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New CRTC Policy Framework for Local and Community TV

The Canadian Radio-television and Telecommunications Commission has published a new policy designed to ease the economic pressure squeezing local television newscasts in the same week in which a report was published clarifying how quickly young Canadians are pivoting to digital news platforms.

Under ss. 34 and 52(1) of the Broadcasting Distribution Regulations, broadcast distribution undertakings (BDUs) – think Rogers, BCE, Videotron, Telus and Shaw – must contribute 5% of annual gross revenue from broadcasting activities to a handful of funds that support Canadian programming. The CRTC’s new policy framework for local and community television (Broadcasting Regulatory Policy CRTC 2016-224) allows BDUs to devote part of this contribution to the production of local news on local television stations by providing them with the flexibility to transfer contributions from one community channel to another and to dedicate all or part of their local expression contribution to fund local news programming. The explicit intention of this flexibility is to encourage BDUs to shift funding from community stations to the production of local TV news. As CRTC Chairman Jean-Pierre Blais told the CBC this week, “Instead of putting money, year after year, into community channels . . . that money should be allowed to be flexed into news.”

The rebalancing is, in part, a response to a challenging advertising market roiled by rapidly evolving media consumption habits. “As economic pressures increase,” explains the CRTC in the Policy, “resources may decrease, threatening the integrity of editorial decisions and weakening the ecosystem for local news gathering, production and dissemination across all Canadian media.” The CRTC illustrated the economic pressure: “Conventional television stations, the primary source for the local news and information Canadians receive, are not as profitable as they were five years ago and that some may be at risk of closing.” Profit before interest and taxes (PBIT) margins for private conventional television stations have declined from 7.1% in 2011 to an estimated -8% in 2015; and PBIT margins for private conventional television stations in 2015 are estimated to be at -7.6% in markets with more than one million people, -3.5% in medium markets and -15.9% in markets with fewer than 300,000 people.

The Reuters Institute for the Study of Journalism at the University of Oxford’s Digital News Report was also published this week and it suggests that the pressure is rooted in demographically-tied changing media consumption habits that may be impossible to reverse. The Reuters/Oxford report canvassed 56,000 people in 26 countries, including Canada. It confirmed that television remains a preferred news source for older generations but is losing traction with younger people. In the three years between 2013 and 2016, the number of people under 35 in the United Kingdom who use TV as a source of news fell by 21% to 42%. The corresponding drop was 20% in France and 11% in the US. The study did not include a Canadian figure. On the other hand, fully 71% of Canadian respondents told researchers that they still turned to television as a source of news at least once a week. This compares to a high of 83% in Italy and a low of 65% in Australia. In other words, TV news may be dying but it’s far from dead.

Other highlights of the Policy in brief:

  • Exhibition levels remain unchanged.  Commercial English-language stations will continue to be required to broadcast at least 7 hours of local programming per week in non-metropolitan markets and at least 14 hours per week in metropolitan markets. Local programming requirements for commercial French-language stations will continue to be assessed on a case-by-case basis, using a benchmark minimum of five hours of local programming per week. However, all licensees will be required to broadcast a minimum level of local news and to allocate a percentage of their previous year’s revenues to such programming, with the exhibition and expenditure levels to be determined on a case-by-case basis based on historical levels.
  • New Independent Local News Fund.  As of September 1, 2017, a new fund, to be named the Independent Local News Fund, will replace the Small Market Local Production Fund (SMLPF) with the objective of supporting the production of locally reflective news and information by private independent television stations. It will be funded by BDUs which will contribute 0.3% – about $23 million in total – of their previous year’s broadcast revenues. As an interim measure, as of September 1, 2016, vertically integrated broadcast ownership groups will be ineligible for the SMLPF.
  • Adjustments to the community television framework.  A handful of adjustments were made to ensure that the community television framework continues to promote the objectives of the Broadcast Act. These include increasing over time the minimum proportion of local expression expenses that broadcast distribution undertakings must allocate to direct programming costs from the current requirement of 50% to 75%, requiring BDUs to create citizen advisory committees for community channels in markets with a population of over one million people and encouraging BDUs and access producers to make content available on multiple platforms to all Canadians
New CRTC Policy Framework for Local and Community TV

Broadcasters obtain injunction in bid to stem “emerging trend” of pre-loaded set-top boxes

The Federal Court of Canada recently granted three large broadcasters an order for an injunction* against retailers of pre-loaded “plug-and-play” set-top boxes.  The apps pre-loaded on the boxes allow consumers to access TV programs and movies without cable or other subscriptions.  As Madam Justice Tremblay-Lamer observed:

These boxes have several uses for consumers, some of which are perfectly legal and some which skirt around the fringes of copyright law.  This is not the first time a new technology has been alleged to violate copyright law, nor will it be the last.

