Countdown to Digital

In 2000, Canada's broadcast watchdog, the CRTC, put out a call for digital channel proposals - 452 channel submissions followed. Two years later, Canada has 50 new digital channels on the dial, but the process was a long and expensive one. CHRISTINE COWERN follows the story from ideas on paper to broadcast reality, and finds out how the major players fared along the way.
May 1, 2002

On February 4, 2000, the Canadian Radio-Television and Telecommunications Commission (CRTC) requested applications for a host of new digital pay and specialty television services, marking the beginning of the much-anticipated transition from analog television to over-the-air digital in Canada. What followed over the next 19 months was the most ambitious launch in Canadian television history. By the beginning of September 2001, close to 50 new digital channels were on the air, battling for the 2.9 million subscribers who have access to digital TV in Canada through digital cable and satellite.


To facilitate the move to digital broadcasting, the CRTC established a licensing framework for the new digital services. Category 1 channels, the most coveted licenses, required a minimum of 50% Canadian content by the end of the seven-year license term, but came with the benefit of
guaranteed carriage. Category 2, in contrast, required a minimum of 35% Canadian content, but had no guarantee of carriage. International participation was encouraged in both categories, but the services had to be Canadian-owned. The Commission also put limits on the number of licenses it would grant for Category 1 – a move made in part to help ensure the success of some of the higher-end channels. ‘It’s was sort of a quid pro quo,’ explains CRTC spokesperson Denis Carmel. ‘You give us Canadian content and expenditures and we’ll provide you with mandatory carriage – that’s the bargain we came up with. For Category 2 it was a free market.’

Another issue was genre protection. The CRTC mandated that Category 1 services could not compete directly with each other. Category 2 services could compete, but not directly with any Category 1 licensees. Explains Carmel: ‘In the past we said the channels couldn’t be competitive, but with digital we said they couldn’t be directly competitive. The best way to promote a channel is to protect it. [Canada is a] small market, so one channel per genre has always been the practice.’

Other initiatives in the licensing framework included allowing distributors to own equity in the new services, a concession that had, in the past, been limited. A 5:1 rule was implemented for distribs, stipulating that they had to launch five unaffiliated Category 2 services for every one affiliated service. This ensured cable companies would not be tempted to sell services themselves in the new open market system.


Because the Category 1 services were more competitive, they required a more detailed application. Explains Carmel, ‘We were asking a lot more in terms of expenditures and Canadian content for Category 1. We required business plans, market studies, et cetera. You didn’t have that for Category 2, because anybody who fulfilled the basic requirements got the license.’

Under the terms of the license, applicants were encouraged to develop channels that offered genre diversity, were attractive to potential viewers, applied innovative use of the digital medium, were affordable, and offered a well-structured business plan. French or multilingual services were also encouraged.

The call for applications opened the floodgates among Canadian broadcasters and production companies eager to get a piece of the digital pie. Established players such as Alliance Atlantis Broadcasting, Corus Entertainment, Global Television Network, CHUM, Rogers Broadcasting, and CTV all jumped into the fray, as did smaller players like Salter Street Films, Stornoway Communications and the Asian Television Network (ATN).

‘Historically, it was a totally different process,’ explains Paul Robertson, president of television for Corus Entertainment. ‘In previous applications you would get outside resources and it might cost you CDN$100,000. We just couldn’t approach these the same way.’ Robertson estimates Corus invested between $50,000 and $100,000 in their Category 1 applications and $10,000 to $20,000 in their Category 2 proposals.

‘We did the applications mostly in-house with our own team of people,’ says Phyllis Yaffe, CEO of Alliance Atlantis Broadcasting’s Broadcast Group. ‘We were pretty efficient in using our own resources, so it wasn’t enormously expensive. But, it was definitely time consuming.’

For Martha Fusca, president of Toronto-based Stornoway Communications, the smallest English-language broadcaster to join the launch, the process was more rigorous – and costly. ‘The established companies had most of the expertise and people on staff,’ Fusca explains. By contrast, small and medium-sized companies had to hire outside counsel. Says Fusca, ‘You needed market research, you had to have all kinds of legal counsel, you had to present a business plan, you had to demonstrate interactivity because the Web was an important component…’ Fusca estimates Stornoway invested approximately $1.2 million in their four applications.


The CRTC received 452 applications for the new digital services, a number that exceeded their expectations. Of the applications, 91 were for Category 1 licenses and 355 were for Category 2. Also included were two pay-per-view and four video-on-demand applications.

