Opinion on the draft decree governing digital terrestrial channels

Avis n° 2001-8 du 2 octobre 2001 sur le projet de décret pris pour l'application des 1°, 2°, 3° et du 5° de l'article 27 et de l'article 71 de la loi n° 86-1067 du 30 septembre 1986 modifiée relative à la liberté de communication et fixant les principes généraux concernant la diffusion des services autres que radiophoniques diffusés par voie hertzienne terrestre en mode numérique

The French Superior Audiovisual Council has been asked to give its opinion, pursuant to article 27 of law no. 86-1067 of September 30, 1986, as amended, on freedom of communication, on a draft decree laying down the general principles governing the broadcasting of services other than radio broadcast by terrestrial hertzian means in digital mode. After deliberation, the Council makes the following observations, which concern both the general economy of the proposed scheme and its technical content.

I - MAIN OBSERVATIONS

With regard to the package comprising this draft decree and the preliminary drafts of the decrees implementing the law of August 1, 2000, which have been sent to the Conseil supérieur de l'audiovisuel for information, the Conseil notes that the government has been concerned to harmonize the different legal regimes applicable to television services, depending on their broadcasting method, and to ensure their coherence.
The Conseil considers that, in the long term, the principle of technological neutrality of the media used to show audiovisual communication services, resulting from convergence, should take precedence and lead to even greater harmonization of these legal regimes, which should no longer be set according to the medium but according to the nature of the service, and in particular whether it is free or paying.
Harmonization of the different legal regimes must be accompanied by simplification of these regimes, which have become rigid, cumbersome and complex, as the French Superior Audiovisual Council had already pointed out in its opinion on decree no. 2001-609 of July 9, 2001.
The development of the French audiovisuel industry in the face of European competition remains a major objective. Clearly, new regulations that deviate too far from the Television without Frontiers Directive could be a handicap in this respect.
With regard to digital terrestrial services in particular, whose economic viability must be ensured, a pragmatic approach must be favored.
In view of these factors, and in a difficult context where structural and cyclical upheavals are disrupting medium-term visibility on the development of free-to-air and pay-TV markets, the Council's observations have been guided by the following three principles, to which it summons the Government's attention:
- make provision for the obligations to be phased in over a longer period, and encourage the mobilization of new resources, in particular by opening up sectors prohibited to advertising, to enable service editors to achieve economic equilibrium within a reasonable timeframe;
- facilitate the migration of cable and satellite services to digital terrestrial broadcasting by establishing a regime for future digital terrestrial pay-TV services that is as close as possible to the current regulations applicable to cable and satellite services;
- introduce greater flexibility by favoring the conventional route, which is more appropriate than the regulatory route for taking account of the specific nature and situation of each service.
The Council places particular emphasis on the problems of ramping up the obligations for the various services (see 3. of A/ of III and A/ of IV) and of broadcasting advertising messages on encrypted services.

II - DIFFUSION OF ADVERTISING MESSAGES ON ENCRYPTED SERVICES

Article 20 of the draft decree makes provision for encrypted services, following the example of the regime applicable to Canal+, that advertising messages may only be shown in the parts of programs broadcast free-to-air, which are limited to 6 hours a day.
This scheme could jeopardize the migration of certain services currently shown on cable and satellite to digital terrestrial.
Indeed, services with cable and satellite contracts are likely to migrate to digital terrestrial as encrypted services, so as not to jeopardize their cable and satellite economics.
These services currently show advertising throughout the day, and their migration to digital terrestrial could result in a significant drop in advertising revenues.
The Conseil therefore considers it essential for encrypted services to be able to show advertising messages throughout their programming.

III - PRODUCTION OBLIGATIONS

A/ General comments

The Conseil notes that the draft decree and the reforms envisaged by the Government for Canal+ and for cable and satellite services make provision for very different production obligation regimes, depending on the medium and nature of the services, whether in terms of the basis for these obligations, their level, the expenses likely to be taken into account, or the definition of independent production.
It believes that these differences are a source of unequal treatment between services, and would like to see a simpler regulatory scheme.

