Radio / Television News

ANALYSIS: Regulation in the time of Covid

By Doug Barrett

ALONG WITH ALL THE OTHER stresses and strains in this unsettled time comes a very particular challenge for the broadcasting system during a pandemic: What to do about all of the conditions and requirements imposed on broadcasters by the CRTC. It turns out the problem is not straightforward.

In mid-July, the Canadian Association of Broadcasters filed a formidable application with the Commission on behalf of all private radio and television broadcasters that painted a bleak economic picture for the March to June period and beyond, and bluntly asked for sweeping regulatory relief.

The relief requested: “…absent evidence of bad faith, licensees would be deemed compliant with their expenditure-based conditions of licence and applicable regulations for the 2019-2020 broadcast year… regardless of actual expenditure levels”. Further, “The Commission would not require any shortfalls or under-expenditures resulting from this broadcast year … to be carried forward or ‘made up’ in any way”. And finally, “The 2020-2021 broadcast year would represent a restart, with the return of normal compliance with conditions of licence, including expenditure requirements based on prior year’s (2019-2020) revenues”.

The application said, “almost four months into this crisis, it is clear that without express relief, virtually all private broadcasters will fall short of certain requirements codified in their conditions of licence and the regulations.”

In addition to the relief the CAB proposed: “a highly abbreviated timeline for public comment ending with a Commission decision three weeks from today’s date”. In other words, three weeks in total for the whole process.

The initial formal response from the Commission: weeks of dead silence. On August 23 (two weeks after the CAB’s expected decision), Denis Carmel wrote a piece in saying that the plea for relief was falling on “deaf ears.”

Then, finally on September 17 (a full two months after receiving the CAB application), the Commission issued Broadcasting Notice of Consultation CRTC 2020-336, Call for comments on an application by the Canadian Association of Broadcasters requesting regulatory relief for Canadian broadcasters in regard to the COVID-19 pandemic (the “BNOC”). It also published the CAB application for the first time.

Now, before I review the Commission’s BNOC I want to note a few things in the CAB application I found a little odd:

  • It demanded that the relief be granted before the end of the broadcasting year (August 31) and therefore before broadcasters prepared their annual reports which would presumably detail the extent to which they would “fall short” of their conditions of licence and regulations. In other words, the relief was demanded before there was any evidence of how each licensee actually fared during the difficult period.
  • The timing of the relief, if granted, would permit broadcasters to immediately stop fulfilling their requirements, whether they were achievable or not.
  • While there were broad statistics in the application on the financial losses of radio and private TV, no distinction was drawn between the circumstances of different licensees (market size, whether independently or group owned, or whether part of a vertically integrated company).
  • The application was somewhat presumptive in its detailed attempts to have the Commission limit the opportunity for public comment; it was in fact advising the Commission on how to do its business in that respect.

“The Commission is clearly seized with the issue and understands the challenges; it has given some thought to the parameters of what can reasonably be done; it has signalled its preparedness to move forward if not in the blanket way that the application proposed.”

Needless to say, the Notice of Consultation throws a lot of a shade on the CAB application. It makes six major points:

  • The specific circumstances of licensees need to be understood: “it can be expected that broadcasters may recover at different rates, depending on their individual circumstances and business models. For example, broadcasters who benefit from diverse and more stable revenue sources, or others that benefit from synergies and efficiencies, may recover at a different rate than those who do not”.
  • The system has multiple stakeholders and the Commission must balance all their needs: “ …many of the financial requirements that are the subject of the flexibilities sought by the CAB represent important elements of funding for Canadian audio and audio-visual programming. Such funding directly benefits Canada’s creative and artistic communities, which have themselves also experienced deep negative impacts from the pandemic”.
  • There are already flexibilities built into the system: “…financial requirements are calculated based on the previous year’s revenues, and, as is the case for Canadian programming expenditure requirements, are already subject to year-over-year flexibilities that permit the carrying over of under-expenditures into subsequent broadcast years”.
  • Some things are “off the table” in terms of cuts: the current breadth and depth of information and news, a accessibility services, and public alerts
  • “Deemed compliance”, “may not be the appropriate approach”. Instead, “financial requirements could be spread over several broadcast years to ensure that broadcasters have the flexibility they need, while ensuring that the broadcasting system benefits from broadcasters’ financial contributions as Canada’s creative industries ramp back up to full capacity.
  • Notwithstanding the CAB demand concerning process timing, the usual procedural practices for dealing with interventions and replies will be followed.

While the CAB might well be disappointed with this overall result, there is at least some light. The Commission is clearly seized with the issue and understands the challenges; it has given some thought to the parameters of what can reasonably be done; it has signalled its preparedness to move forward if not in the blanket way that the application proposed.

I suggest for a hint of what might be on the table one should look at the Super Channel license renewal decision from the early summer (CRTC Broadcasting Decision 2020-205).

Super Channel had suffered a long period of financial difficulty and during each of its two licence periods it had obtained creditor protection under the Companies’ Creditors Arrangement Act, emerging from the latter occasion in mid-2018. As the Commission pointed out, “These actions have had a significant impact on the broadcasting industry. In particular, the licensee’s financial instability following its two creditor protections affected the Canadian production industry since many producers received only a small percentage of the amounts that were owed by the licensee and creates uncertainty about its capacity to participate in the creation and promotion of Canadian programming going forward”.

In addition, the Commission determined during each of the two licence periods Super Channel was in serious non-compliance with some of its conditions of licence. While the Commission addressed the non-compliance issues sharply with the use of a Mandatory Order and a pre-emptive licence suspension, the most controversial issue was whether Super Channel should be obligated to make-up the shortfalls in required expenditures.

In the decision the Commission was blunt: “The Commission considers that the licensee’s instances of non-compliance are very serious and that the shortfalls are amounts that are owed to the broadcasting system. The Commission estimates that if the licensee wishes to enjoy the privilege of holding a licence for a new term, it must carry out all of its obligations to the broadcast system and considers that the licensee must pay the full amount of the shortfall.”

Despite this firm position, the Regulator crafted a schedule of eight payments that would retire the shortfall over a period of four years. And in an interesting and original twist, the CRTC required Super Channel to make the payments directly to the Canada Media Fund, and then to report out on each payment once it has been made.

This solution managed to ensure that monies it considers “owed to the broadcasting system” are paid, but provided the licensee with some much needed flexibility in making the necessary payments.

The language of the BNOC for the CAB’s proposal makes it appear that in addressing the Covid “misses” in the system it will adopt thinking similar to that used with Super Channel early in the summer.

Doug Barrett is a veteran of over 30 years in the Canadian media and entertainment industries and since 2008 a professor in Media Management Schulich School of Business of York University. He is also the Principal of Barcode SDG, a strategic advisory firm. He was also president and CEO of PS Production Services from 2006 to 2013 and prior to that spent 20 years as one of Canada’s most successful entertainment lawyers, serving as senior partner at McMillan LLP. From 2004 to 2008, he served as chair of the board of directors of the Canadian Television Fund. He has also served on several additional industry boards, including the Banff Television Festival, the Feature Film Project of the Canadian Film Centre and the Canadian Film and Television Production Association. He was also a key founder of the Alliance Atlantis Banff Television Executive Program.