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Public Notice CRTC 2000-6
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Ottawa, 13 January 2000 |
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Licensing framework policy for
new digital pay and specialty services |
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Summary |
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This notice sets out a framework for
licensing new digital Canadian programming services. The framework will enhance diversity
and choice for viewers, in the current and evolving digital distribution environment. |
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The approach will: |
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- make possible the provision of a diverse selection of attractive new
Canadian programming services to be distributed to Canadian viewers with digital
technology;
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- facilitate the rollout of digital distribution technology;
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- provide a balance between the traditional licensing approach and a
more open-entry, competitive environment made possible by the expansion of digital
capacity; and
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- promote alliances between Canadian and foreign services.
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The Commission will license two categories
of new digital services. It will shortly issue a call for applications, for new digital
services in both categories in French, English or other languages. |
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Category 1 services will be a
limited number of specialty services (approximately 10) that make a strong contribution to
the development, diversity and distribution of Canadian programming and are the most
attractive services for early digital distribution. These services will have digital
access privileges. Category 2 services will be licensed on a more open-entry basis.
The Commission intends to grant licences to all Category 2 applications that meet basic
licensing criteria even if the services are competitive with one another. Such services
will not be assured digital access. |
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The Commission will consider applications
for distributor-affiliated Category 1 and Category 2 services. Measures will be in place
to ensure the distribution on equitable terms of services that are not affiliated to
distributors. Existing undue preference regulations will continue to apply, to address any
concerns that may arise about the potential for distributors to confer an undue preference
on affiliated services in matters such as access, packaging and other terms of carriage. |
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The Commission will issue a call for
requests for authorization to distribute new foreign services in Canada on a digital basis
after the publication of its licensing decisions for new Canadian digital services. |
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Introduction |
1.
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In 1997, the Commission received over 70
applications for new pay and specialty services. At that time, it determined that there
were a number of issues that needed to be examined before it could proceed with a public
hearing to consider those applications. Outstanding issues included the limited
availability of analog channel capacity, the current state of digital distribution
technology, the emerging competitive distribution environment, and the evolving structure
of the broadcasting industry. |
2.
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Due to greater available channel capacity in
Francophone markets, and the lower number of licensed French-language services, the
Commission proceeded with consideration of French-language applications at a hearing
conducted in December 1998. The Commission licensed four new French-language services in
May 1999, for carriage on an analog basis in early 2000. |
3.
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In Public Notice 1998-79,
the Commission announced that it would postpone its consideration of new English-language
pay and specialty services until it could conduct a separate public process to examine an
appropriate licensing framework for such services in the existing environment. The
Commission indicated that it was concerned about the pace of the rollout of digital cable
capacity and of the development of competition in distribution services. |
4.
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To assist in the development of an appropriate
framework for considering new pay and specialty applications, the Commission called for
comments on a licensing framework for new pay and specialty services on 3 February 1999 in
Public Notice 1999-19. Issues raised in the notice
included: |
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- whether licensing for digital or analog distribution would be more
appropriate;
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- the extent to which the access rules should apply to any new licensed
services;
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- the appropriate carriage status for any new licensed services; and
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- tiering, packaging and linkage rules that might be applied to any new
licensed services.
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5.
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The notice also raised questions about
possible licensing criteria for new pay and specialty services, including their ability to
contribute to broadcasting policy objectives, as well as the extent to which financial and
competitive factors should be considered in the licensing process. In addition, the
Commission sought comments on the weight it should give to matters of distributor equity,
other forms of cross-ownership or wholesale fees in its consideration of new applications.
The deadline for comments was 14 May 1999. Forty-nine written submissions were received. |
6.
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The Commission has considered all these
submissions in developing this policy framework and wishes to thank those who provided
comments for the useful contribution they have made to the Commissions
deliberations. |
7.
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In view of the scarcity of analog channel
capacity, most parties emphasized that new services should be licensed on a digital basis.
There was also general agreement that new Canadian services that launch on a digital basis
at this time will face financial risk. The initial subscriber base will be limited and the
rate at which the subscriber base will grow is uncertain. |
8.
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For these reasons, the programming sector
generally emphasized the need for regulatory support for new services, including carriage
rights and rules to ensure that new services are sold in packages rather than on a
stand-alone basis. Most supported the continuation of the Commissions traditional
licensing and regulatory approach. |
9.
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On the other hand, distributors generally
stated that the regulatory approach should maximize the benefits of digital distribution,
including increased customer choice in the selection of services. Distributors generally
favoured a more open-entry, market-based approach to the licensing and eventual launch of
new services. |
10.
