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CHPC Committee Report

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The Funding Crisis of the Canadian Television Fund

Description of the Canadian Television Fund (CTF)

The CTF was established in 1996 to support the production and distribution of distinctively Canadian television programming. The types of programs funded by the CTF include drama, youth and children’s programming, documentaries, variety and the performing arts. The programming supported by the CTF is produced and distributed in both official languages, and in a number of Aboriginal languages.

The Broadcasting Distribution Regulations (BDR) require class 1 and 2 cable distribution licensees, along with direct broadcast satellite and multipoint distribution system (MDS) licensees, to spend a minimum of 5% of their annual gross revenues from broadcast operations on Canadian programming. The contributions to Canadian programming are made through the CTF and various independent production funds. The BDR provide that at least 80% of the required contribution must go to the CTF and that at most 20% should go to one or more independent production funds outside the CTF.

In 2006-2007, the CTF received funding from the Government of Canada ($120 million) and from Canadian cable distribution and direct broadcast satellite service undertakings ($145 million). Graph 1 shows that contributions from the industry have increased steadily since 2001-2002 while the government’s share has dropped significantly, by $25 million between 2005-2006 and 2006-2007.

Source: Canadian Television Fund, Stakeholders’ Report 2006, p. 1.
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Recent Developments

In a letter sent to the CTF on December 20, 2006, Jim Shaw, CEO of Shaw Communications Inc., called for major changes to the CTF’s mandate and governance structure. The company announced that it was withdrawing its financial support to the CTF. Shaw Communications Inc. argued that it was being required to fund unpopular television programs and indirectly subsidize the public broadcaster, CBC/Radio-Canada. A few weeks later, the company went so far as to say that the CTF was simply too far gone to be fixed. [1]

On January 23, 2007, Quebecor Media followed suit. In a press release, the Quebec firm informed the CTF Chair that its subsidiary Videotron was immediately “suspending its monthly payments to the CTF and asking the Hon. Bev Oda, Minister of Canadian Heritage, to launch a thorough review of the Fund’s management and membership structures.” [2] Like Shaw Communications Inc., Quebecor Media could not accept that its contributions should be used to “finance the public broadcaster CBC/SRC, and that the Canadian Television Fund should reserve 37% of all production funding for the CBC/SRC.” [3] Quebecor Media also noted that some services, such as video-on-demand, do not have access to the CTF despite very strong demand for this service.

On January 26, 2007, the Minister of Canadian Heritage and the Status of Women, Beverly Oda, confirmed $200 million in funding over two years for the CTF (2007-2008 and 2008-2009) to stabilize the television industry and help resolve the crisis. After meeting with the main funding parties, she reiterated her government’s interest in supporting the production of Canadian programming and in listening to the concerns of the private contributors to the CTF. [4]

On February 13, 2007, Minister Oda announced that she had written to Shaw Communications Inc. and Quebecor Media, asking them to resume their payments. That same day, the Chairman of the CRTC, Konrad Von Finckenstein, issued a statement in which he echoed the Minster’s concern and called on all stakeholders to “play by the rules and operate within the context of the regulatory system.” He added that the Commission is “prepared to consider amending the regulations to take into account any resolution arrived at between the parties.” [5] Since then, Quebecor Media [6] and Shaw Communications Inc. have both agreed to the Minister’s request, while still calling for a full review of the financial support provided for Canadian programming.

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Evidence Heard by the Committee

  1. The Importance of the CTF

    Many witnesses appearing before the Committee shared the view that the CTF is an essential part of the Canadian broadcasting system. Witnesses repeatedly stated that the CTF has been instrumental in fostering the creation of Canadian content programming. The Directors Guild of Canada stated that the Fund is the single most important source of funding for Canadian programs in our country. Noting the high costs of television production and the relatively small size of the Canadian market, the Canadian Film and Television Production Association suggested that without the CTF, independent producers could not afford to make their programs. The Minister of Canadian Heritage told the Committee that investments made through the CTF have generated more than 23,000 hours of new Canadian television productions in English, French, and aboriginal languages across genres such as drama, documentary, children’s and youth, and variety and performing arts. In addition, Robert Rabinovitch, President and CEO of the Canadian Broadcasting Corporation, indicated that CTF funded programs are an important part of the Corporation’s broadcast schedule. In fact, Mr. Rabinovitch suggested that along with government funding and advertising revenue, the CTF is one of the three pillars that allows the Corporation to fulfil its mandate of providing Canadian programming to Canadians.

