ARCHIVED - Broadcasting Decision CRTC 2002-392

Broadcasting Decision CRTC 2002-392

Ottawa, 29 November 2002

Max Trax Music Ltd. (formerly DMX Music Ltd.)
Across Canada

Application 2001-1333-2
Public Hearing in the National Capital Region
3 June 2002

Licence renewal for Max Trax

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

1.

The Commission received an application by DMX Music Ltd. for the renewal of the national pay audio programming undertaking known as DMX, subject to the same terms and conditions as the current licence.

2.

In a letter dated 10 May 2002, the applicant advised the Commission that Corus Entertainment Inc. (Corus), the parent company of the licensee, had purchased the 20% interest in DMX Music Ltd. previously held by TCI Music Inc. As part of the transaction, Corus agreed that it would not use the name DMX in relation to the licensee after 30 April 2002. The licensee thus changed its legal name from DMX Music Ltd. to Max Trax Music Ltd., and now operates the service under the name of Max Trax.

3.

The Commission received seven interventions in relation to this application. Three interveners wrote in support of the renewal application: Canadian Music Week, Nettwork Productions and the Canadian Country Music Association. One individual opposed the application on the basis that music should be free of charge and that people should not have to pay to listen to music. Three other interveners, L'Association québécoise de l'industrie du disque, du spectacle et de la vidéo (l'ADISQ), the Canadian Independent Record Production Association (CIRPA) and the Society of Composers, Authors and Music Publishers of Canada (SOCAN) raised questions about the licensee's levels of Canadian content and French-language vocal music, its contributions to Canadian talent development, the joint marketing agreement it has with Galaxie (a national pay audio service operated by the Canadian Broadcasting Corporation), and the Commission's linkage requirements, among other issues. Each of these issues is discussed further below.

4.

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

5.

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

Background

8.

DMX was one of the four pay audio services that the Commission approved in 1995. Over most of the current licence term it has offered 30 channels of commercial-free music, of which 15 have been produced in Canada. Each of the channels is devoted to a specific type of music, including classical, Christian contemporary, jazz, rap, rock, etc. The service is carried by major distributors across Canada.

Canadian content

9.

Max Trax is currently required by condition of licence to ensure that a minimum of 30% of the musical selections broadcast each week on its Canadian-produced pay audio channels, considered together, are Canadian. Its original licensing decision also encouraged the service to meet the 40% level of Canadian content it proposed in its original application.

10.

In its application for renewal, Max Trax noted that it has exceeded this condition of licence with an average yearly Canadian content level of 43%.

11.

In their interventions, CIRPA, SOCAN and l'ADISQ raised concerns about the way in which Canadian content is measured on the Max Trax service and also recommended that the Commission harmonize the Canadian content levels of the pay audio services with the level now required in the Radio Regulations, 1986 (Radio Regulations). Specifically, they recommended that the Canadian content level be increased from 30% to 35% of musical selections broadcast each week and that Canadian content be measured across the entire service, rather than just the Canadian-produced channels.

12.

In reply, Max Trax stated that the current Canadian content level of 30% recognizes that Max Trax offers subscribers a wide variety of different musical options, ranging from mainstream rock to specialized formats such as jazz and blues. Max Trax noted that under the Radio Regulations only those stations that broadcast popular music (category 2)² are required to broadcast a minimum of 35% Canadian content and that other types of radio stations have lower Canadian content requirements. For example, it stated that radio stations that operate in a specialty format are only required to broadcast a minimum of 15% Canadian content.

13.

Max Trax also noted that it is a 24-hour, commercial free service, with no spoken word content, and that, as such, it is very different from conventional radio stations. It stated that any increase in Canadian content levels would result in an increase in the number of times a qualifying song in a particular genre is played. Max Trax stated that this would result in a repeat level that would cause listener dissatisfaction and negatively impact its competitive service offering. Max Trax stated that increasing its Canadian content requirement would be inappropriate and would limit its ability to offer a diverse array of highly specialized Canadian musical channels.

14.

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

15.

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

16.

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

17.

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

18.

The Commission further encourages the licensee to continue to maintain, at a minimum, the 40% level of Canadian content it had proposed in its original application.

19.

With respect to the way in which Canadian content is measured across the aggregate of Canadian-produced channels, as opposed to the entire service, the Commission notes that it addressed this matter in Decision 96-479, in which it stated:

The Commission notes that, if Canadian and French-language content requirements were applied to a complete pay audio service, including both foreign and Canadian-produced channels, the result is likely to be unrealistically high levels of Canadian music on the Canadian-produced channels.

20.

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

21.

