CCA Bulletin 10/10

March 26, 2010

Is the CRTC "dreaming in Technicolor"?

Why this issue should matter to all of us

Irrespective of distribution platforms, broadcasting is a dominant form of cultural media. It provides creative employment to the largest number in the cultural sector and because the Broadcasting Act (1991) contains the most complete expression of cultural policy ever adopted by Parliament and provides an important reference point for cultural policy.
The CCA has participated actively in CRTC processes for decades, including several occasions in the past four years as the Commission’s agenda accelerated. The CCA has been involved in this process, having presented twice to the Commission regarding a group-based approach to licensing television services and, secondly, during the course of the consultation requested by the Heritage Minister on the impact of an eventual fee for carriage on consumers.

Just the Facts

This week, the CRTC released its much awaited Broadcasting Regulatory Policy, the result of a convoluted process of calls for comments and hearings spanning over two years (the CRTC 2010-167 announcement refers to no less than 24 Notices and Interim Decisions!).

While the Policy is titled “A group-based approach to the licensing of private television services”, the question on everyone’s mind was whether the Commission would finally agree to grant traditional broadcasters a fee for carriage (or value for signal (VFS), as rechristened by the CRTC Chairman during the process), after rejecting it twice over the last two years . For several months, this issue has pitched broadcasters against cable and satellite operators in one of the nastiest advertising campaign Canadians have witnessed in years.

In a nutshell, here’s what the CRTC announced:

From now on, the Commission will license private television services on an ownership basis, to “enable the large groups to attract viewers to their different television services while encouraging the creation of original Canadian programs.” This will not only mean flexibility in meeting expenditure requirements over the various channels owned by any group, but also greater flexibility in programming.It is important to note that while the reduced Canadian content requriements will apply to all broadcasters, the application of the new Broadcasting Regulatory Policy will be delayed somewhat and then, exclusively to designated ownership gropus which "generate more than $100 million in annual revenues from private English-langugae conventional television stations and own at least one English-language specialty and/or pay programming service." The only broadcasters meeting these criteria at the moment are CTVgm Inc., Canwest Television Limited Partnership, and Rogers Communications Inc. In the case of CBC and private French television services, the CRTC has determined that it was urgent to wait longer: it will deal with their concerns and issues next year, at the scheduled licence renewal hearings.
As requested by the CCA and many other interveners, the CRTC reintroduces the obligation for broadcasters to spend at least 30% of their gross revenue on Canadian programming. As well, “at least 5% of gross revenue over the licence period” must be dedicated to programs of national interest, i.e. drama and comedy, long-form documentaries and awards programs. The CRTC has decided not to cap the amount of money private broadcasters can spend on foreign programming.
The Commission addressed the quantity of Canadian programming to be offered by reducing the 1971 requirement that 60% of the broadcast year consist of Canadian programming, down to 55%. In addition, Canadian programs must occupy no less than 50% of the 6pm-12am window, a time slot considered prime time for television viewing.
The Commission is proposing to establish a framework for negotiation whereby English private television broadcasters will have the option every three years to forego the advantages of the regulatory regime (e.g. mandatory carriage, simultaneous substitution of US programming, priority channel placement, etc.) in favour of a negotiation with broadcast distribution undertakings (BDUs) regarding a financial compensation for the distribution of local signals. If necessary, broadcasters will be able to pull their channels off the air until a deal is reached, and at the same time blackout programming on U.S. channels if they own the rights to those shows in Canada.
The implementation of this framework will have to wait a minimum of six months: the CRTC has asked the Federal Court of Appeal to confirm whether it has the authority under the Broadcasting Act to introduce such a regime. Accordingly, the Commission has once again extended everybody’s licence for another year, under current conditions.
Finally, the Commission is asking for comments to seek further information on the number of Canadians who could lose service as a result of the transition to over-the-air digital television (DTV). Specific questions posed to the public deal with digital converter boxes, satellite receiving equipment, and subsidy program eligibility.

Comment

This Broadcasting Regulatory Policy strives to be a partial answer to the fact accepted by all (except maybe the BDUs) that the business model for traditional Canadian broadcasting is broken. From the perspective of the cultural objectives of the Broadcasting Act, it is quite doubtful that the CRTC “decision” will do much to resolve the paucity of English quality Canadian programming available, and if it ever does, it’s going to take some time.

True, there are steps in the right direction. The recognition that over the air signals have a business value for cable and satellite operators is the most important one. In doing so, the CRTC quotes a key principle of its 1971 Policy Statement on Cable Television, namely that:

“television stations are the suppliers, and cable television systems are the users. Thus the basic principle involved is: one should pay for what he uses to operate his business”. (Broadcasting Regulatory Policy CRTC-2010-167, para. 156)

The Commission goes on to say that while this policy was not implemented for conventional television in 1971 or in the years following, the principle remains valid today.

Licensing on a group ownership basis is another timid step in recognizing that one must view the audiovisual production and distribution system as a whole and stop dealing with large issues through piecemeal processes. The CRTC has some way to go still on that front, as do our political cadre.

Others commendable aspects of the CRTC decision include reintroducing Canadian program expenditure requirements, ensuring that the private producers continue to contribute their creativity to the system and acknowledging, as the Act directs, that the French and English markets operate in different environments.

