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Broadcasting Decision CRTC 2023-183

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Reference: Part 1 application posted on 6 October 2022

Ottawa, 20 June 2023

Sirius XM Canada Inc.
Across Canada

Public record: 2022-0328-0

Regulatory relief regarding the payment of Canadian content development contribution shortfalls for the 2020-2021 broadcast year due to the impact of the COVID-19 pandemic

Summary

The Commission denies an application by Sirius XM Canada Inc. for regulatory relief regarding the payment of Canadian content development shortfalls for the 2020-2021 broadcast year due to the impact of the COVID-19 pandemic on the operation of its services.

Background

  1. On 13 July 2020, the Canadian Association of Broadcasters (CAB) filed an application in which it requested immediate regulatory relief relating to expenditure and exhibition requirements for Canadian programming in regard to the 2019-2020 broadcast year for Canadian private broadcasters due to the COVID-19 pandemic. The CAB represents the vast majority of private Canadian programming services, including radio and television stations, as well as pay audio, discretionary and on-demand services.
  2. In light of the issues raised and the number of stakeholders that could be affected by the requested relief, the Commission called for comments on the CAB’s application in Broadcasting Notice of Consultation 2020-336. In that notice, the Commission also sought comments on its proposed approach whereby licensees would have more time to fulfill their expenditure requirements. Specifically, it stated that financial requirements could be spread over several broadcast years to ensure that broadcasters have the flexibility they need, while ensuring that the broadcasting system continued to benefit from broadcasters’ financial contributions as Canada’s creative industries ramped back up to full capacity. The notice stated that any potential regulatory relief had to meet the following four expected outcomes:
    • the viability of the Canadian broadcasting sector, insofar as it has been affected by the pandemic, is not further harmed as a result of the regulatory relief proposed;
    • parties that currently benefit from the requirements imposed by the Commission on broadcasters are not unreasonably affected by any potential regulatory relief;
    • when viewed as a whole, current news and information programming and the service such programming provides to Canadians is maintained; and
    • any resulting regulatory action granting potential relief is minimally administratively burdensome on those entities seeking relief but is easily monitored and supervised by the Commission in order to ensure appropriate accountability.
  3. In Broadcasting Decision 2021-274, the Commission denied the CAB’s application since it failed to meet the second and fourth expected outcomes. Instead, the Commission considered that the extended payment approach it proposed in that same decision met all four expected outcomes. To this effect, the Commission granted radio and television broadcasters additional time to pay various expenditure and contribution shortfalls incurred in the 2019-2020 broadcast year over several broadcast years. Specifically,
    • radio licensees were allowed to pay 50% of their incurred Canadian content development (CCD) contribution (including tangible benefits) shortfalls for the 2019-2020 broadcast year by 31 August 2022 and the remaining 50% by 31 August 2023 (the 50-50% formula);
    • television licensees of large ownership groups and licensees of independent services were allowed to pay their Canadian programming expenditure (CPE) shortfalls by 31 August 2023 and 31 August 2024, respectively. They were not given any flexibility in regard to the payment of tangible benefits as only a limited number of broadcasters are currently required to pay tangible benefits; and
    • beginning in the 2020-2021 broadcast year, television licensees were allowed to avail themselves of 10% flexibility in regard to CPE and programs of national interest under-expenditures until the end of their respective payment period, with the exception of the last year. However, the flexibility relating to under-expenditures on locally reflective news was maintained at 5%.
  4. In Broadcasting Decision 2022-221, the Commission denied an application by Stingray Group Inc. (Stingray) for regulatory relief regarding the payment of tangible benefits for the 2019-2020 and 2020-2021 broadcast years, also citing the impact of the pandemic on the operation of its television and radio services. Stingray is the licensee of a national pay audio programming undertaking, national discretionary services, two over-the-air television stations and numerous radio stations. Among other things, the Commission found that the regulatory relief was not warranted, as Stingray had the financial capacity to fulfill its tangible benefits CCD contributions without any additional delay. The Commission further found that approval of the relief sought by Stingray would compromise the stability and predictability of funding for the various funds and their beneficiaries.

