ARCHIVED -  Decision CRTC 96-479

Decision

Ottawa, 23 August 1996

Decision CRTC 96-479

DMX Canada (1995) Ltd.

Across Canada - 950213900

Peter Kruyt, on behalf of a company to be incorporated
Across Canada - 951871300

Canadian Satellite Communications Inc., Westcom Radio Group Ltd., and Pelmorex Radio Inc., partners in a Partnership to be known as CWP Partnership
Across Canada - 951859800

The Canadian Broadcasting Corporation
Across Canada - 951860600

Reconsideration of Decisions CRTC 95-911, 95-912, 95-913 and 95-914 concerning applications for new Pay Audio Programming Undertakings.

Further to the public process described in Public Notice CRTC 1996-48 dated 29 March 1996, the Commission has reconsidered and heard the matters set out in Order in Council P.C. 1996-356 dated 19 March 1996 (the Order). Upon reconsideration of these matters pursuant to section 28 of the Broadcasting Act, and for the reasons set out herein, the Commission, by majority vote, confirms Decisions CRTC 95-911, 95-912, 95-913 and 95-914 dated 20 December 1995.

I Background

a) The 1995 Licensing Decisions

In its 20 December 1995 decisions, a majority of the Commission approved the applications of DMX Canada (1995) Ltd. (DMX); Peter Kruyt (OBCI) (Kruyt/Power); CWP Partnership (CWP/Allegro); and, the Canadian Broadcasting Corporation - (CBC/Galaxie) for broadcasting licences to carry on new pay audio programming undertakings. In each case, the Commission granted a licence term of seven years.

Two of the applicants, CWP/Allegro and CBC/Galaxie, proposed pay audio services consisting entirely of channels produced in Canada. The other two applicants, DMX and Kruyt/Power, proposed a mix of Canadian and foreign-produced channels. All of the applicants made commitments that a minimum of 30% of the musical selections on their Canadian-produced pay audio channels, taken together, would be Canadian.

In arriving at its decisions, the Commission noted that those applicants proposing to include foreign-produced channels in their pay audio services would not be able to control the assemblage of the program material on those channels and, hence, a majority of the Commission considered that an alternative licensing approach was appropriate. The Commission determined that it would license only the Canadian-produced pay audio channels. However, in order to ensure fair competition and a predominance of Canadian-produced channels, all four licensees were given the opportunity to link not more than one foreign-produced channel to each Canadian-produced channel as long as no subscriber was offered a package in which non-Canadian channels would predominate.

With respect to Canadian content requirements, and the provision of services in the French language, each pay audio licence was made subject to the following conditions:

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.

In the licensing decisions, the Commission encouraged the licensees to meet, or exceed, the higher amounts of Canadian content on Canadian-produced channels proposed in their applications.

b) The Order

Following publication of the pay audio licensing decisions, two petitions were filed requesting the Governor in Council to set aside Decision CRTC 95-911 (DMX) and Decision CRTC 95-912 (Kruyt/Power). The petitioners included the major associations representing the English- and French-language music industries in Canada. In general, the petitioners argued that the decisions failed to ensure that the licensees would make maximum use of Canadian creative resources and that, in the words of one of the petitioners, the linkage provision, in particular, was a "deviation from broadcasting policy."

In the Order, the Governor in Council referred all four pay audio decisions back to the Commission for reconsideration and hearing. The Order states that, although the petitions related only to Decisions CRTC 95-911 and 95-912, the Governor in Council is satisfied that all four decisions "derogate from the attainment of the objectives of the broadcasting policy set out in subsection 3(1) of the Broadcasting Act, and, in particular, paragraph 3(1)(f)".

The Order states that:

The  Governor in Council is of the opinion that it is material to the reconsideration and hearing that the Commission fully assess the availability of Canadian recorded music in the formats utilized in digital audio services and examine:

(a)  if the pay audio programming undertakings should make greater use of Canadian music content to conform with levels similar to those required of over-the-air radio broadcasting; and

(b)  if the requirements for Canadian content and music selections in the French language should be based on the total number of channels distributed instead of on the number of Canadian-produced pay audio channels.