Many of the applications submitted were from specialty broadcasters hoping to capitalize on existing services. Alliance Atlantis Broadcasting submitted 50-plus applications for a variety of channels, including The Independent Film Channel Canada and The Documentary Channel, both potential spin-offs of its already existing drama/movie-themed specialty channel, Showcase. Other proposals from AAB included Health Network Canada, BBC Kids and National Geographic Channel, filed in association with a wide range of partners. Corus Entertainment submitted more than 40 applications, also with a variety of partners, for channels ranging from Scream TV to Discovery Kids. ‘We looked to synergies with our existing services,’ explains Paul Robertson. ‘Scream TV was highly synergistic with our movie services, Edge TV was synergistic with our new rock radio station in Toronto, and Discovery Kids was right in our kids portfolio.’

Similarly, CHUM submitted applications for digis that would complement its popular music stations, MuchMusic and MuchMoreMusic. New channels proposed by CHUM included MuchLoud, MuchVibe and MuchMoreClassicVideo. CTV, which has interests in The Comedy Network, tsn and Discovery Channel, submitted 19 applications. Their channel proposals included Discovery Health and Discovery Civilization – an effort to capitalize on their already established Discovery Channel brand.


The CRTC released the list of winning Category 1 applicants on November 24, 2000, following a month of intensely competitive public hearings. They approved 16 English-language and five French-language Category 1 applications and 262 Category 2 proposals, as well as two pay-per-view and four video-on-demand applications. Applications that weren’t approved were denied, for the most part, because they competed with an already approved Category 1 license or existing conventional service.

‘In general, the CRTC said it went with strong brands it thought would be helpful in the marketing and programming of the channels,’ says Yaffe. ‘For instance, we didn’t win the Biography Channel, which the Rogers/Shaw/A&E team won. But, we did win the Health Channel, which had a great partner and a strong brand.’ AAB was awarded only one of the four Category 1 channels it applied for – the Discovery Health Channel (a partnership with Discovery Networks International). National Geographic, BBC Canada and BBC Kids were among the Category 2 channels that received licenses. Says Yaffe: ‘We were very delighted those channels got licensed, because there were issues with them. Some people objected to them and saw them as competitive. So, we were happy with the licenses we got.’

Corus Entertainment was awarded in excess of 30 licenses for a range of channels, including two Category 1 digis: Country Canada, a partnership with the CBC; and The Documentary Channel, a partnership with the CBC, the National Film Board and four independent prodcos. The Documentary Channel, in particular, was a highly sought after license. Robertson says it was the strength of their partnerships that made the difference: ‘To have the CBC/NFB partnership guaranteed there would be access to the fabulous Canadian content that’s available in the vaults. I think it was pretty tantalizing to the Commission to get exposure to the fine work that’s been done by Canadians over the years.’ Category 2 licenses for Corus included Scream TV (a partnership with Alliance Atlantis), Edge TV and Discovery Kids.

The lure of established brands was also used by Rogers, who received two Category 1 and two Category 2 licenses – among them MSNBC (Rogers/Shaw/NBC Cable Networks), TechTV (in a Rogers Media/Shaw Communications/TechTV ownership split) and The Biography Channel (Rogers/Shaw/A&E). ‘We had some of the content nailed down before we even finished the applications, because of the partnerships,’ explains Julie Osborne, director of marketing for the channels. ‘It wasn’t an accident that each of these three are the partners. A&E’s Biography Channel is a big brand that people already know, and we get a guaranteed supply of programming. It’s the same with the other channels.’

Smaller players were also awarded a number of licenses, a step the CRTC considered crucial. ‘We knew it would be more of a financial challenge for the smaller players than for the big guys,’ Carmel explains. ‘But they bring new vision to the system and new challenges and change the others by the way they do things.’ Included among the Category 1 licenses for the smaller operators was Book Television (Learning and Skills Television of Alberta), Wisdom: Mind, Body and Soul Channel (Vision TV/Radio Nord/Wisdom Media Group) and the much sought after Independent Film Channel Canada (Salter Street/Triptych Media).

Stornoway Communications received four licenses, but only one Category 1, something that Fusca says worked against them later when they were negotiating for carriage. ‘It’s very difficult with only one Category 1 channel, because that basically means that as a new player you have to prove yourself,’ she explains. ‘You’re not necessarily a known quantity and that makes the BDU’s [broadcasting distribution undertakings, i.e. cable and satellite companies] a little skittish. You don’t have the same clout as the bigger players, so it’s much more difficult to negotiate.’


