Channel Zero licence renewals: It’s not just about CanCon pornography

On Wednesday, the CRTC issued a notice of hearing, calling Channel Zero Inc. to appear in person to discuss issues related to its specialty channel licence renewal applications. Channel Zero owns Movieola (which was rebranded as Rewind in December 2012), Silver Screen Classics, AOV Adult Movie Channel, AOV XXX Action Clips and AOV Maleflixx. The licenses for all these channels expire in August. Channel Zero also owns CHCH TV in Hamilton, whose licence doesn’t expire until 2016, and U.S. channel Fight Now TV, which isn’t regulated by the CRTC.

The commission is calling the company to the hearing because of apparent non-compliance with the licences assigned to these channels. There are many issues, some more serious than others, from unauthorized change of control to failure to meet Canadian content requirements to airing categories of programming that the licences do not allow them to air.

So you can imagine what angle the media took in their stories about these applications: porn, pornporn, porn, porn, pornporn, porn, porn and porn. (I counted one story — in a trade publication — that wasn’t focused on that angle.)

Stories (mostly briefs) about this issue, all with the same angle, appeared in print editions of The Gazette, the Journal de Montréal, the Ottawa Citizen, Toronto Star, Vancouver Sun, Globe and Mail, Edmonton Journal, Saskatoon StarPhoenix, Regina Leader-Post, Windsor Star, National Post, Cape Breton Post, Victoria Times-Colonist, 24 Hours Toronto, the Edmonton Sun and a bunch of other publications. It even made it into Friday’s Philadelphia Daily News, Columbus Dispatch, The Economist and New York Times, has been translated into Danish and sparked poorly-researched editorials in the Globe and Mail, Calgary Herald and Vancouver Province and columns by Jonathan Kay, Ian Robinson and Kate Taylor (which the Globe also created a video for). And CBC’s As it Happens even interviewed a porn star.

The stories are not incorrect (although most stories have small factual errors). The CRTC believes the three AOV adult entertainment channels fell short of their 35% Canadian content requirement. But it also has the same issue with Movieola/Rewind, which is not a porn channel.

More importantly, there are far more serious and less amusing issues on the table here. Specifically:

1. Unauthorized change of control

The CRTC requires that anyone with a broadcasting licence waits for approval before engaging in any contract or other means that would change the “effective control” of that licence, that is the person or people who through direct or indirect ownership has the ultimate say. This is why any sale of a radio or television station or specialty channel requires CRTC approval first.

Channel Zero has a somewhat complex ownership structure. Unlike Bell or Rogers, it’s not a publicly traded company with lots of shareholders. But unlike smaller companies the majority control is not held by one person or family. Instead, it’s owned by a group of people. Making things worse is that the group of owners is different for the different licences. AOV Adult Movie Channel has six shareholders, for example, while the other two AOV channels have four.

The change in control has an interesting history. It stems from a lawsuit filed in 2005 by two of the partners in Channel Zero against the other two. According to this summary of the case, C.J. (Cal) Millar and Romen Podzyhun alleged that Harold Balde and Anthony D’Andrea (not to be confused with the mob boss of the same name) were engaged in no less than “planning a corporate coup” to take over the company, which involved leaking confidential information to a third party, “secretly changing profiles and passwords within the card access system of Channel Zero” and even installing spyware on Millar’s computer.

These allegations have not been proven.

Balde and D’Andrea were fired for cause, and so sued the other two partners, who countersued.

Finally in the fall of 2011, a settlement was reached, whereby D’Andrea and Balde were each paid $600,000 for their shares in the companies. (Specifically, $100,000 for each 25% ownership stake in Movieola, $440,000 for each 25% stake in Silver Screen Classics, and $60,000 each for each unspecified ownership stake in Channel Zero Inc.)

The documents filed with the CRTC also include an employment contract for D’Andrea, setting his salary at $100,000 a year plus bonuses. He’s currently the vice-president of production at Channel Zero and CHCH, according to his LinkedIn profile.