In her view, the allegations in this particular instance were strong enough to support a prima facie case of copyright infringement and the injunction order.  The matter will proceed to trial at a later date to resolve the various copyright and related issues.

A focus on the copyright issues

Bell, Rogers and TVA/Videotron each have exclusive rights under the Copyright Act to – in lay terms – broadcast, deliver and copy a range of TV programs and movies in Canada.  The television business model relies on broadcasters’ ability to exploit these rights.  The Plaintiffs argued that

pre-loaded set-top boxes represent an existential threat to [their] line of business as piracy is one of the top causes for declining subscriptions for television services in Canada and leads to annual decreases in revenue.

A central question before the Court was whether the set-top box retailers were simply the “conduit” for consumers’ infringing activities, or were instead themselves infringing copyright.  The Copyright Act does provide a limited shield for “conduit” services that provide only the means to deliver copyright-protected programs, images or music:

(1) For the purposes of communication to the public by telecommunication, […] (b) a person whose only act in respect of the communication of a work or other subject-matter to the public consists of providing the means of telecommunication necessary for another person to so communicate the work or other subject-matter does not communicate that work or other subject-matter to the public.

The Court found that this statutory defence was not available to the Defendants.  They had, said the Court, deliberately encouraged consumers to use the set-top boxes to circumvent the broadcasters’ subscription-based services.  They had promoted their set-top boxes to consumers as a means to cancel their cable subscriptions (using slogans such as “Original Cable Killer”), and had also offered tutorials on how to use the pre-loaded apps to obtain “free” programming.   The Court said that these activities “went above and beyond” selling a simple piece of hardware, and instead related to the content of the copyright-protected programming.  This constituted prima facie infringement.

The Court also agreed with the broadcasters that inducing and authorizing consumers to infringe copyright was an additional serious issue to be tried.

The Court’s order not only enjoins the five named retailers from continuing to configure, market and sell the pre-loaded set-top boxes; it allows the broadcasters to serve the order on other retailers who are engaged in the same activities.

 *Thanks to Smart & Biggar for making the link to the decision available online.

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Broadcasters obtain injunction in bid to stem “emerging trend” of pre-loaded set-top boxes

Ottawa Launches Overhaul of Cultural Policy

The Department of Canadian Heritage has launched a review of the federal government’s cultural policy toolkit that could bring significant changes to the governance framework that underpins the broadcasting, media and cultural industries.

Announced this past weekend by Heritage Minister Mélanie Joly, the review is a response to the digital shift that is transforming the creative sector. The stated goal of the review is to ensure that Canadian content is positioned to succeed in an increasingly global marketplace which, as stakeholders well know, has been buffeted by the rapid evolution of new technologies that have changed the ways content is created and consumed.

Minister Joly made it clear in an interview with the Globe and Mail that each of the main governance levers – laws, policies, institutions and programs – will be evaluated. She told the Globe that she believes “the current model is broken, and we need to have a conversation to bring it up to date” and that “everything is on the table”.

Beyond a generally “digital approach”, it’s anyone’s guess as to what the policy outcomes of the review will be. The minister has indicated that she doesn’t want to go into consultations with preconceived notions of what they might yield, and has refused to speculate about eventual changes. However, the “drivers of change” articulated in the announcement of the review provide some sense of the likely focus:

  1. A fluid environment that blurs traditional categories like “creator” and “user”, “artists” and “audience”, and “professional” and “amateur”;
  2. The emergence of new players and intermediaries that have disrupted traditional business models;
  3. An increasingly open and interconnected world in which access to a global marketplace comes at the price of stiff competition in formerly local cultural markets; and
  4. Changes in consumer expectations driven by increased digital connectivity and mobility.

The consensus from the commentariat is that the review will be the most comprehensive re-evaluation of the industry since the Mulroney government revised the Broadcasting Act in 1991.

Content producers and other stakeholders should note that an online “pre-consultation questionnaire” can be accessed on the ministry’s website until May 20, 2016. The pre-consultation will help define the scope of the public consultation which will begin this summer and wrap up by the end of the year. An expert advisory group will be struck to shepherd the review, which is officially called Strengthening Canadian Content Creation, Discovery and Export in a Digital World.

Ottawa Launches Overhaul of Cultural Policy

A Brief History of the Broadcast Reproduction Right

The following is a timeline of broadcast reproduction copyright developments, leading to yesterday’s Supreme Court of Canada decision in CBC v. SODRAC.

1980’s: SODRAC, a copyright collective society managing (largely French-language) music reproduction rights, licences the reproduction of musical works in its repertoire to television producers.

