Canadian content related requirements for BDUs

1.For all BDUs, the ratio of foreign specialty channels to Canadian ones cannot exceed one to one. Until January 1, 1995, the maximum ratio was two foreign to one Canadian. Note that a "Canadian" specialty TV channel is one owned and controlled by Canadians (i.e., Canadian citizens). A varying part of the content distributed on a Canadian specialty channel consists of foreign programs (14 percent of total program expenditures in 1997, according to the CRTC).

2. The composition of the "basic" package (tier) of channels offered by all BDUs, such as cable TV distributors, is specified by the CRTC (which also regulates the prices charged).¹⁴ It includes CBC (or Radio Canada), Women's Television Network, the three major US networks, PBS, CBC-Newsworld (or French equivalent), the Community Access channel, the local CTV affiliate, the Global-TV affiliate (or equivalent French-language stations), and the Canadian Public Affairs Channel which covers the House of Commons.

3. All cable TV systems above a certain size are required to provide a local community channel and to finance the production of programs on it. In a 1991 decision, the CRTC specified that cable TV companies must spend 5 percent of their revenues from basic services on community programming (see CRTC 1991a). They must also reserve one channel for this community programming. Even if the operator has a 60-channel capacity, this requirement has a considerable additional opportunity cost, i.e., it could be used for another specialty channel. Effective January 1, 1998, cable systems with 60,000 or more subscribers can allocate up to 2 percent of their gross revenues to the community channel and the balance to make up 5 percent of gross revenues to the Canada Television and Cable Production Fund (see "BDUs taxed to finance CanCon" below). ¹⁵

4. The CRTC selects both the domestic and foreign specialty channels, pay-TV, and pay-per-view services which will be allowed to operate in Canada. Since 1983, almost 50 specialty channels have been licensed.

5. As a condition of licence, the CRTC often imposes specific Canadian content obligations on BDUs.

Requirements for programming undertakings

As a condition of licence, the CRTC often imposes specific Canadian content obligations on specialty services which are programming undertakings. ¹⁶ For example, for the "Showcase" channel, (1) 90 percent of programming broadcast shall be drama, (2) $10.1 million must be spent on Canadian programs in the first year; 42 percent of gross revenues in subsequent years, (3) $3.75 million over the licence term must be spent on licence fees to independent producers who are not Showcase shareholders for the production of 15 original Canadian drama programs, (4) it must broadcast all suitable English-language drama series, specials, and feature films made by Canadian independent producers since 1984, and (5) $100 million over the licence term must be spent on Canadian fiction programs (Canadian Association of Broadcasters, 1998b, table 3).

Definition of a "Canadian selection" on radio

The regulation of Canadian content on radio focuses on the minimum percentage of musical selections, largely recorded music, which are defined to be "Canadian." The formal legal definition of a "Canadian selection" is complicated (see appendix B), but the basis is the citizenship of the person who created, performed, or helped to record the music. Specifically, a "Canadian selection" must meet at least two of the following four criteria: (1) music principally performed by a Canadian; (2) music composed entirely by a Canadian; (3) lyrics written entirely by a Canadian; (4) recorded in Canada. This is called the MAPL formula, and it was last amended in 1993 (see appendix A).

Content quotas for radio

The CRTC's "Radio Regulations, 1986" (as amended) specify in section 3 that

There are other content-related rules which permit a lower percentage of CanCon for certain types of stations or during certain programming periods (e.g., 7 percent during an "ethnic" programming period; 10 percent for classical music or jazz-oriented stations).

The regulations established in 1991¹⁷ were more detailed with respect to the timing of Canadian musical selection on both A.M. and F.M. radio: (1) At least 25 percent of popular music selections between 6:00 a.m. and 7:00 p.m. Monday through Friday had to be "Canadian;" (2) There had to be reasonably even distribution of Canadian selections during that time and throughout the broadcast week; (3) There had to be a significant presence of Canadian music in high audience periods-those traditionally being the morning and afternoon commuter drive periods (CRTC, 1990, p. 13).

Effective January 1, 1999, the quota for "Canadian" musical selections on radio will increase from 30 to 35 percent, and the 35 percent quota will also be applied to the period 6:00 a.m. to 6:00 p.m. of each week day. The latter requirement amounts to about a 40 percent increase in CanCon recordings during the 6:00 a.m. to 6:00 p.m. period. The new requirements for radio are examined in more detail in section 3 below.