Under the new simplified ownership structure, a new company, 2308740 Ontario Inc., will become the new holding company which controls all of Channel Zero’s licences. The company will be owned 39.3% each by Millar and Podzyhun, and 21.4% by Chris J. Fuoco, who under the current structure owns with his wife 30% of CHCH, but none of the other licences.

The CRTC is concerned that the deal has already resulted in a de facto change of control without the commission’s prior approval. The share transfer agreement is explicit that the deal does not close until after it receives CRTC approval. Channel Zero applied for commission approval of the deal in January 2012, which amazingly is only being dealt with now. (In fact, it’s so old that it also includes CJNT in Montreal, which has since been sold to Rogers.)

There’s also the related issue of whether this transaction is the kind of change in control that should require a tangible benefits package. The CRTC requires that buying a television station or channel come with a package worth 10% of the transaction price that goes to funds and projects that help the broadcasting system. But is buying out two partners and bringing in another, creating a company in which no one person has majority control, equivalent to Bell purchasing all the assets of Astral Media?

In a related issue, the CRTC is curious about a business relationship between Drive Publishing Inc., the licensee of AOV Adult Movie Channel, and Diamond Media Inc., a company related to Channel Zero’s operations. It appears that Diamond is handling AOV’s expenses and getting all its revenue, which suggests that it’s Diamond, not Drive, which is the de facto owner of the channel. Channel Zero says that it’s assistance provided as part of an operating agreement and that Diamond Media does not exert control or influence over the channel.

It’s complicated by the fact that Drive Publishing and 1225520 Ontario Inc. (which is the licensee of the other two AOV channels) are “inactive” corporations that have no balance sheets. Channel Zero says they were only inactive in a financial sense but are still fulfilling their obligations as licensees.

Channel Zero says in its correspondence with the CRTC that much of the agreements between the various Channel Zero companies were informal oral agreements, since there are only a few people involved in ownership. This adds to the confusion.

2. Nature of service for Movieola

Movieola: the Short Film Channel launched in September 2001 with a licence that allowed it to broadcast short films from 30 seconds to 40 minutes in length. It had a very clearly defined niche. Unfortunately as it turns out people aren’t too crazy about short films, so in December 2012 Channel Zero rebranded Movieola as Rewind, a channel that airs full-length feature movies from the 1970s, 80s and 90s.

Among those on its coming schedule are Weekend at Bernie’s, Spaceballs, Canadian Bacon, Delirious, Groundhog Day and UHF. But the channel also airs short films, branded as “Homegrown Shorts”.

When I spoke to Millar at the time, wondering if this change was allowed by Movieola’s licence, he said that Channel Zero has other licences for unlaunched channels that could be used for the rebranded service.

As it turned out, it kept the same licence, and even though it has already rebranded, it is now asking the CRTC for permission to change Movieola’s nature of service to “dedicated to the broadcast of the best of musical, dramatic, comical, experimental and animated films and series.”

If that sounds incredibly broad, that’s because it is. This new licence would allow Movieola/Rewind to broadcast virtually anything.

Channel Zero justifies the change by saying it’s similar to channels like Action, Showcase Diva and the Hollywood Suite channels. Except that Action and Diva have specific genre limitations (action and romance), whereas Rewind’s proposed licence does not.

The main worry is that Rewind could become directly competitive with channels like The Movie Network, which is supposed to be protected against that sort of thing. Specialty channels are supposed to be specialized, and this one seems very much not.

There’s an argument to be made that entertainment-based specialty channels have become so generalized already and so competitive anyway that we should just do away with these kinds of protections and just allow anyone to set up a channel that broadcasts dramas, sitcoms and movies. But as the rules exist now, specialty channels have to be specialized enough that they don’t compete with legacy channels that still have genre protections.

3. Rewind’s licence does not allow it to broadcast movies

The more immediate problem is that Rewind’s new schedule blatantly violates its licence, which specifically doesn’t allow for the broadcast of feature films. Considering that airing movies seems to be its very raison d’être, that’s a pretty serious problem.

