Entertainment & Media Law Signal : Canadian Entertainment Lawyers for Licensing, Intellectual Property & New Media Matters

The good folks at The Lawyers Weekly have published a short article of mine (in their October 14, 2011 issue) about the Canadian television industry's Terms of Trade.  The article can be found in its entirety here, and here is an excerpt:

The Canadian Media Production Association (CMPA) and five of Canada’s largest private broadcasters announced in April they had entered into a “Terms of Trade agreement” (TTA). The TTA will have a significant and continuing impact on the way in which the Canadian television industry conducts the business of commissioning and licensing new television productions. It also poses novel questions about how it will be enforced and who will benefit from it.

Previous Signal coverage on the Terms of Trade Agreement can be found here.

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This is the eight (and final) installment in our series about the new Terms of Trade applicable to the English-language Canadian private broadcasting industry (Part 1, Part 2, Part 3, Part 4, Part 5, Part 6, Part 7).  This installment focuses on Section 9 (Producer Fees and Overhead), Section 10 (Retention of Producer Tax Credits) and Section 11 (Audit Rights)  of the Terms of Trade Agreement.  Archived versions of all eight posts in this series are available at this link.

What do the Terms of Trade say about... producer fees and overhead?

Producer fees and overhead "will be industry standard, as accepted by Canada Revenue Agency".  CRA policy (as set out in Application Policy FAS 2009-01) with respect to fees and overhead paid to "incumbent" producers (e.g., those with an ownership interest in the production company) is that fees in the amount "of 10% of the total actual costs in parts B and C of the standardized production budget" are "generally considered reasonable".  As the CRA document goes on to point out, that threshold amount "is not intended as a 'cap' or 'maximum allowable'. When justified and supported by the facts of the particular case, amounts greater than the reference threshold may be considered reasonable."  (For further information, see this Heenan Blaikie LLP publication on the topic from 2008.)

Producer fees/overhead cannot be deferred or invested.  This, along with Section 10 (to be discussed momentarily) is one of the more interventionist elements of the Terms of Trade.  Producers routinely defer or "re-invest" their fees (whether a portion or the entirety) in order to facilitate production - a flat prohibition on such activity seems designed to spur broadcasters to increase their license fees in order to "close the gap".  Whether the provision will in fact have that result remains to be seen.

What do the Terms of Trade say about... retention of producer tax credits?

Only a maximum of 75% of eligible tax credits may be invested in a project.  Similar to the discussion regarding producer fees/overhead, above, this provision seems to run counter to long-accepted practice in the industry.  Presumably the motivation for this provision is to attempt to ensure that as much money as possible (in this case, the 25% of "non-investable" tax credits) actually reaches the pocket of independent producers, rather than being "soaked up" by the budgetary needs of the production.  While a laudable goal, and completely consistent with the mandate of the CMPA, it raises the question of how this would be enforced: if a broadcaster does not increase their license fee by an amount equal to the 25% of the tax credits which the producer is prevented from "investing" in the budget, would that constitute a breach of the Terms of Trade agreement? To what extent would individual producers be supportive of any action to enforce this particular provision of the Terms of Trade?

What do the Terms of Trade say about... audit rights?

If a producer or broadcaster has an entitlement to a revenue stream, they are entitled to "industry standard audit rights" which include the right to recoup reasonable audit fees if the audit reveals an unpaid amount which is in excess of 5% of the total amount owed and worth more than $1,000.  It remains to be seen what constitutes "industry standard" beyond the circumscribed right to recoup audit costs - for example, audit clauses usually contain restrictions on the number of times per year an audit can be conducted and the number of months or years within which a particular statement must be audited.  It is curious that such matters were not dealt with in the Terms of Trade agreement, but the right to recoup audit costs is itself an often-contested contractual right which producers will undoubtedly be pleased to be entitled to.

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This is the seventh installment in our series about the new Terms of Trade applicable to the English-language Canadian private broadcasting industry (Part 1, Part 2, Part 3, Part 4, Part 5, Part 6).  This installment focuses on Section 8 (Super License Fees)  of the Terms of Trade Agreement.  This is the seventh of an anticipated eight posts which will be posted over the course of the next little while and which will cover the Terms of Trade in detail.  Once all eight posts have been published, the archived posts will be available at this link.

What do the Terms of Trade say about... "super-license fees"?