II The Reconsideration Process

In Public Notice CRTC 1996-48, the Commission set out a three-phase public process in order to respond to the Order. In the first phase, the four licensees were invited to submit comments on the matters raised in the Order and, if necessary, propose amendments to their original applications. In phase two, interested parties were invited to submit written comments on the matters set out in the Order and on the comments filed by licensees. Finally, the licensees were given an opportunity to reply to the comments of interested parties.

In the first phase, the Commission received comments from three of the four licensees, DMX; CWP/Allegro; and, CBC/Galaxie. DMX noted that pay audio is a highly discretionary, niche market service and that a strict application of rules designed for mass market, over-the-air radio services would be inappropriate. DMX stated that, if the Commission were to modify the conditions imposed on its service, "...we would have no alternative other than cancelling our project."

Both CWP/Allegro and CBC/Galaxie noted that their proposals did not include the provision of foreign-produced pay audio channels. Hence, the Commission's linkage requirement was irrelevant and they would support the deletion of their condition of licence #3 relating to linkage, as long as it was deleted from the licence of all other pay audio licensees. In addition, CBC/Galaxie requested that the Commission amend condition of licence #10 so that licensees would be required to implement their respective services within twelve months of the conclusion of the reconsideration process rather than within twelve months of the date of the original licensing decisions.

In the second phase, the Commission received six submissions: two from the cable industry; two from the English-language recording industry; and, two representing the French-language recording industry and artists.

In general, the English- and French-language music industries argued that the linkage provision in the pay audio licences is in violation of the Broadcasting Act; that there is sufficient Canadian music available to support an all-Canadian service; and that, if foreign pay audio channels are to be permitted, they should be subject to Canadian content requirements. As an alternative, Association québécoise de l'industrie du disque, du spectacle et de la vidéo (ADISQ) proposed a linkage regime based on a list of authorized foreign channels, similar to the approach taken with pay and specialty television services.

The Canadian Cable Television Association (CCTA), representing the cable industry, argued that pay audio is a highly discretionary programming service and will have minimal penetration, and therefore should not be subject to the same requirements as conventional radio. The CCTA also made the point that the Commission has historically tailored the Canadian content requirements of discretionary services according to their level of discretion.

In the reply phase, DMX, CWP/Allegro and CBC/Galaxie corrected what they considered to be errors of fact, or argument, in certain of the submissions. In this final phase, Kruyt/Power filed a comment in which it committed to maintain, as originally proposed, a minimum of 30% Canadian content over the combination of its foreign and Canadian-produced channels. Kruyt/Power also indicated that it would accept its licence even if the Commission modified its approach to linkage.

III The Commission's Determination

The Order asked the Commission to "fully assess the availability of Canadian recorded music in the formats utilized in digital audio services..." and to examine two specific
questions with respect to requirements for Canadian and French-language musical content.

With respect to the concern about the availability of suitable Canadian music, the Commission notes that this issue did not arise at the 14 November 1995 public hearing. None of the applicants argued that there was insufficient Canadian material available to meet the Canadian content requirements generally applied to conventional radio. The fact that two applicants proposed a business plan based upon Canadian-produced channels suggests that the availability of Canadian music, at least in relatively popular categories, is not a significant problem, and that the two licensees who proposed to include foreign-produced channels in their pay audio service may have done so primarily for marketing reasons.

In the Commission's view, while sufficient Canadian music is available for a variety of channels in relatively common formats, the appeal of a pay audio service is likely to be related to its ability to provide a great variety of diverse formats directed to niche audiences. Channels devoted to relatively esoteric categories of music would have limited access to Canadian selections and may find it difficult to meet Canadian content requirements. As Canadian pay audio services grow and develop, access to more esoteric, foreign-produced, channels may be the most effective means of satisfying consumer demand for increased diversity.

The first of the specific questions asked by the Governor in Council is whether pay audio programming undertakings "...should make greater use of Canadian music content to conform with levels similar to those required of over-the-air radio broadcasting".

The Commission notes that conventional Canadian radio licensees are required by regulation to devote 30% or more of their popular music selections (Category 2) to Canadian selections. For traditional and special interest music (Category 3), such as classical or jazz, the minimum Canadian content requirement is 10%. Stations that program largely instrumental music from Category 2 have Canadian content requirements ranging from 15% to 20%. Finally, the Canadian content requirement during ethnic programming periods is 7%.