1. New production
The draft decree confirms and extends the development initiated for the audiovisuel sector by decree no. 2001-609 of July 9, 2001, concerning the nature of expenditure taken into account for production obligations: articles 9 and 11 of the draft decree allow rights purchases to be valued, without restrictions, in the same way as co-productions and pre-purchases. In addition, article 12 of the draft decree includes all European and original EOF works in production obligations.
Taking rights purchases into account may certainly seem legitimate, given that services are obliged to turn to the secondary rights market to feed their schedules.
However, this development leads the Conseil to question the relationship between obligations to produce and obligations to broadcast works: in principle, the aim of the former is to develop a program industry, by contributing to the production of new works, while the latter guarantees viewers the broadcast of European works or works produced in the French language.
Since production obligations now include the purchase of rights, these obligations lose much of their relevance, since diffusion quotas are sufficient to guarantee a minimum level of rights purchases. The Conseil therefore believes that both audiovisual and cinematic production obligations should provide publishers with real incentives to participate in renewing the program supply.
The Conseil has certainly noted the existence in the draft decree of certain incentives for investment in new production, which do not, however, seem to adequately meet the objective pursued. These incentives take three forms:
* Article 13 of the draft decree stipulates that services must show 120 hours of new audiovisual works between 8pm and 9pm, which encourages investment in new works. However, in addition to the fact that this obligation would only apply to services with sales in excess of one hundred and fifty million euros - a level that a large number of services will not be able to reach, especially in the early years of digital terrestrial broadcasting - the Conseil considers that this measure has the effect of excessively rigidifying the programming schedules of services in a very narrow time slot.
If this rule were to be maintained for digital terrestrial, it would be useful, at the very least, if they could be shown during prime time, as recommended below (B/ of IV).
* With regard exclusively to premium cinema channels, the draft decree gives as a counterpart to a commitment to the pre-purchase of works whose production cost is less than or equal to a specified amount (diversity clause), the possibility of being able to count the diffusion quotas of cinematic works in terms of number of titles and not by diffusions and reruns, and without the possibility of diffusions of original EOF works representing less than 35% (art. 34).
The Conseil is not in favor of this method of counting, which introduces a difference in regime between premium channels and other services. In addition to creating unequal treatment, the scheme does not guarantee effective compliance with article 4 of the Television without Frontiers Directive, which makes provision fora "majority proportion" of European works, assessed in terms of"diffusion time".
If the scheme is to be maintained, it should at the very least be supplemented to guarantee, on the one hand, a minimum of 50% European works, counted per diffusion, and, on the other hand, that the minimum of 35% original EOF works is respected not only throughout the programming schedule, but also in the first part of the evening.
* The final incentive for new production is to allow services showing more than 25% audiovisual works to include up to 3% of their audiovisual obligations for new production expenditure on programs that do not meet the criteria for audiovisual works (magazines and on-set programs).
Thus, the three direct or indirect incentives for the production of new programs provided for in the draft decree do not appear to be the most appropriate levers.
For its part, the Conseil recommends that the decree allow it to negotiate with editors, by means of an agreement, a specific commitment to the unpublished production of European works or works of original EOF, in return for a reduction in the rates of film and audiovisual production obligations.

2. Independent production
The notion of independent production is certainly summoned to development. As part of the proceedings to review the Television without Frontiers Directive, the European Commission is examining the definition of independent producer, in the context of the current trend towards vertical concentration of communications groups.
At this stage, the draft decree essentially reproduces the definition of independence linked to the work and to the production company, as set out in the decree of July 9, 2001.
In its opinion on the draft decree of July 9, 2001, the Conseil had expressed reservations about the relative definition of production company independence that had been adopted, considering that an absolute definition of independence seemed more likely to guarantee the consolidation of a production sector independent of all broadcasters, while allowing the indispensable development of solid producers, backed by major groups within the framework of an assumed vertical integration.
The draft decree makes it possible to include, in production obligations, purchases of rights whose "dependent" or "independent" nature will be difficult to determine, particularly if the sale is concluded with a distribution or rights management company:
- either it will be considered that only works acquired from independent producers can be included, and that works acquired from distributors will be excluded from the contribution to independent production; in this case, the "heritage" channels will not be able to meet these obligations, and the other services will have the greatest difficulty in achieving the planned rates;
- or it will be accepted that works acquired from a distributor can be taken into account as independent production; in this case, it would be advisable, on the one hand, to specify whether this option is applicable even in the event that the distributor only holds a marketing mandate without owning the rights and, on the other hand, to amend the text to adapt the criteria of independence to this mode of rights acquisition.
In conclusion, the Conseil considers that the mechanical transposition of the definition of independent production, originally conceived for unpublished production commissioned by national analog service editors, poses a twofold problem insofar as it concerns a system of production obligations which, from now on :
- on the one hand, includes the purchase of rights to existing works;
- on the other, it is imposed on service editors with a much more diversified shareholder base.
He therefore suggests :
- that the obligation relating to independent production be adapted for simple rights purchases,
- that the capital criterion for producer dependence on the broadcaster be raised to the blocking minority threshold, i.e. 33.34%, as the 15% rate runs the risk of artificially increasing the number of dependent production companies.

