Cablegate: Subscription Radio:

This record is a partial extract of the original cable. The full text of the original cable is not available.

131436Z Sep 05

UNCLAS SECTION 01 OF 02 OTTAWA 002745

SIPDIS

SENSITIVE

PASS USTR FOR CLUNE, BALASSA, BURCKY AND SCHNARE

STATE FOR EB/CIP, EB/DCT AND WHA/CAN

DOC FOR ITA/MAC -- OFFICE OF NAFTA

FCC FOR INTERNATIONAL BUREAU

PARIS FOR USMISSION UNESCO

E.O. 12958: N/A
TAGS: ECPS ETRD CA
SUBJECT: SUBSCRIPTION RADIO:
CANADA ALLOWS LICENSE DECISION TO STAND

REF: (A) OTTAWA 2620 (B) OTTAWA 1865

1. (U) Sensitive, but unclassified. Not for distribution
outside USG channels.

2. (U) SUMMARY/INTRODUCTION: On September 9, after
furious lobbying from both sides, the GOC decided not to
remand a regulatory licensing decision for subscription
radio (ref B outlines the June decision by the broadcast
regulator). This allows U.S.-based XM and Sirius to extend
their services into Canada in coming months, albeit with
further concessions on French-language content and Canadian
programming. This episode may augur changes on the
bilateral "cultural policy" front, which has been quiescent
in recent years. In particular, technological changes
continue to make the regulation of content more difficult,
which is threatening to Canada's cultural-nationalist
groups. END SUMMARY/INTRODUCTION

3. (U) After a week of indecision, during which the full
Cabinet and an ad hoc committee both failed to resolve this
issue, the government's operations committee decided on
September 9 not/not to send the licensing decision back to
the regulator, the Canadian Radio-Television and
Telecommunications Commission (CRTC), for reconsideration.
With the expiry of a 90-day review window, the CRTC
licensing decision issued in early June now stands. That
decision allowed Canadian versions of both XM and Sirius
satellite radio to operate in Canada, provided that (like
all licensed broadcasters in Canada) they met specific
Canadian-content and French-language-content requirements
(on the order of 10 percent and 2.5 percent of programming
respectively). The CRTC also licensed one Canadian-based
subscription radio service which, given a lack of satellite
orbital slots, will be broadcast from terrestrial stations
in major urban centers rather than by satellite. All three
services were expected to begin operation by the end of
2005.

4. (U) The two major Canadian media firms which jointly own
the Canadian licensee - Montreal's Astral and Toronto's CHUM
- protested the June decision on grounds that the presence
of XM and Sirius would make their business model non-viable.
They were joined by advocates for "Canadian culture" and
French-language content (ref A), who were concerned that the
effect of the licenses would be to put downward pressure on
Canadian content regulations more generally (Canadian
content in conventional broadcasting is regulated at 20 to
35 percent). In combination, these groups persuaded
Canadian Heritage Minister Liza Frulla to bring the CRTC's
decision to the Cabinet table for review - an option which
is rarely exercised.

5. (U) Much lobbying ensued, including full-page newspaper
ads from various creative and business groups, and the issue
drew far more attention in the past two weeks than during
the licensing hearings. A decision to remand the matter
back to the regulator might have led to further public
hearings and would certainly have been costly to XM and
Sirius, their Canadian partners, and equipment suppliers
(notably automakers). To forestall this, the two satellite-
radio groups offered to increase their French language and
Canadian content somewhat beyond the terms required by the
June decision. Still, the matter remained unresolved in
Cabinet for a week before the operations committee decided
on September 9 to accept the new content offers and
otherwise let the CRTC's original decision stand.

ANALYSIS
--------

6. (SBU) Canada exempted "cultural industries" from
NAFTA. The culture/media sector saw some difficult
bilateral issues during the 1980's-1990's but, apart from
different views on the current development within UNESCO of
a "cultural diversity" treaty, bilaterally it has been
quiescent since 1999. In our view, the recent satellite
radio licensing episode highlights several developing
threats to the status quo in Canada's "cultural policy"
regime:
-- THE MINISTRY: Canadian Heritage Minister Frulla did not
resolve this issue before it reached the Cabinet table.
This prompts suggestions that she (like some previous
Ministers in this portfolio) is too close to "creative"
interests, hampering the government's ability to make good
policy compromises in this and other areas. The same
problem arguably contributes to the GOC's difficulties in
updating Canada's copyright law, as well as its
telecommunications policy regime (delays in both areas have
been frustrating to U.S. interests). Observers say this
must be resolved, and that the obvious solution is to re-
create the "Department of Communications," which, prior to
1993, combined functions since divided between the Heritage
and Industry departments. This would force these issues to
be resolved within a single department and make them less
prone to spill into Cabinet or Parliament. On the whole, we
believe that with good leadership, such a reform could help
resolve longstanding problems.

-- THE REGULATORY PROCESS: For U.S.-origin broadcast
content, such as cable channels, pay-TV channels, or XM and
Sirius, the Canadian regulatory regime is already
exceptionally restrictive. At least until now, however, it
was entirely administered by the CRTC, limiting the scope
for politicizing decisions. Frulla's referral of the
subscription radio matter to Cabinet not only loosened this
containment, but also quickly drew concessions from the
licensees. We see this as an unfortunate precedent, one
which is likely to encourage further politicization of the
telecom/broadcast regulatory process.

-- THE CONTINENTAL AIRWAVES: The technology on which
satellite radio is based, like the Internet, makes the
entire North American continent a single radio market, and
this could profoundly change the rules of the "Canadian-
content" game (not to mention the effort to protect the
French language in North America). Such change threatens
various entrenched interests in Canada's cultural
nationalist community who benefit from the current "cultural
policy" regime. During the hearing process which led to
licensing, both Canadian Satellite Radio Inc. (the
partnership representing XM) and Sirius Canada Inc. clearly
felt pressure to increase the level of "Canadian content,"
not only on Canadian- and non-Canadian music channels
offered to Canadians, but even on their U.S. services.
According to the CRTC's introduction to the decision (para.
47), "although neither CSR nor Sirius Canada could commit
its US partner to broadcast a minimum level of Canadian
content on the U.S. channels, both applicants proposed to
employ a "Canadian ambassador" who would actively seek out
and champion Canadian musical selections, and encourage the
program directors of the U.S. satellite services to include
Canadian selections on their playlists." To our knowledge,
this is the first instance of Canadian regulatory or
legislative instruments/processes being contemplated to
directly influence the content of media/entertainment
offered to Americans by Americans (as opposed to merely
promoting diffusion of Canadian products/services), but it
may not be the last.

WILKINS

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