Public benefits tax on transfers of licenses

For some time, the CRTC has had a policy of requiring the person acquiring an existing broadcasting licence to provide "public benefits" amounting to about 10 percent of the value of the transaction as a condition of transferring the licence. In many cases, these benefits consist of commitments to spend more on Canadian programming. For example, when control of CUC Broadcasting Limited was transferred to Shaw Communications Inc., one of the so-called "public benefits" consisted of a contribution of $17.5 million over 5 years to a fund to support the "development and production of quality Canadian programming for children, particularly those between the ages of three and five" (CRTC, 1995a). When Rogers acquired Maclean-Hunter Ltd.'s cable systems, its benefits package totalled $102 million.

A major change in the redistribution game occurred recently. On May 17, 1996, the CRTC issued a public notice with respect to a proposed regulation relating to broadcasting undertakings. It announced that a cable TV company will no longer have to demonstrate significant benefits (usually in the form of more CanCon) when it acquires another cable supplier. Enchin (1996a, p. B1) notes that this decision was reached without any public hearings or debate. The CRTC said that the rationale for the policy had disappeared; there are now competitors for wireline cable, e.g., DTH satellite broadcasting and wireless cable such as MDS or LMCS. Thus, the "tax" was removed for BDUs, but not for over-the-air broadcasters.

"Voluntary" expenditures to promote Canadian music on radio

The Canadian Association Broadcasters (1998a), in the context of the CRTC's recent review of radio regulations (including Canadian content and ownership rules), "volunteered" to contribute $20 million over three years to the Canadian music recording industry for development and marketing. Among other things, the money will be used for 30-second commercials to promote new Canadian artists and their records. (The power of the CRTC to induce such actions is discussed in section 8, below.)

Given the omnipresence of CRTC regulation for radio broadcasting, the "voluntariness" of this self-imposed tax on members by the CAB is questionable. It illustrates the enormous discretionary power of the CRTC. It can, in some cases, get what it wants with a hint rather than a formal decision to mandate certain behaviour.

CBC, the biggest single supplier of CanCon

The CBC long predated Canadian content regulations (see appendix A). Those who led the lobbying effort to establish the CBC in 1932 saw it as a massive antidote to the "cultural annexation" of Canada by American radio programs broadcast on Canadian stations (see Nash, 1995). The national public broadcaster has always been seen as a critical direct provider of Canadian content. Wayne Skene (1993, p. 4), a former CBC manager, has described the CBC as a "Cultural church ... a place to go to feel more Canadian, to learn more about being Canadian.... It is a "repository of ideas and dreams and beliefs, all woven into sounds and images of ourselves as a culture" (p. 5). In his view, the CBC was "meant to perform a national service by encouraging expression-self-expression-from the regions" (p. 8). The fundamental reason for the CBC to exist is to "protect Canadian citizens from becoming cultural road kills." (Skene, 1993, p. 18). ¹⁸ According to its president, Perrin Beatty, the single most important function of the CBC "is to help to ensure the survival of a distinct Canadian culture. I want my kids to tune in to the CBC and have their perceptions of the world shaped by Canadian values" (Maclean's, September 30, 1996, p. 61).

Between 1969 and 1993 CBC-TV made a concerted effort to increase Canadian programs in prime time from 53 percent to almost 90 percent (Nash, 1995). Beginning in September 1996, the CBC eliminated all US programs during prime time on English TV.¹⁹ For cultural nationalists, it remains an icon.

In renewing the CBC's English and French-language television licenses in July, 1994 (Decision CRTC 94-437), the Commission reiterated its expectation that the CBC should "make special efforts to search out, expose, and promote new artists on both the English and French-language television networks" (Chater and Robertson, 1996, p. 54).

In nominal dollars, the parliamentary grant to CBC fell from $951.4 million in 1994/95 to $665 million in 1998/99 (Globe and Mail, September 20, 1996, pp. A1, A20).²⁰ Despite the considerable cutbacks, CBC-TV still spends far more on CanCon than do private conventional broadcasters. Table 1 indicates that in 1997 CBC and Radio Canada spent $353 million directly on Canadian programs, and another $414 million indirectly, or 48.7 percent of the total.

BDUs taxed to finance CanCon

Since 1994, the federal government has imposed taxes on BDUs (originally only the cable TV operators) to be put into so-called "production funds" (perhaps with general tax revenues). Money is then paid out of the fund to finance "Canadian" TV programs. This lowers their cost to broadcasters and BDUs.