3. Gradual increase in taxation
Articles 10, 15, 23 and 26 allow agreements and specifications to make provision for a gradual increase in production investment obligations over a five-year period.
The Conseil considers that the foreseeable duration of the start-up and development phases of digital terrestrial television justifies the gradual increase being organized in the service agreement over a maximum period of seven years, possibly including a three-year moratorium. It should be possible to re-evaluate this ramp-up during the term of the agreement, depending in particular on the rate of digital terrestrial television initialization for free-to-air channels, and the number of subscribers to pay services across all media.
In addition, these articles make provision for a "non-calculation clause" concerning the amount of expenditure for services that would be shown on digital terrestrial after three years of agreement on cable. This clause appears to the Council to be extremely prejudicial to services that experience a significant drop in sales from one year to the next.
In order to avoid excessive rigidity, the Conseil should be given full latitude to determine the conditions under which cable and satellite services can be ramped up to digital terrestrial television, and this no-drop clause should be abolished.
Lastly, for pay services, articles 23 and 26 make the gradual increase in the number of subscribers conditional on the number of subscribers (2 million on all platforms, including 0.5 million terrestrial, for non-movie channels; 1.5 million subscribers on all platforms, including 0.5 million terrestrial, for movie channels).
The Conseil considers that this criterion is insufficient to assess investment capacity in production, and is difficult to apply, given the fluctuating nature of the number of cable and satellite subscribers. On these media, the very notion of subscriber can give rise to a variety of performers, given the different subscription formulas on offer (inclusion in the basic supply or specific contract, taking into account the number of households having subscribed or the number of people receiving the supplies). The Conseil would therefore like these thresholds to be abolished at regulatory level, and for services to benefit from a ramp-up fixed in the agreement, based on criteria that take into account the actual level of development of digital terrestrial television. The agreement is the only instrument that is sufficiently flexible to adapt, with the necessary responsiveness, to developments that are currently difficult to predict.
Should these thresholds nevertheless be maintained in the decree, the notion of subscriber should in any case be defined in it.

4. Basis of obligations
The basis for production obligations is defined differently for free-to-air services and for pay services, because of the need to make provision for the latter to take account of subscription revenues.
In the interests of clarification, the Council considers that it would be useful for these bases to be defined in a single article and harmonized, particularly with regard to deductions.

5. Bond rates
Under article 32 of the draft decree, premium channels that devote more than 10% of their programming time to showing audiovisual works are required to invest at least 6% of their total annual resources in audiovisual production, whereas this rate is 4.5% for Canal+.
For cinematic production, article 29 (II) sets the level of investments by premium channels in European and EOF cinematic works at 26% and 22% of sales respectively.
For Canal+, the draft decree specific to this channel makes provision for an overall obligation to invest 25% of total annual resources in cinema, 15% for the purchase of rights to European works and 11% for the purchase of rights to works of original French expression, these three rates being reduced to 20%, 12% and 9% respectively, as long as this channel pre-purchases works whose production cost is less than or equal to a specified amount (diversity clause) and that it guarantees a minimum level of investment per subscriber in France.
The Conseil believes that the optional regime made provision for Canal+ should also be possible for premium digital terrestrial channels.
Furthermore, while the differences in rates for Canal+ and premium digital channels can be explained by the fact that the obligations are not based on the same base ("distributor" sales for Canal+, "publisher" sales for premium channels), the Conseil questions the proportionality of these differences in rates.

