File Ref. BCSB(CR)9/11/2(97)Pt.7
PROVISIONAL LEGISLATIVE COUNCIL BRIEF
VIDEO-ON-DEMAND PROGRAMME SERVICE LICENCE
At the meeting of the Executive Council on 4 November 1997, the Council ADVISED and the Chief Executive ORDERED that-
- approval in principle should be given for awarding a Video-On-Demand (VOD) programme service licence to Hongkong Telecom VOD Limited (HKTVOD) under the Television Ordinance (the Ordinance), and that Elmsdale Limited (Elmsdale) and Future TV (HK) Limited (FutureTV) should be informed that their applications for a VOD programme service licence have not been successful;
the Government should commence negotiation with HKTVOD with a view to finalising the terms and conditions of the licence for submission to the Chief Executive-in-Council for formal approval and to satisfying the requirements of the Ordinance and regulatory concerns;
- the "disqualified persons" provisions in the Ordinance applying to companies transmitting sound or television material should be waived in respect of HKTVOD; and
- a decision on the application of Star Interactive Television Limited (Star iTV) should be deferred until the significance of the legal action against Star iTV has been duly assessed.
2. The Chief Executive-in-Council noted that subject to the grant of licence, the BA is minded to exercise its power under sections 17E and 17F of the Ordinance to approve the application from HKTVOD for Cable & Wireless plc (C & W) and its direct and indirect subsidiaries to hold, acquire, exercise, or cause or permit to be exercised more than 2% of the voting shares in HKTVOD.
BACKGROUND AND ARGUMENT
3. On 2 July 1996, the former Governor in Council decided that the policy proposals for regulating VOD programme services as summarised at Annex A to this brief should be adopted, and that subject to amendments to the Television Ordinance, two programme service licences should be offered.
4. On 5 November 1996, the former Governor in Council decided that the Television (Amendment) Bill 1996, which sought to give effect to the policy decisions on the regulation of VOD programme services, should be introduced into the then Legislative Council. The Television (Amendment) Ordinance 1997 was enacted on 19 March 1997.
5. On 9 May 1997, the Government published a Guidance Note to invite interested parties to submit proposals for the provision of VOD programme services in Hong Kong. By the submission deadline on 20 August 1997, four proposals were received. The applicants are -
- Star iTV
- FutureTV and
Assessment of the Applications
6. The Broadcasting Authority (BA) was asked to consider these applications and to make recommendations thereon to the Chief Executive-in-Council. The four applications have been carefully considered and evaluated by the BA in accordance with the criteria for assessment published in the Guidance Note. For Members?reference, the criteria are reproduced at Annex B. The BA has considered all relevant documents, video tapes and additional information obtained from the applicants. Each of the applicants has also had the opportunity to make a presentation to and answer questions relating to the application from the BA.
7. VOD is an innovative technology for providing interactive multi-media services in digital form over broadband telecommunication networks. The technology of VOD has been tested in a number of places in the world, but if the Hong Kong SAR Government successfully awards licences this year, Hong Kong will be the first place in the world to launch VOD programme services on a commercial scale. Hong Kong's position as a broadcasting and telecommunication hub in the region will be further enhanced.
8. Having carefully considered the merits of the applications of HKTVOD, FutureTV and Elmsdale; and the recommendations made by the BA, the Chief Executive-in-Council decided that HKTVOD should be awarded a VOD programme service licence and that FutureTV and Elmsdale should be informed that their applications have not been successful.
9. The Chief Executive-in-Council noted that apart from movies and television programmes, HKTVOD intends to provide non-programme services such as home shopping, home banking and video games, etc. These non-programme services are not regulated under the Television Ordinance and require a Public Non-Exclusive Telecommunications Service (PNETS) licence to be issued by the Telecommunications Authority (TA).
10. As regards the application of Star iTV, in view of the legal action taken against it over the alleged misuse of confidential information in connection with its application, the Chief Executive-in-Council decided that it would be prudent to defer consideration of Star iTV's application so as to allow time for the Government to assess the significance of the claim on Star iTV's application.