A super-license fee is equal to the lesser of (a) the combined CMF threshold license fee for the applicable genre (if any) plus the maximum license fee top-up for that genre, or (b) a license fee representing at least 60% of the production budget of a project.  Once a super-license fee has been paid, it significantly expands the scope of the rights which a broadcaster can acquire and/or increases the share of revenue they would otherwise be able to obtain from certain forms of exploitation.

The payment of a super-license fee entitles the broadcaster to enter into negotiations for a higher revenue share of certain rights - but the broadcaster's share of revenue can never exceed 75%.  The rights in respect of which the broadcaster can obtain a higher share of revenue are the following:

• transaction-based non-linear on-demand exhibition on all platforms (ie where the customer has only temporary access to content, as opposed to a permanent copy)
• electronic sell-through or download-to-own platforms
• in-flight
• DVD/home video
• producer-created revenue-generating original digital content
• non-promotional games*
• merchandising*

With respect to the foregoing forms of exploitation, then, the payment of a super-license fee effectively opens a window for the broadcaster, allowing them to increase their participation rate from 50% to a maximum of 75%.  As noted in Part 5, the forms of exploitation listed above are not automatically included within the scope of a broadcaster's rights - they have to negotiate for them.  In other words, the broadcaster would first have to negotiate to obtain the rights at all (at a 50/50 split), and then, if they pay a super-license fee, they could negotiate to increase their share of the revenue to a maximum of 75%.  It should be noted that two of the forms of exploitation noted above with an asterisk (non-promotional games and merchandising) are normally reserved exclusively to the producer, but payment of a super-license fee moves those items from the reserved list to the list of items in which the broadcaster can participate.

The payment of a super-license fee entitles the broadcaster to enter into negotiations for a share of profit participation in forms of exploitation which are otherwise exclusively reserved to the producer.
As set out in Part 5, some types of exploitation are normally reserved to the producer and the broadcaster is prohibited from having any share of revenues - but upon payment of super-license fee, two things happen: first, as described above, non-promotional games and merchandising move from the "reserved" list to the "participating" list (whereby a broadcaster gets a share of revenue); second, everything that remains on the "reserved" list becomes open to a restricted form of profit participation for the broadcaster - the rights in question are:

• French-language (Canada)
• other languages (Canada)
• format
• theatrical
• music publishing
• retransmission rights
• sub-licensing and distribution
• book and e-book publishing

However, even though the broadcaster is permitted to participate in these revenues, their participation is capped by a formula: no greater than 1.5x the dollar investment of the broadcaster, expressed as a percentage of the budget, that is over and above the amounts listed in the definition of "super-license fee" (ie 60% of the total budget or the CMF threshold license fee plus the maximum license fee top-up), up to a maximum of 30%.

If the broadcaster does negotiate profit participation, it's profit participation is triggered only once all equity investors in the project (including any tax credit investment by the producer) have recouped their investments.

The super-license fee mechanism is therefore a means by which certain rights allocation matters can be altered - which, although complicated, seems like a relatively workable device for incentivizing higher payments by broadcasters while still reserving to producers the bulk of the benefit of ancillary exploitations.

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With apologies for the delay, this is the sixth installment in our series about the new Terms of Trade applicable to the English-language Canadian private broadcasting industry (Part 1, Part 2, Part 3, Part 4, Part 5).  This installment focuses on Section 7 (Equity)  of the Terms of Trade Agreement.  This is the sixth of an anticipated nine eight posts which will be posted over the course of the next week little while and which will cover the Terms of Trade in detail.  Once all nine eight posts have been published, the archived posts will be available at this link.

What do the Terms of Trade say about... equity investments?

The provisions in the Terms of Trade Agreement which speak to equity investments are primarily concerned with specifying when an investing broadcaster can recoup its investment.  There are no limitations on the amount that a broadcaster can or must invest (though, for "programs of national interest", meeting certain dollar thresholds means the recoupment gets handled in a certain way), nor are there any parameters regarding when an investment must be made (i.e., the payment schedule for when the broadcaster has to actually advance the funds).  The Agreement states that the making of an equity investment is "at Independent Producer's discretion"; it is unclear what effect this phrasing is meant to have, since it clearly is the broadcaster who decides whether it wants to make an equity investment - perhaps the intention is to prohibit broadcasters from making their offers of license fees contingent upon being also allowed to make an equity investment in the program?

The Terms of Trade do not apply to equity investments in feature films.  It is only when a broadcaster is making an investment in a television program that the Terms of Trade Agreement will apply.

