Canadian Radio-television and Telecommunications Commission
Symbol of the Government of Canada

Broadcasting Public Notice CRTC 2004-93

Ottawa, 29 November 2004

Incentives for English-language Canadian television drama

In this public notice, the Commission reviews the comments received in response to Proposed incentives for English-language Canadian television drama - Call for comments, Broadcasting Public Notice CRTC 2004-32, 6 May 2004, and sets out its final incentive program designed to increase the production and the broadcast of, the viewing to, and the expenditures on, high quality, original, Canadian drama programming. A summary of the incentive program is appended to this public notice.

A review of the comments received in response to Proposed measures to ensure that French-language Canadian drama programming remains a key component of peak time viewing - Call for comments, Broadcasting Public Notice CRTC 2004-38, 8 June 2004, and the Commission's final incentive program for high quality, original French-language Canadian drama, will be set out in a separate public notice to be issued shortly.

Background

1. In Support for Canadian television drama - Call for comments, Broadcasting Public Notice CRTC 2003-54, 26 September 2003 (Public Notice 2003-54), the Commission invited comments on actions it might take to support the production and broadcast of more high quality, original, English-language Canadian drama and to attract larger audiences to such programming. The Commission also sought comment on the actions it might take to ensure that high quality, original French-language Canadian drama remains a key component of prime time viewing.

2. In Proposed incentives for English-language Canadian television drama - Call for comments, Broadcasting Public Notice CRTC 2004-32, 6 May 2004 (Public Notice 2004-32), following its consideration of all of the comments received pursuant to Public Notice 2003-54, the Commission invited comment on a proposed program of specific incentives designed to increase the production and broadcast of, the viewing to, and the expenditures on, high quality, original, English-language Canadian drama programming. These proposed incentives were also intended to decrease the pressure brought to bear by producers for funding from the Canadian Television Fund (CTF). In Public Notice 2004-32, the Commission presented the following proposal.

Proposed incentives to broadcast original hours of Canadian drama

3. These proposed incentives had, as their objective, an increase in the broadcast of original hours of Canadian drama. The initial proposal included three different triggers, each with a different reward.

Trigger:
the broadcast of 10-point, original, CTF-funded drama in peak time (7:00 p.m. to 11:00 p.m.) with a production budget of at least $800,000 per hour and a minimum licence fee as established by the CTF.
Reward:
two-and-a-half minutes of additional advertising for each original hour broadcast.
Trigger:
the broadcast of 8- to 10-point, original drama at any time or 10-point original drama broadcast in peak time, having a production budget of less than $800,000 per hour.
Reward:
half a minute of additional advertising for each original hour broadcast.
Trigger:
the broadcast of 10-point, original drama, broadcast in peak time (7:00 p.m. to 11:00 p.m.) having a production budget of at least $800,000 per hour and a minimum licence fee as established by the CTF, but without having CTF funding.
Reward:
A total of six-and-a-half minutes of additional advertising time for each original hour broadcast - i.e. the two-and-a-half minutes earned under the first trigger described above, plus four minutes for not accessing CTF funding.

4. In the case of each trigger, hourly production budgets would be determined on the basis of CTF policies. Implementation of the triggers and rewards would be by condition of licence. Licensees would be required to submit a report to the Commission at the end of each broadcast year, specifying the following:

  • the number of qualifying hours broadcast including titles, episode number and date and time of broadcast on each conventional television or specialty service;
  • the production budget of each qualifying hour broadcast and an identification of those productions financed with revenues derived from the additional four minutes of advertising provided in lieu of CTF funding; and
  • the name, time and date of broadcast of the programs in which the extra advertising minutes were placed.

5. As required, the Commission would cross-check a licensee's reports against the Commission's logs.

Proposed incentive to increase viewing to Canadian drama

6. The objective of this incentive was to increase the viewing to Canadian drama on Canadian English-language services, as a percent of all drama viewing to Canadian services.

Trigger:
an annual increase in the ratio of total viewing to all Canadian drama compared to total drama viewing by all stations and specialty services within a broadcast group. The increase would be measured using metered data throughout the broadcast year.
Reward:
25% of the additional advertising minutes earned by the broadcast of qualifying original Canadian drama programs.

7. Licensees taking advantage of the incentive would be required to submit a report to the Commission at the end of each broadcast year providing the same information as that specified in paragraph 101 of Public Notice 2004-32. Implementation would be by condition of licence.

Proposed incentive to increase expenditures on Canadian drama

8. This incentive had as its objective an increase in the spending on Canadian drama by the English-language conventional television industry, as a percent of total revenues, from 4% to 6% over a five-year period.

Trigger:
a total increase by all conventional television stations within a broadcast group of 0.4 percentage points in annual expenditures on Canadian drama.
Reward:
25% of the additional advertising minutes earned for the broadcast of qualifying original Canadian drama programs.

9. Licensees wishing to take advantage of the incentive would be required to provide the appropriate calculations with their annual returns in order to enable the Commission to monitor performance. Again, implementation would be by condition of licence.

10. In Public Notice 2004-32, in addition to questions relating to the specific incentive proposals, the Commission asked for comments on a number of issues as follows.

  • For the purpose of the proposed incentives, please comment on the following definition for an original program:

    An original program is a program that has never before been distributed by any licensee of a broadcasting undertaking and that will be distributedfor the first time by the licensee.

  • The Commission proposes incentives for Canadian drama programs directed to children when such programs are broadcast at times of the day appropriate for children. Should the Commission define these time periods? If so, what specific hours of the day should be considered as appropriate for television viewing by children?
  • How can the Commission best ensure that revenues derived from the additional four minutes of advertising for drama programs that are not funded by the Canadian Television Fund (CTF) flow through to Canadian drama production?
  • Is it necessary, or appropriate, to place a cap on the number of extra advertising minutes earned? If so, what should that cap be?
  • Will the proposed incentive program for drama impact negatively on other program categories such as documentary? If so, what could be done to minimize any negative impact?
  • Please comment on the Commission's proposed five-year viewing and expenditure targets. Should such targets be established for a shorter period of time, such as three years? If so, what would be appropriate viewing and expenditure targets over a three-year period?
  • How should the Commission ensure that broadcaster equity investments are demonstrably at risk investments? Are any other safeguards necessary or appropriate?

11. In this public notice, the Commission reviews the comments received in response to Public Notice 2004-32 and sets out its final incentive program designed to increase the production and broadcast of, high quality, original, English-language Canadian drama, and to encourage increased viewing to and greater expenditures on such programs.

12. The incentives set out in this public notice apply only to English-language licensees. An incentive program designed to fulfil the Commission's objectives with respect to French-language Canadian television drama will be set out in another public notice to be issued shortly.

Review of comments received in response to Public Notice 2004-32

13. The Commission received a total of 119 comments in response to Public Notice 2004-32. The comments came from a number of individuals, licensed broadcasters, producers, guilds, unions and industry associations. The Commission also received comments from Telefilm Canada (Telefilm), the Shaw Broadcast Fund (Shaw) and Friends of Canadian Broadcasting (Friends). In general, the comments supported the Commission's proposed incentive approach although most offered specific suggestions to modify the Commission's proposals and several suggested alternative incentives. More than 80 of the comments focussed primarily on the need to include incentives to ensure that Canadian television drama reflects the diverse nature of Canadian society, in particular visible minorities, Aboriginal peoples and persons with disabilities.

14. The Canadian Association of Broadcasters (CAB) congratulated the Commission ". for its creative efforts to provide economic incentives to broadcasters." The Canadian Film and Television Producers Association (CFTPA) said , "We consider that, on balance, the approach is clear, transparent and fair." The Documentary Organisation of Canada (DOC), an association representing Canadian documentary producers, indicated that, ". the proposed incentives for English-language drama programs are quite imaginative, and in general, should significantly improve funding for domestic television drama."

15. The Canadian Broadcasting Corporation (CBC) predicted that the Commission's proposal would provide the CBC with limited opportunities to benefit. It nevertheless commended the Commission on its initiative, stating that, "by linking contributions to original Canadian drama with the profitability of top programs, the Commission has developed what may be a positive incentive, primarily for the major private broadcasters, to do more original Canadian drama."

16. The Association of Canadian Advertisers (ACA) noted that, "Even though advertisers feel that current levels of clutter are too high, it seems valid that the Commission's proposed incentives for English-language Canadian television drama, for the most part, would not substantially increase clutter… Advertisers would not object to the implementation of these incentives."

17. The Coalition of Canadian Audio-Visual Unions (CCAU) maintained that the crisis in Canadian drama ". can only be properly addressed by a combination of regulatory measures and incentives." The CCAU noted that, "Provided they supplement and do not replace clear regulatory requirements, the Commission's proposed package of incentives set out in the Public Notice, subject to a number of recommendations . may be able to play a useful role."

18. While all broadcasters supported an incentive-based approach, CTV Television Inc. (CTV) noted that it ". does not support the submission made by the Canadian Association of Broadcasters in these proceedings." Instead, CTV put forward its own incentive proposal that would provide advertising minute rewards for original hours of Canadian drama that achieve "hit" status in the first broadcast. CTV considered that its approach would be simpler than the Commission's proposal and would focus on rewarding creative risk and audience success.

19. The CAB and several conventional broadcasters raised the possibility of a return to the time credit incentive that would give licensees a 150% (or a 125%) credit against the Canadian content requirements set out in the Television Regulations, 1987. These interveners maintained that, in Public Notice 2004-32, the Commission, had "overestimated the impact of the time credits on the system." The CAB and certain individual broadcasters also proposed that viewing and expenditure incentives be separated or 'de-coupled' from the incentives for broadcasting original hours of Canadian drama, thus permitting licensees to receive rewards for meeting viewing or expenditure targets whether or not they broadcast any original hours of Canadian drama. Global Television Network (Global) also proposed that the airing of repeats be rewarded. Certain broadcasters, many of them specialty licensees, recommended an expanded definition of an 'original' program to include all parties involved in the financing of the program.

20. Specialty licensees Alliance Atlantis Communications Inc. (Alliance Atlantis), Corus Entertainment Inc. (Corus), CHUM Limited (CHUM) and Rogers Broadcasting Inc. (Rogers) argued that advertising-based incentives would benefit the major broadcast groups at the expense of other broadcasters. They specifically recommended that "Incentives used to encourage broadcasters to increase the amount of English-language Canadian drama and to encourage viewing to that programming must be granted on the basis of incremental hours only."

21. The CFTPA, DOC and the Alberta Motion Picture Industry Association (AMPIA), (collectively, "producers") generally supported the Commission's proposed approach as long as only incremental hours of drama were rewarded - that is, only those hours in excess of the average number of hours of original drama broadcast over the past three years. The guilds and unions that form the CCAU, as well as specialty licensees, also supported this approach. Producers and the CCAU also argued that the Commission should establish and enforce clear and timely reporting performance standards so that interested parties have the information they require to monitor the rewards being claimed by broadcasters.

Examination of the issues

22. The Commission appreciates the comments submitted during the second phase of this proceeding. The submissions have been helpful in refining the Commission's proposal set out in Public Notice 2004-32 and in determining the specifics of the final incentive program announced in the current Public Notice. In the following sections, the Commission sets out its analysis and determinations on the issues below:

23. In addition, the Commission provides its determinations with respect to certain other issues raised in the comments, including:

24. Attached to this public notice is an appendix that summarizes the final drama incentive program, as determined by the Commission following its consideration of comments received in response to Public Notice 2004-32.

a) The Commission's objectives

25. The Commission received no comment questioning its view that effective measures to increase the availability of, and viewing to, Canadian drama are needed at this time and that such measures would further the objectives of the Broadcasting Act (the Act)

26. The Commission re-affirms its objectives for English-language television drama: that is to provide an incentive program designed to increase the production and the broadcast of, the viewing to, and the expenditures on, high quality, original, Canadian drama programming.

b) The 150% drama time credit

27. Global, CHUM, Craig Media Inc. (Craig), the CAB and the CFTPA proposed the reinstatement of the 150% time credit for Canadian content. This incentive for certain Canadian drama programs was originally introduced in 1984. In Building on success - A policy framework for Canadian television, Public Notice CRTC 1999-97, 11 June 1999 (the 1999 Television Policy), the credit was modified so as to apply to priority programs only. Global argued that a time credit for all Canadian programs would add stability to an incentive program that was based upon fluctuating television advertising revenues. In response to the Commission's concern, set out in Public Notice 2004-32, that Canadian programs might be scheduled in off-peak times, Global said that the adoption of 52-week programming schedules eliminated such practices. Global's recommendations also extended to children's programming.

