ARCHIVED -  Decision CRTC 95-570

Decision

Ottawa, 21 August 1995

Decision CRTC 95-570

Capital Broadcasting System Limited

Victoria, British Columbia - 940073000 - 940115900Victoria, British Columbia - 940074800Victoria, British Columbia - 940075500

Corporate reorganization and acquisitions - approved

At a Public Hearing in Winnipeg beginning on 5 June 1995, the Commission considered applications proposing a two-stage intra-corporate re-organization of Capital Broadcasting System Limited (Capital), whose broadcasting undertakings include CKDA and CFMS-FM Victoria.

Also considered were applications, contingent on receipt of Commission approval for the above corporate reorganization, proposing the subsequent transfer of effective control of the two broadcasting undertakings mentioned above to third parties. These transactions would culminate in the indirect control of CFMS-FM by Rogers Broadcasting Limited (RBL) through its ownership of shares in a new licensee company (1049264 Ontario Inc./Ontario Inc.), and the direct ownership of the assets of CKDA by O.K. Radio Group Ltd. (O.K. Radio).

The Commission notes that RBL is the licensee of CJVI Victoria. At one point in the unfolding of these transactions, RBL would also have indirect ownership of CKDA. The transfer of CKDA's assets onwards to O.K. Radio thus avoids any conflict with the Commission's policy against the common ownership of two broadcasting undertakings of the same class, operating in the same language, and serving the same market.

All of the above-noted applications are approved. Details of the transactions are set out below.

Corporate Reorganization of Capital:

Capital is controlled indirectly by Mrs. S.A. Armstrong of Victoria through her ownership of 75% of the voting shares of a holding company, which itself owns 100% of Capital's parent company, 329584 B.C. Ltd. (B.C. Ltd.). As proposed, in a series of transactions involving Mrs. Armstrong's non-voting preferred share holdings in Capital, the assets of the two Victoria radio stations will be transferred; first through an amalgamation of Capital with B.C. Ltd., then on to Ontario Inc. At this point in the reorganization, effective control of Ontario Inc. and of CKDA and CFMS-FM, would continue to rest with Mrs. Armstrong.

The Commission will issue licences to Ontario Inc., upon surrender of the current licences issued to Capital. The licences will be subject to the conditions of licence currently in effect as well as to the conditions specified in the Appendix to this decision, or in the licences to be issued. The licences will expire 31 August 1997, which is the expiry date of the current licences.

Transfer of control of Ontario Inc.:

At the next stage of this series of inter-related transactions, effective control of Ontario Inc. will pass to RBL, through the transfer to that company of all of the issued and outstanding shares of Ontario Inc. Ontario Inc. will then be amalgamated with RBL and therefore RBL will own the stations directly.

The purchase price for the shares is $3.8 million, subject to adjustments. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or the adequacy of the required financing.

Because the Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings, the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature. As a first test, the applicant must demonstrate that the proposed transfer will yield significant and unequivocal benefits to the community served by the broadcasting undertaking and to the Canadian broadcasting system as a whole, and that it is in the public interest.

In particular, the Commission must be satisfied that the benefits, both those that can be quantified in monetary terms and others that may not easily be measured in terms of dollar value, are commensurate with the size of the transaction and take into account the responsibilities to be assumed, the characteristics and viability of the broadcasting undertakings in question, and the scale of the programming, management, financial and technical resources available to the purchaser.

An intervention to the applications by Capital for the corporate reorganization and the transfer of control of CKDA & CFMS-FM to RBL was submitted by Mr. Charles Camroux. Mr. Camroux argued that the applications did not offer sufficient benefits to the Canadian broadcasting system, were not in the public interest, and that approval of the applications would move ownership of the stations to companies with no local ownership.

In response to these concerns, RBL argued that significant benefit commitments have been made, both locally-oriented and in respect of the Canadian broadcasting system as a whole. RBL added that the benefits were proposed, notwithstanding the fact that the two Victoria stations are unprofitable undertakings, and that the Commission's policy set out in Public Notice CRTC 1993-68 outlined that it would forego benefits at the time of transfer of control or acquisition involving such unprofitable stations. RBL further argued that approval of these applications would, in fact, ensure the continuing diversity of local radio. In response to concerns related to out-of-province ownership, RBL noted that the existing management of CJVI Victoria includes long-time Victoria residents, and that RBL has further demonstrated its commitment to Victoria through the establishment of an active local community advisory board.

The Commission notes the benefits proposed as a part of this application as discussed below, and is also satisfied with RBL's responses to the other concerns raised in the intervention.

In his intervention, Mr. Camroux also raised issues related to other matters that are currently before the courts. The Commission, having examined all of Mr. Camroux's arguments, considers that these matters are best determined by the courts, and notes that the Commission's approval of the applications is based on considerations arising from the Broadcasting Act and the public interest, and does not determine the rights of Mrs. Armstrong or Mr. Camroux or others, which are being adjudicated by the courts.