We can also rejoice in the fact that the CRTC recognizes that what matters in the digital age is the production of quality Canadian programming to be offered on all distribution platforms:

“attractive Canadian content available at anytime and on any platform represents a goal towards which the Canadian broadcasting system should strive in order to remain not only responsive to public’s demands, but also relevant and competitive in the new digital era.” (ibid., para. 8)

It is unfortunate however that the Commission still falls short of recognizing that new platforms are increasingly comparable to traditional ones and that it’s high time to level the playing field by asking that they all contribute to the funding of Canadian quality programming.

This being said, there are unfortunately as many steps in wrong direction in this week’s announcement.

One of the identified problems of Canadian English television is the paucity of Canadian drama. This is why ACTRA, the CCA and others had asked that 5% to 6% of gross revenue be dedicated to this genre alone. Instead, the Commission is requiring that private broadcasters dedicate 5% of their gross revenue to drama, long-form documentaries and Awards programming combined. Add to that the decision not to cap expenditures on non-Canadian programming, keeping a lax definition of prime time, lifting exhibition requirements for “programming of national interest” and one is driven to conclude that Canadian “consumers” are not about to be offered more drama, “the genre of programming that Canadians choose to watch more than all others” (ibid., para. 71)

This appetite may be satisfied by private broadcasters buying more American programs! They are well on their way of doing so, despite a stronger Canadian dollar: A CRTC report published last week indicated that in 2009, private broadcasters spent a new record level of $846,3 million dollars on US shows compared to just under $ 600 million on Canadian programming, the latter representing a decline of 3,3 % since 2008! And by extending licence conditions for another year under existing conditions, the CRTC has excluded the possibility that any profits stemming from the Vancouver Olympics be called upon to contribute to the development of programs of national interest!

Even more importantly, by choosing market mechanisms to ensure that the cultural objectives of the Broadcasting Act are met, the Regulator has opted once again to not play its role and shut out the main source of Canadian programming. It is true that all broadcasters, CBC included, favoured a negotiation approach (a position not shared by the CCA in its submissions). Faithful to its credo that less regulation is good regulation, the Commission has also ruled out regulating subscription rates to protect consumers and ensure that BDUs do not simply pass their regulated or negotiated payment on to them, as is currently done in the case of the 1,5 % contribution for the Local Programming Improvement Fund (LPIF).

An immediate casualty of the CRTC forfeiting its appointed role of regulator is of course the CBC, which up to now has been an active partner of private broadcasters in the campaign for payment by BDUs. The CBC is the main producer of Canadian programming in almost all genres: it spends more in that area than all English private broadcasters combined. The CRTC states that the proposed framework for VFS cannot apply to it because the public broadcaster cannot threaten to pull off a service it is mandated by Parliament to provide to Canadians. The CRTC is mute on what solutions it may consider for the loss of commercial revenue experienced by the CBC on both its English and French networks.

It is not surprising that the CBC has received the news with outrage. Since its inception, the CBC has, by political choice, been dependant on commercial revenue to the tune of 40% to fund its detailed mandate. Faced with diminishing commercial revenue and the spectre of a federal deficit reduction strategy which could very well cut parliamentary appropriations already eaten away by years of inflation, it is normal that the CBC should be unhappy. The fact that the public broadcaster is shut out of the proposed solution because the Regulator will not regulate is doubly ironic. The CBC is ahead of the pack in offering quality content on all platforms, a strategy now embraced by the Commission.

As for private broadcasters, they are not about to see new revenue coming their way, given the delays involved in implementing the framework and the questionable eventuality that negotiations will take place at all. Except for CTV, private broadcasters were quite subdued in their reactions, a fact that is quite understandable in the case of Rogers Communications and Global, soon to be acquired by Shaw. A senior officer at Rogers suggested that the CRTC Chairman must be dreaming in technicolour if he thinks negotiations will take place, and promised to fight the whole scheme in the courts. It is no doubt to avoid a protracted series of court challenges that the Commission has asked the Federal Court of Appeal to rule on its jurisdiction.

The Policy released refuses to defend the interests of consumers by making sure that highly profitable BDUs don’t pass on whatever VFS may come around. In doing so, the CRTC has reinforced the government’s overriding preoccupation that Canadians pay as little “taxes” as possible, culture or intellectual property notwithstanding. With the Minister of Heritage eager to see “non-monetary compensation for broadcast signals take priority over cash”, there is little hope left that we will see any influx of money towards Canadian programs soon. In this context, it is tempting to agree with the Vice Chairman of Rogers Communications that the CRTC is dreaming in Technicolor.

The Commission’s own 2007 Review of the Regulatory Framework for Broadcasting Services in Canada (the Dunbar-Leblanc report), concluded that market forces alone will not achieve the objectives of the Broadcasting Act, and that:

“The available information also strongly suggests that the existing regulatory incentives and obligations with respect to English-language Canadian drama are not effective.”

After almost three years of consultations, submissions, hand-wrangling and public hearings, we do not appear to be much closer to achieving a solution to the crisis facing Canadian traditional television and the challenges surrounding the production and dissemination of quality English programming.

We can only hope that in another two or three years, once market mechanisms have once again proven their incapacity at providing the public good in this sector, the CRTC may remember that Regulators are established to correct the inadequacies of the market.