Canadian Radio-television and Telecommunications Commission
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2.0 The CRTC, policies, and regulation
2.5 Contribution and spending regimes
The Commission uses a number of approaches to achieve the cultural, social, and economic objectives set out in the Acts. One such method has been the establishment of contribution and spending regimes.
In 2008, broadcasting and telecommunications providers contributed $3.0 billion towards the achievement of these objectives. Approximately 93% of these funds were for cultural and programming initiatives under the Broadcasting Act and the remaining 7% were for the achievement of the social and economic objectives under the Telecommunications Act.
A - Broadcasting
In addition to Canadian exhibition and carriage requirements, broadcasters are also generally expected to make contributions towards the promotion, development, creation, and broadcast of Canadian talent and content. These spending and funding activities are intended to ensure the availability of Canadian content within the Canadian broadcasting system.
The Commission sets out its general expectations and policies relating to spending and contribution initiatives for radio, television, and BDUs in various regulatory and policy frameworks which are reviewed every few years. The Commission also reviews contribution requirements and commitments of individual broadcasters and BDUs in terms of
- commitments made during the renewal of existing licences,
- commitments relating to the licensing of new broadcasting and distribution undertakings, and
- additional benefits resulting from change in ownership or control.
In 2008, broadcasters contributed $2.8 billion towards the development, creation, and exhibition of Canadian content and talent.
a) Radio and audio services - contributions towards Canadian content development127
Under the Canadian content development (CCD) contribution regime, radio stations operating under the Commercial Radio Policy are expected to make a basic annual contribution towards various CCD funds and initiatives. The regime places an emphasis on the creation and promotion of audio content for broadcast through the development of Canadian musical and spoken word talent, including journalists. This approach is expected to help increase the amount of high-quality Canadian music and spoken word material and to promote emerging Canadian talent.
Radio broadcasters contributed $28.6 million to CCD initiatives in the 2007/08 broadcast year.
i) Commitments made during the renewal of existing radio and audio undertakings
Each radio station holding a commercial radio licence must make basic annual contributions to CCD initiatives. Beginning 1 September 2008, contributions are based on the station's revenues from the previous year.128
Pay audio services are required to contribute a minimum of 4% of their gross annual revenues to CCD. Multichannel subscription radio services are required to contribute at least 5% of their gross annual revenues to CCD. The percentage rate increases to 6% if the number of subscribers exceeds a certain level.129 Half of the contributions are directed to the development of Canadian French-language talent and the other half is directed to the development of Canadian English-language talent.
ii) Commitments related to the licensing of new radio undertakings
Applicants for new commercial radio stations, especially those made in the context of a competitive process, often make contribution commitments that exceed the required basic annual CCD contributions. Effective 1 September 2008, no less than 20% of this amount will be allocated to FACTOR130 or MUSICACTION.131 The balance may be directed to any eligible CCD initiative, at the discretion of the applicant.
Between 1 January and 31 December 2008, the Commission licensed 23 new radio stations through competitive processes in markets across Canada. The successful applicants made commitments to contribute $47.7 million above the required basic contribution to CCD over their first licence term. In addition, during the same period, there were 20 new radio licences granted without a competitive process. These licensees committed $0.97 million above the basic contributions to CCD.
iii) Benefits resulting from the change in ownership and/or control
In addition to the basic annual contributions required under the CCD contribution regime, applicants for a change in ownership and/or control of profitable commercial radio stations are also required to make commitments that represent a minimum direct financial contribution to CCD of 6% of the value of the transaction. Three percent is to be allocated to the Radio StarMaker Fund/Fonds RadioStar132 music marketing and promotion fund, two percent to either FACTOR or MUSICACTION and one percent at the discretion of the purchaser to other eligible133 CCD initiatives. These contributions are usually made over a seven-year period.
Between 1 April 1998 and 31 December 2008, the Commission approved 138 changes in ownership or control involving 518 radio stations. CCD commitments (benefits) from these transactions have totalled $203.7 million.
b) Television - contributions to Canadian programming
The Canadian television sector plays an essential role in ensuring a strong Canadian presence in the Canadian broadcasting system by providing distinct and diverse Canadian programming.
