Foreign Ownership, Television Broadcasting and Canadian Culture: an Appeal for Increased Liberalization of the Foreign Ownership Restrictions
MONIQUE T. LAFONTAINE
A thesis submitted to the Faculty of Graduate Studies in partial fulfilment of the requirements for the degree of
Master of Laws
Graduate Programme in Law York University North York, Ontario
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Monique Laf'ontaine a thesis submitted to the Faculty of Graduate Studies of York University in partial fulfillment of the requirements for the degree of
Master of Laws @ 1998 Permission has been granted to the LIBRARY OF YORK UNIVERSITY to lend or self copies of this thesis, to the NATIONAL LIBRARY OF CANADA to microfilm this thesis and to tend or sell copies of the film, and to UNIVERSITY MICROFILMS to publish an abstract of this thesis. The author reserves other publication rights, and neither the thesis nor extensive extracts from it may be printed or otherwise reproducedwithout the author's written permission. ABSTRACT
The Canadian television broadcasting industry is currently at a cross-roads. This sector has changed exponentially over the past decade. Many new services, such as specialty programming services and pay television, as well as new methods of distribution, have entered the communications scene. There have also been a number of key trends, including glcbalization and techno logical advancements, that are affecting the television broadcasting industry and the CRTC's ability to regulate television. Moreover, as a result of these trends, the foreign ownership restrictions have and will likely continue to attract negative attention to the regulation of television broadcasting in Canada. This thesis reviews the history of the regulation of broadcasting in Canada, with a particular emphasis on the foreign ownership resmctions. It also discusses the challenges that a number of key trends are posing on the regulation of television. Finally, in tight of the changing communications environment, this thesis suggests that, while there continues to be a need for continued regulation, the federal government should consider relaxing the foreign ownership resmctions. ACKNOWLEDGEMENTS
I would first like to thank Professors Mary Condon and Bill Angus for their assistance as Directors of the Graduate Program in Law at Osgoode Hall Law School. I would also like to thank the staff of the graduate program office, particularly Lea Dooley, as well as the staff and librarians of the Osgoode Hall Law School Library for their tremendous help. Further, I am grateful to the Harley D. Hallett Scholarship Fund for their financial assistance.
I would like to express my appreciation to my supervisor, Professor B. Jamie
Cameron. who was committed to my project, taught me a great deal and was very encouraging. I would also like to thank Ms. Janet Yale and Professor Liora Salter for their excellent comments and suggestions.
J'aimerais dgalement remercier tous les membres de ma famille pour leur appuit. leur amour et leur aide durant mes Ctudes supCrieurcs. Un grand mrci ;l mes parents,
Jeannette et Marcel, et ii mes trois soeurs Louise, Rosanne et Francine.
Emally, I would like to thank my colleagues in the graduate program in law and some special fiends that were very supportive during my studies. Many, many thanks to
Chantal Morton, Drew Blair - my computer consultant, Michele Vaillancourt, Tonya
Lindo, Michael Halewood, Niarnh Laylor, Linda Charbo~eauand Ruth Fletcher. TABLE OF CONTENTS
Abstmct ...... i .. Acknowledgements ...... u
Chapter I .Introduction
IntroductiontoThesis ...... 1
Chapter 2 .The Regulation of the Canadian Broadcasting System 2.1 Introduction ......
2.2 Rationale for Government Intervention ...... 9
2.3 The Structure of the Canadian Television Broadcasting Industry ...... 14
2.4 The Package of Measures ...... 16
(i) Foreign Ownership ...... 18 (ii) Canadian Content Quotas ...... 19 (ii) Support for the Roduction of Canadian Programming ...... 22 (iv) The CBC ...... 25 (v) Income Tax Deductions ...... 28 (vi) TaxCredits ...... 29 (vii) "4 + 1 " Caniage Rules ...... 30 (viii) Simultaneous Substitution ...... 31 (ix) Specialty and Pay Television ...... 32 (x) Canadian Content Expenditures and Exhibition ...... 36 (xi) Distribution and Linkage ...... 38 (xi) Priority Carriage ...... 39 (xiii) Carriage of Video Channels by Distributors ...... 40 (xiv) Educational Broadcasting and Community Channels ...... 41
2.5 Conclusion ...... 42 Chapter 3 .The History of the Foreign Ownership Restrictions
3.1 Introduction ...... 43
3.2 The Early Days of Broadcasting ...... 43
3.3 The 1920s .The Birth of Canadian Broadcasting Policy ...... 46
3.4 The 1950s and 60s .The Fist Express Limitations to Foreign Ownership Restrictions ...... 54
3.5 The 1980s .Foreign Ownenhip Remains Unchanged ...... 69
3.6 Conclusion ...... 74
Chapter 4 .The Current Foreign Ownetship Resfnfnctionsin Television Broodcasting 4.1.Introduction ...... 75
4.2 Current Measures ...... 75
4.3 The Issue of Control ...... 82
4.4 Telecornmunications ...... 98
4.5Conclusion ...... 111
Chapter 5 .The Ttends That Arc Affecting the Replcdion of Television Broadcasting & the Foreign Ownemhip Restrictions
5.1 Introduction ...... 116
5.2 Globalization ...... 116
(i) Globahtion and Television Broadcasting ...... 120 (ii) Pressure from Abroad ...... 125
5.3 Technology ...... 139 (i) Direct-to-Home Satellite Broadcasting ...... 141
(ii) The Internet ...... 153
(iii) Convergence ...... 161
5.4 Conclusion ...... 169
Chapter 6 .Conclusion ...... 171
Appendix 1 .Bibliography ...... 178 Chapter I - Introduction
Television programming is the form of culture most widely consumed in Canada and most industrialized nations. It has been described as the most pervasive and popular of cultural industries' with Canadians spending an average of 22.7 hours per week watching television.' It is estimated that in Canada, 99.946 of the homes are equipped with television sets3, that approximately 7,800,000 rrdllion homes receive cable distribution services, and that somewhere between 200,000 - 300,000 homes receive satellite broadcasting services.
The high demand for television broadcasting in Canada stems from the many needs that television satisfies. It serves as a mode of entertainment or escapism and it can be, among other things, informative, artistic, funny and suspensefbl. It also allows viewers "to gain vicarious experience of the external world, to learn, and to cultivate their minds.''4
'Liss Jefikey, "Private Television and Cable" in Michael Dorland. ed., The Cultural industries in Canada: Problem. Policies and Prospects (Lorimer: Toronto, 1 996) 203 at 206.
'Sheridan Scott and Pamek Dinsrnore. "Convergence and Careers" (Address to Canadian Women in Communications. April 1997) [unpublished].
'European Television Task Force. Europe 2000: What Kind of Television?lThe Repon of the European Television Task Force President: Valhy Giscard d'Estaing (Manchester U.K: European Institute for the Media, 1988) at 1. The quantity and diversity of television programming has greatly expanded in recent yeus.
Programs range born documentaries. sports, and local, national and international news to motion pictures, drama, situation comedies and science fiction. Television allows people to watch it and "to take advantage of it in a number of ways depending on their education. their tastes and their psycho-cultural needs."'
In light of the important role that media in general and television in particular play in the lives of Canadians. it is not surprising that government might be involved. Given that radio frequencies are not available to everyone but still, even today, constitute a scarce resource. a basis for regulation is established. Furthermore. the broadcasting system with all of its myriad parts and services requires some level of overall management,
8 a role commonly filled, even in the United States. by govemnt. Fiially, given the economics of the market-place. and the importance generally attached to indigenous outlets and expressions of information and culture, it is not surprising or unusual that the
Canadian government has seen fit to undertake measures in connection with regulation and system management to support indigenous broadcasting. In part, this has meant finding venues for. and supporting both the production and dissemination of programs understood to be Canadian. in this context, the federal govemnt has outlined objectives for and delegated powers to the Canadian Radio-television and Telecommunications Commission (CRTC). Among these objectives is the promotion of national identity and cultural sovereignty. The govenunent has adopted a myriad of policies over the years to promote and encourage the development of Canadian culture.
The Canadian broadcasting system has been, and continues to be, used as a key tool in the government's cultural quest.
Parliament has adopted a broadcasting policy for Canada whkh is set out in section 3 of the Broadc~ingAct.' That policy states that, among other things, the
Canadian broadcasting system shall be owned and controlled by Canadians. and that the system provides an essential public service to the maintenance and enhancement of national identity and cultural sovereignty. The CRTC has the obligation of interpreting and enforcing that policy in order to attempt to fulfil the goals set out in the Act. This thesis will argue that this task has become and will continue to be more difficult for the
CRTC to perform due to global and technological trends that are taking place. It will suggest that several trends are putting significant pressure on Canadian cultural policies in particular. The first of these is globalization. Markets are becoming readily accessible and interdependent. Barriers to international commercial trade are being reduced in many sectors, including non-traditional trade areas. such as telecommunications and intellectual property. Since the 1980s, numerous countries around the world have been entering into increasingly more bilateral, plurilateral and multilateral trade agreements. the most
important of which is the General Agreement on Tariffs and TradelWorld Trade
Organization7,signed in 1994. Over the past decade. Canada's cultural policies in such
areas as film, television and magazines have come under attack fkom other countries,
particularly the U.S. As a result of this trend in the increase of international commercial
trade. and pressure on Canadian cultural policies. the protective measures in television
broadcasting have become tremendously vulnerable.
Another wnd is that of technological advancement and the convergence of the
communications industries. With the development of the micro-chip, broadband
technologies and an increasing number of corporate mergers, the broadcasting and
telecomunications sectors are becoming more advanced and are converging. It has not
been coincidental to this trend towards convergence that policies and regulations
established by the CRTC and elsewhere have been liberalized so that communications
activities can now be provided by companies previously prohibited fkom providing them
Nor has it been coincidental that with large merged comunication companies, it is
increasingly difficult to fit provided activities neatly under broadcasting or
telecommunications. The comrnunications industries are also coming toget her as a result
of the convergence of technologies. Technological advancements are permitting the
%enera1 Agreement on Tdffsand Trade, 1947. Can.T.S. 1947 No. 27.55 U.N.T.S. 187fGeneral Agreement on Tariffsand Trade. 1993.33 I.L.M. 28 [hereinafier GATT/WTO]. technologies to provide the distribution of both point-to-point and point-to-multi-point services. Moreover. in recent years, international trade in basic telecommunications services has begun to open. This liberalization on the telecommunications side of co municatio ns might place increased pressure for deregulation of the broadcasting side due to the convergence of these two sectors.
In order for the CRTC to fulfil its mandate under the Broadcasting AC~.it must determine how the objectives of that Act might be fdfilled, given the environment in which television must now operate. The trends just identified make it increasingly difficult to do so, and render both the CRTC and the Canadian broadcasting system vulnerable to attack born those seeking to achieve different objectives. This thesis concerns measures that the CRTC might take to respond to the trends and ward off attacks even while fulfilling the objectives of the Act.
A mix of measures currently exists for the protection of Canadian culture in the
Canadian broadcasting system In adopting these measures, the government has attempted to balance the cultural and commercial interests of the Canadian broadcasting system Foreign ownership restrictions are part of the package of cultural protectionist measures. The rationale for adopting the foreign ownership measures is to ensure that
'S.C. 1991, c. 11. Canadians provide broadcasting services to Canadians. They were adopted in order that the Canadian broadcasting system be effectively owned and controlled by Canadians and that Canadians have decisiobmaking authority over the selection of programming services provided to Canadians.
The effect of the foreign ownership restrictions is to resuict foreign investment in the Canadian broadcasting system This thesis wiU argue that due to the global trends identified above, it is these foreign ownership restrictions which are likely to act as a lightening rod and attract negative attention to the Canadian cultural measures in broadcasting. This thesis will argue that by attracting negative attention and pressure. the very existence of the regulatory reg& could be at risk.
The thesis will suggest. therefore, that in order to deflect some of the pressure on the cultural policies, and in order for the CRTC to fulfil its mandate under the
Broadcastirtg Act, the Federal government should consider relaxing the foreign ownership restrictions. The vgument will be that the impact of a new foreign ownership regulation is not burdensome with respect to the objectives for the Canadian broadcasting system, because foreign ownership is only one element in a complex mix of measures, hardly determinant on its own. The proposed change will, however, reduce the risks to the viability of the objectives of the system as a whole, making it possible to shield the other components in the min This thesis deals with conventional television broadcasters and networks only. While it does not include an in depth examination of the foreign ownership restrictions under the Telecommunicarions A&. it does consider the foreign ownership restrictions in telecomunications as a point of comparison to the regime in television broadcasting. Moreover, this thesis does not include a study of radio broadcasting. That industry faces distinct challenges from television. For instance, the very existence of AM radio is currently in question due to the precarious financial positions of many stations.
The study of radio could warrant a thesis of its own and is thus not part of this dissertation. Finally, this thesis focuses primarily on the television broadcasting services in
English Canada and the manner in which the fderal policies Lnpact on them While television broadcasting in the province of Quebec is vulnerable to global and techno logical trends. that industry is unique and distinct fiorn that of English Canada and could also warrant a study of its own.
This thesis is divided into six chapters. The tirst chapter serves as an introduction to the work. The second chapter begins by explaining the government's rationale for intervention in this area, and the structure of the television broadcasting industry in
Canada. It then sets out the key measures that the government has adopted for the regulation of the Canadian television broadcasting sector. It will show that the measures form a complex mix, which are interdependent, and that they relate to many areas of the television broadcasting industry. The third chapter of this thesis reviews the history of the foreign ownership restrictions in television broadcasting. This historical chapter will show that a number of measures have been adopted by the federal government in order to respond to outside pressures on the Canadian broadcasting sector. This chapter will also provide an understanding of the raison d'&e of the current measures. The following chapter sets out the foreign ownership restrictions as they exist today. It discusses recent changes to the foreign ownership restrictions in television broadcasting, and analyses the ownership and control components of the restrictions. The fifth chapter sets out the trends that are affecting the regulation of television broadcasting, the CRTC and the television broadcasting industry as a whole. As mentioned above, these trends include globalization, technological advances and convergence of the communications industries and technologies. The sixth and final chapter provides the thesis argument and conclusion. It maintains that the CRTC must determine how the cultural obligations of the Broadcasting Act will be attained in the new televisi~nbroadcasting environment. It proposes, as a partial solution for the CRTC,an increase in the liberalization of the foreign ownership resmctions in order to deflect negative attention fiom the international community to the cultural measures adopted for television broadcasting in Canada.
The mearch in this thesis is current to September 30,1998. Chapter 2 - The Regulation of the Canadian Broadcasting System
2.1 Introduction
The federal govenunent has regulated the Canadian broadcasting system virtually
since its inception. Various policies, statutes and regulations have been adopted over the
years to ensure the existence of a Canadian broadcasting system This chapter will begin
by setting out the government's rationale for regulating the television broadcasting sector.
It will show that the primary reasons for regulation have been the development and enhancement of Canadian cultural identity, and the protection fkorn the American entertainment sector. This chapter goes on to provide a brief overview of the various components of the Canadian broadcasting system that relate to television, in order to fully understand the environment in which Canadian teIevision broadcasting operates today.
This chapter will then set out a number of key measures that are currently in place to pursue the cultural mandate set out in the Broadcasting Act. It will show that the current
mix is complex and diverse. It will further show that the measures function as a whole, are interdependent. .and relate to various commercial and cultural areas of broadcasting, such as tax credits. corporate structures. production subsidies and content quotas.
2.2 Rationale for Government Intervention
The purpose for government intervention in the area of broadcasting is to contribute to the development and enhancement of Canadian cultural identity and to
9 preserve Canada's cultural sovereipnty.l0 The federal government has, thus, adopted the
diverse and complex mix of measures in order to promote the development and
presentation of Canadian programming. This in turn serves to ensure that Canadians have
an outlet for Canadian expression and that Canadians have access to that expression.
Moreover. the package of measures in television broadcasting provides protection to the
Canadian broadcasting industry in order that Canadians provide the vehicle for carriage of
television programming in Canada.
One of the reasons that the Canadian government felt it necessary to adopt a
broadcasting strategy over the years has been to protect the Canadian broadcasting system
from being overtaken by the American industry." The Canadian broadcasting industry has
been vulnerable to the U.S. since the inception of broadcasting in this country. The U.S.
'"Parliament determined that these goals are important and should be pursued. See section 3 of the Broadcarting Act.
"Canada is not alone in its concern with regard to American imperialism In 1989, the European Union (EU)adopted the "Television Without Frontiers" Directive, which requires that member states ensure that 50% of the programs aired by broadcasters consist of European programs, excluding sports events, gamts and advertising. See Council Directive. 3 October 1989, on the Coordination of Certain Provisions Laid Down By Law, Regulation, or Administrative Action in Member States Concerning the Pursuit of Television Broudc~~ting Activities, 1989 O.J. (L.298) 23, reprinted in 28 I.L.M. 1492 (1989). For more information on the "Television Without Frontiers" Directive, see Konigsberg, infra note 70; Lucien I. D hooge, "No Place For Melrose: ChanneIsurfing, HumRights, and the European Union's 'Television Without Frontiers" Directive" (1996) 16 N.Y.L. Sch. J. IntZ & Camp. I, 279; & Wolfgang Hoffinan-Riem "The Broadcasting Activities of the European Community and Their Implications for National Broadcasting Systems in Europe" (1 993) 16 Hastings Intl L. Rev. 599. has had a strong presence in the Canadian broadcasting system throughout most of the past eight decades. The presence occurred in part due to the United States' ability to bring propramming and new broadcasting services, such as television and diect-to-home satellite broadcasting to Canadian consumers more expeditiously than Canadian entrepreneurs. It also occurred because of the enormity of the American entertainment industry, the Large American domestic market for popular culture, the great demand for
Hollywood's creations internationally. and the political weight of the U.S. government.
The television and film industries in the U.S. are highly competitive and are "based on the Hollywood studi~."'~The United States has the largest, strongest and most widely distributed television broadcasting industry in the world.13 Its television industry accounts for a minimurn of 75% of all global television exports.14 Entertainment is the second most important export in the U.S., second only to aeronautics.''
"Colin Hoskins, Adam Fiand Sturn McFadyen. "Television and Fiiin a Freer International Trade Environment: U.S. Dominance and Canadian Responses" in Emile G. McAnany and Kenton T. Wilkinson, eds., Muss Media and Free Trade: NAFTA and the Cultural Indusmmes(United States: the University of Texas Press, 1996) 63 at 72. l3 RObin L. Van Harpen, "Mm,Don't Let Your Babies Grow Up to Be Cowboys: Reconciling Trade and Cultural Independence" (1995) 4 Minn. I. Global Trade 16 5 at 165.
14Hoskins.supra note 12 at 64.
Judi Rever, "France Faces off with Rambo" The Globe & Muif (4 February 1995) C9. The domestic markets of a number of countries around the world are feeling the effects of the strength and presence of the U.S. entertainment industry. Canada, however. finds itself in a particularly precarious situation vis-a-i-vis the U.S. entertainment industry.
This stems from the fact that 80% of Canadians live 100 km from the U.S. border and that
7046 of Canadians speak the same language as ~mcricans.'~These cultural md geographic factors render the Canadian market very attractive for the American television broadcasting industry. which sometimes views the Canadian market as an extension of the
American market. l7
Currently, the American broadcasting industry dominates Canadian television broadcasting with regards to programming. Seventy percent of television programming viewed by Canadians is Amxican", and Canada is the only country in the world that consumes greater amounts of foreign programming than it does of its own.'' Ratings compiled by Nielsen Media Research indicate that -can programs are leading the
I6John Herd Thompson, "Canada's Quest for Cultural Sovereignty: Protection. Promotion. and Popular Culture" in Stephen J. Randall and Herman W. Konrad, eds., NAFTA in Transition (Canada: Calgary University Press, 1995) 393.
''David H. Flaheny and Frank E. Manning, ads., The Beaver Bites Back? American Popular Culture in Canada (Montreal & Kingston: McGill-Queen's University Press, 1993) at 43.
"Herd Thompson, supra note 16.
19Jefiey,supra note 1. Waves in popularity." For the week of February 17 to 23, 1997, the most popular programs in the Toronto/Hamilton areas (which apparently reflect the ratings for most
Canadian cities) were as follows: Seinfeld, X-Files. The Single Guy, The Simpsom and
Frarier.2i AU of these programs are American.
The U.S. is able to export its television programs at a fraction of the production costs to countries, such as Canada, that do not benefit from the economies of scale that the U.S. enjoys. It costs approximately $1 million (U.S.) to produce a one hour dramatic program and anywhere up to $500.000 (U.S .) to create a half hour situation comedy?
The cost of importing a half hour situation comedy, such as Seideld. costs approximately
$60.000 (Can).Thus, due to the size and strength of the American market. U.S. programs are exported at low costs, making them more attractive to foreign television broadcasters than the creation of original indigenous programming. The American television broadcasting industry expons its programs at a low cost to make their products more amactive abroad.
%may Camp bell, "Canadian Culture, Then and Now" The Globe & Maif (I July 1997) A6.
ZIHarveyEnchin, "Baton Schedules Facelift for CTV" The Globe & Mail (3 March 1997) B 1.
=Jonas M. Grant, f'JurassicTrade Dispute: the Exclusion of the Audiovisual Sector fiom the GATT" (1994-95) 70 Indiana Law Journal 1333 at 1353. As a result of the strength and presence of the American television and
entertainment industries, Ottawa determined that it was important to regulate the
Canadian broadcasting system in order to ensure that a Canadian broadcasting industry
would continue to exist and prosper. The purpose was not to exclude American
programming from Canadian television screens, but rather to ensure that bath Canadian
and non-Canadian programming services were developed and made available.
2.3 The Structure of the Canadian Television Broadcasting Industry a
The Canadian television broadcasting industry is composed of a diverse group of
networks, programming and dismbution undertakings." There are currently two national
networks that are sewing the Canadian population: CTV and the CBC. Established
%e data in this section was provided by the Client Se~cesDepartment of the CRTC. August 3 1,1998.
UBroadcasting Act, S .C. 199 1, c. 1 1, s. 1.
%Uthough CanWest Global Systems is sornetims ref& to as a "network", it does not have official network status. It may, however, become a national broadcaster if the CRTC approves the sale of a pomon of WIC Western International Communications Ltd.'s assets to CanWest, which is currently under negotiation. See Janet McFarknd, "CanWest Leaps Ahead of CTV: Becoms Canada's Biggest RiMte Broadcaster with Deal for 11 TV Stations" The Globe &Mail (19 August 1998) FS; Gayle MacDonald and Doug Saunders, "CanWest - Shaw Swap Rejigs Broadcast Market: Creates National Network with AMu~Revenue that wiU Top Baton's CTV" The Globe & Mail (19 August 1998) B 1; "Investment News: Shaw Communications" The Globe & Mail (21 August 1998) B20; Jacquk McNish and Janet McFarland, "IuyAsper Ascends to W'sThroneone" The Globe & Mail (22 August 1998) B I; & Mathew Ingram, "1- Asper Plays it Cool'' The Globe & Mail (15 September 1998) 82. In Order in Council P.C. 1997- 592 (15 April 1997), the Governor in Council rquesred that the CRTC assess whether additional national networks should be established in order to serve the objectives of the Canadian across Canada are one hundred and fifty-four television stations. which include six
provincial educational broadcasters such as TVO/TFO and Radio Quebec. The television
broadcasting sector also includes a number of community television operations.
Moreover, since the 1980s, many new players have entered the Canadian television scene.
These include pay-television (licensed for the first time in 1982). pay-per-view
programming, video-on-demand? pay audio services2' and specialty programming
services. There are currently six pay television licensees, five pay-per-view and forty-three
specialty channels.
Distributors of television programming include approximately three thousand cable
companies (the three largest in Canada are Rogers Communications Inc.. S haw and
Vidtotron), two direct-to-home satellite companies (ExpressVu and Star Choice) and new
wireless undertakings such as Multipoint Distribution Systems (MDS)." broadcasting policy. On 6 February 1998, the CRTC concluded that it would not serve the objectives of the broadcasting policy of Canada to call for applications for additional English- language networks. See Pubtic Notice CRTC 1998-8 (Additional National Television Networks - A Report to the Government of Canada Pursuant to Order in Council P.C. 1997-592). The Commission did. however, hold a Public Hearing in July 1998. to consider granting TVA a French-language national network licence.
aLicenring of New Video-On-Dentand Programming Undertakngs, [Introduction to Decisions CRTC 97-283 to 97-287,Public Notice CRTC 1997-83.2 July 19971.
%con Feschuk, "CRTC to approve 4 Pay Audio Licences: Services Could be on the Air Within a Year" The Globe & Mail (24 August 1996).
%SeeDecision CRTC 98-55 (Look TELE). 20 February 1998; Decision CRTC 97-370 (Teleglobe Inc. et aI and four other applicants), 6 August 1997: & Order in Council P.C. 1996- 2.4 The Package of Measures
The federal government has set out a broadcasting policy for Canada in section 3
of the Broadcashng Act. That provision expressly sets out that the Canadian broadcasting
system is important for the protection of Canadian culture. Sections 3(l)(b) and
3( 1)(d)(I) of that Act read as follows:
(b) the Canadian broadcasting system, operating primarily in the English and French languages and comprising public, private and community elements, makes use of radio frequencies that are public property and provides, through its programming, a public service essential to the maintenance and enhancement of national identity and cultural sovereignty;
(d) the Canadian broadcasting system should
(I) serve to safeguard, enrich and strengthen the cultural. political, social and economic fabric of Canada.
The policy set out in the broadcasting legislation also describes various methods
for pursuing Canadian cultural goals. These include the Canadian ownership and control
of the Canadian broadcasting systemz9;encouragement and contribution to the
development of Canadian expressionM;reflection of Canadian diversity through
355 (1 9 March 1996).
29BroadcarringAct, S.C. 1991, c. 11, s. 3(1)(a).
MIbid..s. 3(1)(d)(ii). programming3'; the continued existence of the CBC3'; financial contributions by networks
and programming undertakings to the creation and presentation of Canadian
programming3'; and, priority carriage of Canadian programming services by broadcasting
distribution undertakings.
A complex and multi-faceted strategy has been adopted by Parliament and the
CRTC to protect Canadian culture in the Canadian broadcasting system Numerous
measures that are interdependent have ken adopted as part of an entire package. These
measures seek to enhance, strengthen and sakguard Canadian culture. They impose
obligations on the broadcasting industry to contribute to the development of the cultural
fabric of the nation, and at the same time provide the industry with incentives and
safeguards. The following section sets out the key components of the package of
measures designed to contribute to the enhancement and development of Canadian culture
in television broadcasting. 3s
j5ha Public Hearing that took place between 23 September 1998 and 15 October 1998, the CRTC began a review of television broadcasting pdlifics in order to determine how best to produce high-quality Canadian programming that wiU attract donstic audiences. The results of that review are not yet available at the tkne of the submission of this thesis. For more information on that Public Hearing see Public Notice CRTC 1998-44 (Canadian Television Policy Review - (i)Foreign Ownership
The foreign ownership measures are discussed at greater lengths in chapters 3 & 4.
Suffice it to say at this point that according the Broadcasting Act, the Canadian
broadcasting system must be owned and controlled by ~anadians.'~Current resmctions
on ownership and control limit foreign investment in Canadian broadcasters to 20% of the
Licensees and 33% of the holding companies. Control must remain in the hands of
Canadians." The foreign ownership rules also apply to distribution undertakings such as
cable and DTH and to all programming undertakings such as specialty channels and pay
television. The purpose of these measures is to ensure that broadcasting services are
provided to Canadians by Canadians.
Call for Comments),6 May 1998; Graham Fraser, "CRTC to Examine Canadian Television" The Globe & Moil (7 May 1998) CS;Doug Saunders, "Relaxing the Rules will Lure Viewers, CRTC Told" TkGlobe & Mail (24 September 1998) A9; Hugh Winsor, "The Power Game: Lobbyist's Fear of CRTC Means Pam1 has Teeth" The Globe & Mail (23 September 1998) A8; Doug Saunders, "WiCanada Still be a TV Star? With the Nation's Role on the Airwaves Facing its Fist Rewrite, all the Players are Tense" The Globe & Mail (23 September 1998) Al; Doug Saunders, "Networks Need Ottawa's Support in Rogrartndng, Lobbyist Says" The Globe & Mail (18 September 1998) D7; Jeeey Simpson, "Watching a Canadian Test Pattern" The Globe & Mail (13 August 1998) A8; Robert Brehl, "Industry Views Vary in Television Review: Quotas on Spending. Content Raised in Written Submissions as CRTC Closes Fist Phase" The Globe & Mail (7 July 1998) 84; & David Barber, "0 Say, Can you Set Canada? Our TV Mustry, Like the Nation Itself is one Built on Compromise" The Globe & Mail (27 July 1998) A8.
36Broadca~nngAct, S.C. 1991, c. 11, s. 3(l)(a).