CRTC licences for specialty channels list the categories of programs that those channels are allowed to broadcast, based on this list. Most specialty channels can choose from among several of these categories, but with limits on some (documentaries, movies, animated programs and music videos commonly are limited to 10% of the schedule).

Movieola’s original licence allows it to select programming from categories 2a, 2b, 3, 5b, 7c, 7e, 7f, 7g, 8b, 8c, 11, 12 and 13, all of which has to respect the condition of licence that it be “short films ranging in length from 30 seconds to 40 minutes.”

Missing from that list of categories are some key ones: music and dance, drama series, sitcoms and feature films.

Asked in 2012 about why programs from music and dance and feature film categories appeared in Movieola’s logs, Channel Zero blamed a coding error. Asked again in February why more than 400 hours of movies had aired on Movieola/Rewind despite that being not allowed, Channel Zero again blamed “human error during the log submission process”, despite the fact that Rewind was clearly airing feature films.

Expect the CRTC commissioners to not be happy about this during the hearing.

4. Deficiencies in Canadian content and closed captioning

It’s not just the porn channels that have problems meeting quotas. Movieola and Silver Screen Classics also had issues with Canadian content, programming categories and closed captioning.

But a look at a chart the CRTC put together last month shows these issues have largely been fixed. All five channels met their closed captioning quota in 2012-13, and only one (AOV Maleflixxx) missed the 35% Canadian content quota that year. Despite all the juvenile jokes, AOV XXX Action Clips and AOV Adult Movie Channel had enough Canadian content and closed captioning in the last full broadcast year.

(Incidentally, if you’re wondering if closed captioning of pornography is even necessary, the answer is yes. Videotron tried to make the argument that it shouldn’t be required, but in 2009 the CRTC said they have to do it anyway.)

For CanCon, Channel Zero told the CRTC that it had made a mistake in interpreting the rules. It worked on the basis of an 18-hour broadcast day instead of a 24-hour day, and apparently wasn’t aware that evenings also must be 35% Canadian (to avoid bunching all CanCon at 6am). After 2011-12, when Channel Zero was made aware of the issue, the channels started meeting their quotas.

For closed captioning, Channel Zero noted that captioning was a commitment, but not a condition of licence. Nevertheless, it took measures to improve the amount of captioning and the quality of it, doubling the size of its closed captioning department and organizing more meetings to monitor quality.

“Simply put, Channel Zero has worked diligently over the last year, and kept in contact with Commission staff, to achieve full compliance across all of our services,” it wrote last month. It also says it has hired a full-time compliance monitor whose sole job will be to ensure that it’s operating its TV channels according to CRTC rules.

5. Channel Zero’s specialty channel licences haven’t been renewed in 14 years

Amazingly, this is only the first licence renewal for Movieola and other Channel Zero channels. The original licence was supposed to expire in 2007, but then had a series of administrative renewals extending the first licence term under the same terms and conditions. These renewals are given when the CRTC feels it doesn’t have enough time to properly consider a renewal application before the licence expires.

In other words, the CRTC has given itself an extra seven years of extensions to decide whether Movieola’s licence should be renewed:

6. Channel Zero wants to revoke the licences of its porn channels

Channel Zero applied last summer to revoke the licences of its three adult channels. This isn’t because it wants to shut them down, but rather because channels that have less than 200,000 subscribers can be made exempt from licensing, thanks to an order issued in 2012. These channels would still have obligations concerning Canadian content, closed captioning and advertising, and would have to follow a nature of service definition that has been approved for use by open-entry Category B channels (all of Channel Zero’s channels are in this category), but would be relieved from some of the paperwork involved in licensing (including the very licence renewal that we’re discussing here).

The hearing is scheduled for April 28 in Gatineau. Comments from the public on the renewals and issues of non-compliance are being accepted until April 4. They can be submitted here. Note that all comments, including contact information, form part of the public record.