Application

  1. Sirius XM Canada Inc. (SiriusXM), which operates the national satellite subscription radio undertakings Sirius Canada and XM Canada, filed an application to amend condition of licence 14 set out in Broadcasting Decision 2019-431 in order to obtain relief related to its CCD contributions for the 2020-2021 broadcast year due to the impact of the COVID-19 pandemic. Condition of licence 14 reads as follows:  

    1. (a) During each broadcast year, the licensee shall contribute at least 4% of gross revenues from its satellite subscription radio undertakings reported in its annual returns for the previous broadcast year to eligible initiatives for the development of Canadian content development (CCD).

      (b) During each broadcast year of the licence term, the licensee shall allocate its contribution under (a) above as follows:

      • at least 22% to FACTOR;
      • at least 12% to MUSICACTION; 
      • at least 6% to the Community Radio Fund of Canada; and
      • the remainder to other eligible initiatives (discretionary contribution).

      (c) No more than 5% of the discretionary contribution during any broadcast year shall be devoted to expenses and salaries for CCD coordination Staff (i.e., the Ambassador/l’Ambassadeur pour la musique canadienne). For the purposes of this condition of licence, only salaries for employees whose sole focus is on CCD activities are eligible to be claimed. An employee must spend at least 95% of their time on CCD activities to be considered as having a sole focus on CCD.

      (d) At least 45% of the licensee’s discretionary contribution shall be allocated to initiatives for the development of Canadian French-language content, and no less than 45% shall be allocated to initiatives for the development of Canadian English-language content.

      (e) To be considered an eligible CCD expense, any promotional spending for initiatives operated by third-parties shall be done by the third-party itself. For initiatives operated by the licensee directly, promotional spending shall be capped at 30% of the total budget for that initiative. Further, a minimum of 20% of the total amount spent on any initiatives operated by the licensee shall be paid directly to Canadian artists in the form of performance fees.

      (f) In the annual return that the licensee is required to submit to the Commission by 30 November for the broadcast year ending the previous 31 August, the licensee shall provide the Commission with proof that any artist recordings made with CCD funding have been provided directly to the artist(s). For the purposes of this condition, a signed document or an email from the artist confirming receipt of the recording will generally be considered sufficient proof of receipt.

      (g) For any third-parties with which the licensee has an existing commercial relationship, the licensee shall provide additional documentation to support the eligibility of costs claimed as CCD expenditures. This documentation must include, but is not limited to, all invoices paid by and contracts entered into by the third party to organize and operate the CCD initiative and copies of all contracts between the licensee and the third party.

      For the purposes of this condition of licence, “eligible initiatives” shall have the meaning set out in section 15(1) of the Radio Regulations, 1986.

  2. Specifically, SiriusXM proposed to pay CCD shortfalls incurred in the 2020-2021 broadcast year by paying 50% of the shortfall within the 2023-2024 broadcast year (by 31 August 2024) and the other 50% of the shortfall within the 2024-2025 broadcast year (by 31 August 2025). The CCD shortfalls directly impact contributions to FACTOR, Musicaction and discretionary initiativesFootnote 1 but not to the Community Radio Fund of Canada (CRFC), given that SiriusXM has paid its contributions to this fund for broadcast year 2020-2021.

Interventions

  1. The Commission received opposing interventions from Fondation Musicaction (Musicaction), the Canadian Independent Music Association (CIMA), and Association québécoise de l’industrie du disque, du spectacle et de la vidéo (ADISQ), to which the applicant replied. The concerns of the interveners are discussed in the relevant sections of this decision.

