On August 14, 2012, the Canadian Radio-television and Telecommunications Commission (CRTC) released Broadcasting Decision 2012-442, in which it rejected the argument advanced by Stingray Digital Group that the CBC, in offering its CBC Music online service (available at music.cbc.ca), enjoyed an undue preference by comparison with competing private service providers.

Stingray's primary arguments (paraphrased) were as follows (helpfully, the CRTC provides access to the zipped application materials):

  • the CBC enjoyed two primary preferences: (1) government funding not available to private enterprises and (2) preferential copyright licence fees from music rights collective societies as compared to those offered to private broadcasters (such preferential rates being based on "the non-commercial and public interest character of the CBC’s radio service", a character which did not accurately "reflect the nature of the CBC’s online music service")
  • Stingray's own online music service and pay audio service would be harmed by the loss of customers to the CBC's free online music service, which loss of customers would "arise directly from the unfair competitive advantage that the CBC enjoys"
  • the provision of the CBC Music service was insufficiently connected to the CBC’s mandate and specific programming objectives set out in the Broadcasting Act (the Act)

In response, the CBC argued (again, paraphrasing) that:

  • Stingray's arguments regarding CBC's reliance on government funding, if accepted, would put the CBC in an untenable position: the CBC would not be able to offer any service that competed in any way with private sector participants in the broadcasting industry (which would mean that virtually the entirety of CBC's radio and TV offerings would not be permitted)
  • while every service that offered by the CBC relies to some extent on government funding, the funding model for CBC Music contemplated a declining reliance on government funding as revenues from advertising on the site increased
  • multiple other non-CBC affiliated services offered free online music to listeners (e.g., Iceberg Radio, Slacker, Jango and Wolfgang’s Vault)
  • the CBC Music service was "unique in its promotion of Canadian content"
  • the private license agreements which CBC enters into contain commercially competitive terms
  • the license fees for the use of music which the CBC pays to SOCAN and other copyright collectives have been approved and certified by the Copyright Board as “fair and equitable” tariff rates, and that the CBC’s mandate has never been used as the basis for approving preferential royalty payments. The CBC submitted that the Copyright Board established a tariff formula for the CBC and that there was nothing preferential in nature about setting this distinct formula
  • if any preference existed, it was not "undue": Stingray competes with "numerous free-to-user online music services that rely on sources of funding that may not be available to SDG", no evidence had been tendered demonstrating that Stingray's subscribers would terminate their subscription as a result of CBC Music's presence in the market and, in any event, by providing an additional choice to Canadians, CBC Music "enhances the marketplace rather than having an anti-competitive effect"

The CRTC articulated the issue it was facing as follows: "Is the CBC giving itself an undue preference and/or subjecting SDG to an undue disadvantage contrary to the Commission’s New Media Exemption Order?"  Assessing whether a preference or disadvantage is undue requires the CRTC to "examine[] whether the preference or disadvantage had, or could have, a significant adverse effect on the applicant or any other person and the effect that the preference or disadvantage had, or will have, on the achievement of the Canadian broadcasting policy objectives set out in the Act."

The CRTC concluded that the CBC had not "given anyone, including itself, a preference" and it had not "subjected anyone to a disadvantage".  That conclusion was based on the findings that (a) the CBC had no control over the amount of government funding it received (the amount being set by Parliament) and, in any event, "since its inception, [the CBC has] used government funding to operate its broadcasting undertakings in conjunction with, and often in competition with, commercial broadcasting undertakings", and (b) the license fees paid by the CBC to SOCAN et al. are " set by the Copyright Board following a public hearing".

Because the undue preference provision set out in the New Media Exemption Order (which provides "The undertaking does not give an undue preference to any person, including itself, or subject any person to an undue disadvantage") requires that the purported offender take some positive action to give itself a preference or inflict a disadvantage on another party, the CRTC was of the view that the CBC had not fallen afoul of the provision, since the CBC "did not engage in any action to give itself a preference".  (As the CRTC noted, the action in question could consist of "negotiating or agreeing to preferential terms in a commercial negotiation", but it determined that no evidence had been tendered to that effect.)