28. CHUM recommended that the Commission reintroduce time credits as an incentive for those broadcasters for whom the Commission's proposal would not provide the financial incentives necessary to create additional drama productions. The CAB stated that the reintroduction of time credits would provide an incentive to larger broadcasters to maintain and increase levels of Canadian drama and that the existing priority programming requirements and the proposed viewing incentive would act as a safeguard against the scheduling of Canadian drama programs in off-peak times. The CAB also recommended a 125% time credit for a drama program earning less than 10 Canadian content points, as long as the licensee was involved in the financing of the program.

29. The CFPTA also recommended that a time credit be applied against overall Canadian content rather than priority programming alone. In the opinion of the CFTPA, this form of time credit, in combination with the CFTPA's proposal that a drama time credit should only reward Canadian drama in the peak viewing hours of 8 p.m. to 11 p.m., Monday through Saturday, and from 7 p.m. to 11 p.m. on Sunday, would ".not diminish the amount of peak evening shelf-space that should be made available for Canadian drama programming". Friends and Vision TV: Canada's Faith Network/Réseau religieux canadien (Vision TV) recommended variations on the time credit approach. Friends recommended tying time credits to the airing of Canadian drama in the peak viewing period of 8 p.m. to 10 p.m., Monday to Wednesday during peak viewing months. Vision TV recommended applying the time credit against expenditure and exhibition requirements for investment in, and broadcast of, pilot programs in the drama category.

The Commission's analysis and determination

30. In Public Notice 2004-32 the Commission stated that the proposal to use drama time credits to reduce required Canadian content levels raised a fundamental problem, namely that the introduction of a time credit to encourage more Canadian drama would permit licensees to broadcast less Canadian programming overall. In addition, the Commission expressed the view that time credits would likely encourage licensees to schedule Canadian programs during low-viewing periods and encourage them to make more use of simultaneous substitution.

31. Time credits, by their nature, effectively permit a reduction in Canadian content to a level below that which would otherwise be required by regulation. In the Commission's view, to permit less Canadian content in exchange for more Canadian drama would reduce the effectiveness of the 1999 Television Policy and would result in incentives that would work at cross-purposes.

32. In support of a drama time credit, some parties argued that broadcasters would not shift Canadian content to low-viewing periods. However, the Commission notes that the existing priority program requirements are measured on an annual basis and that a licensee might therefore be tempted to schedule a larger number of highly profitable U.S. programs at peak-viewing hours during the high-viewing months in order to maximize advertising revenues. The licensee could then fulfil its priority programming requirements during low-viewing months. Global argued that year-round scheduling of new programming has eliminated off-peak times to which Canadian programming could be relegated. However, such scheduling practices are a relatively new phenomenon and have not been universally adopted. The Commission believes it is premature to claim there are no off-peak times or low-viewing periods. This assessment is supported by the 2003-2004 TV Basics Report, published by the Television Bureau of Canada, in which recent Nielsen Media Research seasonal viewing trend data are published. An analysis of this data reveals there are still pronounced seasonal viewing trends: the average people viewing television (PVT) figure for 2002-2003 was 21.2%, but there was an 8% difference between the peak recorded in December and the trough recorded in June.

33. In light of the above, the Commission has decided not to reinstate the 150% drama time credit as part of its incentive program for Canadian drama.

c) The impact of additional advertising minutes

34. In Public Notice 2004-32, the Commission acknowledged the concerns raised by several specialty and smaller conventional television licensees related to an increase in advertising inventory as a result of the Commission's proposed program of incentive rewards in the form of additional advertising minutes. The Commission indicated, however, that the benefits to the system that could be expected to result from an effective program of drama incentives outweighed these concerns.

35. In response to Public Notice 2004-32, some specialty licensees reiterated their concern that there is a finite volume of advertising expenditures on Canadian television services in a given period. Other licensees noted that there are limits to television advertising growth in a highly competitive broadcasting system. Vision TV and the CBC said that it would be reasonable to expect that advertisers would divert money away from "niche buys" to purchase the "premium spots" made available with the additional minutes resulting from the Commission's proposed incentive program. CHUM expressed the view that the reward of additional advertising minutes "will have less impact on specialty broadcasters given their stronger revenue growth and the fact that most advertisers have separate budgets for specialty buys". CHUM predicted that advertising increases are likely to come at the expense of "non-CTV/Global conventional broadcasters".

The Commission's analysis and determination

36. The Commission considers that its program of incentives will encourage television advertisers to make additional expenditures to reach the viewers of the most popular U.S. programs in which the extra advertising minutes are likely to be aired. The Commission notes, however, that competition among Canadian broadcasters for the most popular U.S. programs has always been intense. The Commission does not consider that the additional advertising minutes resulting from its program of incentives will have a significant impact on either the cost of U.S. programming or on the funding for other categories of Canadian programming.

37. With respect to the possibility of a decrease in funding for Canadian programs in categories other than drama, the Commission notes that DOC supports the Commission's proposal, albeit with a request that the impact on smaller broadcasters be carefully monitored.

38. The Commission acknowledges that an increase in the volume of advertising minutes available for the larger conventional television licensees resulting from its incentive program may have some negative impact on the advertising revenues of smaller conventional and specialty services. The Commission has, therefore, modified the original proposal set out in Public Notice 2004-32 in order to minimize any such negative impact. In particular, as described below, the Commission has introduced a baseline of 26 hours of qualifying Canadian drama, per broadcast year, for the larger conventional television licensees. The revised incentive program will only apply to original hours of drama broadcast in excess of this baseline in each broadcast year. In the Commission's view, any negative impact on smaller conventional and specialty services resulting from the revised incentive program will be offset by the benefits of increased original hours of Canadian drama and increased viewing to that programming.

d) A ceiling on advertising minutes

39. In Public Notice 2004-32, the Commission indicated that the U.S. programming purchased by Canadian conventional television licensees makes provision for between 14 and 16 minutes of advertising material per hour. Since Canadian licensees are limited, by regulation, to 12 minutes of advertising material per hour, additional advertising in a given hour as a result of the proposed incentive program would not have an impact upon the number of program interruptions experienced by Canadian viewers as long as the additional minutes were inserted in a U.S. program. In the proposed incentive program, the Commission did not limit the number of additional minutes that could be placed in a given hour.

40. In its comments on the Commission's proposed incentive program, the ACA stated that its primary concern is the impact the additional advertising minutes might have on the number of interruptions, or the extent of 'clutter', experienced by the viewer. However, even though its members feel that current levels of clutter are too high, the ACA agreed with the Commission's explanation in Public Notice 2004-32 as to why the proposed incentives would not contribute to clutter. Nevertheless, the ACA suggested that there is a need to place a ceiling or cap on the number of advertising minutes in any given hour to avoid excessive clutter. They recommended that the ceiling be established at 14 minutes of commercial advertising per hour.

41. The DOC expressed concern that permitting an increase of commercial advertising to 14 or 16 minutes per hour would displace public service announcements and promotions for Canadian programs now broadcast. The CFTPA recommended that broadcasters make every effort to ensure that promotional messages for Canadian productions continue to be aired throughout the heart of prime time.

The Commission's analysis and determination

42. The Commission agrees that a ceiling or cap on the amount of advertising material per hour is necessary and has determined that it should be a maximum of 14 minutes per hour. Such a ceiling will prevent excessive clutter and, since the most popular U.S. programs often have commercial breaks of 16 minutes or more, will ensure that time is available to promote Canadian programs and to broadcast public service announcements.

e) Incentives for incremental hours only

43. In Public Notice 2004-32, the Commission set out its proposed criteria for drama programs that would qualify for incentive rewards. The Commission proposed that all programs that met these criteria in a broadcast year would receive the relevant reward, regardless of the number of hours of Canadian drama the licensee had broadcast in past years.

44. Many of the submissions recommended that the Commission revise its proposed incentive program so that it applies only to incremental hours of original drama programming. For example, the CBC indicated that, according to the Commission's proposal, no broadcaster would be required to increase the amount of Canadian drama in its current schedule in order to earn rewards. Several other submissions noted that the proposed incentive program could place greater pressure on the CTF as competition would increase for its finite resources available for the financing of drama. Alliance Atlantis filed a joint submission with other specialty licensees opposing any incentive program that is available to broadcasters who simply continue to schedule drama programs at their current levels. These interveners failed to see how the Commission's proposal would generate new incremental hours of drama programming. The CFTPA recommended that the Commission limit the rewards for original drama to drama broadcast over and above current levels. The CFTPA concurred with the CCAU that any drama incentives should be applied to the drama that exceeds a licensee's average number of hours of original drama broadcast over the past three broadcast years, for example 2001/02 to 2003/04.

The Commission's analysis and determination

45. The Commission shares the view of those who say that rewards for original hours of drama should encourage licensees to broadcast incremental hours of drama. In the Commission's view, setting an appropriate baseline, beyond which the incentives would become operative, would mitigate any negative impact on the advertising revenues earned by the smaller conventional or specialty services.

46. Establishing a baseline raises a number of questions that are addressed by the Commission below.

  • How should the baseline be determined?
  • What programs should qualify for inclusion in the baseline calculation?
  • Should a baseline apply to all licensees? Should the baseline be the same for all licensees?

47. In addressing these questions, the Commission is cognizant of the need to ensure that any baseline that is adopted is realistic and contributes to fulfilling the Commission's objectives. Such a baseline is meant to encourage licensees who have not traditionally broadcast much Canadian drama to broadcast more, without discouraging those licensees who are already making a significant drama contribution.

48. Most of the parties commenting on this matter proposed establishing a baseline, beyond which the incentives would become operative for each licensee, according to its past performance. The CFTPA and the CCAU suggested that the baseline could be the average number of original drama hours broadcast by the licensee over the previous three years. The Commission notes, however, that program logs provided to the Commission do not distinguish between those programs financed by the CTF and other Canadian 10-point drama programs. Nor do the logs provide the specific number of Canadian content points earned by a program or identify whether the program was funded through ownership transfer benefits. Following the period set aside in Public Notice 2004-32 for comment, the Commission asked certain licensees to supplement its data base by providing more detailed information with respect to the original drama broadcast in 2002/03 and 2003/04.

49. A number of parties submitting comments suggested that the major beneficiaries of the incentive program proposed in Public Notice 2004-32 are likely to be CTV and Global. They noted that these two licensees would be the most likely to receive a significant windfall gain if the Commission's initial incentive program proposal were implemented. In the case of CFTO-TV Toronto (CTV), the Commission has noted a relatively consistent level of 10-point, original Canadian drama broadcast over the past two years. However, a large proportion of CTV's total original hours of drama has been funded through ownership transfer benefits. CIII-TV Toronto (Global), on the other hand, has broadcast very few original 10-point drama programs, but a large volume of 8- and 9-point original Canadian drama. In the broadcast year 2002/03, CTV and Global broadcast similar amounts of Canadian drama that would qualify for the incentive program. In the broadcast year 2003/04, however, Global broadcast significantly more qualifying hours than CTV. The difference is accounted for primarily by Global's increasing emphasis on low-cost, 8- or 9- point drama productions that would earn only thirty seconds per hour of extra advertising under the incentive program. CTV, on the other hand, broadcasts mostly 10-point Canadian dramas. Many of these hours, however, are funded by benefits and, hence, do not qualify under the incentive program. When these factors are taken into consideration, the difference in the value of potential reward minutes that would be earned by CTV and Global is not substantial.