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The submissions also indicated the importance
of making new, high-quality programming services available to provide incentives for
viewers to adopt digital technology. |
11.
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Based on the record of this policy review
process, the Commission anticipates that, over the next few years, the deployment of
digital distribution technology by wire line distributors will gain momentum. The
Commission notes that Direct to Home (DTH) distributors and multipoint distribution system
(MDS) distributors currently utilize digital technology. During this transitional period,
while most subscribers will continue to receive their programming signals with analog
technology, digital distribution will gain in importance in the marketplace in view of the
advantages it offers. |
12.
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The advantages of digital distribution
include: |
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- the ability to deliver more services;
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- increased flexibility in the way that programming services may be
packaged;
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- improved navigation and organization of channels based on individual
viewer choice;
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- greater opportunities for viewers to interact with the programming
product;
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- the capacity to support high definition programming;
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- a potential for higher picture and sound quality; and
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- enhanced possibilities for integrating the delivery of programming and
non-programming services (such as Internet access and telephony).
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13.
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While the Commission expects digital
penetration to be limited in the short term, it considers that the advantages offered by
digital distribution will ultimately speed up the expansion of digital capacity and the
conversion to digital by all distributors and customers. |
14.
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Accordingly, the Commission has adopted an
approach that provides a bridge between the traditional regulatory mechanisms which
have been highly supportive of emerging new Canadian services and a more open-entry
environment that allows for greater risk-taking, provides for a greater number of services
in the marketplace, and allows the success of services to be increasingly determined by
customers. |
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New digital services |
15.
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To provide incentives for Canadian viewers to
switch to digital technology, and given the limitations on analog capacity, the Commission
will now license a range of new pay and specialty services for digital-only distribution. |
16.
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The Commission acknowledges the comments
received from interveners that it was too early to consider licensing new French-language
services on a digital basis. However, the Commission considers that linguistic diversity
is an important consideration. Accordingly, it will welcome applications under this
licensing framework for digital pay and specialty services in both French and English, as
well as other languages. |
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Under the new framework, the Commission has
decided to license two categories of new services: Category 1 and Category 2
services. |
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Category 1 services |
18.
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Category 1 services will be specialty
services that make a strong contribution to the development, diversity and distribution of
Canadian programming and are the most attractive services for early digital distribution. |
19.
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The Commission expects to license
approximately ten new specialty services as Category 1 services. These services will have
digital access privileges and genre protection to assist them to launch vibrant services
during the uncertain period of digital rollout. |
20.
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To make Category 1 services available to the
maximum possible number of digital subscribers, distributors who offer programming
services to the public using digital technology will be required to distribute all
Category 1 services appropriate to their market on a digital basis. This requirement
will be imposed by regulation. In addition, the Commission points out that it will issue
in February 2000 its determination on the proceeding initiated in P.N. 1999-74 entitled Review of the access rules for Canadian
pay and specialty services in bilingual markets - Call for comments. |
21.
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To address the situation where a distributor
has insufficient digital capacity, the Commission will consider allowing exceptions by
condition of licence. |
22.
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To ensure that all Category 1 services have
the benefit of favourable packaging arrangements, distributors will not be permitted to
distribute any Category 1 service on a stand-alone basis unless it is also distributed as
part of a package. As well, each Category 1 service must be packaged and marketed on an
equitable basis as compared to any other new digital service. |
23.
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To moderate the challenge of early digital
launch, the Commission will license Category 1 services on a one-per-genre basis.
Specifically, the Commission will not license a service that is directly competitive with
another Category 1 service or with an existing pay or specialty service. |
24.
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Contributions to Canadian programming,
including commitments to exhibition, expenditures and original production, will be an
important consideration in the selection of Category 1 services. Other criteria will
include contribution to the diversity of available genres, enhancement of linguistic
diversity in the digital offering (French, bilingual or multilingual services),
attractiveness of the service to potential viewers, innovation in the use of the digital
medium (for example, interactivity), affordability, and the reasonableness of the business
plan. |
25.
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The Commission expects to license
Category 1 services for a seven-year term. It will expect applicants for Category 1
licences to commit to a reasonable level of Canadian programming in each year of the
licence term leading to a minimum of 50% Canadian programming over the broadcast year by
the end of the first licence term. Given the importance of such commitments in the
licensing process, applicants should not expect to be permitted to modify their proposed
commitments during the licensing process (after applications are filed). |
26.
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The Commission will carefully assess the
proposed commitments made by Category 1 applicants. To do so, the Commission must be able
to consider the ability of applicants to implement their plans. Accordingly, the
Commission will consider the market studies and business plans of the applicants and take
note of the wholesale rates for discretionary digital carriage. |
27.
