ARCHIVED - Broadcasting Decision CRTC 2002-391

Broadcasting Decision CRTC 2002-391

Ottawa, 29 November 2002

Canadian Broadcasting Corporation
Across Canada

Application 2001-1332-4
Public Hearing in the National Capital Region
3 June 2002

Licence renewal for Galaxie

In this decision, the Commission renews the licence for the national pay audio programming undertaking operating as Galaxie until 31 August 2009. The condition of licence respecting Canadian content is amended to increase the minimum level of Canadian musical selections broadcast each week on the service's Canadian-produced pay audio channels from 30% to 35%.

1.

The Commission received an application by the Canadian Broadcasting Corporation (CBC) for the renewal of the national pay audio programming undertaking known as Galaxie, subject to the same terms and conditions as the current licence.

2.

The Commission received three interventions in relation to this application. One individual opposed the application on the basis that music should be free of charge and that people should not have to pay to listen to music. While the CKUA Radio Network (CKUA) supported Galaxie's renewal application, it raised concerns related to the impact of that service on community-based public broadcasters. L'Association québécoise de l'industrie du disque, du spectacle et de la vidéo (l'ADISQ) raised questions about the licensee's levels of Canadian content and French vocal music, its contributions to Canadian talent development, the joint marketing agreement it has with Max Trax (a national pay audio service operated by Max Trax Music Ltd.), and the Commission's linkage requirements, among other issues. Each of these issues is discussed further below.

3.

With respect to the intervention by CKUA, the Commission notes that CKUA made similar comments and specific recommendations in the context of the Commission's review of the policy framework for community-based media. The Commission recently published its new framework in Policy framework for community-based media, Broadcasting Public Notice CRTC 2002-61, 10 October 2002.

4.

The Commission has no concerns with respect to the licensee's compliance with its conditions of licence during the current licence term.

5.

Subject to the matters discussed in this decision, the Commission renews the broadcasting licence issued to the CBC for the national pay audio programming undertaking known as Galaxie from 1 December 2002 to 31 August 2009. The licence is subject to the conditions specified in the appendix to this decision and in the licence to be issued.

Background

8.

Galaxie was one of the four pay audio services that the Commission approved in 1995. It offers 30 channels of commercial-free music, produced entirely in Canada. Each of the channels is devoted to a specific type of music, including classical, jazz, folk, rock, etc. The service is carried by the two direct-to-home satellite providers and all of the major cable systems across Canada.

Canadian content

9.

Galaxie is currently required by condition of licence to ensure that a minimum of 30% of the musical selections broadcast each week on its Canadian-produced pay audio channels, considered together, are Canadian. It is also encouraged to meet the 38% level of Canadian content it proposed in its original application.

10.

In its application for renewal, Galaxie noted that it has exceeded this condition of licence with an average Canadian content level of 38%, as proposed to the Commission at the original licensing hearing.

11.

In its intervention, l'ADISQ recommended that the Commission harmonize the Canadian content levels of the pay audio services with the level now required in the Radio Regulations, 1986 (Radio Regulations). Specifically, it recommended that the Canadian content level be increased from 30% to 35% of musical selections broadcast each week and that Canadian content be measured across the entire service, rather than just the Canadian-produced channels.

12.

In reply, the CBC recommended that the Commission maintain the current Canadian content level. It noted that pay audio services are very different from radio stations since they have no spoken word programming, no advertising, and a much greater diversity of musical content. It argued that they should thus be subject to a different programming framework than conventional radio stations. The CBC also noted that the Radio Regulations permit lower Canadian content levels on specialty format or ethnic stations and that many of the channels offered as part of the Galaxie service would qualify for lower Canadian content levels under the regulations. The CBC stated that Galaxie has been able to exceed its minimum 30% requirement because certain channels have an abundance of Canadian content and that the flexibility provided by the Commission's current requirement is essential to permit Galaxie to maintain other genres where Canadian musical selections may not be as readily available.

13.

When the Commission established Canadian content levels for the pay audio services in 1995, it was guided by the Radio Regulations. At the time, the Radio Regulations required that radio stations ensure that at least 30% of popular musical selections and at least 10% of traditional and special interest musical selections aired each broadcast week were Canadian.

14.

The Commission issued its revised policy for commercial radio in Commercial Radio Policy 1998, Public Notice CRTC 1998-41, 30 April 1998. Among other matters, the Commission increased the Canadian content obligations of commercial radio stations from 30% to 35% of popular (category 2) ² musical selections. The Commission maintained the 10% minimum requirement for special interest (category 3) musical selections, but indicated that it would generally expect licensees operating in such formats to propose increases at renewal.