The applicant offered tangible benefits associated with its acquisition of CFMS-FM, including initiatives related to the development of Canadian talent, and having a total value of $213,500 to be spent over the seven years following this approval. The Commission expects the applicant to ensure that all of the proposed expenditures included in the benefits package are made in accordance with the schedule outlined in the application.

In light of RBL's prominent position in the Canadian broadcasting industry, both on a national and regional (B.C.) basis, the Commission has also assessed the impact that approval of this series of applications could have on concentration of ownership.

Following its evaluation, the Commission is satisfied that the acquisition of CFMS-FM in Victoria will not substantially enhance RBL's position, either nationally or in the B.C. region.

Furthermore, the Commission notes that there are several major broadcasters operating in British Columbia at the present time, a situation that will serve to ensure continued competition and diversity of voices in the region. As well, the acquisition of CFMS-FM will, to a large extent, assure the survival of this radio station in Victoria, thereby maintaining the diversity of voices which, in the Commission's opinion, offsets any concerns there might be with respect to concentration of ownership.

During discussions at the hearing, RBL assured the Commission that its Vancouver stations CKKS-FM and CKWX would not solicit advertising in Victoria, and that its Victoria undertakings CJVI and CFMS-FM would not solicit advertising in the Vancouver market. RBL also indicated its willingness to accept that commitment as a condition of licence. Accordingly, it is a condition of licence that CFMS-FM Victoria not solicit advertising in the Vancouver market.

In the area of Canadian talent development for CFMS-FM, the Commission reaffirms the particular importance it attaches to the development of Canadian talent and is satisfied with the annual budgets allocated and the initiatives proposed by RBL. It encourages the licensee, during the new licence term, to continue its efforts towards the support, development and on-air exposure of local and regional talent.

In Public Notice CRTC 1992-59 the Commission announced implementation of its employment equity policy. It advised licensees that, at the time of licence renewal or upon considering applications for authority to transfer ownership or control, it would review with applicants their practices and plans to ensure equitable employment. In keeping with the Commission's policy, it encourages RBL to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

Acquisition of CKDA by O.K. Radio:

As the final stage of these transactions, O.K. Radio will acquire the assets of CKDA Victoria from RBL.

The Commission will issue a licence to O.K. Radio, upon surrender of the licence issued to Ontario Inc. for the purposes of the corporate reorganization. The licence will be subject to the conditions listed in the Appendix to this decision, as well as to any other condition specified in the licence to be issued. The licence will expire 31 August 1997, which is the expiry date of the current licence.

The price of the transaction is $300,000. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or the adequacy of the required financing.

The Commission notes that the applicant did not propose any tangible benefits, since CKDA has been unprofitable over the three years preceding filing of this application. Accordingly, the Commission is satisfied that the application meets the criteria set out in Public Notice CRTC 1993-68 entitled "Application of the Benefits Test at the Time of Transfers of Ownership or Control of Broadcasting Undertakings". The Commission notes that an important benefit associated with this transaction is the maintenance of CKDA as a local radio service to Victoria. Accordingly, the Commission is of the view that approval of this application is in the public interest.

The Commission reaffirms the particular importance it attaches to the development of Canadian talent. As part of its application to acquire the assets of CKDA, O.K. Radio did not offer a commitment in direct expenditures to Canadian talent development. Owing to the financial difficulties of the station, the Commission is satisfied with the licensee's plans for indirect cost initiatives involving the promotion of local musical functions and Canadian artistic expression, and will expect the licensee to make direct cost contributions to the development of Canadian talent once the station achieves a positive operating income, the profit before interest and tax (PBIT) index being the primary profitability indicator.

In Public Notice CRTC 1992-59 the Commission announced implementation of its employment equity policy. It advised licensees that, at the time of licence renewal or upon considering applications for authority to transfer ownership or control, it would review with applicants their practices and plans to ensure equitable employment. In keeping with the Commission's policy, it encourages O.K. Radio to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

Allan J. Darling
Secretary General

APPENDIX / ANNEXE

Conditions of licence for CKDA

1. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) "Sex-Role Portrayal Code for Television and Radio Programming", as amended from time to time and approved by the Commission.

2. The licensee shall adhere to the provisions of the CAB's "Broadcast Code for Advertising to Children", as amended from time to time and approved by the Commission.

Conditions of licence for CFMS-FM

1. The licensee shall adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) "Sex-Role Portrayal Code for Television and Radio Programming", as amended from time to time and approved by the Commission.

2. The licensee shall adhere to the provisions of the CAB's "Broadcast Code for Advertising to Children", as amended from time to time and approved by the Commission.

3. The licensee shall not solicit advertising in the Vancouver market.