ARCHIVED - Transcript / Transcription - 2 November / novembre 2004 - Gatineau, Quebec
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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES AVANT
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
VARIOUS BROADCAST APPLICATIONS /
PLUSIEURS DEMANDES EN RADIODIFFUSION
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
Portage IV Portage IV
140 Promenade du Portage 140, promenade du Portage
Gatineau, Quebec Gatineau (Québec)
November 2, 2004 Le 2 novembre 2004
In order to meet the requirements of the Official Languages
Act, transcripts of proceedings before the Commission will be
bilingual as to their covers, the listing of the CRTC members
and staff attending the public hearings, and the Table of
However, the aforementioned publication is the recorded
verbatim transcript and, as such, is taped and transcribed in
either of the official languages, depending on the language
spoken by the participant at the public hearing.
Afin de rencontrer les exigences de la Loi sur les langues
officielles, les procès-verbaux pour le Conseil seront
bilingues en ce qui a trait à la page couverture, la liste des
membres et du personnel du CRTC participant à l'audience
publique ainsi que la table des matières.
Toutefois, la publication susmentionnée est un compte rendu
textuel des délibérations et, en tant que tel, est enregistrée
et transcrite dans l'une ou l'autre des deux langues
officielles, compte tenu de la langue utilisée par le
participant à l'audience publique.Canadian Radio-television and
Conseil de la radiodiffusion et des
Transcript / Transcription
VARIOUS BROADCAST APPLICATIONS /
PLUSIEURS DEMANDES EN RADIODIFFUSION
BEFORE / DEVANT:
Charles Dalfen Chairperson of the CRTC /
Le président du CRTC
Andrée Wylie Vice-chairperson /
Ronald Williams Commissioner / Conseillier
Joan Pennefather Commissioner / Conseillère
Stuart Langford Commissioner / Conseillier
ALSO PRESENT / AUSSI PRÉSENTS:
Pierre Lebel Secretary / Secrétaire
James Wilson Legal Counsel /
Lynn Renaud Commission Staff /
Peter Foster Gestionnaires
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
Portage IV Portage IV
140 Promenade du Portage 140, promenade du Portage
Gatineau, Quebec Gatineau (Québec)
November 2, 2004 Le 2 novembre 2004
TABLE DES MATIÈRES / TABLE OF CONTENTS
PRESENTATION BY / PRÉSENTATION PAR:
Satellite Radio Inc. (cont.) 303 / 1743
SIRIUS Canada Inc. 364 / 2131
Gatineau, Quebec / Gatineau (Québec)
--- Upon resuming on Tuesday November 2, 2004 at 0930 /
L'audience reprend le mardi 2 novembre 2004 à 0930
1743 THE CHAIRPERSON: Order, please. À l'ordre, s'il vous plaît. Good morning everyone. We will continue the questioning with Commissioner Langford.
1744 COMMISSIONER LANGFORD: Thank you, Mr. Chairman. Welcome to almost the last round of Survivor here. That's why we give seven-year licence terms because, physically, nobody can do this more than once every seven years.
1745 I'm going to try to narrow my focus, but there are a couple of issues that we haven't dealt with yet, It's hard to believe, but there are. And, as you know, and I'm sure, from discussing this and preparing this with your counsel and what not that, you know, we are directed by Law here to look at things like Canadian content and that sort of thing and why there has been such an in-dept exploration of that.
We are also directed as a Commission to look at the whole issue of licensing and control and how that's done. And the licensing matter is probably a little bit complicated for the average lay person and particularly first time out, but you are ably represented by counsel and you can feel free to throw the questions back there.
1746 Because there is, as you folks indicated yourselves in your various correspondence with us, there is a question as to just exactly how this new "beast" should be licensed in Canada.
1747 So, what I will be dealing with this morning is this question of how to license. Second, there is going to be the double barrel question of control, a little bit of which was touched on by my colleague, Mr. Williams, yesterday, at the end of the day, but the whole notion of who controls the Canadian operation, then within the Canadian operation, the secondary notice of how you control your own product, some of which you are creating and some of which you're importing, if I can put it that way.
1748 So, there are no real trick questions here, but there are some things we have to get over in order to do our job as mandated under the Broadcasting Act.
1749 So, in the question of licensing, I guess what we're looking at and as you and the other applicants have reminded us is we're looking at a new "beast" here. It's something we haven't licensed before, but there have been some precedents that were somewhat like it and I was kind of looking at some of the options that we have had before.
1750 When we did pay audio, what we did was we had licensed Canadian aspects of it and then brought in some linkage rules saying, well, if you're going to have... if you want to carry some foreign signals, you've got to carry so many Canadians signals as a kind of compensation to keep it Canadian.
1751 I gather that probably wouldn't work with you because the linkage numbers, the optics of them probably wouldn't look that great, but I think I should ask you to respond to that, whether some kind of an approach like that would be acceptable to you.
1752 MR. BITOVE: I understand the issue and the difficulty we have had grappling with this is that our service goes beyond our borders and it's a continental wide programming undertaking.
1753 I think that's one of the reasons why a lot of artists have been in support of our application as it is different. It's not just something that we keep within here in Canada. It's something we export.
1754 So, the difficulty with linkage, because I have read the Pay Audio Decision and while I think it was brilliant in terms of how the linkage was done on that, it was a lot easier to do because we are basically confined within the geography of Canada to do it.
1755 If something were drawn up more on a continental wide basis and took into account other countries as they joined this programming service or whatever else, you know, it's a little... it's intellectually easier for us to understand, but harder to regulate from your perspective, I think.
1756 So, you know, we are different from pay audio, there is no spoken word in pay audio, it's not mobile. You know, having said that, you did create a class of undertaking in the Pay Audio Decision which seems to work for that technology in Canada.
1757 COMMISSIONER LANGFORD: If we're going to... I'm sorry, go ahead, Mr. Buchan.
1758 MR. BUCHAN: If I could. Mr. Langford, if I could just jump in here, just to get the record a little clearer. We have had some discussions obviously when we were preparing and we have looked at the pay audio approach and we understand why there may be some appeal in this licensing proceeding to do something similar as you did in pay audio, but each one of the undertakings, the three different applicants are proposing a different kind of undertaking in this hearing.
1759 Ourselves and the SIRIUS application are both satellite undertakings and the job master one is terrestrial and that seems to be, you know, a very essential difference. They are all digital, but they are operating on in different frequency bands, two in the "S" band and one in the" L" band.
1760 They're all subscription, they're all digital. Ours, CSR's big and very important distinction is that it's going to originate a significant amount of its own programming.
1761 In fact, as you've heard yesterday, the program origination costs for CSR's own Canadian programming exceed the 20 million dollars that's proposed for the C.T.D.
1762 I mean, under the Broadcasting Act, of course, you know, it's undertakings that are licensed, not services or channels, and undertakings, as Lord McNaughton said in a radio communications case reference in 1932, "is an arrangement by which physical things are used".
1763 So, I don't think there is any question that the Commission has a jurisdiction to licence an undertaking and to make appropriate... attach appropriate conditions to the licence of each of those undertakings, that will be appropriate to the circumstances of the licensee, as is called for by the Broadcasting Act.
1764 You may or may not wish to establish a class and establish regulations that are pursuant to the whole class. However, that's where we come apart a little bit because we have had discussions with, well, the SIRIUS people, and they find themselves more in putting the emphasis on distribution undertaking and yet, when I know and I came to this and said, well, what are we really applying for, let's look at the essential elements. We are applying for satellite, subscription, radio or audio distribution undertaking.
1765 So, we have talked in our rehearsals about an S.S.R.D.U. and I used the word "radio" rather than "audio". They are essentially interchangeable, but for the reason that Mr. Bitove said, your pay audio services are not originating their own programming and C.S.R. doesn't look upon the programming, that is the four channels that it's proposing, as being analogous to the community channels on cable television or B.D.U. distribution undertakings.
1766 So, they see themselves as a radio broadcaster and when we get to controversial programming we will find part of the answer is we would like to be a member of the C.A.B. and we have had discussions with Mr. Cohen and we want, you know, to be part of the C.B.S.C. and have our controversial programming dealt with in that way.
1767 So, I guess the bottom line of our pitch is we think a satellite subscription radio distribution undertaking can be licensed to such with appropriate conditions of licence, and I hope that may help to get a few questions out of the way.
1768 COMMISSIONER LANGFORD: Well, it at least defines the challenge for us and I'm grateful for it.
1769 The problem is it depends which word we pick out and which one we focus on, as you say, and if we pick out radio, then we run across the whole problem of content and Canadian content and why should you be treated differently in that way and there are interveners who will come before us and say, you shouldn't be.
1770 If we pick out the word "distribution" and "undertaking", the words "distribution and undertaking", then we run into the sort of precedent we have where you should be guaranteeing access to third parties, and how do we deal with that problem?
1771 And I'm grateful for you sharing with us your views that we should use all the words together, but perhaps it's because I am... to use that horrid cliché, not as flexible about thinking outside the box as others, but I keep running into precedents on different sides, depending which words I use.
1772 So, perhaps the easiest way to do this, rather than ask you, well, what ratio of linkage would be acceptable, we can do the math on that ourselves, if you're telling us you've only got four channels at this point, and that doesn't enable us to, in a way, take into consideration your 2,000 hours and your seven per cent, so maybe that's a bit, you know, it wouldn't be as accurate.
1773 Why don't I just ask you what sort of a licence you anticipate us issuing, I assume, under 9.1(h) or whatever power we have to be creative? Would it be simply a licence to carry on this business as described and then, with a list of conditions of licence attached to it? Is that what you're looking for?
1774 Mr. BUCHAN: Yes. I think in terms of the form of a licence, what we had in mind was what was originally licensed with regard to D.T.H. or similar to in form really to the pay audio licence, in the sense that there are a lot of conditions of licence attached that are appropriate to the circumstances of pay audio licensees.
1775 But the conditions that were attached for Galaxy were the same as the one that were attached for the others and what we are suggesting is that CSR's business model and the reliance on originated programming is different and serious and certainly the "animal" is different and the undertaking is different and that is proposed by CHUM and Astral.
1776 COMMISSIONER LANGFORD: I don't think anyone here, but certainly speaking for myself, I don't think anyone here has come to any conclusion that one size could possibly fit all in this matter, but I'm speaking only for myself, I am certainly not locked into that position.
1777 What I see this as is three individual applications that have some common elements, but are not identical in any way.
1778 So, am I accurate in saying then is my description of what you're looking at close enough that, essentially we've got to create something new here and create it with C.O.L. rather than try to fit you in something else?
1779 MR. BUCHAN: That's exactly it, Mr. Langford. If I might be allowed a comment not to sound impertinent, but I have never noticed any limitation on your part in thinking outside of the box, and so...
1780 COMMISSIONER LANGFORD: Anybody who can remember Lord McNaughton couldn't possibly offend me. Okay.
1781 So then, we have to drop just to beat this to death with a hammer, but we might as well be sure because this certainly is key to what comes out of this, should you be successful.
1782 We have to drop in your mind the sort of notions of creating it by linkage rules or importing things like distribution, traditional distribution formulas, which would then lead us to kind of perhaps problems in the sense of third party access. Is that what you are saying? We have to create a whole new beast here?
1783 Mr. BUCHAN: Yes. With regard to the issue of access, that's why when I heard that there was a certain amount of emphasis on the words "distribution undertaking", certainly the undertaking will be distributing non-Canadian programming and, so, it's... we are not suggesting that the terms "distribution undertaking" not be used to describe the undertaking.
1784 But then, it does bring... the first word it brings to mind for you and it did for me as well, was "access" and if the access issue gives rise to the next consideration of band width, then as Mr. Bitove explained yesterday, if there is any more band width available, CSR wants the band width for Canadian programming channelled.
1785 COMMISSIONER LANGFORD: Well, that's going to bring us to control pretty soon, but before we get there, there is the second element to what you are doing, which and and again, as you meant no impertinence, I mean no criticism here, this is a new beast and everybody is trying to define it, but I got the sense yesterday, in some of the questions from my colleagues with regard to your land-based transmitters, that there might be a possibility there to do some creative programming.
1786 So, then, we add a second feature to this. They are not merely, if I can use this word "distributing" the signal along with satellites, they are not simply improving the quality of what you receive, but they could, in fact, become originating programmers and they could, in fact, whether you'll ever do it or not, I understand that you're unsure, but there is the possibility, how do you envisage us dealing with that?
1787 Would you just envisage us dealing with them at this point as part of the two satellites and other feature and then you would come back to us, should there be something else you want to do with them?
1788 MR. BUCHAN: Yes. we've had discussions of that issue and for the purposes of this application and this hearing the tress field repeaters would be repeaters of the two satellites rock and roll and they wouldn't be licensed as program originating undertakings of their own because that would give rise to a whole set of other regulatory issues.
1789 COMMISSIONER LANGFORD: That's simple. Good. Thanks very much.
1790 So, let's go to control because important for a number of reasons, obviously, who is running the shop here. Is it a big table in the front or is it the one guy sitting at the back table who is really running this shop and we've got to find out. We are statutorily obligated to find out about that.
1791 And then, also, then the whole sense is depending on who is running it, gives us a sense of what control you actually have in defining for us what would be licensed, if that makes sense to you. It's a bit convoluted, but...
1792 So, where I want to start with this is that I've heard your statements earlier yesterday about how this is your show and you're working it and those are heartening, but in your agreement, the agreement between XM-USA and CSR, there is references to all kinds of agreements that will come later, should you be licensed.
1793 It's difficult, you know, there is going to be a licence agreement, the technical services agreement, these were discussed a little bit yesterday, definitive shareholders agreement and then, after that perhaps, not an agreement, but an independent programming panel. So, we've got lurking in the weeds here for unknowns.
1794 Let's drop off the Independent Programming Committee for a minute and deal with the licensing agreement, the technical services agreement, the definitive shareholders agreement, and I guess it's difficult for me to envisage how precisely this Commission can say, here is your licence and we deem you to be in control if we haven't seen what appeared to be pieces of paper with a capacity of changing all the parameters.
1795 So, how can you help me through that? Should we take them one at a time? How do you want to deal with it?
1796 MR. BITOVE: I'll try and give an overview like I did to Commissioner Williams yesterday. I kind of envisioned this and it's too bad I am a lawyer because sometimes we get in the way of logic on these things.
1797 COMMISSIONER LANGFORD: I didn't realize you're a lawyer, I'll stop being familiar with you. Good grief, if it ever gets out in the press I'm being nice to lawyer, I'm just finished.
1798 MR. BITOVE: Just as you struggle with how to license, we struggle with how to carve the beast so that it works in multi levels.
1799 As I've said yesterday, I think if you were ever gracious enough to give us a licence and this then goes on 20, 30, 40 years whatever, we have to provide for CSR's benefit and our listeners' benefit, a scenario where the shareholdings of XM may have nothing to do with the programming of XM, which may have nothing to do with the technology that we license from XM.
1800 And the commitment I can give you, we have given filed drafts already, but we are not going to commence services without all these agreements being in place because it's too risky.
1801 You asked for control. You know, from the board-room to the control room, to the subscriber's bedroom, CSR is going to control this business in Canada.
1802 I am providing the financing to do this and I wouldn't be doing it if I did not have that comfort to know that our decisions, we are going to be accountable to you and to the Canadian public and that's the way we're going to run this business.
1803 COMMISSIONER LANGFORD: And you do realize that once these agreements come in, if despite our enthusiasm or your enthusiasm, we feel that there is a problem that you will be back to the drawing board.
1804 MR. BITOVE: It's completely expected.
1805 MR. BUCHAN: Mr. Langford, if I could. This is a very thick file and it was electronically filed and for people who are accessing the file electronically there were so many different places to go to. There are drafts that were attached to the filing that was made on the 26th of November 2003.
1806 There were specific deficiency questions on the original application from the staff that had asked... oh, sorry, I'm looking at the Commission's letter of 26, November 2003, to be filed by 3, December 2003, with regard to the structure and composition of the Programming Committee and then, a draft programming agreement and the draft licence agreement and a specific question with regard to shareholder rights.
1807 So, in addition to the M.O.A., there is a draft programming agreement, a draft trademark agreement and a draft licence agreement on the record. And those drafts represent the intent of the parties to reduce them to final and binding agreements.
1808 But the master agreement that governs it all is the Memorandum of Agreement.
1809 MR. BITOVE: Commissioner, the easiest way for me to try and describe this is, these agreements contemplate, to take Canadian example. Global Television and Rogers as the broadcaster and Sony as the TV manufacturer, all being taken account on the same kind of technology and service.
1810 What we are trying to do by way of our agreements is, in the M.O.A. the cupboard office is saying this is what the parties are going to do together, but as each agreement is worked on and filed with your staff, we want to make sure that CSR and our listeners will be protected.
1811 And there is... because, and this is really important, I can't see XM giving us, let's say, the technology code to where the radios are manufactured in the Far East to work directly with the manufacturer on the encoding of the signal or whatever else. That is something that the manufacturer and the R.N.D. basically control.
1812 That's a different type of control from the broadcast signals and what we are going to bring into the country and our undertakings to you as our regulator where we are going to control it 100 per cent.
1813 COMMISSIONER LANGFORD: That's comforting but... and I don't want to be continually harping on the negative, but now is the time to do it and that is the time for us to try and dig, and I appreciate, Mr. Buchan your references to the draft agreements and the point I was only trying to make was that drafts can change and things can change and in no way I am sort of positing a conspiracy theory here.
1814 I am simply saying that that was a year ago and we are in a licensing process, that will take time, and at the end of that time things may change in XM headquarters, which lead them to want to make some changes up on your end and they may be for valid business reasons, but though they are, they may cross the line into what we think of as control and that's the kind of concern that I am trying to put before you to make you aware of and to obtain your reactions from.
1815 MR. BITOVE: There is one small mistake in the draft we've noticed. Actually, Bob pointed us to us on the directors, that the XM directors will be proportional to the shareholdings. Other than that, which we will correct, I am happy to offer as in a part of the condition of our licence is that all of these agreements or sub-agreements need to be approved by your staff because we are not trying to say, let the horses out of the barn and then, what do we do.
1816 It's let's carve this up together, let's make sure you understand exactly where control elements are that are reasonable as a technology provider and where they are not all acceptable as a foreign controlled entity.
1817 COMMISSIONER LANGFORD: Because one sort of example I could give you is the scenario that would be obviously troublesome to yourself as well as to us.
1818 It wasn't clear to me in listening to the sort of discussions you were having with Commissioner Pennefather and vice-chair Wylie with regard to content, and I find interesting the original notion of Canadian ambassador of music that you've put forward in your application. It wasn't clear to me precisely, never mind how you would get more channels and more Canadian ambassadors out there running around, but how you would guarantee the retention of the ones you've got down the line.
1819 Let me give you an example. If I understood your description of the technology correctly yesterday, there are limited channels available because of limited spectrum, therefore I guess one must assume that to put on these four Canadians, something is going to be dropped. I don't know what, but something, you know.
1820 Maybe the potted plant channel or something hasn't been found to be very popular throughout North America, but I'm assuming something is going if these are coming.
1821 Well, let me put together another scenario. Three years from now, the parent XM moves in to Mexico and to the huge Mexican market wants to sell six channels of popular Mexican content and they're looking around for something to drop, what comfort can you give me and give us that it won't be one of yours, that it won't be one of your Canadian ambassadors? That's control as far as I can see, that's real control.
1822 MR. BITOVE: We will guarantee as part of the condition of our licence the minimum amount of channels we'll be carrying right now.
1823 I would imagine at some point in the future, when we come up for renewal, hopefully we will be at a different number, and you will be saying, Mr. Bitove, how do you give us assurance that we are not falling below this again.
1824 COMMISSIONER LANGFORD: And we do tend to be negative; don't we.
1825 MR. BITOVE: No. You're asking the exact questions I would ask if I was in your position because this is what it's all about.
1826 COMMISSIONER LANGFORD: And so, essentially, what you are saying is, lock us in with whatever C.O.L.s you want on control and content at this point, and we'll make it within the parameters of our application.
1827 So, my question is: how do you lock in, we've locked you in, how do you now lock in your parent on that particular question of dropping a channel? Let's just do that as an example.
1828 MR. BITOVE: Not parent; monitory partner.
1829 COMMISSIONER LANGFORD: Okay.
1830 MR. BITOVE: They are here and they are part of the process, they have been, as I've said from day 1, hey, how can we help. All the drafting, all the agreements, everything that we need to work on together, it's basically we are going to be tripartite where you staff and us and them will understand exactly what we are agreeing to.
1831 As I am trying to assure you, this will not be the horses out of the barn and then we worry about these agreements. I am putting way too much capital at stake to make sure that all of these agreements are in place before we commence services.
1832 COMMISSIONER LANGFORD: Well, you're certainly risking more than we are in that way, there is no doubt about that.
1833 Well, let's move on then. I guess maybe a final question. When you do lock these agreements in, I assume that they will... they will correspond with the length of your first licence period.
1834 Would that at least be a fair assumption?
1835 MR. BITOVE: At a minimum.
1836 COMMISSIONER LANGFORD: Okay. Well, that certainly is some paper-bound comfort for us.
1837 MR. BUCHAN: Actually, on that point, Mr. Langford, I noticed--and I should say about these agreements, the memorandum of agreement and the draft agreement. I can't claim any authorship at all. My friend, Mr. Lewis, was acting. There are two lawyers at the front table and two at the back table. This side of the house is reasonably well lawyered, as Mr. Bitove reminds me from time to time.
1838 COMMISSIONER LANGFORD: The ones in the front are paying and the ones in the back are earning. That's a big difference.
--- Laughter / Rires
1839 MR. BITOVE: Andre and Bob.
1840 MR. BUCHAN: It's a little like a New Yorker cartoon I saw of a business meeting, where one person turns and says to the rest of the group, "Does anyone need a lawyer. I seem to have two this morning".
--- Laughter / Rires
1841 MR. BUCHAN: But Ms Embree, Kirsten Embree, was acting for XM, advising on Canadian law on the other side.
1842 When I came to rehearsals and to help prepare for this hearing, the first thing I did was get all the agreements out and look to see what I could find on the control points and see if I could find errors in my friend's work.
1843 The only point that troubled me was with reference to the number of appointees of XM to the board of directors at the Holdco level, if they had a one-third interest, exercised their option and acquired a one-third interest. There's sort of a little convoluted--depending on the numbers of directors, two of five, and it went up, potentially, to four of ten, I think that's the reference that Mr. Bitove made, that it would be proportional with shareholdings; in other words, there would be nine directors at Holdco level and three of them would be nominees of XM.
1844 There's some other issues that could be discussed, but I have had a lot of discussions over the years with Mr. Ramsay and other members of Commission staff and I thought that the intention to make these into final agreements would be completely compliant with Commission precedence in the past.
1845 They are easy agreements to read, as well. As I say, I had not authorship whatsoever, but I think they are good agreements.
1846 MR. LEWIS: Mr. Langford, if I may add, the agreements are for a 10-year term. At the time of drafting, we knew this question would come up, whether it would be for the length of the licence term of longer, so we contemplate a 10-year term, with renewals.
1847 COMMISSIONER LANGFORD: And those terms will survive into the final draft.
1848 Thanks, Mr. Buchan, and Mr. Lewis.
1849 I did, Mr. Buchan, take Mr. Bitove's point and had that question and stroked it off, that 40-per-cent question. I assume that's what he did mean, that the CSR percentage remains at 20 per cent and the other had dropped to a third. Is that correct? Or are they both at a third?
1850 MR. BITOVE: Sorry, no. That XM is at a third, and they would have a third of the board.
1851 COMMISSIONER LANGFORD: Okay. Thanks very much.
1852 Let's look, then, at control of programming. I think we can probably wrap this up fairly quickly because you did cover some of it yesterday.
1853 I guess, really, the big general question--and you have said it 30 times, but we may as well get it one more time under this heading--who is accountable for, i.e. who exercises control over what your subscribers hear? That's the first general open question.
1854 MR. BITOVE: CSR.
1855 COMMISSIONER LANGFORD: In doing that, how do you get around the sort of problems that you discussed generally with Commissioner Williams yesterday?
1856 Let's give you an example. The famous and vibrant Opie and Anthony Show is on and people complain. How do you deal with that? How do you envisage yourself dealing with it? Would there have to be a number of complaints before you act? Would there have to be an order from us or from the standards board before you would respond? Give me some idea of how you contemplate--
1857 MR. BITOVE: I don't know, Commissioner, somehow we knew you would ask this one.
1858 COMMISSIONER LANGFORD: I don't know why. It must be something about things happening in cathedrals in New York or something.
1859 MR. BITOVE: Yes.
1860 We have talked to Mr. Cohen at the CBSC. We have indicated that we would like to join them and be part of the team. If anything does not meet the code, any of the programming, then we will drop it.
1861 Now, Steve, I don't know if you would like to add.
1862 MR. TAPP: Well, I would just like to add that our listeners are important to us. Certainly listening to their feedback on a daily basis will be integral to the kind of decisions we make with respect to self-regulation.
1863 We don't want to be in a situation where we just have to depend solely on the regs of CBSC. We really want to be responsive to our customers. So through e-mails and through mail and through phone calls, we will certainly keep a log and monitor, on a day-to-day basis, the kind of feedback that our customers are giving us with respect to programming that might be objectionable. We will take actions, as necessary, on a self-regulating basis or work with the CBSC, as required.
1864 MR. BITOVE: One other small point, Commissioner. Opie and Anthony is a premium channel, so it's not offered on the basic tier. It's an additional price.
1865 COMMISSIONER LANGFORD: A question of control, though. Things change. It might move, I suppose, to a standard one. But let's leave Opie--
1866 MR. BITOVE: It's our call.
1867 COMMISSIONER LANGFORD: Okay.
1868 MR. BITOVE: Without any doubt, if we deem something is inappropriate or you deem it's inappropriate or we feel the Canadian public is telling us it's inappropriate, we will drop it.
1869 COMMISSIONER LANGFORD: Okay. Well, let's move just to precisely how that would happen, if you don't mind, because we are dealing with a kind of that "long distance feeling", if I can import a line from the other side of our mandate.
1870 Let's assume that on channel 57--that's probably Miami weather or something, but I'm picking a number out of a hat--complaints are lodged with regard to a one-hour-long show and that show is on once a day or once a week. It's irrelevant, but for the purposes of this discussion, let's say it's on once a day.
1871 Complaints are lodged with the Standards Council. Process takes place and the Standards Council, in the fullness of time, renders a decision that the program was beneath Canadian standards, if I can put it that way.
1872 Now, what do you do? Do you drop the whole channel 57? Or do you have the capacity to simply remove that one hour and replace it? What exactly is going to happen here?
1873 MR. TAPP: Well, the first thing we would do, Commissioner Langford, is discuss the complaints and the issues with XM, the originating programmer. We are very adamant about having that kind of a dialogue with respect to programming that might be problematic for Canada. So that's the first thing we do.
1874 But I think your question is a technological one. We don't have the technological capability to block out a program at this time. We would have to drop an entire channel. But we would, again, be very, very vocal with XM with respect to the complaints so that they are aware of it.
1875 Ultimately, we hope we don't have to block out those channels, but, at the end, if we had to, we would block out the channel, if it posed that much of a problem for standards.
1876 MR. BITOVE: As well, there is a parental block available on any channel.
1877 COMMISSIONER LANGFORD: Right, you said that. People can request the blockage, in other words.
1878 MR. BITOVE: Yes, sir.
1879 COMMISSIONER LANGFORD: All right. So the fact of the matter is it's all or nothing for channel 57, if, in your negotiations with, not your parent but your sibling, your sibling--
1880 MR. BITOVE: Minority partner.
1881 COMMISSIONER LANGFORD: Minority partner. I will let you guys work out the semantics on that one, but with your associate from south of the border, you cannot come to some sort of an agreement to clean up the content or to change the content. You have no choice, then, but to block the whole signal.
1882 MR. BITOVE: Given changes in technology, whether there's a delay in signal, then we can block out, or anything else, we would drop the channel.
1883 COMMISSIONER LANGFORD: Okay.
1884 Now, you talked a little earlier, you used the metaphor, of horses leaving the barn. Let me take the metaphor and move it up into the context of this discussion.
1885 I'm assuming, from what I'm hearing today, and from what I heard in your responses on technological issues with Commission Wilson--Wilson, there's a blast from the past, Williams, that you--you are better looking Martha Williams, don't worry, Ron. Don't sulk, for God's sake.
--- Laughter / Rires
1886 COMMISSIONER WILLIAMS: It's very kind of you, Stuart.
1887 COMMISSIONER LANGFORD: You look fine.
1888 I am assuming that there's a certain delay here, that you can't, in other words, punch a button. If you hear something just horrific, no matter how bad it is, you can't just push a button and kill that in Canada?
1889 MR. BITOVE: No, sir. As I indicated yesterday, we could delist up to 100,000 subs a day with the current bandwidth that the technology has. As I said, if we had 300,000 subs, in three days we would be able to drop the complete channel from the Canadian marketplace.
1890 COMMISSIONER LANGFORD: Within the agreements you have, with your minority partner, minority shareholder, do you have carte blanche to do that up to a certain--keeping in mind your marketing caveats from yesterday, that you want to keep the signal, as much as possible, but do you have carte blanche to simply pick up the phone and say, "Please, get rid of channel 57"?
1891 MR. BITOVE: Section 2(d) of our MOA:
"It is further understood that if such licensee described..."--
1892 UNIDENTIFIED SPEAKER: No, that's not right.
1893 MR. BITOVE: Sorry, the answer is, yes. We control what gets delisted.
1894 COMMISSIONER LANGFORD: Thank you.
1895 MR. BITOVE: That's what happens with two lawyers in the front.
1896 COMMISSIONER LANGFORD: My kind of lawyer.
1897 MR. BITOVE: We are like Noah's arc, everything is in twos, but we can't find the boat.
--- Laughter / Rires
1898 MR. LEWIS: We never really it much past articling, and that's why we are--
1899 MR. TAPP: And we control the authorization of subscriber boxes, so it would us--it would be CSR that would be delisting the channel, not XM.
1900 COMMISSIONER LANGFORD: And the boats on Mount Ararat, if you are looking for it.
1901 Okay, we have--
1902 MR. BITOVE: Sorry, Commissioner, 3(e)(i), MOA:
"Additionally, the company shall have the right to restrict or reduce the channels which constitute the service offered to subscribers in Canada in the event that the CRTC shall determine that a particular program shall or may not be distributed in Canada or Canadians in general". (As read)
1903 COMMISSIONER LANGFORD: Okay.
1904 MR. LEWIS: And Mr. Langford, in the Definitive Licence Agreement, it's also reflected at section 3(a).
1905 COMMISSIONER LANGFORD: That's good you are getting your exercise up there anyway.
1906 And with open-line shows, then, I assume it's the same, obviously, it's a technological problem. You just can't respond as quickly as another show, so even if someone goes bananas, there's not much you can do about it.
1907 Could I put a question to--I'm sorry, I have lost my little seating plan, but you are American.
1908 MR. BITOVE: Mr. Parsons.
1909 COMMISSIONER LANGFORD: Mr. ?
1910 MR. BITOVE: Mr. Parsons, the chairman of our minority partner?
1911 COMMISSIONER LANGFORD: Yes, thank you. Yes, Mr. Parsons.
1912 How does it work on your end, Mr. Parsons, if I may ask? In other words, if an open-line show goes bananas, what kind of controls do you have down in Washington?
1913 MR. PARSONS: They are very similar to, as John noted, because there is only so much technical capability. We cannot block, for example, an hour show out of an entire show. We have to take the entire channel down, if there were a problem on that front.
1914 With the designation of some of our channels, we do have call-in shows. If that channels happens to be a channel that is on a premium channel, your Opie and Anthony, then that is so-designated, obviously, as an explicit language channel, and, in fact, the content reflects the titling on it.
1915 On other ones, we do have a slight delay existing and a screener for an engineer that's screening. The expectation is that those call-in shows are not explicit language in any way. So there's, obviously, an effort to try to control that because we want our subscribers and listeners to hear what they are expecting to hear.
