The overall growth trend of specialty channels began on the shaky foundations laid by the launch of pay-TV in 1982. While pay-TV has remained an extra-cost cable service generally offering movie channels and pay-per-view sporting events, specialty services have developed into a diverse array of themed channel destinations, with some channels included as part of the basic cable package. The first two channels to be licensed by the CRTC in 1984 were MuchMusic and The Sports Network (TSN), followed later that year by Telelatino, Chinavision, and the now defunct The Life Channel. The next spate of licenses issued by the CRTC, in 1987, included French services as well as family-, religious-, and youth-oriented options in the form of TV5, Canal Famille, Musique Plus, Réseau des Sports, MétéoMédia/Weather Now, Vision, Youth Television (YTV), and CBC Newsworld.

The 1990s saw a boom in specialty service offerings—mostly Canadian-owned channels that, by the latter end of the decade, accounted for approximately a quarter of English-language viewing and just under a fifth for the francophone sector. As of 1999, there were 43 specialty services. Overall revenue rose from 12.4 million in 1990 to $30.2 million (Canadian) by the year 2000. Moreover, due in part to strategic regulation of the industry, by 1996, audience data indicated that Canadian-owned channels were easily outperforming foreign programming offerings for both English and French-Canadian specialty channels. The high-ratings earners at the end of the decade were TSN, YTV, and Teletoon, with audience shares of 3.7, 3.2, and 1.8 respectively.

By 1996, with the addition of 22 new channels, analog channel capacity was becoming increasingly scarce. As a result, both the industry and the CRTC pushed ahead with negotiations to implement digital services. Though limited digital offerings were previously available as far back as 1997 through such systems as direct-to-home (DTH) and multipoint distribution system (MDS), the official launch of digital cable came in September 2001. This initiative, with more than 50 operating channels and 283 licensed, stands as the world’s largest coordinated launch of digital channels in the history of broadcasting.

There is a strong historical belief in Canada that film and television are cultural industries and representative of a shared cultural heritage. Boasting a 72 percent cable penetration rate into Canadian homes, specialty channels are not only high-revenue earners but also a staple of the Canadian televisual environment. Therefore, a Canadian specialty channel is differentiated from its U.S. counterpart by operating in a highly regulated environment. Regulations have allowed the channels to prosper (though some may claim to struggle) in an intensely competitive cable market. Sustaining a media industry next to the United States’ overwhelming entertainment infrastructure, Canada’s regulatory environment is geared toward protecting homegrown interests while attempting to allow the advantages of a competitive, free-market approach. Regulations revolve around programming, packaging, and ownership concerns as well as ensuring access to the publicly owned broadcasting spectrum by licensed broadcasting services that include conventional television, radio, and specialty and pay television. Recognizing the close ties between the Canadian government and the television industry is key to understanding the successes and limitations of this complex and evolving sector.

Though they are private businesses, specialty channels and the cable and satellite companies that distribute them are primarily regulated by the Canadian government through the CRTC. Its dual role as both protector and regulator of the industry has often put it at odds with the profit-minded goals of distributors and broadcasters. To advocate for these sectors, the Canadian Cable Television Association (CCTA) represents cable companies—the distributors of specialty services—to the CRTC and cable stakeholders. The Specialty and PayTV Association (SPTV), now merged with the Canadian Association of Broadcasters (CAB), operates an advocate for specialty and pay television programmers’ interests. Both the CCTA and CAB are a strong presence in the regulatory field. Among their many activities, they have helped to create a unique self-regulating system.

The CRTC’s regulatory influence over content is extensive. The overarching programming standards for specialty services are expressed through three main documents. Each channel is issued a license, generally for seven years, which is a binding contract drawn up by the CRTC, thereby giving the programmer the authority to be distributed by a cable distribution company and played over Canadian airwaves. The license is issued with a document called a “condition of license” (COL), which is individually tailored to the particular content concerns for each service. For example, in the case of YTV, there are stipulations on genre, percentage of programming targeted to different ages, amount of advertising, and, since YTV is aimed at children and young adults, age of protagonists who appear in the programs. All COLs reflect the minimum amounts of Canadian content (usually between 20 and 50 percent) and the percentage amount of revenue to be spent on purchasing Canadian content, and they ensure that the channel adheres to the spirit of its original concept. COLs can be amended at the time of license renewal or through special request.