50. In light of the above, the Commission considers that a common baseline will provide a more equitable approach in this market. In addition, the Commission is of the view that a baseline is not necessary for those smaller conventional television and specialty services that, in the past, have not broadcast large amounts of original Canadian drama. Accordingly, the Commission has determined that, for the English-language market, the most equitable approach is to establish a common baseline only for those English-language conventional television licensees controlled by the largest multi-station ownership groups as defined in paragraph 14 of the 1999 Television Policy, and set out again the appendix to this notice.

51. The Commission has also determined that those hours of drama programming that would otherwise qualify for the incentive program will count towards meeting a licensee's baseline requirements, provided they have been broadcast during the peak viewing hours of 7 p.m. to 11 p.m. within the broadcast year. In order to further encourage the production of high-cost, 10-point productions that are produced without CTF financing, the broadcast of such programs will trigger the appropriate award irrespective of whether the drama baseline has been achieved. In other words, notwithstanding the baseline requirements, all programs qualifying as high-cost 10-point drama that are produced without CTF financing will be eligible for the appropriate reward. The Commission notes that original drama hours funded through commitments made in the context of a new licence application or as ownership transfer benefits are not eligible for incentive rewards, and thus will not be eligible for inclusion in the baseline calculation.

52. As noted above, the Commission has reviewed its data with respect to licensees' past performance in the area of drama as well as information supplied by the CTF and individual licensees. In establishing the appropriate number of hours for the baseline, the Commission has taken into consideration the fact that licensees are not generally required by regulation or condition of licence to broadcast Canadian drama. Nevertheless, the Commission considers that it is reasonable to expect each conventional television licensee controlled by the largest multi-station ownership groups to provide at least one hour per week of qualifying original Canadian drama during the six most popular viewing months of the year. Accordingly, and taking into consideration the volume of qualifying drama broadcast by the major conventional television licensees in the past two years and the reward minutes that would have been earned, the Commission has determined that the baseline for conventional television licensees controlled by large multi-station ownership groups will be 26 hours per year of qualifying, original, Canadian drama broadcast in peak viewing hours. Licensees broadcasting more than 26 hours of such drama will have the flexibility to determine the qualifying hours of drama that will form part of the baseline and those hours that will be eligible for rewards under the drama incentive program. In the Commission's view, the baseline forms part of an appealing incentive program for the larger television broadcasters and reduces any inappropriate windfall gain. The Commission will monitor the appropriateness of this baseline in light of licensees' actual performance.

53. To summarize, for conventional television stations controlled by the largest multi-station ownership groups, the incentive program will only apply to qualifying hours of Canadian drama in excess of 26 original hours per broadcast year. The drama contributing to the baseline of 26 hours must be broadcast during the hours of 7 p.m. and 11 p.m., include only those hours that would otherwise qualify for incentive rewards, and exclude hours funded as a result of commitments made in the context of a new licence application or as a result of ownership transfer benefits. Original, 10-point Canadian dramas with a production budget of at least $800,000 per hour and a licence fee of at least $300,000, that are produced without CTF financing will qualify for rewards without regard to the baseline requirement.

f) The definition of "drama program" and "original program"

54. In Public Notice 2004-32, the Commission proposed the following definition for "original program".

A program that has never before been distributed by any licensee of a broadcasting undertaking and that will be distributed for the first time by the licensee.

Public Notice 2004-32 did not propose a definition for "drama program".

55. A number of broadcasters proposed changes to the definition of "original program" that the Commission had set out in Public Notice 2004-32. In most cases, the suggested changes would permit all of the licensees that participated in the financing of a program to claim it as an "original program" for the purpose of the drama incentives.

56. For instance, the CAB recommended "that the definition of original programming be amended so that the first broadcast of a program by each broadcaster who was part of the pre-production financing be considered an original broadcast." Alliance Atlantis proposed the following definition, "An original program shall mean a program for which a broadcaster's licence fees have contributed significantly to defraying the cost of production. The licence fee paid by such a broadcaster may be consideration for first window or subsequent window broadcast of the program, however, such pre-licence fees (1) must be paid during the course of production, (2) may assist in triggering other financing and (3) must form part of the producer's financing plan for the production." Alliance Atlantis also recommended that only one station or service in a corporate group be entitled to claim a program as "original".

57. Global considered that the Commission's definition of "original" in Public Notice 2004-32 should be maintained, but argued that repeats should be included to make the proposal more attractive. Global noted that repeats are important to the success of drama series and that many Canadians are exposed to Canadian drama through repeats. Specifically, Global proposed that the Commission's incentive program be extended to include two broadcasts on the same station or service and one additional broadcast on a different station or service.

58. Vision TV proposed that the definition of an original program be simplified to read, "An original program to a licensee is a program that will be distributed for the first time by that licensee." CHUM noted that it broadcasts a large number of Canadian feature films and sought clarity as to whether a production would qualify for incentive rewards if it had its first window on pay television. The CFTPA said that it would not support specialty services being permitted to count second window telecasts as "original programs", even where the specialty licence fee is required to meet CTF licence fee threshold requirements.

The Commission's analysis and determination

59. The definition of an original program proposed by the Commission in Public Notice 2004-32 would not permit more than one broadcaster to take advantage of the drama incentive program for the broadcast of any one program. In its comments, the CAB noted that it is increasingly common for two or more broadcasters to contribute to the financing of a program. Frequently, the first broadcast window is provided by a large conventional television broadcaster and a second broadcast window is provided by a specialty or smaller conventional television service. In other circumstances, two specialty services, or one specialty service and a pay television service may acquire the rights for the same program. In the case of Canadian feature films, a specialty or conventional service may provide a second window following the first broadcast on a pay television service. Alliance Atlantis noted in its comments that the licence fees from a second window help producers to obtain financing from the CTF. Without this contribution, some Canadian drama would not be produced.

60. The Commission notes that in situations where an ownership group consists of both conventional and specialty television services, rights may be acquired for the broadcast of a drama on more than one of its services. Alliance Atlantis proposed that only one play per corporate group be considered original. In the case of the CAB's recommendation, it is not clear whether the definition proposed would permit a corporate group to claim more than one original broadcast. The definition proposed by Vision TV would permit a licensee to broadcast a Canadian drama that may have been first telecast by another broadcaster years before and claim it as an "original program" for the purpose of the drama incentives.

61. In the Commission's view, an important objective of the incentive program is to increase the number of original hours of Canadian drama. The Commission does not find the Vision TV proposal would serve this objective.

62. The Commission considers that broadcasters who purchase second or subsequent windows as part of the pre-production financing of a program are contributing to its production, and should therefore benefit from the drama incentive program. With respect to the CFTPA, the Commission notes that it provides no rationale for its opposition to the inclusion of second or subsequent windows in the drama incentive program.

63. The Commission, however, is concerned that, for those large ownership groups that hold multiple conventional or specialty licences, a ceiling or cap on the eligibility of subsequent windows, as suggested by Alliance Atlantis, may be necessary. Such a cap would prevent these broadcasters from earning rewards for providing multiple windows for the same original hour, a practice that might otherwise reduce the production and broadcast of new hours of drama. The Commission is particularly concerned that those large ownership groups that control more than one network or group of conventional stations be prevented from claiming incentive rewards for the same original program by rebroadcasting it on a second network or group of stations.

64. With respect to pay television, pay licensees will not be able to benefit from the incentive related to additional advertising minutes and, consequently, the Commission considers that a prior broadcast on a pay, pay-per-view or video-on-demand (VOD) service should be excluded from consideration in regard to any ceiling or cap.

65. The Commission is of the view that programs dubbed from one language to another should not be considered as original programs in the second language. However, programs for which original versions have been produced in both official languages as a result of double-shooting will qualify as original programs.

66. In light of the above, the Commission has determined that, for the purpose of the drama incentive program, the definition of an "original program" is as follows:

"original program" means a program that, at the time of its broadcast by a licensee, has not been previously broadcast by the licensee or, subject to the exceptions set out below, by any other licensee.

A licensee may also count a program as an original program, for the purpose of the drama incentive program, where:

  1. the licensee contributed to the program's pre-production financing, and the program has only been previously broadcast by another licensee that also contributed to its pre-production financing;
  2. the program has only been previously broadcast by a licensee of a pay-television, pay-per-view or video-on-demand undertaking;
  3. the licensee has contributed to the pre-production financing of the program and the program has previously been broadcast by no more than one conventional television service or one specialty service within the licensee's multi-station ownership group, except that where a multi-station ownership group owns or controls more than one conventional television service the program may only be counted as original on one of those conventional television services; or
  4. the program has been previously broadcast in French by a licensee, but was produced originally in both English and French and otherwise satisfies the definition of original program; a program that was originally produced in French only will not qualify as an original program even when it is broadcast with an English-language sound track or with English-language captioning.

For the purpose of this definition,

"conventional television service" means a service composed of

  1. one conventional television station; or
  2. more than one conventional television station in which the programming broadcast during peak time, exclusive of commercial messages, and any part of the service carried on a subsidiary signal, is the same on each station at least 80% of the time, whether or not a network licence has been issued.

"multi-station ownership group" means a group of stations and/or services owned or controlled by the same person or entity, and is composed of

  1. more than one conventional television station;
  2. one or more conventional television stations and one or more specialty services; or
  3. more than one specialty service.

67. With respect to the definition of a "drama program", the Commission notes that in Appendix II to Definitions for new types of priority programs; revisions to 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, the Commission set out its definitions of drama programs that would be eligible for the 150% time credit as follows:

The Commission will award a 150% time credit against the required hours of priority Canadian programming for each category 7a) to 7e) dramatic program broadcast during the peak viewing period (7 to 11 p.m.) which;

  1. is aired for the first time on television on or after 1 September 1998;
  2. has a duration of at least one half-hour, including a reasonable amount of time for commercial breaks;
  3. is recognized as a Canadian program, qualifies for either a C number or an SR number from the Commission and achieves 10 points related to the key creative positions; and
  4. contains a minimum of 90% dramatic content.

68. The Commission considers that the incentive program for Canadian drama should define "drama program" in a manner consistent with existing incentive programs. Accordingly, the Commission considers that, for the purpose of the drama incentive program,

"drama program" means a program that:

  1. is described by a category from 7(a) to 7(e) as set out in Schedule I to the Television Broadcasting Regulations, 1987;
  2. has a duration of at least one half hour, including the time devoted to permitted advertising material;
  3. contains a minimum of 90% dramatic content; and
  4. qualifies as a Canadian program as defined in the Television Broadcasting Regulations, 1987.

g) The separation of viewing and expenditure rewards from original programs

69. The proposed incentive program set out in Public Notice 2004-32 consisted of three parts: incentives to broadcast original hours of Canadian drama; an incentive to increase viewing to Canadian drama; and an incentive to increase expenditures on Canadian drama. The viewing and expenditure rewards were linked with the number of qualifying original hours of Canadian drama. A licensee who fulfilled the viewing or expenditure criteria would be rewarded with an increase of 25% in allowable advertising minutes.

70. The CAB argued that broadcasters should be rewarded for increasing their share of viewing to, and their expenditures on, Canadian drama "regardless of whether they have accomplished this by broadcasting original hours of drama, increasing their licence fees, scheduling drama on multiple platforms or increasing their spending on marketing and promotion." Accordingly, in the CAB's view, there should be a separate incentive for broadcasters to increase viewing and expenditures that is unrelated to the broadcast of original Canadian drama. In other words, the second and third incentives mentioned above, related to viewing and expenditures, should be separated or "de-coupled" from the first incentive, related to the broadcast of original programs. Global and Alliance Atlantis echoed the CAB position.