1916 On each one of the channels that has the potential--there are a limited number of channels that have the potential for explicit language--it actually appears on this radio screen at all times.
1917 COMMISSIONER LANGFORD: It's up there the whole time?
1918 MR. PARSONS: It's up there the entire time.
1919 COMMISSIONER LANGFORD: Are there audio warnings of that, as well?
1920 MR. PARSONS: Not audio warnings, so much, but almost like a watermark, if you will, that says, "Yes, this is..."--each channel's title will have an "XL" for explicit language behind. It's shown in the channel guide and all the material that is published for it.
1921 COMMISSIONER LANGFORD: Could you, or anyone else on the panel, build a little bit on the term you use, "slight delays" in the open line?
1922 MR. PARSONS: Frankly, I don't know the accurate answer to you. I know that we do some screening on any of the call-in shows, but I don't the length of that delay, a five-second delay. It really, on a practical purpose, only turns out to be a difficulty on the sort of show that is, in fact, designed for that, if you will, and an expectation that you are going to have more frank commentary.
1923 COMMISSIONER LANGFORD: So you kind of solicit your own madness, in a way, and you would be prepared for it.
1924 MR. PARSONS: I think it ends up being that way, yes, sir.
1925 COMMISSIONER LANGFORD: Right.
1926 I think that pretty well wraps it up. Some of my colleagues--oh, no, there's one other little section, right. Sorry, I had forgotten about that.
1927 In the sense of complaints, if you are going to be members of the Standards Council and if you are going to adhere to different codes, which you say you will, then you have to keep some sort of records, otherwise it's pretty difficult to defend yourself.
1928 Can you give me some idea of whether you are going to keep logger tapes or playlists, or how you are going to deal with the whole notion of presenting a case before these councils?
1929 MR. TAPP: Sure. Obviously, there are a couple of things that we will do. One is the maintenance of logger tapes, and we will accept that as a condition of licence, for whatever period of time we need to maintain those logger tapes.
1930 Second, we will keep a written log of customer complaints. Obviously, through the CBSC, there's a track record of complaints back and forth and we will keep a written copy of all of those complaints.
1931 COMMISSIONER LANGFORD: Are you speaking now of keeping logger tapes of the shebang, all 101 channels?
1932 MR. TAPP: To the extent that's possible, yes.
1933 COMMISSIONER LANGFORD: Mr. Parsons, are you folks keeping logger tapes down in the States?
1934 MR. PARSONS: No, I don't believe we are, particularly on the all music channels and those that --
1935 COMMISSIONER LANGFORD: What about playlists? Do you keep playlists on the music channels?
1936 MR. PARSONS: We in fact keep playlists, and as part of the -- in the United States the RIAA, or the Recording Industry Association, that allows them to know which records were played, which artist, which publishing house, and they get their royalties off of that.
1937 COMMISSIONER LANGFORD: So between the two of you you should have a pretty good grasp on what is coming out of --
1938 MR. BITOVE: Commissioner, could I, because there are some undertakings we have agreed to on listening to this conversation.
1939 Why don't we make an undertaking of which channels we will keep logger tapes of. Certainly some of the spoken word ones are what you are kind of addressing, open line call-ins, and that kind of stuff.
1940 Classical music I don't think we have to keep one particularly there, but when we address Commissioner Pennefather's comments we will try to also indicate a column of where we will carry a logger tape.
1941 COMMISSIONER LANGFORD: It is not for me, of course, to give you advice, because you have so many lawyers you don't need another one messing about, but I would think you might want to look at some of the specialty music signals that have been controversial in the past. If it is all Eminem all the time, for an example --
1942 MR. BITOVE: Agreed.
1943 COMMISSIONER LANGFORD: -- those sorts of things do raise the ires. There are different cuts of their songs. Some stations will play a kind of laundered version of their music and other people will play it straight, play it as recorded, and then sometimes we have had instances before the Standards Council of that type of music raising complaints as well.
1944 MR. BITOVE: We agree.
1945 COMMISSIONER LANGFORD: Okay. Those are my questions, Mr. Chairman. Thank you very much.
1946 Thank you, folks.
1947 THE CHAIRPERSON: Thank you very much.
1948 A few follow up questions in or two additional areas, Mr. Bitove.
1949 Following your exchange with Commissioner Langford, and Mr. Buchan's exchange on the nature of the licence, I guess I am trying to take it one step further towards the nature of the obligations that you would assume under a licence.
1950 As you know, the BDU Regs model involves the licensee being responsible for the content of channels that it originates, and in respect of the channels it carries but does not originate, those are typically on the eligible satellite list or foreign signals. It has been a bit of a grey area. In a proceeding and a decision this summer in respect of Al-Jazeera the Commission felt compelled, based on the record of that proceeding, to attach a condition on the BDU licensee.
1951 I'm wondering where in all of that you stand in respect of the obligations that you would assume vis-à-vis both your Canadian channels and your non-Canadian channels?
1952 MR. BITOVE: I will defer to my counsel, please.
1953 MR. BUCHAN: Subject to confirmation from my client when he hears what I have to say --
--- Laughter / Rires
1954 MR. BITOVE: I haven't questioned him on anything else, so this will be a first.
1955 MR. BUCHAN: I gave some thought to this and in preparing for the hearing I re-read your decision with regard to Al-Jazeera. Given that the preponderance or a high percentage of the channels that would be distributed on this undertaking will be non-Canadian-originated channels, I had assumed, if licensed, that one of the conditions of license would be similar to the licence that was imposed in the authority for BDUs to distribute the signal of Al-Jazeera.
1956 In other words, that the signal curtailment -- a no signal curtailment principle in the BDU Regulations would be waived in the case of an undertaking such as this, and therefore CSR would have responsibility for the programming it distributes and they couldn't come back to the Commission and say, "Well, XM put that channel on and we can't do anything about it. We have tried, we have had discussions with XM and they don't want to take it off."
1957 We thought we would have to be -- my understanding from my other discussions with Mr. Bitove, but we haven't specifically talked about the Al-Jazeera one, that we would accept the responsibility for that programming.
1958 We have had discussions, particularly with regard to "Opie and Anthony" and the fact that it is a premium channel and therefore at a different level and there are the other protections that are built in, but I know that his position is if "Opie and Anthony" is going to put us offside in Canada, we are taking "Opie and Anthony" off.
1959 THE CHAIRPERSON: Okay. So then, Mr. Bitove, you might wish to confirm --
1960 MR. BITOVE: I agree. I had expected such.
1961 THE CHAIRPERSON: So, in effect, you would accept a condition of license that contained what is in section 8 of the BDU Regs, but that would apply to all the services that you distribute?
1962 MR. BITOVE: Yes, sir.
1963 THE CHAIRPERSON: Thank you. That is clear on that one.
1964 Turning to your revenue numbers, Mr. Bitove, for a moment, I notice that in comparison with the other applicants at this proceeding that you are projecting the most optimistic numbers for subscriber, both growth and totals.
1965 I assume you have read their applications enough to come to that same conclusion?
1966 MR. BITOVE: We have different relationships with lots of different people so we have different numbers.
1967 THE CHAIRPERSON: Right. Could you elaborate on the basis for your projections?
1968 MR. BITOVE: Well, let me start with how the subscriber numbers were dealt with from our end.
1969 Basically we did three things: We started with consumer research -- and Stewart can go into the numbers if you like, but basically we found out the desire of the Canadian consumers for this service.
1970 Also, Melissa and the team used a distribution model, talking to the OEMs, the retailers, to find out -- because even if there was a huge interest there is only so much shelf space or capacity or units that can be pushed through, the leader of which in our case is General Motors who have been with us -- we meet almost once a month with GM for the last year and a half in terms of the particulars of this.
1971 Thirdly, we compared the ramp-up to XMs and surprisingly they weren't that dissimilar. There were some differences, but between inputting those three equations we came to the subscriber numbers that we stand behind today.
1972 THE CHAIRPERSON: Okay. So in part the experience of XM has guided you in the United States in their ramp up?
1973 MR. BITOVE: I'm sorry?
1974 THE CHAIRPERSON: I guess you are basing it in part on XM's experience in the U.S.
1975 MR. BITOVE: Three things, Canadian consumer research; Melissa's work with retailers in the OEMs; and XM's experience in the U.S.
1976 THE CHAIRPERSON: Good. XM in the United States is currently at 2.5 million. Is that approximately correct?
1977 MR. BITOVE: Yes.
1978 MR. PARSONS: That was the end of the third quarter number, correct.
1979 THE CHAIRPERSON: End of the third quarter number.
1980 You have, I'm sure, reviewed, Mr. Parsons, the projections of Mr. Bitove, and how do they track your own experience in terms of growth, subscriber growth?
1981 MR. PARSONS: I think I am agreeing with John. They seem to be very reflective of what we are already seeing in the United States.
1982 Clearly the new radios that are coming out now available are much smaller, much less expensive, much more powerful. And obviously, as you heard from both Honda and General Motors yesterday, they are up to a very large penetration in all of their cars already, so that to a certain extent would suggest an even faster ramp-up than what we actually experienced.
1983 THE CHAIRPERSON: I take that point.
1984 Do you have a breakdown of your potential subscribers, Mr. Bitove -- I would ask the same question to Mr. Parsons for the U.S. -- between car, home and mobile?
1985 MR. BITOVE: Yes. We break it into three components, and I will flip this to Melissa. We go to the OEMs, to retail and then to other.
1987 THE CHAIRPERSON: That is a different question. That is the source of selling and I am wondering about use on the other side. Do you have numbers on that?
1988 Perhaps starting with you, Mr. Parsons, the subscribers in the United States, breakdown of primary use of the device, home, car or mobile?
1989 MR. PARSONS: They are really not broken down, Mr. Chairman, in that precise way for one simple fact. There are certain radios that are restricted to use only in the car. The factory-installed vehicles are only useable in the car.
1990 But the vast preponderance of the retail sales of the radios, as we were demonstrating yesterday, were the sort of device that you clip into your car, you clip into a boombox, you clip into your home stereo system, and so it is not certain to us what proportion of the time a person is using the device in one environment versus another environment.
1991 THE CHAIRPERSON: That is a fair point. I guess --
1992 MR. BITOVE: So that SkiFi unit for example, the brains pop out. It can sit in your car, it can be used in your home, in your boat. Normally it pops out very easily. There you go. Thanks, Brandon.
1993 So this is the unit. That is what Mr. Parsons is getting at, it is hard to say where the primary use of this is.
1994 THE CHAIRPERSON: That is a fair point.
1995 What percentage of the radios would you say are -- let's call them mobile or portable in that way, and what percentage are fixed into cars that can't be removed?
1996 MR. BITOVE: We have assumed roughly 50:50 between retail and OEM distribution.
1997 THE CHAIRPERSON: Right. I'm still hearing that as an answer to a different question, because to the extent that --
1998 MR. BITOVE: I know, which is why the four of us here are trying to figure out exactly your question.
1999 THE CHAIRPERSON: Just because if you can remove it from your car with a flick and take it into your home, I would think of it as mobile.
2000 It's a bit like cell phones at the outset where you had car phones that couldn't move and then phones that could basically plug into your lighter were used.
2001 MR. BITOVE: I don't think -- all the plug and play devices are mobile, can be adapted to be used in your home. We do not have the subscriber numbers as to where the predominant use it.
2002 THE CHAIRPERSON: Okay. But the point is, the devices themselves can be easily removed and taken and that is what, 100 per cent of it?
2003 MR. BITOVE: Everything other than the factory-installed OEM that General Motors was speaking to yesterday.
2004 THE CHAIRPERSON: Okay. But are the factory-installed OEM radios not amenable to being --
2005 MR. BITOVE: Correct. They are part of the circuitry of the car.
2006 THE CHAIRPERSON: They are part of the circuitry.
2007 MR. BITOVE: That was that thing we were talking about with the warranty yesterday, so it can be tied in with OnStar, AM/FM/XM/cassette, et cetera, but that is different from this.
2008 THE CHAIRPERSON: So when you say OEM you mean both source of sale and you mean use?
2009 MR. BITOVE: Yes.
2010 THE CHAIRPERSON: They have to be used in the car.
2011 MR. BITOVE: Yes, sir.
2012 THE CHAIRPERSON: You are saying that was 50 per cent?
2013 MR. BITOVE: Yes, sir.
2014 THE CHAIRPERSON: Okay. I think the parallel lines have just --
2015 MR. BITOVE: We got there.
2016 MR. GRIMALDI: Mr. Chairman, if I might also comment from General Motors perspective, the vehicle and the system that is in the vehicle is as you would see your radio today. It has the XM capability. So you cannot literally remove it.
2017 If I might also make a comment relative to the issue of the subscriptions, in the case of Canada this feature we think has really significant potential. When you think about all the rural markets, the parts of Canada where unfortunately the radio signals today are not very strong, this is a potentially very significant entertainment device that we are hearing from customers who have had the opportunity to try this feature. They are really enthused.
2018 I think from the Canadian perspective, here is an opportunity to give a feature that literally is available to all Canadians, The coverage that we have seen is phenomenally very, very positive.
2019 From the point of view of General Motors Corporation, if we are going to offer a product like this, we want to make sure that our cars and the features in those cars can be used anywhere across Canada. With the results in the trials that we have seen to date, they are extremely positive, very strong. So I think that is a potential reason why some of the numbers that have even been quoted could be conservative and it could be very strongly appealing here in Canada for the reasons I just stated.
2020 THE CHAIRPERSON: Anywhere in Canada, as long as they are in the car.
2021 MR. GRIMALDI: As long as they are in the car.
2022 MR. BITOVE: Correct.
2023 THE CHAIRPERSON: Fair enough. Thank you.
2024 Turning to the subject of the compensation to XM, in your agreements you provide for compensation levels. I'm wondering, in conjunction with your revenue figures, Mr. Bitove, whether that compensation has been factored into the revenues.
2025 I don't see in your projected operating results any breakdown for compensation to XM, unless I am misreading it.
2026 MR. BITOVE: Mr. Chair, I am being advised that in the deficiencies we filed we broke it down further, but it is in -- and we struggled with where to put it, but it is in what we call programming costs. In the programming costs which rise from $3 million to $75 million, part of that is the XM royalty.
2027 THE CHAIRPERSON: I see. So if I look at the programming line of your projections we -- the first line is oh-four year zero, then moves to three-one-three-six, and so on.
2028 Are we looking at the same line?
2029 MR. BITOVE: Yes, sir.
2030 THE CHAIRPERSON: How would you break down, call it year three or four -- year three, what would be the percentage that would be XM compensation and what would be -- of the seventeen-one-oh-two?
2031 MR. BITOVE: Would you like to go year three or four, Mr. Chair.
2032 THE CHAIRPERSON: Both if you have it.
2033 MR. BITOVE: Year three is roughly $9 million; year four is $16 million.
2034 THE CHAIRPERSON: That is what, compensation to XM?
2035 MR. BITOVE: Compensation, royalty to XM.
2036 THE CHAIRPERSON: So nine of the 17 is compensation to XM in that year, and what did you say for '04?
2037 MR. BITOVE: Yes, sir.
2038 THE CHAIRPERSON: Sixteen you said for '04.
2039 MR. BITOVE: Sixteen for year four of the thirty.
2040 THE CHAIRPERSON: Okay. And then year five.
2041 MR. BITOVE: Year five is about twenty-five of the forty-five.
2042 THE CHAIRPERSON: Right. What does that average out to? About 60 per cent, something like that.
2043 MR. BITOVE: Pardon me?
2044 THE CHAIRPERSON: Does it average out to about 60 per cent?
2045 MR. BITOVE: Of the total programming cost, yes, but we use it as a percentage of the total subscriber fees.
2046 THE CHAIRPERSON: Right. I understand how it's derived, but in terms of accounting for it in --
2047 MR. BITOVE: Yes, sir. We didn't break it down that way, but ballpark you sound pretty close.
2048 THE CHAIRPERSON: Okay. Could you do one more bit of homework and break out that line for us --
2049 MR. BITOVE: I would be happy to.
2050 THE CHAIRPERSON: -- in terms of programming, what goes to XM and what does not?
2051 Are there other streams of revenues at all that flow to XM through the process?
2052 MR. BITOVE: No, sir. My counsel pointed out, by the way, that in programming -- we will try to even break it down further because we do not carry the programming staff costs in programming. They are carried in GNA down on the bottom, so we will make sure that staff understands exactly how we are breaking out the numbers on the expense side.
2053 THE CHAIRPERSON: Okay. Fair enough.
2054 MR. BITOVE: I'm sorry. Stewart pointed out, Mr. Chairman, that there are some costs on activation fees that we also pay to XM, like, one time.
2055 THE CHAIRPERSON: Activation fees for...?
2056 MR. BITOVE: When you charge $19 for someone to hook up the first time, XM gets a cut of that royalty as well. And on premium channels, Mr. Langford's favourite, Opie and Anthony, they get a higher percentage.
2057 THE CHAIRPERSON: Right. So then if one looks at -- where would that be accounted for in your projections?
2058 MR. BITOVE: I'm sorry, Mr. Chairman?
2059 THE CHAIRPERSON: Where would that be accounted for in your projections?
2060 MR. BITOVE: In our XM royalties we give the total of all of the subscriber fees, premium fees and activation fees, so those numbers I quoted to you was the total blended.
2061 THE CHAIRPERSON: Say that again.
2062 MR. BITOVE: Ongoing subscriber fees -- and our agreement, by the way, in the schedule you have, is 15 per cent to 20 per cent, but our deal with XM is 15 per cent.
2063 THE CHAIRPERSON: Right.
2064 MR. BITOVE: So we have included the 15 per cent off the subscribers, we have included the activation fee that XM gets and we have included the premium channel revenue that XM gets 50 per cent of. It is all in Schedule A that we have provided to staff, with the one exception it said 15 to 20, but the number we have agreed to is 15.
2065 THE CHAIRPERSON: Okay. All of that has been booked as programming within that programming number, were you saying, or is activation booked in a separate line?
2066 MR. BITOVE: It's all in programming.
2067 THE CHAIRPERSON: So it's all part of that.
2068 MR. BITOVE: We blended one line -- when we turned it over to your staff there is XM royalties and it's the total of all three.
2069 THE CHAIRPERSON: On your overall projections it appears on the programming line.
2070 MR. BITOVE: Yes, sir.
2071 THE CHAIRPERSON: Okay. Thank you.
2072 Turning to the option that XM has, or options, I have read -- it is not that easy. I understand why you have so many lawyers. I wonder whether you could summarize the nature of the option, what they have a right to and what triggers that right.
2073 MR. BITOVE: They basically have the right for a nominal consideration to have a one-third interest in the business.
2074 THE CHAIRPERSON: Right. That appears in a number of -- there are a number of options that that could -- a number of forms that could take. Is that correct?
2075 MR. BITOVE: Yes, sir. Two forms basically. Either the hold co-op co-structure where they are 20 per cent and then on a fully diluted basis they have one-third interest or directly a one-third interest.
2076 THE CHAIRPERSON: That can be triggered at any time.
2077 MR. BITOVE: It can be -- clause 4(a), any time prior to: (a) the first anniversary of commencement of the full year of service; secondly, on December 31, 2006.
2078 THE CHAIRPERSON: Prior to the later of.
2079 MR. BITOVE: Yes, the later of. Sorry.
2080 THE CHAIRPERSON: Okay.
2081 Can you share with us -- you were prepared to make this option available to them, in effect leaving them the sole discretion to make that decision as to how they wanted it --
2082 MR. BITOVE: There is a time limit on when they can do it, but --
2083 THE CHAIRPERSON: Within the time limit set out.
2084 MR. BITOVE: Yes, because I think, Mr. Chair -- I mean, these were the early days. This is almost going back two and a half three years ago. As I said, I wanted to control it and that was part of the price that had to be negotiated.
2085 THE CHAIRPERSON: Clearly, you stop at the ownership levels that are prescribed by the direction that we are under in regard to voting shares, and I think we have reviewed the issue of control. Okay. I think that takes care of that. Good.
2086 Those are my questions for the moment. Thank you very much.
2087 Any other questions? Counsel.
2088 MR. WILSON: Thank you, Mr. Chairman. I just have a few points of clarification that I would just like to go through with you.
2089 Beginning with the 1,872 hours of lateral programming which you discussed with Commissioners yesterday, how much of that 1,872 hours would be original programming?
2090 MR. BITOVE: I believe all of it.
2091 MR. MACKOWYCZ: Yes, all of it would be original programming.
2092 MR. WILSON: The 7 per cent of new selections, I just want to clarify sort of what universe we are talking about there. Is that 7 per cent of new selections across all non-Canadian music channels or is that a different universe?
2093 MR. MACKOWYCZ: The universe is the XM music channels, the 70 music channels, so right across the breadth of those offerings.
2094 MR. TAPP: Just as a point of clarification, not including our Canadian channels.
2095 MR. WILSON: Turning to the four Canadian channels and actually specifically to your two spoken word channels, you have spoken about commitments to levels of Canadian programming on those channels.
2096 In the context of a spoken word channel, we would have to I suppose look at a definition of what constitutes Canadian content on a spoken word channel. I am going to give to you a possible definition and look for your comments on that, that Canadian programming would mean programming that is produced by Canadians and features Canadian performers.
2097 MR. MACKOWYCZ: There is, as you know, no corresponding MAPLE system in terms of evaluating what is Canadian, but it would be anchored in the artists themselves. We are working towards a definition, but those elements of the individual's citizenship and where it was produced, these are, in terms of radio, somewhat uncharted waters. But we are committed to a preponderance, a majority, of Canadian content on the Laugh Canada channel.
2098 MR. WILSON: Then, sort of similar sort of definitional considerations, there was discussion yesterday about local programming and your commitment not to do local programming. What do you consider, in the context of a service like yours, which is sort of a nationally-based subscription service, what is an appropriate definition of "local programming" in terms of this kind of programming you are saying you are not going to do?
2099 MR. TAPP: We would suggest anything that caters to a particular local locality or region.
2100 MR. WILSON: In your discussion with Vice-Chair Wylie yesterday with respect to your Canadian French music service, La Lumière Nordique, you spoke about the -- you committed to filling out the section 7.7 of the form with respect to the subcategories of the music. I would just ask whether you could do the same with respect to the English language, your English language Canadian music service?
2101 MR. MACKOWYCZ: Yes.
2102 MR. WILSON: Then my final question. There has been sort of a series of undertakings, sort of various things that you have undertaken to file with us, and if we could just sort of nail down a time frame within which that you would be able to file that material with the Commission.
2103 MR. BITOVE: In Phase III.
2104 MR. WILSON: Thank you. Those are all my questions, Mr. Chairman.
2105 THE CHAIRPERSON: Thank you, Mr. Wilson.
2106 Vice-Chair Wylie.
2107 COMMISSIONER WYLIE: When you were discussing with the Chairman the -- under your operating expenses you mentioned the amounts that would go to XM. These would be in accordance with section 5 of the MOA where percentages are actually determined under "Consideration".
2108 MR. BITOVE: Just give me a moment, Madam Vice-Chair.
2109 COMMISSIONER WYLIE: And if so, it would be helpful if they were broken down in that fashion. For example, it is 50 per cent of the premium services and 15 per cent to 20 per cent of subscriber fees for the base service.
2110 MR. BITOVE: No, Madam Vice-Chair, it is not.
2111 COMMISSIONER WYLIE: Would that be the way the remuneration would be broken down?
2112 MR. BITOVE: It is Schedule A of our MOA, which is the breakdown.
2113 COMMISSIONER WYLIE: What is number --
2114 MR. BITOVE: Five was really the start of --
2115 COMMISSIONER WYLIE: That's under the draft licence agreement. But what is that breakdown? Is that not the one that would be followed? Under the draft XM licence agreement at --
2116 MR. BITOVE: I'm sorry, Madam. I have the wrong agreement.
2117 COMMISSIONER WYLIE: -- at number 5. Is that the breakdown that would be used?
2118 MR. BITOVE: Yes.
2119 MR. BUCHAN: Madam Wylie, I think it is consistent with what is on the record, is the reference to the memorandum of agreement, which is a signed memorandum; and at Schedule A there were three headings.
2120 COMMISSIONER WYLIE: Okay. So it is the same thing as number 5 --
2121 MR. BITOVE: Yes, you are correct. The only thing, Madam Vice-Chair, to point out is the 15 to 20 range has been settled between us and our partner at 15.
2122 COMMISSIONER WYLIE: At 15. So it would be helpful when you file this in response to the Chairman if it were broken down in its three components.
2123 MR. BITOVE: Okay. We will do so.
2124 COMMISSIONER WYLIE: Thank you. Because that will require you to take a guess as to how many Opie and Anthony you will be selling.
2125 MR. BITOVE: Very good point.
2126 THE CHAIRPERSON: Thank you very much, and thank you.
2127 We will break now and begin with the next item in 15 minutes. Nous reprendrons dans quinze minutes.
--- Upon recessing at 1042 / Suspension à 1042
--- Upon resuming at 1100 / Reprise à 1100
2128 THE CHAIRPERSON: We will now continue. Mr. Secretary.
2129 THE SECRETARY: Thank you, Mr. Chairman. We will now hear Item 3 on the Agenda, which is an application by the Canadian Broadcasting Corporation on behalf of SIRIUS Canada Inc., recently incorporated, for a broadcasting licence to carry on a national multi-channel subscription radio service, to be delivered by satellite and terrestrial transmitters, for direct reception by subscribers.
2130 Mr. Kevin Shea will be introducing his colleagues. You have 20 minutes to make your presentation.
2131 MR. SHEA: Thank you, Mr. Chairman, Members of the Commission. Good afternoon. I would like to start by introducing our panel. My name is Kevin Shea and I am the CEO of SIRIUS Canada Inc. I am very pleased to appear before you today, as this is truly a historic event for our Canadian broadcasting system and for Canadian radio.
2132 Before I begin, I will introduce our panel. To my right is Michel Tremblay, Vice-President, Strategy and Business Development at the CBC. Michel, as you know, has been a strong proponent of innovation and development in media throughout most of his career. Michel is also Chairman of the Board of SIRIUS Canada. Next to Michel is John Lewis, the CBC's Corporate Director of Business Development. John has been involved in the development of several broadcast and non-broadcast services in both Canada and the U.S., such as RDI, Showcase, Galaxy, North American television and the CBC's internet services. John has also been incredibly instrumental in building this application for SIRIUS Canada.
2133 To my left is Gary Slaight, President and CEO of Standard Radio, one of Canada's leading radio broadcasters. Standard has been involved in providing radio services in our country over more than seven decades and as a key Canadian partner in SIRIUS Canada. And to Gary's left is Andreanne Sasseville, SIRIUS Canada's Canadian Talent Development Coordinator. Andreanne's background is in music, radio and communications and, for many years, she has worked closely with Canadian artists at Musique Plus, with a renowned Montreal publicist and in community radio. She is also a musician and will be our ambassador in New York City.
2134 In the row behind me, closest to you, is Jane Chalmers, Vice-President, English Radio at CBC. Jane will oversee the programming of the new and innovative English language channels by CBC carried by SIRIUS Radio. Beside Jane is Sylvain Lafrance, Vice-President, French Radio and New Media at Radio Canada. Sylvain will be responsible for overseeing the programming of Radio Canada's exciting new English language channel available on our proposed satellite radio service, namely Bandeàpart.
2135 Beside Sylvain is Ross Davies, who is a Management Consultant to Standard Radio. Ross, as you know, has held senior management executives at CHUM for over 20 years, and Ross will be responsible for programming the standard radio channel distributed by SIRIUS. To Ross's right is Grant Buchanan, our Regulatory Counsel and Partner at the law firm McCarthy, Tétrault. Next to Grant is Andy Gregor, Vice-President, Business Development and Investor Relations of SIRIUS Satellite Radio Inc. Also with us today is Ray Carnovale, well known to the Commission, Vice-President and Chief Technology Officer at the CBC. Ray will oversee the technical aspects and rollout of SIRIUS Canada.
2136 And finally, beside Ray, is Jim Morrison, who is the Director of New Product Development for DaimlerChrysler, and we are delighted that he could join us today. So, Mr. Chairman, Members of the Commission, that is our team.
2137 We are very excited about our innovative satellite radio proposal. The Standard, CBC and SIRIUS partnership brings together three broadcast leaders that have the know how and the drive to make subscription based satellite radio a true success in Canada. In order to bring our service to Canadians we will use state of the art technology that is truly unique to SIRIUS. This technology consists of three high elliptical orbit satellites. And, as you can see from the easel behind us, the footprint of the SIRIUS Radio service is unmatched by any other applicant. It will be available right across Canada and the United States from day one.
2138 The extensive reach of our service includes urban, rural, coastal and remote areas such as our far north. And due to the mobile nature of our service, Canadians will be able to tune into the SIRIUS Canada Radio service in their cars, cottages, boats, homes and virtually anywhere they choose to use the receiver. Access is universal from day one.
2139 The importance of our services reach was highlighted by a number of interventions, including one from Simone Kylie and here is a quote from Simone's letter: "Living in Newfoundland and Labrador has challenges for services such as radio signals. While it is certainly the most beautiful part of Canada, our geography means that in many communities the internet or satellite radio option are the only options. I hope this will mean a drastic increase in accessible music of many styles in our more remote communities."
2140 I would now like to introduce you to SIRIUS Canada by video, which will give you more of a flavour of the exciting new medium of satellite radio. --- Video presentation / présentation vidéo
2141 MR. SHEA: As a point of interest, that was a live to air recording of the Canadian band the Tragically Hip from Kingston, Ontario, and the recording was done in one of the many SIRIUS studios in New York and shows, we think, exactly how Canadian artists can benefit from the availability of those studios. I would now like to turn to Michel Tremblay, who will talk to you about CBC's involvement in SIRIUS Radio.
2142 M. TREMBLAY : Monsieur le Président et membres du Conseil, c'est avec plaisir que je suis avec vous aujourd'hui. Ce projet est une opportunité très importante pour le radiodiffuseur public national ainsi que pour les Canadiens.
2143 Lorsque nous avons déposé notre demande de licence en décembre dernier, il y avait alors 1,3 million d'abonnés à la radio par satellite aux États-Unis. Aujourd'hui, 10 mois plus tard, il y en a plus de 3,2 millions. Et on prévoit qu'en 2010 il y aura 25 millions d'abonnés. Il s'agit là d'une réalité qui ne peut être ignorée.
2144 CBC/Radio-Canada doit constamment chercher des façons innovatrices de rejoindre les Canadiens. Afin de nous acquitter de notre mandat, nous exploitons 18 plates-formes différentes. Notre implication dans SIRIUS Canada fait partie de nos efforts constants pour être omniprésents dans la vie des Canadiens. Ce nouveau service permettra d'étendre le rayonnement de nos deux principaux réseaux : CBC Radio One et la Première Chaîne de Radio-Canada. Pour la première fois, ces réseaux seront accessibles aux États-Unis et permettront de diffuser et de faire connaître les valeurs et les points de vue canadiens chez nos voisins américains.
2145 I would now like to present our Canadian partner in SIRIUS Canada, Gary Slaight of Standard Radio. Gary was recently named in the Canadian Music Industry Hall of Fame.
2146 MR. SLAIGHT:Merci, Michel. Chair, Madam Co-Chair, Members of the Commission, Standard is thrilled to be part of this proposal to bring a leading edge satellite radio service to Canada. As a company that has been involved in developing new technology such as Iceberg Media, Maple Music and Puretracks, while growing our core conventional radio business, we think SIRIUS Canada is a perfect fit for us.
2147 Conventional radio has always and will continue to thrive in the Canadian market by providing strong local services and by connecting with local communities. Conventional radio is also 100 percent advertising driven and broadcasts mostly mainstream music in order to retain and grow audiences and remain competitive in garnering its share of revenues.
2148 The opposite is true for satellite radio. It is a subscription service which attracts audiences by providing a wide choice of commercial free musical genres, most of which are not available on free over the air radio. These points were confirmed in a recent report prepared by Solutions Research Group for SIRIUS Canada, a summary of that study is attached to the notes for our oral presentation. We are convinced that conventional and satellite radio can co-exist and that the two services will be complimentary, not competitive.
