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Let satellite radio - "an iPod in the sky" - fly, CRTC is told
11/9/2004
by Laurel Hyatt

 
Articles in related categories
CRTC - Radio
Satellite/Subscription Radio
OTTAWA - Satellite radio is an emerging hit in the United States, but before it can get off the ground in this country, it has to fly with the CRTC.

Will the Commission let the market prevail, much like it did with licensing digital TV channels, and approve all three applications for subscription radio it considered during a hearing in Gatineau last week?

Will it license the applications as they are, in order to stem the grey market in Canada for U.S.-based services?

Will it consider subscription radio not to be conventional broadcasting and thus outside the Broadcasting Act, and not open to regulation at all?

Will it only approve the services it thinks will be a going concern?

Will it require the services to add more Canadian content?

Will it only approve the single 100% Canadian bid?

Or will it follow the advice of some intervenors to deny all the applications and ask for new ones that have mostly Canadian channels?

No one wants to guess what the Commission might do, but the applicants are betting it will approve all three applications: from Canadian Satellite Radio and SIRIUS Canada to have satellite services available everywhere in the country, and from CHUM to have a terrestrial-based service in major cities using the same technology as DAB (digital audio broadcasting).

Regardless of the decision, the applicants hope it comes quickly, as the American services XM and SIRIUS already have a three-year jump in the market. Although not legally available here, the services do have Canadian subscribers who use U.S. addresses to get around rules. Applicants want to launch next spring and are eyeing next year's pre-Christmas period as a booming time to sell the receivers needed to get the signals (currently retailing in the States for around $100-$300 U.S.).

Cancon conundrum
Because of a dearth of spectrum on Canadian satellites, the applicants had to partner with the existing U.S. subscription radio services to negotiate turning a few of their channels into Canadian ones.

Canadian Satellite Radio, owned by Toronto entrepreneur John Bitove in partnership with XM, will offer 101 XM channels, five of them Canadian (two in French and one multilingual) to start. SIRIUS Canada, owned by the CBC and Standard Radio Inc. in partnership with SIRIUS in the U.S., would beam 75 SIRIUS channels, five of them Canadian (two in French) at launchtime. CSRC (CHUM Subscription Radio Canada), owned by CHUM Limited in partnership with Astral Media, plans to produce all its own 50 channels (10 in French), playing 35% Cancon on most of them to reflect conventional radio regulations.

The percentage of Canadian music to be played on the satellite channels, not just the Canadian-based ones, was promised at under 10%.

The paucity of Cancon on the satellite services was a constant theme throughout the four-day hearings. Chair Charles Dalfen mused to Bitove, "you are asking us to license a service here that is - the threshold of Canadian contribution is very, very low."

A ratio of one Canadian channel to 25 U.S. ones means "there is certainly concern that that is insufficient," commissioner Joan Pennefather said after CSR's presentation. "We are suggesting that it should have different rules," CSR president and CEO Stephen Tapp replied.

The satellite applicants said they'd love to have more Canadian channels but the best they could negotiate from their American partners at the moment was fewer than half a dozen.

commissioner Stuart Langford wondered if it's fair to impose the same rules as conventional radio on a new technology, and noted that the CRTC has relaxed radio Cancon levels in the past, for example, for Windsor stations to compete with those in Detroit, and letting oldies formats play less Cancon because there was less Canadian music decades ago. Langford also asked whether the CRTC shouldn't try to get as much Cancon out of the situation as possible rather than allow the U.S. channels to come in illegally. "If it's coming anyway, are we better to license it and get what we can out of it?"

That's the strategy taken by SIRIUS Canada CEO Kevin Shea. XM and SIRIUS are not looking to get into Canada; it was the applicants who approached them and got as many channels freed up for Canada as possible. "It ain't perfect, but if the flip side of this is to do nothing, the grey market will prevail," he said in an interview.

Applicants stressed how having dozens of channels would give Canadian artists more exposure than on commercial radio, especially since XM and SIRIUS would air the Canadian channels in the U.S. "The beauty of satellite radio is that it plays stuff that no one else does," Shea said in the hearing. SIRIUS Canada would have an agent based in New York City to promote Canadian artists to its programmers on its U.S.-based channels.

Vice-chair Andr�e Wylie was concerned that francophones would only have two channels on each of the satellite services in French, and cited CRTC figures showing that currently, francophones spend 91% of their radio listening time tuning in to French-language stations and programs.