UPDATE (Aug. 9): The CRTC has come down with its decision, accepting the transfer of ownership and licence renewals. It decided:

  • The transfer of ownership is, in fact, a change in effective control, but only for Movieola, because Millar and Podzyhun can now, when voting together, control that channel.
  • Because Movieola had value when it was sold ($1.2 million when you include the value of the leases it holds), this change of ownership triggers tangible benefits of $121,060. Since Channel Zero didn’t specify a plan for dispersement of that money, it will all go to the Canada Media Fund, payable over three years.
  • Movieola, which has since been rebranded as Rewind, has had its nature of service radically altered. Instead of being focused entirely on short films, it is now a service “dedicated to short films and to action and adventure programming. Its action and adventure programming will ‘run the gamut’ from contemporary ‘popcorn’ action and adventure films and series to classical westerns.” Its programs (except for short films) must be at least 10 years old, a measure protecting it from competing directly with The Movie Network/Movie Central and other pay TV movie services.
  • Movieola and Silver Screen Classics have had their licences renewed for only three years because of compliance issues with Canadian content, program categories and programming logs.

The decision makes no mention of the adult channels, whose licences don’t need renewal because they can operate under an exemption order.

8 thoughts on “Channel Zero licence renewals: It’s not just about CanCon pornography

  1. Dilbert

    In a free market, Channel Z would be free to change formats and play different material as the market desires, rather than being beholden to a CRTC which has shown again and again to be out of touch with the desires of the Canadian public. Tightly limiting specialty services such that they have no hope of attracting a wide audience is a bit silly. Limiting length of a movie, example, limits competition and as such, limits the choices Canadians have in entertainment.

    I doubt that any of the existing movie channels are going to be playing Canadian Bacon any time soon. While I understand that concept of specialty channels was to be limiting, it appears to be TOO limiting, and hurts the diversity that Canadians might otherwise get.

    The ownership issue is also a bit of a misdirection here. There appears to be no indication of a take over, rather just a couple of the partners bought out, and no new ones added. It would be a different story if the control of the channels had shifted to a third party, but it seems clear that this did not happen. The CRTC is mad because it can’t flex it’s “tangible benefits” muscles on this one, I guess. If nothing else, it exposes the stupidity of a system that seems more worried about sucking money out of the pockets of broadcasters, and not in dealing with real conflicts of interest or the forming of broadcast kingdoms.

    Canadian content rules should apply over 24 hours for these channels, considering that they are available across Canada, and when it hits midnight in Vancouver, it’s already 4:30 in the morning in Newfoundland. That means that except for a very small slice of time, it’s always in the 18 hour window that applies to fixed location licenses. Moreover, enforcing Cancon by time period is a bit of a hardship considering that this same restriction is not applied to all stations. Can you imagine what it would be like if CTV had to run 35% Cancon in prime time? heh-heh.

    Overall, the CRTC doth complain too much. They need to move back and simplify the rules and regulation for all concerned, and realize that in the modern world where we have many entertainment choices, that trying to pin broadcasters to arcane rules and restrictions will just lead to failures. Perhaps it’s self-justification at it’s finest.

    Reply
    1. Fagstein Post author

      The CRTC is mad because it can’t flex it’s “tangible benefits” muscles on this one, I guess.

      No, it’s mad because the change in control happened without its OK.

      Canadian content rules should apply over 24 hours for these channels, considering that they are available across Canada, and when it hits midnight in Vancouver, it’s already 4:30 in the morning in Newfoundland.

      The definition of a broadcast day is up to each licence. In some cases it’s 18 hours, in other cases it’s 24. The advantage to an 18-hour day is that the remaining six hours are unregulated (at least as far as CanCon is concerned). I found the whole idea of 18-hour days kind of silly myself, but that’s the rules.

      Moreover, enforcing Cancon by time period is a bit of a hardship considering that this same restriction is not applied to all stations. Can you imagine what it would be like if CTV had to run 35% Cancon in prime time? heh-heh.

      It does, sort of. All private stations are required to air 50% Canadian programming in the evening. But the evening is defined as 6pm to midnight. So having an hour-long local news program followed by a half-hour celebrity gossip program at 7pm and then an hour of news again at 11 almost fulfils that quota right there.

      Counting just 8-11pm, CTV currently airs four hours a week of Canadian shows, or 11%.