On a larger scale, the Broadcasting Act (1991) is the prime overarching legal statute for the industry that represents the general expectations for Canadian programmers and distributors. It is to the spirit of this all-encompassing act that all other regulations must conform. The 1990 Specialty Services Regulations is a key document geared to specialty service providers. Other important documents are industry-adopted codes such as the Sex Role Portrayal Code (1990) and the Voluntary Code Regarding Violence in Television Programming (1993). In general, all documents reflect, depending on their focus, a commitment to Canadian support of homegrown content, programming that is sensitive to racial and gender portrayals, and programming that upholds the general ideals of cultural diversity, enrichment, and quality.

Specialty channels are affected as well by the regulations directed at the distributors that carry them (and who may own shares in various channels). Specialty services have historically been distributed through cable, though in the mid- to late 1990s new distribution systems, such as DTH satellite and MDS, became more important in this sector, particularly with digital services. Canada has well over a hundred cable companies, serving 8 million households, though giants like Rogers, Shaw, Vidéotron, and, to a lesser extent, Cogeco dominate the market. These cable companies follow the Broadcasting Distribution Regulations as well as numerous other CRTC rulings. Of particular importance to specialty services are tiering, linkage, and ownership.

“Tiering” is the bundling of specialty (and premium) services into different consumer packages to be sold at different prices. While the companies themselves decide on the final package, broadcast regulations dictate aspects of this packaging by regulating what gets included in a basic package or as an optional, also known as a discretionary, service. In the beginning, these services were offered on a discretionary basis. The tiers have since grown to include “optional-to-basic,” a term used between 1987 and 1993 to indicate that services were basic unless the service itself opted for the discretionary tier. Services such as MuchMusic and TSN vied to amend their licenses in this manner in order to have the option to negotiate their placement on either a discretionary or basic tier in any given cable market.

The terms have since evolved to incorporate flexibility for the cable company, the channel, and the varied markets in which they operate. As of 2001, depending on each particular market in which it is operating, a cable distributor must distribute items from a list that includes offerings such as CBC Newsworld, YTV, and Le Réseau de l’information. However, this stipulation is made on the “dual status basis,” meaning that the specialty service can opt to have it placed on a discretionary tier. For the discretionary tier, or “dual modified status,” the list includes offerings like The Food Network Canada, Canal Vie, The Comedy Network, and CTV Newsnet. The rule here is that the list of services can only be placed on basic with the mutual consent of the specialty programmer and the cable company. The upshot is that while being placed on the basic tier is desirable for a service, given the greater advertising reach (since more people subscribe to basic as the less expensive service), a sought-after service can potentially earn more on the higher-priced discretionary tier in terms of money charged to the cable company to pick up the channel and money earned by the cable company by selling a higher-priced service to the consumer.

“Linkage” is a term that describes the rules governing the distribution of foreign, often American, channels. Cable companies must give priority carriage to Canadian channels but can choose foreign programming from a list of eligible satellite services. Shrewdly packaging Canadian offerings with tried-and-tested American channels such as CNN, Canadian specialty services have lured audiences toward acquiring Canadian specialty services from the outset. Creating a list of “Eligible Satellite Services” from which distributors can apply for foreign programming, the CRTC originally dictated that non-Canadian channels could only be offered on a two-to-one basis per tier. This meant for every two foreign channels carried, there had to be one Canadian offering. This regulation was changed in 1993 and now the ratio is one to one. Moreover, no foreign service can overlap in content or theme with a Canadian channel. In the event that a new Canadian channel is licensed that somewhat matches an existing foreign channel’s programming thrust, then the foreign service may have its license suspended. Most notably, this occurred in 1994 in the case of American-owned Country Music Television, Canada (CMT) and Canada’s New Country Network (CNC), which exploded into a heated trade dispute that ended only with the last-minute partnering of the two companies.