2149 MR. SHEA:Thank you, Gary. SIRIUS Canada will provide 100 plus radio channels that will include dozens of niche musical formats. It will also provide specialized spoken word channels with a focus on news, public affairs, sports, comedy and political commentary to name just a few.
2150 SIRIUS Canada will provide extensive exposure to a far broader range of musical talent than is currently available, and will give audience many many more listening opportunities.
2151 I would now like to call up on Jane Chalmers and Sylvain Lafrance to tell you a bit more about the CBC programming for SIRIUS Canada.
2152 MR. CHALMERS: Thank you, Kevin. In addition to CBC Radio One and Radio-Canada la Première Chaîne, we plan to launch two new national radio services dedicated to new music, emerging talent and youth programming. Radio 3 will again position CBC as a driving force in Canadian pop culture, the way we currently are with classical music, performing arts and literature. The service is a music and culture channel aimed at exposing Canada's newest creators to an 18 to 39 demographic. The music is eclectic, edgy and champions emerging acts covering a broad spectrum from hip-hop to house, roots to rock, pop to punk, and even spoken word performance art.
2153 Radio 3 will context the music with features on architects, visual artists, life on the farm, paintball as a profession, and many other non-musical topics of interest to our target audience.
2154 M. LAFRANCE : Avec ce projet, la Première Chaîne deviendra donc disponible via le satellite, et nous lancerons également un service entièrement dédié aux 18-34 ans. Bandeàpart existe déjà en version Web, en émission de nuit sur Espace Musique ou, occasionnellement, via la télévision, comme on l'a fait en fin de semaine dans le cadre du Gala de L'ADISQ.
2155 SIRIUS Canada permettra d'amener ce projet, Bandeàpart, à sa destinée véritable : devenir une véritable chaîne de radio dédié à la musique émergente et aux créateurs d'ici.
2156 Le succès actuel de Bandeàpart en version nuit ou Web nous permet d'entrevois l'impact important qu'aurait cette nouvelle chaîne en version satellitaire non seulement pour les jeunes créateurs et leur public, mais aussi pour l'intérêt des publics jeunes pour cette nouvelle technologie de diffusion. Bandeàpart sera un nouveau service tant dans son contenu que dans sa forme, une porte ouverte sur la nouvelle création.
2157 MR. SHEA: Ross Davies will now take you through a new channel that we are proposing, called Wave, to be programmed by Standard Radio.
2158 MR. DAVIES: At Standard, we are particularly excited about one of the Canadian channels to be offered by SIRIUS Canada called The Wave. This channel will broadcast 100 percent Canadian content and will focus on new emerging and independent Canadian artists who are not able to find a place on conventional radio. Artists that will be featured on The Wave include Colin Linden, Kathleen Edwards, Stephen Fearing, Sarah Harmer, Blackie and The Rodeo Kings and Susan Aglukark. This will immediately provide unprecedented exposure for Canadian artists across Canada and the United States.
2159 In order to give more opportunities for Canada's aboriginal community on radio, we have enlisted the help of Aboriginal Voices Radio to assist in the programming of aboriginal talent on The Wave. Standard also plans to launch three more Canadian channels on SIRIUS Canada over time.
2160 MR. SHEA: Thank you, Ross.
2161 All told, SIRIUS Canada expects to carry up to eight channels of Canadian programming by the end of our licence term.
2162 The Canadian talent development, our CTD package that we have developed for SIRIUS Canada, will be a driving force for Canadian music and the Canadian broadcasting system.
2163 You will see on our easel the outline of SIRIUS Canada's 10-point plan that we have developed for the benefit of Canadian artists.
2164 The starting point of our CTD package that we propose is to direct 5 per cent of SIRIUS Canada's revenues, for a total of $22 million, over seven years, to support the careers of aboriginal, French and English Canadian artists. This is an impressive amount, unmatched by any applicant at this hearing. A breakdown of how the 5 per cent would be spent is also attached to the notes of our oral presentation.
2165 The amounts for years 1 and 2, over $2.4 million, will now be guaranteed by SIRIUS Canada, regardless of our penetration. Half of the benefits over the licence term, almost $11 million, will be directed to Factor and Musique Action, for the benefit of both English- and French-speaking artists.
2166 Then there is the Cross-Canada Studio Access Initiative, which will provide Canadian artists with direct access to the broadcast studios of Standard and CBC located across Canada. This access will be used for interviews, live performances and new CD releases, which will be broadcast on SIRIUS Canada.
2167 Our service will also fund a national talent hunt to seek out and support Canadian music talent from all regions of our country. he winner will receive a CD recording contract.
2168 Our 10-point plan includes a number of other initiatives supporting institutions like Aboriginal Voices Radio, McGill University and the Karas Program to buy musical instruments for schools. But a crucial part of our plan is to engage a Canadian talent coordinator, Andreanne Sasseville, who will be based in New York and who will be in charge of promoting Canadian artists on a daily basis for carriage on the SIRIUS services originated in that city.
2169 I would now like to turn you over to Andreanne to provide you with more information.
2170 MS SASSEVILLE: Thank you, Kevin.
2171 It is a real honour for me to be here with you today. I have seen firsthand the important role that broadcasters play in nurturing and developing the careers of Canadian musical artists. Without their on- and off-air support, many Canadian artists would never have made it as far as they have today.
2172 A key part of my role, as Canadian Talent Development Coordinator, will be to act as an ambassador for Canadian artists and promote, at many levels, new emerging and existing talent throughout North America.
2173 As Canadian Talent Development Coordinator, I will be in constant touch with programming experts at SIRIUS, so that they will always be up to date on the newest and best Canadian recordings available. I will also act as a contact person for Canadian artists, promoting them every time I have the chance to do so in New York. I will also coordinate their trips to New York and ensure that we maximize the opportunities around their live appearances while there.
2174 Je serai également responsable de coordonner les initiatives clé de SIRIUS, tel que le programme Showcase Canada-États-Unis, le National Talent Hund et, à tous les mois, les prestations en direct d'artistes canadiens dans les studios à New York.
2175 Somme toute, SIRIUS Canada constitue une façon nouvelle mais surtout excitante pour les artistes canadiens de se faire connaître au niveau international au tout début de leur carrière, ce qui est présentement très difficile à accomplir.
2176 Je vous invite maintenant à visionner la seconde partie de notre vidéo et en apportant une attention toute particulière au groupe Blackie And The Rodeo King, en vedette dans notre présentation. Nous avons profité du passage du groupe canadien à New York pour les inviter dans les studios new-yorkais de SIRIUS et filmer leur prestation. Ma présence à New York fera en sorte qu'il y aura une panoplie d'opportunités du genre afin de promouvoir tous nos artistes canadiens.
2177 Blackie & the Rodeo Kings
--- Video presentation / Présentation vidéo
2178 MR. SHEA: One of the key features in the success of satellite radio is the involvement of the North American car industry, and with us today is Jim Morrison--a great name, we think--from DaimlerChrysler Canada, who will speak to you about the technology for bringing satellite radio to Canadians in their cars.
2179 MR. MORRISON: Thank you, Kevin.
2180 DaimlerChrysler has worked in conjunction with SIRIUS since the launch of SIRIUS satellite radio in the United States. We have helped with the rollout for nearly three years as we have been installing SIRIUS receivers in many of our vehicles for sale in the United States, vehicles such and the Chrysler 300C, the Chrysler Pacifica, Dodge Durango and Jeep Grand Cherokee.
2181 As it stands, up to 30 per cent of our high-end vehicles in the U.S. are opting for the SIRIUS receivers. If the CRTC approves this application, we could very quickly make the SIRIUS option available for Chrysler, Dodge and Jeep products in Canada.
2182 Today, the satellite radio option is already available to our U.S.A. customers and the availability of this option would simply be extended to our Canadian customers.
2183 For example, our assembly lines in Windsor and Brampton are already manufacturing vehicles destined for the U.S. market with the SIRIUS receivers.
2184 I have brought with me an example of the SIRIUS satellite radio. As you can see, it is small, compact and looks very much like a conventional radio receiver. The feedback that we have received from our customers have been terrific. They love the SIRIUS music selection, as well as the top-notch quality sound that they receive from their SIRIUS satellite radios.
2185 MR. SHEA: Thank you, Jim.
2186 Chair, members of the Commission, in summary, the CBC, Standard and SIRIUS undertaking will provide Canada with a rich and eclectic audio service that is currently unmatched in our country. Together, these three broadcast visionaries will bring a unique service that will add an entirely new dimension to Canada's broadcasting landscape.
2187 Artists who are not able to find a place on conventional radio will have a strong voice on SIRIUS Canada. In addition, the depth of our programming, up to eight new channels, and our impressive benefits package, will meet many of the key objectives of the Broadcasting Act. Our service will also provide an unprecedented window to North American audience for CBC and for Canadian musical artists.
2188 In closing, I would like to take this opportunity to thank the hundreds of intervenors who supported our application. SIRIUS Canada received no fewer than 371 interventions from individuals and organizations and we thank them very much.
2189 Our country has a long-standing reputation of leading the world in the area of communications. Indeed, SIRIUS was originally cofounded by a Canadian, David Margolese, and, actually, in the audience with us today is Rob Briskman, from SIRIUS Radio in the U.S., who is the other cofounder. Also, with us today in the audience is Guy Johnson, one of our directors from Victoria.
2190 We now have an opportunity for Canada to maintain and strengthen its reputation by providing Canadian satellite radio service that is owned and controlled by Canadians.
2191 Mr. Chairman, members of the Commission, we thank you very much. We also welcome the students of the Ottawa University communications program, who are with all of us today and, hopefully, will be SIRIUS subscribers in the future.
2192 Thank you very much.
2193 THE CHAIRPERSON: Thank you very much, Mr. Shea, and your team.
2194 Commissioner Pennefather.
2195 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.
2196 Good morning, Mr. Shea, and panel members.
2197 I'm going to discuss with you Canadian content and the programming of your English services, both as proposed and, perhaps, potential.
2198 First of all, just, I think, factually speaking, if I could check the number of channels that we are talking about at launch. The supplementary brief, on page 456, and in other parts of the supplementary brief, there's listings of channels I just wanted to go over so we have the record clear.
2199 As I read it, there are now about a hundred channels on the U.S. service.
2200 MR. SHEA: It's 120.
2201 COMMISSIONER PENNEFATHER: It's 120.
2202 In the material I had, it was 60 music, 40 non-music. Is it about the same breakdown?
2203 MR. SHEA: There's a few more music since that time, Commissioner Pennefather. There's about 65 music channels.
2204 We provided you this morning, and also Commission staff, with an actual channel line-up which reflects the current channel line-up of SIRIUS.
2205 COMMISSIONER PENNEFATHER: Now, I understand from the supplementary brief that you will contract for the rights to distribute all the music channels. Is that correct?
2206 MR. SHEA: That's correct.
2207 COMMISSIONER PENNEFATHER: And on page 5 of your supplementary brief, you say you will add 13 non-music channels and--
2208 MR. SHEA: That's correct.
2209 COMMISSIONER PENNEFATHER: --that you will carry these additional non-music services when programming rights can be obtained for the Canadian market.
2210 Where are you at in this process?
2211 MR. SHEA: I guess, to come to the point, our objective is, at time of launch, to provide the entire line-up of SIRIUS channels that is currently available at that time. Let's assume that total number, today--or, pardon me, then, is 120. That would be our objective.
2212 They would have to alter the programming of five channels, in fact close them down, so that the U.S. menu would be 115 channels. We would then add five Canadian channels, for a total offering to the consumer of 120.
2213 COMMISSIONER PENNEFATHER: To be clear, if you could table with us the list of channels. I realize you gave us the pamphlet. I haven't had a chance to look at it, but the pamphlet, I assume--
2214 MR. SHEA: We will do that.
2215 COMMISSIONER PENNEFATHER: --does not include the five.
2216 MR. SHEA: That's correct.
2217 COMMISSIONER PENNEFATHER: So, in fact, the five Canadian channels at launch will replace five American services currently--
2218 MR. SHEA: That's correct.
2219 COMMISSIONER PENNEFATHER: --up and running?
2220 MR. SHEA: Just one footnote, Commissioner Pennefather.
2221 COMMISSIONER PENNEFATHER: Yes.
2222 MR. SHEA: We, too, do offer a series of local traffic and weather channels on the U.S. service, Chicago and so on, and unlike XM, it is our intention to carry those specific channels, mainly because there are a series, a number of Canadian consumers, truckers and so on, that actually cross border and that consumer, we think, would find those channels valuable and interesting.
2223 COMMISSIONER PENNEFATHER: Thank you. That's, I think, part of the reason for asking for clarity: so we can get a good sense of what the total package is for Canadian subscribers.
2224 MR. SHEA: We will provide that line-up.
2225 COMMISSIONER PENNEFATHER: We will discuss, of course, your concept of Canadian within the mix for American subscribers, but I'm also interested in knowing what that will be.
2226 If we turn to the reply to interventions in today's presentation, you talk about the fifth channel, which is the channel Mr. Slaight--or Mr. Davies described, excuse me. This brings me to another question. So at launch there will be five Canadian channels. And what you have said to me--I guess you took my next question away--was that these five will replace current non-Canadian.
2227 MR. SHEA: That's correct.
2228 COMMISSIONER PENNEFATHER: Going forward, you say that there will be other channels added. This is discussed in your March 12 deficiency response at page 12, you will be adding other channels.
2229 Again, will these replace non-Canadian channels?
2230 MR. SHEA: On the assumption that the universe is still 120 channels, the answer would be yes. So the total foreign allotment would be 112 and then there would be eight Canadian channels.
2231 Should there be advances in compression, then obviously it would take advantage of those opportunities on the compression side.
2232 COMMISSIONER PENNEFATHER: So indeed it is at the get-go. It's not a question of technology. In other words, it is a question of what you have made as your understanding with SIRIUS, that of the same amount you remove five non-Canadian and replace them.
2233 MR. SHEA: That's correct.
2234 COMMISSIONER PENNEFATHER: So in effect, you could have removed more non-American and replaced them with more Canadian. It isn't really a question of capacity at this stage.
2235 MR. SHEA: At this stage, that's correct.
2236 COMMISSIONER PENNEFATHER: Okay.
2237 Just a little more discussion of the Wave, I think it's called now. Again, I had some questions which I think you have clarified here about this fifth channel, 100 per cent Canadian devoted to new music and will include a special focus on aboriginal talent.
2238 Can you explain to me how this will be done very specifically? What does that mean?
2239 MR. SHEA: Mr. Davies
2240 MR. DAVIES: Thank you.
2241 Commissioner, the concept for the Wave, first of all, is it's going to be Canada's first ever triple "A" radio station. What we mean by that is the euphemism means adult album alternative. This has been the much sought after format that hasn't been in existence in Canada for all these years that the music --
2242 COMMISSIONER PENNEFATHER: There is always a new format lurking around. It is like frequencies, they seem to pop up --
2243 MR. DAVIES: And this one is the one that the music industry has been dying for. We are pleased to say that we can now put a format like this on the air.
2244 The essence of this format is to take all blends of contemporary Canadian music, all types of Canadian contemporary music, and blend it together, and that will include aboriginal music on that channel. It will be interwoven throughout the day as part of the regular mix of the sound of the radio station.
2245 COMMISSIONER PENNEFATHER: Do you have a sense of how much at this stage?
2246 MR. DAVIES: If I can just finish here for a second.
2247 In addition to that amount of music being interwoven, there will be special windows on Canada features that will occur daily on the channel, you can see up on that schedule up there. These will focus on different genres of music.
2248 Although aboriginal is not listed up there, these will just kind of rotate through the schedule and aboriginal music will be featured in a focused segment which will take about 15 minutes where we will look at that particular genre of music and play it and perhaps provide some spoken word enrichment about it, an interview with the artist perhaps. That will be a way that the aboriginal music will be particularly spotlighted on the channel.
2249 COMMISSIONER PENNEFATHER: So is there any sense of -- when you say "focus", is there any sense about that being one of the overriding predominant components of the Wave, or is it just part of the mix? At this stage, can you give me a sense of proportion of aboriginal artists that will be included?
2250 MR. DAVIES: I can't give you that right now, but it will definitely be a part of it.
2251 COMMISSIONER PENNEFATHER: Will there be local advertising or any advertising on the Wave?
2252 MR. SHEA: We have no intention of carrying any advertising on any of our five channels or our future channels.
2253 COMMISSIONER PENNEFATHER: Can you comment on the possibility of a condition of licence being imposed as to the minimum level of Canadian content as presented, 100 per cent, and the restrictions on advertising concerning this channel?
2254 I realize you have answered the question for the four, but for this channel.
2255 MR. SHEA: Commissioner Pennefather, in light of the discussion that took place with XM, we provided staff and counsel, as well as a copy for you, with a series of proposed conditions of licence that could cover all aspects of the SIRIUS Canada undertaking; and, yes, we specifically address the issue of advertising.
2256 COMMISSIONER PENNEFATHER: What about Canadian content on the Wave, you presented today as 100 per cent on this list, which I am just looking at now, 100 per cent of music, Category 2, and from Category 3 broadcast on the Wave? So it's there.
2257 MR. SHEA: That's correct.
2258 COMMISSIONER PENNEFATHER: Good. Thank you.
2259 If this list overtakes my questions you will understand, and just draw my attention to the list. I understand, as presented, it is a summary of what has been put in the application and subsequent deficiencies. Okay.
2260 Just before we leave the March 12th deficiency, there is on -- we were discussing the fifth channel and there is a further discussion in the same paragraph, 62, about the upcoming other standard channels.
2261 Is there any sense you can give us of what the content will be of those?
2262 MR. SHEA: I'm going to ask Mr. Slaight and Ross Davies to respond, Commissioner Pennefather.
2263 COMMISSIONER PENNEFATHER: Okay.
2264 MR. SLAIGHT: We have indicated that one of the three would be talk in nature. Specifically what it will be at this point in time we are not sure. It is a fair way down the road. The other two would be music-oriented, focusing 50 per cent on Canadian talent. Again, with those other two stations, it is quite a way down the road, so we haven't really started -- things could change by then, so we are not really sure what format they will be in or what the programming would consist of.
2265 MR. SHEA: I think what we are also suggesting, Commissioner, is that, as you know, we have indicated that this would happen at the 300,000 subscriber level. Obviously, we would now have a history of what consumers are appreciating on our service, both here and domestically, and would like to at that point address how we then alter the mix of content.
2266 COMMISSIONER PENNEFATHER: Just so I'm clear, the initial launch though is five.
2267 MR. SHEA: The initial launch is a guaranteed five captured in a proposed COL.
2268 COMMISSIONER PENNEFATHER: Because I think over the course of time it was four and five if 300,000, but now the 300,000 ramp-up replies to any further channels beyond the five. Correct?
2269 MR. SHEA: That's correct.
2270 COMMISSIONER PENNEFATHER: Just in terms of the agreement, is it in the agreement the fact that these additional channels can be added over time to achieve the eight you have mentioned by the end of the licence term? I am not sure I see that that is guaranteed as a possibility.
2271 In other words, what I am coming down to for our discussion is, we are really looking at five definite at this point. Is there any guarantee about the addition of the others?
2272 MR. SHEA: There is an understanding between the partners that really has two elements attached, that is, once we reach 300,000 subscribers is the first and then, secondly, on the assumption that there is technical capacity to be able to add those incremental three.
2273 COMMISSIONER PENNEFATHER: I think I read in the supplementary brief that it is a possibility, it isn't guaranteed at this stage.
2274 MR. SHEA: That's correct.
2275 COMMISSIONER PENNEFATHER: This brings me to a general discussion. I see from what you have submitted today that again you are looking at proposing a formula in terms of conditions of licence on this question. Perhaps you could expand a bit and discuss how you see the approach the Commission should take in terms of this ratio of Canadian to non-Canadian.
2276 Obviously, I'm sure, you were here yesterday and you understand as well the context in which this whole discussion is taking place and the balancing act we have to achieve vis-à-vis the Broadcast Act, the flexibility that we can obviously apply, adaptability to technology, and so on, but it remains a question as to what is considered to be an appropriate number of channels.
2277 I said to you earlier, technically you could have added more channels at this stage to offer a stronger Canadian package to Canadian subscribers, let alone, and we will get to this, offer a stronger piece of Canadian programming in the American system.
2278 Can you discuss with us how we should look at this in terms of the changes that may occur over time? What would be, in your view, a formulae which would help us (a) to look at what is an appropriate ratio and (b) as things change, the subscriber base, subscriber results may not be as expected.
2279 As you said, we have an understanding with SIRIUS regarding the addition of channels. From my point of view, that is not a guarantee. Can you give us some sense of how we should govern this ratio of Canadian to non-Canadian?
2280 MR. SHEA: I presume it being the fundamental question amongst other key ones of this hearing.
2281 Let me start by saying that I guess the debate, if you will, begins on: could we replicate, could we build a Canadian satellite system that could provide this service?
2282 I think the Commission is now well informed that if we could it's many, many years off, primarily because of the position of satellites being available and, secondly, it would be a cost of upwards of $2 billion. So, in the short term, as a country we really have no alternative for a satellite delivered service, but there clearly is one that exists.
2283 If we elect, as an outcome of this process, not to licence, we would firmly take the position that the potential of benefits to our broadcasting system, both financial and more importantly opportunities for Canadian artists, would be lost because there would be an evolving and very threatening grey market that would be highly activated in Canada.
2284 So let's assume we do licence -- specifically, Commissioner Pennefather, to your question about ratios, perhaps this is one way to look at it -- eight channels against a population of 30 million people, an interesting ratio, 115 channels against a population of 300 million, an interesting ratio.
2285 I think where I am going, Commissioner, is that this really is -- this is a completely different proposition than I think the regulator has seen, and that is, we are really forming part of a North American broadcasting system -- a broadcasting service, pardon me, whereby we, through negotiation, through commitments to the CRTC, have made certain appropriations for Canadian programming and Canadian content.
2286 The single most important benefit of all of this is that for the first time in our history we have channels going into the United States. First time. I can only imagine if we had had that opportunity in television how successful we may have been for Canadian producers and artists to gain access to that market.
2287 You have seen, both in interventions to this process and no doubt you will hear over the course of the next couple of days specifically from a Canadian artist's perspective, if they do not make it in the U.S. they do not make it. So what a tremendous opportunity this is whereby we create three new networks for Canada, three brand new national networks, two by the CBC, one for the Wave, all about Canadian musical talent, three domestically, that also simultaneously have the benefit of being programmed and promoted in the U.S. of A.
2288 Now, if we elect not to do this, meaning that as a result of this process we don't licence, all those benefits are gone.
2289 So back to this fundamental question of content, channels, recognizing as well that part of this process is a policy hearing, the fundamental proposition that we put forward is twofold: one, 5 per cent of our revenues should be going directly to support various specific CTD initiatives. That is in keeping with other BDUs that this Commission has licensed; secondly, with respect to channels, we are proposing that one ratio to perhaps look at is the audience number served as a concept.
2290 Secondly, we will guarantee, through a COL and our partner from SIRIUS is here, that you have every assurance that we will launch with five channels, that two will remain in the French language for the entire licence period and that as more channel capacity becomes available and as we grow subscribers, the notion is that we would ultimately add more channels.
2291 I am going to close off on this, Commissioner Pennefather, because no one knows better than this Commission of how difficult it is to turn off channels.
2292 When we launch the U.S. system, which currently has about 800,000 subscribers, it has to turn off five channels. That's a big ask, because there are going to be consumers to those current five channels that it's among their top 10.
2293 So this whole notion of swapping out channels -- I know the people at SIRIUS are currently looking at their channel usage and saying which one are we going to de-list. That is a marketing issue on their side and I think if we are partners now in a North American service from a consumer perspective, we have to be cognizant of that.
2294 COMMISSIONER PENNEFATHER: Thank you for that response. Let me start back with the last thing you just said as a reaction.
2295 Another way of looking at this though -- and again I appreciate that we are looking at this as my other colleagues have discussed it as well -- the benefits here but also what we have to look under the Act and what we are mandated to do.
2296 I might also say that part of the concern we might have at launch is to your point: Five Canadian channels out of 100 and growing. Going forward what are the chances again of channel change? You just yourself said that there is the risk that consumers will become attached to the package as delivered, a package which is, the numbers say, a majority of non-Canadian services by far, and what are the chances of changing that by virtue of your own argument that subscribers will become attached to the package as they have it?
2297 So it is that point, plus the assumption that five, as you have proposed in your proposed COLs, one I think which you propose that should be applicable to the other similar enterprises, that five is a sufficient number? Because, to your point, five may be it, because as going forward if you want to add three more you have to drop three non-Canadian which may have become quite popular in this country. So we will have this same problem.
2298 So the question remains how far we should go at the very launch to make sure that Canadian subscribers are well served by this new technology which offers such an opportunity to Canadian artists, both in terms of the impact to the United States, but they are here because there is an audience here as well, not just in the United States.
2299 So if you could just expand a little bit on my piece of this discussion, which is at the launch we have five.
2300 Now, I want to just add too, and perhaps you could clarify this, at the supplementary brief on page 11 my reading is that -- and I quote:
"...that subject to clearance of rights the Canadian channels in the CBC SIRIUS service will be available in the United States via the satellite radio service." (As read)
2301 This does not read that this is a given at this point. In fact, the next sentence says:
"This means CBC Radio and La Première Chaîne and the two new CBC services..."
2302 At that point we were just talking about two:
"...may be available to a totally new audience."
2303 So again, is five enough and is five guaranteed at this stage in fact?
2304 MR. SHEA: In your usual brilliance you have asked 17 questions. Let me --
2305 COMMISSIONER PENNEFATHER: I am not the lawyer at the table.
2306 MR. SHEA: Let me start by saying that the five channels are guaranteed and guaranteed over the licence term.
2307 Secondly, with respect to the three channels that are home-grown, if you will, the two from CBC and The Wave from Standard, Commissioner Pennefather, we may over the course of time change some elements to the programming line-up, mainly because we are now reacting to consumer feedback. But the formats of the channels will remain in sync and as described by COL and to the Commission.
2308 We have total, total control over what we program, meaning SIRIUS Canada does. We don't need approvals, we don't need any kind of authorization from SIRIUS in the U.S. It is under our total purview as to what we do.
2309 Obviously we are going to be reacting as we begin to build this business to the likes and dislikes of our own subscribers here in Canada.
2310 The second question you asked was: Clearances of the two CBC existing signals into the U.S. I think as one is always prudent as they draft applications, knowing full well that there are a series of clearances that one would have to go through for content, we have absolutely every belief that we will be successful in those negotiations to be able to bring the two CBC services to the American audience, but I think you will respect that you really can't go negotiating until you have a licence. We do not assume there should be any imperative to us having access to the U.S market in fact for all five channels.
2311 The one piece, though, that we really haven't commented on, we talk about five channels as if that is the only Canadian content on SIRIUS.
2312 We have -- and we are more than prepared to file this with the Commission -- we did a three-day survey on all the music channels on SIRIUS currently in the U.S. over the period of October 12 to October 14, so three days, and I am going to guarantee the Commission we had no discussions with the programmers in advance. In fact, we gave them sort of 24 hours notice and said, "Could you analyze Canadian content on your existing channels."
2313 Some channels, namely The Pulse, over the course of those three days contained about 9 per cent Canadian content. Others, SIRIUS Hits, had about 6 per cent.
2314 But I want to take you to the channels that had no Canadian content, because there is many of them. Classical Voices, New Horizons, Spirits, Reggae Rhythms.
2315 My point here is that the reason why there is no Canadian content on those channels and we know we have content is when you walk into the offices of SIRIUS U.S., what you realize is there are 65 simultaneous radio stations being programmed. Each station has a programming, in fact each station has about four or five programming staff. So it is very easy for the record label people from the majors in Canada to go and visit the top hits channels in the U.S. to get airplay.
2316 Andreanne's key role as the Ambassador, living there, working there every day, is meeting with the programmers of the classical channels, meeting with the programmers of the Praise channel, meeting with the programmers of Hip-Hop Nation channel and saying: By the way, I have Canadian content for you.
2317 We envisage a day when these channels are going to contain not zeros but 5 or 5 per cent Canadian content, ideally more. The channels that are currently about 9 or 10 per cent Canadian content may have 11 or 12 per cent. So you cume that up, that is a rather impressive distribution, finally, for Canadian content in the U.S. I think you heard this from the folks at XM.
2318 The beauty of satellite radio is it plays stuff that no one else does, and there is a litany of Canadian content that the programmers in SIRIUS are not even aware of yet, and that we will change.
2319 COMMISSIONER PENNEFATHER: Thank you, Mr. Shea.
2320 Looking at that total picture again, I think it remains a discussion for the exposure and promotion of Canadian artists the value of the Canadian channels and how strongly they are going to hold up in that bigger picture. You mentioned the possibility of Canadian content on the American services.
2321 Just on that last point, you are saying as a possibility it is around 9 per cent in certain circumstances as you have gone through, so do you have specific plans that will look at an incremental amount of Canadian content. Do you have specific programs as yet defined to increase that?
2322 MR. SHEA: Commissioner Pennefather, we don't, not at this point in time, nor would we be proposing any kind of ratios that we see a day when there might be 5 per cent on this particular channel in the States, and so on.
2323 But one thing we do know is, about four or five weeks ago we had the opportunity to go down and sit with about 10 of the programmers at SIRIUS in the U.S. and again I am going to come back to what they are looking for is differentiated product and content that no one else has. The opportunity for both us, and ultimately XM, to have influence in terms of the promotion of Canadian content that they would never know of.
2324 In the TV business you heard about the $5,000 cup of coffee, a producer coming from Vancouver to meet with a guy in Toronto. Well, in New York it is the $15,000 cup of coffee, and in fact you have to stay there for seven weeks because there are 62 programmers you have to meet with.
2325 So I don't think we can understate. When we come back to benefits and the whole proposition of channels and money, the influence that we can have, because we now have a partner, because we now have someone stationed in New York, because we have set up -- and Ross and Andreanne can speak to you about this -- a whole process of how we plan on getting more titles to these programmings.
2326 That in and of itself is going to be a huge, huge benefit.
2327 COMMISSIONER PENNEFATHER: Thank you. There is one last general question.
2328 In this total picture the basic programming concept we have here for SIRIUS, as per the other applicant, is a possibility of our listener to scroll through looking for jazz, for example, and the basic list, the pamphlet, is divided by genre. That is part of the concept. That is what makes it unique and sells. Within that mix are five Canadian channels within which, as per your outline, for the Wave in any case, a mix of all kinds of different genre. In other words, it is not niche-targeting concept. This also is the same for Bandeàpart, Radio 3 and the two CBC channels, which are as we know them today. They are as stated in your application, simply rebroads of the existing CBC services.
2329 From the conceptual point of view, from the point of view of subscribership in Canada, they seem to be contradictory concepts. How will the Canadian channels survive in this and what will happen to the benefits to Canadian artists that you propose are there by virtue of the Canadian channels?
2330 MR. SHEA: If we can assume that the current CBC networks English and French would fall into the news package where you see BBC and NPR and so on, I think that, from a format standpoint, Commissioner Pennefather, would certainly fit.
2331 It's interesting in the U.S., SIRIUS, when they do various ratings, how often the BBC shows up in their top 10. We kind of hope that that is going to be CBC.
2332 There is already a significant audience to some of the CBC programming in the U.S. because they sell various documentaries, and so on, to NPR. So we see that as a significant opportunity for the CBC, but those channels would be contained in the news section.
2333 So I think your question really pertains to the other three, because it seems to be a bit contradictory that you organize music channels by genre and we have these three Canadian channels which seem to be kind of catchalls.
2334 One of the beauties of satellite radio honestly is the ability for us all to be able experiment, quite honestly.
2335 But I am going to have the programmers, because they know a lot more about it than I do, but Jane and Sylvain and Ross Davies, to comment on their concept about programming their channels into a menu of 100-some odd channels.