B/ Specific obligations

1. Audiovisual production

a) Cinema channels
Under the provisions of articles 11 and 32, audiovisual production obligations apply to services which devote more than 10% of their programming time each year to showing audiovisual works.
The Conseil considers that this 10% threshold could be raised for cinema and premium channels, since for a full-time diffusion and taking into account the rules relating to the quantum of films, these services will be able to devote, at most, approximately 76% of their airtime to cinematographic works. They will therefore have to devote 24% of this time to programs other than cinematographic ones, which could lead many of them to exceed the 10% threshold for audiovisual works.
An analysis of the audiovisual programme diffusion volume of the main cable film channels in 2000 shows that all these services show more than 10% audiovisual programmes every year.
The 10% threshold could therefore encourage them to restrict this diffusion volume.

b) Other services
With regard to the 10% to 25% threshold, an analysis of the volume of programming devoted to audiovisual works by the main cable services shows that, with one exception, no service shows between 10% and 25% audiovisual programs. Most show more than 70% audiovisual programs. This intermediate category (between 10 and 25% audiovisual programs) could therefore be eliminated, and a single rate of at least 25% retained.
In addition, the draft decree allows services showing more than 25% audiovisual programs to include in their production obligations, up to a limit of 3%, expenditure devoted to the production of previously unseen programs (on-set programs of particular cultural interest and magazines), provided they are produced by producers independent of the service editor. The Conseil would be in favor of the agreement allowing part of the unpublished in-house production to be included, on an exceptional basis, within the 3% perimeter.

2. Cinematic production

a) Definitions
* Cinema channels
Article 27 of the draft decree strictly defines the conditions for qualifying as a "film channel". These services must have a specific contract, and their advertising revenues are limited to 25% of sales.
The Conseil questions the relevance of these conditions, which define a highly restrictive business model inspired by that of cable and satellite "cinema" channels.
Services do not necessarily have control over their subscription rates, which are negotiated with the commercial distributor. The setting of a minimum share of resources from subscriptions, set at 75%, thus appears to be a strong constraint that could lead certain services to curb their advertising revenues and compromise their economic equilibrium.

* Premium channels
Article 29, II of the draft decree defines "premium" channels as follows: "Service editors who, [...] prior to free-to-air terrestrial broadcasting, show one or more cinematographic works on exclusive first-run television, excluding pay-per-view, or more than ten cinematographic works on exclusive second-run television, excluding pay-per-view".
To qualify as a "premium" channel, the draft decree stipulates two cumulative criteria:
- the first is the exclusive diffusion of films (first or second window) that will subsequently be shown on free-to-air terrestrial services. The Conseil verdict is that this criterion is redundant with the notion of "first television exclusivity", which is also provided for. In any case, it considers that reference should be made to a "possible" subsequent diffusion on free-to-air terrestrial services, so as not to subordinate the legal status of a service to a later event which may not be known at the time when the status of the service is assessed;
- the second criterion relates to the diffusion of one or more cinematographic works on exclusive first-run television, excluding pay-per-view, or of more than ten cinematographic works on exclusive second-run television. Even if this is only a hypothetical case, a reading of this provision suggests that a service could qualify as "premium" as of a single exclusive first-run film diffusion; the words "one or more cinematographic works" should therefore be replaced by "cinematographic works".

* Pay-per-view services
The Conseil notes that the draft decree makes no provision for pay-per-view services, which rules out the possibility of such services being present in digital terrestrial broadcasting.
Even if the economics of these services on cable and satellite have not yet found their equilibrium, the Conseil considers that this type of service should be able to be offered on digital terrestrial.

* Definition of an independent production company
The Conseil notes that, for premium channels (last paragraph of article 30), the French government has adopted a definition of independent production company similar to that applicable to Canal+, and broader than that given for all services in article 6 of the decree of July 9, 2001. In fact, it allows companies with capital links to the publisher to be qualified as independent, as long as they do not carry out delegated production.
In the Council's view, this definition could be extended to all film channels, provided they invest in new production, in the interests of equal treatment.

b) Backup costs
Article 29 III allows "costs of safeguarding, restoring and promoting cinematic works" to be taken into account as part of the contribution to the development of cinematic production. This scheme should also apply to cable and satellite services, by reference to this article.
The Conseil notes that the draft legislation limits this option to cinematographic works, whereas the law also covers audiovisual works. It would therefore be desirable for the decree to enable the Conseil to apply this provision to audiovisual works, depending on the format of the service.
He also considers that the notion of "enhancement" is very imprecise and would have deserved clarification.
It would also seem appropriate to allow only costs relating to European and original French-language works to be taken into account.
Finally, the inclusion of these costs, limited to 10% of the obligations, is subject to a higher ceiling for services "that exclusively show cinematographic works at least thirty years after their theatrical release in France". In the Council's view, this definition could be made more flexible by replacing "exclusively" with "mainly".

c) Exemption from cinematic production obligations
Article 8 makes provision for the application to digital channels of certain articles of the decree of July 9, 2001, and in particular article 2, which excludes from cinematic production obligations "television service editors who annually show a number of feature-length cinematographic works less than or equal to 52".
It would be useful to clarify whether this threshold is assessed in terms of the number of titles or the number of diffusions and reruns.

