ARCHIVED -  Decision CRTC 95-911

Decision

Ottawa, 20 December 1995

Decision CRTC 95-911

DMX Canada (1995) Ltd.

Across Canada - 950213900

New, national, pay audio programming undertaking - Approved

Following a Public Hearing in the National Capital Region beginning 14 November 1995, and in accordance with Public Notice CRTC 1995-218 which accompanies this and other related decisions published today, the Commission approves, by majority vote, the application by DMX Canada (1995) Ltd. (DMX) for a broadcasting licence to carry on a new pay audio programming undertaking. The Commission notes that it had been proposed that the licence would be issued to DMX Canada Ltd. Following the public hearing, the Commission was advised that, should a licence be issued, it should instead be issued to DMX Canada (1995) Ltd., a company with the same share structure as DMX Canada Ltd.

The Commission will issue a licence expiring 31 August 2002. The licence will be subject to the conditions set out in the appendix to this decision and in the licence to be issued.

DMX is a Canadian corporation owned 80% by Shaw Communications Inc. (Shaw) and 20% by International Cablecasting Technologies Inc. (ICT), an American company that produces digital audio services. The applicant had filed with its application its previously executed Licence and Distribution Agreement dated 9 March 1992, as amended, and a Shareholder's Agreement of the same date. At the hearing, the applicant acknowledged that, should it be licensed, it would have to re-draft both of these agreements taking into account changes in its proposal, the concerns of the Commission and concerns raised by interveners.

This authority will only be effective and the licence will only be issued at such time as the Commission receives an amended Licence and Distribution Agreement and Shareholder's Agreement in a form acceptable to the Commission, and documentation establishing that DMX is an eligible Canadian corporation.

The applicant proposed a service that would be distributed primarily by cable undertakings, but would also be available for distribution by direct-to-home (DTH) distribution undertakings. Upon commencing operations, DMX proposed to provide 35 channels of music, each with a distinct format. Ten of the 35 channels would be produced in Canada by the applicant. The number of Canadian-produced channels would increase to 15 by the third year of the licence term. The overall minimum level of Canadian musical selections offered on the 15 proposed Canadian-produced channels would be 40%. Consistent with the Commission's regulatory framework for pay audio programming undertakings announced in Public Notice CRTC 1995-218, the Commission is attaching a condition of licence specifying that a minimum of 30% of the musical selections broadcast each week on Canadian-produced pay audio channels, considered together, be Canadian. The Commission, however, encourages the applicant to meet the 40% level of Canadian content that it has proposed.

The remaining channels would be obtained from ICT. The applicant would, however, re-uplink the channels obtained from ICT to a Canadian satellite for reception by subscribers within Canada. As noted in Public Notice CRTC 1995-218, the Commission has determined that it will license pay audio applicants based only on the Canadian-produced channels that they proposed to distribute. The Commission is, however, attaching a condition of licence allowing a maximum of one non-Canadian pay audio channel to be packaged or linked with each Canadian-produced channel.

With respect to channels featuring French-language vocal music, the applicant proposed a minimum of three Canadian-produced channels and one non-Canadian channel from the beginning of its operations. Consistent with the Commission's regulatory framework set out in Public Notice CRTC 1995-218, the Commission is attaching a condition of licence requiring that a minimum of 25% of all Canadian-produced pay audio channels other than those consisting entirely of instrumental music or of music entirely in languages other than English or French, devote to musical selections in the French language, on a weekly basis, a minimum of 65% of the vocal music selections from category 2, as defined in the Radio Regulations, 1986. DMX will be required to fulfil this condition from the outset of operations.

In its application, DMX proposed to allocate $880,000 over seven years to establish a Canadian Heritage Music Library that would house Canadian audio recordings of historical value, restore them, and transfer them to a digital medium. It also proposed to allocate $47,000 each year to support the activities of the Canadian Music Advisory Committee which will include the sponsorship of seminars where musicians will receive information about the business aspects of their profession.

