography Channel is not prohibited from airing "music related" biographies. And then there is Bravo.
  MuchMusic can air a maximum of 31.2 hours out of 168 hours per week, or 18.6% of its total schedule, of "music related" programming. And, there are further restrictions: only 6 hours maximum of biographies, feature films, documentaries, and other clearly specified programs, 3.6% of the total schedule. 15% can be drama series or animated programming or 25.2 hours.
  For 31.2 hours a week on one service, this cannot mean that MTV Canada or any other service cannot air this "music related" programming. And, even though MuchMusic can only air a limited number of categories and genres, this cannot mean that MTV Canada or any other service cannot air the other categories which MuchMusic cannot even air, such as "music related" ongoing comedy series (7b), specials, miniseries (7c), theatrical feature films (7d), programs of comedy, sketches (7f), variety (9), game shows (10), general entertainment and human interest (11).
  CHUM was candid in Phase 2 of the Digital Licensing hearing in August 2000 as to what it would consider competitive. It said:
 

We do not seek to corner the market on popular music service through nesting or otherwise.Our difficulty is with applications for relatively broad and duplicative musical genres such as rock or alternative music, which are the heart and soul of Much's programming.

  As was said in Decision 94-439, MuchMusic is a service distinctly oriented towards music, and music videos in particular. It is not at its core a "music related" service.
  And it was the music video core that was referred to in the original Connect (now MTV Canada) application. There was no reference to "music related programming." Surely an applicant is not required to describe its programing by a definition in the specific licence of another service, one licence out of hundreds of others. Because MuchMusic is a music video service as described by this Commission in Decision 94-439, Craig's assertion was that it would not be competitive with 10% music videos. I agree with Craig.
  In my view the analysis and conclusions of the majority in paragraphs 58 through 74 are in error in that they treat music AND "music related" programming in totality. The analysis uses the terms "music-related programming" "focus.to music versus non-music," "oriented. to music videos AND music related programming" (emphasis added by the writer), and "focused on music." This means that music videos and "music related" programming are all one and the same. They are not. They are distinct programming concepts and it is these same concepts the Commission uses to establish distinctness of services. Moreover MuchMusic's nature of service consists only of music OR "music related" programming. Thus, if the two were treated separately, the conclusion may well have been very different. Put in another way, if the majority had dealt with the music video issue first and then dealt with the "music related" programming, I cannot envision this result.
  THE CONCEPTS OF 'MUSIC RELATED' AND TEEN LIFESTYLE ARE NOT MUTUALLY EXCLUSIVE
  At paragraph 73, the majority states that a music and "music related" focus "prevents Craig from providing the full range of teen-oriented information and entertainment programming proposed in the original application and approved by the Commission." Further, at paragraph 104, the decision says MTV Canada is carrying on a service inconsistent with its application and does "not fully reflect the service approved" as "MTV Canada is offering a music-based service RATHER THAN a broadly-based teen channel." [emphasis that of the writer]
  Paragraph 2 of the licensing decision (Decision CRTC 2000-462) describes this aforementioned programming. It
 

.will be focused on topics that are of interest to the target audience [12 to 24 year olds] such as health, sex, relationships, careers, news, music, fashion and trends.

  I disagree with the majority that any "music related" focus apparently means that the programming is not also focused on topics such as health, sex, relationships etc. In fact, my view is that some programs may well be enhanced and far more effective if they are "music related," as this term is used by the majority. The majority itself recognizes that music is an important component of teen culture. Teens model themselves after their stars, be they from music, movies or sports. For example, with a teenage demographic, it is my belief that if a teen idol said he or she believed in safe sex or abstinence, the impact would be ten times that of someone like Sue Johansen saying the same thing, notwithstanding Ms Johansen's expertise.
  If the question, which is normally asked in these types of proceedings, is: "Is the programming in question 'focused on topics that are of interest to the target audience such as health, sex, relationships, careers, news, music, fashion and trends'", I believe the answer would be yes. I believe all of the "music related" programming is also focused on those same teenage lifestyle topics. For example, Total Britney Live is a "This Is Your Life" type show featuring Britney Spears. This is about the daily life of this popular musician, where she lives, where she goes shopping, how she lives. Being a singer is a career to which many teenagers aspire. The show depicts fashion and it shows her personal life and, thus, her relationships. Becoming is a show about ordinary teenagers being able to live the life of their idols. In addition to being "music related," surely this is also about issues that interest teenagers such as careers, fashion etc.
  In my view, by seeing the concept of "music related" as being mutually exclusive from that of teenage lifestyle programming, the majority has committed an error of logic. The wrong question was asked. The majority asked if the programming on MTV Canada is "music related." This question was asked instead of the correct question: Does the programming conform to the description of the nature of service?
  AT THE END OF THE DAY IT'S ABOUT THE SOURCE OF PROGRAMMING
  The digital licensing policy (Public Notice CRTC 2000-6) called for programmers to consider partnering with other foreign programmers. Craig did precisely that - it found a partner in Viacom, owner of the MTV brand. The only problem is that the partnership happened after the hearing licensing Connect (now MTV Canada).
  CHUM says if Craig were in this same partnership at the time of the licensing hearing, CHUM would have essentially argued the same argument it proffers now, that it would be directly competitive. For the reasons stated above, it is my belief it would not have been successful, because of the limited amount and restricted genres of 'music related' programming MuchMusic can air and the real focus of this service being music videos.
  The argument now becomes that MTV Canada is not as described in its licence. As stated above I believe, if properly analyzed, the programming would fit the focus as stated in paragraph 2 and nature of service in the actual licensing decision, Decision CRTC 2000-462.
  Thus the majority goes back to the application, and the words used "broadly based teen channel" and a "diverse mix" of content and "a full range of teen-oriented information and entertainment programming." In other words, the actual programs proposed to be acquired from British (Truly Weird), Australian (Thunder Stone and Ocean Girl) and other sources are not being aired. Instead, MTV programs are being aired and the fact that these programs may have a similar focus is irrelevant.
  The concern about programming diversity is puzzling. It is noteworthy that, originally, the diversity the Commission felt Craig would offer to the broadcasting system had nothing to do with the sourcing of programs but referred to "a lack of teen directed programming." The Commission licensed MTV Canada as "an alternative channel that places youth at the forefront of program creation and feedback" along with regional and ethnic programming diversity (paragraph 5, Decision CRTC 2000-462), all of which MTV Canada is doing.
  The core of the issue is as stated by MusiquePlus, that MTV Canada is "limiting its [MusiquePlus'] ability to acquire programming from MTV," even though it (MusiquePlus) too is limited similarly to MuchMusic as to how much "music related" programming it can purchase and air.
  The solution, interpreting MTV Canada's licence to exclude or reduce "music related" programming, notwithstanding terms in the licence that:
  a) would contradict any prohibition or impose any limit on "music related" programming, and
  b) indeed appear to authorize it (see paragraph 2 of this dissent), is, in my respectful view, unwarranted.
  The majority is attempting to tell MTV Canada where it must source its programs.
1 As per the Joint Venture Agreement and Craig's letter of 26 October 2001, 3844161 Canada Ltd. is defined as Licensee 1; 3850099 Canada Ltd. is defined as Licensee 2; 3744159 Canada Ltd. is defined as Holdco 1; and, 3848388 Canada Ltd. is defined as Holdco 2.

Date Modified: 2003-02-21