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The Commission considers that limiting the
distribution of these new programming services to digital technology is consistent with
the limitations on analog capacity. Accordingly, Category 1 services will only be
allowed distribution on a digital basis with the following exception. The Commission will
permit independent Class 3 distribution systems (small systems) that do not make use of
digital technology, to distribute Category 1 services on an analog basis. For this
purpose, the Commission will consider an independent Class 3 distribution system to be a
Class 3 distribution system that is not interconnected with a Class 1 or Class 2
distribution system. |
28.
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This exception has been made to respond to a
concern that digital transition may be too expensive for some of these small systems in
the near term. Nonetheless, the Commission encourages all distributors to implement
digital distribution technology as soon as practicable. |
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Category 2 services |
29.
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The Commission recognizes that some services
will be prepared to accept the risks of launching on a digital-only basis without the
types of regulatory support that will be provided to Category 1 services. In a digital
environment characterized by increasing capacity and enhanced packaging flexibility, the
Commission considers that licensing such services will provide a benefit to the
broadcasting system by expanding the availability of programming services for digital
distribution. As these services will need to compete with one another for distribution and
for the attention of customers, licensing them will also lead to enhanced subscriber
choice. |
30.
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The Commission expects that category 2
services will include services offering niche programming to particular audiences,
services that provide multiple viewing opportunities for particular types of programming,
and services that repackage existing programming in creative ways. |
31.
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The Commission will license Category 2
services in a way that maximizes the benefits of an open-entry approach. The Commission
will not limit the number of Category 2 licences to be issued. |
32.
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The Commission will expect applicants for
Category 2 licences to commit to minimum Canadian content exhibition requirements.
For English- and French-language specialty services, that minimum will be 35%. For ethnic
specialty services, it will be 15%. Music video services will also be required to exhibit
a minimum of 30% Canadian music videos. |
33.
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For pay services, the Commission will expect
Canadian content exhibition and expenditure commitments to be comparable to those of
existing pay services. |
34.
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As noted above, Category 2 services that are
competitive with each other will be licensed. However, the Commission will not license a
Category 2 service that is directly competitive with an existing pay or specialty
service or with a new Category 1 service. The Commission will not consider the
viability of Category 2 services, their business or marketing plans, or the rates to be
charged by them. This will ensure that highly experimental or innovative services will not
be excluded due to a lack of perceived viability. |
35.
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In accordance with the open-entry licensing
approach, distributors will be able to select the Category 2 services on the basis of
their perceived appeal to their subscribers. Category 2 services will not have carriage
privileges, except as noted under the section entitled Distributor Equity below. |
36.
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Category 2 services will only be allowed
distribution on a digital basis. Independent Class 3 cable systems may apply for a
condition of licence permitting the carriage of a Category 2 service using analog
technology. Such applications will only be approved in exceptional circumstances, for
example, where a Category 2 ethnic programming service is particularly suitable for
distribution in a given market. |
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Majority of Canadian services |
37.
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Distributors will be required to ensure that
the majority of services received digitally by each of its subscribers is Canadian. This
approach will allow distributors to offer a broad range of choices to customers, while
ensuring the continued predominance of Canadian services in the emerging digital
distribution environment. For the purpose of this rule, all of the programming signals of
a pay-per-view or video-on-demand service will count as one service. This approach is
consistent with the Commissions existing regulation ensuring the predominance of
Canadian services. |
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Distributor equity |
38.
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The Commission considers that it is
appropriate not to restrict the potential applicants for new services. It is also clear
from this proceeding that distributors have an interest in the rollout of digital
distribution, and will therefore be prepared to launch as many new programming services as
possible, to increase digital penetration. Accordingly, the Commission sees no need to
deny an application for a licence solely because a distributor holds, directly or
indirectly, equity in the proposed service. |
39.
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The Commission also recognizes the key role
distributors will have under this licensing framework. Distributors will negotiate terms
of carriage, packaging and marketing arrangements and will, in the case of Category 2
services, select which services to carry. As a result, the Commission believes it is
appropriate to adopt measures to ensure that non-affiliated services are treated fairly by
distributors. |
40.
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In its 19 May 1995 Convergence Report,
the Commission identified sufficient capacity on cable networks and comprehensive access
rules as prerequisites in assessing whether cable systems should be allowed to operate
programming services other than over-the-air radio and television stations. The Commission
considers that in the transitional digital environment, with expanding (but still limited)
capacity, it will still be necessary to continue the existing undue preference prohibition
and to provide some specific access rules. |
41.