Excluding "programs of national interest" (discussed below), if a broadcaster makes an equity investment in a TV program, then, following recoupment of any distribution advance, the broadcaster is entitled to recoup its investment pari passu with the producer (with tax credits being recognized as part of the producer's equity investment) and MFN with any other equity investors.  That sets out the basic structure of the Terms of Trade Agreement's treatment of equity investments: for any program other than a "program of national interest", if the broadcaster makes an investment, distribution advances get recouped first, and then all equity investors (which includes the producer's investment of tax credits) participate pari passu.  (The actual language of the Agreement says it is "pari passu with the [producer] ... and on a most favoured nations basis with other equity investors", which I read to mean that all equity investors recoup on the same tier - since the equity investors must all be MFN with each other and also recoup at the same time as the producer.)

For "programs of national interest" (as defined by the CRTC) different rules apply if the broadcaster makes an equity investment and has paid a license fee in excess of the CMF threshold license fee for the applicable genre:

• if the equity investment is $500,000 or more but less than 30% of the budget, the investment is recouped as is currently provided in the CMF Guidelines, being (after recoupment of any distribution advance) pari passu with all other equity investors including the producer's provincial tax credit investment but excluding the producer's federal tax credit investment (which must be placed on a subsequent tier of recoupment)
• if the equity investment is $500,000 or more and constitutes 30% or more of the budget, the recoupment terms are a matter for negotiations between the producer and the broadcaster

Of particular interest is the fact that broadcasters can aggregate their contributions to meet the thresholds noted in the bullet points - in other words, two or more broadcasters could contribute funds which, added together, exceed the $500,000 threshold or the 30%+ threshold, and take advantage of the treatment identified in the bullet points.

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This is the fifth installment in our series about the new Terms of Trade applicable to the English-language Canadian private broadcasting industry (Part 1, Part 2, Part 3, Part 4).  This installment focuses on Section 6 (Rights Allocation)  of the Terms of Trade Agreement.  This is the fifth of an anticipated nine posts which will be posted over the course of the next week and which will cover the Terms of Trade in detail.  Once all nine posts have been published, the archived posts will be available at this link.

What do the Terms of Trade say about... the rights granted to broadcasters and retained by producers?

Well... they say quite a lot, actually.  Section 6 of the Terms of Trade Agreement starts with a paragraph which might be termed a "statement of intent" (or, less charitably, "throat clearing") which is presumably intended to guide interpretations of the language of the remainder of the Section.  The paragraph states that broadcasters should "enjoy the full use of a program" on broadcast and "new digital platforms" and that "appropriate and reasonable holdbacks ... encourage maximum promotion and ... secure the value of the rights" obtained by a broadcaster.  On the other hand, "certain exclusive rights ... must be retained by the Independent Producer ... to ensure the maximum exploitation of the value of the Program".

The Terms of Trade Agreement breaks the universe of rights in a program into the following categories:

• rights which broadcasters are entitled to in exchange for a license fee
• rights which broadcasters can negotiate for, subject to a 50/50 revenue split and subject to modification if the broadcaster pays a "super-license fee"
• producer-created digital-content rights which (a) for free-to-consumer applications can be acquired by an additional license fee, and (b) for revenue-generating applications can be included in the initial grant of rights given in exchange for the initial license fee (but subject to a 50/50 revenue split)
• rights which broadcasters cannot acquire
• "other rights" whose allocation among the foregoing categories is to be discussed by the CMPA and the broadcasters

A "fair market value" license fee entitles a broadcaster to the following exclusive rights in Canada in all languages in which the broadcaster is licensed to operate:

• linear broadcast
• linear streaming (whether simultaneous or not with the broadcast channel)*
• free-to-consumer non-linear on-demand exhibition on all platforms*
• subscription-based non-linear on-demand exhibition on all patforms*
• creation and operation of program website, including creation of original free-to consumer or subscription-based content for the website (a footnote in the Terms of Trade Agreement indicates that the producer of the television program has a right of first negotiation to develop and produce the original free-to consumer content - it is unclear whether that means that the producer does not have a similar ROFN over subscription-based content, or whether its exclusion from the footnote was unintentional)

A single asterisk in the list above means that the exercise of the rights must be geo-blocked to Canada.