    Several witnesses also drew the Committee’s attention to the CTF’s role in creating employment in the Canadian production industry. For instance, the Canadian Film and Television Production Association stressed that: An estimated 21,000 full-time equivalent jobs out of 46,700 jobs in the television production sector are the result of CTF-supported productions.

  2. Operational Aspects of the Fund

    During the hearings on the CTF, the Committee heard from Shaw Communications Inc. and Quebecor Media. Both Shaw Communications Inc. and Quebecor Media felt that there are significant problems with the way the CTF operates. Shaw Communications Inc. expressed concern that “the CTF has not delivered on its mandate to support and expand the development of quality television programs that reflect Canada’s unique and special nature to Canadians” and that it has not increased viewership for Canadian programming. Shaw Communications Inc. went on to state that the CTF has spent 2.3 billion dollars resulting in only a few success stories. In addition, Shaw Communications Inc. felt that the CTF lacked accountability.

    Quebecor Media expressed concern that the CTF has not adapted to meet the challenges posed by the rapidly changing broadcasting environment. A proliferation of specialty television channels and new broadcasting technologies has caused audiences to fragment, posing significant challenges to traditional business models. Quebecor Media expressed particular dissatisfaction with the CTF’s apparent refusal to support production for video-on-demand programming.

    Although nearly every witness appearing before the Committee felt that some improvements could be made to the CTF, most seemed to feel that, overall, the Fund has been operating well. Douglas Barrett, Chair of the Board for the Canadian Television Fund, insisted that CTF is a well-governed and well-managed institution. It is both program-effective in service delivery and cost-effective on the administrative side. It manages a considerable amount of public and private funding to the highest degree of fiduciary standards. The Writer’s Guild of Canada stated that while the Auditor General’s 2005 report had raised some issues with the Fund’s governance, the composition of its board has since been altered, thereby resolving these issues. That said, it was clear from the hearings that Shaw Communications Inc. and Quebecor Media do not share this perspective.

    Several witnesses expressed the opinion that the CTF has indeed funded programs that Canadians watch. The CTF, the Canadian Broadcasting Corporation, the Canadian Association of Broadcasters, and the Canadian Film and Television Production Association all cited numerous CTF-financed productions that have garnered critical acclaim and, in their view, significant audiences. The Canadian Association of Broadcasters noted that while building audiences in English Canada remains a challenge, CTF-financed programs have been very successful in the French-language market, capturing 37% of all viewing to drama programming in prime time and 59% of all viewing to variety and performing arts programming.

  3. The Way Forward

    Several witnesses noted that the uncertainty caused by recent events has seriously destabilized the Canadian production industry. Witnesses also stated that broadcast distribution undertakings must continue to contribute to the CTF if the Fund is to properly fulfil its mandate. The CTF, the Canadian Association of Broadcasters, and the Directors Guild of Canada specifically recommended that the CRTC move to amend the Broadcasting Distribution Regulations to require monthly payments from broadcast distribution undertakings to independent production funds.

    In addition, the Association des producteurs de films et de télévision du Québec, the Directors Guild of Canada and the Writers Guild of Canada urged the government to provide the CTF with an interest-free loan equal to the amount of the outstanding contributions. Considering the importance of the Fund, the Directors Guild of Canada also recommended that the government provide it with stable, long-term funding.

    The Canadian Broadcasters Association stressed that the CTF, and indeed all television production funding mechanisms, must keep pace with the changing realities of the broadcast environment. To this end, the Association recommended that the CRTC be directed to hold a review of matters related to production funding mechanisms. The first principle of such review, according to the Association, must be the creation of great Canadian programming that attracts audiences on all available platforms.

