ARCHIVED - Transcript, Hearing 8 March 2011
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Volume 2, 8 March 2011
TRANSCRIPT OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
To consider the broadcasting applications listed in Broadcasting Notice of Consultation CRTC 2011-6
140 Promenade du Portage
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 Contents.
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.
Canadian Radio-television and Telecommunications Commission
To consider the broadcasting applications listed in Broadcasting Notice of Consultation CRTC 2011-6
Konrad von Finckenstein Chairperson
Len Katz Commissioner
Rita Cugini Commissioner
Elizabeth Duncan Commissioner
Louise Poirier Commissioner
Lynda Roy Secretary
Moïra Létourneau Legal Counsel
Neil Barratt Hearing Manager
140 Promenade du Portage
March 8, 2011
- iv -
TABLE OF CONTENTS
PAGE / PARA
Canadian Satellite Radio Inc. and Sirius Canada Inc. 160 / 1079
- vi -
PAGE / PARA
Undertaking 204 / 1378
Undertaking 205 / 1388
--- Upon commencing on Tuesday, March 8, 2011 at 0930
1074 THE SECRETARY: Order, please. À l'ordre, s'il vous plaît.
1075 THE CHAIRPERSON: Good morning. Before we start, I was remiss yesterday in not placing into the record as an exhibit, first of all, a document setting out what the FCC imposed on the U.S. merger. I read from it, but I didn't introduce it, so I will do that now.
1076 Second, obviously today we are dealing only with the merger, in a year from now we will be dealing with the renewal of licenses and there will be all sorts of things and we have made a list of topics which we anticipate will be subject to discussion for the renewal a year hence.
1077 So we will file both of those so you know what will come at you in a year from now.
1078 With that, I turn it back over to you, Mr. Bitove.
1079 MR. BITOVE: Thank you, Mr. Chair and Commissioners.
1080 This morning I have Michel Tremblay, Michael Washinushi, myself and Mark who are in the front row. Also Grant Buchanan and Steve Whitehead are joining us. Behind me I have Joel Henderson, Sherry Kerr and Oliver Jaakhola, who are part of the in-house legal teams.
1081 THE CHAIRPERSON: By the way, I have another. You told me yesterday that both XM and Sirius are available on mobile devices. You were half right. It's available on iPod, it's not available on iPad. Neither XM nor Sirius is available on --
1082 MR. BITOVE: Correct. On iPad, you're right. But we are on Android, RIM and BlackBerry.
1083 THE CHAIRPERSON: On iPod. I downloaded it and I listened to Sirius, so it does work.
1084 MR. BITOVE: You know, Mr. Chair, yesterday when you said we will recess until tomorrow and I suggested we go yesterday afternoon, I thank you for giving us that guidance. The only problem is, with seven lawyers if you gave us a week we would still be completing wording until 9:00 a.m. the morning of. Grant hates my lawyer jokes.
1085 We appreciate the questions and clarification and giving us the response today.
1086 The artists you saw yesterday inspire all of us and that's one of the great things about satellite radio, is we are not just about top 40 or popular genres, we give everyone an opportunity to get a play.
1087 Madam Poirier, when you were speaking with Franz Schuller yesterday you said the word "balance" and our business is about balancing the interests of the artists and the subscribers and of course the company's interest. It is a delicate balance that we continually have to manage and make sure that, with your trust, we are managing it appropriately.
1088 At the end of the call with Mr. Schuller yesterday, André DiCesare, who is our Québec CCD Ambassador, came to me and he said, "You know, John, you are not doing a good job of explaining what's going on." I said, "What do you mean?" He was talking to me. He said, "This isn't about displacing, this is about two halves becoming one." He said, "When you are taking 10 million XM subscribers and 10 million Sirius subscribers, the artist is not losing one or getting the other, you are just giving him a reach of 20 million on one channel as opposed to displacing anything."
1089 I thought it was a very important point. It became even more succinct when you were talking to Ben Miner, the comedian. He said, "I'd love to have a comedy channel on Sirius, because we have it on XM."
1090 That's the exact dilemma Mark and his team have, because then do you take Laugh Attack, which is an XM channel, and just put it on SIRIUS Canada, or do you create a second Canadian comedy channel? That's part of what we have to do in the balance in terms of managing what we do.
1091 So there are lots of issues Mark and his team face and that's why, as I explained yesterday, Mr. Chair, it's going to take us time to figure all this out.
1092 So what we have done is, there is a handout that you have, and the handout is in four parts.
1093 First of all is kind of like a summary of the corporate issues and Mark and I are going to speak to that in a moment.
1094 We included behind that discussion points on the issues that was just some of the backdrop or backup.
1095 Then we actually have some black line copies of schedules that should be included in there.
1096 So with your indulgence what I would like to do is at least take you through -- I'm going to take you through the corporate issues, Mark will take you through the regulatory issues and then you tell us what you would like to do next.
1097 THE CHAIRPERSON: You have all morning, so go ahead.
1098 MR. BITOVE: Okay.
1099 So the first item we saw was a deadlock by independent directors.
1100 We understand the concern you have always had about, we believe, making sure that Canadian control is there for any disputes, especially at the board level, so we have a recommendation that to address both situations that could arise in a deadlock we propose that if there is a vacancy in the independent directors and the remaining independent directors are not able, for whatever reason, to nominate one or more candidates to be appointed by the entire board to fill the vacancy -- and I guess de facto if the board can't resolve that -- then the three largest Canadian shareholders holding more than 10 percent of the voting interest will, by a majority vote, nominate an independent director to fill the vacancies.