The Canadian programming expenditures (CPE) reported by the Canadian television sector in 2007-08 was $2.43 billion. Conventional television stations reported $1.4 billion, with private conventional television stations accounting for 45% of this amount. pay, PPV, VOD, and specialty services reported approximately $1.1 billion.
i) Conventional television
The Commission eliminated CPE requirements for the private conventional television sector in 1999.134 Any concerns relating to expenditure and exhibition contributions towards the production and acquisition of Canadian programming, including local programming, are now reviewed with each licensee at the time of licensing and subsequent licence renewals.
In the 2007 Over-the-Air Television Policy,135 the Commission noted that, although the English-language conventional television sector had maintained CPE as a percentage of revenues, the continued decline in proportion to the total programming budget was a cause for concern. In order to ensure that an appropriate proportion of financial resources are allocated towards the production and acquisition of Canadian programming, the Commission indicated that it would review this matter during the licence renewal process for the major broadcast groups that was scheduled to take place in April 2009.
On 30 January 2009, the Commission announced that in light of concerns raised by the conventional broadcasters relating to the challenges facing the broadcasting environment as well as the current economic climate, it would review and narrow the scope of the April 2009 licence renewal public hearings.
In Broadcasting Decision 2009-279,136 the Commission announced that it would hold a policy proceeding in the Fall 2009 that would examine among other policy issues, the modalities and conditions for group-based licensing, investigate alternative support mechanisms for local programming and establish the appropriate minimum levels of spending on Canadian programming by English-language television broadcasters and the regulatory mechanism to ensure these levels.
In Broadcasting Regulatory Policy 2009-406,137 the Commission set out determinations on policy issues stemming from the 27 April 2009 public hearing in Gatineau, Quebec.
With respect to the local programming improvement fund (PIF), the Commission determined that for the upcoming broadcast year the appropriate contribution level by BDUs to the fund should be 1.5% of their gross revenues. The Commission also set out an allocation formula and eligibility criteria for accessing the resulting LPIF funding, and established the eligible expenses and the administration of the fund.
As regards appropriate contributions to Canadian programming, the Commission addressed issues related to local, priority, and independently-produced programming. Specifically, the Commission defined what is meant by local programming, introduced and defined the concept of local presence, provided a rationale for the imposition of local programming levels as conditions of licence, and harmonizes these levels for the largest multi-station ownership groups. Further, the Commission generally maintained the existing requirements and definition with respect to priority programming, as well as the current approaches to supporting independently-produced programming.
With respect to the implementation of the distant signal policy, the Commission determined that given that the negotiations related to the distribution of distant signals and those related to the value of local signals concern compensation for the distribution of conventional television stations by BDUs, and given that both sets of negotiations will logically have an impact on one another, it would be appropriate to combine these negotiations.
With respect to digital transition, the Commission identified in the appendix to this policy the major markets where it expects conventional broadcasters to convert their full-power, over-the-air analogue transmitters to digital.
Finally, as regards terms of trade, it is the Commission's view that, at this time, the establishment of appropriate terms of trade agreements is best directly negotiated by the parties involved without Commission intervention by way of mediation or otherwise.
ii) Pay, pay-per-view, video-on-demand and specialty services
In contrast to conventional television stations, most Canadian pay, PPV, VOD and speciality services are required, by condition of licence, to expend on the acquisition of and/or investment in Canadian programs, a minimum percentage of their gross revenues derived from the operation of the service during the previous broadcast year. The amount, imposed at the time of licensing or at licence renewal, is determined on a case-by-case basis. The requirements are based on considerations such as the genre of the services proposed, the availability of Canadian programming falling within that genre, and the applicant's other plans and commitments. The Commission also takes into account the applicant's proposed wholesale fee and the type of distribution by BDUs that the services will receive. In the 2004 licence renewal hearing for specialty services, the Commission required increases in CPE based on historical PBIT138 levels.