11. The Chief Executive-in-Council also decided to waive in respect of HKTVOD the restriction disqualifying a company (including its associates and voting controllers) which transmits sound or television materials from exercising control of any licensee under the Ordinance.
12. Under section 2 of the Ordinance, certain categories of persons and companies are restricted from exercising control over licences by virtue of being a "disqualified person"(DP). The term "exercising control" means to hold office such as a director, or to be the beneficial owner or voting controller of more than 15% of the voting shares. The restriction may be waived by the Chief Executive-in-Council, conditionally or unconditionally, under section 8(4) if full disclosure has been made of the presence of DPs, or in the case where a DP is introduced and the public interest requires, under sections 10(1)(f) and 11A of the Ordinance. The then Governor-in-Council had agreed to a general waiver of this restriction. This intention was promulgated in the Policy Statement at Annex A and in the Guidance Note inviting applications.
13. In its application, HKTVOD has disclosed all companies and associates which are disqualified persons in relation to HKTVOD as defined in the Ordinance. In line with the policy decision taken in this respect, the Chief Executive-in-Council has given approval to permit the disclosed "disqualified persons" to exercise control of HKTVOD.
14. Under the Ordinance, "unqualified voting controllers"(broadly, persons who are not ordinarily resident in Hong Kong and have not been so for seven years) would require the permission of the BA to hold or acquire 2% or more of the voting shares in a licensee. In addition, unqualified voting controllers may not exercise more than 49% of the voting control on a poll held at a general meeting of a company licensed under the Ordinance. These restrictions apply equally to those acting through representatives or nominees.
15. Sections 17E and 17F of the Ordinance require unqualified voting controllers to obtain the BA's prior approval in writing, to hold, acquire or exercise or cause or permit to be exercised, 2% or more in aggregate of the total voting control of a licensee. The policy consideration behind restricting foreign ownership is rooted in the belief that television is a powerful medium which has the potential to influence a large proportion of the population and as such the control of broadcasters should be held by persons who are ordinarily resident in Hong Kong and who may therefore be expected to be responsive to and reflect local tastes and culture.
16. HKTVOD is held indirectly by Hong Kong Telecommunications Limited (HKT) which is 54.23% owned by C & W, a UK company and an "unqualified" voting controller under the definition of the Ordinance. HKTVOD has accordingly applied for BA's requisite approval for C & W and its direct and indirect subsidiaries to hold, acquire or exercise, or cause or permit to be exercised the voting control of HKTVOD under the Ordinance.
17. The BA, after considering the justification put forward by HKTVOD, is satisfied that HKTVOD will operate as a "local" company with its control and management exercised in Hong Kong. HKTVOD has assured the BA that the provision in the Ordinance relating to unqualified voting controllers not exercising more than 49% of the voting control on a poll held at a general meeting will be strictly observed. Therefore, subject to the grant of licence by the Chief Executive-in-Council, the BA is prepared to exercise its power under the Ordinance and grant the requisite approval.
The Next Step
18. The draft VOD programme service licence was published with the Guidance Note inviting applications. The Government will conduct negotiation with HKTVOD with a view to finalising the detailed terms and conditions. Thereafter the licence will be submitted to the Chief Executive-in-Council for formal approval. A Television (Period of Validity) Order specifying the length of the licence will be prepared and tabled at the Provisional Legislative Council for negative vetting.
19. All applicants will be advised of the result of their applications in writing.
20. The policy decisions on the regulation of VOD programme services were reached after extensive public consultation. The Television (Amendment) Bill giving effect to these policies was passed by the then Legislative Council in March 1997 after the due process of examination and debate.
FINANCIAL AND STAFFING IMPLICATIONS
21. A VOD programme service licensee will be required to pay an annual licence fee calculated on a full-cost recovery basis. Approval has been obtained to phase in the licence fee over a period of five years. The fee payable by a licensee in the first year of its licence is $394,590.