    Shaw Communications Inc. expressed a desire for a thorough review and restructuring of the way Canadian programs are funded and produced, with an aim to achieving a funding mechanism that is independent, accountable to those who provide the funding, and responsible for achieving measurable results.

    Quebecor Media suggested that its Videotron cable subsidiary would put $109 million over three years into funding for Canadian production, as a replacement for its contributions to the CTF. This money would be managed by a board with three members named by Quebecor Media and two with the approval of the CRTC.

    For its part, the CTF had some ideas on how to improve the Fund. It suggested that a second seat on the CTF’s board be created for the Direct-to-Home providers. It also recommended the creation of a “funder’s council” that would meet each time the Department of Canadian Heritage signs a Contribution Agreement with the CTF. This council would give the broadcast distribution undertakings a forum to provide input into the broad objectives of the CTF. In addition, the CTF recommended the establishment of a nominating organization to represent the interests of all broadcast distribution undertakings on its board.

    On February 22, the Committee heard from the Chair of the Canadian Radio-television and Telecommunications Commission, Konrad Von Finkenstein. Mr. Von Finkenstein told the Committee that the CRTC would launch a Task Force to work with the parties to find a solution that will address the distributor’s criticisms of the Fund while also serving the objectives of the Broadcasting Act. Mr. Von Finkenstein advised the Committee that the work of the Task Force would be conducted in private, so that, in his opinion, concerns can be raised by all stakeholders in a frank and open manner, and without fear of retribution. However, after the consultations and fact-finding are completed, the Task Force will make recommendations to the Commission about the CTF and produce a public report.

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  4. The Committee’s Position

    This committee initially agreed to look at the crisis developing over the non-payment of CTF contributions. While this problem has been resolved in the short term with the resumption of payments by Shaw Communications Inc. and Quebecor Media, the strength of the regulations governing the monthly payments to the fund remain deficient.

    One of the issues that frequently led to confusion during the hearings was who was in charge of what with the CTF. Could the Minister order the BDUs to pay upon threat to pull their license? Could she order the CRTC to oblige them to pay? Would she commit the bridge financing to the fund? Is it her role/job to do so?

    Through testimony it began to come clear that:

    • the requirement for the BDUs to pay into the fund is set out and enforced by the CRTC, and is a part of their broadcast license agreement;
    • the day to day operations and decision making of the fund is handled internally, as an arms length organization;
    • and that the operation of the fund (including governance and outgoing allocation of the fund) was accountable to the Department of Heritage, and ultimately to the Minister of Heritage.

    This issue was made less clear by the announcement that the CRTC was going to undertake a review of the structure and governance of the fund. According to the testimony we heard, this fell clearly outside of the CRTC jurisdiction over the CTF.

    Recommendation 1
    The actions taken by Shaw Communications Inc. and Quebecor Media to withhold their monthly payments to the Canadian Television Fund precipitated a crisis in the television industry and took unnecessary time and effort from all parties involved including, the CRTC, the industry, the Department of Canadian Heritage and this committee. The Standing Committee on Canadian Heritage strongly condemns the actions of Shaw Communications Inc. and Quebecor Media and urges the Minister to do the same.

    Even if not technically in violation of the Regulation on CTF payments, these actions did violate the spirit of the agreement, the circular that sets out the monthly payment schedule, the conventions that existed since the creation of the fund, and it put the industry in a crisis that they knew with certainty would occur.

    The Shaw Communications Inc. assertions that the CTF wasn’t performing to their standards was not verified or corroborated by any other witness before the Committee. The individual opinions of Shaw Communications Inc. and Quebecor Media should also be taken with a certain caution, as they stand the most to gain, both financially and otherwise, by altering the fund in the way they have described. In addition, the contributions should not be understood as an act of generosity by these companies. Neither is the fund a “tax”, as asserted by Mr. Shaw. The CTF contributions are an obligation of their operating licenses.

    The actions of these two companies put the industry in a panic. International deals were put in jeopardy, the CRTC has been scrambling to find a solution, and the government and this Committee have been pulled away from other pressing business (like the CBC review) to put out this unnecessary fire.

