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DM#1663183 - 2012-0064-1 - APP - SXMC - 2012-01-19 - Doc03 - Appendix D - Supplementary Brief - REDACTED

DM#1663183 - 2012-0064-1 - APP - SXMC - 2012-01-19 - Doc03 - Appendix D - Supplementary Brief - REDACTED

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Published by: Steve Ladurantaye on Jun 22, 2012
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06/22/2012

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APPENDIX DSUPPLEMENTARY BRIEF
JANUARY 19, 2012
 
 
TABLE OF CONTENTS
EXECUTIVE SUMMARY.............................................................................................................I
A)
INTRODUCTION & LICENCE FRAMEWORK..............................................................1
B)
SIRIUS XM CANADA’S FIRST LICENCE TERM ACHIEVEMENTS..........................4a) Expenditures on Canadian content...........................................................................4b) Exhibition of Canadian content...............................................................................5
C)
COMPETITIVE THREATS TO SIRIUS XM CANADA................................................10
D)
FINANCIAL PERFORMANCE & OUTLOOK...............................................................13
E)
A SINGLE REQUEST – AN APPROPRIATE CCD RATE............................................18a) Inappropriate Proxy...............................................................................................18b) Equity & Consistency............................................................................................19c) CCD Contribution Policy.......................................................................................22
F)
CONCLUSION..................................................................................................................24Table 1: Sirius XM Canada Projected & Actual CCD Contributions....................................4Table 2: Audio Programming Regulatory Comparison.........................................................5Table 3: Canadian Content Comparison................................................................................6Table 4: New Music & Emerging Artist Comparison...........................................................6Table 5: Sirius Market Penetration and Canadian Population Distribution...........................9Table 6: Financial Performance of the Commercial Radio Industry (in $000s)..................13Table 7: Financial Performance of the Pay Audio Industry (in $000s)...............................13Table 8: Comparative PBIT Margins...................................................................................13Table 9: Financial Performance of Sirius XM Canada (in $ millions)................................14Table 10: Sirius Market Penetration Trend............................................................................16Table 11: Sirius XM Canada Projected PBIT Margins by CCD Contribution Rate..............17Table 12: Comparative CCD Contributions...........................................................................20Table 13: CCD Contribution Rate of Canadian Commercial Radio (in $000s)....................21Table 14: Comparative Financial Health and CCD Contribution Rate..................................23
SCHEDULE 1
RISK FACTORS IN SIRIUS XM CANADA’S 2011 ANNUALINFORMATION FORM...................................................................................................27
 
 i
EXECUTIVE SUMMARY
i.
 
This Application seeks the renewal of the licence held by Sirius XM Canada Inc. (SiriusXM Canada) to operate a satellite subscription radio undertaking. This is the first renewalfor such a service in Canada, and in keeping with Commission policy it is appropriate tolook both forward and back in calibrating the obligations to be required by theCommission during the renewal term.ii.
 
Looking forward, Sirius XM Canada is in the process of completing the Canadianchannel line-up that it plans to move forward with in the next licence term. That line-upwill include compelling, relevant audio content showcasing the best in Canadian music,news and information, sports and comedy. And it is being created in a way that blends allthe elements of listener preferences, contractual requirements, satellite bandwidthconstraints and, of course, our conditions of licence. The outcome will be exciting,substantive content ranging from introducing emerging artists and new releases to aNorth American wide audience to the drama of the Stanley Cup playoffs to the discoveryof Canada’s next top comic. Sirius XM Canada will have this new line up available forthe Commission’s review prior to the renewal hearing.iii.
 
The record over the first licence term demonstrates substantial overachievement in anumber of areas. Satellite radio has attracted more than 2 million subscribers of which 1.4million are self-paying. As a result of the conditions of licence imposed on it, it hasenabled the distribution to those subscribers of previously unheard of levels of newCanadian music, of music by emerging Canadian artists and of Canadian spoken wordcontent. This content has been in both English and French and has been at its mostsuccessful in small Canadian communities that are underserved by other forms of regulated audio content. And, as a result of its arrangements with Sirius XM Radio Inc. inthe United States, these Canadian artists have enjoyed continent-wide exposure.iv.
 
By the end of its first licence term this August, the satellite radio sector will also havecontributed more than $52 million in Canadian content development (“CCD”)
1
 expenditures. This amount significantly exceeds the $41.5 million amount projected in2004 at the first licence hearing, a hearing at which the concern was aboutunderachievement rather than overachievement of these promises.v.
 
By any regulatory measure, satellite radio has delivered on its conditions of licence andhas made significant contributions to Canadian content, both with respect to exhibitionand to expenditures. However, this has come at an enormous financial cost. Contrary toprojections made at the time of licensing, satellite radio has never been profitable inCanada.
In fact, on a combined basis, Sirius XM Canada has lost close toin its first 6 years of operation.
 vi.
 
The Commission’s CCD policy is clear. As it said in its 2006 Commercial Radio Policy,it sets CCD contributions that are commensurate with the financial health of the sector.And the financial health of the satellite radio sector is not good. It has a cumulative
1
The acronym CCD will be used in place of Canadian Talent Development (“CTD”) throughout this Supplementary Brief. A2006 change in the Commission’s Commercial Radio Policy changed the name from CTD to CCD.

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