Broadcasters have a holdback in Canada against the exploitation of the "format" for the duration of the license term.  Because the Terms of Trade Agreement does not have a definition of "format", it is somewhat unclear to what this is meant to apply, and how precisely it interacts with a broadcasters right of last refusal in "Additional Programs" (discussed here).  Are "formats" categorically different from "Additional Programs" or are they a component of "Additional Programs" (the definition of "Additional Programs" contained in Section 4 of the Terms of Trade Agreement seems to indicate the latter)?  If formats are just a type of "Additional Program", and a broadcaster has not elected to exercise its right of last refusal with respect to the Additional Program, does the holdback contained in Section 6 still apply?  Presumably not, but the language is unclear on the point.

Broadcasters can negotiate to acquire the following rights, subject to a 50/50 split of gross revenues* - but if they are not acquired by the broadcaster, then they are subject to a 12 month holdback on their exercise in Canada:

• transaction-based non-linear on-demand exhibition on all platforms (ie where the customer has only temporary access to content, as opposed to a permanent copy)
• electronic sell-through or download-to-own platforms
• in-flight
• DVD/home video

The asterisk above relates to the 50/50 revenue share - that split can be modified where the broadcaster contributes a "super-license fee" (found in Section 8 of the Terms of Trade Agreement, and to be discussed in a future installment of this primer).  it should be noted that where a super-license fee is paid, what changes is the broadcaster's share of revenue (which can go higher, up to 75%) - it would appear that in no circumstances (excluding a breach of the Terms of Trade Agreement) can the producer ever negotiate a higher share of the revenue for themselves.  If a super-license fee is paid, non-promotional games and merchandising are added to the list of items which the broadcaster can negotiate to acquire, subject to the (modified) revenue split.

Certain types of original producer-created digital content can be acquired by a broadcaster for either an additional license fee or subject to a 50/50 revenue split.  The heading for Section 6(c) in the Terms of Trade Agreement uses the examples of websites, webisodes and mobisodes, so presumably this is intended to cover project-related content which is intended for initial exploitation on digital platforms (i.e., something other than the original production itself).  The Terms of Trade Agreement splits producer-created digital content into two categories: free-to-consumer and revenue-generating.  Free-to-consumer digital content can be acquired by a broadcaster upon payment of an additional license fee.  Revenue-generating digital content can evidently be acquired by the broadcaster without the payment of an additional license fee (i.e., the initial license fee for the program would cover revenue-generating digital content), but the broadcaster must agree to a 50/50 split of gross revenues with the producer.  On the face of the Terms of Trade Agreement, that 50/50 split cannot be modified (even if the broadcaster pays a "super-license fee").

If the broadcaster acquires rights to revenue-generating digital content but does not exploit those rights within 12 months, the rights automatically revert to the producer.  The wording of Section 6(c) seems to indicate that only revenue-generating digital content rights are subject to the 12 month reversion, and that "free to consumer" digital content rights are not subject to any such reversion.  While that may be because "free to consumer" rights must be paid for with an additional license fee, since most digital rights of this nature are going to be "free to consumer", the reversion right seems to apply to a much-less desirable set of rights (from the producer's vantage).

Certain rights cannot be acquired by a broadcaster.  The "unacquireable" rights (subject to payment of a super-license fee, as noted above and below) are:

• French-language (Canada) [assuming the broadcaster does not itself broadcast in French]
• other languages (Canada) [assuming the broadcaster does not itself broadcast in the other language]
• format [as noted above, it is not entirely clear what this means]
• theatrical [subject to a negotiated holdback which cannot last longer than the term of the broadcast license]
• music publishing
• games and merchandising [producer "will consult in good faith" with broadcaster prior to exploitation of these rights][if broadcaster pays a super-license fee, these rights can be acquired by the broadcaster, subject to a revenue split arrangement
• all other non-theatrical
• Canadian and international retransmission rights
• Canadian and international sub-licensing and/or distribution*
• publishing of books, e-books or other similar materials

The asterisk above (on Canadian and international sub-licensing and/or distribution) is meant to indicate that broadcasters can acquire and exercise these rights (a) within their corporate broadcast group, (b) (if the broadcaster operates a CRTC licensed conventional television service) to unaffiliated conventional television services operating in markets in Canada where the broadcaster does not have a local station or its signal is not receivable over-the-air, and (c) for the purposes of exploiting the rights to which a broadcaster is entitled or for which it negotiates.