15.

The Commission's decision to increase the minimum requirement from 30% to 35% was based, in part, on the conclusion that there was an adequate supply of Canadian popular music recordings to support such an increase. The Commission also noted that the increase would expand the exposure given to Canadian artists and provide increased support to the Canadian music industry as a whole, thus contributing to the achievement of the cultural objectives of the Broadcasting Act.

16.

Consistent with its approach in its original licensing decisions for pay audio services, the Commission determines that it would be appropriate for similar Canadian content rules to apply to both radio and pay audio. Further, the Commission notes that Galaxie's Canadian content levels have exceeded 35% over the licence term. Accordingly, the Commission finds that it would be appropriate to increase Galaxie's minimum Canadian content requirement to 35% and has made this a condition of licence.

17.

The Commission further encourages the licensee to continue to maintain, at a minimum, the 38% level of Canadian content it had proposed in its original application.

18.

Although Galaxie currently provides only Canadian-produced channels, the condition of licence respecting Galaxie's Canadian content is nevertheless measured across the aggregate of Canadian-produced channels, as opposed to the entire service. This approach is consistent with the Commission's competitive approach to pay audio services, which applies the same policies to all pay audio services. The Commission addressed the mechanism for measuring Canadian content in Decision 96-479, in which it stated:

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.

19.

The Commission is satisfied that applying the condition of licence to Canadian-produced channels continues to be the most appropriate method for ensuring the availability of Canadian musical content on pay audio services, while still providing sufficient flexibility to pay audio services to provide a diverse array of musical genres and satisfy consumer demand.

20.

The Commission notes that measuring Canadian content across the aggregate of Canadian channels, rather than on each individual channel recognizes that there may be less Canadian content available in certain specialty genres.

French-language programming

21.

Galaxie is currently subject to the following condition of licence with respect to French-language music:

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.

22.

In its intervention, l'ADISQ asked the Commission to consider imposing a gradual increase in the requirement from 25% to 30% of all Canadian-produced channels.

23.

In reply, the CBC stated that the framework for pay audio services must remain flexible, in light of the realities of the environment in which such services operate. The CBC noted that an increase in its quotas would result in a decrease in programming choice.

24.

The Commission is satisfied that the current condition of licence is achieving the objective of ensuring the availability of French-language vocal music. Further, the intervener did not demonstrate that circumstances have changed sufficiently since the original licensing decision to warrant a modification of the current condition of licence. Accordingly, the Commission maintains the existing condition of licence.

Distribution of Canadian content and French-language vocal music

25.

In its intervention, l'ADISQ asked the Commission to undertake an analysis to determine the peak listening hours for pay audio services and then to impose obligations with respect to the scheduling of Canadian content and French-language vocal music selections during those periods. L'ADISQ stated that such an approach would be consistent with the Commission's approach to radio and would ensure that Canadian and French-language music selections would not be scheduled during non-peak listening hours.

26.

CBC stated that such an approach would not recognize the unique operating environment for pay audio services. It also stated that Galaxie had chosen to optimize the broadcast of Canadian and French-language vocal music and thus scheduled it equitably across the broadcast day, taking into account its listeners' habits and the six time zones across which the service operates.

27.

The Commission notes that the peak listening periods for pay audio services differ from those of over-the-air radio stations. For example, radio stations have peak listening periods between 7 to 9 a.m. and 4 to 6 p.m. Pay audio services do not have such evident peak periods. In fact, BBM reports that the heaviest tuning to the pay audio services is spread out between 9 a.m. and 5 p.m. In addition, interveners failed to provide evidence that there is any problem in the current scheduling of Canadian or French-language vocal music on Galaxie. As a result, the Commission finds that no additional obligations are required in this respect.

Canadian talent development

28.

Galaxie is currently required to contribute 4% of its gross annual revenues to third parties associated with Canadian talent development. Third parties are defined as FACTOR, MusicAction, national and provincial music organizations, performing arts groups, schools, and scholarship recipients.

29.

In its application, the CBC indicated that it has developed the "Galaxie Rising Stars Awards/Prix Étoiles" program, which it runs in partnership with a growing number of musical organizations across Canada. It stated that through these partnerships, the CBC has contributed more than $600,000 over the first licence term to the development of Canadian musical talent across the country. The program has two components: an operational grant/cash award for music events and a scholarship/bursary program. The awards program is run in partnership with a variety of Canadian music associations including the Atlantic Jazz Festival, Festival international de la chanson de Granby, FrancoFolies de Montréal, Pacific Music Industry Awards, and the Toronto Blues Society, among others. The bursaries are granted to emerging artists to help advance their careers.