The appropriateness of this approach will be examined in light of the upcoming Spring 2010 conventional and discretionary group-based renewals as well as the related policy process to be held in the Fall of 2009.
iii) Benefits resulting from changes in ownership and/or control139
Since competing applications are not solicited in the case of a change in ownership and/or control, the Commission generally expects applicants to make commitments to clear and unequivocal benefits representing a financial contribution of 10% of the value of the transactions, as accepted by the Commission, for television. The onus is on the applicant to demonstrate that the application filed is the best possible proposal under the circumstances and that the benefits proposed in the application are commensurate with the size and nature of the transaction. Television stations that earn less than $10 million in annual revenues and are eligible to receive support from the Small Market Programming Fund are exempted from the application of the benefits test.140
The policy was re-examined in 2007 in the context of the Diversity of Voices public proceeding141 and the Commission determined that it would retain its current policy.
From 11 June 1999 to 31 December 2008, the Commission has approved 62 changes in ownership or control providing $854.2 million in tangible benefits.142
c) BDU - Contributions to Canadian programming and local expression
Following a comprehensive review of the regulatory frameworks for broadcasting distribution undertakings and discretionary programming services, the Commission announced changes and new policies intended to prepare the Canadian broadcasting industry for the transition to a fully digital environment. Most of the changes and new policies, set out in Broadcasting Public Notice 2008-100,143 are scheduled to come into effect on 31 August 2011 and are currently in various stages of consultation and implementation. This section sets out regulations that were in effect in March 2009, unless otherwise indicated.
i) Contributions to Canadian production funds
Class 1 and 2 cable,144 DTH and MDS distribution undertakings contribute a minimum of 5% of their gross annual revenues derived from broadcasting activities to support Canadian programming. Contributions to Canadian programming are made through the Canadian Television Fund (CTF)145 and other independent production funds, as well as through contributions to local expression.
At least 80% of the contributions that are directed to production funds must be made to the CTF. The remaining 20% may be directed to one or more independently administered production funds.146 In 2007/08, BDUs reported contributions of $207 million to programming funds.
Local Programming Improvement Fund (LPIF)
In October 2008,147 the Commission announced that it was establishing a Local Programming Improvement Fund (LPIF) to help support local television programming provided by public and private conventional stations. Subsequent to Broadcasting Regulatory Policy 2009-406, the LPIF will be funded by increasing the BDU's annual contribution rate to Canadian programming from 5 to 6.5%. Eligibility and administration criteria are expected to be finalized this summer and the fund is to be operational by September 2009.148
ii) Local expression
Although the Commission is of the view that community programming and the broader goal of local expression are important components of the broadcasting system, it removed the requirement to provide an outlet for local expression in Public Notice 1997-25.149 However, while no longer obliged to do so, class 1 and 2 BDU licensees with fewer than 20,000 subscribers150 are permitted under the BDU Regulations151 to allocate all of their Canadian programming contributions to local expression. Class 1 licensees with more than 20,000 subscribers may allocate up to 2% of their contributions to local expression.
In 2008, BDUs reported community channel programming expenditures totalling $116 million.
In Broadcasting Public Notice 2008-100, the Commission announced that it would undertake a comprehensive review relating to its community broadcasting policies in 2009-2010. In addition to reviewing issues raised during the BDU regulatory policy review proceeding, it would also consider whether community television would have access to the LPIF.
iii) Benefits resulting from a change in ownership and/or control
The benefits test does not apply in the case of changes in effective control of BDUs.152
Statistical information: Contribution and spending regimes - Broadcasting153
Figure 2.5.1 2008 Contributions to CCD reported by commercial radio & audio services $28.6 M
Notes:
Minor variances are due to rounding.
Includes contributions made under both the CTD and CCD regimes.
Source: CRTC data collection
Figure 2.5.2 2008 Television CPE $2,431 M
Notes:
(a) Minor variances are due to rounding.
(b) CPE: Includes expenditures on Canadian programs telecast, write-down of Canadian inventory, script and concepts and loss on equity Canadian programs.
(c) Includes expenditures relating to tangible benefits and to commitments made at the time of licensing. Excludes CTF "top-up" reported by private conventional, specialty, pay, PPV, and VOD television services.
(d) CBC conventional television excludes indirect and facility cost allocations. Certain programming related expenses are included as programming costs beginning in 2008 consistent with CRTC guidelines.
* Estimate
Source: CRTC data collection
Figure 2.5.3 2008 BDU contributions to Canadian programming and local expression $323 M
Note: Minor variances are due to rounding.