As benefits packages, applicants pledged to spend millions on Canadian talent through initiatives such as the Radio Starmaker Fund. CSR vowed to devote at least 4% of its revenues over a seven-year licence term to talent development. SIRIUS committed to spending 5% of revenues, for a total of $22 million over seven years. CSRC promised to spend $8 million over seven years on Canadian talent beyond its programming, or about 2% of revenues.

Getting off the ground
Commissioners also wondered how strong a business case there would be for subscription radio, expected to cost from $10 to $13 a month, when so many people, especially teens, are downloading music off the Internet for free. Shea said subscription radio is better than MP3s because it has "thousands and thousands of hours of memory and it does all the work for me" and is completely legal. "This is an iPod in the sky," he said. "Once you get the Walkman versions (of the receiver) out there, the kids are going to absolutely eat this stuff up because it speaks right to their genre of music."

Gary Slaight, president and CEO of Standard Radio, said subscription radio can make inroads among youths, who were largely abandoned by conventional radio because advertisers no long targeted them.

There will be an initial push to get receivers in the hands of consumers. The applicants plan on subsidizing the cost of receivers and the satellite services have deals with carmakers to put units in their vehicles. Experience in the U.S. has shown that "once you try it, there's very few people who are not interested," said Michael Grimaldi, president and CEO of General Motors of Canada Ltd., which is a partner with CSR.

If the Commission does license all three applications, don't expect CHUM's terrestrial service to launch, however. Its business model was based on all services having the same requirements. But if XM and SIRIUS are allowed to air just a handful of Canadian channels, CHUM couldn't compete, it says.

"Being licensed with these two (satellite services) would be an unfair competitive environment in which we could not succeed," Peter Miller, CHUM's vice-president planning and regulatory affairs, said in an interview. "If the Commission licenses these two as applied, we can't see ourselves launching." CHUM also doesn't have any deals with carmakers to install receivers in vehicles. Its long-term plans are to have CSRC reach 60% of Canadians, with 1 million subscribers in the seventh year of operation. It would ramp up to 100 channels by year four.

Perhaps surprisingly, commissioners didn't seem to devote much questioning to the impact that subscription radio might have on traditional stations. When the issue did come up, Slaight admitted no one really knows for certain what might happen. "I would be foolish to say there would be no impact on conventional radio. What that will be remains to be seen." As long as traditional broadcasters such as Standard do great local programming, they should be "in good shape for years to come," he added.

Intervenors' concerns
Several intervenors, mainly representing community-based radio stations, musicians, and the listening public, urged the Commission to require more Canadian channels.

The Canadian Independent Record Production Association was worried that control of the satellite services would be in the hands of Americans. President Brian Chater said the meeting was "the most important hearing on the future of Canadian broadcasting for many, many years" and the Commission shouldn't make a quick decision, perhaps waiting a year or two to see what happens to the radio landscape. He also questioned the CBC's involvement in what he called a "speculative investment" that is just "a dot-com in disguise" and said if the CBC had "spare money" it should spend it on its own radio programming.

Corus Entertainment appeared at the hearing, advising the Commission to require more Canadian channels. Corus felt the services would be direct competitors to its MaxTrax pay audio service as well as its conventional radio stations. "In some ways, commercial radio may be open to experiencing death by 100 channel cuts," said John Hayes, president of Corus' radio division.

Friends of Canadian Broadcasting told the CRTC it should not license the satellite services as they would harm traditional radio stations as well as Canadian artists. Spokesperson Ian Morrison said the satellite applicants "overstated" the threat of the grey market. He supported the CHUM application as it meets current broadcasting policy.

The subscription radio applications received support from several Canadian artists who appeared at the hearing, including Jeff Healey and Susan Aglukark, who felt they'd get more exposure.

After concerns raised from the Commission and intervenors, late last week CSR increased its commitment of Canadian-based channels from four to five by the end of the hearing.

Bitove said he hopes the Commission approves all three applications. "From CSR's perspective, we believe that the more services that are licensed, the faster the industry will grow. You'll have more marketing dollars, more push behind subscription radio," he told www.broadcastermagazine.com.

It's not known when the Commission will announce its decision on subscription radio, but it will likely do so in the context of its upcoming review of radio policy, scheduled to take place next fall.
 
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Broadcaster Poll
When it comes to the three subscription radio applications to be heard by the CRTC November (see this site for stories explaining it), should the Commission:
Approve all three?  
Approve the CHUM "Canadian" option?  
Approve one or both of the satellite options?  
Approve none?