The Update on the 24 Channels offered by Sirius XM

Wednesday, October 20, 2010

SUMMARY OF MEMORANDUM OPINION AND ORDER

Adopted: October 18, 2010 Released October 19, 2010

By the Commission: Chairman Genachowski and Commissioners Copps and Clyburn issuing separate statements

The following is a summary of the Memorandum Opinion and Order released yesterday by the FCC regarding the 12 commercial channels made available when Sirius and XM Satellite Radio Merged in July of 2008.

Yesterday the FCC released a MEMORANDUM OPINION AND ORDER (Order) regarding the Sirius XM Channels. The Commission adopts the implementations details for the voluntary commitment made by Sirius Satellite Radio Inc., (Sirius) and XM Satellite Radio Holdings Inc, (XM) to lease a portion of the transfer of control licenses and authorizations held by Sirius and XM. This action represents an important step that will promote access for new entrants and more diverse programming in the satellite digital audio radio service (SDARS).

First we conclude that based on the record in this proceeding, we will defined the term “Qualified Entities” to ensure that lessees are independent from Sirius XM and to make the criteria fro selection of lessees race-neutral. This changes avoids constitutional challenges and litigation that could delay and detract from progress in satellite radio.

We also decided to involve Sirius XM in the lessee selection process, with the for making timely selections of entities that are both qualified for the set-aside, with responsibility for making timely selections of entities that are both qualified for set-aside and technically compatible with the SDARS platform, but without editorial control over lessees’ programming. We conclude the public interest and consistent with other third-party leasing precedents for Sirius XM to select the lessees and reverse our previous decision to the contrary. We require Sirius XM reasonably to exercise its good-faith judgment to select as lessees those Qualified Entities that it believes will advance our diversity goals. We expect that Sirius XM will use this selection process to create opportunities for a variety of programmers, including new entrants.

We require Sirius XM to enter into leasing agreements with its selected Qualified Entities on the implementation deadline of April 17, 2011. We also require Sirius XM to file a report with the Commission within 30th days after the implementation deadline to identify the lessee with whom it has entered into leasing agreements, and to inform the Commission when it plans to air new programming pursuant to its new leases. Additionally, we permit aggrieved parties to file complaints with the Commission consistent with the parameters set forth below.

A. Qualified Entity Definition

To minimize the possibility of litigation regarding the constitutionality of the definition of a Qualified Entity, which could delay implementation of this important public interest benefit, we have decided to defined “Qualified Entity” in this Order in a manner that is race-neutral. In particular, we define Qualified Entity to require only that a lessee:

1. Not be directly or indirectly own in whole or in part, by Sirius XM or any affiliate of Sirius XM
2. Not share any common officers, director, or employees with Sirius XM or any affiliate of Sirius XM, and
3. Not have any existing relationships with Sirius XM for the supply of programming during the two year prior to the adoption date of this Order

In additional we believe that additional guidance will help focus Sirius XM’s selection of lessees in a manner that will promote source viewpoint, and programming diversity.

A. Selection Processes and Criteria

We conclude that allowing Sirius XM to select the lessees, subject to the limitation and criteria described herein, would best serve the public interest because it is an efficient watt i select qualified lessees, ensure that the lessees selected will be technically compatible with the Sirius XM service and will promote an increase in source, viewpoint, and programming diversity on the SDARS platform as soon as possible. We find that alternative selection proposals proposed in response to the Public Notice could cause unnecessary delay and uncertainty in implementing the voluntary commitment, which could thwart the Commission’s goals of fostering diversity on the SDADS platform

Sirius XM Involvement

Although the Sirius-XM Merger Order indicated that Sirius XM would not be involved in the selection of the Qualified Entities, we believe this decision could hinder the implementation of this Leasing Condition for the reason explained below…Sirius XM has expressed its willingness to participate in making the selections.

We conclude that Sirius XM’s involvement will facilitate the resolution of technical compatibility issues that might arise during the selection process, expedite the introduction of programming that adds to the diversity of offerings to consumers and be more efficient than delegating such decision-making to a third party as some have suggested. We expect Sirius XM to act in good faith to follow the guideline we provide to ensure that the selection of lesees promotes diversity and set forth requirements below to ensure that the selection process fair and transparent. If in the future, it appears that Sirius XM seeks to use the selections and renewal process as a means to improperly influence the programming provided in the reserved channels we may revisit our decision to permit Sirius XM to select lessees and take appropriate action.