1101 So that gives you the assurance between the CBC, Slaight and I that we will come to a conclusion.
1102 Your second question was on the nomination of an independent director by SiriusXM and again we will clarify this by providing in section 3.1(d) of the governance agreement that:
"No person nominated by a shareholder holding more than 10% of the votes attached to all the issued and outstanding securities of CSR will qualify as an independent director." (As read)
1103 So we hope that suffices.
1104 On section 3.3, which is the governance agreement, once again you caught something that thought we had covered but we want to make it more explicit, so provisions will be added to the governance agreement to be signed by CBC Radio Canada, Slaight and CSRI, which is my entity, that acknowledges special rights that SiriusXM Radio Inc. has in the governance agreement in the same language as it appears in the SiriusXM agreement so there is no inconsistency among the documents between the parties.
1105 On that same 3.3 our recommendation is we will add language to section 3.3 of the governance agreement to clarify that SiriusXM Radio cannot invoke the approval right for the annual budget by withdrawing its nominee from the board or by not proposing nominees to the board. So in essence it is just a shield, it's not a sword that they can use to proactively try and manage the business.
1106 With respect to indebtedness -- this was your question yesterday -- attached as Schedule 2 is a revised version of Schedule A which will be attached to the governance agreement, which expressly reflects the exclusion of indebtedness existing at closing.
1107 Also attached as Schedule 2.1 is a black line showing the changes made from the version of Schedule A filed with the applicants.
1108 So we have it. You will see in the materials here, page 8 that we have -- page 8, and page 10 is the black line.
1109 The first black line will deal with the ordinary course, but the second one down below is where it says:
"... and indebtedness existing at closing, refinancing of such indebtedness." (As read)
1110 So we have come to agreement to make sure that the wording is in there, hopefully in a fashion that is satisfactory to you.
1111 To your point about ordinary course of business, on that same page 8 and 10, which is the black line, Schedule 2 is a revised version of Schedule A attached to the governance agreement which includes the definition that we recommend.
1112 If the Commission does not agree with us that the removal of the phrase "deferred to" in the attached schedule from the definition used in your Decision 2008-69 provides Canadian shareholders and management with more flexibility, we will include the full definition used in that decision.
1113 So we took to heart what you said yesterday about it has become precedent.
1115 THE CHAIRPERSON: -- the cost of business into --
1116 MR. BITOVE: Yes.
1117 THE CHAIRPERSON: All right.
1118 MR. BITOVE: Absolutely. So hopefully we have --
1119 THE CHAIRPERSON: What did you change in the definition of "ordinary course of business"?
1120 MR. BITOVE: We added. We put it up top like you asked --
1121 THE CHAIRPERSON: That's right.
1122 MR. BITOVE: -- so you can see the bold on page 10 at the very top.
1123 THE CHAIRPERSON: Yes.
1124 MR. BITOVE: So we put in your definition of "ordinary course of business".
1125 THE CHAIRPERSON: Oh, you did. Okay, fine.
1126 MR. BITOVE: Just so you know, we also left in flexibility, that ordinary course of what's in the satellite radio business. It's the very last bullet on the next page. That was in there before, we just moved it.
1127 So it allows management, that if something is out of the ordinary day-to-day course of business, but it's consistent with satellite radio business, they still have flexibility to do that, too. So we kind of gave management two kicks at the can.
1128 With respect to the programming committee, on Schedule 3 is the revised by-law for the programming committee. I suggest you go to 3.1 -- it's the black line -- showing the changes from the original version that were filed. We would intend to adopt a similar by-law for XM Canada.
1129 Again, Madam Poirier, we are happy to do two programming committees or merge it to one. There will be three people, Mark will be one of them, so it allows an officer of holdings or the subsidiary companies to be sitting on the programming committee but not directors of holdings, so neither CBC, Slaight, myself or SiriusXM can be on the programming committee.
1130 I think those are the main changes, right, on programming committee? Listed on page 14, but I just wanted to explain the structure.
1131 THE CHAIRPERSON: So basically what you have done now is made sure that none of the non-Canadian shareholders can sit on the programming committee?
1132 MR. BITOVE: That is correct.
1133 And those are the issues with respect to corporate issues that we hopefully captured with your staff yesterday.
1134 THE CHAIRPERSON: Okay.
1135 MR. BITOVE: I would like to now turn it over to Mr. Redmond to discuss the regulatory issues.
1136 MR. REDMOND: Okay. Thank you, John.
1137 Mr. Chair, there are five or six regulatory issues that came up yesterday that we would like to try to address.
1138 The first was one you raised to us, which was the lack of aboriginal programming on the two services.
1139 You know, last night I had a conversation with Jamie Hill, who is the CEO of AVR, who I mentioned yesterday we have done some CCD initiatives with. I also had some discussions with the CBC on some potential aboriginal content and what we are here today to tell you is that we are prepared to commit to you that we will have a substantial amount of aboriginal programming on at least one of the satellite radio services by the time that we come back to you on our hearing a year from now.
1140 Obviously after last night we still have some work to do here as it relates to what is that, you know, what's the content, et cetera, but we did feel that in order for us to try to move this forward we would like to request some changes to our condition of license to accommodate it. We put those on page 16 in Schedule 4.
1141 There are really three at this point that we are aware of, which is most of their content would need to be repurposed from existing programming, which is inconsistent with our current condition.
1142 Two, we have some caps on the commercial advertising. We believe they are beyond the six minutes per hour. We would need to have some discussions about that with them.
