Program expenditure change would cut funding for Canadian programming: DGC

An application by Teletoon Canada Inc. to change how it reports its Canadian Programming Expenditures (CPE) has drawn criticism from the Directors Guild of Canada (DGC), which warns the move will result in a $1.5 million loss for Canadian programming and open the floodgates to similar requests from other channels. The DGC has urged the CRTC to reject Teletoon’s application, saying that at a “time when over-the-air broadcaster spending on Canadian dramatic programming is in a free-fall it is critical that the Commission ensure that Canadian discretionary licensees do not take any actions which could diminish the resources allocated to the Canadian broadcasting system.” CPE is money—usually 40% to 45% of a channel’s yearly revenues—that the CRTC requires the television sector to spend on Canadian programming. In May, Len Cochrane, president of the cable television animation speciality channel wrote to the CRTC asking to switch Teletoon’s CPE reporting method from amortization to cash—back-dated to the September 1, 2007 fiscal year. In the application, Cochrane says technological advances have significantly reduced the amount of time spent on animation production, resulting in shorter payment cycles for producers. “Subsequently, payments terms have been shortened to the point where it is not unusual to have 80% of production payments made before a property even goes to air,” Cochrane wrote, noting that the cash method will enable effectiveness in managing cash flows and responding to production demands. But the DGC says Teletoon’s request for a retroactive switch from amortization to cash will not only result in at least $1.5 million less for Canadian programming in the fiscal year 2007-08, but it also raises questions about regulatory certainty. Monique Lafontaine, DGC’s counsel and director of regulatory affairs, says a number of CRTC policies stipulate that specialty services are required to respect certain conditions on reporting their CPE. “When the service goes to a cash method, it becomes unclear what of those policy requirements continue to be in place,” says Lafontaine. For instance, in terms of equity investments on production of Canadian programs, losses are counted towards a licensee’s expenditure requirements, as spelt out in Public notice CRTC 1993-93, but the DGC says the switch to a cash method means that if Teletoon recoups money on its investments, it will no longer be obliged to reinvest this money on Canadian programming. Lafontaine says such regulatory uncertainties are a problem for the system and need clarification from the CRTC. “When you have a set of rules that are in place and then someone is asking to have something a little different but not saying what of those rules apply, that’s a problem for the system,” she says, adding that the DGC is concerned others might follow Teletoon’s example. The CRTC has yet to issue a decision on the Teletoon application but Patricia Prince, a senior analyst with the regulator, has requested clarification on whether Teletoon’s reporting of CPE will take into account the acquisition and investment of Canadian programs that are not broadcast, if the switch to the cash method is enacted. Teletoon responded by saying money that is used to acquire or produce programs that do not air will be counted as CPE. In addition Prince also asked Teletoon why it was asking for a CPE cash method that is back-dated to September 1, 2007 and why this method is not applied to this broadcast year. Teletoon responded saying since it is still operating in this year’s fiscal period it has yet to file any annual information. Teletoon did not respond to inquiries about why it requested a change from amortization to cash given that it has been operating using the amortization method since its inception in 1997. Denny Alexander, Teletoon’s media and communications manager, says because channel has responded to the DGC intervention, it will refrain from comments on the application. In the application, Cochrane says a change to the cash method will align practices with Teletoon’s parent company Corus Entertainment, which indirectly owns 50% of the specialty channel’s shares. Other specialty and pay services like YTV, W, and Movie Central employ the cash method in their CPE reporting.

Program expenditure change would cut funding for Canadian programming: DGC

Broadcast | October 6, 2008

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