30.

In its intervention, l'ADISQ called upon the Commission to increase the amount of Galaxie's contribution to Canadian talent development from 4% of gross revenues to 10%. L'ADISQ argued that the pay audio services have proven to be even more financially successful than had been expected at licensing, and that, with the rise of digital penetration, they should become even more financially successful, thus warranting an increase in their Canadian talent development contributions. L'ADISQ further recommended that the Commission require Galaxie, by condition of licence, to contribute half of its Canadian talent development contributions directly to FACTOR or MusicAction.

31.

The CBC replied that Galaxie's current contributions fully satisfy the Commission's Canadian talent development policies. It stated that its program complements the work of FACTOR and MusicAction, but that it has a broader vision and mandate. In terms of the level of contribution, the CBC stated that an increase would represent a form of double-taxation on Galaxie's success since the Copyright Board has already imposed royalties of 18% of its revenues. It also noted that the recording industry already benefits from its success since its contributions to Canadian talent development increase as its revenues increase.

32.

The Commission considers that the current 4% contribution to Canadian talent development is reasonable and appropriate in light of Galaxie's other contributions to the system and in comparison to conventional radio stations. The Commission notes that as the revenues of the service increase, so will its contributions to Canadian talent development. Accordingly, the existing condition of licence will be maintained.

Linkage of Canadian and non-Canadian produced channels

33.

In Public Notice 1995-218, the Commission noted that two of the applicants had proposed to distribute a number of channels produced in the United States as part of the package of channels offered to subscribers. Because the Canadian licensees would not control the assembly of program material on the non-Canadian channels, which is the programming function of a pay audio service, the Commission determined that an alternative licensing approach for pay audio services would be appropriate. Accordingly, the Commission decided to license pay audio services based only on the Canadian-produced channels. The Commission also decided to permit the pay audio services, by condition of licence, to package or link a maximum of one non-Canadian produced pay audio channel with each Canadian-produced channel. The Commission also imposed a condition of licence prohibiting pay audio services from offering subscribers a package of pay audio channels in which non-Canadian pay audio channels predominate.

34.

When the Commission confirmed this approach in Decision 96-479, it indicated that the ability to package Canadian with non-Canadian produced channels would likely contribute to the success of Canadian pay audio services:

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.

35.

As noted above, Galaxie currently provides only Canadian-produced channels, nevertheless, the same conditions apply.

36.

In its intervention, l'ADISQ called upon the Commission to reconsider its decision to allow pay audio services to link non-Canadian with Canadian-produced channels. L'ADISQ stated that this linkage rule prevents, or may discourage, other players from entering the pay audio market and that there is no reason that a Canadian company could not produce the foreign channels.

37.

With respect to the concerns raised by l'ADISQ, the Commission continues to regard

the 1:1 linkage rule as an important mechanism for ensuring the long-term success of Canadian pay audio services, and, more importantly, for guaranteeing a diverse array of musical genres for Canadian subscribers.

38.

The licensing framework applies uniformly to all pay audio services. The Commission therefore considers that new entrants could apply for a licence under the same terms and conditions at any time.

Joint Marketing Agreement with Max Trax

39.

During the course of the licence term, the CBC informed the Commission that it intended to enter into a Joint Marketing Agreement (the Agreement) with Corus Entertainment Inc. (Corus) regarding their respective pay audio services. Under the Agreement, approximately 20 channels from the Max Trax and Galaxie services are offered in a combined package to distributors. The combined 40-channel package is offered to distributors at a lower price than the cost of the two services individually. Corus is the appointed agent for the purpose of marketing the joint package to distributors (i.e. promotion, marketing, sales, billing and collection with respect to the joint package). Proceeds from the sales of the joint package are split equally. All incremental cash expenses are shared equally. Each licensee is responsible for executing an affiliation agreement with distributors with respect to their portion of the package, and each is directly liable to satisfy its obligations.

40.

A management committee composed of two representatives each of the CBC and Corus makes all major strategic decisions regarding the combined package operating plan, the channel line-up and any changes made to it, the pricing, and any incremental costs related to the promotion, marketing and sales of the package.

41.

Both licensees continue to be individually responsible for the programming of their channels, and must continue to meet their respective conditions of licence.

42.

