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### Viewing cable 05OTTAWA2745, SUBSCRIPTION RADIO:

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
05OTTAWA2745 | 2005-09-13 14:02 | 2011-04-28 00:12 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Ottawa

`

    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

`