Regulatory framework

  1. Paragraph 3(1)(e) of the Broadcasting Act declares that each element of the Canadian broadcasting system shall contribute in an appropriate manner to the creation and presentation of Canadian programming. Subparagraph 3(1)(s)(i) of the old Broadcasting Act also declared that private networks and programming undertakings should, to an extent consistent with the financial and other resources available to them, contribute significantly to the creation and presentation of Canadian programming.
  2. On 27 April 2023, the Online Streaming Act which made a certain number of amendments to the Broadcasting Act came into force. Prior to that date, pursuant to the authority granted by subsection 9(1) of the previous version of the Broadcasting Act and consistent with paragraph 3(1)(e) and subparagraph 3(1)(s)(i) of that Broadcasting Act, the Commission had imposed conditions of licence requiring programming undertakings to contribute in various ways to the creation of Canadian programming, including imposing CCD contribution requirements.
  3. Under the new Broadcasting Act, section 11.1 authorizes the Commission to make regulations or orders respecting expenditures supporting Canadian creators and the production and promotion of Canadian audio programs.  Subsection 50(2) of the Online Streaming Act further stipulates that any condition of licence respecting such expenditures made under the old Broadcasting Act is deemed to be an order made under subsection 11.1(2) of the new Broadcasting Act. As such SiriusXM’s condition of licence regarding CCD contributions continues to apply and is now deemed to be an order imposed pursuant to subsection 11.1(2) of the new Broadcasting Act.

The Commission’s approach to examining SiriusXM’s application

  1. After examining SiriusXM’s application in light of applicable policies and regulations, the Commission considers that it must address the following issues:
    • whether SiriusXM has demonstrated a financial need for the relief it seeks;
    • the impact that approval of the proposal would have on the funds and their beneficiaries as well as the beneficiaries of SiriusXM’s discretionary CCD contributions;
    • the impact on the integrity of the CCD policy and on fairness to other broadcasters; and
    • SiriusXM’s record of compliance with CCD obligations.  