The treatment of "other rights" will be discussed by the CMPA and the broadcasters.  There appears to be an inconsistency in Sections 6(d) and (e) of the Terms of Trade Agreement.  Section 6(d) says that broadcasters "may not acquire or have revenue share/profit participation in any other rights ... including the following" (the list which follows in Section 6(d) is reproduced in the preceding section).  But Section 6(e) contradicts that and says that "any other rights not enumerated in this Agreement ... shall ... be the subject of discussions".  Thus, while 6(d) seems intended to be a catch-all which covers all non-enumerated rights, it seems that it is in fact limited to the rights expressly listed in Section 6(d), with all "other" rights being subject to future discussions.  It will remain to be seen how this inconsistency will be handled in practice, and whose interests will be served by making non-enumerated rights subject to future discussions.

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This is the fourth installment in our series about the new Terms of Trade applicable to the English-language Canadian private broadcasting industry (Part 1, Part 2, Part 3).  This installment focuses on Section 5 (License Term)  of the Terms of Trade Agreement.  This is the fourth of an anticipated nine posts which will be posted over the course of the next week and which will cover the Terms of Trade in detail.  Once all nine posts have been published, the archived posts will be available at this link.

What do the Terms of Trade say about... the duration of broadcast licenses?

Broadcast licenses can have a maximum duration of five years.

The term of a broadcast license must commence no later than the earlier of (i) delivery of the program (or last episode of a series) and (ii) first broadcast of the program (or episode of a series).

Broadcast licenses cannot provide for an automatic extension of term if a broadcaster picks up (one or more) additional season(s) of a series.  This is an important point: many broadcast license have previously provided that the term of the license automatically extends if the broadcaster picks up a subsequent season of a series.  So, for example, the Season 1 license would be for a five year term, but if the broadcaster picked up Season 2 for a five year term, then the Season 1 license would extend and terminate only once the Season 2 license had terminated - so the Season 1 license would effectively become a 6 year license (or longer, depending on when the Season 2 license actually started).  By prohibiting such arrangements (and the Terms of Trade says such arrangements can exist "in no circumstances"), the potential value of early seasons of successful shows is reserved to the producer... subject to the next point.

Broadcasters are entitled to a right of first negotiation and a right of last refusal to acquire broadcast rights beyond the original five year term (through the payment of a "fair market value licensee fee").  Any subsequent license term can have a maximum duration of five years, and the broadcaster "may" acquire the rights "as of the earlier of" (i) 6 months prior to the expiry of the 3rd year of the initial term or (ii) 3 months after the signing of the license agreement for the second season.  Those timeframes would also apply to any subsequent sets of negotiations for extended terms.  The use of the word "may" in Section 5(c) of the Terms of Trade is presumably intended to convey that these timeframes are the earliest at which the broadcaster can sign a contract for an extension of the term - in other words, they have to wait until either the third year of the term or, if the production in question is a series, three months after signing the contract for a subsequent season - only once one of those milestones has passed can the broadcaster seek to go back and try to acquire an extension of the license term.

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This is the third installment in our series about the new Terms of Trade applicable to the English-language Canadian private broadcasting industry (see here for Part 1 and here for Part 2).  This installment focuses on Section 4 (Basic Licensing Conditions)  of the Terms of Trade Agreement.  This is the third of an anticipated nine posts which will be posted over the course of the next week and which will cover the Terms of Trade in detail.  Once all nine posts have been published, the archived posts will be available at this link.

What do the Terms of Trade say about... basic licensing conditions?

After a project is greenlit, the producer has 90 days to confirm other sources of financing for the production.  The 90 day period is subject to alteration by mutual agreement (presumably meaning it can be made either shorter or longer) so as to "mesh with funding deadlines or exigencies of production".  While this provision nominally seems to be included for the benefit of the producer, the fact that the 90 day period is not an absolute minimum seems to mean that it remains subject to the vagaries of differential negotiating power between producers and broadcasters.

Broadcasters must commit to broadcasting a program within 12 months of the start of the license term.

Rights of first negotiation are subject to express parameters on their exercise.  The Terms of Trade stipulate that, whether contained in a development agreement or a license agreement, ROFNs must:

• be exercised by a fixed start date or in reference to a specified timeframe
• contain a maximum negotiating period of 45 days (excluding the decision to initially license (3(k)) or renew an order (4(i)) or extend a license term (5(c))

If an agreement does not expressly set out a fixed start date or timeframe, then the timing of the exercise of the ROFN is "at the sole discretion of the Independent Producer".