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

French-language programming

22.

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

A minimum of 25% of all Canadian-produced pay audio channels, other than those consisting entirely of instrumental music or of music entirely in languages other than English or French, must devote to musical selections in the French language, on a weekly basis, a minimum of 65% of the vocal music selections from category 2, as defined in the Radio Regulations, 1986.

23.

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

24.

In reply, Max Trax stated that as a highly specialized niche service, it must have the flexibility to provide the most attractive and responsive package to its listeners, in order to remain competitive. It indicated that adding French-language channels would result in a high level of duplication with existing French-language services, rather than resulting in the offering of truly unique or distinct channels. Max Trax further pointed out that as the service is expanded to provide new English-language services, the 25% requirement will ensure that additional French-language offerings are also made available.

25.

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

Distribution of Canadian content and French-language vocal music

26.

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

27.

Max Trax did not respond to this aspect of l'ADISQ's intervention.

28.

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

Canadian talent development

29.

Max Trax is currently required to contribute 4% of its gross annual revenues to third parties associated with Canadian talent development. Third parties are defined as FACTOR, MusicAction, national and provincial music organizations, performing arts groups, schools, and scholarship recipients. In its application, Max Trax indicated that it has devoted all of its contributions to Chart Toppers, a concert promoter, to stage a series of concerts promoting Canadian artists.

30.

In their interventions, l'ADISQ and CIRPA called upon the Commission to increase the amount of Max Trax's contribution to Canadian talent development from 4% of gross revenues to 10%. L'ADISQ argued that the pay audio services have proven to be even more financially successful than had been expected at licensing, and that with the rise of digital penetration, they should become even more financially successful, thus warranting an increase in their Canadian talent development contributions. While l'ADISQ accepted that contributions to Chart Toppers were valid, it noted that it was unfortunate that Max Trax did not make contributions directly to FACTOR or MusicAction.

31.

In its reply, Max Trax stated that the proposed increase is unwarranted. It indicated that it operates in an increasingly competitive environment, characterized by the threat of a grey market in satellite radio from the United States, the increased distribution of commercial radio stations on broadcasting distribution undertakings (BDUs) and the almost unlimited availability of CD-quality musical choices on the Internet.

32.

Max Trax further stated that it already contributes significant resources to Canadian talent development, representing approximately $630,000 over the course of the first licence term and that it benefits Canadian artists through airplay. In addition, it stated that it is now required to pay in excess of 16% of its revenues in copyright royalties to composers, performers and producers of sound recordings. Max Trax stated that the additional expenditure requested by the interveners would have a dramatic impact on its profitability.

33.

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

34.

With respect to Max Trax's contributions to Chart Toppers, the Commission agrees that Max Trax has met the requirement that pay audio services direct their contributions to eligible third parties associated with Canadian talent development.

Linkage of Canadian and non-Canadian produced channels

35.

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

36.

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

In the Commission's view, while sufficient Canadian music is available for a variety of channels in relatively common formats, the appeal of a pay audio service is likely to be related to its ability to provide a great variety of diverse formats directed to niche audiences. Channels devoted to relatively esoteric categories of music would have limited access to Canadian selections and may find it difficult to meet Canadian content requirements. As Canadian pay audio services grow and develop, access to more esoteric, foreign-produced, channels may be the most effective means of satisfying consumer demand for increased diversity.

37.

In the context of Max Trax's renewal, CIRPA and SOCAN raised concerns about the Commission's 1:1 policy, stating that channels that are directly programmed in, and transferred from, the United States are not licensable under the CRTC's regulations or the Broadcasting Act.

38.

For its part, l'ADISQ called upon the Commission to reconsider its decision to allow pay audio services to link non-Canadian with Canadian-produced channels. L'ADISQ stated that this linkage rule prevents, or may discourage, other players from entering the pay audio market and that there is no reason that a Canadian company could not produce the foreign channels. L'ADISQ also indicated that, as a result of the linkage rule, Canadian content is effectively 15% for the service as a whole. In addition, l'ADISQ argued that the non-Canadian produced channels offered by Max Trax could not be considered esoteric.

39.

In reply, Max Trax argued that the 1:1 linkage rule was fully examined in the context of the original licensing proceeding and its reconsideration. It stated that the interveners had not brought forward any evidence to justify amending the framework. Max Trax also emphasized that it is operating in an increasingly competitive environment and that the linkage requirement is arguably even more appropriate now. It asserted that the linkage rule recognizes that there are certain genres of music in which a sufficient library of Canadian music does not exist and that the ability to link with foreign services provides Max Trax with the flexibility to ensure that its service is as diverse as possible, thus promoting consumer choice.