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The prohibition against conferring undue
preference or disadvantage which applies to all distributors under the Broadcasting
Distribution Regulations will continue to apply to terms of carriage issues, including
those that may arise from distributor equity. Because distributors offering programming
services to the public using digital technology will be required to distribute all
Category 1 services on a digital basis, no further safeguard is necessary for them. |
42.
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The Commission will introduce an access rule
applicable to all distributors who carry any Category 2 programming service in which they
directly or indirectly control more than 10% of the equity. These distributors will be
required to distribute at least five non-affiliated Category 2 services for every
affiliated Category 2 service they distribute. For the purpose of this rule, all of the
programming signals of a pay-per-view or video-on-demand service will be considered to
count as one service. |
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Additional undue preference provisions |
43.
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An additional concern raised in this
proceeding was that licensees of distributor-affiliated programming services could
potentially confer an undue preference on the distributor to which they are affiliated.
For example, such a licensee might refuse to be carried by a competing distributor or
might agree to more advantageous terms of carriage with its affiliated-distributor. The
Commission intends to propose an amendment to its regulations to introduce a prohibition
against pay and specialty services granting undue preference similar to the provision
applicable to distributors by virtue of the Broadcasting Distribution Regulations. |
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Pay-per-view and video-on-demand
services |
44.
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New pay-per-view and video-on-demand services
will be treated as Category 2 services for the purposes of carriage. They will only be
authorized for distribution with digital technology and will not have access privileges. |
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Repeat channels |
45.
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To allow for the distribution of alternative
programming schedules, the Commission stated in Public Notice 1993-74, Structural Public Hearing, that it would
consider applications from existing services for amendments to their licences to be able
to offer repeat channels. Channels authorized under this policy were to have significant
restrictions, including a rule that they must be composed exclusively of repeats of
programs aired within the previous seven days. |
46.
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Under this digital framework, opportunities
will exist to license services that provide alternative program scheduling without the
need for the types of restrictions that were part of the Commission's policy related to
repeat channels. Those who wish to propose services that will create new viewing
opportunities based on existing programming should apply for a Category 1 or
Category 2 licence under this licensing framework. The Commission will no longer
authorize repeat channels by condition of licence. |
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Existing services |
47.
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The rights and obligations of existing pay and
specialty licensees are not affected by this public notice. These services will continue
to be subject to existing rules and will not be considered either Category 1 or Category 2
programming services. As noted above, the Commission will not license Category 1 or
Category 2 programming services that are directly competitive with existing pay or
specialty services. |
48.
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A number of issues were raised in this process
relating to the migration of existing services from analog to digital distribution. The
Commission will address these issues at a later date. |
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Foreign services |
49.
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A diversity of foreign programming is a
valuable supplement to Canadian programming in a variety of genres. The Commission
encourages alliances between Canadian and foreign services as an appropriate way to
achieve the objectives of the Broadcasting Act. |
50.
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However, the Commission recognizes that there
may be genres in which a Canadian programming service is unlikely to be developed. The
Commission will therefore issue a call for requests to add foreign services to the lists
of eligible satellite services (the lists) for distribution on a digital basis. The
Commission will issue this call concurrently with its licensing decisions on new Canadian
Category 1 and Category 2 programming services. A streamlined public process to
consider such requests will allow distributors to offer new foreign services at the same
time as the new Canadian ones. |
51.
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Consistent with the Commission's existing
policy, it will not be predisposed to authorizing foreign services that are competitive,
in whole or in part, with Canadian services. This approach will give priority to new and
existing Canadian services, including those that have formed alliances with foreign
services. Authorization to be added to the lists will be granted where approval would be
in the public interest. |
52.
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It will be a condition of being added to the
lists, that a foreign service not hold or exercise preferential or exclusive programming
rights in relation to the distribution of programming in Canada. For example, a foreign
service added to the lists could not, as a condition of being maintained on the lists,
deal in rights in such a manner that unduly precludes a Canadian programming undertaking
from acquiring that programming. |
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Implementation |
53.
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The implementation of this licensing framework
will require amendments to the applicable regulations. The Commission will issue a public
notice calling for comments on proposed amendments. |
54.
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The Commission will also issue a call for
applications for new digital pay and specialty services in early February. Previously
submitted applications for new pay and specialty services will be returned to the
applicants. These applicants or any other interested parties may submit the same
applications or new applications for digital Category 1 or Category 2 services
in light of the licensing framework set out in this notice. |
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Secretary General
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This notice is available in alternative
format upon request, and may also be viewed at the following Internet site: http://www.crtc.gc.ca |