71. CHUM noted that the de-coupling of incentives, would be particularly important should the Commission exclude commitments made in the context of an application for a new licence or as ownership transfer benefits from the calculation of the reward in regard to expenditures on Canadian drama. CHUM also noted that "if the Commission were to de-couple audience and expenditure incentives, there would be a degree of equity in advertising credits for meeting these goals. The value of additional advertising minutes for expenditure and audience growth would likely be more proportional to the actual cost of achieving these goals, regardless of the size of the broadcaster."

72. Both the CCAU and the CFTPA supported the Commission's proposed linking of viewing and expenditure rewards to original programs, though with some proposed modifications.

The Commission's analysis and determination

73. The Commission wishes to increase the amount of original drama programs broadcast on English-language television, and considers that linking the rewards for meeting the viewing and expenditure criteria to the number of original programs broadcast will help achieve that objective.

74. In the Commission's view, de-coupling the viewing and expenditure rewards from the broadcast of an original drama program would have the effect of encouraging certain licensees to focus on marketing and scheduling strategies in order to increase viewing to existing Canadian drama rather than encouraging them to invest in original programs. The Commission has, therefore, decided to maintain the proposed link between original drama and the viewing and expenditure rewards.

h) Rewarding successful drama

75. In its comment pursuant to Public Notice 2004-32, CTV proposed that the Commission consider an incentive program that would reward broadcasters for exceeding specific audience thresholds for viewing to drama programs. CTV suggested that "an ambitious goal" would be to reward broadcasters that achieved a minimum audience of 1,000,000 viewers two years of age or more (2 +) for an hour of original Canadian drama. This audience benchmark could be adjusted for each broadcaster based upon the broadcaster's potential reach. CTV stated that if the Commission felt that the benchmark of 1,000,000 viewers was too ambitious, CTV would support a lower benchmark of 750,000 viewers aged 2 +.

76. CTV pointed out that, "The industry has recently seen what can happen when services are rewarded for endless repeats of Canadian content rather than for their investments in original Canadian drama." CTV pointed to difficulties experienced by Telefilm with its new evaluation grid which includes audience measurement as an element. As a result, according to CTV, certain specialty services that scheduled many repeats of programs financed by the CTF scored well, while broadcasters such as CTV, who financed and aired original programs, scored poorly in the Telefilm evaluation. CTV argued that the Commission should ".keep its focus firmly on original hours and audience achievement for those original hours, supporting the creation of drama at the risk- and resource-intensive front end."

The Commission's analysis and determination

77. The Commission has carefully reviewed CTV's comments and its proposal to focus rewards only on successful or "hit" dramas. The Commission recognizes the value of those Canadian shows that achieve "hit" status. These programs garner significant publicity that in turn attracts more viewers to Canadian programming. As has occurred in the French-language market, this 'virtuous circle' can assist in the development of a star system by promoting television drama that grows out of and reflects the lives of its audience.

78. At the same time, the Commission considers that an incentive focussed exclusively on such programs would penalize those broadcasters that air original Canadian drama programs despite the fact that such programs are unlikely to achieve the level of a "hit". The Commission is concerned that the CTV proposal might not encourage all licensees to acquire and broadcast more original Canadian drama or raise overall viewing to such programs. In contrast, an approach that rewards increases in viewing to all Canadian drama, as a percentage of viewing to all drama, will, in the Commission's view, encourage all players in the system to raise viewing levels.

79. In light of the above, the Commission has determined not to introduce a separate incentive for "hit" programs at this time.

80. With respect to the Commission's incentive to increase viewing to Canadian drama, as noted in Public Notice 2004-32, the Commission has been working with the CTF, Telefilm Canada, MediaStats and other interested parties to include the country of origin and program genre for each program captured by both BBM Canada and Nielsen Media Research in a common metered database. The Commission will issue a public notice, in the current broadcast year, setting out its proposed viewing objective for the industry as a whole and seeking comments from interested parties. Preliminary viewing targets for those ownership groups participating in the incentive program will be made public at the same time. The final viewing targets for each participating ownership group will be announced subsequently.

i) Modifications to the proposed "triggers" and "rewards"

i) Expenditure triggers

81. The CAB, Global and Alliance Atlantis supported the Commission's proposed overall industry objective of raising total program spending on Canadian drama, as a percentage of total revenues, from the current 4% to 6% over a five-year period. Under this proposal, all conventional television stations in a multi-station ownership group would be rewarded when all of these stations demonstrate an aggregate increase in expenditures on Canadian drama, as a percentage of total revenues over one broadcast year, of 0.4%.

82. CTV argued that, while it considered expenditure incentives unnecessary, if the Commission implemented an expenditure incentive program, the program should only apply to original drama, and only cash licence fees should be included in the annual expenditure calculation. CTV also proposed that each broadcaster should be required to reach an industry target by increasing expenditures on original Canadian drama each year until the target was reached.

83. The CFTPA said that the overall objective of raising total programming expenditures on Canadian drama from 4% to 6% of total industry revenues over five years was insufficient. The CFTPA proposed that the overall objective be set between 7% and 8% of total programming expenditures over five years. The CFTPA submitted that the 6% threshold would be appropriate if modified to become an objective over three years.

84. The CCAU considered the Commission's proposal to be "a useful measure to push stations to steadily increase their financial commitment to Canadian drama". However, it preferred an annual increase of 0.5% rather than 0.4%. The CCAU also proposed that the overall objective to be set at 7% rather than 6%, and that this be implemented through specific licence requirements rather than incentives.

The Commission's analysis and determination

85. The Commission considers that an objective of raising expenditures on Canadian drama by English-language conventional television licensees to 6% of their total revenues over a five-year period strikes the right balance between what is desirable and what is attainable. The Commission considers that it will act as an effective incentive for conventional broadcasters to increase their spending on such programs. In the Commission's view, neither an objective involving a higher percentage nor a shorter period to meet the proposed target would strike the right balance.

86. The Commission does not consider practical CTV's suggestion that incentive rewards be related exclusively to the payment of cash licence fees for original drama. This is, in part, because the Commission does not collect information at a sufficient level of detail to fulfil all of the requirements of the CTV proposal. The Commission also considers that the approach set out in Public Notice 2004-32, including an industry-wide target, is a better means of encouraging all licensees to broadcast high quality Canadian drama than CTV's proposal that each broadcaster be required to attain an industry target.

87. The Commission has therefore decided to maintain the expenditure incentive proposed in Public Notice 2004-32. The objective of this incentive is an increase in the spending on Canadian drama by the English-language conventional television industry, as a percent of total revenues, from 4% to 6% over a five-year period. The targets will be set out in a public notice to be issued later in the current broadcast year.

ii) Triggers and rewards for high-cost drama

88. As noted above, in Public Notice 2004-32, the Commission proposed a reward of two-and-a-half minutes of additional advertising time for the broadcast of each hour of 10-point, original, CTF-funded drama broadcast in peak time with a production budget of at least $800,000 and a minimum licence fee as established by the CTF. The CTF's current minimum licence fee for a drama program with a production budget of $800,000 or more is $240,000.

89. Global and a number of other parties indicated that, although the minimum licence fee required by the CTF for high cost drama is $240,000, in practice , in order to earn the maximum points, a minimum licence fee of $300,000 is required. The CCAU suggested that the Commission should use the $300,000 licence fee threshold for both CTF and non-CTF high-cost productions and that this threshold should be reviewed on an annual basis to reflect any further increases that the CTF might apply.

90. With respect to the two-and-a-half minute reward for high-cost drama, the Commission noted that it established this reward on the basis of a report prepared by Nordicity which assumed that the average value for thirty seconds of advertising aired on the larger conventional television stations during peak time in U.S. programs amounted to $40,000. CTV estimated that, "based on actual financial data . the incentive should be set at four minutes per original hour to deliver a benefit comparable to that proposed by the CRTC." The Commission notes, however, that CTV did not file any financial data with the Commission to support this claim.

91. The CFTPA recommended that the budget threshold for high-cost drama should be in the $1 - $1.2 million per hour range. The CCAU proposed a production budget threshold of $1 million per hour for all productions except children's programs, for which the threshold should be $750,000 per hour.

The Commission's analysis and determination

92. The Commission acknowledges that, according to the CTF's 2004/05 evaluation grid, maximum points are awarded for licence fees of $300,000 per hour. In order to be consistent with the current CTF evaluation process, the Commission considers that the licence fee threshold should be increased to $300,000 per hour. Accordingly, the new minimum licence fee requirement will apply to both the CTF and non-CTF incentives for high cost drama. At the same time, to compensate for this increase in the licence fee requirement, the two-and-a-half minute proposed incentive for high cost drama will be increased to three minutes.

93. With respect to the minimum production budget necessary to trigger the reward, the Commission notes that the CTF's 2002/03 Activity Report indicates that the average production budget for English-language dramas increased to $962,000, up from $800,000 the previous year. Nonetheless, the 2004/05 guidelines for the CTF maintain the $800,000 per hour threshold between low-budget and high-budget English-language drama productions. Since consistency with the CTF's guidelines will make the Commission's incentive program easier to understand and administer, the required minimum production budget necessary to trigger the reward will not be altered. However, the Commission will review the incentive levels annually in order to ensure ongoing consistency with CTF guidelines and policies.

94. To summarize, the Commission is making the following changes to the incentives for high-cost drama proposed in Public Notice 2004-32:

  • the minimum licence fee for 10-point, high-cost CTF, or non-CTF, drama will be $300,000; and
  • the reward for 10-point, high-cost CTF drama will be three minutes per hour.

95. The minimum licence fees and production budgets will be reviewed on an annual basis to ensure consistency with CTF guidelines and policies.

iii) Triggers and rewards for non-CTF drama

96. As noted above, in Public Notice 2004-32, the Commission proposed an additional reward of four minutes of advertising for each hour of high-cost, 10-point, original Canadian drama broadcast in peak time that was able to forgo financing from the CTF and thus reduce the pressure on the CTF's limited resources. The four minute bonus incentive was additional to the incentive for each eligible hour of Canadian drama. The Commission estimated that, at least for the largest broadcasters, the value of the additional four minutes of advertising time would compensate for the average contribution that the CTF would normally have made.

97. Several parties were of the view that the non-CTF bonus incentive for high-cost productions is the only effective means to add a significant volume of original English-language Canadian drama to the broadcasting system. For example, the CBC proposed that, to ensure that the incentives contribute to incremental drama programs, the Commission should limit its incentive program to non-CTF funded drama. In this way, broadcasters would not have to adhere to the requirements of CTF deadlines or to the CTF's distinctly-Canadian content criterion. However, the CBC also noted that its proposal would involve considerably greater financial risk for participating broadcasters than the Commission's approach.

98. The CCAU submitted that any real impact on the production of more original drama would be as a result of incentives for non-CTF drama. The CCAU noted that unless additional resources become available to the CTF, which is unlikely, it is difficult to see how a conventional television service could commission more hours of drama.

99. Both CTV and Global claimed that the degree of financial risk associated with non-CTF funded high cost drama would likely result in the Commission's proposed incentive having relatively little impact, if any. Global did not believe that broadcasters would avail themselves of the non-CTF incentive as it is complex and would require the broadcaster to advance considerable financing long before it would be able to recoup this advance through additional advertising minutes. CTV indicated that the development window for a standard drama project is approximately two years and entails at least five or six written drafts of the script prior to production.

The Commission's analysis and determination

100. The Commission considers that an incentive for licensees to invest in original, high-cost, 10-point, Canadian drama that does not involve financing from the CTF must be attractive if it is to help increase the volume of original Canadian drama programming.

101. The Commission takes note of broadcasters' comments that the proposal set out in Public Notice 2004-32 would involve a significant degree of financial risk for licensees. In order to qualify for the incentive, broadcasters would have been required to fund drama projects and in effect replace CTF financing well in advance of any possibility of recouping this financing through the sale of additional advertising minutes. The fact that the two largest English-language, private sector broadcasters indicated that they would be unlikely to use the incentive in its proposed form is of concern to the Commission.