40.

With respect to the concerns raised by CIRPA and SOCAN, the Commission notes that its framework for pay audio services does not provide for the licensing of non-Canadian channels, rather it authorizes the distribution of such services in Canada by Canadian pay audio services. This mechanism is similar to the lists of eligible satellite services, which authorize Canadian BDUs to distribute non-Canadian programming services.

41.

With respect to the concerns raised by l'ADISQ, the Commission continues to regard the 1:1 linkage rule as an important mechanism for ensuring the long-term success of Canadian pay audio services, and, more importantly, for guaranteeing a diverse array of musical genres for Canadian subscribers.

42.

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

Joint Marketing Agreement with Galaxie

43.

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

44.

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

45.

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

46.

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

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

47.

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

48.

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

49.

In reply, Max Trax stated that the Agreement has been an effective marketing tool that has benefited the services, as well as consumers, by providing them with an expanded program offering. It noted that BDUs are not restricted from offering the services on a stand-alone basis - for example, Bell ExpressVu carries only Galaxie. Max Trax further noted that the licensing framework for pay audio is based on a competitive model and anyone interested could apply for a new licence.

50.

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

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

• that a minimum of 25% of the combined package of Canadian-produced pay audio channels, other than those consisting entirely of instrumental music or of music entirely in languages other than English or French, devote to musical selections in the French language, on a weekly basis, a minimum of 65% of the vocal music selections from category 2, as defined in the Radio Regulations, 1986; and

• that a maximum of one non-Canadian pay audio channel may be packaged or linked with each Canadian-produced pay audio channel. In no case may subscribers of the pay audio service be offered a package of pay audio channels in which foreign-produced channels predominate.

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

Number of channels available

51.

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

52.

Max Trax did not reply to this aspect of the interventions.

53.

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

Employment equity

54.

Because this licensee is subject to the Employment Equity Act and files reports concerning employment equity with Human Resources Development Canada, its employment equity practices are not examined by the Commission.

Secretary General

Appendix to Broadcasting Decision CRTC 2002-392

Conditions of Licence for Max Trax

1.

A minimum of 35% of the musical selections broadcast each week on Canadian-produced pay audio channels, considered together, must be Canadian.

2.

A minimum of 25% of all Canadian-produced pay audio channels, other than those consisting entirely of instrumental music or of music entirely in languages other than English or French, must devote to musical selections in the French language, on a weekly basis, a minimum of 65% of the vocal music selections from category 2, as defined in the Radio Regulations, 1986.

3.

A maximum of one non-Canadian pay audio channel may be packaged or linked with each Canadian-produced pay audio channel. In no case may subscribers of the pay audio service be offered a package of pay audio channels in which foreign-produced channels predominate. The licensee must provide the Commission, upon request, with a complete list of all non-Canadian pay audio channels distributed on its service.

4.

The licensee shall contribute each year a minimum of 4% of the gross annual revenues earned by its pay audio service to eligible third parties associated with Canadian talent development. Such third parties are defined as FACTOR, MusicAction, national and provincial music organizations, performing arts groups, schools and scholarship recipients. The licensee shall report the names of the third parties associated with Canadian talent development, together with the amounts paid to each, on its annual return.

5.

The licensee shall not broadcast commercial messages.

6.

The licensee shall not broadcast spoken word programming, with the exception of identification of musical selections, promotion of the service, and programming directed to children.

7.

The licensee shall adhere to the provisions contained in sections 3 and 11 of the Radio Regulations, 1986, as amended from time to time by the Commission.

8.

The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' Sex-Role Portrayal Code for Television and Radio Programming, as amended from time to time and approved by the Commission.

9.

The licensee shall maintain sequential lists of all recordings played on each pay audio channel with designations for Canadian musical selections and for French-language vocal music. These lists shall be kept by the licensee for a minimum of four weeks and forwarded to the Commission upon request, along with a notarized attestation of the lists' accuracy.

10.

The definitions of "Canadian", "commercial message", and "broadcast week" set out in section 2 of the Radio Regulations, 1986, as may be amended from time to time (Radio Regulations), the definition of "spoken word" set out in Revised content categories and subcategories for radio, Public Notice CRTC 2000-14, 28 January 2000, as may be amended from time to time, and the definition of "Canadian musical selection" set out in subsection 2.2(2) of the Radio Regulations, shall apply to these conditions and the licensee with the necessary changes.

11.

The licensee may not distribute any non-Canadian pay audio channel that includes commercial messages or that includes spoken word programming, with the exception of identification of musical selections, promotion of the service or programming directed to children.