22. A licensee will also be required to pay a royalty on its subscription and advertising revenue. The royalty will be charged on a sliding scale, the rates of which are identical to those applicable to the subscription television broadcasting licensee.
23. A press conference will be held on 5 November 1997 to announce the award of a licence to HKTVOD. A press release will be issued on the same day.
Broadcasting, Culture and Sport Bureau
5 November, 1997
VIDEO-ON-DEMAND AND PAY TV
The Government has given careful consideration to the views expressed on two recent consultation papers on the regulation of video-on-demand (VOD) and the deregulation of the pay TV market, and has reached the conclusions set out below.
Video on demand
1. A new category of VOD programme service licence should be provided under the Television Ordinance, and the Broadcasting Authority should be invited to draw up Codes of Practice similar to those which apply to pay TV. The Broadcasting Authority, through its executive arm, the Television and Entertainment Licensing Authority, should be responsible for monitoring the performance of programme service licensees, as with other licensees under the Ordinance.
2. Two programme service licences should be offered once legislation is enacted; a review will be conducted in 1998 to see whether these regulatory arrangements remain appropriate, and whether the issue of licences should be deregulated.
3. The eligibility conditions for programme service licences should be substantially the same as those applying to all licensees under the Television Ordinance. However, those transmitting sound or television material should be permitted to bid for a licence unless otherwise disqualified. In order to prevent Hong Kong Telecommunications Limited (HKT) and its associates from dominating fixed wire networks in Hong Kong, the existing ban on Hong Kong Telephone Company Limited (HKTC) owning or exercising control of not more than 15% of the first subscription television broadcasting licensee should be retained.
4. VOD programme service licensees should pay advertising and subscription royalties.
5. Only the provision of 'television programmes'(essentially the type of programmes that are being broadcast currently by the off-air and pay TV broadcasters) by VOD would constitute a programme service. Other on-line information services such as those currently available on the Internet should excluded from the proposed regulation. The views of the industry
will be sought on the drafting of the definition which will be presented in proposed amendments to the Television Ordinance.
6. The content of multimedia services which do not constitute television programming should not be regulated under the Television Ordinance. As with newspapers, such services would still be subject to the laws of Hong Kong (such as the Control of Obscene and Indecent Articles Ordinance, Cap 390). Any company, whether an existing broadcasting licensee or not, and whatever its ownership, would be allowed to provide non-programming services. The Government will continue to monitor the development of multi-media services, so that if there appears to be a need to regulate any aspect of them, we can consider what action should be taken.
7. The Telecommunication Authority should be empowered to determine the terms and conditions of interconnection between a VOD programme service licensees and the network of an FTNS licensee.
2 July 1996.
Guidance Note for Those Interested in
Providing Programme Services in Hong Kong
Criteria for assessment
5.4 The Government will, amongst other things, take into account the following factors when assessing applications (the order is not indicative of the relative weight attached to each item).
- the financial and managerial strength of the company based on information supplied in accordance with paragraph 4.4;
- the technical competence and experience of the company based on information supplied in accordance with paragraphs 4.2 and 4.6;
- the technology to be employed;
- the installation, subscription and programme fees to be charged to subscribers;
- the number of hours of programming available to subscribers;
- the number of subscribers who can have access to the programme service at any one time, and proposals to increase this number in response to growing demand;
- the number of subscribers who can have access to the same programme at any one time, and proposals to increase this number in response to growing demand;
- a breakdown of the types of programmes to be offered;
- the daily hours of operation of the programme service;
- the reception quality as a result of the mode of delivery;
- the arrangements entered into with Fixed Telecommunication Network Service licensees, if any, to transmit the service to be provided by the Licensee;
- the extent to which it is intended to provide the service throughout Hong Kong, and the timetable for doing so;
- the time needed to provide the service to those requesting to subscribe; and
- the extent to which the terms of the licence and any laws and relevant Ordinances are likely to be observed.
9 May 1997
Last Updated on 9 December 1997