1143 Then the local programming element of it.
1144 So we are prepared to address this, but we would like you to take into consideration some changes for us to be able to accommodate it.
1145 THE CHAIRPERSON: Could you be a little bit more specific? I mean obviously I can read through this, but exactly what other changes do you want?
1146 MR. REDMOND: Grant, do you want to...?
1147 MR. BUCHANAN: There are four of them that are on page 16.
1148 THE CHAIRPERSON: Yes.
1149 MR. BUCHANAN: One is the original Canadian-produced channel, as you know 50 percent of the content or more must be original and produced and aired for the first time on the channel for it to qualify as a channel. If we were to go a whole channel, that might not be achieved. Some of this might be repurposed content so we might need some flexibility there.
1150 THE CHAIRPERSON: Yes, I know that. That's the one I am familiar with. We mentioned that yesterday to you.
1151 MR. BUCHANAN: Yes.
1152 THE CHAIRPERSON: Okay.
1153 MR. BUCHANAN: And what are the other three?
1154 MR. BUCHANAN: At the end of that paragraph that starts "Given" there is also a question:
"If it's a full channel, will it then trigger the..."
1155 That should be:
"... 25% French language channel condition?"
1156 As you know, if you have a number of channels 25 percent must be French language. Does this one count or not?
1157 Would the addition of an aboriginal channel, for example, trigger the need then to add a French language channel?
1158 THE CHAIRPERSON: Okay.
1159 MR. BUCHANAN: We didn't want that to happen.
1160 The third is advertising. We are not quite sure what this programming would be like so it may raise two issues.
1161 One is the cap of six minutes on our service. If it came embedded with advertising there may be more than six minutes because Aboriginal Voices, for example, is permitted more than six minutes. So if it were eight or 10 or 12 we would be offside if we aired programming that had commercials embedded in it.
1162 The other issue on advertising is related to that. We are not selling those minutes. We wouldn't take advertising, but if we carried it it's a similar issue that has already come up in the context of the carriage of services that have advertising embedded in it.
1163 As you know, in the pay television regs they are not allowed to sell advertising at all, but if they carry pay-per-view programming or things that have commercials embedded in it the pay regs have a special carve out for that that says if you are just carrying something that already exists and you are not actually the one selling it and benefitting from it, then you can go ahead and do that.
1164 So we need to find a way that if we are carrying stuff that has commercials in it already that we are not selling that we have to find a way to accommodate that content.
1165 The last is the prohibition against local. If some of this is local content, we don't quite know what nature it is right now, as you know, whether it's CBC North or AVR or whatever, all of them have some local content in them so if we were to carry that we don't want to be offside the local restriction.
1166 Those were the ones that came to mind last night as we were going through.
1167 THE CHAIRPERSON: You appreciate if we do this and give it to you it's not restricted to AVR, there are all sorts of other aboriginal --
1168 MR. BUCHANAN: Of course.
1169 THE CHAIRPERSON: -- you have BNCI or APTN or whatever. I just leave it up to you to make the launch where you can get the best content.
1170 MR. BUCHANAN: Thank you. We were a little pressed for time last night.
1171 THE CHAIRPERSON: Yes. No, I appreciate that.
1172 I'm glad you worked through that concept. Thank you.
1173 MR. BUCHANAN: Thank you.
1174 MR. REDMOND: Okay. The second was an issue that Commissioner Katz raised which was in regards to maintaining our prices for a period of time post-merger.
1175 You know, at this point we have not determined what we are going to do from a pricing standpoint. Obviously we had some dialogue about that yesterday. I could give you the argument that anything beyond free makes the market smaller for us so this is a very delicate balance in anything that we do related to pricing.
1176 You know, we have not raised price over the last three years and obviously the Competition Bureau did not recognize that the merger would have any lessening on price.
1177 But we are prepared to hold our base pricing on the service through the end of this calendar year, which takes us through two pretty critical periods, the Father's Day and Christmas period. So I hope that gives you some assurances, at least for the next nine months, that we are certainly not going to do anything related to pricing.
1178 The third issue was activation and other charges. Commissioner Cugini raised this one with us and we had some dialogue and asked a question in regards to both SIRIUS Canada and CSR as it related to the activation revenue and other charges and how they were calculated.
1179 We would request that the Commission define CCD as excluding activation and other charges for the reasons outlined in the attached Schedule 4, which again is on page 16. Consistent with the Commission's precedent we have made some additional comments on pages 16 and 17 to reflect that as well.
1180 The fourth issue was the CCD contributions and the French-language/English-language initiatives. Again we were asked questions relating to our compliance with the two conditions of license between the two services.
1181 The first condition of license 7A again is on page 17. It relates to the CCD generally.
1182 The second condition of license 7B relates to the requirement that CCD contributions be divided 50:50 between French language and English language.
1183 Our recommendation is, we propose that the Commission's approach to satellite radio commitments be harmonized with those of other licensees and have suggested amendments to our CCD condition of license.
1184 We had some dialogue on this yesterday and have put some language in there to reflect this.
1185 We do believe that given that the licensees have passed the five-year point that we are hereby applying for and would accept a deletion of the current conditions of license 7 and any new COLs along with the following lines of those set out in the attached Schedule 4.
1186 I appreciate you haven't had an opportunity yet to look at this in detail, but we spent some time last night trying to drafty that.
1187 Issue 5 was a question around musical diversity and there was some concern expressed regarding our musical diversity.