"I 997 Directive, infm note 2 1 1. (ii) Canadian Content Quotas
The CRTC has adopted content quotas, in order to ensure that Canadian
productions are presented on television. These measures have been in effect, in varying
forms, since 196 1. Canadian content regulations currently require that 60% of day-time
schedules (8:OO a.m-6:00 p.m) and 50% of prime-time (6- 12 p.m.) of private television
stations and networks consist of Canadian prograrming." The CBC , as the national
public broadcaster, must, however, devote 60% of both its daytime and evening line-ups
to Canadian content.19
A point system is in place for determining that which constitutes Canadian content.
It is based on the creators of the expression such as directors, writers and actors, rather
than on the actual content of the programming?' A program will qualify as Canadian
content where the producer is Canadian and where a minimum of six points out of ten are
o brained. The points are based on the following creative functions: director (2 points):
38TelevisionBroadcasting Regulations, 1987, SORJ87-425,July 15, 1987, Canada Gazette part II, p. 2822. The content quotas may be subject to some case by case exceptions. For instance, section 4(8) of the Television Broodcasting Regulations provides that the CRTC has the authority to reduce, by condition of licence, the content requircmcnts of a licensee of ethnic or remote stations.
*See Public Noace CRTC 1984-94 (Recognition for Canadian Programs), 15 Aprii 1984. The CRTC announced in Public Notice CRTC 1998-59 (Recognition for Canadian Programs - Call for Comments), 19 June 1998, that it will be reviewing the definition of Canadian programs. The results of that review were not available at the time of submission of this thesis. writer (2 points); leading performer (1 point); second leading performer (1 point): head of
the art department (1 point); director of photography (1 point); music composer (1 point):
editor (1 point). If these positions are filled by Canadians, the program will receive points
in order to determine whether it qualifies as a Canadian program Moreover, the director
or writer and at least one of the two leading performers must be Canadian in order for a
program to qualify as Canadian content.
In addition to specific content quotas, the CRTC adopted. in 1979, a new practice
for the major English-language conventional broadcasters. At CTV's licence renewal in
1979, the Commission required that this Licensee show twenty-six hours of new drama per
year. with the number of hours increasing to thiny-nine over the licence term of five years.
CTV was not pleased with these new content obligations and. therefore, appealed this
decision to the Supreme Court of Canada. The Supreme Court. however, upheld the
Commission's decision.'" Since 1979, the CRTC has imposed varying content
requirement on CTV. At the network's most recent licence renewal, the CRTC provided
CTV with a licence to broadcast on the condition that it present three hours of Canadian
dramatic programming per week, with the number increasing to 3.5 hours per week by the
end of the Licence year.J2 According to the licence renewal, CTV must also air forty-eight
41CanadianRadio-television and Telecommunications Commission v. CTV Television Network, [I9821 1 S.C.R. 530.
12DecisionCRTC 94-33 (CTV Television Network Ltd.), 9 February 1994. hours per year of Canadian dramatic features, mini-series and limited series." Canadian
content programming brought to Canadians by CTV over the past year includes such
programs as Double Exposure, Due South. Vickie Gabereau Live. Gene Roddenburry's
Earth: Final Conflict? and the most recent, Power flay."
CanWest Global Systems is also subject to a content quota similar to CTV's. At
its 1996 licence renewal, CanWest was provided with the renewal on the condition that it
present four hours per week of Canadian drama." Two of the four hours were required to
be original first run hours." Canadian content programming that CanWest brings to
Canadians includes Traders and The Outer Limits. Last year, CTV spent $147 million on
Canadian television programs and CanWest Global Systems spent $67 million.'"
UCbristopher Harris. "Baton Adds Cancon to Lineup" The Globe & Mail (28 June 1997) C2.
*Christopher Harris, "WAdds Two New Canadian Series" The Globe & Mail (1 1 June 1998) C3.
?kcision CRTC 96-72 (Global Comrnunicatiow Limited - Paris, Toronto. Ottawa. Stevenson, Oil Springs, Midland. Owen Sound, Bancroft, Peterborough, North Bay, Sudbury, Timmins, Sault Ste. Marie and Fort Erie, Ontario - 95 125 18M3), 29 February 1996.
"~ecisionCRTC 96-72 (Liance Renewal for CIII-TV), 29 February 1996. "Doug Saunders. ''Spending Repon Fuels CrV - Global Rivalry'' The Globe &Mail (6 August 1998) A9. (iii) Support for the Production of Canadian Programming
In order to satisfy the cultural goals of the Broadcasting ~ct~',the federal
government provides subsidies for the creation of Canadian programming. One source of
government funding is provided through the National Fii Board (NFB). The NFB was
created in 1939 by the federal government with the original mandate "to produce,
distriiute and promote the production and distribution of films designed to interpret
Canada to Canadians and other The govemnt dtered the NFB's mandate in
the 1980s, focusing on the production and distribution "of films and videos which focus on
contemporary problems which reflect the social and cultural concerns of a growing
number of ~anadiaos."~'The NFB creates on average 80 to 100 films per year with more
than 80% of them shown on television? In 1996-1997. the NFB contributed funding to
one hundred and two productions and coproductions. Its total budget included
$72,790.837.00 from Parliamentary appropriations and $8.4 1 1,760 fkom revenues that the
NFB generated."
49S.C. 1991, c. 11.
59edMagder. "Film and Video Production" in Michael Dorland, ed., The Cultural Industries in Canada: Problem, Policies and Prospects (Toronto: Lorimer, 1996) 145 at 147.
n~ationalFilm Board. AMU~Repon 19964997, http:// www. NFB.ca/E 12. A second source of public funding originates from the Canadian Television ~und."
Created on September 9, 1996. this fund provides $200,000,000for the funding of
Canadian television pr~gramming.'~The CTF funds are received fiom the following three
sources;
-$50,000,000 fiom TelefYm Canada;
-$50.000,000 from a private sector cable production fund; and.
-$100.000.000 from the federal budget commitment ."
The CTF has two olechanisrns in place for providing funds for Canadian programs. These
are the Equity Investment Program (EIP)and the Licence Fee Program (LFP). The EIP is
administered by TeIef&n Canada and provides funding for the production of Canadian
television programs and feature films through direct cash equity investments. In 1998, the
total budget for the EIP was $107.5 million. The LFP, which has a funding envelope of
$94.3 million, provides funds to projects as a supplement to licence fees paid by Canadian
broadcasters. Eligible applicants may receive funding from the LFP in an amount that is
up to 10% of an.approved project's budget." Between 1 April 1997 and 3 1 March 1998,
%UntilSeptember 1998. this fund operated under the name of the Canada Television and Cable Production Fund (CTCPF).
"~hristopherHarris. "TebfilmSharpens Cultural Focus" The Globe & Mail (1 8 September 1996) C5. 56Departmentof Canadian Heritage, http:// www.pc~gc.cdculturr/brdcstng/ctcpf-e.hht~
"Kathleen C. McNair. "New Media and Canadian Content: What a Tangled Web" (Address to the Canadian Bar Association - Media and Communications Law Section - Law Society of Upper Canada. April 17-1 8.1998) [unpublished]. the cable production fund contributed to the production of such programs as At the End of
the Day: the Sue Rodrigues Story, Bhck Harbour, Emily of the New Moon, Traders.
Riverdale and Wind at my ~ack."
The federal government has also set up a fund to support the creation of content
for new media. In June 1998, the Minister for Canadian Heritage announced that the
government will invest $30 million over the next five years in the production of Canadian
content for Internet sites, CD-Roms and other multi-media projects created by private
organizations. The financial support will k made available by way of interest free loans of
up to $250,000.00 The loans will cover up to 50% of the costs for developing, producing
and marketing culture-oriented Canadian multi-media products.s9 Telefilm Canada also
provides hrnding to Canadian multi-media production through the Tele film Pilot Program
for Multimedia Production and Publishing Assistance Fund.
In an era of increased band width and the potential for tremendous competition
from non-Canadian sources, the development of high quality Canadian programming is
becoming increasingly more imponant. In order to ensure that indigenous programs
continue to be created and presented, it is imponant that the Canadian government
'aug Saunders, "Ottawa Sets Up Internet Fund: $30 million Aimed at Web Projects" The Globe & Moil (9 June 1998) C 1. continue to provide hnding to creators. The Canadian market for television programs is
very small. With only 1 1.5 million television households, the economies of scale that U.S.
broadcasters benefit from are not available in Canada. The Canadian market is such that it
is very difficult for industry players to recover the production costs of Canadian dramatic
programming. Some broadcasters are able to recover costs by exporting their programs
abroad. However, not all programs are exportable. Programs that are less country-
specific have traditionally fared better than local programs in the international rnarker-
place. Thus, due to the high costs of producing Canadian programming, the small size of
the Canadian market and the importance placed on indigenous content in the Broadcasting
Act, the federal government has seen fit to continue to provide funding to producers and
creators.
(iv) The CBC
The CBC is an important element in Canada's cultural landscape. According to
the CRTC, the national public broadcaster plays an important role in defining Canadian
id en tit^.^ It has provided Canadians with radio senices since the 1930s and television
services since the 1950s. The primary role of the CBC is to provide Canadians with
%cision CRTC 94-437 (Renewal of the English-language and French-language Television Network Licences), 27 July 1994. programming created by and for Canadian~.~'It is a vehicle for the expression of
Canadian voices in communications. The CBC attempts to fulfil the needs of Canadians.
establish links within the country and &w Cmadians to learn about the similarities and
differ~nces.~The CBC has the responsibility of ensuring that its programming reflects the
goals of Broadcasting AC~? Section 3(m) of that Act sets out the requirements for the
CBC's programming. It states the following:
(m) the programming provided by the Corporation should I- be predominantly and distinctly Canadian. ii- reflect Canada and its regions to national and regional audiences, while serving the special weds of those regions, iii- actively contribute to the flow and exchange of cultural expression, iv - be in Enghh and in French, reflecting the different needs and circumstances of each official language community, including the particular needs and circumstances of English and French linguistic minorities. v- strive to be of equivalent quality in Engfish and in French, vi- contniute to shared national consciousness and identity. vii- be made available throughout Canada by the most appropriate and efficient mans and as resources becom available for that purpose. and viii- reflect the multicultural and multiraciai nature of Canada.
For over forty years the CBC has contributed to the creation of such notable
programs as Venture, Mr. Dressup, the Friendly Giant, Le r<fjoumal,the F@h Estate
61~andateReview Committee, Making Our Voices Heard: Canadian Broadcasting & Film for the 21s Century. Report of the Mandate Review Committee CBC, NFB. Telefiim (Ottawa, Dcpartmnt of Heritage. 1996) at 30.
62DecisionCRTC 94-437, supra note 60.
"S.C. 1991. c. 11. and Hockey Night in Canada.@ The national public broadcaster has played a crucial role
in the creation of the broadcasting system in Canada and has been defined as one of "our
major national cultural operating bodies. "a
One of the main challenges that has faced the CBC over the past decade has been a
significant reduction in its hnding by the federal government. Over the course of the pat
thirteen years, the federal government has reduced the level of funding to the CBC. by
host half. Soon after the newly elected conservative government entered office in 1984.
it instructed the CBC to reduce its budget by approximately 10%. CBC's new budget had
a tremendous impact on the regional television services, forcing the closure of eleven
stations in various parts of Canada. Although the Likral Party promised to support the
CBC ifelected in 1993, it did not, in the end, fulfil that election promise. Shortly after the
Liberals took office, they announced that $414 million would be cut from the CBC budget
fiom 1994-95 to 1997-98." Although it appears that budget and job cuts have stabilized,
in June 1998 a $3,000,000 budget shortfall was discovered in the English radio budget,
wMandate Review Committee. supra note 6 1, at 30-3 1.
@Torn Henighan, The Preswnption of Culture (Ottawa: Raincoast, 1996) at 82. See Christopher Harris and Hugh Winsor, "Pro Sport, U.S. Soaps to Feel CBC Knifett The Globe & Mail (20 September 1996) Al; & The Lira1 Party. The Liberal Plan for Canada (Canada, 1993) [commonly referred to as The Red Book]. causing the elimination of fourteen positions.67
Although the CBC has been plagued in recent years by financial difficulties. it
remains. nonetheless. Canada's flagship cultural institution. The federal public broadcaster
strives to provide high quality and diverse programming to Canadians in many regions of '
the country. There continues to be strong support for the CBC. At the network licence
renewal in 1994, approximately two hundred of the two hundred and ninety interventions
filed strongly supported the renewal of the licence."
(v) Income Tax Deductions
The federal government has adopted a tax incentive to encourage Canadian
advertisers to purchase advertisements fiom Canadian television stations and networks.
Section 19.1 of the Income TP~AC~ provides that adveniscn may deduct their
advertising expenses fkom their operating costs for income tax purposes when an
advertisement is purchased fhm a Canadian broadcaster. The same rule does not,
however, apply for advertisements purchased by Canadians from foreign broadcasters.
67Christop&r Harris. "Shortf' Surprises CBC Radio" The Globe & Mail (24 June 1998) A16; Bt christopher Harris. "CBC to Close Moscow Bureau" rite Globe &Mail (30 June 1998) CI.
%ecision CRTC 94-437, supra note 60.
69R.s.c. 1985 (5th supp.), c. 1. The purpose of this measure is to direct more advertising revenue to Canadian
broadcasters, and encourage commercial activity in the Canadian broadcasting hdustq,
which serves as a support structure for the industry and Canadian c~lture.'~
This Canadian tax measure caused a great deal of controversy in the United States
when it was adopted in 1976. As a form or retaliation, the U.S. adopted similar legislation
at that time. The American legislation was, however, largely symbolic because there were
few Canadian television stations that attracted large numbers of American viewers and
therefore were not attracting American advertisers. There was some speculation in 1997
that the US. might target this measure for further attacks. It has. however, remained
largely outside of American criticism of Canadian measures.''
(vi) Tax Credits
The federal government has adopted a tax credit in order to encourage the creation
of Canadian productions of fhand video. In 1995, the Fib and Video Production Tax
'Veter S. Grant, 'Cultural Diversity and the Global Broadcasting Environment: The Lessons From Canada" (Address to the Canadian Bar Association - Media and Communications Law Section - Law Society of Upper Canada, April 16-17, 1996) [unpublished]; & Stephen R. Konigsberg, 'Thiak Globally, Act Locally North American heTrade, Canadian Cultural Industry Exemption, and the Liiralization of the Broadcast Ownership Laws" (1994) 12 Cardozo Arts & Entertahmnt L.J. 281 at 295.
''Drew Fagan, "White House Beaming Over Magazine Ruling" The Globe & Mail (20 January 1997) B 1. Credit for investments in films provided by Canadian corporations was adopted (and
amended in 1997)~"The new tax incentive provides that producers of Canadian film and
video may obtain a 2596 tax credit for certain labour expenditures.
(vii) "4 + 1" Carriage Rules
The CRTC limits the cable carriage of distant U.S. signals into Canadian homes to
four American commercial networks and one non-commerrchl network. These include
NBC. ABC, CBS and Fox on the commercial side and PBS on the non-commercial side.
This rule is known as the "4 + 1" rule. It was previously known as the "3 + I" rule from
1979 to 1996; however, the CRTC extended the policy to include the Fox network in
1996.~The purpose of this measure is to ensure that Canadians receive a variety of
programming senices fiom various sources. including local. national and international.
The Commission has, thus. limited the number of non-Canadian services that may be
carried by distribution undertakings.
Canadians do. however. have access to other Arnerican programming services.
For instance, American border stations can be picked up over the air by Canadians that
nThk tax credit was the successor to the Capital Cost Allowance (CCA) adopted in 1974. That tax incentive provided a 100% CCA for inves~mentsin Canadian feature films. Most provincial govemmnts in Canada have adopted tax credits for the production sector.
73~~bli~Notice CRTC 1994107 (Approval of Cable Distribution of Fox Network Affiliates), 29 August 1996. reside close to the American border. Further, the CRTC allows Canadian distribution
undertakings to provide American services that are on the lists of eligible satellite
services.74
(viii) Simultaneous Substitution
The federal broadcast regulator has also adopted simultaneous substitution rules in
order to protect the programming rights of Canadian broadcaster^.'^ Section 30 of the
Broadcasting Distn'bution ~egularions7dprovides that Class 1 and Class 2 kensees (cable
operators) are required, unless a condition of licence provides otherwise. to substitute the
signal of a local or regional television station for those signals provided by a lower priority
Canadian station or a non-Canadian station, when the signals contain identical
programming. It is estimated that the simultaneous substitution rule has increased the
annual revenues of Canadian conventional tekvision companies by approximately $1 00
million. This in turn has helped television licensees to fulW their obligations to bring high
quality indigenous programming to Canadians." Section 42 of the above-mentioned
Regulations also provides that direct-to-home satellite service providers are required to
74~ublicNotice CRTC 1997-152 (Revised Lists of Eligiile Satellite Services), 22 December 1997,
'%ese rules have been in place since 1976.
"Public Notice CRTC 1996-69 (Call for Commnts on a Proposed Approach for the Regulation of Broadcasting Distribution Undertakings), 17 May 1996. provide simultaneous substitution. unless a condition of licence provides otherwise.
(ix) Specialty and Pay Television
Another component of the mix of measures consists of the licensing of Canadian
specialty programming and pay television services." These services also have Canadian
content requirements, and are under the obligation to contribute to the creation and
presentation of Canadian programs. The history of the licensing of these two services has
been described as follows:
On the English-language side, the Movie Network and Superchannel were licensed in 1982, TSN and MuchMusic licensed in 1984, Newsworld, Vision, YTV, Weather Now, and the Family Channel licensed in 1987, and Bravo, Life Network, Showcase, New Country Network, Women's Television Network (WTN), Discovery, Movie Pix and MovieMax licensed in 1994. At the samc time, a number of comparable French-language services were
In 1996, the CRTC held a further Public Hearing for the licensing of more
specialty programming services. A number of specialty and pay programming undertakings
were licensed as a result of that hearing. Those services, which are set out below, began
broadcasting in the autumn of 1997:
-4 Engbh-language channels given priority access: the Comedy Network,
78Fora study of thc history of the regulation of specialty services. see Jonathan Danieis, 'Towards New Specialty Services in Canacla: Lessons fkom History" ( 1993- 1995) 4 M.C.L.R. 27 1.
''Grant, supra note 70 at 4. CTV N; the History and Entertainment Network and TELETOON; -3 French-language channels: Le canal nouvelles, Le canal vie and Musimax; - 13 English specialty channels to be carried as a result of the deployment of digital technology or no later than September 1999. These include such channels as Canadian Learning Television (CLT),Home & Garden Television (HGTV)and Prime TV."
There are now more than fifty pay and specialty services licensed to operate in Canada.
Moreover, in 1997, the CRTC Licensed seven video-on-demand services and one pick and
pay service.
The CRTC limits the number of foreign specialty and pay television services that
distributors may carry. Sections 20(1) and 40(1) of the Broodcasting Distribution
Regulations st ate that if a broadcasting distriiution licensee provides pay and/or specialty
services, that licensee must distribute the services in accordance with the Commission's
Public Notice entitled Distribution and Linkage Requirements for Class 1 and Class 2
Licensees, unless a condition of licence provides othe~ise.~'That regulatory requirement
vhere is cumntly a freeze on the licensing of new English-language specialty channels as a result of a lack of cable channel capacity in English Canada. Channel capacity is not an issue for French-language channels because then are fewer programming services provided to residents of Quebec, which in turn is caused by the limited number of French-language services licensed. There will be a Public Hearing for the licensing of French-language services in December 1998. See Public Notice CRTC 1998-79 (Revised Process for consideration of new English-language Pay and Specialty Television Applications), 30 July 1998 and Public Notice CRTC 1998-46 (Public Heariag for New French-Language Specialty SefVices).8 May 1998.
a'Public Notice CRTC 1997-151 (Dismion and Liakage Requirements for Class I and Class 2 Licensees). 22 December 1997. provides that Canadian specialty services may be linked with eligible non-Canadian
services on a one to one basis. It also provides that Canadian pay television services may
be linked with no more than five eligible non-Canadian channels.
The CRTC allows distributors to carry non-Canadian sentices. such as The Arts
and Entertainment Network (AH),CNN Headline News. The Learning Channel and
BBC World. by adding them to its lists of eligible satellite services. The Commission has,
however. irnpkrnented a moratorium on the addition of non-Canadian services to the list
of eligible satellite services.a2
In 1987, the CRTC adopted distniution and linkage requirements, which stated
that it would not be in the public interest of the Canadian broadcasting system to allow the
carriage of non-Canadian specialty or pay television services that could be considered
either totally or partially competitive with Canadian specialty or pay services. Those
requirements also. stated that the authority for a cable company to carry a non-Canadian
service could be terminated if the Commission licensed a Canadian service in a competitive
format. Moreover, the CRTC stated that if a non-Canadian service becam competitive
UPublic Notice CRTC 1997-33-2 (Postponement of Public Hearing to Consider New Specialty and Pay Tekvision Applications). I I December 1997. Section 6 of that Public Notice reads as follows: The Commission hereby announces a moratorium, effective immediately, on the addition of any new foreign services to the lists of eligible satellite services. This moratorium shall remain in place until somtime after the public hearing is held to consider the applications for new Canadian specialty services filed pursuant to Public Notice CRTC 1997-33." with a Canadian programming service because of a variation in a programming service's
format, the Commission could terminate the authority of the nonoCanadian service to
broadcast in Canada.
In 1994, the CRTC licensed a Canadian Country Music specialty channel known as
the Country Music Network." However, an American country music channel, Country
Music Television (CMT),had been on the Commission's list of eligible satellite services
since 1984. The CRTC made a determination in 1994 that CMX', the American service,
would be competitive with the proposed format of the Canadian service, The Country
Music Network, and would have to cease operating when the Canadian service became
available.
This decision caused a great deaf of controversy in Canada and in the United
States. There was talk of a potential trade war erupting as a result of delisting CMT."
The matter was eventually resolved by The Country Music Network and CMT: the non-
Canadian service obtained an equity interest in the Canadian service and the Carddian
specialty channel operates under the nam of the non-Canadian senice, that is CMT.
%cision CRTC 1994-284 (The Partners of MH Radio of Rawlco Partnership Across Canada 93 15 10200), 6 June 1994.
UEriL R. Olbeter, "Canada Uses Guise of Culture to Build Baffiers to Trade" The Orrawa Citizen (9 October 1996). In 1997, the Commission adopted Public Notice CRTC 1997-96? which provides
that the CRTC would not be disposed to remove a non-Canadian service horn the list of
eligible satellite services. even where it licensed a Canadian service in a competitive
format." This policy would appear to have ken adopted in response to the trade conflict
that arose as a result of the country music specialty programming services.
(x) Canadian Content Expenditures and Exhibition
The CRTC has adopted a requirement whereby private conventional English-
language television broadcasters are required to contribute to Canadian programming
through expenditures or exhibition of programming in the under-represented entertainment
categories (drama, music and variety)." Most television broadcasters that earn more than
$10.000.000 in advertising revenues have the option to either contribute a certain amount
of funding to programming development, based on their advertisement revenues, or to
exhibit a minimum kvel of Canadian entertainment programming in the evening broadcast
period of 6 p.m. to 12 midnight. Broadcasters that earn less than $10,000,000 in
advertising revenues are generally required to make contributions to content expenditures
"S(~eviscdLists of Eligible Satellite Services), 22 December 1997.
86La~raEggertson, "CRTCAbandons Cultural Red Flag: Won't Delist U.S. Channels to Make Way for Canadian Rivals" The Globe & Moil (25 July 1997) B 1.
'"~ublicNotice CRTC 1995-48 (Introduction to Decisions Renewing the Licences of Privately-Owned English-language Television Stations), 24 March 1995. based on a specified formula. These expenditure requirements are not necessarily directed
to a recognized production fund, such as the CTF. The English-language broadcasters
may remit the content expenditure monies directly to production houses.
Cable and direct-to-home satellite broadcasting undertakings are also required to
make financial contriiutions to the production of new Canadian programming. With
regard to cable operators, section 29 of the Broadcasting Distribution Regulations
provides that Class 1 and Class 2 licensees are required to contniute 5% of their gross
revenues derived from broadcasting activities to Canadian programming, unless a
condition of licence provides otherwise. That section also provides that cable distributors
may reduce thei contribution to Canadian programming based on their class of licence
and the number of subscnirs that they have, for expenditures on local expression (such
as a community channel). Further, section 44(2) of these Regulations provides that
satellite operators are also required to contribute 5% of thei gross revenues derived &om
broadcasting activities to Canadian programming. Then is, however, no provision for a
reduction for local expression because DTH is a national service. Eighty percent of the
Canadian programming contributions must go to the CTF,and the remaining 20% may go
to independently administered funds, other than the CTF in order that programs that do
not qualify for (IIT funding may receive financial support &om alternative sources."
"See Public Notice CRTC 1997-25 (New Regulatory Framework for Broadcasting Distridution Undertakings), 1 1 March 1997; Public Notice CRTC 1997-98 (Contributions to (xi) Distribution and Linkage
As mentioned in the above section on specialty and pay television services. the
Commission has adopted Distriiution and Linkage Rules for broadcasting distribution
undertaking^.'^ These rules were adopted in order to determine the manner in which cable
and DTH services would deliver Canadian and non-Canadian specialty and pay services to Canadians.
The distribution and linkage rules for Class 1 and Class 2 cable Licensees set out
that Canadian specialty services may be linked with non-Canadian services on a one to one
basis. These ruks also provide that Canadian pay television services may be linked with
no more than five eligible nonCanadian channel^.^ Moreover. cable services cannot link
non-Canadian specialty and pay services with other Canadian programming services
distributed on the basic tier, and a cable licensee is not permitted to offer a tier that
contains non-Canadian services only. Finally, a cable licensee may distribute a U.S.
superstation within a discretionary tier with other Canadian pay and specialty services.
Canadian Programming by Broadcasting Distriiution Undertakings), 22 July 1997; & Broadcasting Distribution Regulations, SOW97-555.s. 29 & 44.
''see Broadcasting Distribution Regufationr, SORf97-555,s. 20 & s. 40; Public Notice CRTC 1997-15 1 (Distri'bution aad Linkage Requiremnts for Class 1 and Class 2 Licensees), 22 December 1997; & Public Notice CRTC 1997-150 (Linkage Requiremnts for Direct-to-Horn (DTH)Satellite Distribution Undenhgs). 2 May 1997.
?Linkage requkmnts apply to programmiag services other than single or limited point of view religious services! distniuted as discretionary services. where that tier is distributed on a digital basis
The distribution and linkage requirements for DTH undertakings are almost
identical to those established for cable. The only differences are that the linkage
requirement for pay services does not apply to DTH pay-per-view television programming
undertakings. and the linkage requirements for U.S. supentations do not, of course,
provide a condition that the tier be distributed on a digital basis?
The purpose of these rules is to promote the success of Canadian pay and specialty
services in order that they may achieve the cultural objectives of the Broodcasting Act.
They were also adopted in order to satis@ the demand of subscnin for access to a wide
variety of Canadian and non-Canadian specialty and pay se~ces."
(xii) Priority Camage
In order to ensure that Canadian programs are carrkd by distribution undertakings.
priority access rules have ken adopted by the CRTC. These rules provide that Class 1
9iExampksof U.S. supentations are American Ckusics. Comedy Central and the Game Show Network*
%PublicNotice CRTC 1997-50 (Linkage Requiremnts for Direct-to-Home (DTH) Satellite Distniution Undertakings), 2 May 1997.
93PublicNotice CRTC 1996-69 (Call for Comments on a proposed Approach for the Regulation of Broadcasting Distribution Undertakings), 17 May 1996. and 2 licensees of cable undertakings must distniute as part of their basic service, the
programming services of the CBC,educational programming services. local television
stations and regional stations. Cable undertakings must also distniute the programming
services of at least one television station that broadcasts in English and one in French. if
they are received by satellite or microwave relay."
DTH undertakings must carry one English language and one French-language
CBC programming services." They must aiso provide programming services of at least
one affiliated station of each of the two national television networks, that is CTV
Television Network Ltd. and the CBC.
(xiii) Camage of Video channels by Broadcasting Distribution Undertakings
Section 6(2) of the Broadcasting Distribution ~eguIations96requires that
distriiution undertakings ensure that o majority of the video channels that they carry are
Canadian, unless a condition of licence provides othewise. In Decision CRTC 95-599, a
licensee that carried the same number of Canadian and American video services was
%roadcasting Distribution Regulations, SOR/97-555,s. 17( 1).
"lbid, s. 37(a).
%0~97-555. required to add another Canadian service to its offerings." The Commission has adopted
this measure in order to ensure that there is a preponderance of Canadian services
provided to Canadians. It has also been adopted in order to ensure that Canadian services
have access to distribution mediums which is crucial to their financial success.