1990: Bishop v. Stevens [1990] 2 S.C.R. 467 – The Supreme Court determines that “ephemeral” copies made by a TV broadcaster engage the reproduction right under the Copyright Act. Making copies of musical works to facilitate a broadcast, and actually broadcasting musical works, engage two different rights. Each of those rights may be licensed and paid for separately. Following this decision, SODRAC begins to distinguish between synchronization licences and copies made for other purposes.

1992: CBC and SODRAC negotiate a licence agreement for all copies made by CBC – synchronization and any other copies – for radio and TV. According to SODRAC, this is the first general reproduction rights agreement with a radio and television broadcaster in North America.

1990’s: CBC and other broadcasters begin to make greater use of digital systems to prepare programming for broadcast, gradually replacing older analog systems.

2002: Théberge v. Galerie d’Art du Petit Champlain inc. [2002] 2 S.C.R. 336 – The Supreme Court examines the nature of the reproduction right (must a work be multiplied to be ‘reproduced’? – yes) and emphasizes the balance between the rights of users and copyright owners:

“The proper balance among these and other public policy objectives lies not only in recognizing the creator’s rights but in giving due weight to their limited nature. In crassly economic terms it would be as inefficient to overcompensate artists and authors for the right of reproduction as it would be self-defeating to undercompensate them. Once an authorized copy of a work is sold to a member of the public, it is generally for the purchaser, not the author, to determine what happens to it.”

November 2012: Copyright Board SODRAC-CBC Arbitration Decision – The Board confirms that broadcast-incidental copies are reproductions under the Act, and do not benefit from a statutory exception. The Board finds that there are “clear benefits [to CBC] from copy-dependant technologies”, and SODRAC is entitled to remuneration that reflects those benefits.

November 2012: The Copyright Modernization Act – a broad set of amendments intended to better reflect copyright in the context of modern technologies – enter into force. Among other things, the “ephemeral exception” for broadcast copies is amended and expanded in part.

December 2012: Entertainment Software Association v. SOCAN [2012] 2 S.C.R. 231 – In one of the 2012 “pentalogy” of copyright cases, the Supreme Court determines that the Copyright Board was incorrect to apply a separate “communication” tariff – over and above the reproduction right payment – to downloads of musical works for video games. The principle of technological neutrality requires that the Copyright Act apply equally between traditional and more technologically advanced media.

“There is no practical difference between buying a durable copy of the work in a store, receiving a copy in the mail, or downloading an identical copy using the Internet. Absent evidence of Parliamentary intent to the contrary, we interpret the Act in a way that avoids imposing an additional layer of protections and fees based solely on the method of delivery of the work to the end user. To do otherwise would effectively impose a gratuitous cost for the use of more efficient, Internet-based technologies. The Internet should be seen as a technological taxi that delivers a durable copy of the same work to the end user. The traditional balance in copyright between promoting the public interest in the encouragement and dissemination of works and obtaining a just reward for the creators of those works should be preserved in the digital environment.”

January 2013: Copyright Board Interim SODRAC-CBC Arbitration Decision – The Board extends the 2008-2012 licence on an interim basis pending its final determination of terms to 2016. The Board rejects CBC’s argument that the Copyright Modernization Act amendments provide a statutory exception for its broadcast-incidental copies.

March 2014: CBC v. SODRAC Federal Court of Appeal, [2015] 1 F.C.R. 509. The Federal Court of Appeal rejects the broadcasters’ argument that the Supreme Court’s decision in ESA has overtaken Bishop v. Stevens. Broadcast copies are reproductions under the Act. The Court states, however, that it is “difficult to know how one is to approach technological neutrality post-ESA”, and finds that Bishop v. Stevens determines the outcome unless Bishop is “overturned or disavowed by the Supreme Court”.

November 2015: CBC v. SODRAC Supreme Court 2015 SCC 57.  In a 7-2 split decision, Justice Rothstein, for a majority of the Supreme Court, confirms that broadcast-incidental (or “ephemeral”) copies that facilitate broadcasting are reproductions under the Copyright Act. The bulk of the decision then focuses on valuation of the reproduction right. The majority finds that the Board failed to take the principles of technological neutrality and balance into consideration when setting the fees for the copies.

The majority expressly responds to the Court of Appeal’s call for guidance on how to approach technological neutrality.  Pursuant to ESA, if there is no practical difference in the value to a user as between its old and new technologies, then there should be no difference in valuing the right. The Copyright Board should compare the value derived by the user from the use of the reproduction, considering older and newer technologies. In the present case, if CBC derives greater value from using broadcast-incidental copies in digital technology than it did with its old analog technology, then the copright owner has become entitled to greater royalties for the copies.