1188 I am pleased to advise you -- and we made some reference of it yesterday -- that SIRIUS Canada will be adding a new French-language music channel on April 1, 2011. There are some elements here and it's really a reformatting of one of our current channels that's a talk channel that is going to become a music channel.
1189 We are working through the details and haven't notified some of the programming elements that will be affected here so we can file this with you in confidence, but we will be making that change effective April 1st.
1190 The sixth issue was related to the CCD plans and we had dialogue on this yesterday. XM Canada was asked to file with the Commission in confidence its plans to pay the current CCD arrears by April 30th and our recommendation there is that we will undertake to file these plans with you in confidence by March 22nd.
1191 I think that addressed most of the regulatory dialogue from yesterday.
1192 THE CHAIRPERSON: Okay. It's a lot to absorb. I suggest we take a half an hour break and we will go and look and then we will have some questions for you. Okay?
1193 MR. BITOVE: Sounds good. Thank you.
1194 MR. REDMOND: Thank you.
--- Upon recessing at 0953
--- Upon resuming at 1020
1195 THE CHAIRPERSON: First of all, I simply want to say that we appreciate the efforts you have expended in trying to address our concerns and the detailed and clear way in which you have set things out.
1196 Let me go through them the way you have presented them. That is probably the easiest way.
1197 First of all, on the corporate issues, I think you have addressed our concerns, and I think you did an excellent job.
1198 On the programming committee -- as we told you yesterday, we really don't care whether you have one or two programming committees. I presume that what, in effect, you are going to have is -- because you have two separate licences, you have, technically, two separate programming committees, but they will be the same people, working as one, under the same authority, on either side.
1199 MR. BITOVE: That is the plan.
1200 THE CHAIRPERSON: Yes, and that is fine by us.
1201 Aboriginal programming -- now, as I understand it, first of all, it is going to be only on one of your services, either Sirius or XM, not both.
1202 Is that correct?
1203 MR. REDMOND: We don't know whether we will be able to put it up on both. The point was that we would agree to put it up on a minimum of one of the services.
1204 There are some technical issues between how both systems operate, so...
1205 THE CHAIRPERSON: Right. Then, secondly, you have asked for technical alterations, concessions, whatever you want to call them, as Mr. Buchanan outlined, and I don't think that we have any problem, but we just want to make it understood that this is not at the expense of any existing English or French service that you are carrying. This will be an additional service.
1206 MR. BITOVE: Yesterday, during the break, when we were trying to figure this out, what we looked at on the XM service was displacing one of the channels that has very low listenership with this channel, as opposed to increasing the channel count, which creates all kinds of other issues.
1207 So it wouldn't be replacing a music channel, it wouldn't be replacing a French channel. It may be replacing one of the English talk channels.
1208 But, again, it would be the one which is our least listened to.
1209 THE CHAIRPERSON: Yes, but then your concession that you are asking for is: Nor should the Aboriginal programming be considered in the calculation of the 24 percent French-language channel condition in Licence 4(a).
1210 If the Aboriginal replaces an English channel, then you can't, at the same time, say it doesn't count for the purpose of calculation.
1211 MR. BITOVE: What our issue here, Commissioner, is -- and we have the same thing, almost, with ATN. We thought, back to when we were licensed, that it is really a ratio of English to French language on the 25 percent, but if it's beyond English and French, the 25 percent shouldn't kick in because -- you know, let's say that one day we had five various, different, cultural channels.
1212 It's really the French to English ratio that we believe was the intent to try to protect, not so much any other intention.
1213 THE CHAIRPERSON: But if it replaces an English channel, and on the other hand it doesn't count in the calculation of the 24 percent, you are actually giving yourself a double break, aren't you?
1214 MR. REDMOND: If we had to replace -- put this programming up in replacement of another channel, then I think our current conditions would apply. Correct.
1215 MR. BITOVE: And if it's incremental, then it wouldn't.
1216 I think that's a fair compromise.
1217 MR. REDMOND: And we may start with it not being a channel, but some programming added on to a current channel to start with.
1218 THE CHAIRPERSON: This takes me to the whole subject of -- you are now, under licence until the licence renewal next year, obligated to carry distinct original Canadian channels, a certain number for both of you. You are going to maintain this, if I understand correctly, until licence renewal -- whatever your present offering is in terms of the number of distinct original channels, whether English or French.
1219 You may, obviously, substitute them, that's your prerogative, but it's the number that you have to maintain.
1220 MR. REDMOND: Yes.
1221 THE CHAIRPERSON: Okay. Then, on pricing, the U.S. wanted to protect the consumer and provided that there should be no price increase for three years.
1222 Since you are back before us next year with the licence renewal, that's really when we are going to treat you as a new entity, having joined the two services, et cetera. That will be the new beginning. This strikes me as the logical point of having a price freeze in place until such time as licence renewal takes place.
1223 That would be sort of the equivalent of the protection that the consumer got in the U.S.
1224 MR. REDMOND: Could we agree that if we were to do something in 2012 -- the period of which would be January through August -- we would agree to offer our current subscribers and any new subscribers the ability to lock in for up to a year at the current pricing?
1225 We would be protecting them against any increase, if we decided to do an increase, by giving them the opportunity to lock in for up to a year. If they were a six-month -- a semi-annual subscriber, we would give them the ability to lock in at the old price for a year as a compromise to that.
1226 COMMISSIONER KATZ: That would mean they would have to prepay for a year?
1227 MR. REDMOND: Which is what they do today.
1228 THE CHAIRPERSON: You always prepay.
1229 MR. REDMOND: There would be a benefit to them, that we wouldn't penalize them if we were to increase our price between January and August of 2012.