Source: CRTC data collection
B - Telecommunications
The Commission implemented a national revenue-based contribution collection mechanism154 in 2001 to collect the monies required to subsidize the cost of residential telephone service in high-cost serving areas (HCSAs).
Under this contribution mechanism, all TSPs, or groups of related TSPs, with Canadian telecommunications service revenues equal to or greater than $10 million are required to contribute towards the subsidization of residential telephone service in HCSAs. Contribution is collected based upon a TSP's contribution-eligible revenues and the Commission-approved revenue-percent charge. Contribution-eligible revenues are calculated based upon a TSP's Canadian telecommunications service revenues less certain specific deductions, including retail Internet and retail paging revenues. The revenue-percent charge is calculated using the ratio of the national subsidy requirement to the total estimated contribution-eligible revenues of all TSPs who are required to contribute.
In 2008, LECs received approximately $214 million in subsidy and the final revenue-percent charge was 0.87% of contribution-eligible revenues.
The revenue-percent charge has gradually decreased since 2004. The increase in the subsidy paid to the LECs in 2005 was the result of the approval of the costs used to calculate the subsidy rates for two of the smaller incumbent LECs.155
Statistical Information: Contribution and spending regimes - Telecommunications
Figure 2.5.4 Subsidy paid to LECs and the revenue-percent charge
Sources: CRTC data collection and decisions
127 In Commercial Radio Policy 2006, Broadcasting Public Notice CRTC 2006-158, 15 December 2006, the Commission introduced a new funding formula towards the promotion of Canadian talent called Canadian Content Development (CCD). Under this new approach, contributions are based on the radio station's previous year's revenues, rather than on the size of the market in which it operates. CCD replaced to Canadian Talent Development (CTD) effective 1 September 2008. As a transitional measure, all decisions issued after 1 June 2007 have been made in accordance with the revised policy. For the purposes of this report, references to CCD include contributions made under both the CTD and CCD regimes. [back]
128 Methodology and criteria are set out in the 2006 Commercial Radio Policy, Amendments to the Radio regulations, 1986 - Implementation of the Commercial Radio Policy 2006 and the Digital Radio Policy, Regulatory Policy Broadcasting Public Notice 2008-67, 23 July 2008 and Clarifications regarding Canadian content development contributions made by commercial radio stations Broadcasting Information Bulletin CRTC 2009-251, 5 May 2009. [back]
129 See Satellite subscription radio undertaking - Licence amendment, Broadcasting Decision CRTC 2006-37, 10 February 2006, relating to Canadian Satellite Radio Inc. (XM Canada), and Satellite subscription radio undertaking - Licence amendment, Broadcasting Decision CRTC 2006-38, 10 February 2006, for SIRIUS Canada Inc. [back]
130 Foundation Assisting Canadian Talent on Recordings, website: http://www.factor.ca [back]
131 Website: http://www.musicaction.ca/accueil/index.asp [back]
132 Website: http://www.starmaker.ca/; Fonds RADIOStar: http://www.fondsradiostar.com [back]
133 Refer to CRTC website for examples of qualifying parties and initiatives http://www.crtc.gc.ca/eng/GENERAL/ccdparties.htm [back]
134 Prior to 1 September 2000, most conventional broadcasters were required to meet minimum CPE levels that were tied to their advertising revenues. In an attempt to provide private conventional television broadcasters with the flexibility necessary to adapt their programming strategies in a complex and highly competitive marketplace, the Commission removed this requirement, in Building on success - A policy framework for Canadian television, CRTC Broadcasting Public Notice 1999-97, 11 June 1999 (1999 Television Policy). [back]
135 Determinations regarding certain aspects of the regulatory framework for over-the-air television, Broadcasting Public Notice CRTC 2007-53, 17 May 2007 (2007 conventional Television Policy) [back]
136 In Renewal of the broadcasting licences for private conventional television stations considered at the 27 April 2009 Gatineau public hearing - Initial decisions and scope of subsequent policy proceeding Broadcasting Decision CRTC 2009-279, 15 May 2009, the Commission also indicated that the following ownership groups do not fall within the scope of the group-based licence renewal process and would be renewed as follows: Rogers' OMNI ethnic stations - six-year renewal term; RNC MEDIA Inc and Télé Inter-Rives ltée French-language conventional stations - seven-year term. Detailed decisions dealing with all of the issues discussed at the April 2009 public hearing would be released during the summer. [back]