2337 COMMISSIONER PENNEFATHER: Just before you do that -- I'm sorry to interrupt -- I do have specific questions on the channels themselves, so just before we switch to that mode where we will go through programming in a little more detail, one last question to you, Mr. Shea, on this area.
2338 MR. SHEA: Okay.
2339 COMMISSIONER PENNEFATHER: In terms of the radio, just finally, a formula which, as you say, at some point technology may change and the number of channels offered could increase to 140 for example, as those numbers increase in non-Canadian services, what is your comment on a formula that would, for example, for every new non-Canadian service added that a Canadian service would be added or some formula similar?
2340 Do you see any possibility in that?
2341 MR. SHEA: I want to be able to understand this question because it is important.
2342 In other words, if tomorrow technically SIRIUS U.S. were able to add two more channels, that we would have an arrangement with SIRIUS that one of those incremental channels would come our way?
2343 COMMISSIONER PENNEFATHER: Correct.
2344 MR. SHEA: Is that the way I am understanding it?
2345 COMMISSIONER PENNEFATHER: That is the point of the question, yes.
2346 MR. SHEA: Okay.
2347 I think, in fairness, specific to that question, we would like an opportunity to caucus with our partner to find out whether that might be something that they would be amenable to and we will come back to you on that. We have not had that discussion with them.
2348 COMMISSIONER PENNEFATHER: Thank you.
2349 Now, to the programmers. I have some questions on the English channels, from CBC Radio 1 and Radio 3, and my colleague, Madam Wylie, will discuss, l'Éspace Musique, avec M. Lafrance, and La Premièr Chaine, but I don't want to forget the point that Mr. Shea raised regarding the larger picture and my question about this type of radio programming, as proposed for--other than the five, the balance will be a different concept, and then the mix will be Canadian wave, but also Radio 3, bandeàpart, how will they work. So if you could integrate that, as well, into your responses.
2350 Just to start off, what you will be carrying, Radio 1--the schedule is not up on a big chart--they are a complete broadcast of what is currently available, is that correct, on Radio 1? There's no change. It's Radio 1, as we see it today--hear it today, I should say?
2351 MR. SHEA: That's correct.
2352 COMMISSIONER PENNEFATHER: You say, on page 44, of your supplementary brief, I believe, actually, it's in response to a March 4 deficiency--I'm sorry, a March 4th deficiency letter, on page 44 of that letter, there's an appendix discussing Radio 1, that it now reaches 97 per cent of English-speaking Canada, with a share of 8.3 per cent and a reach of 3 million.
2353 Now, I guess one has to ask: with that kind of share, with the same programming, what's the rationale for Radio 1 in this enterprise?
2354 I don't know if Mr. Tremblay wants to respond to that.
2355 MR. TREMBLAY: I would like to begin, and maybe ask Jane Chalmers to follow up.
2356 But, no, quite clearly, we believe that, no, we must establish a strong foothold on this new platform. We believe that, no, carriage of both Radio 1 and La Premièr Chaine are fundamental elements. They are the core ambassadors of the CBC. Keeping in mind that not only--well, the fact that it will be up on satellite will allow remaining Canadians, that are not currently able to receive our signal, to have access to this programming. There's also the expansion of this programming into the U.S. market.
2357 So I think there is a strong rationale because, in fact, we cannot segregate in terms of what is being carried in Canada and the U.S. So we are automatically on the North American platform and we believe that there is significant brand extension potential for us.
2359 MS CHALMERS: As you also read in some of our research, younger people are not using the radio in the way that you and I grew up with, using the radio as a constant. There's so many options out there, especially for younger people there's the technology.
2360 We, at CBC, generally, with have come up with the philosophy that we have got to be where people choose to go and be on platforms and be there when they choose to get us there.
2361 For us, on Radio 1, well, our share is healthy, our appreciation from the Canadian public is very gratifying to all of us. We work hard to earn that trust and feeling every day. At the same point is that our audience is a more mature audience and we have to be in places, on new platforms, as youth choose to go there.
2362 I have always been of the belief that, if we can get people to sample CBC Radio 1, it will stand up competitively with any public--or any radio operation in the world. It is world-class and its quality. I think we try and do--you know, we have very high standards that we work for every day. But if we are not there and people, younger people, especially, aren't necessarily tuning to conventional radio in the way that they once did, then we will be invisible. That's why we think Radio 1 has to be there as our premier service.
2363 COMMISSIONER PENNEFATHER: So you are talking about visibility in Canada or visibility in the United States?
2364 MS CHALMERS: Well, my first concern is visibility domestically. Our first raison d'être is to serve the Canadian public, and that means all ages, which is, also, I guess, we are going to move to is the whole function of Radio 3.
2365 But second, as a public service broadcaster, we believe we also have a role to play for Canada internationally, when the opportunity presents itself, to be able to put a very high-quality service in major markets, as we are doing and have been doing over the past years with individual program sales, and to be able to expose people in other countries, in this case the U.S., but we also do work in Europe and the Pacific Rim, to the Canadian perspective, the Canadian debate, the Canadian values, the Canadian culture. Any opportunity that we can have to do that, we feel it's part of our, not our primary function, but certainly an important thing for us to do.
2366 COMMISSIONER PENNEFATHER: Let me ask you to discuss Radio 3.
2367 THE CHAIRPERSON: Just before you do, can I?
2368 COMMISSIONER PENNEFATHER: Go ahead.
2369 THE CHAIRPERSON: Just a quick follow-up, Ms Chambers.
2370 MS CHALMERS: Sure.
2371 THE CHAIRPERSON: What percentage of the English-speaking Canadian population currently is not covered--does not have access to CBC 1?
2372 MS CHALMERS: About 2 per cent or 3 per cent. It's very high--
2373 THE CHAIRPERSON: Right.
2374 MS CHALMERS: --our reach.
2375 THE CHAIRPERSON: I'm trying to understand your point about--
2376 MS CHALMERS: I'm just saying that younger people don't tend to turn on the radio the way I was taught to by my parents.
2377 THE CHAIRPERSON: I see.
2378 MS CHALMERS: They are going to Internet and they are very attracted to this new satellite technology. I feel if we are not there in Canada, then they will not have an experience or a relationship with CBC radio like the one that I grew up with. So we are trying to adopt and make sure that our content and our networks are placed appropriately when these technologies look like they are going to take off, and this one certainly does, and is taking off.
2379 THE CHAIRPERSON: Thank you.
2380 COMMISSIONER PENNEFATHER: Thank you.
2381 So you are talking about a positioning for CBC--
2382 MS CHALMERS: Yes, I am.
2383 COMMISSIONER PENNEFATHER: --and Radio Canada in this environment?
2384 MS CHALMERS: Yes.
2385 COMMISSIONER PENNEFATHER: To my point, then, as you place yourself in this environment, Radio 1 is a rebroad for those purposes and Radio 3, however, is a program schedule, which I see there, which you say will be different again.
2386 My question earlier was, and to your point about young people--
2387 MS CHALMERS: Right.
2388 COMMISSIONER PENNEFATHER: --the concept of the subscription radio is largely niche programming: a number of channels, looking at the name, finding the name of the group, finding the Andy Warhols, wherever they are in the list, for example.
2389 So with that in mind, why would you have a Radio-3-type concept, which is more, if I may, a conventional approach, albeit with programming geared towards the younger audience coming from the Internet? How do you see it working within this concept? And then I will ask you a couple of specifics about the grid.
2390 MS CHALMERS: Okay. I will just start off a bit broadly. As you may be aware, Radio 3 has been an entity with CBC Radio for about five years and it's the deal with the music and the culture of the younger demographic.
2391 We are, first and foremost, a public radio service network and we look at--one of the big voids before Radio 3 started, and it was started by my predecessor, was to do with contemporary new music. We are very well recognized in the field of literature or classical music, as I said earlier, but we are really letting down the emerging artists for contemporary music. So that's why it was started.
2392 And over the past five years we have used that content, as much as possible, across our existing radio services, both locally and nationally and at the Internet.
2393 So as a public radio service, with, I would say, a high level of expertise, in terms of music, we have a lot of in-house and we partner a lot with external organizations. So we know what high-quality music is within the different genres. We have those partnerships, we have that expertise.
2394 The way we look at the niche format, then, is quite different than the way you may see it on the satellite radio schedule. We are looking at it not in a way of just programming one narrow kind of music, but we are looking at programming to a certain type psycho-graphic niche, a certain type of young person. I think if you think about the young people that you know today, they don't just necessarily listen to one kind of music, but they are interested in being seen as adventurous, they are restless, they are interested on being no the cutting edge, ahead of musical developments, and this is where we are going to focus our time and energy.
2395 I would compare it sort of with what my colleague, Sylvain, here, has done with Espace Musique, in terms of our approach.
2396 So we are looking for several kinds of qualities, I think it would be said, in terms of the music that we are going to be playing. It has to be new, it has to come from a different perspective and it has to show it's blazing a trail, there's something exciting and new about it. As I said, it's about 80 to 20 talk. We will provide the right kind of context, the right kind of point. We will be able to show where this music is coming and where it's going.
2397 I think that this channel will be distinct on the SIRIUS spectrum and I would say that, in our view, that's the right place for us to be. We have a lot of confidence in our ability to produce compelling networks. So we want to stand out.
2398 COMMISSIONER PENNEFATHER: But it remains a total concept, which is not, really, more of the list of genre.
2399 You describe new music in your response to the March--the May 21st deficiency. I have that definition, but I just wondered what percentage of that grid and where I would find new music on that grid.
2400 MS CHALMERS: We, as a very floor level--and I would say we think it's going to be higher--about 65 per cent of that schedule will be original, okay?
2401 But let me also tell you that last year, for example, Radio 3 produced 70--seven-zero--concerts across Canada that we used on the web site and on Radio 1 and 2. So they are producing a massive amount of material, our unit, which is based in Vancouver, by the way, that's already being used on our existing radio services.
2402 So when I say it's going to be, it depends on what it is and where it's actually heard first, whether it's across Radio 1 and 2 and done back, because we try and share a bit of this content.
2403 COMMISSIONER PENNEFATHER: Okay. I'm still not entirely clear on how it works within the overall, but you can understand the concern--
2404 MS CHALMERS: Sure.
2405 COMMISSIONER PENNEFATHER: --that if we are dealing here with an environment in which we are looking at exposure for artists.
2406 MS CHALMERS: Right.
2407 COMMISSIONER PENNEFATHER: What's the component of spoken word on Radio 3?
2408 MS CHALMERS: It's about 80 music to 20 spoken word.
2409 COMMISSIONER PENNEFATHER: Okay.
2410 MS CHALMERS: Can I explain? This may help you get some context. For example, we are located in about 45 communities across Canada, and you know this. We have people all across the country going out to visit, see bands perform in clubs and basements and all over the place. We have a tremendous issue in this country between where they are performing at the sort of club or small place level--and some of them are barely making a living, if they are at all--to the point of a recording contract. Those are the groups that we are interested, in terms of nurturing their career through.
2411 Our problem for this kind of material, quite frankly, has been a shelf-space problem. So, for us, this gives us an additional platform to play and experiment on it. We think this is the kind of listener we are after who are open to this.
2412 All of this, the hosted playlist, in the centre portions here, we have a database of new music from new contemporary Canadian artists that have never been recorded of, so far, about 25,000 to 30,000 songs. It's growing a lot. As a matter of fact, major record labels in Canada are now signing--I think there has been a half-a-dozen of them signed--because they are just checking out that web site. That will form the guts of our schedule.
2413 As well, we are after new CD releases. We do, across the network, but this all genres of music, probably around, at the regional level--we do extensive recording network-level--we did over 700 studio sessions and concerts last year. We have 10 recording studios across the country. These are constantly being used to be able to nurture and develop and record new artists. We use it in our local and our network programs. All of this material will flow here, so it will play in its entirety, instead of just bits and pieces, as it does now. So that's how it will work.
2414 COMMISSIONER PENNEFATHER: Thank you. That explains the concept, thank you.
2415 MR. SHEA: Commissioner Pennefather, if I may, to this question of: aren't the three channels that we are proposing, again, running contrary to the fact that most channels that they currently have are themed, in the U.S. satellite radio is still an evolving proposition, it's really only about two-and-a-half years old, and they are making constant changes to their line-up of certain channels.
2416 The current user, the current consumer in the U.S., has a profile that is sort of 35 to 50, male, highly educated and fairly well off. That is because the units have been principally if not exclusively only available in automobiles. But this whole concept is going to change everything and it wasn't really envisaged two years ago when they put this schedule together.
2417 So when you talk about the fact that we have lost teens to the Canadian broadcasting system vis-à-vis radio, you are absolutely right. We have totally lost teens. What have they done, they have gone and bought $400 or $500 iPods and that is how they today get their music. Our bet is the bulk of that music that they have downloaded is foreign
2418 So let's come back to our concept and how we landed with the three channels. We didn't do it arbitrarily, but rather there was a number of discussions with the programmers at SIRIUS saying: What do you need? What are you looking for? What are you building toward? They said: We ultimately see a day when we still have themed channels, but we actually may have conventional type radio stations to be able to add to that mix, ones that they would create, not that they would pick up.
2419 So what I think we see is, if we are going to be launching, hopefully next May or June, the opportunity to be able to be launching into a market where we can sell these to Canadian teenagers, and they have access now to Canadian programming, and there is a cross promotion of the three channels, it is a lot better than what the current offering is, which is an iPod not connected to our system and no Canadian content.
2420 COMMISSIONER PENNEFATHER: Indeed we could discuss the impact of all these technologies on Canadian music, both the positive and the negative, certainly access to more Canadian throughout, but in this particular concept I think you can understand that as you look at your schedule and you think about the way it is going to work, at least for the time being, within this three Canadian channels, how effective can that be for the exposure of Canadian artists -- and they are there, as Ms Chalmers has said -- hence, back to square one in terms of five and five as such as opposed to five or more in this concept.
2421 In terms of support to Canadian artists, let's get to Canadian Talent Development. I think you have a 10 point chart here.
2422 As a general comment and discussion, we have looked at the possibility, the suggestion that has come forward that in light of the Canadian channel and their numbers and the ratio being extremely low for Canadian channels, the commitment in Canadian Talent Development becomes an extremely important component and perhaps could be suggested to be increased as a result.
2423 If we accept this as reasonable -- I believe you have a 5 per cent proposal -- what is your comment on increasing that amount in light of the discussion we have had? In other words, if you take a model where in the pay services world there you have 4 per cent but with a much stronger component, 1-to-1 Canadian/non-Canada, and there you are at five to 100 and you are at 5 per cent.
2424 Can you comment on a regulatory approach which would be reasonable in terms of percentage and if that percentage should apply to all players in this type of enterprise?
2425 MR. SHEA: I guess I will start, Commissioner Pennefather, by saying in looking at the approach the Commission has taken with licensing other undertakings, specifically BDUs, there is notionally the 5 per cent, which is dedicated toward the benefit of CTD initiatives that the Commission either sets out in a framework or approves specifically to the licensee.
2426 But 5 per cent is just the beginning of the kinds of expenditures that we will be making. We advocate that the 5 per cent, our 10 point plan, Commissioner Pennefather, we would hope you would agree that it really is going to third party initiatives.
2427 The costs for programming the channels of Standard and CBC -- and we can provide the Commission with the specific costs of those channels -- is not counted, obviously, in part of our 5 per cent. That is separate and distinct.
2428 COMMISSIONER PENNEFATHER: Thank you for clarifying that, because in fact on page 10 of your supplementary brief you included both in the 5 per cent. Is it --
2429 MR. SHEA: Okay. What you will see before you today is a complete breakout of where the money is going. We have even itemized it by activity and dollars. Not contained is any of the production costs or the distribution costs for either of -- for any aspect of the five channels. They are above and beyond the 5 per cent.
2430 COMMISSIONER PENNEFATHER: In terms of program costs, if I may -- since you raised it. I was going to raise it in one moment -- May 31st deficiency you submitted a revised Appendix 4A income statement. Programming expenses are still blank.
2431 Would you be able to submit to the Commission those programming expenses, costs which you were asked to submit in that deficiency?
2432 MR. SHEA: Yes, we can. We have it broken out by the five channels over the course of the seven years and it actually would increase our overall Cancon expense to about 8.1 per cent. In other words, our costs of providing Canadian programming, the five channels, is 3.1 per cent of our revenues.
2433 COMMISSIONER PENNEFATHER: Again, just to be clear too, when you do submit -- and we will probably come back to this discussion -- we will need more information regarding shareholder contributions, because the footnote to this appendix says:
Pursuant to the agreement between the shareholders and the associated shareholder obligations, shareholders contribute all of the programming to be distributed by CSS." (As read)
2434 So perhaps you could come back with clarifying both the numbers and the shareholder contributions?
2435 MR. SHEA: We will do that.
2436 COMMISSIONER PENNEFATHER: On the Canadian Talent Development then, per se, could we get back to that discussion both in terms of the policy point I raised and then I will ask you a couple of more specifics on the initiatives.
2437 On the policy point that I raised --
2438 MR. SHEA: On the policy point.
2439 COMMISSIONER PENNEFATHER: -- in terms of generally what, in your view, would be an appropriate percentage for Canadian Talent Development, considering the thesis that you and others have said that that is five channels, and in your proposal a minimum of five, is all that can be done at this point?
2440 MR. SHEA: Our proposal from a policy standpoint is that we think it should be consistent with other BDUs and that would be at 5 per cent, as we have now indicated in our proposed conditions of license.
2441 COMMISSIONER PENNEFATHER: So we will come back to that discussion, I'm sure, in terms of discussing type of licence. You are presenting yourself as a BDU and therefore 5 per cent.
2442 Can we look at the initiatives themselves? Actually, this was tabled with your presentation -- this morning in fact, although we are in the afternoon -- which gives a breakdown which I didn't have before and appreciate having that now -- for the coordinator, the travel costs to studios.
2443 In your response to deficiencies on March 12th you refer to an artist support fund. I assume that is a description of all of this.
2444 Is that what it is?
2445 MR. SHEA: That's correct. I am actually going to ask Mr. Davies specifically to comment.
2446 MR. DAVIES: The answer is yes.
2447 COMMISSIONER PENNEFATHER: That was easy.
2448 Let's look at March 12th deficiency response page 14, the first full paragraph where we discuss the New York showcases. I don't know if that has been clarified in today's submission, but in any case you say here:
"As the service ramps up and the revenue increases to make this possible, we hope to set up two or more New York showcases per year covering the cost to bring a number of unsigned Canadian artists to the U.S. to increase their profile." (As read)
2449 What do you mean by ramping up and what revenue level would have to be reached to set up these showcases?
2450 MR. DAVIES: Commissioner Pennefather, the commitment to the Canadian Talent Development in the first two years, as Mr. Shea has indicated, is guaranteed. The showcases that you refer to in New York will occur on two occasions in those first two years, and in fact they will occur right through until -- I believe it is year four when we expand that to four per year.
2451 So from right out of the gate we will hold two showcases per year in the United States.
2452 COMMISSIONER PENNEFATHER: Okay. That clears that up. So today we are a little more specific and we have them in years one and two.
2453 The Starmaker Fund is referenced in the same paragraph:
"These initiatives will be done in conjunction with the Starmaker Fund which would make administrative sense. CSS may choose to make a contribution to that fund so that it can undertake these initiatives." (As read)
2454 Is that still in the works? How would that work if so?
2455 MR. DAVIES: That is confirmed. We have had discussions with the Radio Starmaker Fund and we have allocated funding for the Fonds RadioStar and Radio Starmaker Fund in year four.
2456 In discussions with the Executive Director of Starmaker Fund, it is interesting to note that the timing is pretty good because the way their funding is right now, the funds start dwindling towards our year four of ramp up and the funds that they have right now, which are all based on transactions, start getting used up. So we think this is actually pretty good timing in terms of funding for the Radio Starmaker program.
2457 COMMISSIONER PENNEFATHER: Thank you for that.
2458 In the next paragraph, again to clear up the national talent hunt, again it says:
"As revenues increase we will use the 2.5% of revenue to create a national talent fund." (As read)
2459 Could you clarify that, please?
2460 MR. DAVIES: Similar to the showcases, Commissioner Pennefather, those things will be guaranteed and they will begin in year one and will continue throughout the seven years of the licence if we are granted one, on an annual basis.
2461 COMMISSIONER PENNEFATHER: Thank you.
2462 Just before I leave Canadian Talent Development, you have said very clear, Mr. Shea, that your 5 per cent is based on the understanding of a BDU licence, 5 per cent is therefore appropriate. As we continue the discussion on other possibilities in terms of class of licence, my question is: Assuming that that thesis is not there, BDU equals 5 per cent contribution as per the current Regs, have you considered a larger percent and what impact that would have on your bottom line if that would be possible?
2463 MR. SHEA: I guess to be frank, Commissioner, we haven't thought beyond the 5 per cent.
2464 We have a huge unknown and the huge unknown is the outcome. Again, we cannot deal with this until we are licensed, the respective copyright payments, and so on, that are going to be due and payable, in effect, on both sides of our border one for the Canadian channels that we will be building and generating ourselves, the other are the clearances for the CBC in the U.S.
2465 Again, you will hear from the intervenors who will be before you over the course of the next couple of days and some of them are advocating -- and I know this is not the jurisdiction of the Commission, but some of them are advocating percentages of copyright fees up to 25 per cent.
2466 So we do have this unknown. Some of the benefits of those copyrights payments will accrue to Canadian artists. So when we have factored in the expenses from a best planning efforts and then work all those back, we think the 5 per cent contribution -- to specifically CTD, not other expenses -- is a significant benefit to our system in light of everything else we are going to be doing.
2467 COMMISSIONER PENNEFATHER: You will get back to us on some clear numbers on expenditures on programming --
2468 MR. SHEA: Yes, we will.
2469 COMMISSIONER PENNEFATHER: -- on Canadian programming.
2470 MR. SHEA: We have that available. We can file it with the Commission today.
2471 COMMISSIONER PENNEFATHER: My final area of questioning is cultural diversity. Again, you have provided considerable more detail from your application to deficiencies in March 12th letter discussing CBC Radio's cultural diversity approach and employment equity practices and strategies.
2472 My question has to be though: Will the employment strategy, which is outlined in that response to deficiencies and in your application in Question 9.2, going to be applied to SIRIUS Canada and, if so, how?
2473 MR. SHEA: Our plan is to take the best of both. I think you have two leading companies in front of you. Standard is well recognized for an unbelievable leadership role in the private sector in these areas, the CBC in the public sector, and we will take the best of both organizations and ultimately follow those policies and file them with the Commission.
2474 COMMISSIONER PENNEFATHER: So you would file a plan which would be specific to the type of programming being offered by SIRIUS Canada?
2475 MR. SHEA: Yes, we will.
2476 COMMISSIONER PENNEFATHER: Thank you very much. Those are my questions. Thank you for your patience with all my questions, Mr. Shea.
2477 THE CHAIRPERSON: Thank you.
2478 We will break for lunch now and resume at 1:30. Nous reprendrons à une heure et demi.
--- Upon recessing at 1230 / Suspension à 1230
--- Upon resuming at 1330 / Reprise à 1330
2479 THE CHAIRPERSON: Order please. À l'ordre s'il vous plait. Good afternoon. I will now turn the floor over to Vice-Chair Wylie.
2480 COMMISSIONER WYLIE: Good afternoon, ladies and gentleman. We will probably have a bilingual discussion. I will use the French part of your application and of your deficiency responses where they were filed in French. You are, of course, welcome to address me in English or request that I address you in English at anytime. I must say there were more pages in French than there are channels in French.
2481 Tout d'abord, je vais vous parler de la Première Chaîne, et ensuite de la chaîne Bandeàpart, des contributions au développement des talents canadiens, et ce que je vais appeler à la suite l'offre et la demande, en ce qui concerne le contenu francophone de votre proposition.
2482 La programmation de la Première Chaîne, est-ce qu'elle sera intégralement diffusée? La raison pour laquelle je vous pose la question, c'est que votre lettre de lacunes du 12 mars, je crois, dans votre réponse à une lettre de lacunes, vous parlez de possibilité de... certaines modifications. Dans la même phrase où vous dites que la Première Chaîne et Radio One seront essentiellement retransmises. Et à la page 5, vous parlez de retransmission. Est-ce qu'il y aura des modifications, en fait, de la Première Chaîne?
2483 MR. SHEA: Madam Vice-Chair, if I may just take one quick moment. I would like to point out that we have joining us this afternoon in the audience Mr. Mark Norman, who is the Chairman and President and CEO of DaimlerChrysler, and Lorraine Shalhoub, who is the Director of External Affairs and Public Policy. I just thought it would be fair to point out that they have now joined us. I am going to ask Mr. Tremblay to respond to your questions.
2484 COMMISSIONER WYLIE: Yes, I am sorry, we didn't give you the opportunity to do that first. I will blame the Chairman for that.
--- Laughter / Rires
2485 CONSEILLÈRE WYLIE : Monsieur Tremblay, allez-y.
2486 M. TREMBLAY : Madame la vice-présidente, je pense qu'il serait peut-être utile de passer la parole à Sylvain Lafrance, qui est le grand maître d'ouvre à la radio française.
2487 M. LAFRANCE : Alors la réponse est oui. C'est la programmation intégrale de la Première Chaîne. Mais je vais mentionner une chose quand même, puisque le Canada a plusieurs fuseaux horaires, ce sera une programmation intégrale en temps réel. Pour les francophones hors Québec qui sont à l'extérieur des zones, ça veut presque dire une nouvelle offre. Par exemple, en après-midi, à Vancouver, il y aura une émission pour enfants qui est 275-Allô. Elle sera diffusée à 16 heures.
2488 CONSEILLÈRE WYLIE : Parce qu'il y a un décalage de fuseau horaire; pas parce qu'il y a des changements à la programmation.
2489 M. LAFRANCE : Tout à fait. C'est dans la programmation, mais je mentionne simplement que, pour les francophones, ça donne quand même une offre supplémentaire.
2490 CONSEILLÈRE WYLIE : Alors cette parenthèse que vous avez moyennement certaines modifications, il n'y en aura pas.
2491 M. LAFRANCE : Il n'y en aura pas, non.
2492 CONSEILLÈRE WYLIE : Est-ce que vous pouvez nous dire... Vous nous avez dit ce matin combien de Canadiens peuvent recevoir par ondes hertziennes Radio One. Quel est le pourcentage pour la Première Chaîne, de Canadiens?
2493 M. LAFRANCE : Oui. Grosso modo, de francophones, environ 97 pour cent peuvent capter la Première Chaîne; le reste étant vraiment dans des régions plus isolées.
2494 CONSEILLÈRE WYLIE : Alors c'est la même chose que pour Radio One...
2495 M. LAFRANCE : Grosso modo, oui.
2496 CONSEILLÈRE WYLIE : Parce que ça soulève la question de... Et ça, ce sera la chaîne en provenance de Montréal...
2497 M. LAFRANCE : Oui.
2498 CONSEILLÈRE WYLIE : ...qui contient déjà 50 pour cent de programmation régionale. Je crois que j'ai pris ça dans vos documents.
2499 M. LAFRANCE : Cinquante pour cent de programmation régionale de partout au pays.
2500 CONSEILLÈRE WYLIE : Oui.
2501 M. LAFRANCE : Et probablement une trentaine de pour cent de programmation régionale en provenance de Montréal.
2502 CONSEILLÈRE WYLIE : Maintenant, Mme Chalmers nous parlait ce matin que ça rendrait la Première Chaîne plus accessible. Je trouve un peu difficile -- je vous parle en anglais, madame?
2503 You were mentioning this morning that one of the benefits of having one of the channels that is already available to 97 percent of Canadians, one of the big benefits of this deal. I don't quite understand why somebody who didn't tune into the CBC before will tune into it because it is satellite. If they weren't listening to it on their AM radio... Because... well, you may have some reason, I am not going to give you any.
2504 MS CHALMERS: Yes, that is fair. We are constantly working on our existing airwaves to, you know, increase our relationships with more Canadians, you know. And in this society that is changing so quickly in terms of diversity in major cities and other reasons, we are adjusting our programming and our outreach in order to bring them into the CBC family or at least establish a strong relationship with them.
2505 My point was about certain age groups who are technologically advanced. This is... generally speaking, it is younger people who don't go to conventional radio the way what I do and others in my age group might and who tend to go more to the internet, iPods, all these different kinds of technologies. Our research indicates that these people, younger people, are more apt to make use of a new technology like satellite radio than the conventional technologies. And my point was is that we fully anticipate that to happen and we want to make sure, a) that we are there for that group of people, and we are speaking specifically about, in this instance, Radio Three, but Radio One to some extent too; and also, as people take up satellite radio in Canada I think it is important that they find CBC Radio, their public broadcaster, has a space in that spectrum so they will not have to make that kind of choice.
2506 M. LAFRANCE : Si je peux ajouter, il y a deux choses importantes là-dedans. Les 3 pour cent de francophones qui ne sont pas rejoints sont très difficiles à rejoindre. Il faudrait beaucoup, beaucoup d'émetteurs pour compléter le 3 pour cent, parce qu'ils sont vraiment dans des régions isolées. Pour nous, on n'a pas d'autres solutions pour le 3 pour cent qu'une diffusion comme celle-là.
2507 D'autre part, au niveau des transports, des déplacements, la Première Chaîne est, en français, avec Espace Musique, les deux seules chaînes pancanadiennes francophones. Au niveau des transports, ceux qui se déplacent beaucoup le savent, il y a beaucoup de secteurs actuellement où on ne peut pas capter, et ce sont souvent des secteurs isolés. Par exemple, le parc des Laurentides ou le parc La Vérendrye. Au milieu du parc, on perd tous signaux souvent. Pour nous, la Première Chaîne est un service de base extrêmement important qui doit être disponible toujours, pour tous les Canadiens, ne serait-ce que pour des questions d'urgence. Donc ça nous semble extrêmement important de compléter ce réseau-là.
2508 CONSEILLÈRE WYLIE : J'aurais cru que quelqu'un m'aurait donné comme réponse « le son de meilleure qualité », parce que les jeunes qui sont en voiture, où ça va être un auditoire assez important, pourquoi est-ce qu'ils écouteraient...
2509 MR. SHEA: Our answer actually is that the sound will be much better.
--- Laughter / Rires
2510 M. LAFRANCE : C'est une bonne réponse, madame Wylie, mais je n'aurais pas osé critiquer mes propres réseaux comme ça.
2511 CONSEILLÈRE WYLIE : Mais dans bien des endroits, vous êtes encore sur la bande AM; non? Pas dans les grandes villes?
2512 M. LAFRANCE : Pas dans les grandes villes. On est majoritairement FM, quand même, mais à effet mono sur plusieurs régions.
2513 CONSEILLÈRE WYLIE : On se pose la question, parce que ce sont deux chaînes qui sont accessibles à 97 pour cent à tous les Canadiens, pourquoi est-ce que c'est un avantage important de... Ça fait deux des cinq chaînes canadiennes qui sont déjà accessibles en MF à presque tous les Canadiens.
2514 M. LAFRANCE : Oui, mais ce n'est pas négligeable, ce que je mentionnais sur la question des réseaux horaires, parce que, pour les francophones hors Québec qui ont accès à très peu de signaux en français, le fait qu'on leur donne l'occasion d'écouter des émissions à des heures autres, ça devient presque un nouveau service. C'est important, parce que les gens qui travaillent, par exemple, ne peuvent pas écouter Marie-France Bazeau. Mais à Vancouver, ils vont pouvoir, maintenant, si on offre le service. Alors ça devient presque un troisième service ou une troisième forme de radiodiffusion.
2515 CONSEILLÈRE WYLIE : Maintenant, Bandeàpart, qui, lui, est un nouveau service francophone. Vous nous parlez, je crois, à cette même lacune, à la page 5, de 80 pour cent de musique et de 20 pour cent de contenu verbal. C'est ça? Et la programmation sera en blocs de six heures...