Rights of last refusal can be granted to a broadcaster in "limited" circumstances, and when granted are subject to strict parameters. ROLRs are not permitted in development agreements in any circumstances.  In broadcast license agreements, ROLRs are only permitted to allow the broadcaster to (i) acquire exclusive exhibition rights in "Additional Programs", or (ii) extend a license term (subject to parameters set out in Section 5(c), and discussed below).  "Additional Programs" means additional episodes for the same season or subsequent seasons, prequels, sequels and remakes of a program and any "spin-off" program (being a program based on, adapted from or derived from the initial program or the underlying property "including the characters and the format thereof").  Where granted, a ROLR must be exercised within the specified time period set forth in the license agreement, which period cannot exceed 45 days from the broadcaster's receipt of written notice of a third party offer.  ROLRs are incredibly powerful rights which have serious distorting effects on the rights of producers and their ability to extract profits from their properties.  It should be noted that while manner in which the Terms of Trade are drafted at first makes it appear that ROLRs are to be limited in scope, the language actually allows them to be instituted with respect to valuable rights: extensions of terms and subsequent productions.  It appears that in exchange for that latitude, broadcasters are prevented from obtaining ROLRs at the development stage - which puts the onus on broadcasters to make binding decisions on projects at the development stage, without a "fail-safe" mechanism which would allow them to reach out and take back a project that they had previously turned down but which one of their competitors finds attractive.

Long-form broadcast license agreements must be signed by broadcasters at least two weeks prior to the commencement of principal photography/key animation, subject to the producer having submitted "reasonable agreed-upon deliverables".  If a license agreement has not been signed two weeks prior to principal, the broadcaster and producer must choose one of the following options:

• the broadcaster will provide an advance against the license fee to cashflow production
• production will be deferred until a later date (provided that the producer is not financially prejudiced if the delay is caused by the broadcaster)
• not proceeding with the project

This provision raises a number of questions: what constitutes "reasonable deliverables"? If the parties elect not to proceed with a project, does that mean that the rights automatically revert to the producer? If a delay of production would financially prejudice a producer, and is the fault of the broadcaster, does that mean the broadcaster must compensate the producer, or does it mean that a delay is simply no longer an option?

When a production is delivered under budget, the broadcaster is entitled to a pro rata share of the savings.

Where a producer receives surplus funds after a financing plan has been approved by a broadcaster, the broadcaster and producer will "give good faith consideration" to whether those funds should form part of the financing or simply be shared by participants.  In no circumstances can a broadcaster require a producer to agree to a reduction of the broadcaster's license fee because of the availability of surplus funds.

If a broadcaster wishes to renew a program by ordering additional episodes for a new season, the broadcaster must make that order within 6 months of the first broadcast of the last commissioned episode.  If the broadcaster does not order the new season, the broadcaster can still have a right of last refusal - meaning that the producer is able to shop the program to other broadcasters, but will, if the license agreement has a ROLR clause, need to provide the previous broadcaster with the opportunity to match any new offers.  If a program does end up with a new broadcaster, then "the parties" (it is unclear precisely who is being referred to by that term) "shall in good faith consider negotiating a buy-out of the licensed rights to previous episodes held by the [original] broadcaster by any subsequent broadcaster".

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This is the second installment in our series about the new Terms of Trade applicable to the English-language Canadian private broadcasting industry (see here for Part 1).  This installment focuses on Section 2 (Editorial Control) and Section 3 (Evaluation and Development) of the Terms of Trade Agreement.  This is the second of an anticipated nine posts which will be posted over the course of the next week and which will cover the Terms of Trade in detail.  Once all nine posts have been published, the archived posts will be available at this link.

What do the Terms of Trade say about... editorial control?

Producers have control - subject to broadcasters' standard approvals. Subject to what is expressly set out in the Terms of Trade, "editorial and creative control of a project rest with the independent producer".  However, a broadcaster's "standard creative, financial and technical approvals" apply on a project "except where the [Terms of Trade] stipulates otherwise".  Broadcasters are to post their "Standard Approvals" on their websites.

Post-contract changes to creative elements result in a higher license fee.  If a broadcaster requests changes to, or additional creative elements for, a program which were not contemplated when a license agreement was entered into, the broadcaster must provide an enhanced license fee proportionate to the scope of the new work required.

Broadcasters are entitled to on-screen credits.  Credit placement and credit titles "shall be in conformity with industry standards".  Broadcasters and their personnel are not entitled to "Producer" or "Executive Producer" credits, but can be accorded "traditional" credits, such as "Executive in Charge of Production".

What do the Terms of Trade say about... evaluation and development?

Broadcasters need to be user-friendly.  Broadcasters are obliged to identify on their website all personnel "who are responsible for responding to written program proposals ... including telephone number and e-mail address".