137 Policy determinations resulting from the 27 April 2009 public hearing, Broadcasting Regulatory Policy CRTC 2009-406, 6 July 2009 (Broadcasting Regulatory Policy 2009-406) [back]
138 Profit before interest and taxes [back]
139 The principal components of the Commission's television undertaking policies with respect to benefits resulting from a change in of ownership and/or control are set out in Application of the Benefits Test at the Time of Transfers of Ownership or Control of Broadcasting Undertakings, Public Notice CRTC 1993-68, 26 May 1993. In the 1999 Television Policy, the Commission set tangible financial contribution benefits of at least 10% of the value of the transaction. [back]
140 This exemption is set out in the 2007 Over-the-Air Television Policy. [back]
141 In September 2007, public hearing proceedings were held to review the Commission's approach to ownership consolidation and other issues related to the diversity of voices in Canada. The Commission's determinations are set out in Broadcasting Public Notice 2008-4. [back]
142 These contributions are usually made over a seven-year period. [back]
143 Regulatory frameworks for broadcasting distribution undertakings and discretionary programming service - Regulatory Policy, Broadcasting Public Notice CRTC 2008-100, 30 October 2008; a summary of the new policies is also set out in the CRTC's 30 October 2009 news release. [back]
144 In Broadcasting Public Notice 2008-100, the Commission announced that it would adopt a single class of licence. In Call for comments on a proposed exemption order for terrestrial broadcasting distribution undertakings serving fewer than 20,000 subscribers, Broadcasting Notice of Consultation CRTC 2009-173, 1 April 2009, the Commission issued a call for comments on a proposed exemption for terrestrial BDUs serving less than 20,000 subscribers. [back]
145 On 9 March 2009, it was announced that the CTF and the CNMF (Canada New Media Fund) would be combined to create the Canadian Media Fund (CMF). CMF's mandate will be to ensure the production of quality content and to make it available on multiple platforms. The reformed and integrated fund is expected to be fully implemented and in place by 1 April 2010. [back]
146 The criteria for these independently administered funds are set out in Contributions to Canadian programming by broadcasting distribution undertakings, Broadcasting Public Notices CRTC 1997-98 issued 22 July 1997, 2003-38 issued 16 July 2003, and 2004-21 issued 31 March 2004. [back]
147 Broadcasting Public Notice CRTC 2008-100 [back]
148 Notices of Consultation 2009-70, 2009-70-1 and 2009-70-2 [back]
149 New Regulatory Framework for Broadcasting Distribution Undertakings, Public Notice CRTC 1997-25, 11 March 1997 [back]
150 Class 1 BDU licensees are generally undertakings with 6,000 subscribers and greater. Class 2 BDU licensees are generally undertakings with 2,000 to less than 6,000 subscribers. [back]
151 Proposed Broadcasting Distribution Regulations, Public Notice CRTC 1997-84, 2 July 1997 and Broadcasting Distribution Regulations, Public Notice CRTC 1997-150, 22 December 1997 (the BDU Regulations) [back]
152 In Public Notice CRTC 1996-69, the Commission concluded that, as a result of its decision to remove "all or most of the existing licensing restrictions on market entry" and its encouragement of competition in the BDU sector, it would no longer apply the benefits test in the case of changes in the effective control of distribution undertakings. The Commission noted that benefits in these cases had been largely applied to technical upgrades and that a competitive environment would now provide further incentives for BDUs to make the necessary investments. [back]
153 Based on the 1 September 2007 to 31 August 2008 broadcast year. Refer to the Broadcasting section of this report for additional statistical information. These charts do not reflect additional funding, incentives or contributions made by private institutions or government bodies towards the development and production of Canadian audio and visual content that are outside of the CRTC's administrative scope and mandate. [back]
154 Changes to the contribution regime, Decision CRTC 2000-745, 30 November 2000 [back]
155 Implementation of competition in the local exchange and local payphone markets in the territories of Société en commandite Télébec and the former TELUS Communications (Québec) Inc., Telecom Decision CRTC 2005-4, 31 January 2005 [back]