102. The Commission considers that the most effective way to reduce the risk associated with this incentive, and to make the incentive more attractive, is to allow licensees to utilize the bonus advertising minutes allocated in lieu of CTF financing at the end of the development phase of the production rather than having to wait until the production is broadcast. Accordingly, before a licensee may use the bonus minutes, a drama production must have reached the same stage in development as that which would be necessary for it to be eligible for financing by the CTF. Specifically, all of an eligible project's financing must be in place and the key creative personnel identified. The required information is set out in sections C and D of the CTF application form. Once the project fulfils all of the CTF's requirements for financing, the licensee will be entitled to air the bonus advertising minutes permitted by the incentive. In addition, and also consistent with CTF guidelines, principal photography on the production must commence within one year of the airing of any bonus advertising related to the incentive reward for the production.

103. The licensee will be required to report on the status of each non-CTF project in development in the licensee's annual drama incentive report. This report will also indicate when the advertising related to incentive rewards associated with non-CTF projects has been aired. Using these reports, the Commission will monitor each production. If it is determined that a production for which additional advertising minutes have been aired will not, itself, be broadcast, and absent compelling reasons why the Commission should not do so, it will reduce the advertising minutes the licensee is permitted to air in the future by an equivalent amount. In the Commission's view, this will reduce any risk that licensees may earn reward minutes for projects that subsequently do not go to air.

104. As noted above, the 2002/03 Activity Report of the CTF indicates that the average production cost for one hour of English-language drama in 2002/03 was $962,000. On average, the CTF contributed 41.5% of the production budget for a drama in 2002/03, or $399,230. The Commission's four minute bonus incentive reward for non-CTF drama proposed in Public Notice 2004-32 was based upon the average volume of financing required for the broadcaster to replace CTF funding in 2001/02. In light of the more recent CTF data, and considering that the reward for non-CTF drama is the primary means to expand the funds available for Canadian drama, the Commission has decided to increase the bonus incentive for non-CTF drama to five minutes of additional advertising per hour.

105. In summary, in order to increase the effectiveness of the incentive for original high-cost, 10-point, Canadian drama that forgoes financing from the CTF, the Commission has made the following determinations:

  • Licensees investing in 10-point, original, drama broadcast in peak time with a production budget of at least $800,000 per hour and a minimum licence fee of $300,000, but without any financing from the CTF, will be authorized to broadcast a total of eight minutes of additional advertising time for each hour of such drama. The five bonus minutes awarded in lieu of CTF funding may be broadcast after the production's financial structure is complete and the key creative personnel have been identified in accordance with the applicable sections of the CTF's application form. The remaining three minutes may be aired once the production has been broadcast.
  • Principal photography on the project must commence within one year of the broadcast of any of the five bonus minutes awarded in lieu of CTF funding.
  • For a production financed pursuant to this incentive that is not broadcast, the broadcaster shall reduce the volume of advertising minutes otherwise allowed pursuant to the incentive awards by the amount previously credited for the production unless the Commission is satisfied that there are compelling reasons why the broadcaster should not be required to do so.

106. For each production financed by the non-CTF incentive, the licensee must submit to the Commission in conjunction with the its annual drama incentive report the following information from the producer:

  • a description of the financing structure of the production prepared in accordance with Section C of the CTF Television Application Form 2004/05, or its equivalent in future years, separately identifying the amount paid by the licensee in regard to the five minutes of additional advertising;
  • the key creative personnel - as per section D of the CTF Television Application Form 2004/05, or its equivalent in future years;
  • the date on which principal photography will commence; and
  • the status of each project in development for which incentive advertising minutes have been broadcast by the licensee.
iv) Safeguards for non-CTF rewards

107. In Public Notice 2004-32 the Commission invited comments on how it could best ensure that the revenues derived from the bonus minutes of advertising for drama programs that are not financed by the CTF, flow through to Canadian drama production.

108. The CCAU expressed the view that clear accounting measures should be adopted in order to ensure that the revenues generated from the sale of bonus minutes truly flow to producers. The CCAU noted that it should be possible to provide value equal to the average net revenue per minute that a station group derives from the sale of advertising in programs where additional inventory is sold under the CRTC drama incentive plan. Since this value would be an average over a number of programs, it should be public information and backed up by confidential worksheets submitted to the CRTC. According to the CCAU, the number of additional minutes that fall into the non-CTF reward category, multiplied by the average revenue per minute, should equal the financing provided to producers by broadcasters. The CFTPA said that the CCAU approach would be the most accurate, transparent and fair means of assessing the value of the bonus advertising time.

109. The DOC suggested that in order to ensure that financing flows to producers in accordance with the non-CTF incentive, the licence fee paid by the broadcaster for an eligible drama program should be established at 60% of the production budget. In contrast, CHUM noted that drama production simply is not possible without adequate financing, including various advances by the broadcaster. CHUM considered that there is no need for specific measures to ensure that the associated advertising revenues flow directly to the production since, if the production is insufficiently financed, it will not be made. The CAB noted that a requirement for detailed accounting would make this incentive less attractive to broadcasters.

The Commission's analysis and determination

110. The Commission considers that the reporting model proposed by the CCAU would require the Commission to establish a very detailed reporting and monitoring system for each licensee taking advantage of the incentives. In the Commission's view, such detailed reporting requirements could discourage broadcasters from participating in the incentive program and thus reduce the amount of original Canadian drama available to Canadian audiences.

111. Both the CCAU and the CFTPA indicated that their research confirms the $40,000 per half minute estimate proposed by the Commission as the value of additional advertising for the large conventional ownership groups. The Commission therefore considers that, in effect, the starting point for negotiations between broadcasters and producers has been established. Furthermore, as part of their annual drama incentive reports, broadcasters will be required to file with the Commission information specifying the licence fee and the precise amount advanced as a result of the five bonus minutes of advertising for each eligible drama program.

112. The annual drama incentive reports, which will be subject to CRTC confidentiality guidelines, will provide the Commission with the information required to monitor the results of the incentives in order to ensure that non-CTF drama productions receive an appropriate contribution from participating broadcasters.

v) Triggers and rewards for low-cost and less than 10-point drama

113. In Public Notice 2004-32, the Commission proposed an incentive reward of half a minute of additional advertising for each hour of 8- to 10-point, original drama broadcast at any time or 10-point original drama broadcast in peak time (7:00 p.m. to 11:00 p.m.) having a production budget of less than $800,000 per hour. Various parties proposed modifications to this incentive proposal.

114. The CFTPA and the CCAU recommended that low-cost drama should be entitled to a reward only if the program had a production budget of at least $250,000 per hour. The CCAU considered that there should be no reward for productions earning less than 10 points or for productions, other than children's drama, broadcast outside peak viewing periods.

115. CHUM and Global stated that 6- and 7-point dramas add value to the broadcasting system and should be included in the incentive program. Global pointed out that low-cost drama series, such as Train 48, provide a large volume of original programs broadcast over a longer season than high-cost Canadian drama series. Vision TV pointed out that 6- to 9-point dramas also contribute to the development of Canadian talent and that broadcasters and producers should be encouraged to pursue new formats and methods of production due to the increasingly competitive environment in which they operate.

116. With respect to the incentive for low-cost drama, Global proposed an increase in additional advertising from half a minute to one minute per hour. Vision TV proposed that, "additional incentives include credits against expenditures and exhibition requirements at a lower level than would apply to 10-point drama."

The Commission's analysis and determination

117. The Commission's objective in proposing a modest incentive for low-cost drama was to help develop Canadian creative talent and production infrastructure. Low-cost drama may also encourage new, more experimental drama programs and different approaches to production.

118. In the Commission's view, there is no need to set a production budget threshold below which there would be no incentive reward. The Commission considers that broadcasters that acquire low-cost drama series may compensate for the low production budget by commissioning greater numbers of episodes and employing Canadian talent over a much longer period than a typical high-cost series. For example, in the 2003/04 season, Global aired 65 original hours of the low-cost Train 48, while CTV aired 13 original hours of the high-cost The Eleventh Hour.

119. With respect to the inclusion of 6- and 7-point drama programs in the incentive program, the Commission is of the view that the incentives for Canadian drama should focus primarily on those programs that make maximum use of Canadian creative and other resources. Accordingly, under the Commission's policy, the largest incentive rewards are provided to 10-point drama, while only modest rewards are offered for 8- or 9-point drama programs. The Commission considers that 6- and 7-point dramas do not make sufficient use of Canadian resources and talent to justify an incentive.

120. The CCAU proposed that the Commission remove the incentives for drama, other than children's drama, that is broadcast outside peak time. The Commission's incentive program is heavily weighted towards high-cost, 10-point drama broadcast in peak time. In the Commission's view, providing a modest reward of thirty seconds of additional advertising per hour for lower-cost, experimental dramas that may be broadcast outside peak time could benefit the Canadian broadcasting system and will certainly not detract from the primary objective of the incentive program.

121. Global proposed increasing the reward for low-cost drama from thirty seconds to one minute per hour. In the Commission's view, the thirty second reward provides an appropriate balance between the primary objective of encouraging high-cost, 10-point drama and the Commission's desire to provide some encouragement to newer, less expensive forms of Canadian drama.

122. In light of the above, the Commission has decided to maintain its proposal, as described in Public Notice 2004-32. Accordingly, where a licensee broadcasts an 8- or 9-point original drama program, or a 10-point original drama program not eligible for other incentives, the licensee is eligible for thirty seconds of additional advertising for each hour broadcast.

j) Evaluating the incentive program

123. In Public Notice 2004-32, the Commission proposed viewing and expenditure targets that it expected would be achieved over a five-year period as a result of the incentive program. The Commission also noted that it would evaluate annually the industry's progress towards these targets and that if the results of the incentive program did not demonstrate sufficient progress towards the targets, changes to the incentives could be introduced.

124. A number of parties commented that the five-year evaluation period may be too long. The CFTPA considered that a three-year time frame would provide enough information to determine whether or not the incentive program has been effective. Furthermore, the CFTPA noted that, if the incentives are implemented in 2004/05, the CFTPA's proposal would permit the largest station groups to have their commitment to the incentive program assessed prior to their licence renewals. The CCAU expressed the view that a five-year evaluation period would be too long and that, if the incentives are not working adequately, changes should be made as soon as possible. Alliance Atlantis and Vision TV also favoured a three-year evaluation period. They expressed the concern that the incentive program may have a negative impact on advertising revenues for specialty services and that the Commission should deal with such unintended consequences at an early date.

The Commission's analysis and determination

125. As mentioned earlier, CTV noted in its comments that "A traditional development window for a standard project is approximately two years and entails at least five or six drafts." This is followed by the production and post-production phases resulting in a lag of up to three or more years before a program is broadcast. Consequently, the Commission considers that three years is an unrealistic timeframe over which to evaluate its incentive program for drama. If the incentive program is attractive to licensees, the resulting drama may not be broadcast until the third or fourth year after its implementation.

126. The Commission remains of the view that a five-year evaluation period is appropriate when combined with annual reviews and progress reports. Should unintended consequences become apparent during the five-year period, the Commission retains the ability to make the necessary changes to its incentive program at any time. Furthermore, the Commission notes that it will be able to pose questions regarding drama production and the incentive program when licensees appear for licence renewal.

k) Reporting results and monitoring compliance

127. In Public Notice 2004-32, the Commission proposed to monitor the performance of the licensees participating in the incentive program through a combination of the annual drama incentive report and the licensee's annual returns and program logs.

128. As noted above, the CCAU proposed that broadcasters report annually regarding the production financing available for high-cost non-CTF funded drama as a result of the revenues earned from the sale of the additional four minutes of advertising. According to the CCAU, the report should also include the total volume of eligible advertising minutes that the broadcaster sold during the broadcast year, and the total revenues generated from the sale of eligible advertising on those programs during the broadcast year. The CFTPA stated that the annual drama incentive reports should be made public no later than 31 January of each year, that is, five months after the end of the broadcast year.