(xiv) Educational Broadcasting and Community Channels
The CRTC also licenses educational broadcasters and community channels9' in
order to ensure that there is diversity in the Canadian broadcasting system Section 3(I) of
the Broadcasting Act provides that "the programming provided by the Canadian
broadcasting system should include educational programs and community programs. ""
Section 30of that Act provides that "educational programming, particularly where
provided through the facilities of an independent educational authority, is an integral part
of the Canadian broadcasting system."1m These programming undertakings provide an
alternative to the commercial broadcasters. provide access to broadcasting to groups that
might not otherwise have access to the system, and contribute to the goals of the
"(~cotiaCablevision Limited River Hebea, River Hebert East and Joggins, Nova Sco tia), 25 August 1995.
'*For over 25 years, the Commission required cable operators to operate a community channel. In 1997, however, the CRTC changed its policy and eliminated this requirement. See Public Notice CRTC 1997-150 (Broadcasting Distribution Regulations), 22 December 1997.
'9bid. Broadcasting Act.
2.5 Conclusion
As indicated above, the foreign ownership restrictions are part of a diverse mix of
measures that has been carefully designed in order to preserve and promote Canadian
culture. The mix contemplates carriers of content. the creation of content and access to
content. Thus. incentives are in place to assist Canadian television broadcasters to achieve
£inancia1 success in order that they may contribute to the continued development of indigenous Canadian culture. Measures are also in place to ensure that Canadian content is created and made available to Canadian viewers. The purpose of the foreign ownership measures in the mix is to ensure that non-Canadians do not control the manner in which television broadcasting se~cesare provided to Canadians.
The following chapter will review the history of the foreign ownership from the advent of radio broadcasting to the end of the 1980s. It wU show how radio and television policies developed, with a particular emphasis on the foreign ownership restrictions. It will also show that the Canadian government has attempted to protect the
Canadian broadcasting system from outside pressure since the inception of broadcasting in
Canada, Chapter 3 - The History of the Foreign Ownership Restrictions
3.1 Introduction
A review of government initiatives in broadcasting, fkom the advent of radio onward, will be the focus of this chapter. Although radio and television are now considered two separate forms of communication, radio precedes television in the broadcasting evolutionary chain. The federal government Snt began developing policies. legislation and regulations for radio broadcasting. Those measures and principles were then carried over to the regulation of the television broadcasting industry as it developed in Canada. It is thus important to review the origins of broadcasting policy and legislation in order to fully understand how we arrived at the present regulatory regime.
3.2 Tbe Early Days of Broadcasting
The Canadian government first adopted legislation in the area of broadcasting in
1905 when it adopted the Wireless Telegraph ~ct."' The extent of government intewention at that tim was limited, as there were no ownership, programming or content restrictions to be found in that legi~lation.'~That Act did, however, provide that anyone
who conducted wireless telegraphy was required to obtain a licence fiom the Minister of
ImSeegeneraUy, DOM~Soble, Broad~~ngLow in Canado: Fairness in the Administrative Process (Toronto: Carswe& 1987). Marine and Fisheries. lo3
The first signs of foreign ownership restrictions in radio transmissions appeared when the Canadian government adopted the Radiotelegraph ~cr'~in 19 13. The purpose of that legislation was to regulate radio signals fiom ship to shore. For security reasons, that statute limited those who could be employed as radiotelegraph operators to British subjects.lo5 Section 6 of the Radiotelegraph ~ct''~limited the class of individuals permitted to work as a telegraph operator to British subjects. There was a concern at that time that foreigners would interfere with Canadian radio signals used to relay nautical navigation and commercial information. The Canadian government was thus attempting to protect the privacy of radiotelegraphic rnssage~.'~~One commentator has stated that the govemnttsassumption in adopting section 6 of the Radiotelegraph Act was that only British subjects could k trusted with the vital responsibility of working in radio telegraphy. 'OS
------lo3wireless Telegraph Act, S.C. 1905, c.49, s. 3.
'oS~udiotelegraphAct, s. 6; see also Jeffrey Kowd "Foreign Investment Restrictions in Canadian Television Broadcasting: A Call For Reform" (1992) 50 U.T Fac. L. Rev. 61 at 95,
'07Kowall, sum note I05 at 65. The Radiotelegraph Act of 1913 was also significant because it made provisions
for voice transmission and "anticipated the coming innovation of sound br~adcasting."'~
Section 2(b) of that Act defines ''radiotelegraph" to include "any wireless system for
conveying electric signals or messages including radiote1eph0nes."~'~The main purpose of
the Radiotelegraph Act was, however, to regulate point to point transmissions. l1
Radio broadcasting in Canada began in 1919, when the Canadian Marconi
Wneless Telegraph Company of Montreal (now CFCF) obtained a License to broadcast
from the federal Department of Marine and Fisheries. Marconi subsequently a~eda series
of test programmes. By 1922, radio broadcasting was being transmitted in a number of
areas in Canada. At that time, there was a total of seventy broadcasting Licenses issued by
the Department of Marine and Fi~heries"~.all of which were granted to Canadian.
As radio was becoming increasingly popular and the industry became more
ubiquitous, the federal govemnt undertook to adopt new legislative measures. In 1922,
'%arc Raboy, Missed Opportunities: The Story of Canada's Broadcasting Policy (Canada: McGill-Queen's University Press, 1990) at 2 1.
''OThe Radiotelegraph Act, S.C. 1913, c. 43, s. 2(b).
"'Frank W. Peers, Tho Politics cf CadanBroadcasting: 1920-1951 (Canada, University of Toronto Press, 1969) at 15.
lL2Soble,supra note 102 at 1. See also E. Austin Weir, The Smggle for Natio~l Broadcmting in C~M&(Toronto: McCklland and Stewart. 1965) at 1; & Rabo y, supra note 109 at 21. regulations under the Radiotelegraph Act were adopted, which established three classes of licences: 1) private commercial broadcasting, which permitted broadcasting of news, information and entutainmcnt"' 2) amateur broadcasting stations. and 3) private receiving stations.''' The adoption of the new class of licensees was indicative of the fact that radio was beginning to be used for more than military and rnarine purposes, and that the entertainment component of broadcasting was taking on greater importance.
3.3 The 1920s -The Birth of Canadian Broadcasting Policy
Radio was a popular phenomenon in the 1920s. By the middle of that decade, however, a number of issues surfaced in Canada due to the strength of the American radio industry and its impact on Canadian radio. Firstly, Canada was confronted with the problem of limited broadcasting spectrum. By 1923, the U. S . had allocated almost every channel to American stations, including frequencies that Canada had considered its own. 'Is
The situation improved somewhat for Canada in 1924 when, ''the United States
Department of Commrce agreed to regard six cha~eis(out of ninety-five) as exclusive for Ca~~ada.""~Another problem centred on the high level of radio frequency interference by high powered American and Mexican radio stations. Canadian programs were thus
1'3Peers.supra note 11 1 at 16. 'I4Ibid.
"%id. lL6ibid.at 19. being frequently intempted by the transmission of those foreign high-powered stations."'
This was. of course, very fistrating for Canadian listeners.
Another issue that arose at that time was the extent of American programming made available in Canada fkom both Canadian and American radio stations. By January
1925, there were 555 stations in the US., which included 138 stations that had "a power of 500 watts or Half of those high-powered stations were in the Great Lakes area and were easily accessed by Canadians. l9
Due to the strength of the Amrican radio broadcasting indusw. there was a growing concern in Canada that broadcasting would bc absorbed into the Amrican radio system which, it was thought, would result in Canada's cultural annexation to the U.S.lZO
"Many citizens disturbed over the predominance of American programing on Canadian radio station^"'^' lobbied to the fderal govanmnt in order that it adopt a strategy to ensure the continued existence of the Canadian radio industry.
'"Canada, Royal Commission on Natio~lDevelopments in the AAr, Loners and Sciences, 1949-1951 (Ottawa: King's Printer, 1951) (Chair: Rt. Hon. V. Massey) at 24. %mda, Department of Communications, Vital Links: Cunudian CultziraI Industries (Ottawa: Minister of Supply and Services, 1987) at 6 1. At that tim,the Canadian government was not certain how broadcasting as a medium should develop. Ottawa, therefore, established, on December 6. 1928, the first
Royal Commission on Broadcasting.'* The newly established Commission was to be chaired by Sir John Aird, the president of the Canadian Bank of Commerce. The Aird commission also included Augustan Frigon, a technical expert in radio, and Charles
Bowman, the editor of The Ottawa Citizen. The mandate of the Aird Commission was to
"examine into the broadcasting situation in the Dominion of Canada and to make recommendations to the Govenunent as to the future administration, management. control and financing thereof. " '" The objective of the Commission was to inquire into "how radio broadcasting in Canada could be most effectively carried on in the interests of
Canadian listeners and in the national interests of Canada."'%
The final report of the Aird Commission was released on September 1 1. 1929, and made several recommendations. One finding that was unanimous among the
Commissioners was that "Canadian radio listeners want Canadian broadcasting."'" The
Aird Report stressed the importance of a Canadian presence in broadcasting in Canada.
'%is Commission has become commonly known as the Aird Commission.
'UReponof the Royal Conmission on Radio Broadcasting (Ottawa: King's Printer, 1929) (Chair: Sir I. Aird) [herein& Aird Report]. which would foster national culture and unity. In describing the broadcasting situation in
Canada, the Aird Report stated:
At present the majority of programs heard are from sources outside of Canada. It has been emphasized to us that the continued reception of these has a tendency to mould the minds of the young people in the home to ideals and opinions that are not Canadian. In a country of the vast geographical dimensions of Canada, will kcom
-.If6 [emphasis added]
Further, the Aird Report hinted at the issue of Canadian content and ownership:
While the primary purpose of the service would be to give Canadian programs we think that evuy avenue should be vigorously explored to give Canadian listeners the best programs available fiom sources at home and abroad." [emphasis added]
The Aird Report also recommended that one national company should own and operate d broadcasting stations located in Canada'P It advocated that the government should operate a single national radio broadcaster and that all private stations shouid cease operating. Fiially, the Aird Report recommended that high-powend stations be erected across Canada as a method to counta the transmissions of the American high powered stations.
laibid. at 7. The issue of whether public and private broadcasters should co-exist was at the forefront of the broadcasting debate for several decades. Little was done on the issue of broadcasting in Canada immediately following the release of the Aird Report due to the economic crisis that occurred at the end of the
1920s. In the early 1930s, however, the Conservative government of R.B. Be~ett established the Parliamentary Committee on Broadcasting to review and make recommendations on the Aird Report. In announcing the establishment of the committee.
Prime Minister R.B. Bennett made the following statement:
It must be agreed that the present system of broadcasting is unsatisfactory. Canadians have the right to a system of broadcasting fiom Canadian sources equal in all respects to that of any other country. The enormous benefits of an adequate scheme of radio hoadcasting controlled and operated by Canadians are abundantly plain. Properly employed radio can be a most effective instrument in nation-building,'2g
This statement by Be~ettvirtually summarizes the Canadian broadcasting policy that has been in place for the past seven decades. That is, that Canadians have a right to a strong broadcasting industry, owned and controlled by Canadians. and that broadcasting is an important tool for the development of the country's national identity.
The Special Committee on Radio Broadcasting released its report to the House of
Commons in May 1932. It stated "the national importance and international character of radio broadcasting ...as a medium of education, thought-provoking developmnt. and fostering of Canadian ideals and culture, entutainmcnt, news service and publicity of this
'"Canada, House of Commons, Dehtes of House Commons Dominion of Canuda. Session 1932 - Volume 1-16 February 1932 at 236. country and its products, and as an auxiliary to religious and educational teaching, also as one of the most efficient rncdiums for developing a greater National and Empire consciousness within the Dominion and the British Commonwealth of ~ations.""~The report concluded that "the present system, excellent as it is in certain respects. does not meet the requirements in quality and scope of broadcasting to ensure its maximum benefits."'"
Shonly after the Special Committee on Radio Broadcasting released its repon,
Prime Minister Bennett introduced the fist radio broadcasting legislation to the members of the House of Commons. In his speech, the Prime Minister stated:
influence. Without such control radio broadcasting can never become a great agency for the communication of matters of national concern and for the diffusion of national thought and ideals, and without such control it can never be the agency by which national consciousness may be fostered and sustained and national unity still further strengthened... Secondly, no other schemt than that of public ownership can ensure to the people of this country, without regard to class or place, equal enjoyment of the benefits and pleasures of radio broadcasting. Private ownership must necessarily discriminate between densely and sparsely populated areas. This is not a correctable fault in private ownership. It is an inescapable and inherent demrit of that system "2 [emphasis added]
L%ouse of Commons. Special Committee on Radio Broadcasting, Minutes ( 1932).
13'lbid See also Raboy, supra note 109 at 45. lnCanada, H.C., "Speech in Support of Bill 94, Respecting Radio Broadcasting" in Debates (18 May 1932). Later that year, the first broadcasting legislation entitled the Canadion Radio
Broadcasting Act, 19321J3was adopted by the Parliament of Canada. This statute was relatively shon compared to the current Broadcasting ~ct.'%The 1932 Act created the
Canadian Radio Broadcasting Commission (CRBC),which was to be both the federal broadcaster and the regulator of broadcasting stations in Canada. Its focus centred on support for the development of broadcasting across Canada and permitted all Canadians access to domestic programming. "The CRBC was thus primarily a programcreadng, network-organizing, and regulatory body... it functioned in a competitive marketplace side by side with both Canadian and American private station^."'^^ The 1932 Act did not. however. prohibit foreigners firom applying for broadcast licences in Canada. With regard to the issue of frequencies, the federal government negotiated an agreement with the U.S. in order to ensure that channels would be heed for Canada, as required."'
After the Liberals defeated the Consmatives in the election of 1935, the federal govemnt adopted new broadcasting legislation. It was clear &om the beginning of the
If5~aryVipond, 'The Beginnings of Public Broadcasting in Canada: The CBC, 1932-36" (1 994) 19 Canadian Journal of Communication 15 1.
136Raboy,supra note 109 at 46. Liberal mandate that the law governing broadcasting would chanpe.l3' There had been a number of difficulties with the CRBC and the structure of broadcasting in ~anada."~The new Act, entitled the Canadian Broadcasting ~cr"~,created the Canadian Broadcasting
Corporation (CBC),which continued the CRBC's past role of broadcasting regulatory body and enhanced the srmctun of the CBC.'" The Cu~dinnBroadcasting ~ct'~'also granted the CBC the power to carry on a national broadcasting ser~ice"~.modelled on the
BBC. This reflected the recommendation made by the Aird ~eport."'
In the first decades of radio broadcasting in Canada, there was thus very little activity preventing foreign ownership in broadcasting. Ln 1942, the General Radio
Regulations. Part 11, were amended to provide the Minister of Transport with the
l3'See Peers. supra note 1 11.
L38~sone commentator noted: "[Un many senses, the CRBC experiment was a failure." The structure of this regulatory body and the lack of funding to allow it to kcom a true national broadcaster were the primary reasons for the CRBC's lack of ability to succeed. See Vipond, supra note 135 at 153.
'"1 Edw. 8, c.24.
14ZThe CBC had not been a true national broadcaster. During its four year existence it set up seven Commission stations. It also hooked up with other stations on a daily basis in order to provide programming in various anas of Canada. See Vipond, supra note 135.
'"1 Edw. 8, s. 8. discretion to deterrnine the degree of multiple foreign ownership that would be permissible in individual cases. The Minister. however, never made any prohibitions or regulations that would limit foreign o~nership.'~
3.4 The 1950s and 609 - The First Express Limitations to Foreign Ownership
Canadian television broadcasting began in the 1950s with the launch by CBC of the first Canadian televisicln broadcasting service. This was, however, four years after our neighbour to the South was transmitting television programs to viewers in ~anada.149y
1951, there were approximately 146.000 television households in Canada, and by 1957 there were an estimated 2,000,000 households with televisions.
The next signifcant event in the regulation of broadcasting in Canada was the creation of the Royal Commission on National Developmnts in the Arts, Letters and
Sciences. commonly known as the Massey Codsion. On January 26, 1949, the Speech from the Throne formally announced the federal govunment's intention to appoint a Royal
Commission that would study "the governmnt's cultural institutions, Canada's
'*Canadian Radio Television Commission. Canadian Ownership in Broadcasting: A Repon on the Foreign Divestiture Process (Ottawa: Queen's Printer. 1974) at 3.
14*JeBey,supra note 1 at 207. international cultural relations and related matters."L46
The Royal Comrrbsion was chaired by Vincent Massey who was viewed as an expert on the arts. He had published a book in 1948 on Canadian culture and nationalism entitled On Being Cu~dian;he served on a number of boards for cuiturd institutions such as the Royal Ontario Museum, the National Gailery of Canada and the Tate Gallery in Britain. Massey was also a Liberal and served as High Commissioner in London and
Ambassador to the US. In 1952, Vincent Massey was appointed to the position of
Governor-General of Canada and would be the first Canadian-born person to hold that position. l"
At the end of the 1940s, the federal govemment was faced with a numkr of questions "hat demanded urgent attenti~n"'~in the area of broadcasting. Austin Peers has summarized these concerns as follows:
First, an authoritative answer was needed on who should regulate and control the activities of private stations; their scope and function had to be defined or restated. Second, financial provision had to k made for the CBC; the licence fee of $2.50 was now clearly inadequate. The govemment had to decide whether to increase the fee substantially or find
I4Paul Litt, The Muses. The Mosses and the Marsey Commission (Toronto: University of Toronto Press. 1992) at 30.
"Raboy, supra note 109. lUPeers.supra note 1 11 at 394. some other means of supporting the public system Third, there was the new problem of television. The country, it seemed, would be faced with the same kinds of difficult choices that had confronted it when radio broadcasting had developed. The difference was the pace would be faster. the costs would be greater - and the stakes would be higher. This time, the fundamental choice had to be made at the beginning: would television for Canadians start under public or private auspices, and how would it be extended to cover the country?149
The Massey Report "has long been associated with the dawn of a new era in
Canadian cultural affairs."LsoIt was among the first to issue a clear warning that it was dangerous to depend on American culture in the post war world, and proposed a strategy for government sponsored Canadian cultural development. Is'
At the time of the release of the Massey Report, television was in its very early stages. The govemment had not yet granted any television licences. The Massey Report proposed that "direction and control of television broadcasting in Canada continue to be vested in the Canadian Broadcasting ~orporation"'~,the fcderai regulator.
The Massey Report did not deal with the issue of foreign ownership because it was
- L491bid.at 394.
15"Litt, supm note 146 at 3. lSLlbid. lS~asseyReport, supra note 120 at 303. not yet viewed as a major obstacle to the Canadian broadcasting system The report did. however, discuss the importance of a national system of broadcasting to national unity. It refers to the threat of U.S. cornt-nercial radio, since the 1920s, to Canadian culture:
In the early days of broadcasting, Canada was in real danger of cultural annexation to the United States. Action taken on radio broadcasting by governments representing all parties made it possible for her to maintain her cultural identity.ln
The Massey Report stated that Canada's national system of broadcasting was designed to unify and bring together Canadians kom coast to coast and that the two chief objectives of the national system of broadcastinglY were national unity and education "in the broad sense. " l"
In general the Massey Repon recomnded the status quo for broadcasting in
Canada. It did, however, go beyond the Canadian government's ideology on the specific issue of private broadcasters. It stated that it was in the national interest for private broadcasters to form part of the system? The report went on to state that the two main problems that continued to exist for broadcasting in Canada consisted of the lack of
?bid. at 280.
'YThe national system refers to private and public broadcasters that serve Canadians. l'~asseyReport, supra note 120 at 47.
1561bid.at 27. funding in the public sector &'andthe dissatisfaction of the private sector with its stat~s-"'~
But, the Massey Report rejected the private broadcasters' request for a separate regulatory body from the CBC. The Comrnission found that to divide the two would be detrimental to the national system of broadcasting "and would result in two independent groups of radio broadcasting stations, one public and one private."'58 Tidy, the Massey
Commission recommended that the government contribute more funding to the CBC in order that it might more Myfuifil its mandate of national broadcaster.
The 1950s saw the creation of a third Royal Commission on Broadcasting. This
was three years after the beginning of television broadcasting in Canada and was in
accordance with a recommendation made by the Massey Commission.'" The
Commissioners of the newly appointed Commission included Ro ben MacLaren Fowler.
"an Ontario lawyer, formerly on the staff of the Rowell-Sitois Commission on Dominion-
Provincial Relations, General Counsel and secretary of the Wartime Prices and Trade
Board (1942-45). and Resident of the Canadian Pulp and Paper ~ssociation""; Edmond
Turcotte, "Canadian Ambassador to Colombia, fonner editor of Le Cam& and a
In Raboy, supra note 109 at 103.
'Sg~asseyReport, supra note 120 at 285.
''?he Massey Commission had recommended that the whole issue of television be reviewed no later than three years after the commencement of Canadian television broadcasting. See ibid. at 305. 'Weir, supra note 112 at 289. member of Canadian delegations to various UNESCO conference^"'^'; and James Stewan.
"Resident of the Canadian Bank of C~rnmerce."'~~
The Fowler Cornmission's terms of reference were summarized by Austin Weir as fo Do w s:
The terms of reference were to examine and make recommendations upon: (a) The policies to be followed by the CBC in its television activities: (b) the measures necessary to provide an adequate proportion of Canadian programs for both public and private stations; (c) the financial requirements of the CBC for both television and radio broadcasting, in light of the development of the former and the growth of population in new areas; (d) the manner in which such financial requirements should be provided and managed; (e) the licensing and control of private television and sound broadcasting stations and other related matters.'"
The task of the Fowler Commission was, thus, very onerous. The government instructed the Fowler Commission to consider a number of issues surrounding the CBC including those of licensing and control of private television and radio broadcasting in Canada?'
The central issue was "the relationship of the public and private components of the system and the question of how the system should be controlled. The government's main concern
L631bid.at 289. See also Order in Council P.C. 1955-1796 for the Terms of Reference of the Fowler Commission. laweir, supra note 112 at 289. was to assess the likely long-term cost of a television policy for Canada."'"
The Fowler Commission completed its report in 1957, at which time there were
189 radio stations, 38 television stations and "a handful of cable television systems. "Iw
Contrary to the hdReport. the Fowler Commission proposed a single national broadcasting system composed of both private and public broadcasters. It also recommended that a regulatory body separate from the CBC be established.16' Further, the Fowler Commission recommended that there be a strong presence of Canadian content over the air as well as the development of a Canadian sense of identity. The Commission also recognized that the forces of economics drive private broadcasters to air American
We cannot choose between a Canadian broadcasting system controlled by the state and a Canadian competitive system in private hands. The choice is between a Canadian state-controlled system with some flow of programmes east and west across Canada, with somc Canadian content and the development of a Canadian sense of identity, at a substantial public cost. and a privately owned system which the forces of economics will necessarily make predominantly dependent on imported American radio and television pro granunes. '"
The Fowler report stated that the main reason that the Canadian broadcasting
16.'Raboy, supra note 109 at 118.
IMCRTC,supra note 144 at 4.
167~eponathe Royal Commission on Broadcasting Vol. I (Ottawa: Queen's Printer, 15 March 1957) (Chair: Mr. RM. Fowler) at 91. system was having difficulties was because of its proximity to the US.:
[Ut is not our national size or sparse population that alone causes our difficulties in creating and maintaining a broadcas~gsystem The central. unique fact about Canadian broadcasting is that we are here in North America, a nation of 16 million people living beside a nation of 168 million which speaks the language of our majority and is rich, inventive, with a highly developed broadcasting system of its own. No other country is similarly helped and embanassed by the close proximity of the United States,
But as a nation we cannot accept, in these powerful and persuasive media, the natural and complete flow of another nation's culture without danger to our national identity. Can we resist a tidal wave of American cultural activity? Can we retain a Canadian identity, art and culture - a Canadian natio nho
During the course of the Fowler Commission's inquiry, the Board of Broadcast
Governors (BBG)of the CBC was presented with an application for the transfer of 113 of the common shares of a Windsor, Ontario, radio and television station to an American owned company, RKO Distributing Corporation of Canada.L70The BBG approved the transfer on the condition that no further dilution of the Canadian interest in the Wmdsor station would take place. The BBG then rquested that the federai government provide some direction on the issue of foreign owmrship in order to be better equipped to deal with future applications. The BBG also made the following recornnndation:
[lhat the Licensing Authority give consideration to this rnatter and to the desirability of a provision relating to the degree of non-Canadian control.
'?bid. at 8.
'")See KowaII, supra note 105 at 69. direct or indirect, in the use of a Canadian air channel, possibly along the Lines of the U.S. provision limiting the amount of alien interest in a licensed station in that country to 20 per cent.'''
The final report submitted by the Fowler Commission broke out of the mould of the past Royal C~nrmissionsby dealing directly with the issue of foreign ownership in broadcasting. It recommended that foreign interests in Canadian broadcasting undertakings be limited to 20%. Broadcasting, it said, has a great influence on the opinions of individuals and that facilities should therefore remain in the hands of
Canadians.lE The Fowler Repon then stated that existing broadcasters who exceeded t investment restrictions should benefit fiom a grandfather clause in order to remain in operation:
We recommend that there should be a statutory provision prohibiting any future acquisition of more than 20 per cent of the ownership of any Canadian radio or television station, directly or indirectly, by non- Canadians. We think that any existing cases of a higher percentage of foreign ownership are rare and arose fiom special circumstances; they are not serious and it would be unfair, having granted licenses with knowledge of the foreign ownership, to require these interests to be sold. The drafting of an effective statutory provision is difficult as it must cover not only direct o wnershq by non-Canadians but also ownership by Canadian subsidiaries of foreign companies.
In making this recormndation ...we recognize the many substantial advantages Canada has gained kom foreign investment in other fields. In broadcasting, dealing as it does with diaof public information and wielding so great an influence on opinion, we feel that facilities should be kept substantially in Canadian hands. If radio and television are to serve
L7L~owIerReport, supra note 167 at 23.
'?bid. at 106. the Canadian purpose which alone justifies the difficulty and expense of maintaining a Canadian broadcasting system these purposes should not be endangered by allowing individual stations to pass out of the control of Canadians.
The concern at the time that the Fowler Commission released its recommendations was not that Americans actually heid and controlled Canadian broadcasting companies but rather that the U.S. was dominating the entire Canadian broadcasting service with regards to programming distribution. Limiting foreign ownership was viewed as a way to maintain the integrity of the Canadian broadcasting system
Subsequent to the submission of the Fowler Report. the federal govemnt adopted new broadcasting legislation which repealed the Camdim Broadcasting Act of
1936. The 1958 Broadcasting ~ct'"would k the first statute to regulate television broadcasting. It also contained the first express provisions limiting foreign ownership in broadcasting. The federal govemmcnt followed the Fowler Commissions' recommendations on the issue of foreign ownerslup, although not to the letter. Under the new Act, foreign ownership was limited to 25%" of the voting shares of the broadcasting . undertaking. It also provided that 2/3 of the Board of Directors and the chairman or other
''?he Fowler Report had suggested a 20% limit on foreign interest in Canadian broadcasting companies. presiding officer were required to be Canadian citizens.'" Further. this Act made provisions to "grandfather" existing broadcast carriers that did not comply with the foreign ownership restrictions.
The Broadcasring Act of 1958 also created the Board of Broadcast Governors, thereby divesting the national public broadcaster of its responsibility to regulate and license the Canadian broadcasting system The "single system" was eliminated. after MY years of debate and controversy. There would be a separate body that would regulate broadcasting in Canada and the CBC would have the single mandate of being the national broadcaster,
In the 1960s the federai government set out to up-date the broadcasting legislation yet again. As a precursor to the legislation, the federal government released the
White Paper on Broadcarting in 1966."' This document reiterated the importance of developing and maintaining a "national system of radio and television broadcasting in
Canada". which was seen as an essential "part of the continuing resolve for Canadian identity and Canadian unity."In The White Paper set out the governmnt's policies on
176~roadcasringAct, S.C. 1991, c. 11, s. 14(1).
'"~anada, Secretary of State, White Paper on Broadcasting (Ottawa: Information Canada 1966) at 5 [hereinafter White Paper]. broadcasting and priorities for the next broadcasting act.
With regards to the issue of foreign ownership of Canadian communications facilities. the report stated that control of these facilities should remain in the bands of
Canadians:
Another important aspect of licensing policy in the field of radio and television which requires attention is the ownership of broadcasting facilities. It has always been recognized that the controi af Canadian communications facilities should remain in Canadian hands. There are already instances of foreign ownership and potential foreign control extending markedly into the field of Canadian communications facilities. particularly in the community-antenna television systems.