Rights in a proposal remain with producer until a development agreement is signed.  'Nuff said.

Proposals are to be treated as confidential by a broadcaster.  Producers are obliged to keep confidential a broadcaster's programming strategies.  Importantly, broadcasters "will not request that the Independent Producer waive any existing rights in the Independent Producer's program proposal".  That presumably will have an impact on so-called "submission releases", which often require that submitting producers waive a number of rights to commence a lawsuit in respect of a proposal.

Written proposals must be responded to by a broadcaster within 6 weeks.  The timeline can be extended by up to an additional six weeks by mutual consent.  If the broadcaster does not respond within 6 weeks, the proposal is deemed withdrawn and the broadcaster will have no further rights to the proposal.  Strangely, the Terms of Trade state that "it is incumbent upon the Independent Producer to advise the Broadcaster in writing that the time period has elapsed or is about to elapse".  It is unclear whether that means that if the producer fails to notify the broadcaster in writing that the time period is about to elapse then the deemed withdrawal does not apply.

If a broadcaster expresses interest in a program proposal, the producer must submit a "business proposal" within 60 days.  The "business proposal" would includes elements such as a development budget, financing plan, existing contractual commitments, rights agreements, locations and key production personnel.

If the broadcaster approves of the "business proposal" the parties will use "best efforts" to enter into a development agreement within 60 days.  A producer should not be expected to undertake development activities (especially expending money) without a distribution agreement in place. The development agreement must specify each phase of development and the creative and other elements to be developed by the producer.  When development materials are delivered to the broadcaster, the broadcaster will have no more than 18 days (40 days for animation co-productions) (extendable by mutual agreement of the parties) to approve or disapprove of the elements (with a failure to disapprove in the timeframe deemed to constitute approval).  The payment schedule for development fees must be expressly described in the development agreement, with no less than 50% payable on signing and no more than 10% tied to delivery fo the final development materials.

The  broadcaster's financial participation in development entitles them to certain exclusive rights.  The exclusive rights are as follows:

• to request changes to delivered materials
• to participate in additional development (subject to agreement with the producer about the nature and length of such additional development)
• to negotiate a license agreement

The terms of a license agreement are not to be included in or "pre-negotiated" in the development phase or the development agreement.  License terms are only to be negotiated once the project has been "fully developed" or an order for the project has been made by the broadcaster.

Once development has been completed, the broadcaster has 6 months to decide whether to license the project.  Development is "completed" when a polished script has been created (where applicable) and final deliverables as set out in the development agreement have been received.  At the 6 month point, the broadcaster must either (i) order the project (subject to finalizing license terms), (ii) agree with the producer to further develop the project, or (iii) release its interest in the project in writing.

If a broadcaster releases its interest in a project, the broadcaster remains entitled to reimbursement for its cash investment in the project. Reimbursement is only payable if and when a project is greenlit by another broadcaster, and becomes due on the first day of principal photography (or key animation).  No interest or other charges can be charged on the development investment (unless it is not repaid on the first day of principal/key animation).  If a project is assigned from one producer to another, the assignee must assume the obligation to repay the development financing.

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The Canadian Media Production Association (CMPA) recently announced that it had successfully concluded negotiations and entered into Terms of Trade Agreements with five of Canada's largest broadcasters (Astral Television Networks, Bell Media, Rogers Broadcasting, Shaw Media and Corus Entertainment).  Because the Terms of Trade Agreements are a significant development for the Canadian television industry, we have put together this lengthy primer which sets out some basic elements of the Terms of Trade.  This is the first of an anticipated nine posts which will be posted over the course of the next week and which will cover the Terms of Trade in detail.  Once all nine posts have been published, the archived posts will be available at this link.

What are "Terms of Trade" generally?

"Terms of Trade" is a phrase used to describe an agreement entered into between, on the one hand, television broadcasters and, on the other hand, independent producers of television programs.  The "Terms of Trade" essentially function like a code of conduct or "rules of the road" for participants in the television production and broadcasting industry.  They are an attempt to lay out the basic framework which will guide negotiations of individual program license agreements between broadcasters and individual independent producers.  Terms of Trade are of particular interest to independent producers because they stipulate that, in exchange for a base license fee, broadcasters will only be entitled to obtain a particular suite of rights - obtaining additional rights requires payment of an enhanced purchase price.

What are these specific "Terms of Trade"?