1230 THE CHAIRPERSON: So, in fact, only new subscribers after January would have to pay the increased price.
1231 That's what you're saying?
1232 MR. REDMOND: Yes, and we would give all current subscribers the ability to lock in for a period up to a year at the old price.
1233 THE CHAIRPERSON: Why do these six months make such a big difference?
1234 I mean, we are, in effect, now treating you as you are right now. You are offside on all sorts of things, and we said: Fine, we will look at all of that at licence renewal next year.
1235 But let's start with that. Until that time we will keep the present regime in place.
1236 MR. REDMOND: Can we go back --
1237 THE CHAIRPERSON: Let me go through this, and then you will have a chance to caucus. I don't expect you to do it immediately, let me just put them on the table.
1238 MR. REDMOND: Okay. Thank you.
1239 THE CHAIRPERSON: On the activation charges, and others, I don't think --
1240 As I understand it, you, in effect, want the activation charges included. One of you does include them; the other one doesn't. Right?
1241 Point No. 3, on page 4.
1242 MR. REDMOND: Yes. We do not want the activation fees included.
1243 THE CHAIRPERSON: Which means lower CCD contributions, effectively.
1244 MR. REDMOND: We think it's based on our subscription revenue, which --
1245 THE CHAIRPERSON: No, but I had understood yesterday that one of you does and one of you doesn't.
1246 MR. REDMOND: Yes.
1247 THE CHAIRPERSON: I think CSR does include it; you don't include it.
1248 MR. REDMOND: Yes.
1249 THE CHAIRPERSON: So you want the Sirius model rather than the CSR model.
1250 MR. REDMOND: Yes.
1251 THE CHAIRPERSON: Surprise, surprise, we want the opposite!
1252 THE CHAIRPERSON: Okay. Point No. 4 -- I would ask my colleague Rita to speak to it, because I don't understand it.
1253 COMMISSIONER CUGINI: All right. I guess we should start with Point No. 1, which is changing the wording of your COL so that the calculation of CCD is based on previous years' revenues, and therefore the follow-up to that would be the 50/50 split between French and English.
1254 What I question, however, is your request to have it averaged out over the licence term. I would like to know from you what the benefits are of that, because what I see as a disadvantage is that one year you could spend 20 percent on French-language initiatives, and then have to make it up over the course of the year.
1255 There is the potential to cause a huge imbalance between French-language and English-language initiatives from year to year.
1256 MR. BUCHANAN: I would be happy to address that.
1257 We looked at it in drafting the first section, which relates simply to the quantum. The overall quantum we completely parroted out of existing licences.
1258 Then, when you get to drafting the 50/50 English/French, you have to layer that on --
1259 We were going to ask for 5 percent flexibility either way on that, but it gets very confusing when you are drafting that 5 percent flexibility on top of the 5 percent flexibility on the overall quantum. You have to talk about 5 percent of 5 percent.
1260 Last night we said: We will be up again next year, why don't we just, for right now, say that over the licence term -- since you already know that we are at 50/50 already, and there is only a year to go, why don't we just leave it over the licence term, because there is not much left at play.
1261 And then, next year, when we come before you, we can figure it out. Otherwise, we are going to have a condition of licence that stretches for pages and tries to marry the 50/50 French with the 5 percent flexibility and the normal 5 percent give-and-take carry forward.
1262 That was the problem that we were trying to address.
1263 COMMISSIONER CUGINI: So you would not object to our adding here -- the exact words: "...over the licence term, which will expire as of August 2012."
1264 MR. BUCHANAN: Not at all.
1265 COMMISSIONER CUGINI: So this would only be applicable up until that point, and then the issue can be re-examined for the new licence term.
1266 MR. BUCHANAN: All of our licence conditions are only applicable up until then.
1267 COMMISSIONER CUGINI: No, I understand that, but whether or not, going forward, the 50/50 split can be averaged over an entire licence term can be re-examined at the time of licence renewal.
1268 MR. BUCHANAN: That's fine, and it was clearly the intention to stay within that band, which we have shown is very close anyway, it's just the same problem that you have with the dollars you have with the 50/50 ratio. It's hard to get it perfect every year.
1269 COMMISSIONER CUGINI: Okay. Like I said, you don't object to us adding that language, "expiring August 2012".
1270 MR. BUCHANAN: No, we don't.
1271 COMMISSIONER CUGINI: Okay. Thank you very much.
1272 THE CHAIRPERSON: Thank you, Rita.
1273 The next point was the French channel that you will add on April 11, 2011.
1274 Did Sirius answer your questions, Louise, or did you have another question on this?
1275 COMMISSIONER POIRIER: I have another question, because here you write, "Sirius will be adding a new French-language music channel," and then you added, "It would replace a talk station."
1276 So it's really not clear. Are you adding a new French radio station, or are you replacing a French radio station?
1277 MR. REDMOND: We are reformatting a talk channel to become a music channel.
1278 COMMISSIONER POIRIER: So you are replacing it.
1279 MR. REDMOND: Yes.
1280 THE CHAIRPERSON: And the talk channel, is it English or French?
1281 MR. REDMOND: It's French.
1282 MR. REDMOND: I'm sorry, it's English.
1283 THE CHAIRPERSON: An English under-listened talk channel will be replaced by a French music channel.
1284 MR. REDMOND: Yes.
1285 MR. BITOVE: The reason why we say that, Madam Poirier, is that we are adding a French music channel. It is displacing something else, but to the French artists it is new, it is additional capacity.