The report also stated that the new proposed legislation will,
authorize the Government to give guidance to the Board of Broadcast Governors aimed at preventing foreign control of broadcasting facilities... that is not in the public interest.179
By 1966, the importance of Canadian ownership and control of communications facilities was well entrenched in the govenuaent's psyche.'* At this time in Canada's history, foreign ownership was considered a serious menace to Canada's economy and sovereignty. Canada was about to celebrate its 100th anniversary and there was a sense of national pride both in French and English Canada Things foreign wen considered bad and not necessarily in the best interest of Canadians.
'79~bid.at 13.
'%owall, supra note 105. When Prime Minister Lester B. Pearson commented on the new broadcasting legislation in the House of Commons, he stated that the proposed broadcasting legislation's fundamental objective was to "ensure Canadian ownership and control"'81of the broadcasting system in Canada. These remarks might have reflected the fact that by the end of the 1960s. foreign ownership had become an integral and key component of the federal government's broadcast policy.
Except for the new provisions regulating the cable sector, the 1968 Broadcosting
Act was viewed as an bbhprovedversion" of the 1958 legislation.'" It expanded on the role of the CBC and replaced the BBG with the Canadian Radio-Television
Commission. 18' The new Broadcasting ~n'"included new foreign ownership restrictions. which were more stringent than those that had existed under the previous legislation. Explicit objectives respecting foreign ownership were set out in the Act, which provided "an effective process ...to ensure Canadian ownership." I" This new Act
'81FrankW. Peers, The Public Eye: Television and The Politics of Canadian Broadcasting 19524968 (Canada: University of Toronto Press. 1979) at 408; see also Kowal, supra note 105 at 71.
I8%e Canadian Radio-Television Commission became the Canadian Radio-Television and Telecommunications Commission in 1976.
'%ratavision Inc., Ownership Structure and Behaviour in the Canadian Broadcasting System - Prepared for the Task Force on Broadcasting Policy (Toronto: Strata)rision Inc., was the first to provide a policy statement on Canadian ownership and control in
broadcasting, which is found, with some modifications, in the current legislation.
Section 3(b) of the 1968 Broadcasting Act provides that:
the Canadian broadcasting system should be effectively owned and controlled by Canadians so as to safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada.
The foreign ownership provisions were not, however, limited to the poky statement.
Sections 27(1) and 22(l)(a)(iii)of that Act, provide that the Governor in Council
(Cabinet) has the authority to issue Orders in Council which limit the class of eligible applicants to whom broadcasting licenses may k issued. The federal Cabinet issued a series of Directives between 1968 and 197 1 in accordance with the Act on the issue of foreign ownership. The first one was adopted on September 20, 1968, the second on
March 27. 1969 and the third one in 197 1. The last of the thee Directives remained in effect untii April 1996.
The tirst Directive Iimited ownership of a television broadcasting undertaking by foreigners to 20% of the voting shans. lab The Directive also provided that all members of the Board of Directors of a television broadcasting undertaking must be Canadian citizens and that foreign ownenhip of aJl investment (which included debt capital and retained earnings) be limited to 604.'" Moreover. this Directive stated that undertakings that were owned by a series of holding companies were under the obligation to comply with the foreign ownership provisions up to one corporate level of control. '8"hus, the legislation of 1968 did not contain a "grandfather" clause unlike the 1958 statute.
The second Directive on foreign ownership issued by Cabinet revised the fmt to include cable companies. It also eliminated the 6096 requirement with regards to debt capital and retained earnings and provided that foreign governments could not own or control a Canadian broadcasting facility. Moreover, the Directive stated that the holding companies of broadcast licensees satisfy the 80% Canadian ownership requirement up to two corporate levels of control.
In 197 1, Cabinet issued a third Directive to the CRTC, which extended the definition of an eligible corporation to include corporations without share capital. lg9 This new Directive also made provisions to allow financial intermediaries to invest in Canadian broadcasting corporations.
bid lu1bid
L89~irectionto the CRTC (Eligible Canadian Corporations), C.R.C., c.376. Due to the government's Directives issued to the CRTC regarding foreign ownership, extensive divestiture transactions of broadcasting undertakings began in 1969 and went on through to 1973.'~A total of 80 divestitures took place during that period.
Approximately $150 million in broadcasting holdings were affected, with seventy-nine divestitures of American holdings in Canadian broadcasting companies. lg1 Of the seventy- nine divestitures, twenty-four were in broadcasting and fifty-five were in cable.'" Two particular American corporations were most affected by the government Directives on foreign ownership. These were the Famous Players Canadian Corporate Limited and the
Columbia Broadcasting System Limited which involved the largest divestitures. lq3
3.5 The 1980s - Foreign Ownership Remains Unchanged
The 1980s were not without their share of commissions, committees and task forces studying broadcasting in Canada. Most studies reafCirmcd past government priorities of nation building, unity and Canadian control. At the beginning of the decade,
'%id. at 6.
'g'Kowall, supra note 105 at 73.
l9%e holdings of these companies were transferred to a number of Canadian corporations and individuals in order that they cornply with the ownership restrictions. In other instances. the CBC purchased the American interests as there were no other applicants (for instance, Iron Ore Company of Canada Aviation Limited). It appears that mostly Canadian broadcasters and broadcasting companies invested in the foreign companies as a result of the divestiture. Moreover, in some cases. foreign investors maintained a 20% interest permissible by law. See Canadian Radio Television Commission, supra note 144. the Llbral government appointed the Federal Cultural Policy Review Committee, which
was co-chaired by Louis Applebaum and Jacques Heben. This committee performed a
sweeping review of the many facets of the cultural sectors in ~anada.'" At the time that
the Applebaum-Hebert Report was released, the broadcasting system in Canada was at a
critical turning point. The manner in which television would be consumed by many
Canadians was about to change. Pay and specialty programmhg services were soon to be
granted licenses by the CRTC for the first time; cable penetration was reaching great
heights; VCR's wen increasingiy being used by home viewers, and there was increawd
talk of satellite television. The ApplebaumHCben Report thus focused a great deal on
how to integrate these new services into the Canadian broadcasting system
The repon does not, however. delve very far into the issue of foreign ownership in
broadcasting. The members of the Committee were, nonetheless, critical of the
broadcasting system for not having enhanced Canadian culture as much as it could have:
r]he broadcasting system is "effectively owned and controlled by Canadians," but has that safeguarded, enriched and strengthened the cultural fabric of Canada?... The Committee, however, believes that those objectives which are properly cutural have not, on the whole, been attained as fully as they could have been.lgS
Iyhe committee reported on contemporary visual and applied arts, the performing arts, writing, publishing and reading, sound recording, film. international cultural relations and broadcasting.
'gs~anada.Repon of the Federal Culncml Policy Review Cumminee (Applebaum-H&n) (Ottawa: Minister of Supply and Services Canada, 1982). The committee focused its recommendations on the strengthening of the CBC and the
CRTC, and on calls for new broadcasting legislation. By this time, foreign ownership had become an integral and accepted part of the broadcasting legislation.
In the mid 1980s. the newly elected Conservative government of Brian Mulroney began a review of the broadcasting policy by commissioning the Task Force on .
Broadcasting policy.'% The co-chairs of the Task Force were "Gerald Caplan. a former national secretary of the NDP, and Florian Sauvageau, a Lava1 University communications professor."'" The terms of reference requested that this Task Force "make recommendations on an industria and cultural strategy to govern the future evolution of the Canadian broadcasting system through the remainder of this century."'gg The Task
Force was also asked to make recommendations on,
appropriate public policy objectives for the Canadian broadcasting system..the roh of the national public broadcasting senice and private broadcasting sector... the demand and desires of the public... the role of regulation and other policy instruments and the mans of reducing structural impediments to the broadcasting system's contribution to the Canadian economy and society.
The 1986 Repon of the Tusk Force on Broadcasting Policy (Caplan-Sauvageau)
'%~aboy,supra note 109 at 299.
''&rerms of Reference for the Task Force, Appendix A, Report of the Task Force on Broadcasting Policy at 703. released by the Task Force dealt very briefly with the issue of foreign ownership and recommnded that Canadian broadcasting continue to be owned and controlled by
Canadians:
After the 1968 Broadcasting Act was passed, foreign ownership in all broadcasting entities was reduced to a minority and non-controlling position. The purpose is to protect Canada's cultural sovereignty by ensuring that decision-making is in Canadian hands. We rwm*. &
[emphasis added]
The report of the Task Force on Broadcasting Policy was then referred to the
House of Commons Standing Committee on Communications and Culture which went on to make the following recommendation with regards to foreign ownership:
The government should clarify the provisions of its directive on Canadian ownership and control of broadcasting undertakings, particularly the requirements related to paid-up capital, in order to ensure that the directive is clear and effectively achkves its purpose of ensuring both ownership and control by Canadian~.~'
The House of Coqons Standing Committee on Communications and Culture thus recommended that the federai govemmnt consider clartfylng the directive relating to foreign ownership. These recommndations were not, however, implemnted by the
mCanada, Report of the Tark Force on Broadcasting Policy (Caplan-Sauvageau) (Ottawa: Queen's Printer. 1986) at 639.
%mad&H.C., Standing Cornmittee on Communications and Culture, "A Broadcasting Policy for Canada'' in Minutes of Proceedings and Evidence of th Standing Committee on Communications and Culture No. 79 at 3 18. government. A few days later the Minister released the government's new broadcasting
Policy for ~anada.~~
The government 's new policy identified three major areas: programming, fairness
and access, and technology. Recognizing that broadcasting goes beyond traditional over-
the-air technologies. Canadian broadcasting policy would, henceforth, be 'technology
neutral" that is, based on a definition of broadcasting in terms of its content rather than mans of di~tnibution."~~~The federal government also announced that it would increase
funding to Telefilm Canada in order to support the creation of Canadian programming.
The government's policy document stated that the new broadcasting Bill was
"designed to cope with the technological changes that lie ahead, and to enable the CBC and the CRTC to remain rekvant and effective in a changing ~orld."~It goes on to say that "[ilf the Broodcasting Act cannot cope with technological change, then the capacity of government to give direction to the system, primariiy for cultural sovereignty reasons, will be er~ded."'~Although there is no mention of foreign ownership in the Canadian
mCanada, Department of Communications. Cmadiun Voices Canadian Choices (Canada: Minister of Supply and Services Canada, 1988).
2mRaboy,supra note 109 at 326. m~anada,supra note 202 at 15. Voices Canadian Choices policy document, it does attempt to correct the broadcasting
system in order 4b[t]~ensure that the broadcasting system reflects Canadian culture, tastes
and realities, both in its programming and operations."2w
3.6 Conclusion
For more than seventy years, the federal government has intervened in the area of
broadcasting in order to strengthen the Canadian broadcasting system 1t adopted
legislation, claimed Canadian airwaves, created a national public broadcaster and a federal
regulatory authority. The federal government adopted the first express foreign ownership
provisions at the end of the 1950s as a result of a proposal made by a foreign company to
increase its investment interest in a Canadian station. The government maintained at that
tim that the Canadian broadcasting system is an important aspect of cultural development and should remain in the hands of Canadians. It, therefore, developed a strategy to deal with future applications for foreign investment in Canadian broadcasting companies.
Since the 1950s. the foreign ownership restrictions have evolved and developed to becom an integral part of the mix of masuns adopted by the federal government and the CRTC . to strengthen the Canadian broadcasting system. Chapter 4 - The Cumnt Foreign Ownership Restrictions in Television Broadcasting
4.1 Intmduction
This chapter turns to the current measures that restrict foreign ownership in television broadcasting. It sets out both the ownenhip and control elements of the restrictions and reviews a number of CRTC decisions that deal with the issue of ownership and effective control in television broadcasting. This chapter also considers the foreign ownership rules and the application of the control test in telecommunications as a point of comparison to the measures in television broadcasting.
4.2 Cumnt measures
The Broadcarring AC? currently provides that the Canadian broadcasting system
"shall be effectively owned and controlled by ~anadiaas."~This provision is part of a broad policy statement set out in section 3 of that Act. The current Broadcasting Act was adopted in 199 1 and replaced the previous statute that had been in place since 1968. The new Act of 199 1 canied forward the same provisions for the regulation of foreign ownenhip as those found in the Act of 1968, though with one exception. Section 3 of the previous Act stated that the Canadian broadcasting system be owned and controlled by Canadians whereas the latest statute provides that the system ShpU be owned and controlled by Canadians. The word change suggests that Canadian ownership is now
mandatory rather than directory.209The decade thus began with a more restrictive
legislative approach to foreign ownership.
The responsibility for determining foreign ownership rests in the hands of the
Governor in Council. Pursuant to sections 7 and 26 of the Broadcasting Act, the
Governor in Council may issue Directions to the CRTC limiting the class of applicants
eligible for a broadcasting licence in ~anada.~''The current Directive on the ineligibility
of nonCanadians to hold a broadcasting licence came into force on April 8. 1997."' it
provides that the CRTC may not grant a broadcasting licence to a non-~anadian~'',and
defines Canadian as at least one of the following:
a) a Canadian citizen or ordinary resident in Canada;
b) a permanent resident of Canada;
209Section1 1 of the interpretation Act. R.S.C. 1985, c. 1-2 1, provides that the term "shall" is interpreted as imperative ifa contrary intention docs not appear in a particular piece of legislation. See Peter S. Grant. Anthony H.A. Keenkyside. Michel Racicot and Paul Hunubise. eds., 1996-97 Canadian Broadcast and Cable Regulatory Handbook (Canada: McCarthy Tdtrault. 1996) at 18.
''%I New Brunnvick Co., Ltd. v. Canadian Radio-television ond Telecommunications Commission, 119841 2 F.C. 410, the Federal Court of Appeal stated that the Governor in Council's authority to provide the CRTC with Directions is legislative in character.
*"PC. 1997-486, C.Gaz. 1997. Ineligibili~of Non-Canadians [hereinafter the 1997 Direc rive]. C) a Canadian government (federal, provincial or local);
d) a corporation without share capital that has majority of directors
(or individuals performing duties of directors) appointed by statute.
Governor in Council or the Lieutenant governor in council or a
federal or provincial Minister;
e) a qualified corporation;
f) a qualified mutual insurance company;
g) a qualified pension fund society, or
h) aqualifiedco~perative.~~
The Directive thus narrowly limits the eligibility of an applicant for a television broadcast
licence in Canada to a foreign citizen, a foreign government and a foreign company.'*J
There is, however, an opening under the 1997Directive for foreign investors to have
minority interests in the Canadian television broadcasting industry. A corporation is
qualified to obtain a television broadcasting license in Canada if all of the following criteria
are met. The corporation must be incorporated under the laws of Canada or of a
Canadian province2"; 80% of the members of the Board of Directors must be individual
"'lbid, s. 1 (definition of Canadian). The Directive provides a definition of a qualified corporation, mutual insurance company, pension fund society and cooperative.
exceptions are BCLtl and Quebec-TtlCphone, see [bid. Canadians'i6; the Chief Executive Officer of the company must be ~anadian"'; 80% of the
voting shares must be owned by Canadiansu8and the corporation is not otherwise
controlled by persons that are ~on-Canadians.~'~Foreign invest ors may, therefore. own up
to 20% of the voting shares of a television broadcaster in Canada where no more than
20% of the Board of Directon are foreign individuals, the Chief Executive Officer is
Canadian and the foreign interest does not have effective control of the corporation.
The 1997 Directive also sets out specific requirements for holding companies (or
parent corporations) of television broadcasting subsidiaries. Cabinet deemed that
33.346'20 of the voting shares of the holding company may be owned by non-Canadians."'
2161bid..s. 1(a) (qualified corporation).
2191bid..s. 1 (control) and s. 3.
%e 33.3% threshold for holding companies was established in 1996. Cabinet issued a Directive in April 1996 in order to harmonize the foreign ownership stricti ions in broadcasting and telecommunications. That Directive was issued as a result of recommendations made by the Information Highway Advisory Council (IHAC), a group of Communications experts appointed by the federal govemmnt. IHAC was created as a result of heightened usage and development of the Internet and the convergence of communications industries in Canada and around the world. It's mandate was to devise a strategy for the development of the Information Highway and to provide the government with assistance for determining its role in the new digital economy. On the issue of foreign ownership. MAC recommended that the foreign ownenhip limit of 20% for broadcasting holding companies be increased to 33.3%. which was the limit set by the foreign ownership rules under the teleconnnunicatioas legislation (See Information Highway Advisory Council (MAC), Convnunity, Content: the Challenge of the i~orntationHighway - Final Report of the Infornurtion Highway Advisory Council (Canada: Wtryof Supply and Services. 1995) at 17). The Directive issued in 1996 was significant because it replaced the foreign Further, the Board of Directors of the parent company, and the parent company itself,
cannot exercise control or influence over any of the programming decisions of the
li~ensee.~Moreover, the CRTC has the authority to refuse to grant a broadcasting
licence to an applicant where it is possible that a foreign corporation may take over a
domestic licensee." The issuance of licenses may thus be limited if the CRTC believes
that ownership may change hands in the future. This permits the federal regulator to limit
potential foreign interests in the Canadian broadcasting system, even where the applicant
is eligible to hold a licence.
Finally, section 9( 1) of the Broadensting ACP*provides the CRTC with
discretionary power to grant broadcasting licenses in accordance with the principles set
out in the policy statement of section 3 of that same Act. The CRTC is, therefore, obliged
to make decisions, policies and regulations as we1 as provide licenses in conformity with
the Canadian government's broadcasting policy, which includes Canadian ownership and
control of the system, as we1 as safeguarding, enriching and strengthening the cultural ownenhip rules that had been in place since 197 1.
2211997Directive, wpm note 2 11, s. 1.
=lbid., s. 1(c)(ii) (qualified corporation). This is a key difference between the broadcasting and teleconrmunications sectors as there an no such limits in telecommclnications.
=see Re Cable Lourentide Lrde and CdiunRadio-Television and Telecomnucnications Commission et al. (1980). 114 DLR (34 545, [I9801 2 F.C.441 (Fed. C.A.). fabric of ~anada."
While the 1997 Directive limits the class of applicants for broadcasting licences to
"qualified Canadian corporations", that Directive also brought about important exceptions
to the general mk. It allows two of Canada's telecommunications companies, Quebec-
Telephone and BCTel, to apply for a broadcast licence through a subsidiary corporation.
This is a signifcant change because these two companies are majority owned and
controlled by foreign corporations.
Rogers Communications Inc. contested the validity of the 1997Directive in the
Canadian Courts. This communications company sought an Order from the Federal Court
of Canada that would declare the said Directive invalid for being ultra vires the
Broadcasting Act, because it all0wed no n-Canadian corporations to hold a broadcasting
licence. The Federal Court held that the 1997 Directive was not ulrm vires the
Broadcasting Act and that the Canadian governmnt had not acted beyond its
jurisdi~tion.~~In his reasons for judgemnt, Nadon J. stated that the Broadcasting Act
does not require that each and every individual broadcasting undertaking in Canada be
"effectively owned and controlled by Canadians." He funher stated that the 1997
m~~gersCommunications Inc. v. B.C. Telecom Inc., [I9981 F.C.J. No. 368 (QL) [hereinafter Rogers Conwnunications Inc.]. Directive has not and will not endanger effective ownership and control by Canadians of
the Canadian broadcasting system by dowing subsidiary corporations of BCTel and
Qufbec-TdCphone to apply to carry on a broadcasting distribution undertaking. Mr.
Justice Nadon was of the view that Parliament's intention when it formulated its broadcasting policy was to ensure that Canada's national identity and cultural sovereignty would be enhanced and maintained by the Canadian broadcasting system and that the distniution subsidiary of BC Tel which will almost exclusively operate as a cable service. will certainly not threaten the policy enacted by Parliament. Having two companies not
"effectively owned and controlled by Canadians out of thousands involved in the industry does not alter the Canadian character and control of the system as a whole."" He concluded that the 1997 Directive was consistent with Parliament's intention and that government did not usurp its jurisdiction.
The ruling in Rogers Communicatim Inc. is a rather innovative approach to the interpretation of the ownership and control policy statement found in the Broadcasting
Act. For approximately 30 yean, this policy has been implemented and interpreted in such a way that has precluded any and all foreign entities fiom holding a broadcasting licence in
Canada. As noted in the previous chapter, a major divestiture in the broadcasting indusvy took place between 1969 and 1973 in order to ensure that all Canadian broadcasting corporations were effectively owned and controlled by Canadians. This new line of reasoning supports the government's position to allow increased foreign participants in television broadcasting as these new entrants into broadcasting will not threaten the system as a whole.
4.3 The Issue of Control
Foreign involvement in the television broadcasting industry is limited on two levels. Fitly, as stated above, there is a quantitative limit on the percentage of ownership that may be held by foreigners in both the licensee and the holding company. This aspect of foreign ownership is relatively simple to determine and regulate because it is based on something that is quantifiable, that is, share capital. Secondly, foreign ownership is limited by the concept of "control in fact" which is far less clear than the question of percentage of ownership. Neither the Broadcasting ACPnor the 1997 Directive provides a definition of "control in fact." The Directive does, however, provide a definition of
"control"which reads as follows:
rpntml in any manner that m,whether directly through the ownership of security or indirectly through a trust, agreement or arrangement, the ownership of any body corporate or otherwise [emphasis added].*9
Thus, control in fact may arise through the ownership of securities or indirectly by way of such elements that include apmnts,trusts and arrangements.
=fbid
PP1997~irective.supm note 21 1, s. 1. Section 3 of the 1997 Directive provides additional information on the issue of
control. It sets out the criteria the CRTC should consider when making a determination
on the issue of control. Section 3 reads as follows:
Where the Canadian Radio-television and Telecommunications Commission determines that an applicant is controlled by a non-Canadian, whether on the basis of personal, financial, contractual or business relations or any other considerations relevant to determining control. the applicant is deemed to be a non-Canadian.
In order to fulfil the goals of the Broodcarting Act, the CRTC must therefore
ensure that the licensees are both owned and controlled by Canadians. The federal
government's poky recognizes that it is in the national interest for Canadians to have de
facto control of the Canadian broadcasting indu~try.~A control in fact test is, thus, not
limited to a narrow examination of share ownership of a corporation, as is done in the
traditional de jure test. Rather. it examines a wide range of corporate activities in order to
ensure that Canadians control all aspects of a corporation and its operations?
Two features distinguish a control in fact test fiom the test of legal control. The
first is that it recognizes that ownership is not necessarily indicative of controLU2The
Tileen E. Clarke and Lome P. Salzman, "Control in Reality: Identifying Principles of Control in Canadian Communications Law" (Address to the Canadian Bar AssociatioaRaw Society of Upper Canada, April 26-27. 1996) [unpublished]. second is that it takes into consideration industry specific criteria. For instance, in
broadcasting programming is an important industry specific criteria to be considered in a
control in fact test." Conversely, the de jure test reviews industry neutral criteria such as
a corporation's share register and constating
The CRTC has considered the issue of ownership and control in a number of cases.
The following section will review a some of the relevant decisions, which will provide
some understanding of how the CRTC has applied and interpreted this masure. as well as
provide some indication of how the Commission might interpret ownership and control
issues in the future.
The CRTC considered the issue of control in fact by a foreign corporation in
Decision 93-644.UsIn that case, Fairchild Communication Ltd. made an application to the
CRTC for the approval to acquire the assets of the ailing Chinese-language specialty programming service, Chinavision. Fairchild was a Canadian corporation. 80% of which was owned by Happy Valley Investmnts, which in turn was owned by Thomas Fung.
The remaining 20% of Fairchild was owned by Condor. a foreign corporation, indirectly controlled by Television Broadcasts Limited (TVB)of Hong Kong. A number of
- -- - - U31bid.
2?bid.
"kcision CRTC 93-644 (Faitchild Communication Ltd.), 19 October 1993. interventions were filed with the CRTC with regud to this matter. Interveners expressed
concern that Condor, a foreign corporation, exercised control over Fairchild, the Canadian
applicant. The Commission dealt very briefly with the issue of control in its decision. It
held that the non-Canadian corporation did not have effective control of Fairchild. and
stated the following in support of this finding:
Based upon the definition of "eligible Canadian corporation" set out in the direction, and on the evidence submitted by the applicant, the Commission considers that Fairchild satisfies the requisites of the Direction. and chat it may be issued a licence?'
The Commission then expressed concern with regard to the potential conflict of
interest that might arise should any nominee, employee or other representative of Condor.
TVB,their affiliates or subsidiaries also be permitted to serve either as a Director of
Fairchild or as an officer of the corporation. In the Commission's view, if this were
permitted. a conflict would arise between the Director or officer's responsibilities to
Fairchild and the interests of the program supplier, TVB. The Commission. therefore,
ordered by condition of licence that no "nominee, employee or representative of Condor.
TVB, their affiliates or subsidiaries or any person associated with these companies or with
whom the licensee has entered into an agreemnt"*' may serve on the Board of Directors of Fairchild or as an officer of the corporation. The CRTC does not state why Fairchild satisfied the requirements of the Direction on the eligibility to hold a licence. It does not provide an analysis of why it came to its conclusion nor does it clarify the issue of that which constitutes control in fact. Moreover, on the one hand the Commission says that the control in fact test was satisfied yet it is concerned about the conflict of interest that might arise if the foreign investor were permitted to serve as Director or Officer of Fairchild. It might have been helpful in this case for the CRTC to have provided the rationale for its finding.
A funher case concerning foreign control of a Canadian licensee consists of CRTC
Decision 94-283 (Disc~very).~'In that case. the partners of "Adventure Unlimited" doing business under the name and style of 'The Discovery Charmer', applied for a broadcast license to provide a national specialty programming service. "Adventure
Unlimited" was a general partnership comprised of two companies. Labatt Brewery
Company Limited and Labatt Communications Inc., incorporated under the laws of
Ont arb. "Adventure Unlimited's"partnership agreement provided that the business affairs of the partnership would be managed by a Partnership Committee. That Committee consisted of four representatives fiom Adventure and one representative Grom Discovery
Communications Inc. @a)oft& US.
The Commission expressed concern about the partnership agmrncnt's requirement that certain important decisions, such as the determination of the general structure of the partnership and the appointment or removal of the general manager, require unanimous consent of all of the members of the partnership committee. It considered that this requirement gave DCI "an unacceptable level of authority." The Commission then stated that in effect, complete control of the operation would not reside solely with the two
Canadian companies. which form the Adventure partnership, but with the two Canadian companies. and DCI (the American company).
The Commission accordingly held that it would not provide a Licence to
"Adventure Unlimited" until it received documentation confirming that a joint-venture corporation was incorporated in accordance with the Operating and Option agreement.
The Commission further stated that it must also be satisfied that the joint venture corporation meets the requirements of the federal government's Direction concerning eligible corporations. The Commission, however, did not proceed to assess whether the non-Canadian corporation would have effective control of the Canadian corporation under its new structure. The Discovery case is yet another example where the Commission expresses concern about foreign control of a Canadian licensee but proceeds to grant the licence where certain conditions are met. This is another case where the Cornmission fails to provide an analysis of whether the foreign corporation exercises control over the
Canadian corporation. Another case where the Commission considers the issue of foreign control is that
of TSNIRDS.~~In Decision 96-75, an application was made to the CRTC for authority to
transfer effective control of the Sports Network Inc. (TSN), Le r6seau des sports (RDS)
Inc. and The Discovery Channel to Canadian Telacquisition Inc. (CTI). In this case. an
intervention was made to the CRTC by the Director's Guild of Canada (DGC), which expressed concern that one of CTI's shareholders. ESPN~~,was a subsidiary of a foreign- owned company and that it exercised control over the Canadian company. The CRTC found that CTI was an eligible Canadian corporation and allowed the transfer to Canadian
Telacquisition Inc. In arriving at its conclusion with regard to foreign control. the CRTC
"considend. among other factors, the quality of the investon. the financial background and resources, and their commitment to continued growth in the Canadian broadcasting industry."2J1This statement indicates that the types of investors, their financial situation and their available resources an relevant in determining whether a foreign entity has control over a Canadian corporation. It also indicates that the level of a foreign corporation's interest and support of the Canadian broadcasting system is relevant with regard to foreign control. The reasons provided by the Commission in this case are incomplete. They provide som of the grounds upon which the CRTC based its decision, but not all. Moreover, the Commission does not state the reason the applicant satisfies the
'3&cisioa CRTC 96-75 (Transfer of TSN/RDS), 6 March 1996.
'%SPN held an approximate 20% interest in m.
%ipra. note 239. CRTC's criteria, nor does it state the reason the quality of investors and the finances did
not lead to a situation where the applicant was controlled by the foreign entity.
A brther case in which the Commission considered foreign control of a Canadian
licensee was that of Terence C.Y. Hui."* In this case, the applicant sought a licence to carry on a cable distniution undertaking to serve a portion of Vancouver. The applicant was to be 20% owned by BCTel Systems Support Inc. (BCTS),a foreign controlled company (BCTS is owned by BC Telecom Inc.. a foreign owned an controlled company).