Finally, ownership concerns affect both foreign ownership as well as Canadian cable companies, who have had a variable history in their ownership allowances. In short, the Canadian specialty landscape, unlike Canada’s cinema exhibition system, is Canadian owned and operated. Foreign ownership is limited to 33.3 percent of media companies, but it generally is restricted to the 20 percent maximum shareholder allowance if the company holds a broadcast license, which it must do to operate a specialty service. A Canadian cable company, on the other hand, has had greater flexibility in ownership rules. From their inception cable companies were allowed to own specialty channels, although the regulations tightened in the mid-1990s in the wake of increasing media consolidation, whereupon only minority shareholder status was permissible. The regulations have since loosened, due somewhat to the recent CRTC ruling that allowed Bell Canada Enterprise to own a satellite distribution company along with specialty channels through its CTV broadcasting network.

These types of regulations have met with success in creating a prosperous specialty sector. However, with the licensing of the new digital channels, also known as diginets, there have been some notable differences from their analog counterparts reflecting a more competitive, and less protected, market environment. Though Canadian content expectations are high (ranging between 35 percent and 50 percent) and Canadian ownership is essential for licensing, tiering does not follow suit in the digital environment. While the CRTC has licensed 21 Category 1 (or “must-carry”) channels arranged as distinct genres, the other hundreds are a free-for-all in terms of packaging. However, all Category 1 channels have been carefully arranged not to have overlapping genres, and linkage rules remain in the one-to-one ratio with a mandate to not directly compete with Canadian offerings. Distributors, be they cable, DTH, or MDS, have no ownership restrictions for the channels. However, for every channel that they own, they are required to carry five channels in which they have no ownership claims, otherwise known as the five-to-one rule.

Within this complex regulatory environment in which distributors and programmers operate is the extremely competitive business side of specialty services. A specialty channel in Canada generates revenue through advertising and subscription fees, paid to the service by the distributor on a per-subscriber basis. Though historically deriving the approximately 70 percent of its profits from subscriber fees, advertising revenue is on the increase, reflected by the increased viability of niche marketing and the CRTC’s increase for nearly all specialty channels in the latter 1990s of advertising from 8 to 12 minutes per hour.

Both the cable companies and specialty networks have obligations to fund Canadian programming through their revenues. In the case of a cable distribution, a small percentage of revenue is contributed to production funds. Of the percentage set aside for content funds, 80 percent goes toward the Canadian Television Fund (CTF). The other 20 percent is capital that the cable company may invest at its discretion toward other funding schemes. The CTF is a “public-private” fund that is dually financed by the federal government and cable industry to support Canadian production ventures. The specialty channels, however, are required to “shop Canadian,” and a percentage of their revenue, outlined in their COL, is destined for purchasing Canadian programming. Since each channel is mandated to air a specified amount of Canadian programming, the system operates a consistent supply-and-demand market for Canadian content.

With an overloaded analog spectrum and a successful albeit fledgling digital distribution system, the landscape for Canadian television players has been indelibly altered. While this has resulted in broadening consumer choice, it has added further complexity to one of the world’s most innovative television markets. However, the specialty landscape is one of Canada’s cultural successes due in part to regulatory protection, active trade representation, and shrewd business management. The dawning digital era has been hopeful. As of March 2002, total subscribership for digital offerings stood at 2.9 million with a growth rate that is 4 percent higher than that in the United States. As an indication of Canada’s commitment to establishing a digital environment, in January 2000, the CRTC ceased licensing analog channels, except in exceptional circumstances. How the sector will fare in the era of digital transmission is still uncertain though Canada’s lead in this sector bodes well for the industry and consumers alike.