2516 M. LAFRANCE : Oui.
2517 CONSEILLÈRE WYLIE : ...répétés quatre fois.
2518 M. LAFRANCE : Oui. Le mot « répété » est un peu trompeur ici parce que, dans le fond, ce qu'on fait, c'est un remontage des six heures. C'est-à-dire que les six heures ne sont pas répétées intégralement dans la même séquence. Tout est remonté. L'auditeur qui écoute n'entendra pas la même séquence deux fois. C'est-à-dire que c'est le même six heures, mais il est totalement remonté différemment. Donc il y aura quand même beaucoup de variété, mais ça va nous permettre, à la limite, de diffuser plus souvent, par exemple, les concerts qu'on enregistre auprès de la relève ou des nouveaux talents.
2519 CONSEILLÈRE WYLIE : Vous nous avez donné une liste de vos conditions de licence proposées, qui reprennent intégralement ce que vous aviez dans votre demande. Alors quand on parle en général -- ce que j'ai, moi, c'est en anglais -- de musical selection 65 per cent francophone and also the Canadian content in various categories, est-ce que, ça, ça va être affecté par cette reprise-là? Parce que vous nous parlez ici de semaine, de calcul par semaine. Alors expliquez-moi si le remontage va faire une différence ou si ça va être intégralement les mêmes six heures mais peut-être mises à l'envers un peu.
2520 M. LAFRANCE : Le chiffre qu'on donne est fondé sur 24 heures. Ça joue.
2521 CONSEILLÈRE WYLIE : Alors le fait que c'est par bloc n'aura pas d'effet...
2522 M. LAFRANCE : Non.
2523 CONSEILLÈRE WYLIE : ...sur les conditions de licence que vous proposez.
2524 M. LAFRANCE : Non.
2525 CONSEILLÈRE WYLIE : Alors, là, c'est clair que vous vous engagez, ça l'était assez aussi dans votre document, moins peut-être, mais là c'est clair, cette feuille-là que vous nous avez remise fait partie intégrale de votre demande, donc il n'est pas nécessaire de vous demander si tout cela sera par conditions de licence.
2526 La programmation va simplement provenir de la Première Chaîne. Et certaines parties de la programmation va provenir de la Première Chaîne, parce que, à la page 7 de cette même lacune, vous nous dites :
« Toute la programmation empruntée à d'autres services proviendra de la Première Chaîne. » (Tel que lu)
2527 M. LAFRANCE : Oui. Sauf que, depuis l'émission Bandeàpart, qui était diffusée à la Première Chaîne est maintenant sur Espace Musique, donc elle sera empruntée beaucoup plus à Espace Musique maintenant, parce que Bandeàpart fait actuellement deux nuits sur Espace Musique. C'est un changement qu'on a fait dans la programmation dans les trois derniers mois.
2528 Donc certaines des émissions pourraient provenir de la Première Chaîne, mais quand elles vont provenir d'ailleurs, ce sera surtout d'Espace Musique.
2529 CONSEILLÈRE WYLIE : C'est un peu difficile, parce que, à votre mémoire, à la page 4, vous dites que « la version satellite de Bandeàpart s'inspirera de ce que le site correspondant propose sur Internet et aussi de la programmation de la Chaîne culturelle, qui est maintenant Espace Musique ». Alors il y aura déjà de cette programmation qui est sur Internet et il y en aura qui sera de la Chaîne culturelle.
2530 M. LAFRANCE : Oui. C'est qu'il faut comprendre que Bandeàpart est déjà pensée comme un service multi plate-forme. Il est sur le Web, il est sur la radio, il est parfois à la télévision, donc c'est déjà un service multi plate-forme. C'est tout le concept de Bandeàpart. Dans le fond, on pousse plus loin la partie radio de ce concept multi plate-forme.
2531 CONSEILLÈRE WYLIE : Donc dans ce mémoire, à la page 3, lorsque vous parlez d'une nouvelle chaîne programmée expressément pour cette plate-forme, il faut mettre l'accent sur plate-forme.
2532 M. LAFRANCE : Oui.
2533 CONSEILLÈRE WYLIE : Parce qu'il y aura des segments qui proviendront d'ailleurs, incluant la Première Chaîne, pour le vocal.
2534 M. LAFRANCE : Vrai, mais il y aura surtout des segments, en termes de radio, sur la plate-forme radio, il y aura surtout des segments créés pour Bandeàpart radio, qui ne sont pas créés actuellement.
2535 CONSEILLÈRE WYLIE : Mais on y trouvera aussi une certaine partie de la programmation qui pourrait provenir de ce que vous avez déjà fait ou fait déjà sur Internet, même de la Première Chaîne et de la Chaîne culturelle. Quelle sera la proportion de programmation qui sera créée de toute pièce pour Bandeàpart?
2536 M. LAFRANCE : La majeure partie va être créée de toute pièce pour Bandeàpart. En fait, la question est difficile parce que certaines des émissions créées pour Bandeàpart, on choisit de les diffuser sur la radio, et certaines des émissions radio, on choisit de les installer sur le Web. Donc la question est un peu bizarre pour nous. Est-ce que, au départ, on l'a crée pour Bandeàpart ou pour la radio? Dans un concept multi plate-forme, c'est une drôle de question, mais pour y répondre, je vous dirais que la grande partie de cette programmation-là, actuellement, n'existe pas; elle sera créée en fonction de cette chaîne-là, à 70 pour cent, à peu près.
2537 CONSEILLÈRE WYLIE : À combien de pour cent, vous dites?
2538 M. LAFRANCE : Environ 70 pour cent.
2539 CONSEILLÈRE WYLIE : Soixante-dix pour cent sera...
2540 M. LAFRANCE : Oui, de la nouvelle création.
2541 CONSEILLÈRE WYLIE : ...tout nouveau.
2542 M. LAFRANCE : Oui.
2543 CONSEILLÈRE WYLIE : Qu'est-ce que vous...
2544 M. LAFRANCE : En fait, je pourrais vous dire plus que ça, parce que, ça, c'est sur la grille. Actuellement, par exemple, nous ne faisons que deux nuits de Bandeàpart. On peut dire qu'on fait, dans le fond, 12 heures de programmation radio, et on passera à 42 heures. Donc c'est 30 heures de plus. C'est une très, très forte augmentation.
2545 CONSEILLÈRE WYLIE : Oui. Alors donnez-moi maintenant le pourcentage qui sera de la programmation originale.
2546 M. LAFRANCE : Environ 70 pour cent.
2547 CONSEILLÈRE WYLIE : Soixante-dix pour cent, c'est le chiffre.
2548 M. LAFRANCE : Oui.
2549 CONSEILLÈRE WYLIE: C'est parce que je pense qu'on aurait pu calculer différemment. Vous aviez parlé de 7 pour cent, la grille qui serait de... En tout cas. Pour le processus d'aujourd'hui et pour nos fins à nous, c'est 70 pour cent qui sera de la programmation originale.
2550 Maintenant, il s'agira ici, si je comprends bien, de musique et de la musique plus alternative, en général, mais qui sera par...
2551 Madame Pennefather vous a parlé de ça aussi au sujet de Radio 3. Alors, le genre de musique sera une heure à la fois.
2552 M. LAFRANCE: Multi genres. Mais pour revenir sur cette question-là de madame Pennefather ce matin, pour moi, une radio éclectique est une radio de niche, en passant, quand elle est une radio de musique émergente. Parce que vous faisiez la comparaison entre une radio de niche et une radio qui est multi genres.
2553 Dans mon esprit, dans les musiques émergentes, les gens sont parfois très difficiles à classer et pour moi, ça demeure une radio de niche parce qu'on est vraiment dans la musique émergente, à laquelle on donne des noms en 12, 13, 14 ou 15 catégories différentes selon les modes, d'ailleurs, mais ça demeure, pour moi, une radio de niche.
2554 CONSEILLÈRE WYLIE: Si je regarde dans la même réponse à lacunes en date du 12 mars, à la page 7, vous avez les catégories de musique de Bande à part, pop rock, alternatif, hip hop, musique électronique, chansons world, punk, ska, garage and hard rock.
2555 Et vous avez, à la page 8, une définition de ce que vous entendez par « nouvelle musique ».
2556 M. LAFRANCE: Oui.
2557 CONSEILLÈRE WYLIE: Pouvez-vous nous donner plus d'indices de ces genres musicaux?
2558 M. LAFRANCE: Oui. Il y a un certain nombre d'artistes qui, avant même d'être connus commercialement, naissent actuellement partout au pays. D'ailleurs, quand ils naissent, c'est très difficile de recoller un genre, est-ce que les Cowboys Fringants sont pop rock ou alternatifs, je ne le sais pas, ou est-ce que les Trois Accords sont plutôt... c'est parfois folklorique et parfois pop rock, mais ces gens-là font partie du groupe Bande à part depuis deux ans déjà et ce sont des émergents dans le sens où ce sont vraiment des groupes qui arrivent, actuellement, sur le marché de la musique, qui souvent n'ont pas un disque ou sont à leur premier disque, leur genre amène généralement quelque chose de nouveau dans l'industrie de la musique.
2559 Pour nous, c'est très important que ce soit un genre nouveau, que ça amène une personnalité musicale nouvelle.
2560 Les meilleurs exemples qu'on peut donner actuellement, on regardait le Gala de l'ADISQ en fin de semaine, les Cowboys Fringants ont commencé à Bande à part ou les Trois Accords qui seront l'an prochain au Gala de l'ADISQ, qui sont déjà sur Bande à part. Beaucoup de ces groupes émergents là sont sur Bande à part.
2561 Je vous dirais le caractère très émergent des groupes, leur caractère très différencié par rapport à ce qu'on trouve ailleurs, ce sont des critères importants pour nous.
2562 CONSEILLÈRE WYLIE: Dans ces genres-là, évidemment, on pourrait avoir un goût particulier pour certains de ces genres-là et pas pour d'autres.
2563 Reparlez-nous de désavantages du fait que ce sera par heure, et du danger, surtout au niveau des francophones, que tout ce que le service pourrait faire, ce serait de les encourager à écouter la portion américaine anglophone du service.
2564 M. LAFRANCE: Moi, je peux vous dire que les...
2565 CONSEILLÈRE WYLIE: Parce qu'ils sont obligés de syntoniser. Il doit y avoir avantage à ce SIRIUS programme son service comme ça en ayant des chaînes spécialisées.
2566 M. LAFRANCE: Je vous dirais que dans le cas des musiques émergentes, c'est un débat, on pourrait faire 12 conférences de 3 jours sur cette question-là, c'est-à-dire que dans le monde des musiques émergentes, les catégories sont souvent inclassables. De toute façon, ils arrivent sur le marché un peu inclassés.
2567 Pour nous, ce serait très très très difficile de dire: On va seulement faire de l'électro, on va seulement faire du garage, ou seulement faire du ska parce qu'on limiterait, à ce moment-là, énormément, on ne pourrait pas, de toute façon, produire une chaîne avec un contenu canadien si haut seulement dans le genre garage. Alors, il faut qu'elle soit éclectique.
2568 Je vous dirais que pour rencontrer les jeunes de Bande à part, Bande à part est un concept éclectique au départ, et les jeunes s'identifient à cet éclectisme-là.
2569 Claude Rajotte qui est chez nous, est absolument inclassable en terme musical. Si vous essayez de décrire le genre musical de Claude Rajotte en un mot, vous ne réussirez pas; Claude Rajotte s'intéresse à toutes sortes de genres musicaux qui ont comme seul point commun d'être des genres émergents.
2570 CONSEILLÈRE WYLIE: Par exemple, dans ces genres-là, je ne vois pas de jazz. C'est parce que vous ne les avez pas tous?
2571 M. LAFRANCE: Non, les genres conventionnels se retrouvent plutôt sur la Première Chaîne ou Espace Musique. Pour nous, le jazz, c'est conventionnel.
2572 CONSEILLÈRE WYLIE: Non, non, mais là, Espace Musique ne sera pas sur ce service totalitaire.
2573 M. LAFRANCE: Non. C'est ça.
2574 CONSEILLÈRE WYLIE: Parce que là je tiens en ligne de compte ce que madame Chalmers nous dit qui est que les jeunes vont vouloir écouter la radio de cette façon-là.
2575 Évidemment, pour nous, c'est d'examiner jusqu'à quel point la portion francophone du contenu canadien est valable quand elle est soupesée contre le fait qu'on va arroser les villes francophones de musique anglophone.
2576 M. LAFRANCE: Oui, il y a quand même un autre avantage. Je pense que d'abord c'est une technologie qui est naissante et c'est un point de départ pour nous qui est important d'offrir des services francophones sur une technologie comme celle-là qui est une technologie du XXIe siècle, c'est fondamental pour nous.
2577 D'autre part, il ne faudrait pas sous-estimer ce que...
2578 CONSEILLÈRE WYLIE: Oh non, je ne suis pas contre, j'en veux plus.
2579 M. LAFRANCE: Oui, oui. Il ne faudrait pas sous-estimer ce que représente pour nous l'intérêt d'une diffusion sur le marché nord-américain.
2580 Je vous dirais que dans le domaine de la francophonie, j'ai beaucoup de partenaires européens qui seraient assez jaloux de pouvoir posséder des fréquences qui leur permettent de parler en français sur l'ensemble de l'Europe. Ça me semble aussi un point important au XXIe siècle de penser à comment les Canadiens et comment les francophones peuvent parler à d'autres des valeurs qu'ils ont et ça me semble être un débat important dans le monde des médias actuellement et ça, pour nous, c'est un énorme avantage, à la fois pour le talent, à la fois pour les chanteurs, les musiciens d'ici, mais à la fois pour ceux aussi qui veulent émettre des idées sur le monde ou sur leurs réflexions sur notre façon de voir le monde. Ça me semble très important.
2581 Alors nous, on soupèse ça aussi comme intérêt pour le système canadien de radiodiffusion.
2582 CONSEILLÈRE WYLIE: Je ne crois pas que vous nous ayez... I don't think this was discussed with Commissioner Pennefather, and if it was, remind me, and I apologize.
2583 We discussed with Mr. Bitove yesterday the amount of spoken-word programming there is on the musical channels, which was a bit of a surprise for me. It certainly gives the impression that this service is a little more like radio, as we know it, than I originally thought, rather than wall-to-wall music.
2584 What is the situation with SIRIUS? What is the spoken-word component on the channels?
2585 The reasons I'm relating that to the francophone part is, obviously, because of the concern we have that a large part of our country, in the other official language, will be... arrosé... with English-language satellite programming and we have to determine just how appealing -- we have one channel that they don't get now, Bandeàpart, so what is, briefly -- if you already have that on the record, tell me, but I don't think we did discuss it.
2586 MR. SHEA: No, I don't believe we did.
2587 I'm going to ask Andy Gregor to step in. Andy is with SIRIUS, as we indicated in our opening remarks.
2588 But two observations, if I may, Madam Wylie, on the discussion over the last 10 minutes. Our marketing projections, which differ from XM, to some degree--and I know we are going to get into that later--we certainly do not see the penetration levels in Quebec, from a francophone purchasing standpoint, as high as the rest of Canada.
2589 One key reason why is that the offering, given the statistics that you reminded us of yesterday vis-à-vis usage of French radio services in Quebec today, the offering is not as rich, and we respect that.
2590 However, having said that, where we see a significant opportunity is, today, if you are from Quebec and you cross the border into the United States, which I know you don't like them to do, there's virtually nothing. We do know how many Quebeckers spend a good portion of the winter of Florida and today get nothing, other than perhaps Internet radio, but certainly nothing from a mobile perspective.
2591 At any given point in time--and we got this from Transport Canada--there are approximately 100,000 drivers out of range of Canadian services, meaning they are travelling in the States. We have a huge trucking industry, so on and so forth. If you are unilingual French or you are predominantly more interested in French-speaking programming, today there is nothing. This is a huge advantage for those who are going to be interested in getting programming in the French language that currently are not serviced today the minute they cross the border. We see that as an advantage.
2592 The second observation, because I think it's important, from a user perspective of satellite radio, there is essentially now three buttons in the car: AM, FM and satellite radio. One doesn't become a satellite radio subscriber and completely tune out of AM and FM. So the full menu that exists today, again for a French-language speaking person, still exists with, yes, one new channel, Bandeàpart.
2593 And then the reason why we have elected to use CBC French is, again, primarily because we see it as a marketing opportunity for francophones to travel in the U.S.; and secondly, because it is principle of both this Commission and the Broadcasting Act to try and get our mainline services to a hundred per cent of our population.
2594 The cost of getting to that incremental 3 per cent would be, literally, hundreds of millions of dollars. So on the back of an existing satellite system, we are, in effect, getting extension of service to 100 per cent of our country.
2595 The last thing we should note, in both certain parts of New Brunswick, certainly parts of Quebec, you get no AM and FM radio today if you are on a boat. On the water, you get no service whatsoever. One of the big advantages I have found in becoming a grey market subscriber, and, of course, I deserve to be a grey market subscriber, for the last couple of months is that in the summer I'm on a boat a fair bit and finally you can get radio services. And we shouldn't underestimate that, given the nature and geography of our country.
2596 All that being said, I would like Mr. Gregor to actually answer your question.
2597 COMMISSIONER WYLIE: In the meantime, I hope that's not what you are relying on to make money, the number of people who subscribe because they are on a boat.
--- Laughter / Rires
2598 MR. SHEA: Well, you know, having said that, the most extensive grey market at the moment is in Vancouver, and it is unbelievable. It's as though this thing called satellite radio has taken off the way DTH did in Fergus, Ontario.
2599 Mr. Gregor.
2600 MR. GREGOR: Thank you.
2601 Firstly, I would like to say how happy we are to be here and honoured to be here with our partners in this licensing process.
2602 I think I can remember the question.
--- Laughter / Rires
2603 COMMISSIONER WYLIE: If not, Mr. Shea does.
2604 MR. GREGOR: It is, I believe, the same one you put to Mr. Bitove yesterday.
2605 COMMISSIONER WYLIE: I'm very persistent.
2606 MR. GREGOR: Yes. And I will answer it in a very, very similar way.
2607 Our formats in the music program, I believe it was after February or March 1st, where both services are commercial free, are focused primarily on the music. There is talk. It can be very intermittent in its nature, at some points as long as a minute or two or three, at some points 10 to 20 to 30 minutes can go by without talk, and that talk is specifically oriented toward the music or the culture around the music.
2608 M. LAFRANCE: Si je peux, madame Wylie, ajouter une chose sur cette question-là, si vous êtes un francophone de Vancouver, actuellement vous avez accès à deux stations, la Première Chaîne et Espace Musique.
2609 Avec l'arrivée de SIRIUS, à toutes fins utiles on aura doublé quand même le service parce qu'on offrira une chaîne jeune et, en passant, ce qui nous est le plus demandé par les francophones hors Québec à chaque fois qu'on mène une consultation dans quelque province que ce soit, c'est un service jeune parce que les francophones craignent l'assimilation et veulent que leurs jeunes puissent écouter de la musique en français et des animateurs en français.
2610 On aura offert un service jeune et parce que la Première Chaîne est en direct et qu'elle offre donc une alternative d'écoute, à toutes fins utiles, on aura doublé le service des francophones dans ce marché-là.
2611 Donc, il faut aussi le voir comme ça, on aura doublé le service dans certaines des provinces, et ça c'est assez intéressant pour les francophones parce que je pense que la meilleure façon de s'assurer que les francophones continuent d'écouter des radios en français, c'est d'augmenter l'offre. On l'aura fait avec ce projet-là.
2612 COMMISSIONER WYLIE: You are not ready, or do you know, what's the percentage of spoken word on the American channels?
2613 I'm just trying to find out to what extent--that was a surprise to me, in even listening to SIRIUS, the extent to which there. I thought you tuned to the jazz channel and you got jazz, that was it, but it sounds a lot more like radio than I would have thought. What's the percentage?
2614 I'm not a grey market subscriber, because I don't have grey hair.
--- Laughter / Rires
2615 MR. GREGOR: Well, firstly, to get an idea of what the sound is like and the programming is like, I would encourage the panel to -- at the front door is an example of the radio in the car.
2616 COMMISSIONER WYLIE: I don't have your sample, so you have to tell us what, in general, the percentage is.
2617 MR. GREGOR: I do not have that number available to me right now. We would be very happy to estimate that for the panel and provide it.
2618 COMMISSIONER WYLIE: We need a ball-park figure. Disabuse me of the idea that it sounds like radio, if you can.
2619 MR. GREGOR: I would say it's well under 5 per cent, and most likely under half of that is an estimate.
2620 COMMISSIONER WYLIE: Now, to get an idea--
2621 MR. SLAIGHT: Madam Wylie, if I may compare, if you wanted the comparison between satellite radio and conventional radio, I can give you--
2622 COMMISSIONER WYLIE: Can you compare it to the CBC Radio 2, if you listen to it?
2623 MR. SLAIGHT: I can't compare that, but I can give you a general comment and the difference.
2624 COMMISSIONER WYLIE: Okay. And M. Lafrance can make the comparison--
2625 MR. SLAIGHT: Right.
2626 COMMISSIONER WYLIE: --because that would be a good one.
2627 MR. SLAIGHT: Conventional radio is music, but there is also talk. There's news, there's traffic, there's weather. On satellite radio, it's all about the music. There may be one minute of talk in any hour and it's always about the music.
2628 COMMISSIONER WYLIE: Okay, that's helpful. So it will be even far less talk about music than CBC 2, for example, would have and certainly less than la Chaine culturelle had before it morphed into Espace Musique.
2629 Le développement des talents, les contributions, dans votre mémoire à la page 12, vous parlez de répartitions équitables.
2630 Aux réponses de lacunes de la lettre du 12 mars, vous parlez de part égale.
2631 Maintenant, on divise ça, et vous nous dites clairement que le Factor et Musicaction recevront chacune la moitié de la contribution. Alors, ça c'est assez clair.
2632 Si j'utilise le tableau que vous nous avez donné et que je regarde Factor et Musicaction, ce sera égal.
2633 Maintenant, si je descends à la partie 9, Fonds RadioStar et Radio Starmaker Fund, est-ce que ce sera égal là aussi? Qui commence à la quatrième année, troisième... quatrième année, est-ce que ce sera à part égale?
2634 Would it be again evenly distributed?
2635 MR. SHEA: Yes it is. Yes.
2636 COMMISSIONER WYLIE: Yes.
2637 C'est quand on arrive à la partie, l'autre 2,5 pour cent qu'on parle d'équitable.
2638 Quand j'examine, justement, vos projets, est-ce que c'est possible de dire que ce sera presque égal ou ce sera...
2639 Parce qu'il y a plusieurs de ces projets-là qui pourraient facilement être moins alléchants ou moins faciles pour les francophones. Comment est-ce que ces sommes-là seront distribuées? Votre ambassadrice nous a parlé ce matin, vous nous avez parlé, justement, de ce que vous pouvez faire pour les artistes.
2640 Comment ça fonctionnera au niveau de ces initiatives-là qui ne sont pas facilement divisibles exactement comme les argents qui sont remis à Musicaction et au Fonds RadioStar. Donnez-nous un certain réconfort de la possibilité d'avoir à peu près les mêmes sommes et les mêmes énergies dépensées pour les francophones.
2641 MR. SHEA: Madam Wylie, we certainly have every intention, in terms of how we are going to manage and execute these funds.
2642 COMMISSIONER WYLIE: Intension is not good enough.
2643 MR. SHEA: Okay, let me try a condition of licence, then. That will--
--- Laughter / Rires
2644 COMMISSIONER WYLIE: Add to?
2645 MR. SHEA: No, clearly, I mean, this is--
2646 COMMISSIONER WYLIE: I'm trying to understand just where the francophone Canadian artist will be able to participate in these initiative and the sums of money in an equitable way. Because, obviously, the thought does come to one that if you are going to have two francophone channels--and we will discuss later what happens when you add some--and one which is already available--I understand the advantages that M. Lafrance spoke about--then, maybe one way of compensating is to make sure that the Canadian development moneys definitely flow to the francophone population of our country.
2647 The danger with this type of initiative is that it may be the opposite.
2648 MR. SHEA: Okay. I'm going to actually ask Andreanne to step in. She has gone through the categories over the last couple of months and spent a fair bit of time with Ross Davies and other folks on our team to try and, essentially, insure that, at the end of the day, the benefits are split equally 50:50.
2650 Mme SASSEVILLE: Merci, Kevin.
2651 Madame la vice-présidente, si je peux me permettre, on va faire référence, justement, au plan de dix points qu'on vous a présenté.
2652 Si je comprends bien votre inquiétude, c'est vis-à-vis les trois initiatives dont on vous a parlé ce matin, c'est-à-dire la recherche nationale de talents, donc la recherche dont Ross a parlé qui aura lieu à toutes les années.
2653 Par la suite, on vous a parlé des deux showcases, pardonnez-moi l'anglicisme ici, qui auront lieu deux fois par année aussi aux États-Unis et toutes les prestations en direct dans les studios new-yorkais.
2654 Si je peux vous rassurer sur ce point, ces trois initiatives, j'ai l'intention de les coordonner à 50 pour cent en anglais et à 50 pour cent en français.
2655 Ces trois initiatives vont être offertes autant à la communauté francophone, aux artistes francophones qu'aux artistes anglophones.
2656 On ne divise pas les deux, si je peux me permettre, tous y auront accès à part égale et on s'assurera sur les comités aussi que tout sera bien visible et qu'on ira chercher la communauté francophone autant que la communauté anglophone.
2657 Je vous donne un exemple plus concret. Pour recruter notre talent à chaque année et notre concours, si je peux l'appeler ainsi, il va y avoir sur notre site Internet, sur le site Internet de SIRIUS Canada, des indications qui seront bilingues.
2658 Donc, les gens auront le service autant en français qu'en anglais. Vraiment, je vous rassure là-dessus, j'ai l'intention de suivre ça de très près. et de permettre autant aux artistes francophones de participer aux initiatives qu'aux artistes anglophones.
2659 LA GREFFIÈRE: Je me réfère aussi dans cette même réponse à nos questions de lacunes, à la page 16 et 18 aussi, ou 17, on parle de si la demande le justifie quand on parle de:
« SIRIUS réservera plusieurs heures de studio par semaine dans ses installations de New-York aux artistes canadiens si la demande le justifie. »
2660 Ça, ça ne veut pas dire à part égale. Suivant la demande, aussi, à la page 17, alors vous entendez faire des efforts spéciaux pour que ce soit visible aux artistes francophones pour les encourager aussi parce que c'est un peu plus...
2661 Peut-être que je n'ai pas raison, mais ça me semble un peu plus étranger qu'un artiste anglophone de vendre sa salade à New-York, sauf pour monsieur Bouthillier dont nous avons entendu parler beaucoup hier.
2662 Mme SASSEVILLE: Bien justement.
2663 CONSEILLÈRE WYLIE: Rassurez-moi là-dessus que si la demande le justifie, est-ce que dans sept ans on s'apercevrait, si vous aviez une licence, que, de fait, sauf pour Musicaction et le Fonds RadioStar, c'est en général à des artistes canadiens anglophones que ces argents-là ont été remis?
2664 Mme SASSEVILLE: Madame la vice-présidente, permettez-moi, justement, de vous rassurer encore une fois.
2665 Mon poste à New-York, essentiellement, c'est justement pour assurer que le service sera offert autant aux artistes francophones qu'aux artistes anglophones. On s'est assuré que je puisse servir autant les francophones que les anglophones.
2666 Mes contacts dans l'industrie, jusqu'à maintenant, ont été principalement au Québec et en Ontario puisque j'ai travaillé de très près avec l'industrie musicale québécoise et avec des artistes québécois.
2667 Je ne suis donc pas en peine, au niveau des contacts, qu'ils vont être assurés de ce côté-là.
2668 Pour avoir un petit peu tâté le terrain, si vous me permettez, avec certains gérants d'artistes et certains artistes québécois mêmes, disons que de par la barrière linguistique pour eux, ils n'avaient jamais nécessairement envisagé ou même trouvé le moyen d'aller s'adresser à la population américaine anglophone et même d'outrepasser la barrière québécoise et de s'adresser au Canada anglais.
2669 C'est-à-dire qu'ils n'ont pas nécessairement les moyens financiers, mais ils n'ont pas nécessairement les contacts pour le faire aussi.
2670 Alors, c'est justement là que j'entre en ligne de compte, ils vont avoir une personne-clé qui sera en position à New-York et qui leur permettra l'accès au marché et à l'industrie américaine tout en conservant leurs différences, c'est-à-dire qu'ils s'adressent à un autre public, mais en français.
2671 CONSEILLÈRE WYLIE: À la page 15 de cette même lettre de lacunes, je crois, du 12 mars, vous nous dites que vous avez l'intention de faire connaître les artistes aux États-Unis et que ces initiatives dont on parle en ce moment et qui sont sur cette liste pourraient être également réalisées en collaboration avec le Fonds RadioStar.
2672 Est-ce que vous avez eu des discussions avec les gens du Fonds pour voir comment vous pouvez arrimer vos efforts pour les artistes francophones?
2673 Mme SASSEVILLE: Madame la vice-présidente, si je peux me permettre. Oui, nous avons eu des discussions et j'aimerais différer peut-être les détails de ces discussions ou de ces initiatives à mon collègue Ross.
2674 MR. DAVIES: Vice-Chair Wylie, yes, we have had discussion with the Radio Starmaker Fund and the executive is aware of our allotting CTD funding towards their initiatives. As I said earlier this morning, those initiatives will kick in, I believe, it's year four of our seven-year licence, if we are successful.
2675 COMMISSIONER WYLIE: Why is it Mr. Davis who tells us what is going to be done with la Fonds RadioStar?
2676 I was trying to focus on what discussions have there been with the francophone half of the Starmaker Fund that would give us a level of reassurance as to how these moneys will flow between the two linguistic groups--or artists of the two linguistic groups.
2677 Have there been discussions, in particular with la Fonds RadioStar, because it's obvious that they could be helpful in ensuring that this equitable use of these moneys is made?
2678 MR. SHEA: Madam Wylie, so that we are very clear on giving you the assurance that 50 per cent of all the benefit money in our CTD will be applied against the French-speaking market, we will give you that assurance and we will capture it in a COL.
2679 As to the absolute specifics, McGill University is one of our recipients. We did that because, specifically, McGill is in the midst of building a music facility. We spoke to a number of different music professors across the country. More importantly, at SIRIUS New York, they said, "We need more classical music".
2680 In three or four years, McGill University will have the world's most profound recording studio specifically for classical music. We envisage a day when there will be a line between McGill University and New York studios where numerous classical musical acts, because of the size and nature of the studio, will be going live-to-air on SIRIUS New York.
2681 Now, it's anglais, but it's based in Quebec. What we have been told by the faculty is that a number of francophone students do take that music course there.
2682 We have thought long and hard in our planning, but please have every assurance that, when we tally everything up after seven years, the money will be spent equally, 50:50, between the two markets.
2683 COMMISSIONER WYLIE: Mr. Davies, the Fond radiostar, compared to the Radio Starmaker Fund, does it have a committee that is distinct, that is made up of Quebec or francophone--
2684 MR. DAVIES: Yes, Vice-Chair Wylie. It has been a couple of years since I was on the Radio Starmaker board. I was the first chair of that for the Radio Star Program, which represents the English portion of it. But, yes, there is a distinct, separate Fond radiostar board and executive that operates in Montreal.
2685 COMMISSIONER WYLIE: So that could be a source to help you, Madam Sasseville, as well, as to ensure that you reach people, was simply my point, since it's not only the money that will flow to them. But you suggest that some of the initiatives can be helped or nurtured with the relationship between the two.
2686 Maintenant, je voudrais vous parler de l'offre et la demande. C'est évident, quand on examine le projet, que, vraiment, il y aura un seul canal nouveau, et à la Première Chaîne évidemment, pour les francophones canadiens, puisque tous les canaux musicaux et aussi de programmation vocale ou orale seront accessibles à tous les Canadiens, incluant les francophones.