Commission staff reviewed the Agreement and, in a letter dated 11 February 2000, advised the CBC that:

Accordingly, with its understanding of the term sheet for the proposed joint marketing agreement, the Commission's staff is of the view that both licensees will continue to exercise effective control of their pay digital audio undertakings following the implementation of the joint marketing agreement. The proposed arrangement, as presented, raises no concerns at this time.

43.

As part of the renewal process, the Commission asked the licensees whether the Agreement was still in place and whether it was still under the same terms and conditions noted by Commission staff in its letter dated 11 February 2000. The licensees responded that the Agreement has been extended until 1 February 2005 under the same terms and conditions.

44.

In its intervention, l'ADISQ asserted that this arrangement has resulted in a quasi-monopoly. It also stated that it has created a new service that is directly competitive with the existing pay audio services and that should have been the subject of a public licensing process. L'ADISQ recommended that the Commission require the licensees to cease offering the combined service and initiate a call for applications in accordance with the policies and procedures of the Commission for applications of this type. L'ADISQ suggested that such a call would permit the entrance in the market of new enterprises for greater competition, and an increase in channel offerings and programming diversity.

45.

In reply, Galaxie noted that the Commission was aware of this arrangement and had not required that a third licence be issued. Galaxie stated that each partner continues to satisfy its respective conditions of licence and that the combined package met the same conditions. It further noted that the services continue to operate in full competition outside of the Agreement and that Galaxie continues to maintain an important and distinct subscriber base.

46.

The Commission concludes that it is not necessary to require the licensees to cease their joint marketing effort and initiate a call for applications. Under the Agreement, each licensee exercises effective control of its pay audio undertaking. Pursuant to its licence, each licensee is responsible for the programming that it offers and for meeting its respective conditions of licence for its portion of the package. In addition, when the Max Trax and Galaxie services are offered together in a package, the licensees must collectively meet the conditions of their licences, in particular:

• that a minimum of 35% of the musical selections broadcast each week on the combined package of Canadian-produced channels, considered together, are Canadian;

• that a minimum of 25% of the combined package of 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; and

• that 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.

With respect to l'ADISQ's concerns about the entry of new players, the Commission notes that the licensing framework for pay audio services applies uniformly to all services. As noted above, new entrants could apply for a licence under the same terms and conditions at any time.

Number of channels available

47.

In its intervention, l'ADISQ raised concerns about the number of pay audio channels that are currently being made available. It stated that the current channel offering is below what was expected when the services were first licensed and noted that neither applicant appears to be contemplating the addition of any channels. L'ADISQ suggested that the way to expand the number of channels would be through the licensing of another service. However, it suggested that a new entrant would have little chance of success due to the quasi-monopolistic market that currently exists and the CRTC's rules, which discourage the entry of new players in the pay audio market.

48.

The CBC replied that a greater number of service providers would not necessarily result in a greater number of channels. It stated that to remain competitive and attractive to subscribers, a pay audio service needs to offer at least 20 popular formats and that this is the reason the two services offer a combined package to distributors, in order to satisfy their needs and to save on technical capacity.

49.

The Commission reiterates that interested parties may file an application for a pay audio service at any time. As a result, the Commission finds it unnecessary to issue a call for new applications.

Secretary General

Appendix to Broadcasting Decision CRTC 2002-391

Conditions of Licence for Galaxie

1.

A minimum of 35% 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 Revised CBC Guidelines on Sex-Role Portrayal, dated 12 August 1991, 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 definitions of "Canadian", "commercial message", and "broadcast week" set out in section 2 of the Radio Regulations, 1986, as may be amended from time to time (Radio Regulations), the definition of "spoken word" set out in Revised content categories and subcategories for radio, Public Notice CRTC 2000-14, 28 January 2000, as may be amended from time to time, and the definition of "Canadian musical selection" set out in subsection 2.2(2) of the Radio Regulations shall apply to these conditions and the licensee with the necessary changes.

11.

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.

12.

a) The licensee shall file with the Commission, by 30 June of each year, in a format consistent with previous years, its unaudited financial statements for the preceding fiscal year. The licensee shall also report the total incremental revenues and total incremental costs incurred by Galaxie within the notes to the audited financial statements of the CBC at the end of each fiscal period.

b) The licensee shall file, by 30 November of each year, in a format consistent with previous years, unaudited financial statements for the twelve-month period ending the preceding 31 August. CBC management shall certify that these financial statements have been reviewed in accordance with section 8200 of the Canadian Institute of Chartered Accountants handbook.