Our decision to allow Sirius XM to select among Qualified Entities is consistent with decisions regarding the selection of programmers for the Direct Broadcast Satellite (DBS) noncommercial educational or informational programming (“NCE”) set-side and the NCE set-side condition adopted in this proceeding.

Alternative Selection Proposals.

We instruct Sirius XM to elevate the pool of Qualified Entities and select as lessee those Qualified Entities that it believes, in good faith, will promote source, viewpoint, and programming diversity…As a result we recognize that Sirius XM will have to balance various consideration including, among other things, weather lessees:

1. Would provide a new source of programming and are new entrants in the mass media industry
2. Would offer a diverse viewpoint or diverse entertainment content
3. Would provide original content r programming of a type not otherwise available to Sirius XM subscribers,
4. Would improve service to historically underserved audiences, and
5. Would, in Sirius XM reasonable judgment, be able to meet its obligations and be able to deliver their proposed mix or type of programming for the duration of the lease term

We believe that these selection criteria, including the requirement that Sirius XM consider whether potential lessees would provide new and diverse programming, would be new entrants, or would be serve historically underserved audiences, promote our object that the leased channels be made available to programming sources that otherwise would not have an opportunity to provide programming to SDAR subscribers, including small entities and groups that are not traditional broadcasters.

Transparent Selection Process.

Although we do not adopt AIR’s specific proposals, we require Sirius XM to file with the Commission within 30 days of release of this Order a notification that identifies an public Website or similarly accessible source where the following information relating to the application process will be available to the public:

1. The definition of Qualified Entity as provided herein
2. The deadline and procedures for submitting applications
3. Any specific information that it will required applications to submit and
4. Any specific application criteria that Sirius XM intends to apply in its review of potential lessees.

We require Sirius XM to make the described information available at the identified location within 35 days of the release of the Order. Sirius CM may implement the application and selection process in any manner it chooses as long as it follows the requirements set forth in the Order…criteria must be open to all entities that meet the definition of a Qualified Entity and cannot place limits on who can apply. Constance with the Commission’s goal of fostering diversity on the SDARS platform through this condition however Sirius XM may identify programming genres not currently offered to subscribers as additional guidance to potential lessees.

As we did in implementing the SDARS NCE set-side condition, we also require Sirius XM to maintain an electronic public file that includes information with respect the process it uses to select the lessees. The public fill will promote transparency in the selection process and enable the public and the Commission to monitor Sirius XM’s implementation of this Leasing Condition…Specifically Sirius XM shall keep and make available for public inspections at the identified location, a complete record of the following:

1. Quarterly measurement of channel capacity and yearly calculations on which it bases its four percent reservation as well as its response to any capacity changes
2. A record of entities to whom leased capacity is being provided, the amount capacity being provided to each entity, and the terms under which it is being provided and
3. A record of entities that have requested capacity, disposition of those requests, and reasons for the disposition. All records kept in this file shall be retained for a period of two years

In order to ensure that any lessee selected by Sirius XM satisfies the criteria set forth in the definition of a Qualified Entity above, we require Sirius XM to notify the Media Bureau of its selections prior to signing an agreement for the leased channel or channels. This process will provide the Commission with an opportunity to review each proposed lessee for compliance with the definition of a Qualified Entity before Sirius XM engages in the negotiations for a long-term lease or agreement, and it does not impose a significant burden or delay in the implementation of the Leasing Condition…The Media Bureau will have 45 days to respond to the selection of proposed lessees submitted by Sirius XM for our review. If the Bureau does not respond within 45 days, Sirius XM’s proposed lessee will be deemed to be in compliance with the definition of a Qualified Entity in accordance with this Order…. We do not intend to second-guess Sirius XM’s good faith selection of one lessee over another applicant where we agree that the selected lessee meets the definition of a Qualified Entity and Sirius XM followed the transparent selection process and capacity allocation requirements set forth in this Order.

No Editorial Control.