The remaining 80% was to be owned by Multiactive Communications Corp., which in
turn, was owned by Terence C.Y. Hui, a Canadian citizen residing in Vancouver. The
Commission granted the licence in this case. There were, however, interventions made on the issue of ownership and control of the licensee by a non-Canadian corporation.
The intervenors raised the issue of whether the company to k incorporated was owned and controlled by Mr. Hui or by BCTS, the foreign controlled company. In support of their argument that the company would be effectively controlled by a foreign corporation, the intervenors presented evidence with regards to the terms of certain agreements entered into by the parties. The terms included the following: the definition of quorum which required that the Directors nominated by BCTS be present at metings of the applicant's Board of Directors (or be present by proxy), before quorum was fomd u2~ecisionCRTC 96-224 (Terence C.Y. Hui), 13 June 1996. and business conducted; the provisions with regards to the conduct of business and the requirement of unanimous consent by Board members for cenain matters; provisions that would permit BCTS to increase its share holdings to 50%;and, arrangements pursuant to which BCTS was committed to fund all or a gnat portion of the applicant's operational requirements for a period of five years: finally, they raised concern about the fact that BC
Tel would be providing certain services and facilities.
The CRTC addressed all of these concerns in its decision. With regards to the defition of quorum of the Board of Directors, the Commission held that by condition of licence. the def~tionmust k changed. The amended definition provides that a BCTS representative must be present at a Board meeting, or quorum will not be attained. Within two hours of that first meeting, the date, time and place of the next meeting must be agreed upon. If it is not. then the next meeting will take place within five days of the original meeting. There is no requirement that a BCTS representative be present at the following meetingsforquorum to bt attained. The amendment, thus, does not completely eliminate the requirement that a BCTS representative be present at Board meetings in order that there bc quorum.
Under the new arrangemnt for quorum, it would appear that BCTS continued to have a kvel of control over the Canadian company. The BCTS director can continue, although to a lesser degree!, to obstruct the business dealings of the company by not attending the first scheduled meeting. There could be something of a critical nature to be dealt with at that initial meting and the BCTS representative could chose not to attend in order that the matter not be dealt with immediately.
The Commission then dealt with the issue of unanimous consent of the Board of
Directors on certain matters and found that this was consistent with the protection that is generally accorded to minority shareholders. The Commission does not, however, state in its decision which matters routinely constitute minority shareholder protection. Moreover, the Commission did not find that the requirement for unanimous consent for the incorporation or acquisition of a subsidmy corporation "could unduly Sect a considerable portion of the licensee's activities and fetter the ability of the Board's majority to conduct business."243The CRTC ordered the deletion of the paragraph of the agmment that refers to unanimous consent for incorporation or acquisition of subsidiaries.
Another matter that required unanimous consent of the applicant's Board of
Directors ''would be any decision concerning among other things, the lease of the undertaking carried on by the company to be incorporated." The CRTC stated that it would interpret that clause in such a way that it in no way prevents a simple majority of the applicant's board from acting on its decisions to acquire. lease or to enter into lease arrangements with third parties.
The intervenors suggested that the provisions allowing BCTS to increase its share
holdings to 50%. and that commit BCTS to provide funding for the operations of the
applicant provided BC Tel with effective control of the applicant. The Commission sided
with the applicant on this issue and found that funding from BCTS represented 'Yair
compensation to the majority shareholder for the concession granted BCTS to acquire
additional shares in the licensee company."2a
Fially, in order to ensure that BCTS or BC Tel have effective control of the
applicant, the Commission required by condition of licence that the CEO of the company
to be incorporated not be an employee of BCTS,BCTel or any of their affiliates.
The CRTC did not apply a very rigorous control in fact test in this case. The definition of quorum provides the foreign investor with the ability to prevent the Directon from reaching decisions in a timly manner; unanimous consent for certain matten (not stated in the decision) could also provide BCTel with control over the corporation; the decision regarding certain matters, including leases. appear to provide the non-Canadian with a gnat deal of control over the activities of the corporation that appear to be part of its core activities. Rather than sending the applicant back to the drafting table, and instead of outright denying the applicant, the Commission provided an interpretation of the provisions in question in order that the corporation fall within the ambit of the foreign ownership and control legislation. This seems somewhat of a dangerous approach to assessing whether a foreign entity has control over a Canadian corporation. The
Commission should ensure that the degree of control is not excessive. It is not certain, however, in this case whether the foreign corporation has control over the Canadian corporation.
A relatively recent case in which the Commission considered the control issue is that of Axion-Quebcc, ~xion-~igital.~~~In this matter, both applicants sought licences for broadcasting distniution undertakings. Groupe Quebec Tel, a foreign owned and controlled corporation had a 33.3% interest in Consoniurn Cfibie-Axion Digitel inc., which owned both applicants. The Commission was concerned about the following mat ten:
The composition of the board of directors, the nature of the decisions requiring a special majority of shareholders. including the approval of operating budgets, the role of the management committee, the financial and technical involvement of Groupe QuCbec Tel in the project. and the role of the majority shareholder. Novacap."
The Commission raised the above concerns for the following reasons. Qutbec Tel and
245~ecisionCRTC 97-635 (Axion-Quebec, Axion-Digital), 14 November 1997.
2afbid. Novacap each had three directors on the Board of Directors. Novacap, however. had a
majority interest in the applicants. With regards to budget approval, there was a
requirement that approval be obtained by special majority that consisted of two directors
nominated by Groupe Qu6bcc Tel and two Directors of Novacap. Further, there existed a
management committee that consisted of one representative from Quebec Tel, one
representative &om Novacap and one Paul Girard, a shareholder of Consortium Cgble-
Axion inc. In the Commission's view, this committee could eventually become
comparable to the Board of Directon. FiiaLly, the Commission was of the view that
Novacap was an investment company that generally plays a passive role in the companies
in which it invests.
Based on those factors and based on Qu6bec Tel's financial and technical
involvement in Axion Quebec's project, the Commission found that Quebec Tel could
exercise a great deal of control over the consortium which would result in effective convol of the applicants by a non-Canadian. The Commission also found that because the
Board of Directors of the applicants and the consortium consisted of the same entities, the
applicant would be in non-compliance with the 1997Directive. That Directive provides that the parent corporation's Dkctoa must not exercise control or influence over any programming decisions.
The CRTC then granted the licences on the condition that the following concerns be addressed:
-A majority of the mmben of the Board of Directors must be
representatives of Novacap, a Canadian owned and controlled corporation;
-A decision of the Board of Directors must not require additional or special
approval of the representatives of Groupe Quibec Tel on the Board of
Director or of any other person related directly or indirectly to Groupe
Quebec Tel:
-the management committee must not be permitted to effectively replace
the Board of Directors;
-programming decisions must not be controlled or influenced by the parent
corporation or its
The most recent CRTC decision relating to foreign ownership and control consists of Decision CRTC 98- 173.248 In that case, an application was made by Rime Time
Canada (PTC), on behalf of a company to be incorporated, for a broadcasting licence to carry on a satellite relay distriiution undertaking. The Commission denied the application. -
It concluded that the company to be incorporated would have been effectively owned and controlled by Prime Tim 24 Joint Venture (FT 24), a non-Canadian entity, and would thus not conform with the 1997 Directive.
-- 24716r.d
W(~Time Canada). 23 June 1998. The CRTC made this decision for a number of reasons. Fustly, it was concerned
about some of the proposed contractual and business relations between the parties. PTC's core activity would have been the distribution of U.S. 4 + 1 signals.249ET 24 would, however, have been in a position, according to the shareholder's agreement and the distribution agreement, to be the only source of the U.S. 4 + 1 signals provided to PTC.
The distribution agreement also provided that PTC could not obtain U.S. 4 + 1 signals for the disvibution from another source unless PT 24 agreed to such an arrangement. PT 24 could, therefore, have controlled the U.S. 4 + 1 signals distriiuted by PTC, which was in the Commission's view PTC's core activity. The CRTC, therefore, concluded that a number of sections of the '*distribution agreement would have given PT 24 a degree of control over PTC's major function."u0
The Commission also took issue with the terms of the shareholders' agreement which "required approval of at least 50.3% of the shareholders, including PT 24, for any action that would have resulted in an amndmnt to the broadcasting li~ence.''~~
Amendments would have likely related to the selection of signals to be distributed,
"including the addition of Canadian signals to its line-up." The Commission concluded that this provision would provide PT 24 with a veto over PTC's signal selection. This
U9ie.NBC. CBS, ABC, Fox & PBS. mSupru note 248 at paragraph 7. z'~bid. would have given the U.S. company "an added degree of control over PTC's primary activity. ""
The shareholders' agreement also provided PT 24 with a veto over the confirmtion of appointment or renewal of the CEO of PTC and its parent corporation.
The Commission was concerned that this would have given PT 24 control over another important aspect of PTC's activities, because the CEO might be influenced to act on PT
24's behalf as a result of the veto.
Finally, the shareholders' agreement provided that quorum for PTC's Board of
Directors' meetings must include at least one PT 24 nominee. The Commission was concerned that this would have allowed PT 24 ''to hstrate the board's will by refusing to send a representative to a meeting of the board of director." Again. the Commission found that this would have given PT 24 a further degree of control over PTC. The
Commission, therefore, found that PT 24 would have ken in a position to exercise effective control of PTC and denied the application. PTC was deedto be a non-
Canadian corporation and was thus not eligible to hold a Canadian broadcasting licence.
The Prime Time Canada case contains perhaps the Commission's most rigorous * analysis of control in fact in broadcasting. The CRTC looked to the corporate governance
- - *!bid.. paragraph 8. materials and found that in the aggregate the non-Canadian entity had effective control
over the corporation. It found that it was clear upon a review of the arrangements and
agreements that PT 24 could in fact control the activities of PTC. The Commission held
that control over core activities and applications for licence amendments provided PT 24
with a great deal of influence over the applicant broadcasting undertaking. The CEO of a
corporation has a great deal of influence over the direction and activities of a corporation.
A veto over the confirmation or renewal of the CEO would indeed provide PT 24 with a
great deal of influence over the licensee. Finally, the requiremnt that the minority
shareholder board representative be present in order that quorum may be attained provides
the non-Canadian investor with the ability to conuol the operations of the licensee by not
attending scheduled board meetings. It is interesting in this case that the CRTC did not
opt to render the licence with amendments as it had done in a number of previous cases.
4.4 Telecommunications
The federal government has jurisdiction over telecommunicati~ns~~,which also
falls under the regulatory authority of the CRTC. Until 1992, telecommunications carriers .
in Canada traditionally operated in a closed market. Each carrier was granted a monopoly
to provide services in the market in which it operated. In 1992, however, the CRTC
=~lbertoGmmmeent Telephones (AGT) v. CRTC and CNCP Telecommunications (1989). 2 S.C.R. 225. rendered Telecom Decision 92- 12~.which opened the door to competition in the long
distance telephone se~cesmarket. One year later Parliament adopted the
TelecommunicationsA@, which was the first Canadian legislative instrument to regulate
the entire telecommunications industry.
Since 1992, the CRTC has increasingly deregulated the telecommunications sector
and has tended towards a more competitive model* On May 1. 1997, the CRTC handed
down decisions that allow competition between cable and telecommunications and that
permitted competition in the traditionally closed local telephone services market.
Although a more competitive model has been adopted in telecommunications than
in broadcasting, the federal government has nonetheless adopted foreign ownership
restrictions in telecommunications. The Teleconununicationr Aaprovides that one of the
obligations of the Canadian telecommunications policy is to promote the ownership and
control of Canadian carriers by Canadians. This policy objective, and a series of othen.
were adopted because the Canadian governnvnt views telecommunications as a sector
that performs an essential role in the maintenance of Canada's identity and sovereignty.
velecom Decision 92- 12 (Competition in the Provision of Public Long Distance Voice Telephone Services & Related Resale and Issues). 12 June 1992. Pursuant to section 16( 1) of the TelecommunicationsAct. "a Canadian carrier is eligible to operate as a telecommunications common carrier if it is a Canadian owned and controlled corporation." Section 16(3) of the Act then sets out the requirements for
Canadian ownership and control. That section reads as follows:
16(3) A corporation is Canadian owned and controlled if (a) not less than 80% of the members of the board of directors of the corporation are individual Canadians; (b) Canadians beneficially own, directly or indirectly, in the aggregate and otherwise than by way of security only, not less than 80% of the corporation's voting shares issued and outstanding; and (c) the corporation is not otherwise controlled by persons that are not Canadians.
Section 2 of the TelecommunicationsAct then defines control as follows: "control in any manner that results in control in fact, whether directly or through the ownership of securities or indirectly through a trust agreement or arrangement. the ownership of any body corporate or otherwise."
The Canudion Telecommunications Common Carrier Ownership and Control
ReguLationsZId implement the foreign ownership restrictions set out in the
Teleconmunications~ct." They restrict the percentage of foreign investment in holding companies to a maximum of 33.3% of the voting shares. The Tetecommunications Act does, however. make an exception to the 20%/33.3%limit on foreign investment in
2MS~R/94-667;P.C. 1994-1772, October 25.1994.
%c. 1993, c. 38. Canadian common carriers. Section 16(2) allows BC Tel and Quebec Telephone to
continue to operate as eligible common carriers despite the fact that they are foreign
owned and controlled corporations.
The foreign ownership restrictions in telecommunications are very similar to those
under the broadcasting regime. One difterence is that it is not necessary that the CEO of
the Canadian telecommunications common carrier be a Canadian citizeri, whereas the CEO
of a broadcasting licensee must be a Canadian citizen.u8 Another distinction is that the
foreign ownership masures in broadcasting provide that the holding company not have
influence over the programming decisions of the licensee. This rule does not exist in
telecommunications because the content that is communicated is not regulated by this
legi~lation.~~Due to the similarities in the foreign ownership measures in broadcasting
and telecommunications, cases under the telecommunications regime are relevant to the
rules applicable in the broadcasting sector. In the autumn of 1996, the CRTC handed
down a leading decision on foreign ownership and control in telecommunications when it
considered the restructuring of UniteLm That case is of particular interest because it
a%e CEO of the broadcasting corporation must be Can.adian due to the cultural element of the broadcasting sector.
2ss~elecommunicati~~Act. s. 36.
Z601nthe matter of Unitel 'sEligibility to operate in Canah as a Telecommunicutions Common Carrier Pursuclnt to Section 16 of the Teleconvnunications Act (October 16, 1996). CRTC [hereinafter AT= DecisiM contains the most in depth analysis provide by the Commission on this issue. The facts of that case are set out Mow.
In 1995, Unite1 was having serious financial difficulties. In order to ensure its viability and continued operation, AT&T Canada Inc. (ATC). the Bank of Nova Scotia
(BNS),the Toronto-Dominion Bank (TD) and the Royal Bank of Canada (RBC)
(coJlectively, the Banks) proposed a method of restructuring the corporate fmances of
Unitel. They proposed that the voting shares of the long distance company be structured as follows: BNS, 27.9%; TD,22.9%; RBC, 16.246; and ATC, 3096. They also proposed that the Banks and ATC would each contribute $125 million (for a total of $250 million) to the equity of the company. Moreover, the parties proposed a new structure for the
Board of Directors. They suggested that the Board be comprised of nine members: three representatives of the Banks; three representatives of ATC; and, three independent officers. Only one of the nine nrmbers could be nonCaoadian punuant to the suggested plan. On September 22, 1995, an agreement in principle was entered into between ATC and Unitel's holding company, Unite1 Communications Holding Inc. (UCHI). The Banks . accepted the agreement which led to two transactions that closed on January 4, 1996, and
January 3 1. 1996.
Stentor and Call-Net challenged Unitel's ownership arrangemnts with ATC. They requested that the Commission review the transaction and argued that. although the proposed restructuring of Unitel was in compliance with the quantitative requirements of the Telecommunications AC~", the U.S. shareholder of ATC (AT&T) did in fact have de facto control of the Canadian carrier. The CRTC,therefore, reviewed the eligibility of the former Unitel Communications Inc. and Unite1 Communications Company to operate as a telecommunications common carrier pursuant to section 16 of the Telecommunications
Act. One of the primary questions for the CRTC to determine was whether the Canadian tekcommunications common carrier was "otherwise controlled by persons that are not
Canadians" within the meaning of paragraph l6(3)(c) of the Telecommunications Act.
On October 16, 1996, the CRTC rendered a decision on this matter. It found that
ATC was not controlled in fact by non-Canadians. thus allowing ATC to operate as a telecommu~cationscomrnon carrier in Canada. At page 30 of the AT&T Decision, the
CRTC stated the following:
After its nstructuriag. Unite1 has been controlled by the Board of Directors. The Board has been granted overall responsibility for and supervision of the business and affairs of Unitel. The Board makes the major decisions regarding strategy, the appointment of Senior Management, delegation of authority to management, budgets, material agreements, approval of business plans and capital plans and other major strategic and managemat decisions. ATC and the Banks each have a significant degree of influence over the mmbership of Unitel's Board. However, given the various safeguards put in place (including the structure and composition of the Board and the role of the Independent Directors), the Commission finds that non-Caaadians do not have control in fact, either directly or indirectly, over Unitel's Board, and thus over Unitel itself. The CRTC considered a number of facton in aniving at its determination. but
stated clearly at the outset of its decision that the issue of control is a question of fact ''to
be determined in the circumstances of each case."2a The CRTC then stated that there
were certain elements that may be considered when trying to determine the issue of
control but that the list was not exhaustive nor did it constitute an invariable che~k-list.'~~
The following is a review of the elements that the CRTC examined in this decision.
(i) Relative Size, Motivation, Quality, Finances and Experience of the Shareholder Groups
In the AT&T Decision, the CRTC began its consideration of the control issue by
analysing the relative strength of the shareholders. The primary parties to the Unanimous
S&areholdenAgreement of Unitel wen AT&T. its mates and the Banks. The CRTC viewed that the Banks, ATC and AT&T would each have considerable degree influence over the affairs of Unite1 but that a certain degree of influence was expected and
allowable. While AT&T is a world leader in telecommunications, the CRTC noted that the Banks have significant financial experience and expertise in the management and operation of large and small businesses. The CRTC also noted that the Banks have significant experience in telecommunications. It stated the following at page 19 of its decision: m~~&TDecision, supra note 260.
2aIbid at 5. The Commission also notes that the Banks are significant users of telecommunications services in Canada and abroad. Although their experience has arisen in the context of their being users of telecommunications services, as well as lenders to providers of such services, next to the traditional telephone companies and the entrants, the Banks may very well be the next most sophisticated players in Canada with respect to telecommunications.
The CRTC found that the Banks' experience in the telecommunications sector "diluted the
risk of non-Canadian dominance that may arise"2a and that it was in the Banks' interest to
exercise their decision-rnaking authority in order to rnaximise the value of their
investment. The CRTC also found that it was not in the Banks' interest to allow Unitel to
be managed in such a way that would render it ineligible to operate. Moreover, the CRTC
found that the Unanimous Shareholders Agreement did not seek to delegate the Board's
decision-makiag authority on important matters to the Shareholders. The CRTC was thus
satisfkd that the strength of the Shareholders did not result in Unitel being controlled by
Although the Ranks do in fact have experience in telecommunications, it is not
certain whether that experience would be sufficient to dilute the risk that AT&T control
the activities of Unitel. AT&T is the world's largest telecommunications carrier and
therefore has extensively more experience in this area than the ~anLs.= The CRTC was
=See Antonio He~quez,Canada's Foreign Owership Policy in an Era of Trade in Telecommunications Services (Thesis, Master of Laws University of Toronto, 1997). See also Gerald Heckman. "Ownership and Control in the Canadian Telecommunications Industry: the Case of Strategic Allicances" 96 Canadian Business Law Journal 97. satisfied that it would be in the Banks' interest not to defer management of the
corporation to AT&T in order that Unitel remain eligible to operate. However, the Banks
may rrraintain a "facade of control" in order that the eligibility requirement be met.2w
(ii) ATCTsrole in the Approval of Certain Corporate Changes
The holders of Class A Preferred shares (ATC and the Banks) had the right to approve payment of dividends to holders of junior shares, redemption of those shares and with regard to certain other dealings. The approvals were required to be made unanimously. This did not raise control issues for the CRTC as the approval was related to activities that were outside the normal course of business; these activities concerned fundamental corporate changes and wen designed to protect the interests of minority shareholders. In this case, the CRTC found that the non-Canadian investor was provided with rights that were typical of minority investor protection and that those rights were not sufiicient to permit ATC to exercise control over Ur~itel.'~'
(iii) ATC's Role Regarding Unitel's Directors
The CRTC asked Unitel to explain why ATC and the Banks each had three memkrs on the Board of Duecton when ATC had ody 1/3 interest in the voting shares and the Banks had 213. Unite1 stated that this could be explained by reference to the parties total economic interests in the company. Both ATC and the Banks had an equal number of non-voting shares; therefore. they would share equally in the dividends and would share equally in the remaining property of Unitel's subsidiary teiecommunications common carrier in the event of dissolution.
The CRTC was satisfied that ATC's role regarding the Directors did not give the nan-Canadian investor control over the Board of Directors based on the following reasons. The principles of corporate law are such that the members of the Board of
Directon have a Muciary duty to act in the best interest of the company, not in those of a particular investor. The Unanimous Shareholders Agmment stated that the power. authority and discretion of the Board must be exercised at arm's length and independently from the shareholders. The Unanimous Shareholders Agreement also provided that Board members must not vote when there is a situation of conflict of interest. Fially, ATC and the Banks select the independent members of the Board by extraordinary resolution and therefore, no independent mmber can k selected without the Banks' approval. At page
22 of the decision the CRTC stated:
Given the circumstances, including the fact that only l/3 of the Board can be appointees of nun-Canadians, 113 of the Board mmbenhip consists of Independent directors and there are safeguards in place to ensure the Board's independence, the Commission considers that ATC has not had the means to dominate and control and has not in fact dominated or otherwise controlled the Board of Unitel.
It is unclear why the Commission was not concerned about effective control issues as a result of the structure of the Board of Directors. ATC had only a 1/3 interest in the voting shares of the corporation yet it had the same number of directors on the board as the other shareholders who held 2/3 of the voting shares. It seems unusual for the board structure to bt based on both the voting and non-voting shares.268
(iv) Unitel's Senior Management and CEO
The Unanimous Sharehoiden Agreement provides that ATC will nominate five senior managers for election or approval by the Board.''' The Agreement also provided that the Board cannot elect or approve the five Senior Managen unless they are nominated by ATC. The CRTC found that this might provide ATC with an unacceptable degree of influence over the Board. In order to avoid this problem, the CRTC directed
Unitel to make changes to the Unanimous Shareholders Agreement in order for the Board to select members of Senior Management whether or not they were nominated by ATC.
(v) Removal of CEO
The CRTC considered whether ATC had the ability to remove the CEO. The
CRTC found that no shamholder had the ability to remove the CEO and that the ability lay
'5Unaoimous Shareholden Agreemnt defined "Senior Management" or "Senior Manager" to mean the CEO,The Chief Finaacial Officer, the Vice-President Marketing (Business), the Vice-Pnsident Marketing (Residential), and the Vice-president Network/Operations. See AT&T Decision, supm note 260. within the exclusive authority of the Board. The CRTC also considered ATC's veto right to change the scope of authority of the CEO. The CRTC found that each shareholder had the veto right, which existed in order to safeguard the investment interests of the parties.
Accordingly, the CRTC did not find that this authority amounted to de fact0 control of
Unitei. Further, the CRTC considered whether the fact the CEO was a non-Canadian raised control concerns. The CRTC held that the non-Canadian CEO was not determinative of the question of control in fact. The CRTC found that the activities of the
CEO were subordinate to the Board, which in turn was not controlled by non-Canadians.
(vi) Consulting Sewices
Another element that the CRTC considered relevant related to ATC's consulting services to Unitel, the use of AT&T's brand name and the requirement that Unitel make reasonable efforts to accommodate AT&T objectives. The CRTC did not find that these elements provided ATC with control in fact of Unitel. The CRTC found that no undue influence was created and that it was in Unitel's interest to use AT&T's brand name, as well as to accommodate AT&T's objectives.
(vii) Hold Periods & Share Convergence
The CRTC looked at the issue of the long "Hold Period" for ATC to retain ownership of Unite1 shares whereas the Banks had shorter "HoId Periods." The Canadian Bank AC?" places limits on how long a Bank can hold onto shares of a company. The
Royal Bank opted for a one-year term with a Call Option to ATC. The CRTC noted that
ATC would not be permitted to purchase the Royal Bank's shares due to the limits on foreign ownership set out in the Teleco~unicationsAct. The CRTC did not find that this would amount to control and stated that "ATC's right to designate the pdted purchaser is consistent with the legitimate protection of ATC's investment as a minority shareholder, and does not amount to control'"* The ability of ATC to designate a purchaser seems to raise fairly strong control issues. It could designate a Canadian shareholder that might have an interest in allowing ATC control the Canadian carrier, which in turn could result in control in fact by a non-Canadian.
The CRTC also considered the issue of share convergence. ln this particular case there were no options available for ATC to convert non-voting shares into voting shares or for ATC to increase its level of ownership of voting shares. The only convergence that was possible was for ATC to convert voting shares to non-voting shares in the event that the legislation were amended to decrease the level of permissible foreign ownership.
Moreover, the CRTC considered the defacto control that might arise as a result of
Unitel's financial position. In this particular case. Unite1 had secured financing and credit
279S.C.199 1, c. 46. n'~T&TDecision, supra note 260 at 29. agreements that would ensure the required capital over the short and medium terms. The
CRTC concluded that there was not an "unacceptable level of dependence on non-
Canadian financing" and that non-Canadian creditors or investors did not have control over UniteL
Fmaiiy, the CRTC also considered the fact that there was a non-competition covenant between AT&T and Unitel. In that covenant, AT&T and ATC agreed not to compete with Unite1 in the Canadian long distance market. The CRTC found that this was to Unitel's advantage and thus does not lead to the conclusion that ATC controls
UniteLZn
4.5 Conclusion
In order to satisfy the obligations under the Broadcusting ACPof ensuring a strong Canadian broadcasting system the CRTC must implement the ownership and control provisions set out in that Act. As discussed above, the foreign ownershrp restrictions in television broadcasting are currently set at 46.7 %. The federal government might, however, wish to consider relaxing the foreign ownership restrictions.
With regards to the issue of control, the Commission has had som difficulty in applying an "effective" control test. In some instances. such as the TSN. Fairchild and
AT&T cases, it is not clear whether the foreign investor did not have control of the
Canadian corporation. The Commission should, therefore, perform a more comprehensive and rigorous review of the agreements and arrangements that govern a broadcasting undertaking. It should also consider ail of the influences that the non-Canadian minority shareholder might have on decisions affecting progr-g and editorial independence of the broadcasting undertaking.
In performing a review of control in fact in the broadcasting sector, the CRTC should consider the following method of review. The Commission should identify whether the foreign entity has control over the core activities of the broadcaster; it should look at all arrangements between the licensee and the foreign shareholder which appear to create a situation of dependency: the CRTC should scrutinize all contracts, agreements or understandings between the parties; it should consider all financial arrangements and that which might arise as a result of these arrangements; in order to satisfy independence over programming. Board members of the holding company should have a position on the
Board of Directors of the licensee; finally, the CRTC should consider the intention of the parties and look at the practice in the regulated industry. Following this method of review in a rigorous manner might allow the Conunission to ensure that the control elements of the Broodcaning AC?* are fulfilled. Moreover. when performing a control analysis. the Commission should pay particular attention to the selection, renewal and termination process for the CEO and senior management of the licensee. Under the Broadcasting AC*'~, the CEO must be a
Canadian citizen. Parliament adopted this provision because in its view, a Canadian citizen is more likeiy to satidy the cultural goals of the Act than a non-Canadian. In telecommunications, the CEO of a common carrier is not required to be Canadian. The
CRTC's analysis in the AT&T case with regards to the selection of the CEO should, therefore, not be followed on the broadcasting side. The foreign minority shareholder should not have the ability to influence the selection, renewal or dismissal of the CEO as this would provide the non-Canadian with the ability to control programming decisions, contrary to the Broadcarting Act. Moreover, the non-Canadian minority investor should not be in a position to influence the selection of senior management as was the case in
ATH. These individuals also have a tremendous impact on the operations of the broadcasting corporation. To allow the non-Canadian to have influence over the selection of key individuals would amount to allowing the non-Canadian to have influence over content, which again is contrary to the broadcasting legislation.
The CRTC should also be reluctant to allow the non-Canadian shareholder to have as much influence over the licensee as it did in ATdrT with regards to expertise and consulting services. The Amrican television broadcasting industry is far more lucrative and advanced than its Canadian counter-part. As a result of its expertise in this area.
American investors could use their strength and experience to influence the manner in
which programming in Canada will be selected, presented and produced. The Canadian
corporation should also have the ability to accept or reject expert services fiom the non-
Canadian in order that it retain control of the operations of the licensee.