    Recommendation 2
    The Standing Committee on Canadian Heritage supports the work of the Canadian Television Fund for reasons outlined by all witnesses appearing before the committee on this matter — with the exception of Shaw Communications Inc. and Quebecor Media including, but not limited to:
    1. success in generating more than 23,000 hours of new Canadian television productions in English, French and aboriginal languages, which are crucial to the television industry and to the fostering of Canadian culture;
    2. helping foster a Canadian television production industry that creates tens-of-thousands of jobs, both directly and indirectly, in the audio-visual industry and other spin-off industries;
    3. leveraging addition investment in Canadian television production at a rate of $2.00–$3.30 for every Canadian Television Fund dollar allocated.

    Every witness that was interviewed by the Committee testified to the importance of the work done by the CTF. As in all bodies of this size and scope, there is room for improvement here, as acknowledged by the Chair of the CTF. But this committee heard no reason to believe the allegations of Shaw Communications Inc. and Quebecor Media that the CTF is poorly structured or operated.

    Recommendation 3
    The Standing Committee on Canadian Heritage urges the CRTC to amend the Broadcasting Distribution Regulations to stipulate that broadcasting distribution undertaking’s must make monthly, rather than annual, contributions to the Canadian Television Fund.

    This Committee repeatedly heard that the CRTC had very little recourse to the actions taken by Shaw Communications Inc. and Quebecor Media due to the unenforceable nature of the circular in which the monthly payments were prescribed. Moving the monthly payment provisions to the Regulations would allow for greater enforceability.

    One of the main reasons that Shaw Communications Inc. and Quebecor Media were able to withhold their payments in the recent crisis is that there was no chance of damage to their bottom line. If a substantial financial penalty were to be attached to any failure to meet the BDR conditions, any inclination to withhold their payment would be significantly reduced.

    Virtually every witness testified to the destabilizing effect that this crisis had on the industry. By guaranteeing the CTF’s monthly finances in the event of a reoccurrence of BDUs failing to contribute on time, the government would be acting as a stabilizer for the industry. This will eliminate the ability of the BDUs to hold the “sword of Damocles” over the entire television industry.

    This Committee heard that the Canadian television industry is a “house of cards” that the CTF plays a key role in holding together. Even once monthly payments are set out in the Broadcasting Distribution Regulations, the major contributors to the fund would remain capable of withholding their payments for a significant period of time, while the CRTC and Minister decide how to proceed. This could potentially take months, if legal action is required. This provision will ensure that business remains as usual for the regular production cycle, the domestic and international production deals, and the bodies that govern the industry.

    This type of action may never reoccur in the future; but by guaranteeing the CTF’s month to month finances, the government can eliminate any incentive for the BDUs to even consider withholding their contributions, because the sole result will be that they ultimately have to pay more, and no crisis will develop to give them a platform like this to make unreasonable demands.

    Recommendation 4
    The Standing Committee on Canadian Heritage recommends that the Canadian Television Fund maintains the following provisions:
    1. that a minimum of 5% of contributors gross revenues from broadcast operations go to Canadian programming;
    2. that 80% of the required contribution must go to the Canadian Television Fund;
    3. that the Canadian Television Fund must set aside the equivalent of 37% of its total revenues for programs destined for the CBC/SRC;
    4. that the Canadian Television Fund allocates funds exclusively to independent producers.
    Recommendation 5
    The Standing Committee on Canadian Heritage recommends that the government move the annual contributions to the Canadian Television Fund to A-base, permanent funding as a step toward true stability to the fund.
    Recommendation 6
    The Standing Committee on Canadian Heritage finds that it is unusual that the CRTC would engage in closed door hearings on the future of the Canadian Television Fund. Nonetheless, as the CRTC mandate is limited to payment obligations, and as the Canadian Television Fund is under the mandate of the Heritage Ministry, we recommend that any CRTC findings be brought back for public hearings mandated through the Heritage Ministry.

    The Chair of the CRTC said quite clearly in a response to M. Kotto that the commission was only responsible for the payment of contributions into the fund. The fund is structured such that it is accountable to the Department of Heritage, not the CRTC, and as such, any hearings on the CTF’s structure, governance or procedures should be conducted by the Department.

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