      Reply
      1. Dilbert

        “No, it’s mad because the change in control happened without its OK.”

        Seeing that all of the players were previously vetted out by the CRTC, and because it’s mostly a question of the pie being sliced slightly differently, it’s not really a big thing. If I read correctly, there are no new beneficial owners or controlling partners. They may not like how the structure grants operating control, but that is a different game. My guess is it’s much more about the tangible benefits than it is anything else, which is sad.

        Doing can-con on news is a bit of a double dip, really. The news is a requirement of license for most of the stations, and generally local news isn’t going to be created in the US or overseas, is it? In the end, it gives a massive advantage to broadcast channels to count mandatory license requirement content as ALSO being Canadian content.

        “Counting just 8-11pm, CTV currently airs four hours a week of Canadian shows, or 11%.”

        7 days, 3 hours… 21 hours. 4 hours programming, looks like 19%. Of course, I am guessing that much of that happens Saturday night around the same time Canada turns to HNIC, right?

        The idea of an 18 hour day I think comes from the concept that many broadcast channels use to go dark overnight. It is also the lowest rated time, and as such if you look at the potential exposure versus cost structure, it’s wasn’t really logical.

        But now, with cable channels that not only broadcast 24 hours a day but are available from Sea to oily Sea, their 6AM to Midnight is actually 6AM to 4:30 AM (I almost typed 420… but I digress) or 1:30AM to midnight. There is very little time frame when they are not in someone’s 18 hour window. Moreover, as many cable channels run on a 12 hours replay or 8 hour reply cycle, they generally hit the can con requirement in every part of the day anyway. It’s true that not all stations are the same, but discounting 6 hours of “Toronto time” seems a bit arbitrary.

        Reply
        1. Fagstein Post author

          Seeing that all of the players were previously vetted out by the CRTC, and because it’s mostly a question of the pie being sliced slightly differently, it’s not really a big thing.

          It’s not just a question of vetting. Though this isn’t likely to be controversial, it still needs to be approved first. And it’s not just “slightly” different. 75% of control in AOV Adult Movie Channel is changing hands, and 50% of the other channels. That’s significant.

          If I read correctly, there are no new beneficial owners or controlling partners.

          There’s one. Chris Fuoco holds shares on CHCH but none of the other channels, and now he’d own a share of the restructured company. The other changes are more about removing people from being shareholders, which is just as significant. The sale of half of Teletoon from Bell to Corus wasn’t about bringing in a new owner, for example, but still required a hearing, and Corus had to pay tangible benefits.

          Doing can-con on news is a bit of a double dip, really. The news is a requirement of license for most of the stations, and generally local news isn’t going to be created in the US or overseas, is it?

          Sure. But surely local programming shouldn’t count as non-Canadian either. These rules have existed for a while, so it’s all taken into account when calculating it. What’s more crazy is that stations can count reruns to meet their local programming requirements. So you can run the same half-hour newscast 28 times a week and that’s 14 hours of local programming.

          In the end, it gives a massive advantage to broadcast channels to count mandatory license requirement content as ALSO being Canadian content.

          I don’t know if that’s true. Most specialty channels have lower levels of Canadian content overall. In any case, I don’t mind TV stations being given more incentive to schedule local news during primetime.

          7 days, 3 hours… 21 hours. 4 hours programming, looks like 19%. Of course, I am guessing that much of that happens Saturday night around the same time Canada turns to HNIC, right?

          Oops, you’re right. It’s 19%. An hour and a half of that is Saturday night repeats. The rest of it is on weeknights.

          Reply
          1. Dilbert

            “An hour and a half of that is Saturday night repeats. The rest of it is on weeknights”

            So translated it means 37% of the total can-con on a single day, and the rest spread out over the other 6 days… which gets them back down around your 11% number. It’s not a very good performance in the end, it’s less than 30 minutes a day average on the other 6 days.