Further*the CRTC should also consider the total equity held by the foreign investor when performing a control analysis. In the AT&T case, the Commission found that Unite1 conformed to the telecommunications legislation on the issue of control by way
of securities. The CRTC might, however, have delved a little further in its analysis of the
share structure of UniteL ATC had the greatest amount of voting-shares among the shareholders even though it was a minority shareholder with 33% of the shares. Although this did not give ATC direct control of Unitel, it might have provided it with indirect controL By convincing any other shareholder to agree with its position, ATC could be in a position to control certain decisions of the corporation. Although the Securities AC?'~ does not apply in this case, that Act does, however, provide that 20% is the level at which an investor might have control of a corporation. That is 13% less than the percentage of ownership of ATC in UniteL The CRTC might thus have considered whether the percentage of equity of the non-Canadian provided it with control in fact notwithstanding the fact that it complied with the quantitative threshold set out in the legislation. Control may be obtained as a result of a combination of voting and non-voting shares. The CRTC should thus look to the total equity held by an investor to determine whether a non-
Canadian has control of the broadcasting company. Chapter 5 - The Trends That are Affecting the Regulation of Television Broadcasting & the Foreign Owersbip Restrictions
5.1 Introduction
There are a number of new trends that are taking place in Canada and around the
world that are affecting the regulation of television broadcasting. Foremost among these
trends are globalization. increased pressure on Canada's cultural measures from abroad,
technological advances, new methods of carrying programming content to Canadians, and
convergence. These trends are bringing many new challenges to the CRTC as the
international and domestic market structures change, as new methods of distributing
programs are created, and new forms of content are presented to viewers. This chapter
will set out the key trends that are currently taking place and show that they are having a
significant impact on the regulation of television broadcasting. Moreover, this chapter will
show that the foreign ownership restrictions have, and will lkeiy continue to attract, a
significant amount of negative attention in the future.
5.2 Globalivrtion
One of the more significant trends that is taking place in Canada and in many
countries around the world is that of glo~tion." Globalization refcrs to the increased
mSee Art Eggleton, Minister for International Trade, "Can Canada Maintain its Cultural Identity in the Face of GlobaIization" (Notes for an address on the occasion of a panel discussion, 13 February 1997) [unpublished]; Don Tapscon, The Digital Economy: the Age of Nenvorked Intelligence (New York: McGraw-Hill, 1996); April Lindgren, "Agreements Pave Way for Global Economy" The Daily News (Huiifi)(28 June 1997); Armand Mattelart, Mapping integration of economies by way of liberalized international commercial trade and
investment. 278 Counmes are becoming increasingly more interdependent as a result of the
deregulation of trade and investment at the international leveL Many countries around the
world have entered into bilateral, muitilateral and plurilateral trade agreements as well as
custom unions. The European Union, which is increasingly eliminating barriers to trade in
goods and services among member countries, is a prime example of the trend towards
opening market economies.279
WoridCornmunicutions: War, Progress, Culture (Minneapolis: the Regents of the University of Minnesota, 1994) - in particular chapter 10 entitled "The Ascendancy of Geoeconomy: the Quest for Glo bd Culture"; John Sinclair, "Culture and Trade: Some Theorretical and Practical Considerations" in Emik G. McAnany and Kenton T. Wgison,eds., Moss Media and Free Trade: NAFTA and Cultural Industlies (United States: University of Texas Press, 1996) 30; Horace Newcomb, "Other People's Fictions: Cuhal Appropriation, Cultural Integrity, and International Media Strategies" in Emile G. McAnany and Kenton T. WLinson, eds., Mass Media and Free Trade: NAFTA and Cultural Industries (United States: University of Texas Press, 1996) 92; Sheridan Scott, "Encouraging Canadian Content in the Global Marketplace" Electronic Times Report (FebruaryjMarch 1998) 20; Marjorie Furguson, "Media,Markets and Identities: Reflections on the Global-Local Dialectic" (1995) 20 Canadian Journal of Communication 439; & Tony Clarke and Maude Barlow, MAI: The Muln'luteruf Agreement on Invesmt and the Threat to Canadian Sovereign0 (Canada: S toddart, 1997).
"patrick Low, "Market Access Through Market Presence: A Look at the Issues" in OECD Documents, New Dimensions of Market Access in a Globalizing World Eco my (OECD. 1995) at 49.
n90n February 7, 1992, twelve European countries entered into the Treaty on the European Union in Maastricht, creating the European Union. The following are the original 12 nations: Belgium, Gemany, Greece, Spain, France, heland, Italy, Luxembourg, the Netherlands. Porngal and the United Kingdom See Sophie Vanhoonackcr "From Maastricht to Karsruhe: The Long Road to Ratification" in Finn Laursen and Sophie Vanhoonackcr, eds., The Ratification of the Maastricht Treaty: Issues, Debates and Funrre Intplicationr (1994). Canada is a nation that relies heavily on trade and has made significant attempts to
forge a place for itself in the global market place. Over the past decade. Canada has
become a signatory to a number of important international trade agreements. In January
1988, Canada entered into the Free Trade ~~reernenZdOwith its most important trading
partner. the Unitcd States The purpose of the FTA was to ensure Canadian access to the
American market, which was showing signs of increasing its barriers to international trade.
Four years later, Canada and the U.S. amended and extended the FTA to include Mexico
under the North American Free Trade ~greement?
Canada is also a signatory to the General Agreement on Tariffs and ~radd-ps,and
was a signing party to the GATTMO ag~emcn?~,which was signed in April 1994,
after seven years of negotiations under the Uruguay Round of Negotiations. The
GATT/WTO was signed by 108 counmes and the European Community on April 15,
1994. The resolution of many contentious issues and the inclusion of new elements in the
agreement, such as trade in services and intellectual property, has heralded the Uruguay
280C~na&-~nitedStates Free Trade Agreement, 22 December 1987, Can. T.S. 1989 No. 3-27 I.L.M. 28 1 (Part A, Schedule to the Canada United States Free Trade Implementation Act, S.C. 1988, c. 65) [hereinafter FTA].
"'North American Free Trode Agreement, December 17, 1992, Can.-U.S. Mex.. PubL L. No. 103-182, 107 Stat. 20577, reprinted in 32 LLM.605 (1993) [hereinafter NAFTA].
Watt, supra note 7. Round as a major breakthrough in international trade and the most ambitious trade pact in
hi~tory.~
Globalization has aiso brought an increase in foreign investment around the world.
Over the past two decades, the number of bilateral investment treaties has increased
significantly. In 1977. there were 124 such agreements; today there are approximately
1,300." The latest agreement on the negotiating table is heMultilateral Agreement on
investment (MAI)? Some twenty-nine member countries of the Organization for
Economic Co-operation and Development (OECD) attempted to negotiate an agreement
between 1995 and 1998 to increase cross-border investment. In the spring of 1998. the
negotiations were stalled because mcmber countries were not able to resolve their
differences on foreign investment rules." It is anticipated. however, that the issue of
increased foreign invesmnt will resurface under the auspices of the WTO?
"Howard M. Endelman, "Regulating Culture: The Audiovisual Controversy in the GATT Accord" (1995) 18 Boston College International Comparative Law Review 443 at 443.
=~anielSchwanen. "Chilling Out: the MA1 is on Ice but Global Investment Remains Hot" CD How Institute Commentary (June 1998) 109.
=See Warren H. Peterson and Kathy Cram, "MAI day! MAI Day!" (Jl/Ag 1997) 3 l(4) Canadian Dimension 19-21; Robert Everett-Green, "Culture Talks present New Risk" The Globe & Moil (29 May 1997); & Clarke and Barlow, supra note 277.
Z"~adelaineDrohan, "OECD FaiIs to Reach Consensus on MAT' The Globe & Moil (28 April 1998) B4; & Madelaine Drohan, "MA1 Talks Shunted as Trade Ministers Assess Options" The Globe & Mail (29 April 1998).
"Bruce Little, "Opposition to MAI on Sovereignty Wrong: MacLartn*'The Globe & Mail (2 September 1998) B2. The opening of international markets has also been seen in the telecommunications
industries. After three years of negotiations, 69 member nations of the GATT/WTO
signed an agreement on 15 February 1997, to liberalize trade in basic telecornmunications
services.u9 These countries made specific commitments to provide market access to, and
national treatment of, basic telecomunications services. The accord pdtsincreased
access to foreign markets and allows signatories to hold an important stake in
telecomunications companies around the world. The U.S. has agreed to liberalize access
to its market, allowing up to 100% indirect foreign ownership in telecommunications
comncarriers. Canada, did not, however, agree to increase its foreign ownership
restrictions in telecommunications.
(i)Globaliz~tion and Television Broadcasting
Although the world's economies are becoming increasingly more interdependent,
the cultural sectors, including television, have largely been excluded fiom the application
of the international agreemcnt~.~*For instance, the FTA and NAFTA were signed with
an exernpaon for culw industries, which includes television broadcas~g.The
provisions for the cultural exemption, however, include a retaliation clause allowing a
-or a discussion on that agreement, see Robert L. Hoegle, "Foreign Ownership Caps and the WTO Agreemnt: The Movement Toward One Size Fits AU" (Winter 1998) 6 ComrnLaw Conspectus 65.
?van Bemicr, "Culnnal Goods and Services in International Trade Law" (Address to the Canadian Bar Association/Law Society of Upper Canada, April 17-18, 1998) [unpublished]. party to the agreement to retaliate when the other party adopts cultural protectionist
measures.
Although the GA'IT/WTO is the world's leading multilateral agreement, the
cultural sector has for the most part been excluded horn this agreement. While article IV
of the GATT does make some provisions for the film indust$* there is no mention of
television broadcasting or any other cultural sector in that agreement.
For over thirty years, the U.S. has attempted to liberalize trade in the television
broadcasting industry. In 1961, the U.S. sought coverage for television programs under
the GATT. By way of resolution, the United States proposed that a reasonable proportion
of viewing time be reserved for foreign programs. This resolution was, however, never
ad~pted."~In Decembcr 1961, a GATT Working Party was established at the request of
29LFTA.supra note 280, artick 2005(2). The cultural provisions in the NAFTA are identical to those found in the FTA with one exception. In the NmAdefinition of cultural industries, the word person has replaced the word enterprise found in the FTA. This change was made to clarify that individuals as well as businesses were covered by the definition. Canada's cultural relations with the U.S. and Mexico are, however, governed by the definition in the RA whik those of Mexico and the US. are governed by the definition in the NAFI'A.
292ArticleIV provides that Contracting Parties may establish quotas on the domestic screening of films in order to ensure that a minimum percentage of screening time is dedicated to films of national origin. Article III(10) of the GATT exempts films ftom the application of the national treatment rule. See W. Ming Shao. "1s WeNo Business Like Show Business? Free Trade and Cultwd Protectionism'' (1995) 20 Yale In1 L. 105 at 109.
293ClintN. Smith, "International Trade in Television hogramming and GATT: An Analysis of Why the European Community's Local Program Requiremnt Violates the General the United States. Its mandate was to determine whether the GATT applied to television
programs. The U.S. raised this issue again in 1962 and 1963, but to no avail. No funher
action was taken on the part of the GATT rnernber~.'~
The U.S.'s most recent attempt to include television broadcasting in the GATT
agreement was during the Uruguay Round of negotiations. The European Community,
led by France, was adamantly opposed to the inclusion of culture in the GAIT. France
objected to including culture in order to preserve national and European culture,
particularly against the threat posed by popular American culture.2g5The Uruguay Round
was almost lost on the issue of culture. France was prepared to forfeit the entire GATT
agreement in order to keep cultural sectors out of the agreement. Although the President
of the U.S. very much wanted to see the reduction of commercial barriers to trade in
culture, the United States ultimately agreed to the cultural exclusion fkom the GAIT
agreement.2w The benefits of the GATT for the U.S. were too great to lose the entire
agreement on the issue of culture. Television, film and video productions were, thus,
excluded &om the 1994 agreement.
Agreemnt on Tariffs and Trade" (1993) 10 International Tax and Business Lawyer 97 at 111.
-bid, at 117. 295Endtlman,supra note 284. '*Van Harpen. supra note 13 at 167. Although television broadcasting has been largely left out of the international trade
agreements, this sector is, nonetheless, becoming increasingly more active in the global
market place." Canada's independent film and video industry set a record for annual
sales of foreign television programs in 1995-96. In that period, production revenues
amounted to $867.6 million, which was 8.8% higher than the previous year.298 Further.
Canada has become a major film and television production centre for American producers.
Over the past decade or so. this Canadian sector generated approximately $2.5 billion
a~uallywith the creation of some 30,000 jobs, mostly as a result of the Americans
coming The effects of globalization are also seen in the expansion of
broadcasters activities by Canadians in foreign markets. Corporations are attempting to
invest in foreign broadcasting corporations as well as to sell their programming services in
foreign markets.3w Moreover, in the CRTC's Public Notice announcing the television
a at thew Fraser, "When Content is King" The Globe & Mail (15 November 1997) D 1.
2g8"ForeignTV Sales Take Leap" The Finuncial Post (28 March 1998) 20.
'Vraser, supra note 297 at D2.
"See Robert BrehI, "CanWea Profit Soars on Australian TV Sale" The Globe & Mail (9 July 1 998) B5; Helena Katz, "Broadcasters Look to International Markets" Marketing Magazine (1 June 1998): Hamy Enchin, "CanWest Reaches Deal to Buy New Zealand Radio Network The Globe & Mail ( 1 July 1997); Jeff Cole, "[U.S.] SateUte Firms Align for Deals in Mexico: Privatization Could Fetch $1-billion" The Globe & Mail (10 March 1997) B5; Fara Warner, "MTV Takes at india: Creating its Third Asian Music Channel" The Globe & Mail (27 September 1996) B9; John Stackhouse, "Canadian FmTunes into Asia for TV Viewers" The Globe & Moil (13 June 1996) B4; & Eric Reguiy, ItAspers Eye Greener Pastws in Ireland" The Globe & Mail (4 November 1997) 824. policy review hearing3*'. the CRTC asked the public its views on how to increase exports
of Canadian television programming. This is indicative that foreign markets are playing an
increasingly important role in the development and promo tion of the Canadian
broadcasting system
The Canadian television broadcasting and programming production industries are
doing well.'" Canada is the second most important exporter of television programming in
the world. after the U.S. This type of industry is potentially interesting for non-canadian
investors as it may be seen as an opportunity for attractive returns on investment. Interest
in the Canadian television broadcasting industry by a foreign corporation was made
apparent during the negotiations for the sale of WIC, a Canadian broadcasting
corporation. During that time, it was revealed that NBC, a major U.S. network, was
'OIPublic Notice CRTC 1998-44 (Canadian Telnision Poky Review - Call for Comments). 6 May 1998.
'mHarvey Enchin, "Broadcasting Profit Soars to $40-million" The Globe & Mail (5 November 1996) B9; Robw Bnhl, "CanWest Increases its Semi-Annual dividend by 20%" The Globe & Mail (12 March 1998) B7; Robert Bnhl, "CanWest Boosts Profit, Romises Bonus Next Quarter" The Globe & Mail (16 April 1998) B4; Harvey Enchin, "CanWest Posts Sharp Profit Gain: Third Quarter Earnings Increase 43%" The Globe & Mail (12 July 1997) B5; Mark MacKinnon, "Alliance Sets Profit Record: Film. TV Units Boost Bottom Line*' The Globe & Mail (25 May 1998) B7; Harvey Enchin, "Baton's Profit Lified by AUiance and Acquisition: Earnings Ahma Double in Quarter" The Globe & Mail (26 June 1997) B4: & Doug Saunders, "Canadian Non-fiction Filmakers Thriving on Byzantine DeaIs: An International Demand for TV Documentaries Fuels a New Wave of Producers, But Will They Resist the Lure of Schlock?" The Globe & Mail (12 September 1998) C9. considering acquiring WIG."' NBC was, however, precluded, from acquiring WIC due to
the Canadian foreign ownership restrictions.
(ii) Pressure from Abroad
Another effect of globalization is that Canada's cultural measures have been
increasingly under attack by other countries, particularly the U.S? There have been
many instances where Canadian measures, either proposed or in place. have come under
attack. The following section of this chapter will highlight some of those instances.
In 1987, the Minister of Communications, Flora MacDonald. proposed legislation
for the distribution of films in Canada. The Bill proposed that at least 15% of the films
presented in Canadian theatres be Canadian. The U.S. lobbied very hard to deter the
Canadian government from adopting this legislation. President Reagan visited Ottawa and
stated that MacDonald's Bill was "a threat to the FTA Shortly thereafter, Jack
Valenti. the president of the U.S. Motion Picture Association, met with the Minister of
Communications and lobbied to have the proposed quota eliminated. The quota system
303SeeRoben Brehl, "NBC Considered Bid For WIC' The GIob Br Mail (7 May 1998) B3; Br Ann Gibbon and Robert Brehl, 'Yiriffiths Sells Control of WIC" The Glok & Mail (16 March 1998) B1.
3MSeeSid Adilman. "Yikes! They're Tipping the Cultural Balance" The Toronto Star (26 January 1997) B 1.
305ChristopherD. Menett, 'Tree Trade: Neither Free or About Trade" (Canada: Black Rose Books, 1996). for Canadian films was subsequently never adopted.3w
In 1994. the CRTCts cultural policy concerning specialty prograMlling services almost caused a trade war with the US. As mentioned in the chapter 2, the CRTC adopted a policy whereby a non-Canadian specialty service would no longer be permitted to be carried when a competitive Canadian se~cewas issued a licence to broadcast. In
1994, the CRTC granted a licence to the Canadian specialty programming service,
Country Music Network, and de-listed an American service, Country Music Television
(CMT), based on that policy. The U.S. was not pleased with the CRTC's decision. A potential trade war ensued. The U.S. threatened to impose trade sanctions on Canada and/or retaliate against Canada, if this matter was not res~lved.'~' The matter was, however, resolved between the parties, with the two services eventually merging. This appeased the Americans, and led the CRTC to change its policy in 1997. The new policy states that it will no longer de-list non-Canadian competitive specialty programming sewices ifa comparable Canadian service is granted a licence.3a
'"~arrie McKenna. "Broadcast Rules Discriminatory, U.S. Says" The Globe & Mail (7 February 1996); & Shawn McCarthy, "U.S. Plans to Launch Culture Counter-attack" The Globe & Mail (26 February 1995) A2. Country Music Television also appealed the CRTC's decision to the Federal Court of Appeal; the appeai was, however dismissed. See Country Music Television, Inc. v. Ca~da(Cunudian Radio-television and Communications Commission), [1 9941 F-CJ. No. 1957 (QL).
'O"Harvey Enchin, "Shaw Taking Over Country Channel: WiU Acquire Rawlco's 5 1% Stake in CMT"The Globe & Mail (13 July 1996). Another example of a situation where the federal government and the CRTC were likely pressured by non-Canadians for its cultural measures concerns an application for a pay-audio Licence made by DMX Canada Inc. (DMX). In 1995, DMX applied for a licence to provide subscribers with thirty-five audio channels of music programming.
Eighty percent of that corporation was owned by Shaw Communications Inc., a Canadian corporation, and 20% by DMX Inc. of Los Angeles. The CRTC granted the licence on the condition that for each non-Canadian channel carried by DMX, there would be at least one Canadian channel.'" Further, under the terms of the licence, the Canadian channels would have to respect Canadian content quotas, whereas the non-Canadian chanmls would not. The decision was appealed to Cabinet by Canadian arts organizations who argued that the new service effectively reduced the amount of Canadian content made available on the total range of the pay-audio semce to 15%.
When it appeared that the Canadian government might k swayed in the direction of increasing Canadian content. the American govunment got involved. Charlene
Barshefsky, the then acting U.S. trade representative, sent a letter to Ottawa threatening that trade relations would be damaged if DMX's application was not approved, and requested that Ottawa "[dlo what is necessary to ensure that this issue does not become
3%ecision CRTC 95-91 1 (DMX Canada (1995) Ltd.), 20 December 1995. an additional trade irritant between our two governments. "'lo In essence, the U.S. was concerned that the Canadian government would limit, by way of Canadian content restrictions, access to the Canadian market.
Cabinet's response to the appeal was to refer the decision back to the
Codsion."' In reviewing the case a second time, the Commission confirmed its first decision.'12 The matter was, however, once again appealed to Cabinet, at which time the
CRTC's decision was uphe~d."~The end result of this matter was that DMX was granted the pay audio licence under the terms and conditions of the Commission's initial decision.
The licence might have, however, been varied had the Canadian government and the
CRTC not have felt significant pressure fiom the U.S.
The most recent. and perhaps the macritical, attack on Canadian cultural measures was made by the U.S. against Canada's policies on magazines at the Dispute
3xoDrcwFagan, "Radio Trade Spat Brewing: U.S. Warns Canada About Pay Audio" The Globe & Moil (8 October 1996) B1.
312DecisionCRTC 96-479 (DMX Canada (1995) Ltd.), 23 August 1996.
'"P.C. 1996- 1583, 11 October 1996; Canadian Heritage, News Release P- 1 O/96-169, "Government Upholds CRTC Licences for Pay Audio Services" (1 1 October 1996); & Drew Fagan, "Ottawa Sidesteps Trade Spat With U.S.: Approves Four Audio Licences, Gains Pledge From Shaw Communications to Boost Qnadian Content" The Globe & Mail (11 October 1996) B1. Settlement Body (DSB) of the WTO. A trade dispute started between Canada and the
U.S. concerning Canadian protectionist measures for its magazine industry. The dispute
originated with Canada's 80% excise tax on advertising purchased in a foreign magazine,
which was implemented after Time Warner Inc., an kricancompany, began running a
split-run edition of Spurn Illustrated in ~anada.~'~The U.S. 61ed a complaint with the
WTO stating that Canada violated international law with, among other things, its tax on
split-run editions of non-Canadian magazines and postal subsidies to the magazine
industry. The position of the U.S. was that these measures were detrimental to the
American industry and are unfair trade practices:
The Canadian measures "effectively prevent U.S. and foreign-produced magazines either born ente~gthe Canadian market or from competing on an equal footing with their Canadian rivals when they do. "'15
The DSB rendered a preliminary decision in February 1997, in favour of the u.S. "',
and held that three of the four measures complained of wen in contravention of
international trade rules under the GA'TT/WTO. Both Canada and the U.S. appealed the
decision to the appeliate body. In its appeal, Canada asked the WTO to reconsider its
'I4Judy Stoffman, "Canadian Culture Faces Geneva MusicftThe Toronto Star (1 1 October 1996).
'lSlbiddIt should be noted that Canada's policks on magazines and periodicals has not precluded foreign magazines from entaing the country. Currently, 80% of magazines sold on Canadian newsstands are foreign publications.
316Cuna&- Certain Measures Concerning Periodicals, [I9971 WM. See also Drew Fagu ''White House Beaming Over Magazine Ruling" The Globe & Mail (20 January 1997) B 1. ruling on the 80% excise tax? The final decision of the appehte body was released on
June 30, 1997.3'8and came down very heavily against Canada. It did not grant Canada's
request to allow the 808 excise tax on split run magazines and granted the U.S. request to
overturn its initial decision in favour of postal subsidies.'19 The decision of the WTO is
indicative of a trend away from cultural protectionism in international trade. Maude
Barlow, a Canadian expert on f5ee trade. recently stated that:
The reality is that the North American free-trade agreement, the World Trade Organization and the upcoming MA1 [Multilateral Agreement on Investment] are designed to reduce states' rights to protect culture [...13"
There is also a great deal of speculation that many more of Canada's cultural
policies will be under attack as a result of the WTO de~ision.'~' The U.S. is more than
slightly irritated by Canada's cultural policies. This assertion was confirmed recently by a
U.S. trade consultant who stated that "[tlhe U.S. has been hsuated for quite some time
aura Eggertson, "Ottawa Plans New Strategy in Campaign to Save Magazines" The Globe &Mail (13 May 1997) Al.
'''See Laura Eggenson, "Trade Body Sinks Magadne Policy" The Globe and Mail (1 July 1997) A1 ;& Brian Mulawka, "Geneva Cuts the Apron-Strings: a WTO Ruling Fro hibits Ottawa's Cultural Protection of Magazines" Alberta Report (2 1 July 1997) 9- 10.
321 See "Magazine Ruling" The Globe & Mail (20 January 1997) B5; Peter Morton, "U.S. May Seek Other Cultural Rulings" The Fimcial Post (18 January 1997) 6; Laura Eggertson, "Cultural Assault by U.S. Fed: WTO Ruling on Magazines Thin Edge of
J the Wedge"' The Globe & Mail (I 8 January 1997) B 1. in dealing with Canada on cultural issues."3u When commenting on the U.S.'s success at the WTO on the magazine issue, the U.S . Trade Representative, Charlene Barshefsky, stated that "[t]his case makes clear that WTO rules prevent govenunents fkom uskg
"culture" as a pretence for discriminating against Ms. Barshefsky has also stated that her department would be looking at the magazine decision as a precedent to act in other cultural areas3%
The United States would like to see the eLimination of Canadian cultwd measures.
In February 1997. U.S. trade officials stated that, "Canada would be better off in terms of the overall cultural-products industry, and in the [capital] base for sustaining Canadian culture with a keer and more open regime"" and that "the interests of Canada are best served in trade mangemnts and investment arrangements globally which are as free as possible." In April 1998, The Financial Post reported that U.S. Trade Representative
Charlene Barshefsky was expected to file a complaint with the WTO concerning Canada's copyright laws that deny royalties to American perfomrs.
'=Peter Morton. "U.S. May Seek Other Cultural Rulings" The Financial Post (1 8 January 1997) 6.
'%aura Eggertson. '"TradeBody Sinks Magazine Policy" The Globe & Moil (I July 1997) Al.
3aLaura Eggertson, "Open Up, U.S. Officials Say" The Globe & Mail (5 Fehary 1997). The European Union has also applied pressure on Canada's cultural measures. In
the spring of 1998, a meeting was held between Canadian and European officials in order
to discuss Canada's policy on film, which limits non-Canadian distributors fiom
distributing films in Canada that they do not 0~x1.~~f6 policy was adopted in 1987 and
grand fathered existing non-Canadian firms. The EU complained that Canada's film policy
unfairly prohibited film distributors such as PolyGram kom distributing films in ~anada.'"
Although this matter continues to be before the WTO, in mid 1988, Seagrain Co. Ltd., a
Canadian corporation. performed a takeover of PolyGram. which might provide the
Canadian government with a reprieve from this European ~hallenge.'~
The Impact of Globalizption on the Regulation of the Canadian Broadcasting System
With increased international commercial trade in many sectors around the world.
cultural measures in television broadcasting are becoming increasingly more vulnerable.
The underlying principle of globalization is to liberalize international commercial trade in
goods and, more recently, services. Although teievision broadcasting has for the most
ea eat her Scoffield, "EU Talcing Canada to WTO in Film Dispute" The Globe & Mail (21 January 1998) B4; & Peter Morton, "EU Delays Challenge to Ottawa Fh Laws" The Finunciaf Post (28130 March 1998) 13.
'qeter Morton, "EU Set to Take Film Complaint to WTO" The Fi~nciaiPost (28 April 1998) 5. See also John Geddes, "EU Backs PolyGram Dispute With Ottawa" The Financial Post (16 April 1997) 10.
m~eathaScoffieeld, "Seagnun Deal Might Annul EU Complaint" The Globe & Moil (12 May 1998) B16. part been left out of trade agreements, it myonly be a matter of time before trading nations agree to include this sector in international commercial trade pacts. The U.S. has been lobbying for over 30 years for television to form an integral part of trade ageemnts.
Trade in television broadcasting will likely be reviewed at a WTO meting scheduled for the winter of the year 2000. lt is. thus. by no mans on a back-burner. The CRTC must therefore determine, along with the federal govenunent, how the cultural goals of the
Broadcasting Act will be attained in an environment where international commercial trade is on the rise. Protectionist measures and regulations run counter to this trend. thus. it is a difficult task to regulate an industry when the world's economies are putting pressure for barriers to come down.
Further, the reduction of trade barriers in telecommunications also puts pressure on the regulation of television broadcasting. A decade ago television and telecommunications were separate sectors. However, as technologies and corporations converge, the distinction between these two comrnuniations industries is becoming increasingly blurred. With the melding of these two scctors, the broadcating regulators . are likely feeling tnmndous pressure as a result of heightened deregulation in telecommunications in some of the world's leading economies. Thus, as measures come down in telecommunications, regulators of broadcasting must consider how that will impact now and in the future, on the television broadcasting sector. One commentator noted that with deregulation in telecommunications, dengulation in broadcasting will likely follow :
Funher Liberalization of broadcast and satellite access and ownership rules will likely follow. The FCC's recent report orders implementing WTO 'Agreement- like' foreign access requirements for the provision of services via satellite will not be the final word. Rather, it is an interim step in putting all communications services under the auspices of a liberalized global trade pact. With the next round of negotiations on trade in services slated to begin no later than January 1. 2000. full MFN agreements on improved market access commitments and national treatment including broadcasting and satellite systems may not be far off.329
Moreover. as broadcasting and telecommunications technologies and b-sinesses converge.
there could be increased pressure from the international community, and particularly the
U.S ., for the harmonization of international trade rules for teIecommunications and
broadcasting. In order to remain competitive, communications corporations are
expanding their commercial activities in various communications sectors at a phenomenal
rate.jM In order to continue on that path, and in order to maximize profits, these
corporations might wish to see the reduction of barriers that stop them &om increasing
329RobertL. Hoegle, "Foreign Ownership Caps and the WTO Agreement: The Movement Toward One Size Fits All" (1998) CommLaw Conspectus 65.