In its submission to the reconsideration process, the Canadian Recording Industry Association (CRIA) argued that the Canadian content requirements for conventional radio should be applied to each pay audio channel offered, rather than to the channels taken as a whole. The Commission notes, however, that its approach of requiring a minimum average of 30% Canadian content for channels as a group actually results in a higher level of Canadian musical selections overall than if existing Canadian content requirements were applied to the Canadian-produced channels on a channel-by-channel basis.

As an example, CBC/Galaxie is currently required to provide 30% Canadian content over all of its 30 pay audio channels. However, only 18 of those channels are devoted to popular music requiring the 30% level. The other 12 special interest channels would only have been required to program a minimum of 10% Canadian content under existing Commission policies for radio. Therefore, if Canadian content requirements were applied on a channel-specific basis, as proposed by CRIA, CBC/Galaxie would only be required to program 22% Canadian content over all 30 channels. A similar channel-specific approach with the other licensees would result in CWP/Allegro being required to provide 26%, Kruyt/Power 27%, and DMX 30% Canadian content over all Canadian-produced channels.

The Commission has examined the type of music and proposed Canadian content levels of each Canadian-produced pay audio channel proposed by the four licensees. The Commission is satisfied that the licensees have proposed levels of Canadian content that are entirely consistent with and, even exceed the requirements for over-the-air radio broadcasting.

The second question asked by the Governor in Council was whether the requirements for Canadian content and music selections in the French-language "...should be based on the total number of channels distributed instead of on the number of Canadian-produced pay audio channels".

In Public Notice CRTC 1995-218, which introduced the pay audio licensing decisions, the Commission noted that the assemblage of the program material on non-Canadian pay audio channels would not be controlled by the Canadian licensees. Such assemblage, or packaging, is the primary function of pay audio services and is the major mechanism through which the licensee can ensure that its programming fulfils the programming requirements imposed by the Commission. It was for this reason that the Commission chose to license the applicants based on the Canadian-produced channels only and to permit all pay audio licensees to link a maximum of one non-Canadian produced channel with each Canadian-produced channel.

Licensees are required, by condition of licence, to ensure that, in no case, may subscribers to a pay audio service be offered a package of channels in which non-Canadian pay audio channels predominate. In the Commission's view, given the specialized content and format of pay audio services, this approach meets the policy objectives set out in paragraph 3 (1) (e) of the Broadcasting Act which requires that "each element of the Canadian broadcasting system shall contribute in an appropriate manner to the creation and presentation of Canadian programming"; and 3 (1)(f), which requires 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, unless the nature of the service provided by the undertaking, such as specialized content or format or the use of languages other than French and English, renders that use impracticable, in which case the undertaking shall make the greatest practicable use of those resources."

The Commission notes that, if Canadian and French-language content requirements were applied to a complete pay audio service, including both foreign and Canadian-produced channels, the result is likely to be unrealistically high levels of Canadian music on the Canadian-produced channels. For instance, in order to meet a 30% Canadian content requirement over all channels, a pay audio service consisting of 15 Canadian-produced channels and 15 foreign channels would have to ensure that almost 60% of the music on the Canadian-produced channels was Canadian. While such levels of Canadian music may be sustainable for a pay audio service with a relatively modest number of channels, the Commission is concerned that, as the number of channels increases, the result of such an approach may be an unacceptably high rotation of popular Canadian music that could drive listeners away from Canadian-produced pay audio channels.

Some of those who commented, notably ADISQ, proposed that the Commission maintain a linkage regime for pay audio services based upon an authorized list of foreign channels, similar to the list of foreign specialty and pay television programming services. The Commission notes that its policy regarding the carriage by cable distribution undertakings of non-Canadian programming services is dependent on whether these services are either totally or partially competitive with Canadian specialty or pay television services. In the Commission's view, the regulatory process involved in determining which foreign pay audio channels might be competitive with Canadian-produced channels, would be difficult and burdensome to all concerned.

Finally, the Commission considers that the linkage approach provides all pay audio undertakings with the opportunity to respond to consumer demand for a greater diversity of channels. It is quite possible that the long-term success of pay audio will be tied to its ability to offer consumers hundreds, rather than dozens, of options. The Commission's linkage approach permits such an expansion, while maintaining equality between the number of Canadian-produced and foreign-produced channels, and allowing for a preponderance of Canadian-produced channels.