1286 COMMISSIONER POIRIER: Yes, but you understand that we have to ask the question to make sure that your language is well understood by us, and this one was tricky.
1287 MR. REDMOND: I apologize, it wasn't meant to be tricky.
1288 MR. BITOVE: It was meant to be good news to the French artists.
1289 COMMISSIONER POIRIER: Thank you.
1290 COMMISSIONER KATZ: It's not the Comedy Channel you are taking off, is it?
1291 MR. REDMOND: No, no.
1292 THE CHAIRPERSON: And then, 6, you put CCD plans --
1293 We understand that you will file this.
1294 Now, the main thing that I feel you didn't address -- and we went around it several times yesterday.
1295 Put yourself in my shoes and my colleagues' shoes. We are the regulators here. We are approving a merger after it was approved in the U.S. In the U.S. there have been certain protections for consumers. One of them is à la carte, another one is interoperable receivers. Both of those issues are not addressed at all.
1296 And I have been after you, asking you the same question about five different ways, and I never got an answer.
1297 As part of this merger, surely the consumer should have the benefit of having access to what is on XM, or Sirius, et cetera, rather than being penalized by way of the car that he purchases.
1298 In addition, I understand that your online services also work the same way, that if I am a Sirius customer I can listen to Sirius online for free, but I can't listen to XM, and vice versa.
1299 What are you doing for the consumer here? Why no interoperable devices? Are you going to offer "best of" programming of XM and Sirius on both sides? Are you going to allow me, as a Sirius customer, to listen to XM online, or vice versa?
1300 That whole issue -- in effect, what is the benefit to the consumer out of this merger -- is, to my mind, unaddressed.
1301 MR. REDMOND: First of all, we want to continue to make sure that we are providing our customers with the very best.
1302 We referenced in our press release that the "best of" was an option that we were looking at. It will be something that we will be seriously considering over the coming months, as it relates to: How do we provide an XM --
1303 Exactly what you asked, Mr. Chairman -- how do we provide an XM subscriber with the "best of" Sirius content that they can't get today.
1304 I think it's important to recognize that in the case of the majority of the channels today on the services in the U.S., they are common, now that they have harmonized a lot of the music channels. So there is no "Eighties on 80s" for Sirius and the equivalent for XM, it is one channel, which will be called the same channel, which has the same content coming down to it.
1305 So the customer did get the benefit of the "best of" both programming opportunities in the States onto one channel.
1306 The stuff that isn't common, like the NHL programming on XM, or NFL or NASCAR on Sirius, is where we would try to put the "best of" programming from one service to the other. We just haven't figured out the mechanics of it yet and how we do that, but it's clearly an opportunity for us to give the customers everything that either service has as it relates to the content.
1307 THE CHAIRPERSON: Obviously, the U.S. authorities were concerned about that. That's why they imposed on you -- or exacted from the merging parties the à la carte provision, the interoperable receiver, et cetera.
1308 You have explained to me now that the interoperable receiver is not successful because it requires two subscriptions.
1309 I can't imagine -- I find it strange that they insisted on interoperable receivers and didn't deal with the issue of two subscriptions rather than one. But, whatever they did, that's what they did in the States.
1310 But it's out there. The regulator is clearly addressing this issue and making sure that there is benefit to the consumer. Presumably they have an à la carte menu of some sort right now, et cetera.
1311 Here you are asking me, basically, to give you approval and, at best, we can deal with it next year at licence renewal.
1312 MR. BITOVE: I think, Mr. Chair, that there are three different pieces to the merger. One is ending the confusion that is in the marketplace for the Canadian consumer, which is unfair.
1313 I have a hard time -- and I have both services -- in terms of even finding channels sometimes, in terms of what they are telling me is on what.
1314 So we are trying to make it easier for the consumer to listen to our service.
1315 I think the second thing is that, in the go-forward, we want more channels being offered on each other's service, and the best thing to do -- I gave the Laugh Attack example -- is to put Laugh Attack on Sirius Canada, to expand the listenership for the Canadian comedians -- sorry, the reach -- from 10 million to 20 million.
1316 These are all things that we are going to be addressing, which are of benefit to the consumer and to the artistic community.
1317 What we can say -- the interoperable radio, it was kind of one of those things -- it was an idea at a point in time when the technology blazed by it. It was like: You don't even need it. There is another way to do this which is better, which is to create the "best of" platform on each one and just expand the channel capacity that way, to be able to make it work.
1318 Like you, I want to be able to get everything on whatever service I have in my car, so we are going to try to make sure that we can do it.
1319 THE CHAIRPERSON: The interoperable radio exists. Since I can buy it in the States, presumably I can buy it in Canada, too.
1320 MR. BITOVE: Retail only, not in cars.
1321 THE CHAIRPERSON: Okay, that's fine, retail only, but it does exist.
1322 Why isn't there one in the car?
1323 If I understood you yesterday, you are paying for the installation of those radios. So why can't you make it part of your conditions that the radios that are installed are interoperable?
1324 MR. BITOVE: I will take you back to a discussion that I had with General Motors in the early days, when we launched the business. I said: We will pay to put -- subsidize the chip set for every car, instead of only 20 percent of your cars.
1325 And the head of Marketing for General Motors said: Do you know how sensitive Canadians are to the sticker price of the car? Ninety-nine dollars can make a difference in terms of the total price of what we do.
1326 So the OEMs are very -- they are always concerned about the total sticker price that they are going to be charging the consumer.