'"See Jared Saundberg and Steven Lipin, "Bell Atlantic and GTE Approve $55-Billion Merger" The Globe & Mail (28 July 1998) B10: Gayle MacDonald, "Entenainment Rivals Join Forces: Alliance and Atlantis to Merge" The Globe & Mail (2 1 July 1998) A 1; Harvey Enchin, "Shaw Takes Out Death Star Rival: Buying 50% of Star Choice to Sped up Satellite TV Launch" The Globe & Moil (6 March 1997); July Wolf and Jennifer L. Schenker, "World-Corn- MCI Merger Receives EU Approval: Ruling on $37-billion Deals Calls for Sale of Internet Businesses" The Globe & Moil (9 July 1998) B 12; Robert Brehl, "CanWest Looking at Fireworks: Proposed Purchase of Production Company a Friendly Affair9The Globe & Mail (5 May 1998) B9; Lawrence Sums9'bNortel Cuts $9-billion Deal: Purchase of Bay Networks Will Give the High-Tech Giant Muscle in Computer Networks" The Globe & Moil (16 June 1998) Al; & Lawrence Surtees, "BCE Pays S 158-million for control of Teksat Canada" The Globe & Mail (6 May 1998) B7. ownership and investment in television broadcasting in a number of the world's ecno rnies.
Therefore. the opening of te~ecommunicationsmarkets could lead to pressure for the opening of broadcasting markets from the private sector and foreign governments. The
CRTC must. therefore, determine how to regulate television broadcasting and attain the cultural goals of the Broadcusting Act, given increased liberalization in the telecommunications sector.
The regulation of television broadcasting in Canada is also under significant pressure as a result of the intense pressure born abroad, particularly the U.S. As the numerous examples set out above indicate, the U.S. is irritated and inmasingly intolerent of Canadian cultural measures. Although the examples described above do not all relate to television broadcasting, they do relate to the cultural industries, of which television is a part. The CRTC and the federal government must thus be feeling a significant amount of pressure due to the complaints and challenges that have kenmade with regard to
Canada's cultural measures.
It is clear that as a result of globalization, the CRTC must consider the impact that its policies, regulations and decisions will have on other countries. It must seriously take into account whether its actions will cause a trade row. Further, it must be aware that its actions are under close satiny by non-Canadian~.'~' Thus, as a result of globalization.
the regulation of television broadcasting has become increasingly more constrained and
difficult.
The Foreign Ownership Restrictions & Globalization
The foreign ownership restrictions in television broadcasting are likely to act as a
lightening rod for negative attention to the Canadian broadcasting system as a result of the
trend in increased globalization. As mentioned above, barriers to international commercial
trade are coming down in many areas. and countries around the world are ente~ginto
agreements in order to facilitate trade between nations. The foreign ownership resmctions
in television broadcasting run counter to this trend in increased international commercial
trade. These measures may thus attract negative attention by other counties that are
attempting to increase international commercial trade in television broadcasting, in order
that their domestic companies may enter foreign markets.
As discussed funher in this chapter, corporations in the communications sectors
are converging. Over the past decade or so, multi-million and billion dollar mergers and
acquisitions have been taking place around the world to ensure that corporations a place in
"'During the conflict between the Canadian and American country music channels, Mickey Kantor, a U.S. aade o&U was reported to have warned that he would be keeping an eye on how the CRTC treated U.S. specialty channels in the funne. See Bame McKe~a, "Broadcast Rules Discriminatory U.S. Says" The Globe & Mail (7 February 1996). the rapidly changing and advancing world of communications. The foreign ownership restrictions bar that kind of activity between Canadian broadcasting corporations and no n-
Canadian entities, which might be very initating for those corporations that see opportunities in the Canadian broadcasting system By vinue of limiting the ability of foreign investors to capitalize on an industry that is doing well, the foreign ownership restrictions have attracted negative attention to Canada's broadcasting xctor in order that
the restrictions be amended to allow investors to enter the Canadian market. In a reference to regulation generally, but which most certainly applies to foreign ownership.
Jack Vaknti is reported to have said that "limits of any kind, no matter how small, by any foreign government is not only an outrage but a potential erosion of their profits."332It is also very likely that these measures attract increasingly more negative attention in the future. In the new broadcasting environment, it is becoming increasingly more difficult for programming producers to recover their investment costs in their domstic markets. They are thus looking to foreign markets in order to leverage their domstic operations. Thus. due to increased competition in the television industry, there will likely be less tolerance in
the future for foreign ownership restrictions as broadcasters wish to enter foreign markets .
at a greater rate.
Foreign countries and foreign corporations may thus see the restrictive measures
that Canada has adopted in order to anain the cultural goals of the Broadcasting Act as
332~dilman,supra note 304. contrary to the trend towards freer access to foreign markets. They may. thus. attack the broadcasting system in whichever way they see fit in order to gain entry into the Canadian market.
While foreign ownership restrictions Limit ownership of broadcasting undenakings by non-Canadians. they also limit foreign investment in the Canadian broadcasting system
Again, returns on investments and profits are thus being restricted by these measures.
Corporations that wish to invest in the Canadian broadcasting system may thus see the foreign ownership restrictions as a significant barrier.
The foreign ownership restrictions in television broadcasting might also attract a fair amount of negative attention as the foreign ownership restrictions in telecommunications are increasingly liberalized. Although Canada did not change the foreign ownership measures under the telecommunications regime during the WTO negotiations for basic telecomnications services, other countries in fact did. There is a tendency to liberalize trade and investmnt in telecommunications in the international arena With the convergence of technologies and corporations, an increase in the foreign ownership restrictions in telecornrnunications might attract pressure from the intematio nal community and multi-national corporations for the measures to be reduced in broadcasting as well. Further, as mentioned above, it is expected that the Contracting Parties of the
GAlT/WTO will be meeting again in the year 2000 to discuss trade in se~ces.At that meeting, trade in television broadcasting and telecornmunications might very likely be
discussed.
5.3 Technology
Another significant trend that is profoundly affecting the cornmunications sector is
technological change.'" Over the past fifeen years, technological advances have
transformed the face of the communications sectors. New methods of distributing
programs have surfaced, such as wireless cable, local multipoint distribution systems,
digital television. direct-to-horn satellite broadcasting and the Internet. New
programn6ng se~ceshave also arrived on the television broadcasting scene, such as
specialty programming, pay television. pay-per-view and video-on-demand. Further. the
new technologies have allowed for better quality visual images and sound, greater
quantities and more diverse forms of programming services, and new vehicles for the
'))Bill Robem. "Broadcasting & Trade: What's at Stake" Piayhck (6 April 1998) 16.
'YSee generally. stentor Resource Centre Inc., "New Consumers, New Technologies and New Media: An Opportunity for Canada" (Address to the Canadian Bar Association - Media and Communications Law Section - Law Society of Upper Canada, April 17- 18, 1998) [unpublished]; David Johnston, Deborah Johnston and Sunny Handa, Gening Canada Online: Understanding the Information Highwy (Canada: Stoddart, 1996); John V. Pavlik, Nau Media Technology: Cultural and Commercial Perspectives (United States: AUyn and Bacon, 1996); Richard Klingler, The New information Indunry (United States: Brookings, 1996); Hoskins, supra note 12; Bruce Cole. "New Media Trends" Elecnonic TksRepon (February/March 1998) 26; Shawn McCarthy, "Do We Want Cultural Rotection?: AS Cabinet Ministers Feud Over the Issue, New Technology Raises the Larger Question of Whether Canadians Want Ottawa to Continue Playing a Big Role in What We See on TV or Get From Magazine Racks" The Toronto Star ( 1 February 1997) F1; Tiia W. Chao, 'GATT's Cultural Exemption of Audiovisual Trade: the U.S. May Have Lost the Battle But not the War" 1996 U. Pa. J. Intl Econ. L. 1127 at 1149. carriage of content. As was recently noted in a Stentor Discussion Paper, the leading
cause for these transformations has been digitisation and the development of computers:
One key change has been the global adoption of what amounts to a common. universal computer language which dows for the seamless transmission of digital "bits" to and ftom anywhere in the world. Added to this is the discovery of ways to pack more information into existing transmission space and to increase the range and variety of content. both information and entenainmnt. that can be transmitted glo balIy."'
It is likely that programming services. carriers and content will continue to expand
and develop as technologies become more advanced. Faster mcthods of data
transrnission, new content, interactive television, and increased data storage capacity are
likely to be developed as a result of improved communications technol~gies."~Within the
next five to ten years the television broadcasting environment will Eely be significantly
different fiom that which it is at the present time. A case in point is digital television. In
the autumn of 1997, the govenunent's Task Force on the Implementation of Digital
Telcvision recommended that Canadian broadcasters begin transmitting programming
digitally by the year 2004 and that all analogue broadcasting cease by the end of the year
2007.'" Thus, before the next decade is complete, the analogue system could completely .
be by the way side.
'"Stentor Resource Centre Inc.. ibid at 39.
jnCanada, Task Force on the Implementation of Digital Television. Canadian Television in the Digital Era: The Report of the Task Force on the Implementation uf Digital Television (Ottawa 1997). The next sections of this chapter will set out a number of trends that are taking place as a result of technological advancements. It wP also consider the impact of tho= trends on the regulation of television and the foreign ownership restrictions.
(i) Direct-to-home Satellite Broadcasting
During the past few years, Canadians have begun to receive direct-to-home satellite se~ces(DBS). Although the use of this service has kome increasingly more widespread in the 1990s, the first of the satellite broadcasting services in Canada appeared in the late 1970s. During that decade, some Canadians placed large parabolic antennas in their yards. which measured between one and two metres in diameter. Satellite services were modified and enhanced in the 1980s as a result of problems cable companies were having with private owners of satellite dishes. Cable companies receive programming by way of satellite transmission and retransmit the programs to their subscribers. In the
1980s. private satellite dish owners were able to pull down the signals transmitted to cable companies without paying a subscription fee to the cable operators. This translated into a significant loss of income for the cable companies. In 1986. program providers thus began to encrypt their signals in order to prevent non-subscribers &om benefiting fiom their services. Home satellite owners were then required to obtain a special decoder in order to descramble and receive clear broadcast signals by way of satellite. Soon after this event, the entire satellite system was upgraded in order to ensure that a great demand would exist for these services. The pizza-sized satellite dish was then developed. The Americans were the first to bring DBS to Canadians. DirecTV. an American
company. launched its services in 1994. Between that time and 1997. there were no
alternative DBS services available in Canada. The federal govenuntnt had anticipated that
Canadian satellite services would be launched in the 1980s and has granted a total of five
satellite operating licences since December 1995. It was not, however. until the spring of
1997 that a Canadian company began providing DBS services in Canada. There are
currently only two services, Express Vu and Star Choice, that are operating. As a result
of the lag time that occurred in getting the Canadian services running, Canadian viewers
went south of the border in order to obtain DBS? It was estimated in 1997 that 300.000
- 400.000 Canadians watched what became known as grey market television
programming. More recent statistics provided by Exress Vu Inc. indicate that this number
has decreased to around 200,000 as a result of the new Canadian se~cesthat are now
available. the falling Canadian dollar. and customer service problems with the U.S.
companies.339
The federal government has attempted to deter Canadians &om selling and using
direct to home satellite equipment for the purposes of receiving broadcasting directly ffom
338HarveyEnchin and Geoffrey Rowan, "Lost in Space: A Cananian Odyssey: Consumers Have Been Forced Underground in Their Search for Direct-to-Home Satellite-W Service" The Globe & Moil (17 August 1996) B 1.
339~obenBrehL "Legal Satellite Dishes Gaining Upper Hand on Grey Market" The Globe &Mail (15 July 1998) B1. the U.S. In November 1996, Ottawa threatened criminal action and announced publicly
that the satellite equipment,
enables viewers to watch programming without paying lamdistributors. Retailus cannot legally sell such equipment, and everyone involved - retailer, user and those modifying the equipment - could be charged with a criminal offence."
This approach to detenence was ill received and led the government to soften its stance
on this issue. There has been less talk of criminalization of late.
The Courts have rendered conflicting decisions on the issue of whether Canadians
are contravening the Radiocomunication AC?'" by selling satellite equipment for the
reception of U.S. direct-to-home satellite senices. In a recent Saskatchewan Court of
Queen's Bench decision, Justice Klebuc held that a Canadian satellite TV dealer was not in
contravention of the Radiocommunication Act. In his reasons for judgement. Justice
Klebuc stated that the foreign signals descrarnbled or decoded were not provided by a
Licensed Canadian broadcaster, and that providing the equipment to obtain the signals was
not in contravention of the said That decision was followed in the cases of Ryan v.
Tndustry Canada, News Release 7521-e, "Consumers Warned of Unauthorized DTH Services" (13 November 1996).
Y2R. v. Ereiser, [I9971 SJ. 276 (QL). See also Geofhey Rowan, "Judge Rules Against U.S. Satellite TV Services"The Globe & Mail (28 June 1997) B3. 36 I779 Albertu Ltd. (c.o.6. Home Tech Appliances and electronic^)^' and R. v.
Leblan~.~
Conversely. the Federal Court of Canada has ruled that the Radiocommunication
AC?' is in fact violated when U.S. satellite signals are received in ~anada+~'ln that case.
Justice Gibson concluded that "paragraph 9( l )(c) of the Radiocommunication Act must be
read to provide an absolute pro hibition against the decoding of encrypted subscription
program signals unless they emanate fiom a lawful dismbutor in Canada and that
dismbutor authorizes their decoding."Y7
The Impact of DBS on the Regulation of the Canadian Bmdcasting System
DBS has a far reaching capacity and may provide programming services to large
geographic areas: "a single satellite footprint can cover 40% of the earth's surfa~e."~
DBS technologies. thus, have the ability to transcend borders as noted by one
Y3[1997]A.J. No. 780 (QL).
w[1997] N.S.J. No. 476 (QL).
YbExpressVuInc. v. NfI Norsat Inter~tio~lInc. (cab.Aurora Distributing), [ 19971 No. 1004 (QL) [hereinafter ExpressVu].
w~aulAltallah, "Narrowcasting: Hone Video and DBS" in Michael Dorhd, ed.. The Cuiturd Industries in Canada (Canada: Lorimer, 1996) 257 at 269. commentator:
Communications technology is transforming traditionally limited national distribution systems into unlimited international distribution systems into unlimited international distribution systems. Television services. once restricted by the channel capacity of the broadcast spectrum, are increasingly delivered by satellite and cable. enabling unlimited channel ~apabilities?~
As mentioned above, U.S. satellite se~ceshave been providing programming services to
Canadians for some time, despite the regulatory mechanisms in place. DBS, therefore.
poses serious cross-border problems for Canada as it becomes increasingly more difficult
to regulate signals lsom beyond the Canadian juri~diction.'~~Although there has been a
reduction in the level of Canadians that subscribe to foreign DBS service providers as a
result of the launch of Canadian se~ces,this technology, nonetheless, has the ability to
significantly threaten the broadcasting regulatory regime. The DBS technologies are not
only able to transcend borders. they also have the ability to transcend regulatory regimes.
As stated in Robin L. Van Harpen's article on trade and culture,
Co mrnunication advances increasingly allow international producers to break down protectionist barriers and other restrictions to entertainment markets. Satellite technology has arguably been the most important tool for circumventing protectionist national policies. Through direct broadcast
Y%m Ham, supra note 13 at 18 1.
sosee Brenda Dalglish, "New Technology Will Mean New Rules: CTV Chief' The Fi~neialPost (8 Apd 1997) 5: & Roberts, supra note 333 at 16. satellites, individual homes with small satellite dishes can receive cable channels without content or advertising regulation."'
The satellite technology can. thus, allow non-Canadian entities to provide broadcasting services to Canadians regardless of the regulatory regime in place. They do not require a licence to operate. they do not distribute the minimum level of Canadian content. and they do not contribute to the creation of Canadian programming.
Due to the ability of broadcasting technologies to transcend borders and the uncertainty with regard to the application of broadcasting regulations, it has not been an easy task for the CRTC to enforce Canadian control of the distribution of programming, content quotas and the licensing regime. DBS poses serious cross-border problems for
Canada, as it becomes increasingly more difficult to regulate signals from beyond the
Canadian jurisdiction.
Moreover. uncontrolled entry of programming could have an impact on the developmnt of Canadian programming. Non-Canadian dismbutors are attracting viewers and competing with Canadian distributors and broadcasting companies, yet they are not contributing to the financial support of Canadian programning. The federal government
35'~anHarpen, supra note 13 at 18 1.
3fl~alglish,supra note 350. - and the CRTC must, therefore, consider how the goals of the Broadcastitlg may be attained as a result of the environment where technologies are borderless. Further. the
CRTC must look to how Canadian culture may continue to be developed, given the
possibility of a high influx of non-Canadian programming distributed by non-Canadians.
The ability of DBS technology to transcend borders has also created regulatory
uncertainty for the industry. On the one hand the Canadian government and some judicial
decisions are maintaining that non-Canadian DBS is contrary to Canadian law; on the
other hand, other Court cases have taken the position that these services are permitted.
This contradiction in the interpretation and the application of the law creates uncertainty
with regard to the regulation of DBS services because that which is permitted is not
entirely clear.
Moreover. the borderless technologies have the ability to all0 w significant amounts
of non-Canadian programs to enter Canada. This heightens the competition for viewers
and advertising dollars. In order for Canadian broadcasters to compete in such an
environment, they may attempt to air more nonoCanadianprogramming as it is less costly
than creating indigenous Canadian content. This in turn will likely affect the production
sector. as there must bt an outlet for Canadian programs in order that they may continue
to be created. The CRTC must, therefore, consider how Canadian prograrraning will continue to be aired and developed in an environment where increasingly more non-
Canadian programming will be available.
DBS also has the ability to place significant pressure on the existence of
conventional Canadian television broadcasters. Should the number of available channels
ever attain the much touted five hundred channel level, Canadian broadcasters could find
themselves in a highly competitive en~ironrnent.~~This in turn could cause a significant
increase in competition to attain viewers and advertising dollars. There is speculation that
the number of television viewing hours will not increase with the availability of increased
programming. Broadcasters would, thus, k competing for a portion of the same level of
viewership in a greater sea of programming. If Canadian broadcasters have difficulties
competing, this in tum could affect their ability to fulfil their cultural obligations, such as
contributing to the development and presentation of Canadian program productions.
There could, therefore, be more strain on the Canadian broadcasting system which is an
obstacle that the CRTC must consider.
The Impact of DBS on the Foreign Ownership Restrictions
As a result of the trend towards direct-to-home satellite distribution of television
34"renySnazel of ExpressVu is of the opinion that programming services will reach tremendously high numbers for consumers. In a recent speech, Snazel mted that: "[m]ulti- channel delivery that feature hundreds of channels are the only way of the future." See Brad Fortner, "The Future of Television" Broadcaster (March 1998) LO. programming, the foreign ownership restrictions have attracted negative attention to the
Canadian broadcasting system In October 1996. the American Federal Communications
Commission (FCC)refused an application by Tele-Communications hc. of Englewood.
Colo., and Telquest Ventures LLC of New York to provide DBS signals to subscribers in
the U.S . &om Canadian orbital slots.3s5 Under this application, Telesat Canada would also
have used some of the satellite capacity for the distribution of DBS signals to
~anadians.'~The proposed deal was of interest to the U.S. satellite corporations because
it solved their problem of insufficient satellite slots to accommodate viewers in the u.s.'"
The proposed deal would also have been of interest to Canada because it would have
hunched the Canadian DTH services.
The Clinton administration had urged the FCC to withhold its decision on this
application until the Canadian government reviewed its cultural policies, particularly those
regarding ownership and Canadian content.358 In a letter to the FCC signed by officials
'''~arvey Enchin. "Satellite TV Service Soon. Manley Says" The Globe & Mail (30 October 1996) B6.
InDrew Fagan. "Canada Unyielding in Satellite Fight: U.S. Pressure Called a Tactical Mistake" The Globe & Mail ((19 September 1996) B8.
3s8"ClintonAdminimation Muddies the DBS Waters with Call for Cultural Reciprocity" Ca~dianConvnunican'ons Repon (17 July 1996) 4; & hewFagan, "U.S. Moves Against Telesat Plan: FCC Asked to Defa Ruing on Satellite Service Over Issue of Canada's Cultural Policies" The Globe & Mail (4 July 1996) B 1. fY0 m the American Department of Justice. the Trade Representative's Office. the
Commerce Department's National Teteco mrnunications and Information Administration
and the State Department, foreign ownership measures and Canadian content were
attacked. The Canadian government maintained throughout these negotiations. however.
that cultural measures were not on the table and that Canadians would not concede on this
i~sue.~"Ultimately, this deal was never accepted by the FCC.
This FCC decision translated into a significant loss for Canada and its satellite
services. In essence. Canada would have had free access to the American satellite services
had the application been accepted. Consequently. the three Canadian operators of DBS
licensed to operate in 1995 would have been able to provide services to Canadian
consumers. This incident resulted in Canadian services launching later. It also allowed the
Americans to draw negative attention to Canadian cultural policies, such as those that lint
licensing of non-Canadian entities for the provision of broadcasting suvices in Canada.
Hence, the U.S. used this situation to show Canada, and the world, that mutually
interesting deals might not be adopted because of protectionist measures, such as foreign
ownership, that are in place in countries such as Canada.
Although there have been contradictions in the application of the
%rew Fagan, "Canada Ready to Act on DTH Satellite Service" The Globe & Mail (19 October 1996) B9. Radiocommuniation Act, the regulatory measures in place for the Canadian broadcasting
system have largely kept foreign DBS services out of Canada as there are only
approximately 200,000 to 300,000 subscribers in Canada (compared to approximately
8,000,000 cable subscribers). This could eventually attract negative attention to the
Canadian broadcasting system by foreign corporations that rnight want to see their
business activities expand in Canada within the next few years. As markets brcome
increasingly more competitive, foreign companies may lobby the Canadian gowrnment to
reduce foreign ownership so that they can enter the Canadian market. There is a flu.of
corporate mergers and acquisitions as well as many expansions and diversifications taking
place around the world.'" If foreign companies see the Canadian market and Canadian
corporations as a lucrative business opportunities, they may well increase the pressure on
the Canadian broadcasting system to get in immediately, rather than wait for the arrival of
the 500 channel universe. As reported in The Globe & Mail, "US.officials argue it is
unrealistic for Ottawa to maintain its DTH policy in a burgeoning environment in which
hundreds of channels wiU soon be available.'"'
Canadian corporations for their part might view the foreign ownership restrictions
as an impediment to competition with foreign corporations that are bringing smices to
3mSeegemally, supnote 330.
"'Drew Fagan, "Canada, U.S. Talks Over Telesat Deal Produce Few Results Govenunents at Odds About DTH Rules" The Globe & Mail (12 September 1996) B7. Canadians via new technologies. They may be critical of the foreign ownership measures
and wish to see an increase in the permissible foreign ownership level in order that hey
may increase levels of capital in their organizations.
On a broader scale, as mentioned above, the DBS has the ability to by-pass
regulatory regimes. This also applies to the foreign ownership regulations. as non-
Canadians can. and do. provide television braadcasting services to Canadians The
Financial Post reported that. "Direct-to-horn TV has caused speculation regulators will
lose control when signals come horn beyond their jurisdiction."'" The fact that the
technologies have the ability to transcend regulatory regimes and borders has attracted
negative attention for the elimination of protectionist measures in broadcasting. That is.
due to the DBSts ability to provide programming services from anywhere in the world to
any other pan of the world, there has been, and there could likely continue to be, negative
attention drawn to the ~anadianbroadcasting system as a result of the foreign ownership
restrictions. A case in point is a 1997 article that appeared in the British magazine, The
Economist. In that article, then was a call for the elimination of foreign ownership
restrictions due to the changes in the methods of distxibuting programming, including
satellite technology, that have taken place. It was suggested that governments should
focus on regulating content rather than ownership because the basis on which the
362BrendaDalglish. "New Technology Will Mean New Rules: C'TV Chief' The Financial Post (8 April 1997) 5. restrictions were adopted has changed (i.e. limited ainva~es).~~~A further case is an
article written by iefiey Kowd entitled "Foreign Investment Restrictions in Canadian
Television Broadcasting: A Call for Refom" In his article, Kowall maintains that due to
the technological and global trends taking place, the foreign ownership restrictions should
be changed. Thus, as a result of that which the technologies are, and will be capable of
doing, negative attention has and could continue to be directed towards the foreign
ownership measures and the Canadian broadcasting system as a whole.
(ii) The Internet
The Internet is a global network of computers that allows for one-way, two-way
and interactive communications. It was initially developed by the US. for security reasons
at the end of the 1960~.~~It was then used by hculty members, and later students, for the
exchange of ideas and information. During the 1990s, however, people the world over
have been increasingly using the Internet. It has become part of a daily method of
communication for many people. In fact it was estimated that in 1996, there were 40
million people linked to the Internet around the wor~."*The Internet is currently used
for a myriad of purposes. Although it has been said that "any list or description of the
C 363'm~heComfort of Strangers" The Economist (20 May 1997) 18.
3uDavid Johnston, Su~yHanda and Charles Morgan, Cyber Lmvr What You Need to Know About Doing Business Online (Toronto: Stoddart, 1997) at 7.
"'J. Carroli and R Broadhead, 1996 Cadian Internet Handbook (Scarborough: Prcntice Hall Canada Inc., 1996). Internet's uses is obsolete as soon as it is written"'", the following is a non-exhaustive list
of what can be done on the "Net": electronicmail (which allows correspondents to
exchange information from anywhere in the world), list-servers, chat lines, interactive
bulletin boards, electronic commerce367,telephone lines3", banking, games, sound and
video transmission, shopping. travel arrangements, translation senices, magazines and
newspapers, and information on what seems to be virtually any topic imaginable.
Technologies are also being developed to allow television viewers to use their television
sets to not only watch broadcast programming, but to send electronic-mail and "surf' the
Internet.3M
As mentioned above, the Internet has begun to be used increasingly more for the
transmission of video and sound images.370 Although broadcasting over the Internet is in
3WMichaelKoch, "Square Pegs and Round Hoks: CRTC Regulation of the Internet" (Address to the Canadian Bar Association /Law Society of Upper Canada, April 26-27. 1996) [unpublished] at 3.
367Fora study on electronic commerce, see Pierre Trudel, "Introduction au droit du commerce tlectronique sur llntemet" (Sept-Oct 1995) 55 Revue du Barreau du Qutbec 521.
3aIbid.
ldPSeeMark Evens. "Microsoft Jockeys for Position with WebWTThe Globe & Mail (17 June 1998) B3 1; Bell Canada, News Release, "Bell Canada Introduces Tvi Plus: Simultaneous Internet TV Access on TV (8 June 19%); Brad Fortner, "WebTV Demonstrations Highlights" Broadcaster (April 1998) 17; Jeremy Barker. 'W Programmers Tune in to the Net: Remote Control" The Globe & Mail (6 September 1997); & Doug Saundus, "TV,Phone Home" The Globe & Mail (1 April 1998) C1.
noseeTerrence J. Thomas, "The Extraction of Value in Cyberspace and Canadian Culture" Policy Options - Electronic Commerce (June 1998) 33-35; Wade Ro wland, "Future its infancy, and the quality of the video image is below what may be currently viewed by
way of conventional television sets of today, there are plans for the advancement of
television broadcasting over this medium For instance, in September 1998, Broadcom of
the U.S. had an explosive initial public offering as a result of its new chip that aims to put
the Internet on television screens around the world."' On April 15, 1997, Microsoft
Canada Inc. announced that it would be presenting its first season of broadcast
programming over the Internet and has promised to spend more than $1 million on its
initial thirteen weeks of programming. In that same year, Bell Canada announced the
creation of a $12 million broadcast fund that will link new media forms with
broadcasting." Further, most Hollywood studios have established new media divisions
and are testing consumer habits with their ~ebsites."~Currently, one can down-load full
Wave: The Internet Offers a Unique Opportunity for the CBC to Reinvent Itself in the Digital Age" The Toronto Star (2 March 1997); Stuan Broomer, "For Jazz Fans, the Internet's Swingin'Musicians and Obscure Recordings are Fiding New Notoriety on Line" The Globe & Mail (11 July 19%) C17; Mark Egan, "Mike and Di's Excellent Adventure: U.S. Teens to Lose Virginity on Internet" The Globe & Mail (13 June 1998) C19; Martin Langfleld, "Fm Aims to Broadcast Sex-Change Operation Live on Net: Florida Developer of Adult Web Sites Says Venture Not a Hoax; It Seeks to Profit as Viewers Watch Man Changed Into Woman in Novembertt The Globe & Mail (1 August 1998) C7; Peter H. Lewis, "Peering Out a Real Time Window" The New York Times (8 February 1995) Dl; & Australian Broadcasting Authority, Investigation inro the Content of On-line Services - Report to the Minister for Cornmunicarionr and the Arts (Sydney, Australia, 1996).