The Commission's analysis and determination

129. The Commission considers that full and transparent annual reporting is essential to the success of its incentive program. The annual drama incentive reports, if sufficiently detailed and made public in a timely manner, will provide both the Commission and interested parties with the necessary tools to evaluate the program and to monitor compliance with its provisions. At the same time, requesting an onerous level of detail or making public information that would otherwise be protected by the Commission's confidentiality guidelines could discourage licensees from participating in the incentive program.

130. Accordingly, the Commission has determined that each licensee that chooses to take advantage of the drama incentive program must file an annual report on its use of the incentives in conjunction with its annual return.

131. In the report, for each qualifying program, the licensee must provide the following information.

i) Information about the program
  • The final title of the program, program format (for example pilot, one-off, movie of the week (MOW), mini-series or series), duration of program excluding advertising material, and number of episodes.
  • The name and location of production company(ies).
  • The date and time of broadcast on each conventional television station and specialty television service owned or controlled by the licensee.
  • The production budget determined in accordance with CTF policies, in particular, the accounting and reporting requirements, and the producer's fees and corporate overhead policy. This document, to be filed by the licensee (although it may be completed by the producer at the licensee's request), would be accorded confidentiality, if requested, consistent with current Commission confidentiality guidelines.
  • The amount of each broadcast licence fee. This document would be accorded confidentiality, if requested, consistent with current Commission confidentiality guidelines.
  • The Canadian Audio-visual Certification Office (CAVCO) certification letter identifying the number of Canadian content points awarded the production. If certified by the Commission, the certification number for the production.
  • The identification of each incentive criterion that applies to the program as identified in the appendix to this notice.
  • For programs that are being developed in accordance with incentive 1 (b)(i), the following additional information is to be provided by the licensee (although it may be provided by the producer at the licensee's request):
    • a description of the financial structure of the production prepared in accordance with section C of the CTF's Television Application Form 2004/05, or its equivalent in future years, separately identifying the amount paid by the licensee in regard to the five minutes of additional advertising;
    • key creative personnel - as per section D of the CTF's Television Application Form 2004/05, or its equivalent in future years;
    • date on which principal photography will commence; and
    • status of each project in development for which incentive advertising minutes have been broadcast by the licensee pursuant to Incentive 1(b)(i), as set out in the appendix.
ii) Information about the incentive advertising minutes
  • A summary of the total minutes of advertising accumulated and eligible to be broadcast in the broadcast year by each conventional television station and specialty service, including the minutes for viewing and program expenditures pursuant to Incentives 2 and 3, as set out in the appendix.
  • The name, time and date of broadcast of the programs in which the additional advertising minutes were aired in the broadcast year and the number of additional minutes aired within each of these programs for each conventional television station and specialty service.
iii) Information about drama expenditures:
  • In accordance with Incentive 3, as set out in the appendix, each participating television ownership group must provide the calculations used to determine whether the incentive targets have been fulfilled.

132. Commission staff is prepared to meet with licensees during the 2004/05 broadcast year in order to ensure consistency of format with respect to these reporting requirements.

133. The annual drama incentive reports must be filed with the Commission on or before 30 November of each year, in conjunction with the annual returns. Subject to its confidentiality guidelines, the Commission will make every effort to place the reports on the CRTC's website early in the following year.

134. In order to ensure compliance with this drama incentive program, as well as with the advertising limits set out in the Television Broadcasting Regulations, 1987 and conditions of licence, the Commission intends to institute a monitoring program based upon spot checks of various licensees' program logs. These spot checks will compare a licensee's logger tapes to the Commission's computer logs in order to determine:

  1. whether the logs are an accurate representation of the programming material broadcast; and
  2. whether the programming broadcast was in compliance with the regulations respecting advertising time or the appropriate condition of licence.

135. Should a spot check reveal possible non-compliance, a letter will be sent to the relevant licensees providing an opportunity for comment on the results of the spot check. The Commission will take the action it deems appropriate to ensure compliance. In conformity with the Commission's procedures in monitoring compliance, any correspondence with a licensee will be placed on the public file.

l) Drama that reflects Canada's regional and cultural diversity

136. Drama programming can play an important role in reflecting the regional and cultural diversity of Canada and in fulfilling the objectives of the Act, in particular those set out in section 3(1)(d).

137. The drama incentives announced in this public notice complement the Commission's 1999 Television Policy. That policy noted the importance of reflecting Canada's regions in peak time programming and determined that most regionally-produced programs would qualify as priority programs. Given the importance of the medium of television in shaping attitudes about Canada, the Commission subsequently imposed a condition of licence on the CBC English-language television network requiring it to broadcast specific minimum hours per week of priority regional programming (Licences for CBC English-language television and radio renewed for a seven-year term, Decision CRTC 2000-1, 6 January 2001). Further, the licence renewals for the television stations controlled by both CTV (Licence renewals for the television stations controlled by CTV, Decision CRTC 2001-457, 2 August 2001) and Global (Licence renewals for the television stations controlled by Global, Decision CRTC 2001-458, 2 August 2001) expected the licensees to commission their priority programming from all regions of Canada throughout the course of their new licence terms. Similar expectations were set out in the renewal decisions for television stations controlled by CHUM and Craig. Each of these licensees was required to submit an annual report outlining its activities related to the licensing of independent production.

138. The Commission considers that the drama incentive program, and in particular, the rewards for non-CTF productions, have the potential to result in more drama that better reflects the regions of Canada to themselves and to all parts of the country. Corner Gas is an example of how a drama based in a region can be both financially successful and popular with audiences throughout Canada. The Commission encourages licensees to look to all parts of Canada for compelling stories that will further the objectives of the Act by reflecting the differing Canadian attitudes and values and drawing upon the artistic creativity found in the different regions.

139. The Commission reminds licensees of its commitment to regional reflection and, in this context, notes that the CTF has increased its contributions to regional productions (those outside Toronto and Montréal) from 25% of total contributions in 1998 to 37.1% in 2003. The Commission will continue to be vigilant in its review of the annual independent production reports filed by its licensees and will determine if further action is required. It expects those licensee's to commission priority programming from all regions of Canada, throughout the course of their licence terms.

140. With respect to cultural diversity, the Commission received a large number of comments from individuals, many working as performers in the television production industry. Many of these comments, as well as others from broadcasters and advocacy groups, argued that Canadian drama needs to better reflect Canada's diverse reality, specifically visible minorities, Aboriginal peoples and persons with disabilities. A number of comments proposed solutions ranging from requirements imposed as conditions of licence to incentives focussed specifically on drama programs.

141. The Commission notes that its initiatives with respect to cultural diversity also stem from its statutory mandate and, in particular, the objectives set out in section 3(1)(d) of the Act. In the 1999 Television Policy, the Commission supported an industry and community-led task force to sponsor research and develop best practices in order to achieve a better reflection of cultural diversity in the broadcasting system.

142. The recent report of the Task Force for Cultural Diversity on Television (the Task Force) has demonstrated that English-language drama, as well as most other program categories, fail to reflect visible minorities and Aboriginal peoples in proportion to their presence in the population as a whole. Furthermore, a recent study of employment in screen-based media, conducted by Women in Film & Television - Toronto (WIFT - T), has demonstrated that visible minorities, Aboriginal peoples and people with disabilities are underrepresented in many aspects of film and television production. In the Commission's view, licensees have a responsibility to ensure that all of their programming, including drama, better reflects Canadian society.

143. The Commission notes that the CAB has endorsed the Task Force report and its recommendations for best practices and industry initiatives. The Commission will also set out its views on the report in the near future, but has determined that it would be premature to propose specific incentives to encourage greater diversity in television drama programs.

m) Drama directed at children

144. In Public Notice 2004-32, the Commission proposed to include in its incentive program Canadian drama programs directed to children when such programs are broadcast at times of the day that are appropriate for children. The Commission asked for comment on whether it should define these time periods.

145. A number of comments were received on this proposal. The CFTPA stated that the hours between 6 a.m. and 9 p.m. are appropriate viewing times for children's programming. The CCAU suggested that the time periods appropriate for children should be defined as from 4 p.m. to 9 p.m. The CCAU also proposed that the Commission place a ceiling on the number of hours of children's drama that would be eligible for incentive rewards and that the minimum production budget for high-cost children's drama should be $750,000 per hour. The CAB and Global noted that prior to the introduction of the 1999 Television Policy, it had not been necessary to define the appropriate hours for children's programming and that this allowed for reasonable flexibility for broadcasters to address different age groups.

146. The Commission agrees with the CAB and Global that, prior to the implementation of the 1999 Television Policy there was no precise definition of appropriate children's viewing hours associated with the 150% dramatic time credit. Furthermore, the Commission is not aware that this flexible approach resulted in any concern with regard to the scheduling of children's programs.

147. Accordingly, the Commission has decided that drama programs directed towards children will qualify for the drama incentives if they meet all of the requirements and are broadcast at times appropriate for children's viewing.

148. With respect to the CCAU's proposals regarding a ceiling on the volume of children's drama eligible for incentive awards, the Commission considers it unlikely that conventional broadcasters would shift their focus from adult to children's drama in order to obtain such rewards. To the extent that the incentives encourage incremental production of drama directed to children, the Commission considers that this will benefit Canadian viewers. Similarly, the Commission anticipates that the incentive program may encourage specialty services that target children to invest more in original drama. Finally, the Commission sees no need to establish a unique production budget threshold for children's drama, especially since the $750,000 threshold proposed by the CCAU is so close to the $800,000 threshold proposed by the Commission.

Other issues

149. A number of other issues were raised in the comments received pursuant to Public Notice 2004-32. In the following sections, the Commission summarizes the comments on these issues and sets out its determinations.

n) Drama funded with ownership transfer benefits

150. In Public Notice 2004-32, the Commission proposed that drama programs that receive financing from a licensee as part of a commitment made at the time of licensing or an ownership transfer benefit should not be eligible for the drama incentive program. CTV argued that all original drama, regardless of how it is funded, whether from benefits money, initial licensing commitments, equity investment, or other sources, should qualify for incentives. In CTV's view, ". it simply does not make sense to exclude potentially exciting and popular hit shows based merely on the source of their financing."

151. The Commission notes that requirements for expenditures on ownership transfer benefits ensure that the Commission is presented with the best possible ownership transfer proposal, taking into account the size and nature of the proposed transaction. As a consequence, commitments in respect to benefit expenditures are commitments that licensees must meet irrespective of any participation in the Commission's drama incentives. In the Commission's view, licensees should not be rewarded for something that they are already required to do.

152. The Commission has therefore determined that drama programs funded in whole or in part with public benefits or commitments undertaken at the time of licensing will not qualify for the original broadcast hours incentive. In calculating the expenditure incentive, drama expenditures related to commitments made at the time of licensing or ownership transfer benefits will be excluded.

o) Drama programs produced by licensees

153. The comments in response to the Commission's proposed incentive program for French-language broadcasters raised the question of whether broadcaster-produced drama should be eligible for incentive rewards and, in particular, the bonus rewards for non-CTF drama.

154. The Commission notes that the bonus minutes allocated to qualifying non-CTF drama programs are intended to provide licensees with additional resources to invest in independently-produced drama programs. For English-language licensees, the bonus is five extra minutes, the value of which has been calculated to be equivalent to the amount that the CTF would have invested in such projects. Accordingly, those drama productions that are produced internally by a licensee will qualify for the appropriate original hours reward, but will not be entitled to receive the five- minute bonus awarded in lieu of CTF funding.

p) Third party promotion expenses

155. In its comments, the CAB proposed that the Commission "permit broadcasters to count third party promotional expenses for drama against their Canadian programming spending requirements . [and] … as part of their drama spending in evaluating whether they have increased their spending on drama." The CAB noted that the McQueen Report on drama undertaken for the Commission recommended that third party promotional expenditures on 10-point drama be considered as program expenditures for the purposes of a drama incentive program.