2687 Vous reconnaissez vous-même, justement, à la page 17, cette lacune, qu'il vous faudra étendre la gamme des services de langue française, si vous voulez recruter un nombre important d'abonnés francophones.
2688 Vous avez parlé ce matin et vous parlez aussi dans votre demande de trois nouvelles chaînes possibles, quand vous aurez atteint 300 000 abonnés, si j'ai bien compris, et il y aura peut-être d'autres critères qui seront applicables. Est-ce que ces trois chaînes-là seront des chaînes anglophones où s'il y aura un ajout francophone?
2689 MR. SHEA: Madam Wylie, at this juncture, I have no idea whether they would be English or French and, I must be honest, perhaps even another language, because what we don't know is what the interest is of our subscribers at that point in time. We will want to use elements of research to find out what kind of services they would like to be offered. There could well be a very large third language group in Canada that, for whatever reason, become subscribers. I think we want to be cognisant of serving that group.
2690 COMMISSIONER WYLIE: Yes, that's a dangerous answer. You have already ethnic, I think, services on SIRIUS?
2691 MR. SHEA: Not--
2692 COMMISSIONER WYLIE: No?
2693 MR. SHEA: No, there's only--
2694 COMMISSIONER WYLIE: You don't. Just XM has, you don't?
2695 MR. SHEA: We don't.
2696 MR. GREGOR: We have some Spanish-language programming, as well.
2697 COMMISSIONER WYLIE: Because if you start by saying, as you do, that you realize that it will be more difficult to get francophone subscribers because you are not offering them as much, and then you say, "Well, when we have these three we will see what the interest is", it's a little bit of a dangerous loop for regulators, who ask about whether there's an equitable offer. Because it starts with very little, so it's not appealing, and then there's a reason for not adding French because nobody listens to it anyway because it wasn't appealing to begin with. So get me out of that loop.
2698 MR. SHEA: I will ask Mr. Tremblay to respond.
2699 M. TREMBLAY : Madame la vice-présidente, j'aimerais jeter un nouvel éclairage sur toute la question de la quantité de services en français.
2700 Dans un premier temps, dans les circonstances actuelles, initialement, on se voit limités à cinq canaux canadiens, ce qui est déjà une offre, je pense, qui est assez substantielle dans les circonstances; deux des services sont en français, soit 40 pour cent. Et lorsqu'on atteindra un niveau de huit services, on aura encore au moins le quart de nos services qui seront en français.
2701 Ceci étant dit, il faut considérer que l'ensemble de l'offre -- on parle de 100 ou 120 canaux -- ça constitue le bouquet complet. L'expérience sur le marché américain démontre qu'un usager, en moyenne, va utiliser une dizaine de stations. Donc c'est certain que le bouquet de services que les Québécois francophones vont utiliser versus ce qui va être utilisé au Manitoba, c'est probablement deux offres complètement différentes, et qu'effectivement un abonné francophone va aller puiser dans nos services plus qu'ailleurs.
2702 Donc je pense qu'il ne faut pas le regarder sous l'angle que tous les gens, en tout temps, vont essayer de syntoniser 100 canaux et être complètement perdus là-dedans. Je pense que c'est un élément important au niveau du comportement du consommateur.
2703 CONSEILLÈRE WYLIE : Si je comprends bien votre demande, ces canaux additionnels là seraient réservés à Standard déjà?
2704 M. TREMBLAY : Ils ont le droit de premier refus, effectivement. Standard décidera si eux-mêmes veulent les programmer ou pas et, en temps opportuns, dépendamment de la demande du marché, on déterminera du meilleur usage de ces canaux.
2705 CONSEILLÈRE WYLIE : Quand vous parlez de la demande du marché, il y a déjà un barème d'établi, c'est 300 000 abonnés, avec d'autres circonstances dont M. Shea nous a fait part ce matin, mais est-ce que vous avez pensé à combien d'abonnés francophones il vous faudrait pour qu'un des canaux additionnels soit en français?
2706 Moi, je pourrais vous argumenter que moins vous avez d'abonnés francophones, plus il faudrait rajouter du matériel francophone.
2707 Mr. Slaight, those three, have you thought of how many francophone subscribers, even though you talk about ratios and so on, would warrant the addition of French language, rather than the dilution of the ratio over time, since you have thought about it by establishing 300,000 as a subscriber base for adding Canadian channels?
2708 MR. SLAIGHT: We had not thought of looking at it in that way. The intention for those three channels, at this point in time, was for them to be English channels because our company programs in English and that's the nature of our business.
2709 As Kevin says, we are going to research and figure out what those three channels should be at that point in time, which will be three or four years down the road.
2710 COMMISSIONER WYLIE: As the service progresses, both on its financial statements and number of subscribers, et cetera, is it just going to be the number of subscribers? Or are you just going to keep in mind the Broadcasting Act?
2711 MR. SHEA: Oh, no, I think we are going to keep very much in mind the Broadcasting Act.
2712 I think--
2713 COMMISSIONER WYLIE: Which doesn't really talk about ratio. It talks about service--
2714 MR. SHEA: That's correct.
2715 COMMISSIONER WYLIE: --in both languages.
2716 MR. SHEA: And I think it was Commissioner Langford this morning that said, in terms of the kinds of policies and regulations that we end up with, with respect to satellite radio as a category, we may end up having to pull from BDU regs, pay audio regs and so on.
2717 So let's specifically look at the pay audio regs to give you, Madam Vice-Chair, a bench mark, from a regulatory perspective, and that is that they currently require, at a minimum, 25 per cent of the channels be in French. I think that's maybe a starting point, from a policy perspective, as to where one might look.
2718 Currently, when we launch, we will be, obviously, ahead of the 25 per cent threshold. But I'm trying to give you, too, from a policy and regulatory perspective, perhaps a place to look in the type of undertakings that you have already licensed.
2719 COMMISSIONER WYLIE: We have had, for example, the distribution of one to 10, depending on capacity. So is there a certain ratio that SIRIUS Canada would be prepared to bind themselves to? Because now we have five at launch and we know that when a certain level of subscribers is attained, there will be three more. But there is no commitment, that I see, that ratio we have at launch and that we are discussing now will be maintained, is there?
2720 MR. SHEA: That is correct.
2721 COMMISSIONER WYLIE: Would you be prepared to think of one that is reasonable?
2722 MR. SHEA: Absolutely.
2723 COMMISSIONER WYLIE: And what is that?
--- Laughter / Rires
2724 MR. SHEA: Sometimes when you ask people to think about things, you give them a little bit of time.
--- Laughter / Rires
2725 COMMISSIONER WYLIE: Yes, perhaps.
2726 UNIDENTIFIED SPEAKER: Not very often, I can assure you.
2727 COMMISSIONER WYLIE: Is between now and reply reasonable for a smart man?
2728 MR. SHEA: More than reasonable.
--- Laughter / Rires
2729 COMMISSIONER WYLIE: With regard to that--I will continue in English because that's the English I have--you have your proposed conditions of license here. One of the reasons why these questions come, because it's my responsibility to look at that side of our constitutional and broadcasting reality, the francophone side.
2730 Condition of licence number one says no fewer than five Canadian programming channels, as well as no fewer than five Canada, and then an authority for three.
2731 Mr. Buchanan, do I read this as saying that (c) is also a requirement? As follows, is that, to you, drafted to give us the reasonable level of comfort that Bandeàpart and Radio-Canada are, for sure, going to stay on? Because "Canadian", I guess, includes both? Do I read (a), (b), (c), (d) and (e) as being subsumed in the preamble as exactly this?
2732 MR. BUCHANAN: Not (e). You read (a) to (d) as being--
2733 COMMISSIONER WYLIE: Yes, the three additional, unless Mr. Shea, after thinking, comes back with a different proposition about the three.
2734 But the intention here is to say that the condition of licence will be no fewer than five, and no fewer than two will be in the French language?
2735 MR. SHEA: That is correct.
2736 COMMISSIONER WYLIE: So that if we were to feel that we could improve on the clarity of this, that's acceptable?
2737 MR. SHEA: That's correct.
2738 COMMISSIONER WYLIE: Down 3(d):
"At least 67 per cent of French language musical content broadcast on Bandeàpart will consist of Canadian French-language musical." (As read)
2739 Mr. Lafrance, I think you made it clear that the fact that you go by a six-hour block doesn't change anything. It will be a weekly over 24 hours--
2740 MR. LAFRANCE: That is correct.
2741 COMMISSIONER WYLIE: --even when you reach--
2742 MR. LAFRANCE: Yes.
2743 COMMISSIONER WYLIE: --the programming.
2744 Now, number six, "no local programming other than what is already on La premièr chaine". Correct?
2745 MR. LAFRANCE: You are right, yes.
2746 COMMISSIONER WYLIE: With regard to capacity and so on, you have the same answers, I suppose, as XM has: there's the satellite, there's the capacity, there's the number of channels and each time you add a Canadian one something has to be taken off.
2747 MR. SHEA: That's correct, but the one thing--and we may want to have Mr. Carnovale jump in on this because it's very misleading to think of 120 channels. It's capacity.
2748 And the reason why I say that, Madam Vice-Chair, is that a music station takes up a lot more capacity than a news station. So the--
2749 COMMISSIONER WYLIE: The compression ratio, you mean?
2750 MR. SHEA: That's correct.
2751 So back to we have to delist five, SIRIUS U.S. has to delist three music channels, which take up more capacity, in order for us to add three. So when it's spoken word, it takes a nominal amount of capacity; when it's music it takes up much more. So we have to be very careful, I think, about thinking that it's on a channel-swap for channel-swap because the actual contents and capacity might be quite different.
2752 COMMISSIONER WYLIE: Could we help you in this discussion, when you discussed with Mr. Langford how easy it will be to drop our friend, Howard Stern?
--- Laughter / Rires
2753 UNIDENTIFIED SPEAKER: She just can't resist.
2754 UNIDENTIFIED SPEAKER: She got it in early.
2755 COMMISSIONER WYLIE: Leave the discussion to him, you are forewarned.
--- Laughter / Rires
2756 MR. SLAIGHT: Can we have a break before that, though?
--- Laughter / Rires
2757 COMMISSIONER WYLIE: I think I need a break now.
2758 Those are my questions, ladies and gentlemen. Merci.
2759 THE CHAIRPERSON: Thank you.
2760 Commissioner Williams.
2761 COMMISSIONER WILLIAMS: Good afternoon, Mr. Shea and panel members.
2762 MR. SHEA: Good afternoon.
2763 COMMISSIONER WILLIAMS: I'm going to cover the area of receivers, transmitters, technical issues, and finish up with local programming, much like what was done with XM yesterday.
2764 I will begin with a few general questions.
2765 Could you please describe the main technological differences, or should I say advantages, if they are, of the SIRIUS proposal, as compared to the XM proposal?
2766 MR. SHEA: I would be happy to.
2767 We think we have very distinct technical advantages, as they pertain to Canada, so I will ask Mr. Carnovale to step in.
2768 MR. CARNOVALE: Thank you, Kevin.
2769 The SIRIUS system comprises three satellites in geosynchronous high elliptical earth orbit, so they are not geostationary. Two of them are north of the equator at any one point in time, while the third one is south. This gives us several advantages.
2770 By the way, the signals to the satellites are delayed by four seconds, so that if your receiver loses sight of one of the satellites there's a four-second buffer built into the receive that allows it to switch seamlessly to the alternate satellite.
2771 The unique thing about these high elliptical earth orbits is that the coverage goes much further north. Coverage can be deceptive, as well, because, if you just look at contours on a map, you might way, "Well, a contour is a contour", but, in fact, the other critical element is the look angle. This is where SIRIUS has a very great advantage because the look angle is much higher, which means that you can continue to receive the signal in areas which might be obstructed to geostationary satellites.
2772 As an example, if you are in the Victoria area, which is around 47 degrees north latitude, the look angle to a geostationary satellite is about 30 degrees, to the SIRIUS satellite it's about 60 degrees, so you have--
2773 COMMISSIONER WILLIAMS: It's not as affected so much by topography or tall buildings.
2774 MR. CARNOVALE: It's not affected as much by topography, by high buildings, by foliage and, therefore, not only is the signal--and the signal is receivable further north, not only because more of the terrain is illuminated by the satellite, but the fact that you still have a useful look angle, compared to one which starts to graze towards the horizon.
2775 So the terrestrial repeaters are really required for that small percentage of the time, in that small percentage of locations, where you are in the concrete canyons of the cities, which is why we have only shown nine terrestrial repeaters as being required.
2776 COMMISSIONER WILLIAMS: I note with interest that two-thirds of the receivers sold by SIRIUS are through retail channels and one-third by auto OEMs. This is quite different from the XM experience.
2777 Why do you think your customers prefer to buy your product in this manner?
2778 MR. SHEA: Well, it's principally because General Motors is a major shareholder in XM, so they have had a far more aggressive campaign to get radios put into cars. Honda is also a shareholder in XM. So from a marketing point of view, they have had a completely different strategy.
2779 Perhaps this might be timely to have our associate from Chrysler talk about what their plans are on a go-forward to give the Commission some sense of what the other auto manufacturers are doing.
2780 COMMISSIONER WILLIAMS: Please proceed.
2781 MR. MORRISON: The rollout plan for the Chrysler, Dodge and Jeep vehicles would be quite simple. In fact, our manufacturing facilities across the world, and particularly in Canada, already manufacture this radio, that I'm showing here, which is already being put into our Chrysler, Dodge, Jeep products. We would simply open up the availability of this radio to our customers in Canada. So we could automatically, with the new vehicles in the showroom, give our customers the ability to opt up to the SIRIUS radio option.
2782 So from the perspective of a new client walking into a showroom, it would be a selling feature for the new automobile, as it would in our electronic stability program in our new 300C. Our sales consultants would talk about the ability to listen to the SIRIUS radio coast to coast in their vehicle. So it's part of the way we would see our vehicles being marketed on the showroom floor.
2783 Additionally, there is our Mopar option. Mopar is DaimlerChrysler's parts partner and we also would offer the radio capability to be integrated in prior models. So that if a customer was in a dealership or became aware of the SIRIUS through the marketing initiatives in the Canadian market, they would be able to go into a Chrysler, Dodge or Jeep dealership and have one of these receivers with the antenna installed into their vehicle and have it integrated nicely into their sound system in their vehicle.
2784 So the rollout would be, both--from a new vehicle perspective, it's seen as a new option that is sought after by our clients, and, as well, as something that could be integrated back into a present owned vehicle for customers that are looking for that type of service.
2785 COMMISSIONER WILLIAMS: Assuming SIRIUS is licensed, how soon would Chrysler have this option available in Canadian vehicles?
2786 MR. MORRISON: It could happen within six weeks. We have 11 vehicles, ranging from the Chrysler PT Cruiser through to our Canadian-built minivans and Chrysler Pacifica that are available today. Our new 300 and Dodge Magnum vehicles that are built in Brampton, Ontario are being built today with the option of SIRIUS radio and they are being shipped to the States for consumption in the U.S. market.
2787 So it would be as simple as opening up that option and making them available. Our scheduling system and order to delivery with our customers being at about 30 days, we would need an additional two weeks to get the systems opened up. It would be almost seamless to our dealer body. They could just start ordering the next round of vehicles with that option on-board.
2788 We have planned for this, obviously. We have been in discussion and works with our U.S. group for quite some time. The product plan is already set for Canada to include the SIRIUS satellite radio option. So it's as easy as the different platform teams in Auburn Hills sitting down and making a very quick change in their computer to make the option available on the assembly plant floor to produce their vehicle. So it could happen within six weeks.
2789 COMMISSIONER WILLIAMS: Okay. Thank you.
2790 Mr. Shea, would this trend, do you think, continue where one-third of the take-up would be from the OEMs and two-thirds from retail channels?
2791 MR. SHEA: I think I am going to have Mr. Lewis answer that question.
2792 MR. LEWIS: The business plan we have has approximately 60 per cent of the subscribers coming from the OEM market, from the auto markets, and about 40 per cent from the retail markets. It goes up and down a little bit over the seven-year licence period, but it's approximately that, on average.
2793 COMMISSIONER WILLIAMS: Okay. Thank you.
2794 Could you please describe how your receivers will work in commercial aircraft? You indicated an interest in providing your service to the flying public. Are they going to be just these little units in each headset or headrest?
2795 MR. SHEA: I can't recall us saying that.
--- Laughter / Rires
2796 MR. GREGOR: Kevin, I will take that.
2797 MR. SHEA: Go ahead, Andy.
2798 MR. GREGOR: Recently, I think the U.S. has FCC approval.
2799 There are plans to install, I believe, XM units in JetBlue aircraft today. The availability is there today. There are units, both with respect to the cockpit installation, as well as antenna installation, available for commercial aircraft, as well as airliners. It is not a meaningful part of the Canadian business plan, as I remember it, but it is a technological capability that SIRIUS U.S. has been discussing with a number of U.S. airlines.
2800 COMMISSIONER WILLIAMS: Okay. Thank you.
2801 For both OEM-installed receivers for your proposed service and receivers purchased from retail outlets, how much would perspective subscribers pay for receivers of your proposed service in each case?
2802 MR. SHEA: I think the pricing list would be almost identical to what you went through yesterday. There have been some major breakthroughs with other product lines.
2803 I think when we launch in Canada, we envisage, assuming the dollar stays pretty much the way it is, a unit starting at about $69.95 Canadian. That's what we are told by some of the manufacturers that they are now planning toward for next year.
2804 COMMISSIONER WILLIAMS: Yes, so that's a little lower than we heard yesterday.
2805 MR. SHEA: A little lower, that's correct.
2806 COMMISSIONER WILLIAMS: Say in that case, how much would a receiver cost the supplier? Is there a mark-up or is it subsidized?
2807 MR. LEWIS: You asked similar questions yesterday and I think our response is similar. If you look at the value chain analysis of what it takes in order to initiate a product to the end subscriber receiving it, so in that value chain you have the chip set manufacturer, and we do have a subsidy that is provided for that, you have the receiver manufacturers and, depending on the deal that's set with the different manufacturers there are incentives and subsidies provided for there, as well as with the OEM, the auto manufacturers have a share of revenue, and then the retails, as well, are incented in order to be able to move the product.
2808 Those start, at one level. They vary by each of the components within the chain, as well, and then slow down towards the end of it, as more products get out into the marketplace and the overall cost structure lowers.
2809 COMMISSIONER WILLIAMS: So although the technology is somewhat different, the receivers are essentially the same, then?
2810 MR. SHEA: That is correct. There is some common manufacturers for both units.
2811 COMMISSIONER WILLIAMS: Okay. In that case, we probably don't need the show-and-tell portion of the equipment that we had yesterday.
2812 Have you done any research to determine if there's price sensitive to subscription radio subscribers in regards to how much they would have to pay for a receiver?
2813 MR. SHEA: Mr. Lewis?
2814 MR. LEWIS: Yes, we did. The research that we went out with, which is about a year-and-a-half old now, we started with asking questions to a demographic 18-plus, in both anglophone and francophone markets, and looked at kind of what the benefits of satellite radio might be, such as a higher quality music, no commercials and this type of thing and in there we indicated the price point for the hardware of between $100 and $150.
2815 We also went with a zero price point: would this interest you if there was not cost on a monthly basis, and what it would cost at $12.95 per month and $14.95 per month. And as you would expect, there was a subsequent decline in interest as the price went up.
2816 COMMISSIONER WILLIAMS: Let's talk about OEM-installed in-car receivers. With regards to contractual arrangements that have been reach between SIRIUS and the auto manufacturers in the U.S. concerning OEM installation of satellite receivers, do these contracts stipulate that these car markers must install only SIRIUS-approved receivers in cars which are sold in Canada?
2817 MR. SHEA: I'm going to have Andy Gregor respond to that question.
2818 MR. GREGOR: I would be happy to.
2819 SIRIUS has three exclusive car manufacturing partners: Ford, DaimlerChrysler and BMW, and these are, effectively, world-wide contracts. They are, in effect, for--I think, the latest expiration date on original contracts would be another two to three years, with provisions and options for renewals.
2820 They are exclusive to those manufacturers and they would remain so in Canada, under the current contract provisions.
2821 COMMISSIONER WILLIAMS: Okay. So, some auto manufacturers will offer the customer choice between the satellite service for others?
2822 MR. GREGOR: Yes. The two I mentioned; VW is another. We call them "jump ball accounts".
2823 COMMISSIONER WILLIAMS: Okay. Can I get you to repeat that, please, I didn't quite hear it.
2824 MR. GREGOR: Jump ball.
2825 COMMISSIONER WILLIAMS: Jump ball.
2826 MR. GREGOR: It's a sports analogy.
2827 COMMISSIONER WILLIAMS: Okay. Got you. I'm going to move now into the area of terrestrial transmitters. What percentage your potential subscribers do you estimate would receive the service by the terrestrial transmitter and I, of course, note that you've high-lighted some of the major cities in Canada.
2828 MR. SHEA: Ray, do you want to...
2829 MR. CARNOVALE: Well, as I indicated earlier, the terrestrial transmitters are really a supplement to the satellites.
2830 The primary mode of delivery, the intended primary mode all the time is the satellites and the terrestrial repeaters are only required for that small portion of the time when your signal is obstructed from the satellites, so it's difficult to put a number.
2831 COMMISSIONER WILLIAMS: Okay. Say, your transmitter in the Edmonton... I am familiar with Edmonton, that's where I'm from, how much of Edmonton would that transmitter be covering?
2832 MR. CARNOVALE: Oh! It will cover the down-town core, but I think the real question is how many people are actually receiving or need to receive that signal, access that signal at any point in time. When will the foliage obstructions or the building obstructions cause the receiver to switch seemlessly from the satellite signal to the terrestrial signal.
2833 I'll just out a number, maybe two to five per cent of the time, but I'd actually perhaps like to take this under advisement and ask the SIRIUS people later on because they have done, I'm sure, extensive testing in the United States to determine how often the receiver needs to switch.
2834 But even in the city core you can often get the signal, again because of the unique advantage of the high look angle in areas where you might expect it to be blocked.
2835 MR. SHEA: Commissioner Williams, maybe I could answer the question a different way. If you are on the 401 and you've left down-town Toronto and you're travelling towards Montreal, where we do not plan to build any transmitters between those two cities because you don't need it, you will have absolutely no loss of signal. I've done it. Not one loss of signal between Toronto and Montreal, unless you're going under a big tunnel somewhere.
2836 The reason for the transmitters is really to complement in major urban centres because of foliage, because of buildings and so on, and the unit itself is actually dependent upon getting the two satellite streams and over the airstream simultaneously to offset any loss.
2837 If a subscriber is paying $12.95 a month, we can't afford for that subscriber in an urban setting because of buildings, which is just a bi-product of satellite technology, to lose signal. But it's not as though it's independently fed or separately fed from a transmitter, it's complementary and it's only there to ensure that the consumer living in the down-town core doesn't get loss of signal. It's complementary. It is not separate and distinct, if that helps.
2838 COMMISSIONER WILLIAMS: It does. Thank you. Given that the capacity available on U.S. satellites for the distribution of Canadian channels is limited, did you consider the possibility of providing a split feed to the terrestrial networks to increase your offering of Canadian programming?
2839 MR. SHEA: It's technically impossible.
2840 COMMISSIONER WILLIAMS: Technically impossible?
2841 MR. SHEA: That's correct.
2842 COMMISSIONER WILLIAMS: Are there channels that contain information for specific markets in New York or L.A. traffic, whether news, could these satellite channels be blocked and the corresponding terrestrial ones used for Canadian programming?
2843 MR. SHEA: Given the answer to the previous question, it's technically impossible.
2844 COMMISSIONER WILLIAMS: No. Okay. Great. Do you foresee any problems in meeting the technical requirements as set out by Industry Canada in Annex 1 of their 21 September 04 letter?
2845 MR. SHEA: No.
2846 COMMISSIONER WILLIAMS: Will you be able to fully meet its coverage and service objectives in light of these requirements?
2847 MR. SHEA: Yes.
2848 COMMISSIONER WILLIAMS: What are the cost implications of these technical requirements?
2849 MR. SHEA: Ray?
2850 MR. CARNOVALE: Could we get back to you on that one by tomorrow?
2851 COMMISSIONER WILLIAMS: Yes, of course. So, you'll be back before the reply is in.
2852 MR. SHEA: Thank you.
2853 COMMISSIONER WILLIAMS: You noted that two new services will be produced and assembled using the existing CBC facilities. Should existing facilities not be available, what new facilities would be needed to produce and assemble these services and have you given... maybe you can give us an indication of what capital and operating expenditures associated with these facilities would be?
2854 MR. SHEA: Commissioner Williams, we will be filing with the Commission tomorrow in answer to Commissioner Pennefather's question. All the costs pertaining to the build of... or provision of our five channels.
2855 But the fast answer is, we SIRIUS Canada will not have control rooms and so on. It's the benefit of having partners of CBC and Standard.
2856 So, CBC will be undertaking to produce their four channels and Standard will be undertaking to produce their channel in their inherent systems per companies, pardon me, so that we get those efficiencies.
2857 The only real technical cost at SIRIUS Canada will be the facilitation of sending those signals from Toronto to SIRIUS New York and we'll either do that by land line or satellite line, whatever is the most efficient at that point in time.
2858 COMMISSIONER WILLIAMS: In your deficiency reply of 12 March 04, you indicated that SIRIUS was considering several different options for network control, including establishing appropriate facilities of Standard Offices or at CBC new National shared services organization or using joint CSS SIRIUS centralized call centre. No cost estimates were provided.
2859 Have you finalized your plans for a network control centre and if so, can you please describe the facilities that would be used and give us an indication of the capital and operating of costs associated with these facilities as well perhaps at the same time?
2860 MR. SHEA: We can and it will form part of our answer tomorrow, but we won't really have a network control centre. Given that the channels again are being facilitated, built, organized and delivered by the partners, we don't confront that cost.
2861 We will have customer service elements which is, I'm sure, we are going next, but not a network centre in terms of a conventional radio service.
2862 COMMISSIONER WILLIAMS: Okay. Thank you. You talk about your partners. Should the adoption of more efficient technology free up additional capacity, how will these additional channels be shared amongst the partners?
2863 MR. SHEA: I think we have an undertaking again specifically on any incremental channels as a bi-product of compression technology. How we are going to seek that arrangement out with our partner SIRIUS I believe is going to be in the response to the Commission tomorrow.
2864 COMMISSIONER WILLIAMS: And how about your internal partners, Standard and CBC?
2865 MR. SHEA: I think as filed, it's currently four plus four and that's the plan, Commissioner Williams, as far as we've gone.
2866 COMMISSIONER WILLIAMS: Given that the terrestrial transmitters could be individually programmed, what kind of trade-of do you foresee in terms of the number of local channels versus the number of national channels, and would or could Canadian channels replace the 20 or so channels that are providing local... I think we've already settle that, you can't do that one.
2867 Do you see a need to supplement your satellite coverage with terrestrial repeaters outside of the major markets that you've applied for?
2868 MR. SHEA: No.
2869 COMMISSIONER WILLIAMS: And what are your views on the development of an all-band all-service receiver?
2870 MR. SHEA: I think, just to complement the discussion yesterday because I think we're in total agreement with the way that discussion went. It sounded to us like the actual radio that may be built could be bigger than a car.
2871 But we're in total agreement with the discussion, Commissioner Williams, of yesterday and have no variation on theme.
2872 COMMISSIONER WILLIAMS: Are there any initiatives that the Commission and/or the Government of Canada could undertake that would assist the provisioning of an all-band all-service receiver?
2873 MR. SHEA: Ray?
2874 MR. CARNOVALE: If we're talking about trying to add D.A.B. capability in addition to satellite services, that's a real challenge. The XM and SIRIUS satellite services are in the same band, the S band, and their frequencies are adjacent, so it's quite simple or relatively simple to design or receive a front end which can accept all of them.
2875 When you get into L band, which is around 1.5 gigahertz, you're talking about a portion of the spectrum that is quite removed and, therefore, it's not trivial from an engineering perspective to design a receiver which has such a wide front end that can accept both frequency bands and at the same time have the appropriate degree of rejection of overload and interference.
2876 The other and more difficult thing, the bigger challenge is that we're talking about three different kinds of audio coding schemes, three different kinds of modulation schemes and that makes it even more difficult.
2877 So, especially considering that the only market for these receivers would be Canada, I mean, there is no place else in the world where you would have both kinds of services being used.
2878 L band is totally out in the United States, that's a band that is used by the U.S. Military and there is no way that D.A.B. would ever be transmitted in L band in the United States. Therefore, you don't have anything to drive the economies of the market place.
2879 COMMISSIONER WILLIAMS: Okay. Thank you. Does CBC foresee its satellite services supplementing or even replacing any of its terrestrial services?
2880 MR. TREMBLAY: Well, I think that given that we are dealing with no radio service, there is no alternative to, over the air reception, for the foreseeable future. While South Africa may complement what we do now and extend our reach to remote areas, I think that, no, we will have to deal with for, you know, decades to come.
2881 COMMISSIONER WILLIAMS: Okay. Thank you. Mr. Shea, given that a technical brief will be required for every transmitter site, will the applicant, yourself, provide you have used a licensing model for terrestrial repeaters?
2882 MR. SHEA: Ray?
2883 MR. CARNOVALE: I think it wouldn't be necessary for the Commission itself to have subsequent licensing processes, in my view, but what would be necessary, and let me back up.
2884 Given that the frequency bands used by the two satellite services are essentially exclusive, I don't think we would necessarily have to go through another licensing process, if you've given approval in principle.
2885 But what I think what definitely is required is a formal Industry Canada process where we go through the same kind of frequency coordination with other users immediately adjacent to the frequency band. So, that means frequency coordination with XM, it means frequency coordination with adjacent wireless services. Again, the issue isn't so much what is the specific frequency you're transmitting on, but how are you going to affect adjacent services which could suffer from receiver overload.
2886 So, it's a subtle technical issue and it's essential that there be a coordination process. Perhaps Industry Canada would issue a BPR or broadcast procedures and rules that could cover this off in the same way as there is a BPR for digital terrestrial television transmitters.
2887 COMMISSIONER WILLIAMS: Okay. Thank you. I am going to move into the area of local programming. There has been some controversy in the U.S. recently over the decisions by XM and SIRIUS to provide local weather and traffic to some 15, 20 of the largest markets in the country.
2888 Is this something that we should be concerned about? What would your plans be?
2889 MR. SHEA: In the proposed conditions of license that we gave to the Commission this morning, we make it very clear that we have no intention to provide any local programming, either directly off the satellite or any kind of cut-ins on transmitters, and that we also have no plans whatsoever to do any kind of local advertising or whatever.
2890 COMMISSIONER WILLIAMS: With your Radio 1 and Première Chaîne channels, how would you be in compliance with that? Would they not be providing local Montreal and Toronto information?
2891 MR. SHEA: Yes. That is correct, Commissioner Williams, and thank you. Other than the local programming inherent specifically in those two channels. That is correct.
2892 COMMISSIONER WILLIAMS: I am a boater as well. How far offshore have you been listening to this radio, or do you boat on lakes in Ontario?
2893 MR. SHEA: Personally, Ontario, but my brother-in-law, Victoria.
2894 I saw you nod your head earlier when I said it has become the hottest sort of rage in B.C., and believe me it has.
2895 In Muskoka this summer I saw more XM and SIRIUS units in boats than in cars, and it seems to be because it is next to impossible to get any radio signals on water. So my understanding is it works very, very well.
2896 COMMISSIONER WILLIAMS: Your information filed with us says 200 nautical miles, that is off of either the east or the west coast?
2897 MR. SHEA: That is correct.
2898 COMMISSIONER WILLIAMS: The fishing fleet on either coast may take advantage.
2899 MR. SHEA: That's right.
2900 COMMISSIONER WILLIAMS: Okay. Thank you. Thank you very much.
2901 Those are my questions, Mr. Chairman.
2902 THE CHAIRPERSON: We will have some follow-up questions, beginning with Commissioner Wylie.
2903 COMMISSIONER WYLIE: While you were orbiting with Commissioner Williams I realized there was one question that I wanted to ask and did not, so I apologize, Mr. Chairman, for forgetting.