1327 It's easy for us to say, "Just keep adding this stuff on," but if some of it is recouped in the cost of the car, the car companies don't want to do that. I guess, from their perspective, they would rather have us work with the existing chip set and offer more channels, which is what the "best of" does, instead of putting more hardware into the car that the consumer pays for, in part.
1328 Because we don't pay for the whole chip set, we subsidize part of it with the OEMs.
1329 MR. REDMOND: And today there is not even a solution for the automotive as it relates to the interoperable, other than, as John mentioned, the after-market product.
1330 So even if we wanted to do something in Canada to address it, we don't have a product to be able to even offer them. If we did, it would still take them, probably, 36 months to implement anything.
1331 THE CHAIRPERSON: Okay. The after market, that exists right now, right?
1332 MR. REDMOND: I'm sorry?
1333 THE CHAIRPERSON: The after-market interoperable radio exists.
1334 MR. REDMOND: Yes, it does.
1335 We could bring it in, I just don't believe that --
1336 THE CHAIRPERSON: Okay. Bring it in. I am your customer, as you know. Could I then turn it on and also listen to Mr. Bitove?
1337 No, I would have to pay him a subscription, right?
1338 MR. REDMOND: You would have to pay both companies a separate subscription.
1339 THE CHAIRPERSON: Why? You are now one.
1340 MR. REDMOND: We don't have a billing system internally that is even capable of managing both.
1341 THE CHAIRPERSON: But you don't have to bill. If I am a Sirius customer and I get XM for free, there is no billing required.
1342 MR. REDMOND: I could look at bringing in a small amount to see whether we could get it placed with the retailers, if you think that will suffice your concern.
1343 THE CHAIRPERSON: We will give you some time to think over these points and caucus in a moment, I just wanted to leave you with what our problem is. We obviously look favourably on your merger. We want to see it happen, and we want to see you survive. It makes absolutely no sense for you to be separate here and joint in the States, especially since you are, essentially, a franchisee operation with Canadian content added to it.
1344 I fully understand that, but I look at the U.S. approval and I see that they very much addressed the issue of consumer benefit. From everything we have done so far, I do not see the consumer benefit addressed. Okay?
1345 Let's leave it at that, and we will give you --
1346 MR. BITOVE: But we did respond on the price request.
1347 THE CHAIRPERSON: I know that you did.
1348 Why don't we give you -- what do you want, half an hour or so?
1349 MR. BITOVE: It's quarter to, why don't we say 15 minutes. I think we will be ready by then.
1350 THE CHAIRPERSON: All right. Thanks.
--- Upon recessing at 1043
--- Upon resuming at 1103
1351 THE CHAIRPERSON: Okay.
1352 MR. BITOVE: Thank you, Mr. Chairman and Commission.
1353 It is important to note that to date we have lost over $400 million, but we have spent $50 million in copyright royalties and CCD for the benefit of our cultural groups.
1354 You called us -- you phrased it pretty good. You said we are a franchisee of in essence a U.S. system. So things that were extracted, that were included on the U.S. FCC merger approval process that have to do with spectrum and bandwidth and that stuff, we have no control over because it is the franchisor who controls that.
1355 But there are three items in particular, the price cap, the new programming packages and the interoperable radio receivers, we can and will address.
1356 On the price cap we said we would be willing to do a freeze to the end of this current fiscal year and any current subscriber who prepays will get the benefit of that price for another year. We think that has been more than fair in terms of how our business model works.
1357 On the new packages, with respect to programming, subject to what we can negotiate with SiriusXM, because we do have to -- it is not covered in our current licence agreements, the additional channels or anything else -- subject to system changes, because subscriber management is a very expensive process in our business compared to terrestrial radio or anything else, we would look at implementing the "best of" packages as soon as possible.
1358 We ask that these be outside of our conditions of licence because essentially what a subscriber wants is to be able to get on the other system. Whether it is one tier or two tiers, it is something for management to address, but we would like to get it up as quickly as possible.
1359 I think it is important, Mr. Chair, to remember that when we talk about the interoperable radio, the interoperable radio is to save the price on hardware, not necessarily the two subscription services, just like if you had, you know, ExpressVu or Shaw Direct or whatever it is.
1360 So what we think is reasonable on the interoperable radios, we will bring in whatever interoperable radios are out there today, be it in the aftermarket or if there is one with an OEM -- we are not aware of any OEM that carries one. But we will bring it in, we will offer the service, and because you have asked for something, we will look at trying to do it at a discount for the two packages.
1361 Now, again, it goes back to what we negotiate with SiriusXM, what it involves in subscriber management in terms of changes to the pricing system. As, Mr. Katz, you would know from wireless, every time you do one of these things it is an ordeal.
1362 But we hear that you want to capture benefits to the consumer and we think between what we are offering on the price cap, the new packages and the interoperable receiver, beyond everything else in our presentation, the last two days we think we have put a lot on the table.
1363 THE CHAIRPERSON: Let me ask you something. I appreciate your predicament, you know. You have very little flexibility because, as you say, it all comes from the U.S. and you are constrained, especially with the radio, et cetera.
1364 But while you were thinking and caucusing, we were doing the same thing. It occurred to me that you do have freedom on the Internet, you do have freedom on mobile applications, et cetera.
1365 I don't know what percentage of your market it is right now, it is presumably relatively small, but I expect it will be growing in the future.
1366 I don't see that it would cause you any problem at all to provide that if I am a SIRIUS customer and now of the new merged SiriusXM Canada that I can listen to either service on the Internet or on my mobile device.