156.  The Commission has already put into place a number of measures designed to encourage the promotion of Canadian programs. Further to the 1999 Television Policy, the definition of advertising material in the Television Broadcasting Regulations, 1987 was "amended to exempt all promotions of Canadian feature films and other Canadian programs, whether or not such programs are to be broadcast by the station or network in question". In addition, in the Commission's 1999 Television Policy, Canadian entertainment magazine programs were identified as priority programs "for the purpose of regulatory requirements applicable to the peak viewing period". Such magazine programs must devote at least two-thirds of their time to the coverage of Canadian entertainment.

157.  In the Commission's view, the CAB's proposal would require a significant amount of monitoring on the part of the Commission, particularly with respect to licensees who are controlled by ownership groups that also control newspapers. Furthermore, the Commission considers that its drama incentive program will encourage licensees to increase the promotion of Canadian drama programs in order to increase the viewing of such programs and qualify for the viewing incentive reward.

158.  The Commission has therefore decided not to permit inclusion of third party promotion expenses for drama in a licensee's calculation of its spending on Canadian drama for the purposes of evaluating whether or not the licensee has met the expenditure incentive criterion.

q) Equity at risk

159. In Public Notice 2004-32, the Commission suggested that permitting specialty services to include equity at risk in the calculation of their spending on drama could result in an increased willingness and ability of those few specialty services that acquire original Canadian drama to make equity investments in such drama. The Commission invited comment on the most appropriate means to ensure that such investments are truly at risk and do not replace licence fees.

160. The CAB, CHUM and Global supported the Commission's proposal and agreed on the following criteria that equity investments should meet if they are to be considered as eligible Canadian programming expenditures for the purposes of the drama incentives:

  • the equity investment cannot be an advance or a loan and must be truly at risk; and
  • the equity investment must be the result of a separate and distinct negotiation, that is, the producer must not require equity participation as a precondition to the licensing of the production.

161. In addition, these parties agreed that a further minimum license fee requirement is not necessary, as drama programs financed by the CTF already require a significant minimum licence fee.

162. The CFTPA offered conditional support for equity investment in independent drama production. While it noted that the ability to include equity investment as an eligible Canadian programming expenditure would be a significant benefit to conventional broadcasters as well, it proposed the following safeguards:

  • the equity investment, whether provided by a specialty service or a conventional broadcaster must be incremental to existing licence fee requirements. This means that the broadcaster's equity investment must be over and above the maximum CTF licence fee threshold and, in the case where a broadcaster's envelope is providing part of the financing, must include the maximum amount of financing available from the CTF;
  • the broadcaster must be in a recoupment tier that is subordinate to that of the producer;
  • any guaranteed or effectively guaranteed revenue, such as revenue not used in the financing but pledged to the broadcaster's investment position, should be deducted from the expenditure credit. Such guarantees are essentially collateral for loans, and must not be permitted to be counted as an equity investment for this purpose;
  • the policy statement must clearly state that there can be no bundling of rights. In keeping with normal industry practices, any distribution or other rights must be negotiated separately from the equity investment; and
  • only arm's length independent productions should be eligible. A related-party or in-house production does not bear the same level of risk as is taken by a truly independent production.

163. Telefilm agreed that the Commission should allow specialty services to count as Canadian programming expenditures those equity investments that are truly at risk. Telefilm emphasized its expertise in managing equity investment and indicated that it would be willing to work with the Commission to establish appropriate safeguards. Telefilm further noted that it is important to emphasize that equity investments by broadcasters do not confer rights on the broadcasters beyond a share of copyright and of recoupment. Distribution rights and broadcaster licence fees should be negotiated separately.

164. The CCAU opposed allowing recoupable equity investment to count as expenditures for the purpose of the drama incentives. The CCAU believed only unrecouped equity (equity losses) should be eligible for such consideration. Pending the development of equitable Terms of Trade agreements, the CCAU proposed the following eligibility conditions for equity at risk:

  • the broadcaster licence fee is at least $300,000 per hour or such higher level as the CTF may prescribe or apply; and
  • the terms and conditions of the equity investment are no more favourable to the broadcaster than those that are required by Telefilm Canada in its equity investments. In particular, no broadcaster equity investment should be permitted to be recouped in preference to the equity investment made by the producer, nor should the broadcaster be permitted to recoup any of its investment in advance of the producer recouping all deferred fees.
The Commission's analysis and determination

165. The Commission notes that Public Notice 2004-32 specifically defined equity at risk as referring to ". equity investments in drama productions that have no guarantee of a return."

166. The Commission agrees that appropriate criteria are necessary in order to identify investment that is truly at risk. As noted by the CAB, CHUM and the CFTPA, a guaranteed return on an investment characterizes an advance or a loan and should not qualify as an equity investment that is at risk. The Commission also endorses the positions of the CFTPA and Telefilm to the effect that equity investments by broadcasters must be distinct and separate from licence fee and distribution rights negotiations.

167. In light of the above, the Commission has determined that equity investments in Canadian drama programs that are at risk will count as an eligible Canadian program expenditure when the following criteria have been met:

  • the investment is truly at risk and does not constitute the equivalent of an advance or a loan. Any investment with guaranteed or effectively guaranteed revenues will not be counted as an equity investment for the purpose of this incentive; and
  • in keeping with normal industry practice, distribution and other rights must be negotiated and defined separately from any equity investment.

168. The Commission notes that specialty services are not currently required to file with the Commission program expenditures broken out by genre. Therefore, the Commission is unable to determine the annual spending by specialty services on Canadian drama and, as a consequence, these services are not able to benefit from the incentive to increase expenditures on Canadian drama. If, in the future, specialty services include spending by program genre in their CRTC annual returns, the Commission could make the necessary adjustment to the drama incentive program.

169. Licensees who wish to avail themselves of the new flexibility with regard to Canadian program expenditure requirements must apply for an amendment to their relevant conditions of licence.

r) Licence fee "top-ups"

170. In addition to financing for eligible Canadian television productions, the CTF often supplements the Canadian broadcasters' cash licence fees for the productions in the form of licence fee "top-ups". Pursuant to Public Notice 2003-54, the Commission received a number of requests that it change its definition of eligible Canadian program expenditures to exclude licence fee top-ups. In Public Notice 2004-32, the Commission determined that changing this policy would require a public process and would not result in an increase in spending on Canadian programs. Accordingly, the Commission proposed no change to its current approach.

171. In its comments pursuant to Public Notice 2004-32, Telefilm argued that licence fee top-ups effectively reduce broadcasters' Canadian program expenditure requirements.

172. The Commission notes that, in 2002, licence fee top-ups represented less than 5% of total Canadian program expenditures by all specialty, pay and pay-per-view services. Furthermore, the Commission considers that, by allowing equity at risk to count as an eligible expenditure, the concern expressed by Telefilm will be alleviated.

173. Accordingly, the Commission's current policy with respect to licence fee top-ups will not be altered.

s) Non-simultaneous substitution

174. In its comment, the CAB requested that the Commission initiate a proceeding to investigate whether non-simultaneous substitution might be implemented by broadcasting distribution undertakings (BDUs). The CAB submitted that, without the protection of simultaneous substitution, "conventional television would not be able to attract the revenues needed to meet their multiple regulatory obligations." At the same time, the CAB pointed out that simultaneous substitution presents a scheduling conundrum for licensees, i.e., how to maximize substitution revenues and yet find the best scheduling opportunities for Canadian programs. In the CAB's view, non-simultaneous substitution would provide the flexibility necessary to maximize the revenues from U.S. programs, while providing better scheduling opportunities for Canadian drama. The CAB noted that, "we have already had discussions with the CFTPA on this matter and they have indicated a willingness to work with us and the BDUs to find viable solutions."

175. The Commission notes that non-simultaneous substitution would involve changing the BDU regulations in order to permit BDUs to replace programming on an out-of-market station with a local broadcaster's identical programming, even when the programming is broadcast at different times on the two stations.

176. In Options for Extending Protection of Program Rights: Call for Comments, Public Notice CRTC 1997-7, 10 January 1997, pursuant to a proposal by the CAB, the Commission initiated a proceeding to examine options for extending the protection of program rights, including the option of non-simultaneous substitution. After the Commission had received written comments, the CAB advised the Commission that, as a result of complications relating to program rights and the costs to program distributors, it did not wish to proceed with the matter. Consequently, the proceeding was terminated. The issue of non-simultaneous substitution was raised again during the policy proceeding that led to the 1999 Television Policy. In that policy, the Commission stated that any such change ". would be premature given that a consensus between broadcasters and distributors has not yet been reached on the most effective means to implement non-simultaneous substitution."

177. The Commission notes that the CAB has not provided evidence to demonstrate that non-simultaneous substitution is a viable option at this time. Nor is there evidence that BDUs are willing to participate in implementing this form of substitution. The Commission also notes that the CFTPA's submission makes no mention of non-simultaneous substitution or of any discussions with the CAB on the subject.

178. The Commission is of the view that, in the absence of any evidence that non-simultaneous substitution is a viable approach at this time, it would not be appropriate to initiate a proceeding on this subject.

Implementation of the drama incentive program

179. The drama incentive program that is summarized in the appendix to this public notice will be implemented by way of condition of licence. Conventional television licensees that wish to participate in the incentive program may apply for a condition of licence permitting them to broadcast additional minutes of advertising, in addition to the 12 minutes per hour permitted by section 11 of the Regulations. In the event that a conventional television licensee has a condition of licence limiting the number of minutes of advertising, such a licensee may also apply to amend the condition in order to be able to participate in the drama incentive program. Similarly, specialty television service licensees may apply to amend the limitations on advertising set out in their conditions of licence.

180. Conventional television licensees applying for a condition of licence may use the following text:

In addition to the 12 minutes of advertising material during any clock hour in a broadcast day permitted by subsection 11(1) of the Television Broadcasting Regulations, 1987, the licensee may broadcast such additional minutes of advertising material calculated in accordance with Incentives for English-language Canadian television drama, Broadcasting Public Notice CRTC 2004-93, 29 November 2004, as may be amended from time to time.

181. Licensees may accumulate reward minutes for the broadcast of qualifying drama aired since 1 September 2004. However, licensees may not utilize these reward minutes until the appropriate condition or amendment has been approved by the Commission. The Commission expects those licensees who wish to participate in the drama incentive program to apply for the appropriate condition of licence or amendment as soon as possible.

Secretary General

This document is available in alternative format upon request and may also be examined at the following Internet site: http://www.crtc.gc.ca

Appendix to Broadcasting Public Notice CRTC 2004-93
Summary of the incentive program for English-language Canadian television drama

The following is a summary of the Commission's incentive program for English-language Canadian television drama. It is intended to serve as a convenience to the reader, to be read in conjunction with the public notice it accompanies. The incentives summarized below will be effected by condition of licence.

Objective

The objective of the Commission's incentive program for English-language Canadian television drama is to increase the production and the broadcast of, the viewing to, and the expenditures on, high quality, original, Canadian drama programming.

Definitions

In addition to the definitions in applicable regulations, the following definitions apply for the purpose of the drama incentive program.

"baseline hours" means 26 hours of drama broadcast by a licensee during the hours of 7 p.m. and 11 p.m. in a broadcast year that satisfy the general criteria for eligibility and reward under Incentives 1(a), 1(b) or 1(c).

"CTF" means the Canadian Television Fund.

"conventional television service" means a service composed of

  1. one conventional television station; or
  2. more than one conventional television station in which the programming broadcast during peak time, exclusive of commercial messages, and any part of the service carried on a subsidiary signal, is the same on each station at least 80% of the time, whether or not a network licence has been issued.