The shallow penetration of digital in Canada added to the high start-up costs associated with launching the new channels – estimated at between $4 million and $6 million each – a factor that did not bode well for the diginets in the months leading up to the launch, set for September 2001. Of the 283 licenses awarded, between 40 and 50 channels expected to launch.

Owners of the Category 1 channels had to contend with a fast-approaching deadline and unclear marketing plans. In addition, Category 2 licensees had to fight for carriage with cable and satellite companies that were trying to balance the needs of a large number of program providers. It was also crucial that as many channels as possible launched together, to ensure cross-category packaging combinations could be offered by each respective distributor.

The way for many channel-owners to offset their projected losses was acquisitions – filling their schedules with acquired programming/library material and keeping original content to a minimum. Alliance Atlantis chose to launch its seven channels (Discovery Health Channel, National Geographic, BBC Canada, BBC Kids, Showcase Action, Showcase Diva and The Independent Film Channel Canada – which they had acquired after purchasing Salter Street Films in the Spring of 2001) based on criteria it thought ensured each channel’s success. Explains Yaffe: ‘We looked for three things: a strong brand that would make its name known with the public, a good programming supply from either a partner or our own library, as well as channels that worked in the areas that we were strong in and genres that we thought would be popular with consumers.’ A strong business plan that took into account projected losses was also part of the company’s long-term financial strategy.

For Corus Entertainment, which chose to launch five channels (Country Canada, The Documentary Channel, Discovery Kids, Scream TV and Edge TV), acquisitions were crucial. Negotiating supply deals with various partners and utilizing content from their existing channels helped to fill the programming slate.

Carriage was also an issue. Alliance Atlantis was the first to negotiate agreements with the major cable and satellite distributors. Yaffe says being the first group to meet with the distribs and having a large package with good brands was key to their success. Being ‘bullish’ also didn’t hurt. ‘We wanted to have deals locked down with distribs that we thought were fair,’ she explains. ‘We also wanted to get the most channels launched we possibly could.’

Other operators, however, weren’t so lucky. Many, in fact, didn’t finalize their carrier agreements until just before the launch. Some are still negotiating for carriage with the various distributors.

Adding to the uncertainty surrounding the launch was the fact that in August 2001, four of the five French-language digital channels (Canal Mystère, Télé Ha! Ha!, LCN Affaires and Perfecto!) asked to postpone their launch for a year. Citing weak economic conditions, three of the broadcasters had been unable to reach carrier agreements. A few months later the fifth French-language channel, Info-Sports, also asked for an extension. ‘It’s a smaller market in Quebec,’ explains Carmel. ‘Penetration there is remarkably lower than the rest of Canada.’


On September 7, 2001, the most eagerly anticipated launch in Canadian television history became a reality. The numbers didn’t start coming in until January, when a four-month free preview ended. They were met with mixed reviews, although most programmers agree that given the ambitious nature of the launch, it’s still too early for projections. ‘The numbers that came out early-on indicating the general take-up rate for these channels was not in keeping with what we originally thought they would be,’ says Fusca, whose company Stornoway Communications laid-off over 50% of its staff in February as a result of restructuring its channels after the launch. ‘Then again, if everybody was expecting instantaneous success, they were going to be very disappointed.’

For Phyllis Yaffe, who expects AAB’s channels to break even at the end of the third year, there are no failures. ‘I haven’t seen any channel that launched close,’ she says. ‘To launch that many channels at once with that many different distributors, different packages, no single one marketing campaign – I’d say that’s a pretty terrific accomplishment so far.’ Yaffe expects to grow AAB’s programming budgets in the future, should the take-up on digital continue to grow as expected.

‘By the end of 2002, 30% of all TV subscribers in Canada will be in the digital range – that’s a projected growth of more than 800,000 subscribers,’ says Sean Kiely, VP of Specialty and Pay Services for the Canadian Association of Broadcasters. ‘I think it’s pretty clear that the future of the broadcasting industry, not just in Canada but globally, is digital.’

Canada’s Digital Timeline

January 2000

The CRTC establishes a licensing framework for a host of new digital pay and specialty services in Canada

February 2000

A call for applications goes out to Canada’s television industry

April 2000

The CRTC receives 452 applications, a number that surpasses expectations

August 2000

The CRTC considers the Category 1 applications at a public hearing in Hull, Quebec

November 2000

The CRTC approves 16 English-language and five French-language Category 1 applications and 262 Category 2 applications

September 2001

Close to 50 new digital channels launch in Canada. About 2.9 million subscribers have access to digital television

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