In conclusion, following its reconsideration of the subject decisions and of the submissions by interested parties pursuant to the public process announced in Public Notice CRTC 1996-48, the Commission, by majority vote, confirms its Decisions CRTC 95-911, 95-912, 95-913 and 95-914.

With regard to the request by CBC/Galaxie that condition of licence # 10 relating to the implementation date of the pay audio services be amended, the Commission notes that pursuant to its condition of licence, the licensee may apply for an extension where it satisfies the Commission that it cannot complete the implementation before the expiry of the period given. Accordingly, the Commission, does not consider an amendment to CBC/Galaxie's condition of licence #10 to be necessary at this time.

Allan J. Darling
Secretary General

Dissent of Commissioner Andrée Wylie

I cannot agree with the decision of the majority of the Commission to confirm Decisions CRTC 95-911, 95-912, 95-913 and 95-914 without change, variation or alteration following the reconsideration process initiated by Order in Council 1996-356.

The parties licensed by those Decisions filed applications in which the level of Canadian content proposed, calculated as a percentage of the musical selections broadcast each week on all the pay audio channels of their respective service, was as follows:

DMX: at least 17% of the musical selections played on the service each week by the third year of operation.

Kruyt/Power: at least 30% of the musical selections played on the service each week.

CWP/Allegro: at least 30% of the musical selections played on the service each week.

CBC/Galaxie: at least 38% of the musical selections played on the service each week

No evidence was presented to the Commission at the licensing hearing (or for that matter during the reconsideration process) that Kruyt/Power, CWP/Allegro or CBC/Galaxie could not, now or as their respective pay audio service develops, meet the level of Canadian content proposed by each. A majority of the Commission nevertheless imposed on all four pay audio licensees conditions of licence which, by requiring in condition of licence number 1 the calculation of Canadian content as a percentage of the musical selections broadcast each week on Canadian-produced pay audio channels only, effectively authorized a lowering of the minimum level of Canadian content required to be broadcast on each service to 15% of the musical selections broadcast each week.

The Governor in Council has the power, pursuant to subsection 28(4) of the Broadcasting Act, to set aside all four Decisions confirmed by the Commission if it is satisfied that they derogate from the attainment of the objectives of the broadcasting policy set out in paragraphs 3(1) (e) and (f). I am concerned with the possible consequence of the decision of the majority which, by confirming all four Decisions without variation, puts at risk the licences issued to Kruyt/Power, CWP/Allegro and CBC/Galaxie, despite the continued commitment of these licensees to honour their original proposal with respect to Canadian content. Such proposal is, in my view, generally in keeping with the requirements of paragraphs 3(1) (e) and (f) of the Broadcasting Act for all four services, given the number of channels actually proposed for the foreseeable future in each of the four applications before the Commission.

In these special circumstances and for all the reasons given, following the reconsideration I would have confirmed Decisions CRTC 95-911, 95-912, 95-913 and 95-914, with a variation in condition of licence number 1 in each Decision as follows, so that the percentage of Canadian content is calculated as a percentage of the musical selections broadcast each week on all the pay audio channels of each service:

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

Dissent of Commissioner Yves Dupras

I am opposed to the Commission's majority decision confirming the right of digital pay audio services to use music channels not produced in Canada, without regard to the content of those channels.

In particular, I cannot agree with the approach taken by the majority to allow the use of non-Canadian channels in relatively common formats in which the Commission has stated that there is sufficient Canadian music available to program a variety of channels. I could have accepted the use of non-Canadian channels in relatively esoteric formats for which Canadian music is either limited or non-existent, to allow for even greater diversification of the services.

Concerning the percentage requirement for Canadian content in music, taking into account the findings of the Commission, the proposals by three of the four applicants, and subject to the preceding remarks, I would have favoured setting a minimum requirement of 30% for all pay audio channels, considered together.

As for the percentage requirement for French-language content, I would have favoured setting a minimum requirement of 25% for all pay audio channels, other than those offering entirely instrumental music, music entirely in languages other than English or French, or those that offer music in relatively esoteric formats for which Canadian music is either limited or non-existent. As mentioned above, such channels could be non-Canadian.

Finally, it is important to recall that the business plans of two of the four applicants were entirely predicated on the use of channels assembled in Canada.