Financial need

  1. SiriusXM stated that the COVID-19 pandemic had a profound impact on many of the CCD initiatives that it had planned for the 2020-2021 broadcast year. Due to the pandemic, live events were cancelled, postponed, scaled down in size, or switched to virtual events. In many cases, this resulted in lower budgetary requirements, which made the full payment of CCD contributions difficult.
  2. SiriusXM submitted that as a licensee of a subscription-based satellite radio service, the majority of its revenues are derived from subscriber fees. SiriusXM’s subscriber-based business model is directly affected by diminishing new and used vehicle sales as it bases much of its revenues on offering a limited-time free subscribership to new car buyers. Disruptions in the global supply chain for semiconductors used in cars have created car inventory shortages, which limit new subscribers for the foreseeable future.
  3. SiriusXM further argued that the economic challenges facing the new vehicle industry foreshadow a diminished number of subscribers and reduced revenue in the coming years. SiriusXM submitted that this is especially true in light of persistently high inflation and a wholesale shift toward remote work that has resulted in fewer people spending time in their vehicles, with a subsequent decrease in the use of SiriusXM’s services.
  4. SiriusXM stated that this uncertainty and the expected adverse impact the pandemic has had on its operations have forced it to take a cautious approach to its non-discretionary CCD contributions, namely its contributions to the independent funds such as FACTOR and Musicaction, that resulted in a shortfall in its non-discretionary CCD contributions the 2020-2021 broadcast year.
Interventions
  1. ADISQ addressed SiriusXM’s argument that the pandemic has made it difficult to spend all the funds that it had allocated to discretionary CCD initiatives. It noted that contributions to funds such as FACTOR or Musicaction also qualify as discretionary initiatives and any outstanding contributions could have been allocated to them. ADISQ argued that those funds have advanced knowledge of their clients’ needs and therefore have all the necessary expertise to administer funds effectively.
  2. ADISQ further submitted that by Spring 2022, cultural events such as live concerts and music festivals had largely recovered in full.
SiriusXM’s reply
  1. SiriusXM maintained that it has provided substantial justification for the need to defer CCD contributions since it is facing risks to its revenue stream due to declines in new vehicle sales, and it has been compliant with its obligations towards tangible benefits contributions throughout recent years.
  2. SiriusXM also reiterated its arguments related to the challenges facing the new vehicle industry and the shift to remote work, which could lead to a decrease in the use of SiriusXM’s services.
  3. It also noted that other audio-based services, like commercial radio stations, experienced immediate advertising revenue declines after the start of the pandemic, then began to recover more quickly as advertising revenue rebounded, which contrasts with its particular situation.
Commission’s analysis
  1. The Commission acknowledges that the COVID-19 pandemic had an impact on many live events which were cancelled, postponed, scaled down in size, or switched to virtual events.
  2. However, as stated by ADISQ, cultural events such as in-person live music concerts and music festivals had largely recovered by Spring 2022. As well, assuming that SiriusXM was not able to find any suitable beneficiaries for its discretionary CCD contributions, it could have allocated those contributions to independent funds such as FACTOR, Musicaction, and the CRFC instead of withholding them.
  3. The Commission also recognizes that SiriusXM’s predominantly subscription-based business model differs from the advertising-based model of traditional radio broadcasters and may be affected differently by various factors, such as COVID-19. However, the Commission is not convinced that these differences have impacted its revenues in the way that SiriusXM suggests. The Commission notes that total revenues for the commercial radio industry declined by 26.2% between the 2018-2019 and 2020-2021 broadcast years, and Profit Before Interest and Taxes (PBIT) margin decreased by 11.7 percentage points.Footnote 2  SiriusXM, on the other hand, has enjoyed more stability in revenue and, consequently, has not seen similar declines in profitability. As such, the Commission is of the view that, while SiriusXM’s business model has been impacted differently than that of commercial radio in the years in question, SiriusXM was unable to demonstrate that this impact was more severe than that of the commercial radio industry.
  4. SiriusXM submitted that the pandemic led to a shortage of semiconductors, which decreased new vehicle sales. However, the Commission notes that this impact was predominantly felt between March and May of 2020. Since then, the industry has largely recovered to the seasonal trending present prior to the pandemic, albeit with a marginally diminished spring sales peak.Footnote 3
  5. SiriusXM further argued that an increase in people working at home would have an impact on its subscribership. According to Statistics Canada, 22.3% of the labour force was working from home in December 2021, slightly more than half of the proportion at the peak of the pandemic in April 2020, which was at 40.5%. While 22.3% is still significantly higher than what the proportion was prior to the pandemic,Footnote 4 the evidence suggests that the proportion of the labour force working from home is gradually shrinking, which serves to dispel the threat of a widespread shift to working from home.
  6. In light of the above and the overall financial health of the service, the Commission finds SiriusXM has not demonstrated that it has a financial need that would warrant a deferment of its CCD contributions for the 2021-2022 broadcast year.
Impact on the CCD Funds and their beneficiaries as well as the beneficiaries of SiriuxXM’s discretionary CCD contributions
  1. SiriusXM argued that approving its application would have a stabilizing effect on CCD funding for the next four years, especially for contributions to discretionary CCD initiatives. SiriusXM argued that a spike in CCD funding would occur as a result of Broadcasting Decision 2021-274, which allowed Canadian radio licensees until 31 August 2023 to pay the final half of CCD shortfalls that were originally due by 31 August 2020. It considered that approving its application would allow for additional CCD funding when the negative effects of the pandemic would be further removed and financial planning for organizations would be more straightforward.
  2. In SiriusXM’s view, approving its application would allow for a consistent overspend on CCD during each of the next four broadcast years. This would ensure optimal deployment of CCD funds to the best initiatives and would result in CCD contributions being directed towards a sustained post-pandemic recovery.
  3. SiriusXM argued that FACTOR and Musicaction have significant undeployed funds. It stated that according to its 2020-2021 financial reports, FACTOR holds $55.6 million in investment assets, a year-over-year increase of more than $7 million, and Musicaction has $6.51 million in investment assets, which represents an increase of approximately 50% from the previous year. According to SiriusXM, withholding a percentage of its CCD contributions would not materially affect those funds or the artists they are mandated to support. SiriusXM submitted that paying 70% of its CCD contributions due to FACTOR and Musicaction for the 2020-2021 broadcast year would be sufficient.
  4. Finally, SiriusXM argued that its application meets the four expected outcomes set out in Broadcasting Notice of Consultation 2020-336 since all the CCD payments would be repaid at a more opportune time.
Interventions
  1. Musicaction, ADISQ and CIMA all argued that approval of SiriusXM’s application would have a negative impact on FACTOR and Musicaction, as well as on the beneficiaries of those funds.
  2. Musicaction submitted that SiriusXM’s proposal to withhold $1,404,311 in non-discretionary CCD payments for the 2020-2021 broadcast year represents 24% of the fund’s annual contributions for that broadcast year.Footnote 5 When SiriusXM’s deferred contribution of $232,500 owed for 2019-2020 broadcast yearFootnote 6 is factored in, Musicaction submitted that SiriusXM would be withholding a total of $728,139 for that broadcast year, if the present application is approved.
  3. Musicaction further argued that in recent years it has been facing a decrease in revenues due in part to the dwindling of tangible benefit payments stemming from major acquisition transactions in the francophone broadcasting sector. For its 2022-2023 budget, it is weathering an approximate deficit of $1.6M and as a result has requested financial assistance in the form of emergency funds from the Department of Canadian Heritage. Musicaction’s financial planning directly impacts funding of the Canadian francophone music sector as a whole.
  4. ADISQ submitted that deferring or cancelling CCD contributions creates variations and unpredictability in the amounts received by recipients. Some productions and projects may have to be postponed or abandoned if expected contributions are not received on time. This unpredictability, according to ADISQ, serves to undermine the music ecosystem which has seen massive decreases in revenues from live shows, album sales, streaming listenership, and neighboring rights revenues during the past two years. This would have an even greater impact at the present time, given the need for financial support posed by the resumption of live music events and recordings as of Spring 2022.
  5. CIMA was also concerned about the ramifications of deferred CCD contributions on the stream of predictable funding at a time when the music industry is starting to build back momentum. While the federal government has provided financial support to FACTOR and Musicaction through emergency funds, the sums received have remained much lower than the losses incurred by the sector.Footnote 7 CIMA argued that emergency government funding was not created to allow broadcasters to relinquish their responsibilities, and that the government’s decision to assist the music sector recognized the extent of the challenges the sector has faced and the need to support it.
  6. CIMA also argued that SiriusXM’s contribution levels are intended to balance out the lower levels of Canadian musical selections that it is required to air across all the channels it offers. SiriusXM’s CCD contribution amounts are also largely a function of its higher revenues compared to any other individual licensee.
  7. Finally, CIMA argued that SiriusXM does not meet the criterion the set out in Broadcasting Decision 2021-274 for relief from CCD contributions which states that “parties that currently benefit from the requirements imposed by the CRTC on broadcasters are not unreasonably affected by any potential regulatory relief.” CIMA stated that approving the application would unreasonably affect the Canadian independent music community by shifting the applicant’s alleged financial challenges onto an already vulnerable small business community.