            “But surely local programming shouldn’t count as non-Canadian either. ”

            I am not thinking zero, but I think that news programming that is a condition of license shouldn’t get to be “double dipped” to also cover out the Can-Con requirements – at least not at a 1 to 1 rate. It pretty much means that stations will blow all of their can-con money on the news, and little if anything on anything else.

            As you said it’s doubly silly when repeats of those same newscasts are treated as counting towards can-con. It explains why Global as an example re-runs the news in the morning, it’s “FREE!” and they basically get double can-con credit for it. Not exactly advancing the system.

            My real concern on the ownership change (where it is really just a shift between partners and holding companies) seems like something the CRTC shouldn’t be so worried about. This is a case where, even as things shift, it’s still the same people, just in different percentages and such. If it doesn’t defy any of the basics of ownership (media concentration, ownership by people outside of Canada) then the fuss is just a fuss, almost the CRTC self-justifying. This is something that should be able to be written out on a single sheet of paper and submitted to file, not something to make a big fuss about.

            The Bell / Corus thing is rather different because it involves change of ownership to meet a mandate by the CRTC, and has a SIGNIFICANT effect on the media landscape in Canada. It’s a scale issue. the CRTC seems to be applying a big hammer to hit a very small nail when it comes to Channel Zero and their holdings.

            The CRTC perhaps could save themselves a huge amount of work by simplifying the process under which ownership stakes are transferred between partners. Requiring ANY change to be reported and perhaps even subject to a public hearing or call for comments seems a little over the top.

            Reply
            1. Fagstein Post author

              It pretty much means that stations will blow all of their can-con money on the news, and little if anything on anything else.

              The CRTC has other rules to prevent that (although would it be such a bad thing for a local station to have a lot of local news?). Rules that base quotas on funding rather than time, under the assumption that one really good Canadian series is better than two really crappy ones.

              It explains why Global as an example re-runs the news in the morning, it’s “FREE!” and they basically get double can-con credit for it.

              Global used to re-run evening newscasts at 6am (they stopped doing that when Morning News launched) to meet their local programming quota. There was plenty of other programming available to meet Canadian content requirements.

              This is a case where, even as things shift, it’s still the same people, just in different percentages and such.

              Except it’s not. You have one new player with a significant stake, and a bunch of old players losing theirs. That said, it might not have prompted an in-person hearing had there not been other issues as well.

              This is something that should be able to be written out on a single sheet of paper and submitted to file, not something to make a big fuss about.

              The CRTC does have streamlined procedures for non-controversial changes in ownership, and can approve them without a public process. (When an owner dies, for example, and control moves to an estate.) But there’s a policy issue here over whether this change should require tangible benefits.

              Reply
  2. CD

    What a bureaucratic nightmare Canadian media has become! How is anyone supposed to navigate all these CRTC programming regulations? Why do we have regulations to “protect” TV channels? Why does the CRTC tax changes of control? Why do the regulations on genres of programming even exist when anyone can watch anything they want on the internet? All that it’s doing is killing cable. Let TV stations show what they think people will watch. If nobody watches, let them show something else.

    Scrap the CRTC for TV and radio broadcasting (let the provinces regulate local radio if they want to.)

    Reply
    1. Fagstein Post author

      How is anyone supposed to navigate all these CRTC programming regulations?

      You read the regulations that apply to your case.

      Why do we have regulations to “protect” TV channels?

      That’s a complex question. The regulations are there for specific reasons.

      Why does the CRTC tax changes of control?

      It’s meant as a protection against too much concentration of ownership, or at least as compensation for that. Companies choose who they sell to, instead of the CRTC deciding who would be the best new owner, so this is meant to mitigate that.

      Why do the regulations on genres of programming even exist when anyone can watch anything they want on the internet?

      That’s a good question. Though everything being on the Internet hasn’t stopped most Canadians from still paying for TV service.

      Let TV stations show what they think people will watch.

      We’d probably lose most local and Canadian programming if that were to happen. Far too many people have an interest in protecting that.

      Scrap the CRTC for TV and radio broadcasting (let the provinces regulate local radio if they want to.)

      You think 13 regulatory bodies would be better than one?

      Reply

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