Production funds are said to have four purposes: (1) to stimulate the supply of domestic production of TV programs (and films); (2) to foster the growth of independent producers; (3) to reduce the effective cost of Canadian content to broadcasters; and (3) to improve the quality of Canadian programs.

In 1994, the CRTC established the Cable Production Fund (CPF). It

siphons half of a special cable levy into a fund that is expected to provide up to $300 million for new Canadian production over five years. Applicants must provide proof of access to prime viewing hours for the targeted audience, whether for kids' shows or adult drama (the two areas that soaked up 80 percent of the fund's $47 million kitty for the current year), and must score [8 of 10 points] on the Heritage Ministry's point system for Canadian content. (Everett-Green, 1995, p. A6)

On September 9, 1996, the Heritage Minister, the Hon. Sheila Copps, announced the new Canada Television and Cable Production Fund which is to spend $200 million per year on Canadian programs (see Enchin et al., 1996). Half is to be spent on joint productions with the CBC, but the fund is also open to independent producers. While the federal government will put in half the money, the other half comes from two existing production funds: the Cable Production Fund ($50 million per annum) and Telefilm Canada's television production budget ($50 million) (Financial Post, September 17, 1996, p. 20). The other two funds will disappear as distinct entities. The subsidies are to go to certain categories of Canadian programs: drama, variety, children's shows, documentaries, and performing arts. Production entities must be Canadian controlled.

In 1996/97, the CTCP Fund contributed $182 million to support 362 programs representing 2200 hours of programming whose budgets totalled $577 million (CAB, 1998d, p. 19). By policy, 50 percent goes to the CBC-TV. Some 28 percent went to private conventional broadcasters, 18 percent went to specialty channels, and 4 percent to educational TV (CAB, 1998d, p. 20).

The Minister of Heritage announced in February, 1998 the renewal of the Canada Television and Cable Production Fund beginning in 1999 for three years (Fraser, 1998b, p. A12).

In March 1997, the CRTC (1997b), in "Public Notice 1997-27" proposed a comprehensive set of new rules governing broadcasting distribution undertakings to come into effect in January 1998. These were made final in December 1997 in the "Broadcasting Distribution Regulations." While the effect of the rules will be to facilitate more competition among alternative methods of delivering TV programs to people (e.g., wireline cable, DTH satellite broadcasting, "wireless cable"-LMCS, MDS), the CRTC expanded its taxation regime to finance Canadian content. Specifically,

a) All distribution undertakings except Class 3 cable systems ²¹ will be required to contribute at least 5 percent of their gross annual revenues from broadcasting activities to the Canada Television and Cable Production Fund.

b) Class 1 cable systems with more than 60,000 subscribers can meet the requirement by allo cating up to 2 percent of gross revenues to "local expression," i.e., the community channel which all cable systems must provide. The balance, up to 5 percent, is to be contributed to the Fund.

c) All Class 1 cable systems with under 60,000 subscribers can allocate up to 3 percent to local expression with the balance to the Fund. Beginning in broadcast year ending 31 August 1999, the rate will change to 2.5 percent.

d) All Class 2 cable systems can devote the entire 5 percent to local expression. If it's less, the balance up to 5 percent must go into the Fund (CRTC, 1997d). The CRTC estimated that the new tax regime will provide $75 million per year in its third year.

Video-on-Demand

In 1997, the CRTC interpreted "broadcasting" to include video-on-demand (VOD). In the Broadcasting Act, broadcasting is defined as any transmission of programs by radio waves or other means of telecommunication for reception by the public. Thus, VOD would not appear to meet that part of the definition referring to "reception by the public." With VOD, the customer initiates the transmission of the program, and it is delivered only to her TV receiver, not to the public. The CRTC, however, has indicated that VOD is a type of broadcasting, and so is subject to its regulations. It licensed the first five VOD suppliers on July 2, 1997. See CRTC (1997c).

Because VOD is deemed to be a broadcasting service, it can be made subject to Canadian content requirements. The conditions for the first five licenses include

(a) 1 in 20 feature films must be Canadian (one in 12 for the French-language licensees); (b) 1 in 10 of the items in the inventory of other programs must be Canadian; (c) not less than 25 percent of all titles in the barker channel²² must be Canadian; and (d) in the navigation menu, ²³the CRTC expects that Canadian titles will be given at least equal treatment. The CRTC (1997c, p. 2) claimed that its decisions were "consistent with the Commission's policy objective to promote enhanced consumer choice and Canadian programming, foster fair competition within an increased reliance on market forces."

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Last Modified: Wednesday, October 20, 1999.