The majority recalls that in Théberge, the Court established that copyright law maintains a balance between the rights of copyright owners and users, and that it would be as inefficient to overcompensate artists as it would be self-defeating to undercompensate them. Relevant factors in valuation include the user’s risk and investment in using new technologies, and how making reproductions contributes to value to the user. In this case, the user’s risk and investment were high, and the value of the reproductions to the user were low.  The matter of valuation is sent back to the Copyright Board for reconsideration.

Justice Abella writes a vigorous dissent, agreed to in part by Justice Karakatsanis. The dissent takes issue with the majority’s approach to the principle of technological neutrality, which effectively ties copyright owner compensation to users’ actions that are irrelevant to the rights, and focuses on the value that new technologies create for the user. The dissent distinguishes “media neutrality” (focused on the medium of expression) from “functional equivalence” (focused on what the technology actually does), stating that functionally, broadcast-incidental copies are simply part of the core activity of broadcasting. Just as the Court confirmed in ESA, “technological neutrality operates to prevent imposing additional, gratuitous fees on the user simply for the use of more efficient technologies” […] “SODRAC is not entitled to be compensated for how efficiently CBC uses technology to achieve its broadcast”. The Board’s decision to impose fees for broadcast-incidental copies is unreasonable.

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A Brief History of the Broadcast Reproduction Right

Ontario “Grandfathers” Tax Credit Rate Changes

When Ontario announced its 2015 budget (for earlier Signal coverage see here), one particular proposed change was met with… well, let’s call it “concern” from the Ontario film and television production community: the reduction of the OPSTC and OCASE tax credits from 25% and 20% to 21.5% and 18%, respectively, was effective immediately (i.e., on April 23, 2015). In a production environment which prides itself on the stability of its tax credit regime, and given the long lead-times by which production scheduling occurs, a reduction with immediate effect would have had significant, in some cases even catastrophic, impact on film and TV projects (to say nothing of sending a cold wind blowing through the accountants’ offices where decisions about whether to film in Ontario are made). Following vigorous lobbying, however, the Ontario government has implemented a “grandfathering” mechanism which will apply the old rates to certain productions.

Grandfathering of OPSTC (Ontario Production Services Tax Credit)

The rate of 25% will apply to qualifying production expenditures  incurred after April 23, 2015 and before August 1, 2016 if the following criteria are satisfied:

  1. The production company must have entered into at least one qualifying written agreement in respect of a qualifying production expenditure.
  2. The qualifying written agreement must be entered into with a person at arm’s length with the production company.
  3. The qualifying written agreement must satisfy one of the following criteria: (a) an agreement for the services of a producer, a director, a key cast member, a production crew or a post-production crew; (b) an agreement in respect of a studio located in Ontario or a location in Ontario; or (c) the agreement “demonstrates, in the opinion of the Minister of Tourism, Culture and Sport, that the corporation has made a significant commitment to production activities in Ontario”.
  4. The production company must apply to the OMDC for a certificate in respect of the production.
  5. Principal photography or key animation must commence before August 1, 2015.

Grandfathering of OCASE (Ontario Computer Animation and Special Effects Tax Credit)

The rate of 20% will apply to qualifying production expenditures  incurred after April 23, 2015 and before August 1, 2016 if the following criteria are satisfied:

  1. The production company must have entered into at least one qualifying written agreement in respect of a qualifying production expenditure.
  2. The qualifying written agreement must be entered into with a person at arm’s length with the production company.
  3. The qualifying written agreement must satisfy one of the following criteria: (a) it is in respect of digital animation or digital visual effects for use in the eligible production; or (b) the agreement “demonstrates, in the opinion of the Minister of Tourism, Culture and Sport, that the corporation has made a significant commitment to production activities related to the eligible production in Ontario”.
  4. Before August 1, 2015, the corporation has notified the Ontario Media Development Corporation in writing of its intent to apply for a certificate in respect of the eligible production. (NB: note the difference here between OPSTC and OCASE on this point – for OPSTC the application itself must actually have been filed by August 1, 2015, but for OCASE there only must be written notice of intent to apply for a certificate)
  5. Before August 1, 2016, the corporation has applied to the Ontario Media Development Corporation for a certificate in respect of the eligible production.
  6. Principal photography or key animation must commence before August 1, 2015.

“Transitional Grant” Program

The government also announced that productions which commence principal photography/key animation on or after August 1, 2015 (i.e., too late to access the grandfathered rates noted above) but before December 1, 2015 (i.e., the last day on which principal/key can be commenced is November 30, 2015), and which otherwise meet the criteria identified above, will have access to “a separate transitional mechanism outside of the Taxation Act” – details to follow.

[The foregoing information is taken from an OMDC bulletin circulated on Monday, May 25, 2015, and available online here.]

Ontario “Grandfathers” Tax Credit Rate Changes