In Public Notice CRTC 1995-218, the Commission indicated that it would require pay audio licensees to contribute each year a minimum of 4% of gross annual revenues to eligible third parties associated with Canadian talent development. Such eligible third parties are defined as "FACTOR, MusicAction, national and provincial music organizations, performing arts groups, schools and scholarship recipients." In Public Notice CRTC 1995-218, the Commission further clarified that all money going to eligible third parties must be directly connected to the development of Canadian musical and other artistic talent.

The Commission notes that the projects suggested by the applicant do not involve a third party and considers that the Canadian Heritage Music Library, although valuable from a cultural standpoint, is not directly related to the development of Canadian artists. In light of these concerns, and comments received by interveners associated with the music and artistic community including the Canadian Independent Record Production Association (CIRPA), Union des artistes, Société professionnelle des auteurs et des compositeurs du Québec (SPACQ) and Association québécoise de l'industrie du disque, du spectacle et de la vidéo (ADISQ), the Commission has decided to take the same approach with DMX as it has with other pay audio licensees and therefore is imposing a condition of licence requiring DMX to contribute each year a minimum of 4% of the gross annual revenues earned by its pay audio service to eligible third parties as defined above.

The Commission notes with concern that the applicant presented at the Public Hearing, several amendments to its application as originally filed. These amendments, in addition to the changes already noted above, related primarily to uplinking arrangements, distribution and terminal equipment technology, the number of channels to be offered and financial projections. One of the other applicants at the Hearing expressed the view that these changes were of sufficient magnitude to be considered an abuse of the public process and should not be accepted by the Commission.

The Commission's primary concern must always be with the integrity of the public process. Any significant change that makes it more difficult for the Commission to assess an application at a hearing and for the public and interested parties to examine and comment on applications in a timely fashion should be discouraged. The applicant is an experienced licensee. It should be well aware of the public policy reasons reflected in the Commission's Rules of Procedure (the Rules) and it should respect those Rules.

In considering whether to hear the amended application, the Commission took into consideration the argument put forward by the applicant that the pay audio applications before the Commission were not considered to be competitive under the Rules, as they were not mutually exclusive. Amendments to one application would therefore not jeopardize the licensing of any other.

It is clear that the Commission's Rules provide it with the discretion to accept amendments to applications upon terms it deems to be appropriate in the circumstances and that it considers will facilitate the public hearing process. It was the Commission's decision, therefore, that the public interest was best served by accepting the amendments in this particular case.

The Commission acknowledges and has considered all the interventions submitted regarding the application by DMX. It considers that the conditions imposed on the licensee in this decision have addressed the concerns expressed by several interveners.

In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled "Implementation of an Employment Equity Policy", the Commission announced that the employment equity practices of broadcasters would be subject to examination by the Commission. In this regard, the Commission encourages the licensee to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

Allan J. Darling
Secretary General

APPENDIX TO DECISION CRTC 95-911

Conditions of Licence

1. A minimum of 30% of the musical selections broadcast each week on Canadian-produced pay audio channels, considered together, must be Canadian.

2. A minimum of 25% of all Canadian-produced pay audio channels, other than those consisting entirely of instrumental music or of music entirely in languages other than English or French, must devote to musical selections in the French language, on a weekly basis, a minimum of 65% of the vocal music selections from category 2, as defined in the Radio Regulations, 1986.

3. A maximum of one non-Canadian pay audio channel may be packaged or linked with each Canadian-produced pay audio channel. In no case may subscribers of the pay audio service be offered a package of pay audio channels in which foreign-produced channels predominate. The licensee must provide the Commission, upon request, with a complete list of all non-Canadian pay audio channels distributed on its service.

4. The licensee shall contribute each year a minimum of 4% of the gross annual revenues earned by its pay audio service to eligible third parties associated with Canadian talent development. Such third parties are defined as FACTOR, MusicAction, national and provincial music organizations, performing arts groups, schools and scholarship recipients. The licensee shall report the names of the third parties associated with Canadian talent development, together with the amounts paid to each, on its annual return.

5. The licensee shall not broadcast commercial messages.

6. The licensee shall not broadcast spoken word programming, with the exception of identification of musical selections, promotion of the service and programming directed to children.