SiriusXM’s reply

  1. In SiriusXM’s reply, it reiterated its position that its application meets the criteria used by the Commission to assess proposals for regulatory relief from CCD obligations. It remained of the view that the proposed repayment plan would not unreasonably affect any parties that currently benefit from CCD funding by broadcasters.
  2. SiriusXM reiterated that deferral of its CCD contributions would have a stabilizing effect on the recipients and that the repayment dates would assure a predictable stream of funding. SiriusXM also submitted that since FACTOR and Musicaction have significant undeployed assets, the timing of the shortfall repayments would not be unreasonable for the funds or the artists that rely on them.
Commission’s analysis
  1. SiriusXM is a major contributor to CCD initiatives. If the Commission were to approve SiriusXM’s application, a significant amount of CCD funding would be further delayed. This would be added to the CCD shortfall that SiriusXM incurred from the 2019-2020 broadcast yearFootnote 8 and has only recently started repaying. The delay would further impact CCD funds that predict significant deficits in their 2022-2023 budgets.Footnote 9 Furthermore, the resumption of live shows, music recordings, and artist promotion as of Spring 2022 has provided plenty of eligible recipients for CCD contributions and highlights the need for financial support as the music industry attempts to recover from the pandemic’s impact.
  2. The Commission is of the view that independent funds such as FACTOR and Musicaction need predictable yearly contributions to ensure stability. SiriusXM proposed to defer its 2020-2021 broadcast year shortfalls by paying 50% by 31 August 2024 and the other 50% by 31 August 2025. This is a three-year deferral for the first half and a four-year deferral for the second half. The Commission is of the view that approval of SiriusXM’s application could result in the postponement or cancellation of events or projects already planned.
  3. In light of the above, the Commission finds that parties benefitting from SiriusXM’s CCD funding would be negatively affected by approval of SiriusXM’s proposal.