In the Sirius XM Merger Order, the Commission concluded that Sirius XM would “have no editorial control over these channels.” Consistent with our decision regarding the implementation of the DBS NCE set-aside and the SDARS NCE set-aside condition, we find that allowing Sirius XM to select third-party lessees does not constitute editorial control. In adopting the DBS rules, the Commission found that permitting the DBS operator to select among qualified programmers did not constitute editorial control. As in the DBS context, we conclude that Sirius XM may permissibly consider a variety of factors in deciding which programmers to select, such as whether an applicant is a new entrant, would offer diverse or original content, and/or is commercially viable. As with the DBS set-aside, however, Sirius XM may not require the programmers it selects to include particular programs or material on their channels as a condition of carriage, or alter, censor, or otherwise exercise any control over the programming.68 We also conclude that a narrow interpretation of the no editorial control prohibition to allow Sirius XM to select third-party lessees will encourage the production of high-quality programming while remaining sensitive to the First Amendment rights of both Sirius XM and the Qualified Entities providing content

B. Capacity Allocation

We believe that it is appropriate to give Sirius XM direction on capacity allocation to promote our diversity objective. Specifically, Sirius XM has discretion to allocate capacity among the lessees, provided that:

1. No more than one-half of the total channels set aside for this condition are allotted to full-power broadcast licensees, including entities and individuals with an attributable interest in any such licensee; and
2. No more than four of the channels set aside for this condition (i.e., two channels simulcast on both Sirius and XM, two channels on Sirius and two channels on XM (not simulcast), or four channels on one platform) are allotted to any single lessee, including any entity with an attributable interest in the lessee.

On the other hand, we find it appropriate to limit the capacity allocated to existing full power broadcast licensees meeting the definition of a Qualified Entity to ensure that existing full-power broadcast licensees do not use all of the leased capacity… On the other hand, we find it appropriate to limit the capacity allocated to existing full power broadcast licensees meeting the definition of a Qualified Entity to ensure that existing full-power broadcast licensees do not use all of the leased capacity… Sirius XM may allocate to full-power broadcast licensees no more than one half of the total capacity required to be set aside under the condition. We believe that this approach will afford a sufficient opportunity for full-power broadcast licensees and other entities to become lessees if Sirius XM believes that selecting such entities would further the Commission’s diversity goals. As we stated above, we expect that broadcast and non-broadcast programmers can contribute to source, viewpoint and program diversity, although not necessarily in equal measure. It is for Sirius XM to weigh, consider and determine the financial viability of the potential lessees, other technical qualifications, as well as the combination of programming sources and content that will contribute substantially to its current programming line-up by addressing unserved and underserved needs. However, we do not intend for this guideline to function as a set-aside for full power broadcast licensees, and Sirius XM need not allocate any capacity to full-power broadcast licensees if it determines that accomplishing the diversity goals of the Leasing Condition can best be done by leasing the capacity to entities that are not full-power broadcast licensees… we conclude that it is appropriate to limit the number of channels allotted per lessee to no more than four of the total set-aside channels, as set forth below.

We believe that limiting each lessee to no more than four channels will further two important goals.

1. The limitation will ensure a multiplicity of Qualified Entities providing diverse programming and that SDARS leased channel capacity will not be dominated by a single programmer
2. The limitation is sufficiently generous that it will permit a lessee to acquire enough channels to accommodate business plans dependent on programming more than a single channel and allow a single lessee to provide a variety of high-quality, diverse programming that is not otherwise available to SDARS subscribers and may attract new subscribers and enhance the commercial viability of SDARS. Sirius XM may also elect to lease a single channel to more than one lessee, thereby increasing the number of distinct voices, as some commenters suggest… We do not require Sirius XM to sub-divide all or any of the set-aside channels in this manner because doing so may constrict the ability of some programmers to provide financially viable content around-the-clock. However, Sirius XM should have the flexibility necessary to offer different leasing arrangements to various entities based on the lessees’ programming proposals

The guidelines in this Order are designed to ensure that all capacity set aside for this Leasing Condition will be utilized by Qualified Entities, in a manner that will achieve the objectives of the Leasing Condition. It may occur, however, that at some point in time, the supply of leased channels is greater than the demand for them. In that situation, Sirius XM may allot more than four channels to a single entity, provided that the lease term for the excess channel(s) may not exceed three years. Our approach here is consistent with the Commission’s DBS NCE set-aside rules that allow for one channel per programmer unless the supply of channels exceeds demand.

C. Capacity Calculation

In the Sirius-XM Merger Order, the Commission noted that the number of reserved channels for the noncommercial educational or informational set-aside must be based on total system capacity and not on the number of channels in any particular service package… We note that Sirius XM voluntarily committed “that in no event will the combined company reserve fewer than six channels on the Sirius platform and six channels on the XM platform” for the leased capacity set-aside. We reaffirm this requirement that the leased capacity set-aside shall be at a minimum six channels on the Sirius platform and six channels on the XM platform, and may in the future comprise additional channels as Sirius XM implements advanced signal compression techniques

D. Implementation Details

Consistent with this approach, we require that the leased channels be part of every compatible package or tier provided to Sirius XM subscribers, to the extent technically feasible, including Internet subscribers as AIR suggests, and that Sirius XM not assess an additional charge for the receipt of these channels.