2904 Before I do that, your number six condition of license about no local programming, assuming that the Commission were to give you a seven-year licence and you do get 300,000 subscribers and add three channels, that condition will apply to those as well?
2905 MR. SHEA: That is correct.
2906 COMMISSIONER WYLIE: Your CTDs. I am looking at your revised income statement, Appendix 4A, which was filed on the 31st of May 2004 -- I gather that is the last one -- and what you gave us this morning, would you explain how -- I end up with $21.5 million in the revised income statement, $21.9 in the other.
2907 I do understand that it depends because it is 5 per cent, but I assume that the sheet you gave us this morning has been calculated based on the same expected subscriber revenue. I also understand that you are tying yourself to a specific sum in year one and two, but the numbers are not quite the same per year.
2908 Is this going to be 5 per cent of your gross revenue from broadcasting activities per year except for the two that you have tied yourself to in year one and two -- two years you have tied yourself to $1.2 million? Because the numbers just don't -- they are not the same.
2909 I also understand that your revised income statement year one is based on eight months of operation.
2910 Exactly how is it going to work? I understand the first two years, that is easy, $1.2 million. After that, year three, it is 5 per cent of the gross revenues?
2911 MR. SHEA: I will ask John Lewis to -- because you are quite right, we did change the variation on a year-to-year basis.
2912 COMMISSIONER WYLIE: Yes. Just so we understand that it is not just a question of arriving at 21.9 -- or it is really .5 the way I calculate it, but I guess that is because of year one here being eight months.
2913 But how will it work per year after the first two years when you guarantee the sum?
2914 MR. LEWIS: Yes, you are quite right, we re-profiled the CTD contributions in recognition of the value that this would bring to the Canadian artistic community. We felt if we stuck with 5 per cent gross per year that we would really be shortchanging the artists in the early years and felt it necessary to re-profile.
2915 We also felt it necessary to guarantee those first two years at the $1.2 million to ensure that we did provide the support necessary to the list of the top 10 that you have seen.
2916 So once we did that, once we started to change that, then we of course couldn't be in the position where in year three we were in fact giving less than what we gave in year one and two, so that caused us to re-profile year three and then so on all the way down.
2917 But in no case did we come in under 5 per cent. In fact, the overall dollar amount, as you noted, once we had gone through the top 10, is actually higher than what we originally anticipated and comes in actually at 5.1 per cent.
2918 I actually have the percentages per year if you would like.
2919 COMMISSIONER WYLIE: Yes. The total is half a million dollars more.
2920 MR. LEWIS: Yes, that is correct. Again, in recognition of wanting to be able to make those contributions to the artistic community. But we actually start at 63 per cent of our revenue because it is that short year and the revenues -- we have few subscribers in that early year.
2921 Then it goes down to 9 per cent, 5.6, 7.7, 5.2, and so on, ending off with an average of 5.1.
2922 COMMISSIONER WYLIE: Right. Your condition of license number eight, then, you bind yourself to $1.2 million in each of the first and second full years, and after that it is 5 per cent of gross revenues per year or over the rest of the five years?
2923 MR. SHEA: I think the way we came at this was when we actually sat down and looked at a lot of the commitments that we were making on the various things that would happen with respect to tours and so on, that the shareholders had to agree to upfront guarantee the first two years. So what we did, Madam Wylie, was we took actually that off at the latter part, so it is 5 per cent over the license term.
2924 COMMISSIONER WYLIE: So that if, for example, things didn't turn out as well as you wanted, the fact that you guaranteed that $1.2 million in the first two years would have the effect of reducing the last years.
2925 MR. SHEA: That is correct.
2926 COMMISSIONER WYLIE: Because what you expect is in seven -- the only thing you bind yourself to other than those first two years is that seven years you have to have spent 5 per cent of the gross revenues overall.
2927 MR. SHEA: That's correct. We actually have, and we are happy to file it with the Commission, the actual breakout by year. So you will see that in year three it is 7 per cent, or whatever it is, in order to get to the end number.
2928 COMMISSIONER WYLIE: Yes. Now, once we start --
2929 THE CHAIRPERSON: Excuse me, Mr. Shea. Do you mean file in addition to what you attached to the --
2930 MR. SHEA: No, I'm sorry. So you have that. I'm sorry.
2931 COMMISSIONER WYLIE: Commissioner Pennefather and I are charged with the responsibility of trying to convince you that this is not enough for Canada and throughout you talk about the big advantage it will be to the artists, et cetera, and don't just count the channels, count the effect and the more intangible benefit.
2932 Wouldn't it be tempting to say that whether or not you get a lot of subscribers this is the amount of money that you have to put into the system as what you are offering --
2933 MR. SHEA: Well, I guess --
2934 COMMISSIONER WYLIE: -- to the system as advantages. Is it exaggerated to say that that is what has been stressed yesterday and today, is: Don't just look at channels, don't look at the ratio of American to Canadian, think of what it will do for the artists, and yet if this doesn't succeed quite as well, well, there won't be that.
2935 MR. SHEA: Right.
2936 COMMISSIONER WYLIE: And you will end up at the end of seven years with not having giving much work to Madam Sasseville because there won't be very much money if you are not selling it.
2937 MR. SHEA: I guess the --
2938 COMMISSIONER WYLIE: Is that one of the counterbalancing advantage you could put forward is that you are guaranteeing -- you brought that on yourself by saying you guarantee the first two years. I look at that and I say: Wouldn't it be great if they guaranteed all seven years and then we could put a price on these advantages that you are putting forward when we press you about the ratio of channels.
2939 Think about it. I know you don't like to answer questions right away.
--- Laughter / Rires
2940 MR. SHEA: But my immediate reaction is, the loss of --
2941 COMMISSIONER WYLIE: If it is a great idea.
2942 MR. SHEA: If it is a great idea and we do very, very well, then not only the Commission but the system lose the benefit of actually more money.
2943 COMMISSIONER WYLIE: Yes. I hope you don't meet your XM friends at the door.
2944 THE CHAIRPERSON: Commissioner Langford.
2945 COMMISSIONER LANGFORD: That is a tough act to follow.
2946 I just have what I think is a simple question. It kind of melds comments from Mr. Lewis and from Ms Chalmers.
2947 I wanted to start by asking you: What is the price of this latest little hand-held kind of gadget that you have, the portable one?
2948 MR. SHEA: I think it's about $129 U.S.
2949 COMMISSIONER LANGFORD: Really, $129 U.S.
2950 Because you have put it up as kind of the competitor to the iPod sort of thing and Ms Chalmers had talked about trying to kind of recapture the youth market, that they are hard to get back, they have left. I think you said the same thing, Mr. Shea.
2951 I think every radio applicant for a commercial licence we have in the time I have been at the CRTC has tried to do two things: Take back advertising from the United States and recapture the lost youth, the lost boys.
2952 I am mindful of Mr. Lewis' statement that his study showed -- I'm not quoting you exactly but I am pretty close -- there was a corresponding drop in interest as the price went up from zero to $14.95.
2953 So if I look at what you are asking these lost teenagers to return to, you are asking them to put up $125 U.S. as opposed to, what is it, about $400 Canadian for an iPod or something you said; then you are asking them to put up I guess another, what, abut $170 a year Canadian for subscription fees. It seems to me after about two years you have the price of your iPod.
2954 MR. SLAIGHT: Based on my kids you are asking the parents to do that.
--- Laughter / Rires
2955 COMMISSIONER LANGFORD: Everyone has their own burdens to carry, sir. Some of ours brought them up better than others. I would advise a paper route in your case.
--- Laughter /Rires
2956 COMMISSIONER LANGFORD: If we could return to the focus.
2957 So I just wonder whether that is a good market plan you have. I think the old line is: Nothing beats free -- it certainly works around Mr. Slaight's house -- and so will you bring them back?
2958 Have you really thought this plan out? Will this really recoup this market?
2959 One of the reasons I ask is because you are slanting some of your programming towards them and whatnot in the hopes they will be there, so there are ripple effects. It is a simple question in one way of marketing, but it also has ripple effects through the sort of programming you are planning as well.
2960 MR. SHEA: Yes. I guess my only quick comment there is that you look at what the youth today are spending on cellular phones and it is substantially more than this on a monthly basis and even the capital cost of the unit.
2961 There is an absolute penchant for investment in entertainment services by the youth. There are the biggest buyers of it. We have lost them to a conventional system, AM and FM radio, because they have gone to the new technologies, Internet and iPods.
2962 What this is to a kid when he actually gets a chance to use it is, he or she says to themselves: This is an iPod in the sky, because what this has is thousands and thousands of hours of memory and it does all the work for me and, believe it or not, it is legal. In other words, it is getting more and difficult for kids to download. They are cognizant of the theft issue. I honestly think once you get the Walkman versions of these out there, the kids are going to absolutely eat this stuff up because it speaks right to their genre of music.
2963 COMMISSIONER LANGFORD: Making it legal may take the fun out of it.
2964 MR. SLAIGHT: Conventional radio has given up on the kids a long time ago largely because of where the advertisers are spending their money, and this service is not about advertising and this service plays music that the kids are not currently getting on conventional radio. That is what will draw them to this product.
2965 I watch my kids in the car -- I am also a grey market individual without grey hair -- and they go right to the radio and they start looking for their favourite music. So this will work with the kids for sure.
2966 COMMISSIONER LANGFORD: Your hair will be grey soon if that is happening in the van.
2967 I guess just one further question and it is kind of a look-ahead technical question. At this point, as I gather, you buy one of the hardware products and that is your fee you are paying for that one. So if you have one in your car you are paying, and if you have one in your hand you are paying and if you have one in a boombox you can move it around, but you are still paying for three.
2968 Are there plans down the way, I mean are you running into any interference marketing this in the States? Does people say, "Well, give us a family package here or something" or "I have three vehicles".
2969 Are there plans down the way to market in that way or is it simply going to roll out the way the cell phone does, buy one and pay for it?
2970 MR. GREGOR: There are an existing plan in the States today, we call it a family plan, where at our usual price of $12.95 for the first receiver which can be discounted on monthly plans. The second, third, ad infinitum receivers, are at a $6.99 price point per month. So there are substantial discounts involved.
2971 COMMISSIONER LANGFORD: Thanks very much. Those are my questions.
2972 THE CHAIRPERSON: Thank you.
2973 Commissioner Pennefather.
2974 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman.
2975 I just wanted to clarify one thing, Mr. Shea. I think you said there was no network control centre?
2976 MR. SHEA: That is correct.
2977 COMMISSIONER PENNEFATHER: Could you clarify for me what you are referring to, because I have here in front of me the May 21 response to deficiencies which outlines the costs of the network control centre, in fact provides those costs as split between subscriber operations and facility operations.
2978 It would appear from the record you do have one.
2979 MR. SHEA: I think I was trying to differentiate between a conventional network distribution centre, technical costs to get signals out and so on, but no, we do have, from a customer service perspective, which is what we have the charts up here, we are happy to take you through it. Our call centre is now planned to be in Cape Breton. We can take you all through that, if you would like.
2980 COMMISSIONER PENNEFATHER: That is why I wanted to clarify, what is here is what in fact will be.
2981 MR. SHEA: That's correct.
2982 COMMISSIONER PENNEFATHER: Okay. Thank you.
2983 Thank you, Mr. Chairman.
2984 THE CHAIRPERSON: Do you want to go next?
2985 THE CHAIRPERSON: Commissioner Langford.
2986 COMMISSIONER LANGFORD: We are going to switch quickly into the areas. As you can understand, we take the same approach to this as you do, we break up the work a little. You had the advantage, I hope some of you, of sitting through this morning's session with XM and essentially if you did you got a little bit of a dry run because I am going to be asking the same type of questions. If you and your counsel have had the advantage of sitting through this morning, I think we can probably short-circuit some of this.
2987 Also, I have the advantage of your COLs on offensive content and whatnot, so that certainly short-circuits that, as far as I am concerned. I may have some specific questions about shutting down channels, as I did, but I don't want to prolong this just to be under a spotlight. We are all warm enough as it is.
2988 Essentially. perhaps the easiest way to approach this is, as I said, with the advantage of this morning's conversation. We talked about some licensing options. You tend to refer to yourself as a distribution undertaking, but you also will know, or counsel will know, that distribution undertakings have certain duties and certain obligations and you may not find those compatible with your plan.
2989 We could make some comparisons between you and pay audio, but they have some linkage requirements that may give you concerns.
2990 Having touched on those types of problems, how do you suggest we go? What is your latest thinking on how if we were to want to license your application we should do it?
2991 MR. SHEA: I will start briefly, but I am also going to ask Grant to weigh in.
2992 I think that what we have proposed in terms of looking at a combination of PDU and pay audio services and other elements the Commission has licensed historically, whether it be pay-per-view licenses, is simply to capture a CTD expenditure that is specifically targeted at sort of funding third party initiatives and we think that that should be in the nature of 5 per cent of revenues over the course of the license term.
2993 Secondly, with respect to channel capacity, I think the two applications XM and SIRIUS are relatively the same. We are five, they are four. There are different reasons and different cost structures with how both of us have come at our business plans, and I think the Commission, particularly with the kind of start-up technologies -- because we have seen things happen in our regulatory historical past -- should take the best business plan that the applicant has put forward on first round of licensing and try to capture the elements that are different in different COLs.
2994 So specifically what I am saying is that we have an undertaking to launch -- to have five channels that launch. You have the guarantee both by the Board of SIRIUS more importantly, by our partner in the United States, that that is an absolute condition of license, and then we have suggested a rationale for how we will add channels incrementally and that is when we get to a certain benchmark.
2995 We put forward this morning for the Commission to determine, given that this is sort of a North American shared service, that there is kind of a rep by pop sort of notional way of looking at channel inclusion, channel sharing, because Commissioner Pennefather yesterday was asking about: Give me some ratios. Give me some ideas. We have tried to bring that forward.
2996 Enough said. I am going to ask Mr. Buchanan to complement.
2997 COMMISSIONER LANGFORD: I am going to have to remind you that though you may love the idea of rep by pop, you have to think of us as the electoral college today.
2999 MR. BUCHANAN: Well, we took our best shot at it here. We think we should be a BDU with conditions of license, some focused directly on the undertaking itself as a BDU and some directed towards the nature of the programming channels that we have been asking you to authorize us to carry, the Canadian programming channels.
3000 The hammer we gave you is, we said if we don't do the Canadian you can't carry the American. So that is item one in the conditions of license, so you have it in probably its most succinct form in front of you.
3001 COMMISSIONER LANGFORD: And the notion of access to third parties and whatnot, would you find that applicable in any way? I don't see how you could, frankly, but I have to ask.
3002 MR. BUCHANAN: I don't see how we could.
3003 COMMISSIONER LANGFORD: Technologically it doesn't seem possible, does it?
3004 MR. BUCHANAN: Well, when you think about a 5 to 1 ratio when you are only dealing with five channels, it talks itself out of the box pretty quickly.
3005 COMMISSIONER LANGFORD: So essentially we are doing a one-off licence is what you are asking us to do, which is not unprecedented, but that is what you are asking us to do.
3006 Perhaps depending on how the two dovetail, if we did allow both applications we would be doing a two-off, but it would be a -- because they are fairly similar when you work it down.
3007 Okay. That answers my questions in that area and perhaps we could move very quickly on to the notion of control. I think the control, as I said this morning, we are dealing with two aspects, it is the control of the Canadian operation, which clearly under the statute has to lie in Canadian hands, and then later we will talk about control over programming, which in light of your COLs I think we can do in one or two questions.
3008 So essentially I guess what we need to know more about -- and Commissioner Pennefather touched on it this morning -- we need to know more about the arrangements between SIRIUS Canada and SIRIUS U.S.A., if I can put it that way.
3009 I will just refer again to a paragraph in the shareholders' agreement that Commissioner Pennefather pointed out this morning.
3010 COMMISSIONER LANGFORD: I have it marked as page 16, section 2.41 and it under the general heading of "Commitments of the shareholders".
"The commitments of CBC are long and extensive and the commitments of Standard are long and extensive, but the commitments by SIRIUS are as follows:
Pursuant to a license agreement entered into contemporaneously herewith, SIRIUS has agreed to make certain commitments to the corporation." (As read)
3011 I find that I am vague on that licensing agreement. I am not entirely comfortable in my mind about what assurances you have that you can in fact over the seven years deliver precisely what you have described in so much paper and described orally today.
3012 So am I missing something here?
3013 MR. BUCHANAN: Do you have also the licence and services agreement?
3014 COMMISSIONER LANGFORD: Yes, I do.
3015 MR. BUCHANAN: Because there were so many commitments by SIRIUS we couldn't fit them in the shareholders' agreement and we created an entire new document that we called the Licence and Services Agreement.
3016 COMMISSIONER LANGFORD: Actually, I may not. I may be thinking of something else.
3017 No, we don't have that one. I'm sorry, I'm thinking of CSR. Sorry.
3018 MR. BUCHANAN: It was filed on September 15th.
3019 COMMISSIONER LANGFORD: Ah, the old dog ate my licensing agreement problem.
--- Laughter / Rires
3020 COMMISSIONER LANGFORD: We have it. One of us has it and soon we will all have it. There hasn't been some sharing.
3021 Perhaps then we can drop that question momentarily while we bring ourselves up to speed on that.
3022 Let me then jump ahead to some of the important matters.
3023 In reading your shareholders' agreement we see that you are kind of one-third, one-third, one-third owners, but I also see that some of the votes require 70 per cent or even 90 per cent of shareholder agreement and that leads to the whole question of Canadian control.
3024 Perhaps you can help me through that while we are searching through the files in the doghouse and tell me why we shouldn't be concerned about that.
3025 MR. BUCHANAN: That is exactly what this is, it is a list of standard minority shareholder protections culled from a variety of previously approved documents. We could go one by one through them. I'm not sure which one of them or whether it is a cumulative effect of looking at them or what they are -- appointing or changing auditors, I mean there is a whole lot of -- bankruptcy, there is a lot of them in there that are pretty typical protections for minority shareholders that I think you would expect to find in any agreement and the Commission has not found to be problematic in the past, but we could do them as you wish.
3026 COMMISSIONER LANGFORD: Let me paint a scenario for you. Suppose that you are licensed and three or four years from now, because of some sort of compression difficulties, because of growth into the Mexican market, because of a huge demand in the American market for a certain type of programming that you don't have or you don't have enough of, a demand comes from your American partners to drop one of your channels.
3027 Is there any way under any of these 70-90 votes that that could happen? Is there any way that in those types of really essential Canadian control issues the American partner could wield the hammer, as it were?
3028 MR. SHEA: Commissioner Langford, in the COLs we have advanced for study by the Commission, the five channels are firm fixed for seven years. As Grant pointed out, the only way we get the right to the full American menu is by, at a minimum, having those five channels. So for at least the first term that cannot, will not happen.
3029 Outside of some catastrophic issue that is beyond any of our control, meaning satellites fall out of the sky, we have a COL that protects you and us from that not happening.
3030 MR. BUCHANAN: There is also another document, I hate to say it, but on the 15th of September we also filed at signed licence agreement between SIRIUS Canada and the CBC which says clearly that it will carry the four CBC channels throughout the term, period.
3031 COMMISSIONER LANGFORD: It might be good --
13:54 THE CHAIRPERSON: There has clearly been a breakdown of communication here, because there were a number of questions that a number of us have had that would clearly be address in those documents that you are referring to, Mr. Buchanan.
3032 I think what we will do is, we will proceed with the balance of the questions and we will have to resume tomorrow morning. We will certainly review those documents tonight and see whether some of the questions that we would have had would be answered by them. I don't know how this happened, but clearly we haven't seen those documents and they are material to this consideration.
3033 Do you have any other questions?
3034 COMMISSIONER LANGFORD: Then why don't we just quickly jump the control of programming and leave those until, as the Chairman has said, we have informed ourselves.
3035 Basically, on the basis of your COLs, I don't have any problem with the notion of offensive; I don't have any questions with the notions of offensive programming or that sort of thing, but I would, as I did with the CSR people this morning, just be interested in how precisely this would operate and what speed you could operate with.
3036 So let me give you the standard scenario, and actually leaving aside Howard Stern who I understand is on a premium channel and is probably in a world on his own.
3037 What do you do if you find yourself in a situation where the Standards Council has ruled that continually some program is offensive and we have wagged the regulatory finger at you. Where do you go? How do you get that program off?
3038 MR. SHEA: A very similar response, Commissioner Langford, we can't turn a program off, we have to a channel off, and the Board of SIRIUS Canada is in absolute total control of which channels we elect to take from the full SIRIUS menu.
3039 You are looking two very responsible broadcasters, Standard and CBC, who have a history in front of you. Obviously they also have reputations and we would immediately respond if there was any kind of untoward action issue, whatsoever, from our subscriber base, that was electing not to hear certain types of content.
3040 Having said that, there are parental control devices, very similar to what you heard. I guess one unique difference between SIRIUS and XM in the U.S. is that SIRIUS already provides a plan for subscribers called The Family Plan that drops out any of the channels deemed adult or in a different league, and it's not something that we specifically, from a marketing perspective, have landed on yet, but it is something that the Board of SIRIUS Canada will take a serious look at, and that is offering a family plan that takes into account a diversified menu for content reasons.
3041 COMMISSIONER LANGFORD: And are your abilities to shut down a channel similar to CSR's, 50,000-100,000 a day?
3042 MR. SHEA: Precisely.
3043 COMMISSIONER LANGFORD: Open-line shows... Any kind of control there in the sense of time-delays?
3044 MR. SHEA: No.
3045 COMMISSIONER LANGFORD: Nothing at all.
3046 MR. SHEA: No.
3047 COMMISSIONER LANGFORD: So it's just a matter of, "if it happens, it happens" and try to make sure it doesn't happen again.
3048 MR. SHEA: That's correct.
3049 COMMISSIONER LANGFORD: So living in New York might not be all fun. You may have some work to do!
--- Laughter / Rires
3050 COMMISSIONER LANGFORD: I was envying you before, but I'm not so sure any longer.
--- Laughter / Rires
3051 COMMISSIONER LANGFORD: Let me just check this...
3052 No, I think that does it, Mr. Chairman. I think those are my questions.
3053 Thank you very much.
3054 MR. SHEA: Thank you.
3055 THE CHAIRPERSON: Okay, we will break now. After the break, I would like to go over your financial projections, your capitalization, corporate structure.
3056 I don't know the extent to which the September 15 documents deal with that. I would have thought that you could probably deal with them in isolation from those, to the extent that if there is any overlap, you'll --
3057 MR. SHEA: We should be fine on that.
3058 THE CHAIRPERSON: We will break and resume in 15 minutes.
3059 Nous reprendrons en 15 minutes.
--- Upon recessing at 1533 / Suspension à 1533
--- Upon resuming at 1553 / Reprise à 1553
3060 THE CHAIRPERSON: À l'ordre s'il vous plait. Order please. So, as indicated, we will proceed with the balance of the questioning that we have that doesn't pertain to the LSA and associated documents and resume in the morning with any questions that we might have based on those, together with any updates you might wish to provide us with on those.
3061 MR. SLAIGHT: If I may, very briefly before we start. We just did some market research and we have decided that the second standard channel, number 6, will be a French channel in French language.
3062 THE CHAIRPERSON: Did you just go outside this building in the Gatineau?
3063 MR. SLAIGHT: I made a few phone calls.
3064 THE CHAIRPERSON: I see, thank you. Okay, Mr. Shea, if you could turn to the... I guess to your Shareholders' Agreement dated July 6th, the board of directors, I just want to make certain I have an understanding. The corporation, I take it is SIRIUS Canada and it is to be the operating entity?
3065 MR. SHEA: That is correct.
3066 THE CHAIRPERSON: Okay. So, 80 percent of the directors have to be resident Canadians by that. The list under section 22.214.171.124, are they all... do you have that standard met? Are five sixths of those parties resident Canadians?
3067 MR. SHEA: Yes, we do.
3068 THE CHAIRPERSON: Okay, so Mr. Johnson and Mr. Gregor are both resident Canadians then?
3069 MR. SHEA: Mr. Johnson is a resident Canadian, Mr. Gregor is an American.
3070 THE CHAIRPERSON: Okay, so that is five out of six and that puts you above the 80, okay, thank you.
3071 On the capitalization of the shareholders, the corporate structure seems fairly straight forward, roughly equal parts to a total of approximately $40 million.
3072 MR. SHEA: That is correct.
3073 THE CHAIRPERSON: And the corporate structure is SIRIUS... U.S.'s share is part in voting shares and part in non-voting shares I take it?
3074 MR. SHEA: That is correct.
3075 THE CHAIRPERSON: Comply again with the regulation. Now, in your cash flow statement that you filed with the other financial documents in Appendix 4A, you show an infusion of equity in the first four years, which I haven't added up, but I take it that is the $40 million. And, what do you envisage beyond that date?
3076 MR. SHEA: Well, our hope is by that point we will be self-sufficient and that is the plan that we more or less filed with the Commission.
3077 THE CHAIRPERSON: Right. You appreciate XM's capitalization is more than four times that amount?
3078 MR. SHEA: That is correct.
3079 THE CHAIRPERSON: Right.
3080 MR. SHEA: Principally because of again a difference in the undertaking, in that they have many more transmitters to build and, I think as you went through the issues yesterday, network control centres and so on that we don't have to build.
3081 THE CHAIRPERSON: Okay, and then should you need more financing, could you summarize the arrangements? I guess it is under Article 3 of the Shareholders' Agreement, right?
3082 MR. SHEA: Bank first, shareholders next.
3083 THE CHAIRPERSON: To what extent will you look for bank financing?
3084 MR. SHEA: Grant.
3085 MR. BUCHANAN: As much as you can get.
3086 THE CHAIRPERSON: Direct me to the appropriate section of the Shareholders' Agreement there, Mr. Buchanan.
3087 MR. BUCHANAN: 3.1, the funds required for carry on shall be obtained to the greatest extent possible by borrowing from a Canadian chartered bank.
3088 THE CHAIRPERSON:And then following the need for capital, then we go to section 3.4?
3089 MR. BUCHANAN: Yes. It is basically C shares at $10 a piece or for all subsequent financings.
3090 THE CHAIRPERSON: And then dilution for partners who fail to make the contribution?
3091 MR. BUCHANAN: That is right.
3092 THE CHAIRPERSON: How do you breakdown your capital requirements, Mr. Shea, how do you break that $40 million down?
3093 MR. SHEA: John.
3094 MR. LEWIS: I am not sure of the question, could you please..?
3095 THE CHAIRPERSON: Breakdown the $40 million into the capital components.
3096 MR. LEWIS: Into how it is used once we wish to commence operations?
3097 THE CHAIRPERSON: What do you expect to spend the $40 million on?
3098 MR. LEWIS: Oh, I see. So, what we have, as indicated in the financial statements that were provided, we have approximately -- I am searching for it here -- $3.7 million in capital expenditures, and that is to build the nine transmitter ground based repeaters. And from there, we have the breakout I guess that is shown in the income statement in terms of the operating expenses. If you like, I can go through those one item at a time. I am not sure if that is where you are going with this question.
3099 THE CHAIRPERSON: No, it is just to understand your financial statements. So you are going to infuse equity until you bottom up... out of... with operations, is that the idea?
3100 MR. BUCHANAN: Yes, that is correct, yes.
3101 THE CHAIRPERSON: So, when does that occur?
3102 MR. BUCHANAN: Well, the intent was to do a three month pre-operating period during which time we would build the necessary transmitter repeater infrastructure, bring on the executive and the staff necessary to run the operations, so that is in our G&A. Also, at that point, start some of the marketing expenses where we are building towards the marketing plan that ultimately will unfold once we launch the operations, and that is certainly one of the more significant expenditures given that the company itself is both there to provide the programming to its customers, but also then needs to build that subscriber base. So, we are sales and marketing, we are the Canadian talent development and building the customer profile and moving forward with that.
3103 THE CHAIRPERSON: Okay. So your capital expenditure line on your cash statement, essentially, is the 3.7 you are referring to?
3104 MR. LEWIS: Yes, that's correct.
3105 THE CHAIRPERSON: And that is for the ground-based repeaters?
3106 MR. LEWIS: Yes, that's correct.
3107 THE CHAIRPERSON: And your network control centre, as we were referring to it earlier?
3108 MR. LEWIS: Well, what we have for the network control centre, really, there are two elements to that. One of the elements is the monitoring of that terrestrial repeater centre, and that will be subcontracted to the CBC, using their national alarm centre, that's Ottawa-based. So this is the business that they are in, provided, of course, they are competitively bidding on that.
3109 THE CHAIRPERSON: I see.
3110 MR. LEWIS: The second element of that is the customer care, and on that basis we have allocated just under $20 a year per subscriber. That element, itself, of course, would ramp up over time. That's what Mr. Shea was referring to earlier about the customer call centre in Cape Breton.
3111 THE CHAIRPERSON: Right. So your essential capital expenditures are very limited, then, too--
3112 MR. LEWIS: Yes, that's correct.
3113 THE CHAIRPERSON: --in that regard.
3114 Okay. Have you given us subscriber numbers? You have given us your financial projections, but have you give us projected subscriber numbers for the payroll?
3115 MR. LEWIS: I don't actually believe that we have. We certainly are prepared to provide those. We have provided the financial statements kind of in the format that you had requested.
3116 THE CHAIRPERSON: Right. Could you give me an indication of your subscriber--the staff has done some effort at modelling based on the numbers, but before I ask you to do that--
3117 MR. LEWIS: Sure.
3118 THE CHAIRPERSON: --I will just double-check, because, in a sense, we are ball-parking it here, to some extent.
3119 MR. LEWIS: You would be, and you would be missing one of the marketing components, which is a one-month discount, on the assumption that people are paying one year at a time. So if you look at the $12.95, that actually would have to be billed by 11, as opposed to 12, in order to run back up and determine the number of subscribers--
3120 THE CHAIRPERSON: Right.
3121 MR. LEWIS: --that we are projecting.
3122 THE CHAIRPERSON: So could you give me your totals for the first five years, roughly, of your subscriber numbers, as you see them?
3123 MR. LEWIS: Yes. The first year, 40,000; the second year, 149,000; third year, 294,000; third year, 474,000--that's the fourth year--fifth year, 673,000. And those are year-end subscribers.
3124 THE CHAIRPERSON: Year-end, right.
3125 MR. LEWIS: You will want your average subscribers, if you are going to run the financials on them.
3126 THE CHAIRPERSON: No, it's not so much that. I think your projections are more ambitious than the internal calculations were. But I have those. Perhaps you could provide those. It would be helpful.
3127 MR. LEWIS: Sure.
3128 THE CHAIRPERSON: Before following up on that, I would like you to take me through how you calculated your revenues.
3129 MR. LEWIS: Sure.
3130 THE CHAIRPERSON: That's in Appendix 4A of 31 May 04.
3131 MR. LEWIS: Yes. I guess similar to the response that you heard yesterday from the CSR group, determining your revenue base, of course, is a critical element in creating the business model itself. When we first started to get involved with this, we sat down with the folks from SIRIUS to get a better understanding as to how they approached this, how all of this worked, to get an understanding.
3132 Once we felt we had that level of understanding, we commissioned the market research, which is initial market research. Obviously, you will do more to adapt to market conditions as you roll forward, but what we wanted to do there was get an assessment as to whether, in fact, there was a demand for this type of product and programming services in Canada. So we had, at that point, the discussions with SIRIUS, we had market research.
3133 We then went deeper with the folks from SIRIUS, where we got into the projections of the cars that would be equipped with the SIRIUS product. We went auto manufacturer by auto manufacturer and went through a list of those and got into the agreements that SIRIUS has with them, we got into an understanding of, within the auto manufacturers, how many of their vehicle lines would be equipped with the product at what point in time.
3134 So we went very deep, very extensive research on that and by auto manufacturer, and then we tracked that out over the seven-year period and looked at, in terms of the percentage of each one of those, that we felt would become Canadian subscribers, and then matched that against the market research that we had done and found that, in fact, it was comparable, sufficient to give us the confidence that this was a business that was worth investing in, both from a programming perspective, as well as from a financial perspective, and totalled that.