Impact on the integrity of the CCD framework and on fairness to other broadcasters

Interventions
  1. CIMA submitted that approving SiriusXM’s application would create a precedent for future regulatory relief applications from other broadcasters based on concerns related to the pandemic or other economic downturns. This would undermine the public interest, the policy objectives set out in the Act, and the Commission’s policies related to CCD.
  2. Musicaction stated that, to its knowledge, all other radio broadcasters have made their contributions to Musicaction for the 2020-2021 broadcast year.
Commission’s analysis
  1. The Commission considers that approval of SiriusXM’s application in the absence of sufficient rationale to warrant an exception to its obligations would be unfair to other broadcasters who have respected their CCD obligations, despite the difficulties incurred by the pandemic. The Commission is concerned that if it were to approve SiriusXM’s application in the absence of sufficient rationale, other broadcasters would apply for similar regulatory relief without appropriate supporting evidence or justification.
  2. Approval would also add an administrative burden on all parties, including beneficiaries of the contributions and the Commission, to monitor SiriusXM’s additional deferred payments.

Compliance with CCD obligations

  1. SiriusXM also has demonstrated a history of non-compliance with its conditions of licence relating to CCD contributions. Broadcasting Decision 2019-431, which last renewed the applicant’s broadcasting licence, addressed SiriusXM’s non-compliance with respect to non-discretionary CCD contributions for the 2013-2014, 2014-2015, 2015-2016 and 2016-2017 broadcast years.Footnote 10
  2. Given its history of non-compliance, and the typical expectation that licensees be in compliance with all regulatory obligations before submitting requests to amend conditions of licence, the Commission takes note that the licensee did not receive prior approval before withholding part of its CCD contributions for the 2020-2021 broadcast year. In fact, SiriusXM was required to pay its CCD contributions for broadcast year 2020-2021 by 31 August 2021 and submitted the present application to the Commission in June 2022. As a result, SiriusXM was in apparent non-compliance with the obligation to pay its CCD contributions by the time it submitted its regulatory relief application. As its general practice, SiriusXM’s compliance will be examined as part of its next licence renewal process.
  3. In light of the above, the Commission finds that both past and current practices of SiriusXM are not conducive to timely and comprehensive regulatory compliance. As such, approval of SiriusXM’s application would be inappropriate until the Commission is reassured that it operates its undertakings in compliance with condition of licence 14.

Conclusion

  1. In light of all of the above, the Commission denies the application by SiriusXM Canada Inc. to amend condition of licence 14 set out in Broadcasting Decision 2019-431 in order to obtain relief related to its CCD contributions for the 2020-2021 broadcast year due to the impact of the COVID-19 pandemic.
  2. As set out above, the Commission considers that SiriusXM did not clearly demonstrate that it was unable to fulfill its regulatory obligations and considers that it has the financial capacity to fulfill its CCD obligations without any additional delay.
  3. The Commission is further concerned that approval of SiriusXM’s application would compromise the stability and predictability of the contributions allocated to beneficiaries of the independent funds and discretionary initiatives chosen by SiriusXM. This could have a significant effect on the work of those funds to support Canadian music and spoken word content and have a negative impact on the Canadian broadcasting system as a whole, considering SiriusXM’s importance as a CCD contributor.
  4. Furthermore, any further delay in payments would be unfair to other broadcasters that have fulfilled their CCD obligations despite their own challenges associated with the economic downturn created by the pandemic.
  5. Accordingly, the Commission directs SiriusXM to pay all 2020-2021 broadcast year CCD shortfalls no later than 31 August 2023 and submit suitable proofs of payment to the Commission by no later than 30 November 2023.

Reminder

  1. SiriusXM must submit, as part of its annual return, additional information that will track the progress of shortfall payments, up to the end of their payment period. Thus, at the time of submitting its annual return, SiriusXM should detail separately from its 2022-2023 broadcast year payments, the 2019-2020 broadcast year shortfall payments along with the 2020-2021 broadcast year shortfall payments.

Secretary General

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