7. The licensee shall adhere to the provisions contained in sections 3 and 11 of the Radio Regulations, 1986, as amended from time to time by the Commission.

8. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) "Sex-Role Portrayal Code for Television and Radio Programming" as amended from time to time and approved by the Commission.

9. The licensee shall maintain sequential lists of all recordings played on each pay audio channel with designations for Canadian musical selections and for French-language vocal music. These lists shall be kept by the licensee for a minimum of four weeks and forwarded to the Commission upon request, along with a notarized attestation of the lists' accuracy.

10. The undertaking shall be in operation within 12 months of the date of this decision or, where the licensee applies to the Commission within this period and satisfies the Commission that it cannot complete the implementation before the expiry of this period and that an extension is in the public interest, within such further period of time as is approved in writing by the Commission.

11. The definitions of "Canadian, "commercial message", "spoken word", and "broadcast week" set out in section 2 of the Radio Regulations, 1986, as amended, and the definition of "Canadian musical selection" set out in subsection 2,2(2) of the said Regulations, as amended, shall apply to these conditions and the licensee with the necessary changes.

12. The licensee may not distribute any non-Canadian pay audio channel that includes commercial messages or that includes spoken word programming, with the exception of identification of musical selections, promotion of the service or programming directed to children.

Dissenting opinion of Yves Dupras, Regional Commissioner for Quebec

Pay Audio programming undertakings

I am opposed to licensing the services of DMX and Power Music Choice because control over programming on all channels is unsatisfactory and because these services do not make maximum use of Canadian resources.

I make a distinction between these services and the pay-per-view television service of Power DirecTicket because the nature of the pay-per-view service, does not require the same control over programming. In the case of Power DirecTicket, I believe that controlling the signal is sufficient. With a continuous-play digital music service, however, the situation is different; it can be received unscrambled at any time as long as customers pay their monthly subscription; subscribers have no choice but to accept the programming as packaged. In such cases, control must also extend to program packaging, as the service provided is the result of this packaging. Neither DMX nor Power Music Choice can control this aspect of the American channels they propose to carry.

I also oppose the solution adopted by the majority, that is, to issue licences only for the channels produced in Canada, while allowing DMX and Power Music Choice to act effectively as distribution undertakings for American channels (the "new linkage rule"). By seeking to avoid concerns relating to control, the majority is ignoring, in more than one respect, the requirements of paragraph 3(1)(f) of the Broadcasting Act (the Act), which stipulates that "each broadcasting undertaking shall make maximum use, and in no case less than predominant use, of Canadian creative and other resources in the creation and presentation of programming...".

With a Canadian content requirement of 30% (applicable only to channels produced in Canada), and a new linkage rule that excludes some channels from the Canadian content calculation, Power Music Choice, after proposing 60% Canadian content for its channels produced in Canada, can now reduce that level to 30% and could have an even lower percentage on its service as a whole. The same is true of DMX: it could decrease the Canadian content on its Canadian-produced channels
from 40% to 30%.

As for Galaxie and Allegro, because all their channels will be produced in Canada, the new linkage rule will require them to provide more Canadian content than their competitors unless Galaxie and Allegro go the same route and use non-Canadian channels which would be an unwelcome departure from the proposals presented to the Commission at the hearing.

In general, DMX and Power Music Choice do not make maximum use of Canadian resources, as the services proposed by Galaxie and Allegro clearly show. In view of the shortcomings of those two applications, I fail to see why the majority felt obligated to approve them, as two other services were proposed that would be produced entirely in Canada and would be more consistent with the objectives of the Act. Moreover, I feel the choice offered by Galaxie and Allegro would have amply satisfied the demand for such services.

Finally, the competitive model established by the granting of licences to all the applicants ignores the potentially negative consequences for Galaxie, which may, as a consequence, find itself unable to negotiate the distribution costs associated with its service; this situation would have been quite different if only Galaxie and Allegro had received licences. We need only recall that Galaxie is the service that makes the greatest use of Canadian resources.