As in the DBS set-aside and SDARS NCE set-aside condition, we also require that Sirius XM offer to lessees discrete channels that remain at a specified channel location on a 24/7 basis, i.e., the lessee must be assigned a specific channel position that cannot be shifted to a different location on different days or times.

Lease Term

We conclude that leases should have terms that are no less than five years. We find… that a five-year lease term would better promote diversity and competition by encouraging the continued production of high-quality programming consistent with the goals of the Leasing Condition.

Subleasing and Assignments

We…prohibit such arrangements unless Sirius XM expressly agrees to the specific sublease or assignment and unless the sublessee or assignee is another Qualified Entity.120 Subleasing or assignments (including the brokering of capacity) of the leased channels would put the capacity allocation decision in the hands of individual lessees and could undermine our goals of promoting new entry and limiting the capacity allocated to any single entity, including full-power broadcast licensees.

Indemnification

We agree and conclude that Sirius XM should be permitted to require lessees to indemnify Sirius XM against liability arising from their conduct as lessees. We believe that private negotiation is the best means to implement the indemnification requirement in this context and therefore decline to adopt specific conditions or limits regarding the type of contractual indemnification agreement or the amount of coverage or the type of insurance policy that Sirius XM may require. Consistent with our approach in cable-leased access, however, we will require that insurance and indemnification requirements be reasonable in relation to the equitable objective of limiting the liability of Sirius XM for conduct of lessees over which it will have little or no control.

Advertising

We find it reasonable for lessees to include advertising on their channels as a means of support for their programming. As a result, we conclude that it would be inappropriate for Sirius XM to prevent lessees from airing a reasonable amount of advertising on the leased channels

Other Terms and Conditions

We believe that it serves the public interest to defer additional details of the lease terms to negotiations between Sirius XM and its lessee… Thus, we do not dictate a specific timeline for the airing of programming as some commenters suggest. We expect that Sirius XM may require that leasing agreements contain customary terms, fees, and conditions consistent with those included in other programming contracts and agreements. Finally, consistent with the Applicants’ voluntary commitment as adopted in the Sirius-XM Merger Order, we reiterate that the Qualified Entities will not be required to make any lease payments for their channel allotments.

E. Enforcement

To ensure that Sirius XM complies with the Leasing Condition and the implementation details provided in this Order, we adopt enforcement procedures that we conclude are appropriate for SDARS and specifically for compliance with this condition… In particular, AIR proposes that alternative dispute resolution procedures be used to resolve conflicts that arise in the implementation of the Leasing Condition.

We agree that it is reasonable to include some enforcement mechanisms for aggrieved entities… As a result, entities that believe Sirius XM has failed to implement the Leasing Condition in whole or in part, or has failed to follow our guidelines, may file a complaint with the Commission. As we do in the case of the DBS NCE set-aside, we will evaluate any complaints regarding the Leasing Condition on a case-by-case basis. As noted above, however, the Commission will not entertain complaints that second-guess Sirius XM’s good faith selection of one Qualified Entity over another applicant where the selected lessee meets and continues to meet the definition of a Qualified Entity, pursuant to Sirius XM’s certification and the Media Bureau’s review thereof, and Sirius XM followed the transparent selection requirements and capacity allocation directions set forth in this Order.

Sirius XM is required to comply with the transparent selection process as described above in Section II, including the requirement to file the name of a proposed lessee with the Media Bureau, to demonstrate compliance with the definition of a Qualified Entity prior to signing any leasing agreement for the set aside channels… To balance the need to permit Sirius XM sufficient time to establish and implement its selection process with the public interest in expediting the availability of new programming, we will require that Sirius XM enter into and finalize leases by the implementation deadline of April 17, 2011. We further require that both Sirius XM and the lessees negotiate their leases in good faith to ensure that the leased channels are made available to SDARS subscribers as soon as possible. Additionally, we require Sirius XM to file a report with the Commission within 30 days after the implementation deadline to identify the lessees with whom it has entered into leasing agreements, to identify which lessees are new entrants, to state whether the lessees propose to address the interests of underserved audiences, and to inform the Commission of its timetable for airing new programming pursuant to its leases. The report will provide the Commission with an opportunity to review Sirius XM’s compliance with the Leasing Condition.


Summary prepared by:
Malik Shakur, CEO
iClick2Media
An Independent Creative Artists Company