And then there was one: CRTC approves satellite radio merger

April 28, 2011

In the latest chapter in the challenging history of satellite radio in Canada, the CRTC recently approved the long-pending merger of Canada’s two satellite radio services, Sirius Canada Inc. (Sirius Canada) and XM Satellite Radio Canada (XM Canada), effectively creating a monopoly for Satellite Subscription Radio (SSR) services in Canada.

Under the terms of the deal, both Sirius Canada and XM Canada will be wholly owned by Canadian Satellite Radio Holding Inc. (CSRHI), currently the holding company for the licensee of Sirius Canada.

For those just tuning in, the Canadian transaction is part of a larger initiative, commencing in 2007, between XM Satellite Radio Inc. and Sirius Satellite Radio Inc., the operators of the eponymous services in the United States, to merge their operations.  Each of these U.S. companies held minority interests in their Canadian counterparts.  Following Federal Communications Commission and Department of Justice Antitrust Division approval, the two U.S. companies merged in July 2008 to form Sirius XM Radio Inc., with the result that the new merged company held interests in each of the Canadian SSR services.

In their joint application for the merger, the Canadian SSR service providers noted that the 2008 merger of the U.S. services has created significant operational challenges for their Canadian counterparts, each of which relies for signal delivery on its corresponding U.S. service.  The applicants submitted that as the U.S. services progressed with their merger, including rationalizing programming channels, the maintenance of two distinct, viable, competing Canadian services was becoming more difficult. 

The applicants also argued that the merger was essential to the viability of their business, noting that since the commencement of operations of their respective business they have been losing money. The merger, it was argued, would spark the companies’ profitability and help them achieve a long-term positive cash flow.

Notwithstanding the effective monopolization of SSR in Canada, the CRTC ultimately determined that the transaction as a whole was highly beneficial to consumers and the Canadian broadcasting system, effectively defining the market in which SSR operates as a very broad one.  In this latter regard, the Commission noted that the potential public detriment stemming from the merger was mitigated by the availability of alternative sources of audio programming and content, including pre-recorded digital audio, radio, and audio streamed through the internet to various network devices.

It remains to be seen whether this type of market definition might be applied in future by the CRTC to other types of services that may effectively compete with alternative retail and Internet delivered content, such as competition between licensed television broadcasting services and distribution undertakings and unregulated Internet-based streaming and on-demand services.

To balance the dominant market position that will be gained by CSRHI as a result of the merger, the applicants made several commitments that they agreed to implement before the expiry of their current license term. These include: ensuring substantial amount of Aboriginal programming, implementing a rate freeze for new and existing customers, expanding consumer access by offering programming from both online services and via radio, and making available interoperable radios to facilitate access to SSR services. Apart from slight modifications, the Commission approved these proposed commitments.

Given that both Sirius Canada and XM Canada had been consistently operating in the red since their launch at the end of 2005, the companies were not required to pay “tangible benefits”, in the form of additional incremental spending toward Canadian programming, consistent with the Commission’s approach to unprofitable radio undertakings.

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