1367 MR. REDMOND: You know, I think, one, we have to make sure we have the rights for the content as it relates to --
1368 THE CHAIRPERSON: You have them. You have them. You have them either as SIRIUS or as XM. You have the rights to sell them to your customer. Now that you are merged, you are giving an access to your customer.
1369 MR. BITOVE: We are just not sure under our agreements if you are a subscriber to XM Canada, you can give an XM Canada subscriber SIRIUS Canada programming.
1370 THE CHAIRPERSON: Well, why don't you look, because it strikes me -- I hear what you just offered, but it is essentially intention and best efforts, and I appreciate the time -- but what I just put on the table, it seems to me, is something that should be in your control. It does not --
1371 MR. BITOVE: So what would you like, just explicitly, so Mark and I understand it?
1372 THE CHAIRPERSON: That, as of X -- I assume you can --
1373 MR. BITOVE: Yes.
1374 THE CHAIRPERSON: -- if a customer of SIRIUS or XM can listen to the other service on his mobile device or on the Internet.
1375 I happen to be an iPod owner. After listening to Mark yesterday, I went home, downloaded and listened. It works beautifully.
1376 Of course, when I go on XM, there is the application too, but I am not your customer, I can't do it. What I would be doing is presumably log in the same password and then I would listen to XM. After all, it is just one same company once you merge. The same thing on the Internet.
1377 Anyway, I don't expect you to answer me right now. Why don't we leave it like this -- today is Tuesday. Why don't we give you until Friday at close of business to put into words what you just put on the table and also address the other issues, clarify the issues and also look at this one?
1378 MR. REDMOND: Okay.
1379 MR. BITOVE: Thank you.
1380 THE CHAIRPERSON: Okay. And I think that is it --
1381 MR. BITOVE: We have a response to the oral --
1382 THE ADJUDICATOR: Is there anything else that I should raise?
1383 COMMISSIONER KATZ: Can I just ask a question?
1384 THE CHAIRPERSON: Okay.
1385 COMMISSIONER KATZ: I still have a problem with a concession that you volunteered regarding freezing customers who prepay. I think that happens in the normal course regardless.
1386 Whenever you announce a rate increase, you announce that 30 days forthwith and anybody who wants to prepay in that period of time can lock in. I mean I don't think that is much of a concession at all.
1387 I guess the question that I would ask is: If there is a concession, would it be reasonable to say all new customers post -- I think you picked the end of this year -- January 1st, 2012, would incur an increase, but all existing customers, regardless of whether they are month to month, quarterly or annual, would have their rates held until the end of the licence term?
1388 MR. REDMOND: We will address that by Friday as well.
1389 THE CHAIRPERSON: Staff, legal, is there anything else I should raise?
1390 MR. BITOVE: If I can just read our response to the oral interventions before --
1391 THE CHAIRPERSON: Yes, sure.
1392 MR. BITOVE: Thank you, Mr. Chairman.
1393 Mr. Chairman, Commissioners, I am joined this morning by Mark Redmond. We filed a written reply to interventions with you on Friday -- sorry, on February 17th, and our comments this morning will supplement those remarks for the record.
1394 MR. REDMOND: The interveners we heard from yesterday reflected a small sample of the 60 written interventions received by the Commission, which were overwhelmingly in support of the proposed merger transaction.
1395 Our companies are proud that all of the interveners who appeared before you at this hearing did so to acknowledge the tremendous support that the two Canadian satellite radio services have provided to them and to Canadian cultural groups generally.
1396 We thank Franz Schuller of les Disques Indica, the comedian Ben Miner, Amanda Zelina of The Coppertone, and Jonathan Chandler of Amos The Transparent for their kinds words.
1397 As they appreciate our support, we so appreciate theirs here before the Commission and we want to assure them and the Commission that they will continue to have our support going forward. There will always be a home for great Canadian comedy and music and for emerging Canadian artists on both our services.
1398 MR. BITOVE: Mr. Chairman, Commissioners, I would like to thank you once again on behalf of the shareholders, directors and management of SIRIUS Canada and XM Canada for having the opportunity to meet with you at this hearing to explore the proposed transaction and how it will lead to a brighter future for satellite radio and hence for the Canadian broadcasting system and our 1.8 million subscribers in Canada today and going forward.
1399 SIRIUS Canada and XM Canada will be stronger together, we will be better able to compete together, and we hope that you will agree and will approve the proposed merger unconditionally, which is why it is very important with us because CBC is a partner and they need an order-in-council.
1400 Any conditions and anything else, we would rather work it out as quickly as possible so that nothing can go wrong from their side of the equation in getting any subsequent approvals they need.
1401 If you have any further questions about our responses or our questions, please do so and we will answer them expeditiously. Thank you.
1402 THE CHAIRPERSON: And thank you for this hearing. I think it has been a very civilized and informative hearing, with none of the usual self-serving verities, but we got down to the issues and I appreciate that.
1403 I emphasize again the need to do something for the consumers and the issues that we raised today and that I just raised with you five minutes ago. I am looking forward to your response on Friday.
1404 I want to thank staff for doing an excellent job in preparing, the interpreters for doing their usual magnificent job.
1405 I think that is all. The last word belongs to you, Madame Roy.
1406 THE SECRETARY: Just one note for the record, Mr. Chairman.
1407 I would like to indicate that the intervener who did not appear and was listed on the Agenda -- that is IndieCan Radio -- will remain on the public file as a non-appearing intervention.
1408 That concludes the Agenda. Thank you very much.
--- Whereupon the hearing concluded at 1113
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