3135 We also were very concerned about the churn element--of course, that's an important part in any subscriber-based undertaking--and went through and understood from SIRIUS what their experience was at that point in time, applied that churn rate to the subscriber projections, came down, had gone through extensive discussions with their marketing folks, which was how we came up with the 11-month, as opposed to 12-month, because of the one-year discount, and then just did the math and came out with the revenue numbers that you see.
3136 THE CHAIRPERSON: Right. I guess the projections of both parties are public and you can see that your projections are lower than the projections of XM.
3137 MR. LEWIS: Yes.
3138 THE CHAIRPERSON: But when you look at existing subscribers in the U.S. market, the ratios are what, about 4:1, roughly speaking--
3139 MR. LEWIS: Yes.
3140 THE CHAIRPERSON: --subscribers to XM versus subscribers to SIRIUS, currently?
3141 MR. LEWIS: Yes.
3142 THE CHAIRPERSON: And your revenues and subscriber counts are nowhere near that. In other words, you are projecting to be pretty close to XM in this market.
3143 MR. LEWIS: And there's some good reasons for that, I think.
3144 THE CHAIRPERSON: What are they?
3145 MR. LEWIS: XM in the States got off to an early start. They had a head-start of not just rolling out their service, but also the generation of chip set that they were using. So they were able to get to an after-market quicker than SIRIUS was.
3146 They also, as was mentioned earlier, are partially owned by General Motors and both General Motors and Honda were extremely aggressive, as you heard yesterday, in the rollout into their vehicles. They had a marketing plan that had placed greater emphasis on factory installs as opposed to dealer options. So we took that elements into consideration.
3147 And because we knew that we wouldn't be starting until a much later time period and we felt that if the Commission were to license, you would likely license both and give an equal start point. So we would be at a little bit more of an advantage than SIRIUS versus XM in the States because we would be starting at the same time, because we would have more assurances as to the number of vehicles that actually would be equipped with it and we would almost have an equalization, in terms of generation of the after-market product, such as Mr. Shea showed a moment earlier.
3148 THE CHAIRPERSON: What was the time lag in starting in the marketplace in the U.S. between XM and SIRIUS?
3149 MR. GREGOR: It was approximately a year.
3150 THE CHAIRPERSON: A year.
3151 MR. GREGOR: A year. And it was related primarily to technological developments in the chip set design that lagged XM's by approximately 12 months.
3152 THE CHAIRPERSON: How long has SIRIUS been in the market?
3153 MR. GREGOR: Approximately two-and-a-half years, two years.
3154 THE CHAIRPERSON: So two-and-a-half years and XM has been roughly three-and-a-half years?
3155 MR. GREGOR: Approximately 12 months longer.
3156 THE CHAIRPERSON: Right. And yet the numbers--I mean, that's not an equal start, and I appreciate that early adopters probably went to the competition, but is that enough to justify a 4:1 ratio and as a base of the question for your calculation of Canada?
3157 MR. GREGOR: Perhaps I can shed a little bit of light on the States' differential and that closing gap, and I think John hit on the two primary reasons for the gap that exists today.
3158 One is that there was a more accelerated process at General Motors, in particular, for factory installation of radios, and that was an accelerated process. Today, I believe, 75 per cent of their installations are factory vehicles, approximately 25 per cent of ours are.
3159 The second is--
3160 THE CHAIRPERSON: What was their number, again?
3161 MR. GREGOR: Well, I don't want to speak for them, but I believe it's about 75 per cent, 50 per cent to 75 per cent are car-related installations.
3162 THE CHAIRPERSON: The number they put on the record was about 50:50, I think.
3163 MR. GREGOR: I'm talking now about the U.S. market.
3164 THE CHAIRPERSON: Yes.
3165 MR. GREGOR: I stand corrected.
3166 THE CHAIRPERSON: Yes. There is some research that backs that up, actually. There are a number of financial houses who publish reports of that. So give or take a few per cent, it's roughly 50:50, is the estimate.
3167 MR. GREGOR: The second reason, really, is the introduction of the chip set, which was 12 months later.
3168 THE CHAIRPERSON: Right.
3169 When you look at auto manufacturers, again, what per cent of Canadian vehicles do you think, in the start of your first full year, will have XM receivers in Canada and what will have SIRIUS receivers? Because you are projecting a 60:40, you said before, Mr. Lewis, 60:40--
3170 MR. LEWIS: Yes.
3171 THE CHAIRPERSON: --OEM to retail.
3172 Now, again, just before you answer that, the U.S. experience, based on a number of financial reports, that's SIRIUS experience--and you can correct us if that's wrong, Mr. Gregor--is 2:1 retail to OEM, is that correct, so you are going from a 33 per cent OEM to a 60 per cent OEM in Canada.
3173 MR. LEWIS: What's happening at that same time, though, is the new products are hitting the marketplace, we have the products that are Walkman-type products, and so we believe that there will be a greater emphasis on the retail side than what we had originally projected.
3174 And with the OEM, as you heard from Jim, from Chrysler, the number of vehicle lines that will include that in there, we have taken all that into consider on a manufacturer-by-manufacturer basis and feel quite comfortable with the projections that we have made.
3175 THE CHAIRPERSON: Right. Okay, well, I guess those are your answer on that one.
3176 I guess where it bites, in terms of your commitment under your COL, is the one that Vice-Chair Wylie was reviewing with you, which is, to the extent that you have over-projected, to that extent, CTD is an underachiever, and so that's why this discussion of the card is an important one, other than just to ensure that, if we license an entity, we want to be confidence in its viability.
3177 MR. LEWIS: Sure.
3178 THE CHAIRPERSON: Do you have anything to add on that note?
3179 MR. LEWIS: Well, one of the questions that you asked, and I'm not sure got answered, was what our overall projections were on an OEM-percentage basis. In the first year, we are talking 1.5 per cent of vehicles, new vehicles, out on the road and the second year is 4.35 per cent, so--
3180 THE CHAIRPERSON: Now, this is what, SIRIUS receivers or--
3181 MR. LEWIS: This would be SIRIUS receivers. So what percentage of new-vehicle sales in Canada would be equipped with the SIRIUS and become subscribers to SIRIUS Canada?
3182 THE CHAIRPERSON: Is it solely the DaimlerChrysler model--
3183 MR. LEWIS: No, no.
3184 THE CHAIRPERSON: --that Mr. Morrison was referring to?
3185 MR. LEWIS: We have DaimlerChrysler, we have Ford, BMW, Mercedes, Audi, Jaguar, Land Rover, Volvo. We have gone through each one of them, both the exclusive arrangements and the non-exclusive arrangements.
3186 THE CHAIRPERSON: Okay. Thank you.
3187 Now, you have a "cost of goods sold" line on your financial projections. What is that?
3188 MR. LEWIS: The cost of goods sold would be the incentives and the subsidies that are provided to that value chain analysis that I responded to earlier in one of the earlier questions.
3189 THE CHAIRPERSON: And who would be the beneficiaries of that?
3190 MR. LEWIS: The beneficiaries would be each of the components within that value chain, so that there is a chip set manufacturer that would receive some funding and the manufacturers of the actual products themselves, the dealers and the auto manufacturers, as well as the retailers.
3191 THE CHAIRPERSON: And that's a pretty large chunk of your revenues, isn't it?
3192 MR. LEWIS: Yes, it is, indeed.
3193 THE CHAIRPERSON: And it's, essentially, to incent timeliness?
3194 MR. LEWIS: It is. As in the release of any new product like this, the initial take-up is often so small that the manufacturers need to be incented in order to be able to move the product, just the cost of releasing a new product, until you are manufacturing in sufficient quantities that you can get that cost/volume savings.
3195 THE CHAIRPERSON: So it's chip manufacturers and set manufacturers. Do the auto manufacturers figure in that?
3196 MR. LEWIS: Yes, they do, indeed.
3197 THE CHAIRPERSON: They do, as well. Can you roughly divide it among the categories of manufacture in percentages?
3198 MR. LEWIS: Well, we are heading, of course, into an area that there are confidentiality agreements--
3199 THE CHAIRPERSON: Fair enough.
3200 MR. LEWIS: --that have been signed with some of these, but we certainly have all of that information and they are based on agreements that SIRIUS has negotiated.
3201 THE CHAIRPERSON: Perhaps you could file that in confidence.
3202 MR. LEWIS: Sure.
3203 THE CHAIRPERSON: Activation, what does that represent?
3204 MR. LEWIS: Activation would be for the after-market products. As the subscriber goes to a best-buy or Circuit City and purchases the product, then the call to the initiate the service comes with a fee.
3205 THE CHAIRPERSON: And the recipient there is...?
3206 MR. LEWIS: SIRIUS Canada.
3207 THE CHAIRPERSON: The recipient of the activation fee?
3208 MR. LEWIS: Recipient of the activation fee, yes, which is different than what you heard yesterday.
3209 THE CHAIRPERSON: Okay, I think I have that. When you look at your expenses, your programming line is still blank. Is that what you were going to get back to us with tomorrow in part?
3210 MR. SHEA: Because essentially, the contribution of the partners, CBC, Standard, SIRIUS, is that that is their contribution to the undertaking. However, we do have the specific Canadian programming expenses that we will file with the Commission.
3211 THE CHAIRPERSON: Well, how is that going to work, the contribution, how is that going to be compensated for, the contribution of the partners to the company, to SIRIUS Canada?
3212 MR. SHEA: It really is... I mean, the way we have filed our business plan was on the assumption that that was the contribution that they were making to the company, which is why it is reflected as zero on that expense line. However, we feel it is important that the Commission know full well exactly what those costs are, because they are relevant to the overall Canadian programming expense.
3213 MR. TREMBLAY: If I may add, Mr. Chairman, I think in the way the deal was envisaged is that we would bring the best of the existing partners. And in the case of the CBC services obviously, you know, the Radio 3 and Bandeàpart exist, have existed for sometime. The additional contribution, you know, comes through the implemental costs that are made necessary to package the service and to provide the feed and additional rights costs as may apply. So, we are not starting from scratch with these channels, these are existing creative platforms which we are taking a step beyond.
3214 THE CHAIRPERSON: Some are, I guess for the CBC they are to a large extent. For Standard they are not though, are they?
3215 MR. SLAIGHT: No, we will be paying and it will be exciting for our employees to have an involvement in the new channel, but they will be paid for the time they spend working with Ross and programming and we plan to have four or five on air people and so we will be absorbing those costs as part of our involvement in the business.
3216 THE CHAIRPERSON: The equity that you are contributing isn't in the form of those contributions, is it,--
3217 MR. SLAIGHT: No, it is totally separate.
3218 THE CHAIRPERSON: --cash.
3219 MR. SLAIGHT:Correct.
3220 THE CHAIRPERSON: Right, okay. So, Canadian talent development, you have already reviewed that with Vice-Chair Wylie and the validity going forward of that line, so I won't go into that again.
3221 Mr. Shea, when you say that you are going to provide us with the programming, that is to indicate the value of that programming.
3222 MR. SHEA: That is correct.
3223 THE CHAIRPERSON: To show the additional contributions that are being made.
3224 MR. SHEA: By the partners, that is correct.
3225 THE CHAIRPERSON: That isn't something you have finalized yet and that is something you want to get back to us on tomorrow?
3226 MR. SHEA: We actually... it is, it is finalized and we are prepared to file it tonight.
3227 THE CHAIRPERSON: In the case of the CBC, it is I guess... you mentioned it is incremental in terms of the rights clearances that you need to do for existing services if I am not mistaken. Are there any other--
3228 MR. SHEA: Yes, it is essentially... I guess it falls in two parts, the creative costs to incremental to produce and provide these channels and then the costs relate to delivering those signals to SIRIUS in New York.
3229 THE CHAIRPERSON: Which is again part of what Standard and CBC are responsible for,--
3230 MR. SHEA: That is correct.
3231 THE CHAIRPERSON: --the transport of the sale as well?
3232 MR. SHEA: That is correct.
3233 THE CHAIRPERSON: Okay, I think I understand that model.
3234 If you look at your income statement again, in terms of flows of dollars to your shareholders from the operations, where would one find those accounted for?
3235 MR. LEWIS: There is, as you may recall, in the agreement a 2 percent royalty payment that would go to SIRIUS U.S. once the SIRIUS Canada entity achieves $100 million in revenue, and that is under technical.
3236 THE CHAIRPERSON: Okay.
3237 MR. LEWIS: In accordance with your categories.
3238 THE CHAIRPERSON: Anything else?
3239 MR. LEWIS: No. There is no distribution of profits planned at this point, during the first licence period.
3240 THE CHAIRPERSON: No consulting or management fees involved?
3241 MR. LEWIS: No, there isn't.
3242 THE CHAIRPERSON: Okay, thank you for that. Do you want to ask a question, Commissioner Wylie?
3243 COMMISSIONER WYLIE: Are you finished?
3244 THE CHAIRPERSON: No, I am not finished yet.
3245 COMMISSIONER WYLIE: Oh then, at the end.
3246 THE CHAIRPERSON: At the end, okay. We will have follow-up at the end.
3247 Let me now ask you about your underta-- These are LSA questions that we will follow-up with tomorrow. I think I have that now... Yes, I think those are my questions for the time being, thank you. So, go ahead.
3248 COMMISSIONER WYLIE: Thank you. Mr. Lewis, a study was filed, which I don't have all of it, but anyway it is identified NFO CF Group.
3249 MR. LEWIS: Yes, they did our initial market research.
3250 COMMISSIONER WYLIE: Okay. And at page 8 you did breakdown between the francophones and anglophones the interest and it is 38 percent for anglophones who registered "très intéresser" or "assez intéresser", I have the French version, francophones 23. And then you gave the Chairman very precise numbers after explaining how you arrived at them for your subscriber expectations. Are these numbers breakable into the francophone and the anglophone market?
3251 MR. LEWIS: No, they aren't. As I mentioned, this was initial market research, we were just kind of validating the concept and we recognized in doing that that there would be less interest in francophone communities with what we had--
3252 COMMISSIONER WYLIE: But this was just a vague--
3253 MR. LEWIS: It was just to... as I say, the initial market research. Should we receive a licence then, of course, we would do more extensive research to get into specific marketing campaigns in different markets to assess that. But we have not done that at this point.
3254 COMMISSIONER WYLIE: So, you didn't--
3255 MR. LEWIS: We based our assessment on the overall level of interest.
3256 COMMISSIONER WYLIE: And didn't break this down to validate the offering?
3257 MR. LEWIS: No, we didn't.
3258 COMMISSIONER WYLIE: Mr. Slaight, was your statement earlier related, not to The Wave, to the next three... couldn't be that lucky?
3259 MR. SLAIGHT: The first channel that we program will be The Wave, which is the English language.
3260 COMMISSIONER WYLIE: And then the next one will be the French?
3261 MR. SLAIGHT: The following one, once we get to the sixth channel, should we launch it, will be French.
3262 COMMISSIONER WYLIE: The francophone one.
3263 MR. SLAIGHT: Yes, correct.
3264 COMMISSIONER WYLIE: And did you ask Mr. Buchanan to redo his conditions of licence to reflect that?
3265 MR. BUCHANAN: No, we didn't think of that, but we will do--
3266 COMMISSIONER WYLIE: Are you planning to?
3267 MR. BUCHANAN: Yes, yes. Yes, when we finish our discussion there is going to be some mopping up to do here.
3268 COMMISSIONER WYLIE: Thank you.
3269 THE CHAIRPERSON: Thank you. Commissioner Williams.
3270 COMMISSIONER WILLIAMS: Mr. Shea, okay, so the number two satellite radio service launched on the 2nd of February, 2002, one year after the number one service. Assuming a simultaneous start with two or three services in Canada, do you think SIRIUS will be able to achieve market dominance? What type of share do you envision and why?
3271 MR. SHEA: What I found interesting with the research work that was done by all three entities... what was interesting was the fact that most of the research came back and it was all fairly close, suggesting that ultimately there could be about 4 million subscribers to a satellite radio system in Canada. And then each of the applicants, as a derivative of their various offerings and so on, amassed a marketing plan around that.
3272 We have every confidence that we will meet, at a minimum, the business plan that we have in front of you. It is why, I think, that we have taken a leap and it is a bit unusual that in the first two years we are guaranteeing the CTD, that is a substantive contribution by the shareholders. We have envisaged from the outset that the Commission would licence all three. We think there is room in the market for all three. And I guess, you know, specifically with sort of my marketing hat on, we feel we have a distinct advantage in two ways. We have a superior technical service that services all of Canada, we need fewer repeaters. We also did a drive test from Newfoundland to Vancouver, to the far far far north of Canada and the reception is absolutely superior. And I think already various engineering groups around the country are determining that SIRIUS clearly has a very profound technical aspect to it. Thanks to the brainpower of Mr. Briskman.
3273 But secondly, we have hockey, we are an incredibly rich sports service. We have an exclusive on the NHL, we have an exclusive with the NFL and I think that is going to play significantly well in Canada because today you can only get some hockey games on AM and if you are driving you lose signal. And I think, you know, once we finally get the hockey players back we are going to see that that is going to provide us with a profound difference. We all come from the broadcasting business. Many of us have done start-ups in terms of both new technologies and new services and we are familiar with the bumps along the road.
3274 The other two licensees are also brilliant marketers and I don't think we are as of yet prepared to take a wager on who will be appearing seven years later with the highest amount of market share, but I think that we have every chance of being incredibly successful. We have a phenomenal commitment from our shareholders and, as I say, some distinct advantages.
3275 COMMISSIONER WILLIAMS: SIRIUS Radio has an exclusive distribution deal with RadioShack, will this also apply in Canada for distribution of your receivers?
3276 MR. SHEA: We haven't specifically entered into that discussion yet with RadioShack. Yes, SIRIUS does in the U.S., but I can't sit here before you today and say that we also have an exclusive with RadioShack in Canada, principally because RadioShack in Canada is owned by a different group than it is in the U.S.
3277 COMMISSIONER WILLIAMS: Okay, thank you. I have no further questions.
3278 THE CHAIRPERSON: Thank you. Commissioner Pennefather.
3279 COMMISSIONER PENNEFATHER: Thank you, Mr. Chairman. Just a couple of quick clarifications on the Canadian talent development, the Aboriginal Voices Radio contribution. Will that be over and above the focus mentioned for The Wave in terms of programming?
3280 MR. SLAIGHT: Are you talking about the $200,000 per year?
3281 COMMISSIONER PENNEFATHER: Yes, that is right.
3282 MR. SLAIGHT: Starting in year three?
3283 COMMISSIONER PENNEFATHER: Yes.
3284 MR. SLAITGHT:Yes, that is an agreement we... we have been supporting Aboriginal Voices Radio for the last four or five years, working with Mr. Farmer and Mr. McLeod on building the network out and we are happy that we were help them out at that point in time with further funding as they continue to build this very important network across Canada. So, that is totally separate from the programming aspects on The Wave, it is cash.
3285 COMMISSIONER PENNEFATHER: Thank you, that is what I was asking. And just then, on the question I asked and you said you would get back to us on cultural diversity, we talked about providing us with a plan for SIRIUS Canada which would be specific to that kind of service. I just wanted to be clear that what the plan should contain is not only employment strategies, but also programming initiatives specific to advancing these goals. And, for example, I heard you earlier talking about ethnic channels, not too many there at this point, so that is what this plan should look at. And, as a model, obviously some of the broadcasting decisions for television have indicated what one expects to see in the model. It may not be exactly suitable, but it would give you an indication of what one must look for.
3286 MR. SHEA: Thank you, and we will undertake to do that.
3287 MR. BUCHANAN: And similarly, it would have the same kind of timelines for filing such a plan one would expect?
3288 COMMISSIONER PENNEFATHER: Thank you, thank you very much.
3289 THE CHAIRPERSON: Counsel.
3290 MR. WILSON: Just two brief questions to clarify at this point. The three program schedules that we have up there on boards, would it be possible for you to file with the Commission just copies of those programming schedules?
3291 MR. SHEA: You can have these if you would like.
3292 MR. WILSON: Maybe something a little more portable, if possible.
3293 I just have one other question at this point and it relates to in your proposed conditions of license that you provided to us, condition of license No. 6 which you addressed briefly with Vice-Chair Wylie.
3294 The word I guess I am just looking to clarify in that, the condition states:
"None of the Canadian program channels other than CBC 1 and La Première Chaîne shall broadcast any original local programming as defined in Public Notice..." (As read)
3295 And so on and so forth.
3296 The word I guess I am looking to clarify is, it says "any original local programming". What does that mean in terms of the other channels, the not CBC 1 and La Première Chaîne? Is there a thought there to broadcast non-original local programming?
3297 MR. SLAIGHT: We do not intend or plan on SIRIUS Canada providing specific original local content, if that is where you are headed.
3298 MR. WILSON: I'm sorry, no. I guess I understood that, it is this -- I guess it is that word "original" in the sense of I understand CBC 1 and La Première Chaîne will have theirs and I'm just interested as to why you chose to say "shall broadcast any original" rather than --
3299 Why do you need the word "original" there I guess is my question.
3300 MR. SLAIGHT: I think the reason we are using the word "original" there is, we may choose to -- or hopefully end up using some programming from CJAD, our talk station in Montreal, or CFRB in Toronto, and that would be programming that is already being produced but would not be produced specially for this undertaking.
3301 MR. WILSON: Those are all my questions at this time, Mr. Chairman.
3302 THE CHAIRPERSON: Thank you.
3303 Mr. Slaight, while you have the microphone, this is on the matter of whether satellite impacts radio.
3304 MR. SLAIGHT: Does this have something to do with eating?
3305 THE CHAIRPERSON: It does.
--- Laughter / Rires
3306 THE CHAIRPERSON: You were quoted as I think saying that if satellite radio is going to eat terrestrial, I want to be doing the eating, or something to that effect.
3307 MR. SLAIGHT: I think I said I would rather eat myself than have someone else eat me, but I also think it was at a cocktail party and it was about nine o'clock in the evening and I was trying to be entertaining as opposed to factual.
--- Laughter / Rires
3308 COMMISSIONER LANGFORD: That is no defence though it does go to mitigation. Talk to Mr. Buchanan.
3309 THE CHAIRPERSON: But I assume that behind every jest, et cetera, that the reason you are part of this is that you believe this may have an impact going forward and you want to be part of the new wave or, as Ms Chalmers told us, to have the new platform to reach the audience that is coming along.
3310 MR. SLAIGHT: I would be foolish to say there would be no impact on conventional radio What that will be remains to be seen, just like it remains to be seen what all the other technologies and the internet are going to do to our core business over the upcoming years.
3311 But I am confident that if we continue to do great local radio and service our communities in Canada the way we do that we are going to be in good shape for years to come.
3312 THE CHAIRPERSON: Thank you. We will now break and resume at 9:30 in the morning.
3313 Mr. Buchanan, you have a question?
3314 MR. BUCHANAN: I do. At the risk of hijacking the proceeding, you are going to be studying presumably the LSA overnight to come back in the morning.
3315 THE CHAIRPERSON: Correct.
3316 MR. BUCHANAN: I wanted to alert you to the fact that some elements of the filed LSA have been superseded by what is on that chart over there that we have not yet had a chance to go through. Before you study that document and assume that that is the final word, it's not. It has been overtaken by that which happened subsequent to the filing of the LSA.
3317 This is how the activation actually works and part of the LSA is turning on and off the signals, and so on.
3318 So I wanted to share that with you. If you wanted to give us an opportunity to take you through it we could, or we could wait until the morning at your leisure.
3319 THE CHAIRPERSON: Maybe you should do it now. It may save time in the morning and we will read the document in the light of what you now tell us.
3320 MR. SHEA: This is a bit of a set-up and we will take you through this quickly.
3321 COMMISSIONER WYLIE: Do you have paper copies of this file, because my purse is not big enough.
3322 MR. SHEA: Yes, we do. We do have paper copies, yes.
3323 THE CHAIRPERSON: Could you perhaps distribute those before your explanation and so those who aren't wearing the right set of glasses can see them?
3324 MR. SHEA: Unfortunately, we don't have them with us.
3325 THE CHAIRPERSON: One thing you could do for us is put them where your video is and that might be helpful.
3326 MR. SHEA: Physically move them. Sure.
3327 COMMISSIONER WYLIE: So much for iPods.
3328 THE CHAIRPERSON: That is the English version over there. Presumably the explanation is going to be in English?
3329 MR. SHEA: Yes.
3330 THE CHAIRPERSON: It is a good thing our staff speaks French. They can look at the French version.
3331 MR. SHEA: As a very quick set up to Mr. Lewis, we did this intentionally to ensure that the Commission fully appreciated that from our perspective we control every aspect of the Canadian customer.
3332 In our case, our customer care, customer reception centre is in Cape Breton. It is actually in Glace Bay.
3333 Why is it there? It is there because SIRIUS U.S. just moved a portion of their business to that particular part of the country so that they are now familiar with the aspect of satellite radio. However, the CSRs that will be working for us in Glace Bay will be specific to us. They will only work on the Canadian business.
3334 With that as a set up, John will now take you through the activation process, and so on.
3335 MR. LEWIS: Let's star with the box on the upper left. There it indicates that SIRIUS Canada board authorizes the channel line up. This is one of the key elements in there.
3336 As you know from our application, CBC will provide channels, Standard will provide channels, and SIRIUS will. Those channel offerings go to the SIRIUS Canada board. The SIRIUS Canada board then rules on which channels will be offered to Canadian subscribers. So that is the start point.
3337 That list of authorized channels then goes to the Toronto-based SIRIUS Canada Operations Centre. There these operations folks program the Canadian subscriber management system. That programming of it will only include those authorized channels. The subscriber management that is operated from Toronto is connected through the call centre into the New York.
3338 Before I get all the way to New York I will take you through and I am going to go down to the middle lower box where the product manufacturers are. There is a key point in there that needs to be brought out.
3339 The product manufactures -- and I mentioned that value chain earlier starting with a chip set, that chip set includes a specific code, a chip goes into each individual receiver providing it with a unique address. Those products then are provided either through the OEM market or through the retail market to eventual subscribers.
3340 So if you go to a Best Buy of if you buy a new vehicle that has that, you drive off the lot, you have it installed in your vehicle, and then you call the call centre using the Canadian 1-800 number. When you provide your information you have to provide that unique serial number.
3341 So that information then comes back up and we are into the box on the lower left. It goes to the Canadian call centre.
3342 The Canadian call centre people are using that subscriber management system and they do two things there.
3343 One is, they are creating a customer profile. This is a customer-based business. We want to be able to provide customers with loyalty programs and so on. We also, of course, want to ensure that the billing -- that there is credit authorization and this type of thing.
3344 So a customer profile is created. That is stored in Toronto on a server It is a Toronto-based operation. But the call centre then, when the subscriber calls up, provides that information, then the customer service representative is hard-wired directly to the conditional access system in New York. So there is no linkage, no calling to hope that somebody does it, they are actually hard-wired into it, they can control this themselves.
3345 With that, they provide that unique serial number and the list of authorized channels. That is put into a code at the conditional access system and it, in an authorization channel, is uplinked along with the audio channels and then is sent out. So that signal then goes down into the car while the customer service representative is still talking to the potential subscriber. They have gone through, their billing has been authorized, credit is authorized, and so on. The process only takes about seven minutes.
3346 So the signal has come down into your car and you are on-line with the customer service representative. They check: Yes, have you got the service? It is activated, it is on? That concludes the customer service operation at that point in time and then you are authorizied, and you are authorized only because your unique receiver can only receive those authorized channels.
3347 MR. SHEA: So I guess the key point here, Mr. Chairman, is to demonstrate that SIRIUS Canada has all aspects of the relationship with the Canadian customer directly under our control. There is really no interface with any other aspect of SIRIUS U.S. Because we have a hard line directly to the uplink, only we, the Canadian company, can turn on and turn off subscribers and we are in total control of what the channel line-up is.
3348 COMMISSIONER LANGFORD: I'm sorry. If I may pick up on that, Mr. Chairman?
3349 Total control as a concept, I have always tried to have total control over my teenagers, and I claim to them that I do, but they don't seem to believe me.
3350 Let's go up to your top box on the left, SIRIUS Canada authorizes the channel line up, but surely you can only fool around with it so much before SIRIUS U.S. says: We just don't want that product out there. It is not us, it is not our product and you are just not going to take all this stuff out of here.
3351 So how much leeway does it really give you?
3352 Obviously you want product as well so we are going to meet somewhere in the middle, but to take your little format here -- and let's go to talk entertainment and let's see that we have here SIRIUS Patriot, conservative values, that is 141; SIRIUS Right, conservative talk, 142; SIRIUS Left, liberal talk, 143 -- I bet you could charge extra for that -- and Air America, progressive talk, 144.
3353 So if SIRIUS Canada were to say, you know, "There is just no Canadian value to this, it is not our country, it is not our culture, go ahead and have it down there is you want it, but we don't want it", what would SIRIUS U.S.A. say to that?
3354 MR. SHEA: Practically speaking they would say nothing, because they are not selling directly those subscribers, we are. So we are in charge of the marketing mix.
3355 Now, it is our intention to carry the full menu of services, leaving aside what the board might decide for other reasons. I think it was said very well yesterday, we don't want the products too differentiated because we don't want a grey market to suddenly be -- but in terms of contractually, in terms of the line up of the channels, it is totally under our control.
3356 I guess maybe why this might be a little bit difficult to comprehend is, there is no advertising revenue. There is no other incremental revenue and there is a flat price. So we pay to SIRIUS, ultimately way downstream, a 2 per cent royalty whether we take one channel or 28 channels. But we want to be successful here and obviously the deeper, richer the menu is the better.
3357 But if we went to Andy Gregor and say, "The board" -- which he sits on -- "has now decided that we are only going to carry 30 channels", because of some unknown reason, he would contractually have to say, "Well, if that is what you have to do for Canada, it's too bad, but that is what you do."
3358 So we are in total control of the line up.
3359 COMMISSIONER LANGFORD: One other question about control from the other side of the element, your customer profile goes to your Toronto base. I guess it is created in Cape Breton but stored in Toronto?
3360 MR. SHEA: That is correct.
3361 COMMISSIONER LANGFORD: Does it go anywhere else? Do the Americans get a copy of this?
3362 MR. SHEA: They do not get a copy of it. It stays exclusively in Toronto.
3363 COMMISSIONER LANGFORD: There are no privacy concerns here that we should worry about?
3364 MR. SHEA: There are no privacy concerns, no issues.
3365 COMMISSIONER LANGFORD: I think I have to do some reading, Mr. Chairman, but those are my questions based on the chart. Thank you.
3366 THE CHAIRPERSON: To help us with the reading, Mr. Shea or Mr. Buchanan, can you point to the sections of the LSA that may or may not have been filed on September 15th and tell us which clauses you think are superseded by what you have described here?
3367 Secondly, is there an amendment to that agreement that would contain what you have just described in terms of the obligations of the players?
3368 MR. BUCHANAN: There has not yet been an amendment done to it. This is all very recent. It has not been done yet, but it will be.
3369 I would think you would want to pay special attention to 501, 601. Those might have been probably the most interesting to you prior to this. I would have to go stem to stern to see the ripple effect, I mean it is a different structure, and there are a lot of other things in that agreement that are unaffected by this. It is also a trade-mark agreement for example, it is also -- it serves a lot of purposes that are unaffected by this, but this does affect certain elements.
3370 THE CHAIRPERSON: Thank you. That is probably as far as it is useful to go at this point.
3371 MR. BUCHANAN: I think so.
3372 THE CHAIRPERSON: We will read it and if we have questions we will be back in the morning with them.
3373 Nous reprendrons demain matin à 9 h 30. We will resume at 9:30 tomorrow morning.
--- Whereupon the hearing adjourned at 1646, to resume
on Wednesday, November 3, 2004 at 0930 / L'audience
est ajournée à 1646, pour reprendre le mercredi
3 novembre 2004 à 0930
suite / more
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