"drama program" means a program that

  1. is described by a category from 7(a) to 7(e) as set out in Schedule I to the Television Broadcasting Regulations, 1987;
  2. has a duration of at least one half hour, including the time devoted to permitted advertising material;
  3. contains a minimum of 90% dramatic content; and
  4. qualifies as a Canadian program as defined in the Television Broadcasting Regulations, 1987.

"largest multi-station ownership groups" means those multi-station ownership groups with conventional television stations licensed to operate in several provinces and with a potential reach of more than 70% of the audience in their language of operation.

"multi-station ownership group" means a group of stations and/or services owned or controlled by the same person or entity, and is composed of

  1. more than one conventional television station;
  2. one or more conventional television stations and one or more specialty services; or
  3. more than one specialty service.

"original program" means a program that, at the time of its broadcast by a licensee, has not been previously broadcast by the licensee or, subject to the exceptions set out below, by any other licensee.

A licensee may also count a program as an original program, for the purpose of the drama incentive program, where:

  1. the licensee contributed to the program's pre-production financing, and the program has only been previously broadcast by another licensee that also contributed to its pre-production financing;
  2. the program has only been previously broadcast by a licensee of a pay-television, pay-per-view or video-on-demand undertaking;
  3. the licensee has contributed to the pre-production financing of the program and the program has previously been broadcast by no more than one conventional television service or one specialty service within the licensee's multi-station ownership group, except that where a multi-station ownership group owns or controls more than one conventional television service the program may only be counted as original on one of those conventional television services; or
  4. the program has been previously broadcast in French by a licensee, but was produced originally in both English and French and otherwise satisfies the definition of original program; a program that was originally produced in French only will not qualify as an original program even when it is broadcast with an English-language sound track or with English-language captioning.

"peak time" means the time between 7 p.m. and 11 p.m. each broadcast day, except where it is used in relation to a program directed to children (ages 2 to 11) where it means at any time appropriate for children.

"point", in relation to a program, refers to the points a program has earned based on the application of Appendices I and II to Certification for Canadian Programs - A Revised Approach,CRTC Public Notice 2000-42, 17 March 2000.

Incentives

1. Incentives to broadcast original hours of Canadian drama

These incentives have, as their objective, an increase in the production and broadcast of original hours of English-language, Canadian drama. Incentives are provided for the production and broadcast of three types of original drama program, each carrying a different reward in terms of additional minutes of advertising permitted.

Incentive 1(a)
General criteria for eligibility and reward

Where a licensee broadcasts, in peak time, a 10-point, original, CTF-funded drama program with an hourly production budget of at least $800,000 and a licence fee of at least $300,000, the licensee will be permitted, subject to the additional qualifications set out below, to broadcast three minutes of additional advertising for each hour broadcast.

Additional qualifications
  • A licensee of a conventional television station controlled by one of the largest multi-station ownership groups may only count under Incentive 1(a) drama programs that it broadcasts in excess of the baseline hours.
  • A drama program funded in whole or in part as a result of commitments made at the time of licensing or as a result of transfer benefits will not qualify for Incentive 1(a).
Incentive 1(b)
General criteria for eligibility and reward
  1. Where a licensee licenses a 10-point, original, non-CTF funded drama program with an hourly production budget of at least $800,000 and a licence fee of at least $300,000, the licensee will be permitted, subject to the additional qualifications set out below, to broadcast five minutes of additional advertising for each hour licensed; and
  2. where a licensee subsequently broadcasts, in peak time, the drama referred to in (i) above, the licensee will be permitted, subject to the additional qualifications set out below, to broadcast three minutes of additional advertising for each hour broadcast.
Additional qualifications
  • Under Incentive 1(b)(i), the five minutes of additional advertising may be broadcast before the program has been broadcast by the licensee, but only after the production's financial structure is complete and the key creative personnel have been identified in accordance with the applicable sections of the CTF's application form.
  • If principal photography is not commenced within one year of the licensing of a program under Incentive 1(b)(i), or if the program is not subsequently broadcast by the licensee in peak time within three years of the program's licensing, absent compelling reasons why the Commission should not so require, the licensee will be required to reduce the advertising time otherwise permitted pursuant to the drama incentive program by the number of minutes already broadcast by the licensee pursuant to Incentive 1(b)(i) for that program.
  • The three minutes of additional advertising that a licensee is permitted to broadcast under Incentive 1(b)(ii) is in addition to the five minutes under Incentive 1(b)(i), but may only be broadcast after the drama program has been broadcast by the licensee.
  • A drama program that is produced internally by a licensee will not qualify for Incentive 1(b)(i).
  • A drama program funded in whole or in part as a result of commitments made at the time of licensing or as a result of ownership transfer benefits will not qualify for incentives 1(b)(i) or 1(b))ii).
Incentive 1(c)
General criteria for eligibility and reward

Where a licensee broadcasts an 8- or a 9-point original drama program, or a 10-point drama program for which the licensee is not eligible for an incentive under Incentive 1(a) or 1(b), the licensee may broadcast, subject to the additional qualifications set out below, thirty seconds of additional advertising for each hour broadcast.

Additional qualifications
  • A licensee of a conventional television station controlled by one of the largest multi-station ownership groups may only count under Incentive 1(c) drama programs that it broadcasts in excess of the baseline hours.
  • Drama programs funded in whole or in part as the result of commitments given at the time of licensing or as a result of ownership transfer benefits will not qualify for Incentive 1(c).
Notes
  • Production budgets will be assessed by the Commission on the same basis as CTF business policies.
  • The Commission will review CTF guidelines and policies on an annual basis to ensure consistency with the amounts specified in Incentives 1(a) and 1(b) for licence fees and production budgets.

2. Incentive to increase viewing to Canadian drama

The objective of this incentive is to increase the viewing to English-language Canadian drama on Canadian English-language services, as a percent of all drama viewing on Canadian English-language services.

Incentive 2
General criteria for eligibility and reward

Where over a broadcast year a multi-station ownership group attains an increase, over the previous broadcast year, in the ratio of total viewing to all Canadian drama as a percent of the total drama viewing on all conventional television stations and/or specialty services within the multi-station ownership group, that meets or exceeds the target set by the Commission, each licensee in the ownership group will be permitted to broadcast an additional 25% of the total advertising that it is permitted to broadcast pursuant to Incentives 1(a), 1(b) and 1(c). This incentive will apply mutatis mutandis to conventional television stations or specialty services that are not part of a multi-station ownership group.

Notes
  • The Commission will issue a public notice, in the current broadcast year, setting out its proposed viewing objective for the industry as a whole and seeking comments from interested parties. Preliminary viewing targets for those ownership groups participating in the incentive program will be made public at the same time. The final viewing targets for each participating ownership group will be announced subsequently.
  • Viewing will be measured using metered data.

3. Incentive to increase expenditures on Canadian drama

The objective of this incentive is to increase expenditures on English-language Canadian drama by the English-language conventional television industry, as a percent of total revenues, from 4% to 6% over a five-year period.

Incentive 3
General criteria for eligibility and reward

Where all of the conventional television stations in a multi-station ownership group attain an annual increase, over the broadcast year, in aggregate expenditures on Canadian drama, as a percent of aggregate group revenues, that meets or exceeds the target set by the Commission, each licensee of a station in that ownership group will be permitted, subject to the additional qualifications set out below, to broadcast an additional 25% of the total advertising that it is permitted to broadcast pursuant to Incentives 1(a), 1(b) and 1(c).

Additional qualifications
  • Expenditures on drama programs funded in whole or in part as a result of commitments made at the time of licensing or as a result of ownership transfer benefits will be excluded from the calculations for Incentive 3.
  • CTF "top-up" funding will be excluded from the calculations for Incentive 3.
Notes
  • The Commission will review the financial results for the 2003/04 broadcast year for each of the ownership groups participating in the drama incentive program before setting the incentive targets for each group for the broadcast years 2004/05 to 2009/10. These targets will be made public in the current broadcast year.
  • The Commission will establish the ownership group targets using the aggregate expenditures of all stations in the group.

Broadcast of additional minutes of advertising material

  • Additional advertising minutes may be broadcast in any program on a conventional television station or specialty service that has broadcast the drama program that led to the reward.
  • Each clock hour may contain no more than 14 minutes of advertising material. Where a program occupies time in two or more consecutive clock hours, a licensee may exceed the maximum number of minutes during any of those clock hours if the average number of minutes of advertising material in the clock hours occupied by the program does not exceed 14 minutes.
  • Additional advertising time earned pursuant to Incentives 1(a), 1(b) and 1(c)(ii) may only be utilized in the broadcast year that the drama program that led to the reward was broadcast.
  • Additional advertising time earned pursuant to Incentives 2 and 3 may only be utilized in the broadcast year following the broadcast year in which the drama program that led to the reward was broadcast.
  • Any licensee found by the Commission to have exceeded the maximum number of advertising minutes provided for under the incentive program in a given broadcast year will be required, absent compelling reasons why the Commission should not so require, to reduce, in subsequent broadcast years, the number of advertising minutes otherwise permitted by the incentive program.

Reporting requirements

Each licensee participating in the drama incentive program must file an annual report including the information set out below. The drama incentive report must be filed with the Commission no later than 30 November for each broadcast year in which the licensee has accumulated or utilized additional minutes of advertising material.

i) Information about the program

  • The final title of the program, program format (for example pilot, one-off, movie-of-the-week (MOW), mini-series or series), duration of program excluding advertising material and number of episodes.
  • The name and location of production company (ies).
  • The date and time of broadcast on each conventional television station and specialty television service owned or controlled by the licensee.
  • The production budget determined in accordance with CTF policies, in particular, the accounting and reporting requirements, and the producer's fees and corporate overhead policy. This document, to be filed by the licensee (although it may be completed by the producer at the licensee's request), would be accorded confidentiality, if requested, consistent with current Commission confidentiality guidelines.
  • The amount of each broadcast licence fee. This document would be accorded confidentiality, if requested, consistent with current Commission confidentiality guidelines.
  • The Canadian Audio-visual Certification Office (CAVCO) certification letter identifying the number of the Canadian content points awarded the production. If certified by the Commission, the certification number for the production.
  • The identification of each incentive criterion that applies to the program.
  • For programs that are being developed in accordance with Incentive 1(b)(i), the following additional information is to be provided by the licensee (although it may be provided by the producer at the licensee's request):
    • a description of the financial structure of the production prepared in accordance with Section C of the CTF's Television Application Form 2004/05, or its equivalent in future years, separately identifying the amount paid by the licensee in regard to the five minutes of additional advertising;
    • key creative personnel - as per section D of the CTF's Television Application Form 2004/05, or its equivalent in future years;
    • date on which principal photography will commence; and
    • status of each project in development for which incentive advertising minutes have been broadcast by the licensee pursuant to Incentive 1(b)(i).

ii) Information about the incentive advertising minutes

  • A summary of the total minutes of advertising accumulated and eligible to be broadcast in the broadcast year by each conventional television station and specialty service, including the minutes for viewing and program expenditures pursuant to Incentives 2 and 3.
  • The name, time and date of broadcast of the programs in which the additional advertising minutes were aired in the broadcast year and the number of additional minutes aired within each of these programs for each conventional television station and specialty service.

iii) Information about drama expenditures

  • In accordance with Incentive 3, each participating television ownership group must provide the calculations used to determine whether the incentive targets have been fulfilled.

Implementation

  • Licensees who meet the criteria of the drama incentive program will be permitted to broadcast additional minutes of advertising, beyond the limits set out in applicable regulations or conditions of licence. In order to avail itself of the incentive program, a licensee must apply for a condition of licence. The condition will permit the licensee to broadcast such additional minutes of advertising material calculated in accordance with this public notice, as amended from time to time.
  • Licensees may apply for the appropriate condition of licence at any time.
  • Licensees may accumulate reward minutes for the broadcast of qualifying drama programs broadcast beginning 1 September 2004. However, licensees may not begin to broadcast these reward minutes until the appropriate condition of licence has been approved by the Commission.