The Canadian Radio-television and Telecommunications Commission on Thursday rejected the network's bid to be carried on basic cable, casting fresh doubts on the future of the controversial upstart broadcaster.
But the CRTC also says it will review the regulations for news channels in Canada.
"The diversity of voices is an essential component of our society, particularly as they relate to news and information in the Canadian broadcasting system," CRTC chairman Jean-Pierre Blais said in a statement.
"Television news channels provide an important public service by ensuring that Canadians are exposed to different opinions and perspectives on matters that concern all citizens. We are concerned that, under the existing rules, Canadian news services are not being given a pride of place in our broadcasting system."
That provides a glimmer of hope for Sun News, which told the CRTC this spring that anything short of mandatory carriage would spell the end of the channel, dubbed "Fox News North" by some critics when it made its debut in April 2011.
"We are disappointed that the CRTC did not rule in favour of our application for a mandatory distribution order," Sun News executive Kory Teneycke said in a statement.
"However, we are encouraged they have found merit in the main arguments laid out by Sun News on price, channel placement and distribution, and have provided a mechanism to address these issues."
The application by Sun News "acted as a catalyst for this broader review of the framework for national news services announced today," he added.
Mandatory carriage would have generated significant revenue for the network, which lost $17 million last year — a situation parent company Quebecor (TSX:QBR.B) calls "clearly unsustainable."
But the CRTC says Sun News didn't meet the criteria for a mandatory carriage.
"Given its exceptional nature, the CRTC has set the bar very high for obtaining a mandatory distribution order," the commission said.
Sun News wasn't the only channel denied a bid for must-carry status.
The regulator also rejected 11 other applications, including Vision TV, Maximum Television Canada, the Canadian Punjabi Network and Starlight: The Canadian Movie Channel, which had the backing of luminaries like David Cronenberg, Denys Arcand and Atom Agoyan.
French broadcaster Nouveau TV5 and the French arm of AMI TV, which provides accessible broadcast services such as described video, were both granted mandatory distribution orders.
A number of existing mandatory carriage orders were also renewed, including the Aboriginal Peoples Television Network and the Cable Public Affairs Channel.