The CMPA (Canadian Media Production Association) recently entered into a Terms of Trade Agreement with the major private English-language Canadian broadcasters, being Astral Television Networks, Bell Media, Rogers Broadcasting, Shaw Media and Corus Entertainment (technically, Corus has entered into its own separate agreement, but according to the CMPA the Corus agreement "contains no substantive differences from the agreement signed with the other broadcasters".  The CMPA is still in negotiations with the CBC for a separate terms of trade agreement.  The full text of the main Terms of Trade Agreement is available here.  The full text of the Corus Terms of Trade Agreement is available here.

When do the Terms of Trade come into effect? How long do they last for?

Most of the Terms of Trade came into effect on June 1, 2011; sections 7 (Equity Investments), 9 (Producer Fees and Overhead) and 10 (Retention of Producer Tax Credits) come into effect on August 1, 2011.  The Terms of Trade Agreement will remain in effect with respect to each signatory broadcaster until "the expiry of the longest of the next issued license terms of the Broadcasters (excluding Astral...)".  In other words, the Agreement will be binding on the broadcasters who have signed it until the expiration of the next (i.e., issued after June 1, 2011) CRTC license issued to Bell, Rogers or Shaw, whichever is latest.

Why do we have these Terms of Trade?

The simple answer is that the CRTC made it very clear to broadcasters that they had to put in place Terms of Trade or else the CRTC would not even consider license-renewal applications from the broadcasters (“[the Commission will] only consider [licence] renewal applications [from the private corporate broadcast groups] for seven years with finalized terms of trade agreements in place.” (Broadcasting Regulatory Policy CRTC 2009-406, Policy determinations resulting from the 27 April 2009 public hearing, July 6, 2009, paragraph 84).

The longer answer, and the motivation for the CRTC's position, was that, to quote from the CMPA's website,"broadcaster consolidation in the English-language market has created an imbalance in negotiating power between independent producers and giant media conglomerates".  The independent production community felt that structural changes in the television industry had resulted in broadcasters being able to leverage their dominant market positions to extract unfair deals from producers, which could jeopardize the long-term health of the industry.

Who is subject to the Terms of Trade?

The existing Terms of Trade cover the five major private English-language Canadian broadcasters: Astral, Bell, Rogers, Shaw and Corus.  The Terms of Trade apply to "all independent productions produced by English-language Canadian independent television producers".  To full under the Terms of Trade, the Canadian producer must satisfy the five indicators enumerated in Section 4.10 of CAVCO's Canadian Film or Video Production Tax Credit Guidelines (March 31, 2010) - the five indicators are: control of development; control of all creative and financial elements; control over all aspects of production financing; control over negotiation of initial exploitation agreements; and "reasonable and demonstrable monetary participation in terms of budgeted fees and overhead, and participation in revenues of exploitation".

The Terms of Trade do not apply to the following:

• programs acquired by a broadcaster for which the broadcaster does not have "industry standard commissioning broadcaster creative and financial approval rights"
• broadcaster-affiliated/in-house production
• service production (i.e., one where "the idea or concept originates from, and all or substantially all of the development in the project is undertaken by the broadcaster or its affiliate; or the format rights were exclusively acquired by the broadcaster and were assigned to the independent producer")
• digital production that is unrelated to a television program

How are the Terms of Trade enforced? What happens if someone breaches them?

Disputes relating to the Terms of Trade Agreement itself (but excluding disputes relating to the confidentiality provisions in Section 3(c)) are to be resolved by a dispute resolution mechanism (the DRM) set out in Appendix "A" of the Terms of Trade Agreement.  The DRM involves an initial 30-day mediation stage, followed by, if necessary, an arbitration stage conducted in accordance with the Arbitration Act, 1991 (Ontario).

It is important to note that the DRM applies only to disputes relating to the Terms of Trade Agreement itself, and not to contractual disputes relating to a particular license agreement between a broadcaster and producer entered into within the framework of the Terms of Trade Agreement.

What do the Terms of Trade cover?

Although only 20 pages long, the Terms of Trade cover a large number of matters, each of which is the subject of a separate question and answer, below.  The areas covered are the following:

• editorial control (i.e., what approval rights broadcasters have)
• evaluation and development (i.e., of potential television programs)
• basic licensing conditions
• license duration
• rights allocation
• broadcaster equity investments
• "super license fees"
• producer fees and overhead
• retention of tax credits
• audit rights

The next eight installments in this Terms of Trade Primer will cover each of the foregoing areas in detail.  As the installments are published, the table above will be updated with hyperlinks to the relevant post.

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