IV - OBLIGATIONS TO BROADCAST

A/ Audiovisual works diffusion quotas

Article 27 of the law stipulates that the decrees issued for its enforcement "may make provision for gradual application in line with the increase in digital terrestrial television".
In particular, this provision seems to allow for a gradual increase in the number of audiovisual works to be broadcast, following the example of the scheme for cable and satellite channels.
However, while article 16 authorizes a modulation of prime time, it does not make provision for a gradual increase in quotas, thus depriving TV channels of the flexibility, legally provided for, which appears essential to the roll-out of digital terrestrial television, both for new channels and for recent cable and satellite channels migrating to digital terrestrial television.
The Conseil would therefore like to have the option of setting, in the agreements, a gradual increase in the diffusion quotas for audiovisual works, as it considers this necessary to encourage the development of digital terrestrial television.

B/ Peak listening times

Audiovisual prime time remains set at 6 - 11 p.m. (article 9 of decree no. 90-66 of January 17, 1990); for film quotas, article 35 of the draft decree makes provision for a specific regime for film channels (6 - 12 p.m.), distinct from that for other channels (8.30 - 10.30 p.m.). The Council questions the relevance of this choice, which could have been replaced by a distinction between free-to-air and pay-TV channels.
The Conseil considers that potential prime listening times come under the control of viewers at home, and are generally between 6pm and 11pm, excluding midday programs. It is therefore in favor of setting these hours uniformly by decree for all services, with the possibility of contractual adjustments justified by the nature of the programming and the characteristics of the service's audience.

C/ Quantum of cinematographic works

The Conseil noted a lack of precision in article 36 (II) of the draft decree: under the provisions of this article, the ceiling of 500 cinematographic works is made provision for "between midday and midnight" and the agreement may set a maximum for the hours between midnight and midday, "within this limit", without specifying whether the ceiling of 500 films applies only between midday and midnight or over 24 hours. For the sake of clarification, he proposes that it be stated, as in article 18 (II 1°) of the preliminary draft decree on cable and satellite, that the 500-film ceiling applies "over the entire programming schedule".

V - NON-TELEVISION SERVICES

Article 1 of the draft legislation sets out the scope of the decree, which covers "service editors broadcasting by terrestrial hertzian channel in digital mode other than radio and those mentioned in the second paragraph of III of article 30-1 of the law of September 30, 1986".
By referring to services "other than radio", this article extends the scope of the draft decree to "audiovisual communication services other than television", as provided for in 6° of II of article 30-1 of the law, which would not be radio services.
The Council has two observations to make on these services, concerning their definition and their legal status.

A/ Definition

The law of September 30, 1986 clearly distinguishes between the legal regimes applicable to television services, radio broadcasting services and audiovisual communication services other than television and radio broadcasting.
However, it does not provide any definition of these different services, and the emergence of services that include moving images but are based on a mode of access similar to browsing, as practiced on the web, calls into question the commonly accepted boundaries.
In view of the importance of the legal classification of a service (which determines its legal status and, in the case of digital terrestrial television, its admissibility in a call for tenders), the Conseil considers it essential that elements of definition be provided, either in the decree or in the report to the Prime Minister.

B/ Legal framework

Only article 4 of the draft decree is applicable to these services, which are subject to the schemes set out in the decree of March 27, 1992 on advertising, sponsorship and teleshopping. The Council welcomes the principle of regulating these activities on non-television services.
For these services, the draft decree excludes the application of various articles of the March 27, 1992 decree, in particular article 9, which prohibits surreptitious advertising.
For its part, the Conseil considers that it would have been preferable, as the Government has made provision for online communication services in the draft legislation on the information society, to establish the principle that advertising messages shown on these services must be presented as such and, as a consequence of this principle, to prohibit surreptitious advertising, by making article 9 of the decree of March 27, 1992 applicable to these services.
He also points out that the draft decree renders II, III and IV of article 18 of the decree of March 27 1992 inapplicable to these services, while making them subject to I of this article. As a result, sponsorship is authorized, but without being regulated in any way, which could lead to confusion between advertising and sponsorship.