"'Carolyn hitch, "Broadcom Explodes Into Technicolour" The Globe & Mail (24 September 1998) C10.
%ntonia Zabisii. "Bell Canada Sets Up 9 12 Million TV Fund" The Toronto Star D2.
a at thew W. Frascr, "DigitaI Delivery of Cultllfal Products on the Electronic Highway'' Policy Optionr (June 1998) 30. motion video from the Intemet, and it is anticipated that faster modems will allow
individuals to view full motion programs, such as those that can be seen on television
screens at the present time.
The Internet is not yet regulated by the CRTC or the fedual government.'" A
Public Hearing on new media has, however, been scheduled for November and December
1998, in order to assess wheher and how the Internet and new forms of media should be
regulated." It will be interesting to see how the CRTC comes down on this issue. That
is, it will be interesting to see whether the Commission will decide to regulate the Internet,
and if it does, whether the communication transmissions will fall under the broadcasting
regim, the telecommunications regime, or both.
The Internet poses similar threats to the regulation of broadcasting in Canada as
does DBS, because it can transcend borders and regulatory regimes. The Internet has the
potential to bring programming from anywhere around the world to Canadian viewers.
374Forstudies on the issue of the regulation of the Internet, see Carolyn Pinsky, ''The Internet: Brave New World or Same Old Thing? A Survey of Legal Issues Relating to the Regulation of Content Distributed Over The Internet" (Address to the Canadian Bar Association - Media and Communications Law Seaion - Law Society of Upper Canada, April 1647,1996 [unpublished]; Koch, supra note 366; & IBM Canada Ltd., Multimedia Content & Services in o New World: A Ratio~litedConvergence Policy Framwrk for C~M&(Canada, 1996) [unpublished].
375~roadcas~gPublic Notice CRTC 1998-82neIecom Public Notice CRTC 9820 (New Media - Call for Comnents), 3 1 July 1998. One commentator has noted that "new technology is turning the Internet into a virtual
broadcasting mediumtt.which may soon allow individuals to view television programs via
the Internet.376It also has the potential to bring new services, such as interactive
television and pick-an-pa y services. "
The Internet may, thus. place signikant pressure on the Canadian content
requirements. This medium of communication will likely dow dismbutors to provide
prograrraning that is free of Canadian content. The Commission must, therefore, consider
how content will continue to be aired in the new broadcasting environment that the
Internet might bring in order to saw the requirements of the Bruadcasring Act.
Moreover. as content quotas might eventually be by-passed, the production sector
may also feel pressure. If distributors an not airing indigenous Canadian programming in
the future, then the production sector will likely see a reduction in the level of programs
created. Therefore, the distribution of Canadian productions is yet another aspect of the
regulatory regime that the Commission should consider in order that it fulfil its mandate as
"6Tina W. Chao, "GATT's Cultural Exemption of Audiovisual Trade: The United States May have Lon the Battle But Not the War" (1996) U. Pa J. Intl Econ. L. 1127 at 1149-1 150.
m~ick-and-paymans a system where the viewers select the programs and/or channels to view, rather than have the dismbutor select the programming services to be made available. set out in the broadcasting ~egislation.~'~
AS stated above, the Commission is in the process of considering how the Internet
will (or will not) be regulated in the future. Should the CRTC determine that the new
forms of media emerging over the Lntenet are to be regulated under the
Telecommunications Act. the video images and sound delivered over this global network
will likely not be regulated in such a way as to encourage the presence of Canadian
programming and the development of Canadian cultural identity. To regulate
broadcasting over the Internet under the telecornrnunications regime would mean that a
strong component of broadcasting in Canada will not be regulated in such a way as to
fultil the cultural mandate of the Broadcasting ~ct?~This in turn places the entire
cultural element of television broadcasting at risk. If the Intemet developed in such a way
as to replace television and is not regulated to promote the development and enhancement
of Canadian cultural identity, Canadian culture in television broadcasting could be
signiticantly affected.
It is uncertain how the Internet will develop over the corning years. It may
become an entatainmcnr tool, a method for exchanging information, a facility for
378Section3(I)(v) of the Broadcasring Act provides that "the programming provided by the Canadian broadcasting system should include a significant contribution from the Canadian independent production sector." . commercial transactions, all of these or none of these. The uncertainty around the
development of the Internet poses many challenges for the CRTC. While the federal
regulator's goals is, in pan, to pursue the cultural objectives of the Broadcasting Act, the
manner in which those goals might be attained are not clear because this medium
continues to grow, change and expand. The CRTC must, thus, determine what role, if
any, that the Intemet will play with regard to the Canadian broadcasting system and
Canadian culture, as well as determine how cultural objectives might be achieved in that
new environment.
The Impact of the Internet on the Foreign Ownership Restrictions
There are many proponents that are opposed to the regulation of the ~ntemet.~"
They would like to see the Internet grow and develop fice of government intervention,
and do not want to see the regulatory regimes in place for broadcasting or
telecommunications transposed onto the "Net."The regulation of the Internet is. thus,
bringing negative attention to the Canadian broadcasting system, inciuding foreign
380See"Hands Off New Media: KAC To Tell CRTC" Canada News-Wire (25 August 1998); Eric Rothschild, "No Need for CRTC to Regulate Intemet" The Toronto Star (24 September 1998); Deborah Stokes, "CRTC's Net Regulation Hearings Questioned" Marketing Magmine (21 September 1998); "Regulating the Intemt" The Gazette (10 August 1998): Dan Gardner, "CRTC Covets Net Control" The Windsor Star (11 August 1998); Don Emn, "CRTC Should Stay Out of Net Regulation" The Federicton Daily Gleaner (10 August 1998) C8; Sandy McMurray, "Who Controls The Intemet?" The Toronto Sun (5 August 1998) 63; & Matthew Friedman, "CRTC Should Drop Net-Regulation Process: Agency Doesn't Realize that Internet Content Resembles Conversation More than Broadcasting" The Montreal Gazette (5 Aupa 1998). ownership restrictions, in order that some may pursue the goal of a regulation-free
Internet. In July 1997. an adviser to US. President Clinton was reported to have said that
protectionist measures in television broadcasting will become obsolete when broadcasting.
telecommunications and the Internet onv verge.^" He also stated that controlling the
number of broadcasters will become obsoIete. Thus, this adviser uses the Internet
technology for criticizing the existence of regulatory regimes in broadcasting, generally
and the foreign ownership restrictions in particular.
The goal of those opposed to the regulation of the Internet is to ensure that kee-
market principles apply in cyberspace. The foreign ownership restrictions are contrary to
those principles and could thus attract negative attention and criticism to the Canadian
broadcasting system as the Internet unfolds.
Further, the foreign ownership restrictions in television broadcasting stop non-
Canadian corporations fiom acquiring ownership and control of Canadian broadcasting
undertakings. This in turn stops foreign corporations hrnbeing able to diversify.
increase their holdings and eliminate competitors, if they so wish. Even if the world's
strongest broadcasters, such as NBC and CBS, are able to get on the Internet, so will
Canadian broadcasters such as City TV and W. Foreign broadcasters may want to buy
381~ohnGuides, "Cultural Resistance Futile, Clinton Adviser Says" The Financial Post (24 July 1997) 5. out Canadian broadcasters who are providing se~cesover the Internet in order to reduce
competition for viewers'/surfersl attention. It is thus possible that the foreign ownership
restrictions may attract negative attention as foreign corporations might wish to structure
their corporations in a way that will allow them to better compete in the world of the
Internet.
(iii) Convergence
As of the early 1990s, convergence has become an important issue for the
communications ind~stries.~~According to the Organization for Economic Cooperation
and Development (OECD) Directorate for Science, Technology and Industry, three types
of convergence are taking place, they are: "technical, functional, and corporateHM3
'"See Sheridan Scott and Peter S. Grant, "The Global Information Society: Broadcasting and Telecom Regulation in an Era of Convergence" (Address to the Canadian Bar Association - Media and Communications Law Section - Law Society of Upper Canada, April 26-27, 1996) [unpublished]; Robert E. Babe "Convergence and the New Technologies" in Michael Dorland, ed.. The Cultural indu~riesin Cam&: Problem, Policies and Prospects (Canada: Lorimer, 1996) 283; Matthew Fraser, "Information Highway/Convergence/AnalyW The Globe & Mail ( 13 September 1997) D 1; "Convergence Developmnts in 1996" Buriness World (30 December 1996); Jean Benoit Nadeau, "Bit by Bit, Teleglobe CEO Charles Sirois has Built a Formidable .. Telecom Empire" The Financial Post (1 September 1998); Robert Bragg, "Converge and the World Goes With You" Calgary Herald (23 September 1998); Robert Bragg, "When in Doubt. Converge" Calgary Herald (28 Septembex 1998); "MicrosoftPuts $1 Billion Into Cable: Software Giant Increases its Stake in Comcast in a Bid to Speed W-PC Convergence" The Vancouver Sun (10 June 1997);"Miaosoft Puts $1 Billion Into Cable: Software Giant Increases its Stake in Comcast in a Bid to Speed W-PC Convergence" The Vancouver Sun (10 June 1997); "Federal Government Moves to Open Cable and Local Telephone to Competition (With New Convergence Policy" Canadian Press Ndre (6 August 1996).
3a3RobertE. Babe, "Canada" in Media Ownership and Control in the Age of Convergence (International Institute of Comunications: London, 1996) 23 at 23. convergences. Technical convergence refers to the meshing of what used to be distinct fomof communications mediums, into one single media. Historically. distinct technologies were used for two way voice cornrnunications (ie. telephony) and for one- way transrrdssions (ie. radio, television and cable). Technology is now being developed for one medium to provide both two-way and one-way communications. It is anticipated that eventually a single infrastructure will be in place for all communications senices to be accessed through one terminal:
Ideally, the information highway would integrate coaxial cable, twisted copper pair, fibre optics, radio and micro wave, wireless and satellite technologies, providing another advantage to Canada's cultural industries.
It would lead to "platfomindependence,'I giving content providers the ability to repackage and resell their intellectual property for any number of delivery modes, markets and applications."
The second form of convergence, dubbcd the functional convergence, refers to
"hybrid services that are combinations of voice, data, text, and/or image, for example online en~yclopaedias."~The third and halform of convergence consists of corporate convergence. This refers to the coming together of companies that tiaditionally operate in distinct sectors. Examples of such convergence include telecommunications companies
=Elisabeth M. Ostiguy, "Thc Benefits of More Choice in Distribution Channels for Cultural Programming" (1995) 20 Canadian Journal of Communication 329 at 333; see also John D. Hylton, "Free Wheeling & Dealing? NAFTA & GATI' & Telecom" (1993- 95) 4 M.C.L.R. 173 at 188.
=~abe,supra note 383 at 23. entering the cable market386;utility companies such as hydro getting into cable; cable companies providing telephone service: telecommunications companies and cable companies providing high speed Internet access3"; and, broadcasters. producers, magazines, newspapers and advertisers providing Internet access services. "
Convergence involves the easing of international and domestic capital It denotes deregulation of the communications sectors and an increased reliance on market forces. The deregulation of the communications sectors has begun to take place in
Canada as a result of the convergence phenomenon. It is seen in technological developments3" and business activities as well as in legislative reform. Until very recently government regulation precluded companies in certain cornmunications sectors fkom entering the market of the other. For instance, cable companies could not enter the television sector and the telephone companies could not enter the cable market. In 1996, however, the CRTC handed down a decision allowing cable companies to enter the long
'""Deal Creates Telecom and Cable Giant: TCI Purchase Expands AT&T" The Windsor Star (25 June 1998).
3n"~T&~Focusing on Internet" The Globe & Mail (1 8 June 1998) B12.
3gsScott,supra note 3.
%%ah, supra note 383.
390For instance, Bell Canada is currently conducting an experirmnt in London Ontario and Repentigny, Quebec to deliver cable television and Intanct services using digital signals that are sent over fibre-optic lines. See 'W,Phone Home" The Globe & Mail (1 April 1998) C1. distance telephone market. In 1997, the CRTC rendered a second ground breaking decision allowing telecomunications companies to enter the cable sector and allowing cable companies to enter the local telephone sector.3g*
Other deregulatory initiatives that took place in Canada as a result of convergence include the harmonization of the foreign ownership resmctions in television broadcasting and telecommunications in 1996.~~This was a result of the recommendations made by the Information Highway Advisory Council (MAC),which viewed the harmonization of the foreign ownership restrictions as necessary in order to promote investment and competition in Canada.3g3
"' Telecom Decision CRTC 1997-8 (Local Competition), 1 May 1997. This decision to allow competition in local telephony ends a century old monopoly which granted Canada's Stentor telephone companies the exclusive right to off- local telephone services. See also Margaret Philip and Lawrence Surtees, "CRTC to Allow Local-Phone Rivalry" The Globe and Mail (2 May 1997) Al. On 1 May 1997, the CRTC also issued Public Notice CRTC 1997-49 (Applications by Telephone Companies to Carry on Broadcasting Distribution Undertakings). That Public Notice provided that by 1 January 1998, barriers to entry into local telephony would be sufficiently addressed and that telephone companies should be permitted to carry on broadcasting distribution undertakings.
'* AS stated in Chapter 4 prior to 1996, the foreign ownership restrictions in television broadcasting were set at 20% for both the licensee and the holding company.
393931RfomtionHighway Advisory Council, The Challenge of the Information Highway: Finol Report of the Informotion Highwoy Advisory Council (Canada: Minisay of Supply and Se~ces,1995) at 15. The Impact of Convergence on the Regulation of the Canadian Broadcasting System
As technologies converge to provide both point-to-point and point-to-multi-point
communications, there is pressure on the regulatory regime to keep up (this for instance
was seen with the harmonization of the foreign ownership restrictions). AS the
technologies continue to change and advance, the CRTC is forced to reconsider parts of
the regulatory regime and the manner in which it might attain the cultural goals set out in
the Broadcasting Act. There are many uncertainties with regard to how the
communications industries will unfold. As a result of this, the Commission's
responsibilities under the Broadcarring Act are made more difficult.
As stated above, there has been a trend in recent years for cornmunications
corporations to converge.3w This type of vertical integration is limiting the number of
'"See Lynn Elber, "Beware Bill Gates, Cable TV Warned: Media Managers Express Worries That Microsoft's Domination of the Conputer Industry Could be Repeated in Interactive Television" The Vancouver Sun (12 Decemkr 1997); Andrew Tausz, "Telecom Giants Dial M For Merger" The Financial Post (29 August 1998) 5; "Cabkvision to Pay US $92 for Loews Theatres" The Finnnciul Post (28 August 1998) 1; "US.Telccorn Outfits Rush to Fiid Partners: Industry Megamergers, such as the Latest International Moves by Giant AT&T, are Putting Pressure on Regional and Long-Distance Carriers to Grab a Mate" The Vancouver Sun (28 July 1998); "AT&T, BT to Join Forces in Entity Worth $I I-billion" The Globe dr Moil (27 July 1998) 84: "U.S. Approves WorldConVMCI Merger Deal" The Financial Post (16 July 1998) 1; Richard Siklos, "Seagram Pays U.S. $1.7B for Full Control of USA Networks" The Financid Post (23 September 1997) 1: "Murdoch's AskyB Merges With Rimestar" The Globe & Mail (12 June 1997) B8; Brenda Daiglish, "Star Choice and Shaw Complete DTH Merger" The Fi~nciulPost (5 June 1997) 1; Jeff Cole, "Satellite FiAlign for Deals in Mexico" The Globe & Mail (10 March 1997) BS; "Tim-Warner-CNN Deal Approved: $7.5 billion Merger Creates largest Entertainment-Media Congiomrate on the Planet, Leaving Walt Disney Co. in Dust" The Vancouver Sun (18 July 1996);'Tirne Warner Takeover of Turner Approved" Caigary Herald (8 participants in the broadcasting sector. Consequently, diversity in programming, which is
one of the goals of the Broadcasting Act, is becoming an issue for the CRTC.'~'
Moreover, as communications corporations bccome increasingly more diverse and
strong, it will likely become more and more difficult for the Commission to avoid
pressures that these corporations might place on the federal regulator. While the
Commission most certainly takes into consideration the views of the industry and the
Canadian public, increasingly large and lucrative corporations might have heightened
lobbying savy that might place additional pressure on the regulator.
The Impact of Convergence on the Foreign Ownelship Restrictions
As a result of the growing convergence trend, the foreign ownership resmctions
have the potential to come under a fair degree of attack. The large communications
companies are likely to want to continue to expand their activities in order to position
themselves to be strong competitors in the gio bdand information-based market-place.
Increasingly more corporations are converging with other corporations in foreign markets.
February 1997); "BT, CBtW Pursue Chinals Support for Merger" The Fi~ncialPost (19 April 1996) 1; "US West to Pay US $1 lB to Merge with Cable-TV Fm"The Fi~nciafPost (28 February 1996) 1; & "Major British Media Companies Merge" The Financial Post (9 February 1996) 1.
395~eeBroadcasting Act, sections 3(d)(i) & 3(9(i). Public Notice CRTC 1998-44, supra note 301, raises the issue of vertical integration in the broadcasting sector. These entities will likely want to see markets around the world to be open, unencumbered and present few barriers to the £me flow of capital in order to maximise profits and revenues. The foreign ownership restrictions, however, present a significant obstacle to these corporate activities. They limit market entry, ownership and control of Canadian television broadcasters, and convergence of non-Canadian companies with Canadian companies. As the market becomes more competitive, it is possible that foreign multi- national corporations will be less tolerant of Canadian foreign ownership restrictions.
These corporations may attack the foreign ownership rules, and argue that they are contrary to the trend of converging corporations and technologies in order to obtain entrance into the lucrative Canadian broadcasting industry.'%
The foreign ownership restrictions in television broadcasting have and are kely to continue to come under attack as a result of the convergence of the television broadcasting and telecommunications industries. These two sectors have historically been regulated to attain different goals. The television broadcasting sector in Canada has traditionally been regulated to promote Canadian identity and cultural sovereignty. Its concern has been to ensure the presentation of Canadian values, stories and ideas on
Canadian television screens. Television broadcasting legislation has thus focused primarily on the presentation of content. Conversely, teIecommunications has focused on the
-- '"Babe, supra note 383 at 46. regulation of carriers, with no discrimination to be made with regard to the content of messages sent. While the Telecommunicutionr Act does state that the telecornrnunications industry performs an essential role in the maintenance of national identity and sovereignty, this industry is regulated in a more competitive, market-driven manner than television broadcasting. For instance, section 7(f) of the Telecommunications~cr" states that one of the objectives of telecornrnunications in Canada is "to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective."398 There is no such provision found in the broadcasting legislation. As the lines between these two sectors become increasingly more blurred, there could be increased pressure for the underlying philosophy of the telecommunicastions regulatory regime to be transfared to the television broadcasting industry. The telecorrtmunications sector is being deregulated domestically and internationally at a more rapid rate than television broadcasting.
As corporations and technologies converge. and as telecommunications become more deregulated, @erecould be increased pressure on the television broadcasting industry. and the foreign ownershq resnictions that govern television, to keep in Line with teIecornrnunications. As tekcommunications companies around the world enter new markets as a result of the fikralization of trade and investment in this sector, these
companies might wish to invest in other converging communications sectors. such as
television broadcasting. The foreign ownership restrictions would be an impediment to
such activity, wich in turn could attract negative attention to the measures and the
television broadcasting industry born the international business community.
Moreover, the trend of convergence might attract negative attention toward the
foreign ownership restrictions as those masures become increasingly more irrelevant as
technologies and corporations converge. One commentator noted with regard to the
foreign ownership restrictions in the U.S. that those restrictions are becoming more and
more obsolete on a daily basis.399He also stated that "[t]he distinctions drawn between
broadcasting, cable and common carrier industries... become impractical. as well as
inefficient economically, as those industries merge.'*OP
5.4 Conclusion
Due to the technological and global trends that are taking place around the world. .
there is significant presure on the CRTC and the federal govemnt with regard to the
regulation of television broadcasting and the manner to attain the cultural goals of the
3?Ian M. Rose, "Barring Foreigners From Our Airwaves: An Anachronistic Pothole on the Global Information Highway" (1995) Columbia Law Review 1188 at 1230. Broadcasting Aa. The trends are also attracting. and will likely continue to attract, significant negative attention to the foreign ownership restrictions. In order to alleviate some of the pressure on the Commission and the television broadcasting sector, the federal government should consider relaxing the foreign ownership restrictions. The following and final chapter will explore that possibility. Chapter 6 - Conclusion
The federal government has regulated the broadcasting sector in Canada since its inception in the 1920s. It has done so in order to preserve, enhance and promote
Canadian culture. As set out in chapter 2, a diverse and complex mix of measures has been adopted that sect the many facets of television broadcasting. The ultimate goals of those measures are to ensure that Canada has a broadcasting system that Canadians have the opportunity to create indigenous programming, and that Canadians have access to that programming. The role of the foreign ownership restrictions within that mix is to ensure that Canadians have ownership of broadcasting undertakings in this country, and that
Canadians control the decision-making processes of those undertakings.
The Canadian broadcasting system is strong and vibrant. Television broadcasters are enjoying record profits. The production sector has created some excellent Canadian programs such as Venture, This Hour has 22 Minutes, Traders, Rue South, Street Legal,
Lesfi[les de Caleb. Lo petitie vie, Emily Qrhe Moon, and The Road to Avonlea;
Canadian specialty progregservices are attracting more Canadian viewers than their
American counterparts. Distributors have penetrated 90% of the television homes in
Canada, and it is reported that 30% of programs viewed by Canadians are indigenous programs (that is quite good considering the influx of non-Canadian programs that have arrived in Canada over the past decade). In recent years, a number of trends have begun to take place that are putting pressure on the federal government, the CRTC, the cultural measures, and the Canadian broadcasting system As set out in chapter 5, the world's economic markets are becoming increasingly more interdependent. The trend of globalization has brought many countries to sign multilateral, plurilaterd and bilateral trade agreements. Another result of the global trend is that corporations have become more outward looking and seek opportunities in foreign markets. A further result of the global trend is that foreign countries, corporations and individuals have become very critical of Canada's cultural policies. Chapter 5 sets out a number of these criticisms and attacks, which include the magazine issue at the WTO,the country music channel incident, the film distribution resmctions and the film quotas for the projection of Canadian films in Canadian cinemas.
In essence, most of the attacks mentioned in this thesis relate to foreign nationals who are opposed to another country's cultural measures that prevent barriers to entry. As stated by the former minister for International Trade. Arthur Eggleton, during a speech given at
Osgoode Hall Law School in January 1997, "the simple fact is that investment and content controls are being exposed to measures fiom liberali7PA trade.lql
The foreign ownership restrictions run counter to the globahtion trend. They prevent corporations from other countries born investing past a fixed amount into the
"Eggleton, supra note 277. Canadian broadcasting system They also prevent foreign corporations born obtaining control in fact of Canadian broadcasting undertakings. Consequently, the pro fitmargins of the foreign corporations that are interested in the Canadian broadcasting corporations are being iimited as a result of the foreign ownership restrictions. As a result of the trend towards global corporate transactions and foreign investment, and as a result of non-
Canadians becoming increasingiy less tolerant of Canadian cultural policies, the foreign ownership measures have and may continue to come under increasingly greater at tack and attract negative attention to the Canadian broadcasting system in the years ahead.
The global economic trend is also placing significant pressure on the regulation of the Canadian broadcasting system With barriers to trade coming down in many sectors. and pressures for the reduction of protectionist measures in television broadcasting, the
Canadian broadcasting system and the CRTC are most likely feeling the pressure of heightened fiee trade.
The other significant trend discussed in chapter 5 that is affecting the Canadian broadcasting system is that of technological change. This trend has had, and will likely continue to have, a tremendous impact on the regulation of the Canadian broadcasting system Communications technologies are rapidly changing and such methods of distribution as DBS and the Internet are threatening the very existence of the Canadian broadcasting system These borderless technologies an placing significant pressure on the
173 CRTC because it is uncertain how the goals of the Broadcasting Act might be attained in the future.
As a result of this growing technological trend, the foreign ownership restrictions have and will likely continue to attract negative attention to the Canadian broadcasting system Future negative attention might arise as a result of limiting foreign investment and cwnership opportunities for those corporations that would like tc expand, develop and diverse their holdings.
Another trend that is acting the Canadian broadcasting system is convergence.
As discussed in chapter 5, this trend has essentially surfaced due to the global and technological trends. Convergence is bringing together technologies and corporations at a very fast rate. The CRTC must monitor the changes that are taking place, and those that might take place in the future, as well as consider how the goals of the Broadcasting Act might be attained in such an environmnt. The trend of converging technologies and corporations might .&o cause the foreign ownership restrictions to act as a lightening rod for negative attention to the Canadian broadcasting system because they limit the he1of convergence that can and will take place. This barria, therefore, affects the economic interests of what are becoming enormous multi-national communications corporations.
Due to the increased challenges that the CRTC faces with regard to the regulation
174 of television broadcasting and due to the negative attention that the foreign ownership restrictions have and will likely continue to attract, the federal government should consider amending the foreign ownership restrictions. The pressure on the Canadian broadcasting system might be alleviated by virtue of the fact that Canada would be offering a concession in the manner in which it regulates television broadcasting. The concession might appease foreigners in such as way as to deter them from attacking the regulatory measures that are in place for the television broadcasting sector.
. As chapter 5 indicated, most criticisms of Canadian cultural measures have been aimed at measures that Limit entry into the Canadian market. There have been far less criticisms by non-Canadians of Canadian subsidies to production and the CBC than there have been on foreign ownership. Canadian content and other measures that have limited entry such as the film quotas and magazines. Thus, to liberalize the foreign ownership restrictions may send a message to foreigners that Canada is, to a certain extent becoming more open. This is turn might lirrdt criticism for some time and allow the CRTC to focus on its major task at hand, which is to determine how it will regulate television broadcasting in order to fulfil the cultural goals of the Broadcasting Act.
If the level of foreign ownership is increased, it would, however, be vital that the
CRTC strengthen and tighten its test for detemhhg whether a non-Canadian corporation would gain control of the Canadian broadcasting company. This issue was discussed in
175 chapter 3, and as seen in that chapter. it is not clear at the present time whether non-
Canadian companies did not in fact gain control of the Canadian comunication
corporations, as in the case of AT&T.
The foreign ownership restrictions are part of a mix of measures that are in place
to protect the Canadian broadcasting system An increase in the level of foreign
ownership restrictions will not create an imbalance in the regulatory scheme. As set out in
chapter 2. such measures as content quotas, Wage rules, subsidiesm. contribution by
networks. programming and distribution undertakings, tax credits and tax incentives and
simultaneous substitution would remain in place ensuring access by Canadians to
indigenous productions. These measures also provide incentives to Canadian television
broadcasters, which &ow them to continue to strengthen as they prepare for the future
global competitive environment. Further. the CBC should also continue to provide
Canadians with high quality and diverse Canadian and non-Canadian programming.
*Although there has been limited criticism of the Canadian government's funding to the production sector, it is ufiely that they will attract a great deal of negative pressure in the near future because of the level of funding provided. However, should an agreement such as the MAI be adopted that incorporates free trade principles to the television broadcasting sector, subsidies to Canadian productions wouid likely be in contravention of the principle of national treatment. That principle provides that damstic entities goods and savices must not be wedmore favourably than foreign entities, goods and services. In order to avoid such a breach, the international trade agreement must be dent with regard to a particular area or must allow for exceptions for a particular sector covered by the agreement. Responding to outside pressure, as seen in chapter 3, for adopting regulatory measures for the Canadian broadcasting system is not a new practice for the Canadian government. It has done so since the inception of the broadcasting system in the 1920s. when it appeared that the U.S. broadcasting system was stronger than that of Canada's.
The pressures from abroad are real and may well intensify in the coming years. The federal government and the CRTC should, therefore, consider relaxing the foreign ownership restrictions in order that Canadian culture may continue to be maintained, enhanced and encouraged in the new and rapidly changing television broadcasting environment Appendix 1 - Bibliography
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