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CRTC Exhibit 1 - Applications for the renewal of services with mandatory distribution on the basic service pursuant to section 9(1)(h) of the Broadcasting Act - Broadcasting Notice of Consultation CRTC 2017-365

The Commission requires that Pelmorex Weather Networks (Television) Inc. (Pelmorex) respond to the following undertakings by 9 May 2018.

Question 1

When reviewing the annual returns and the financial statements filed with the annual returns for The Weather Network/MétéoMédia (TWN/MM) discretionary service it appears that a large percentage of expenses were paid to “Pelmorex Weather Networks Inc.” (the Parent). Specifically, # #, # # and # # of total expenses claimed for the discretionary service for the 2016-2017, 2015-2016 and 2014-2015 broadcast years respectively were expenses that were paid to the Parent.

  1. Explain and justify, with all necessary supporting documentation, the large percentage of total expenses for the discretionary services which were paid to the Parent.
  2. Provide a detailed expense listing, broken down by expense category and with a description of each category, of all amounts paid to the Parent for the 2014-2015, 2015-2016 and 2016-2017 broadcast years. Any material amounts should be identified and broken down separately.
  3. If certain figures provided in response to sub-question (b) above are different from those provided in the annual returns and financial statements, explain and justify those differences.
  4. Provide audited financial statements* for the Parent to which the licensee of TWN/MM service paid expenses during the three most recent fiscal years.
  5. Confirm that the financial projections relating to the licensed undertaking submitted on the record of this proceeding conform to the explanations outlined in sub-question (a) above.

*Note - If audited financial statements are not available, non-audited financial statements including the attestation outlined in Circular 404, 23 August 1994 can be filed in lieu.

https://crtc.gc.ca/eng/archive/1994/c94-404.htm

Question 2

The amount of administration and general expenses claimed by TWN/MM when compared to other Category A services is significantly high. Specifically, the amount of administration and general expenses related to remuneration and management fees appears to be extremely high. # # of administration and general expenses for the 2016-2017 broadcast year are related to remuneration and management fees, while this figure is # # and # # in the 2015-2016 and 2014-2015 broadcast years respectively.

  1. Provide a detailed expense listing, broken down by expense category with a description of each category, of the amounts paid under administration and general for remuneration in the 2016-2017, 2015-2016 and 2014-2015 broadcast years.
    1. Justify, with all necessary supporting documentation, the dollar amounts related to management fees and remuneration claimed by TWN/MM as part of the administration and general expenses.
    2. Provide an explanation for the services provided by the parent company for the annual # # management fee including any documentation detailing the payment and services received including contracts and legal agreements detailing the payments and services to be provided for such.
  2. Provide an explanation as to the roles and responsibilities of each employee detailed in the expense listing provided in response to sub-question (a) above. In addition, provide the allocation of the salary of each employee between the discretionary service and the digital media undertakings along with a rationale for the allocation. Explain how the salaries of the licensee were allocated as between the licensee and other undertakings or corporate entities for the purposes of the financial information filed as part of this proceeding and the basis for this allocation.

Question 3

TWN/MM reported steep declines in advertising revenue over the current licence term with an average decline of national advertising revenue of 13.7% per year from 2012 to 2016.  In comparison, national advertising revenues for all category A specialty services declined by only 6.7% per year over this same time period. This substantial decrease in reported national advertising revenues raises questions regarding the allocation of revenues and the related costs between the licensed undertaking and Pelmorex’s digital media undertakings and the effect that the allocations may have had on the reported PBIT for the licensed undertaking.

  1. For all activities as well as related assets/liabilities reflected in the applicant’s financial information filed in this proceeding that benefit both the licensed undertaking and Pelmorex’s digital media undertakings:
    1. Describe each such activity and asset/liability.
    2. For each activity and asset/liability provided in response to (i) above, confirm whether the financial information provided the Commission in the context of this proceeding allocates related costs and revenues as between these undertakings.
    3. Provide a detailed description of the accounting methodology used to allocate the relevant costs and revenues and provide all necessary supporting documentation.
    4. Provide the actual figures from the 2016-2017, 2015-2016 and the 2014-2015 broadcast years which demonstrate the implementation of the above accounting methodology.  The breakdown provided should include but not be limited to the actual figures reported and broken down for programming salaries, sales and promotion salaries and other costs, technical costs, administration and general expenses and overhead.  Ensure to include an explanation as to any variances from the accounting methodology described in response to sub-question (iii) above.  These figures must include total revenues and expenses reported for both the discretionary programming and digital media undertakings
    5. If certain figures provided in response to sub-question (iv) above are different from those provided in the annual returns, explain and justify these differences.
    6. If the costs for any activity and asset/liability provided in response to sub-question (i) above are allocated differently than the associated revenues, identify the relevant activity and explain the basis for such allocation.
  2. Describe the extent to which the licensee’s programming and activities associated with the acquisition and broadcasting of meteorological data overlap with content distributed through Pelmorex’s digital media undertakings and the manner in which the applicant has allocated related costs and revenues as between these undertakings for the purposes of the financial information submitted in the context of the current proceeding.  Provide all documentation necessary to support the response provided to this question.
  3. Describe how the applicant has allocated to the licensed undertaking fixed costs shared as between different broadcasting undertakings and other corporate entities (e.g. Pelmorex Corp. and Pelmorex Weather Networks Inc.), such as salaries of persons whose employment activities are not restricted to the licensed undertaking and rent. Provide all documentation necessary to support the response provided to this question.
  4. Confirm that the digital media operation projections submitted on the record of this proceeding conform to the accounting methodologies outlined in sub-question (a) above.

Question 4

For the scenario that TWN/MM is renewed with mandatory distribution at a wholesale rate of $0.23, Pelmorex’s financial projections show the service accumulating approximately $22M in Profits before Interest and Taxes (PBIT) by the end of year 5 of the prospective term. 

  1. How did Pelmorex determine that its projected level of PBIT for TWN/MM is appropriate, given the nature of 9(1)(h) services, and the lower risk associated with operating under a 9(1)(h) order?
  2. How does Pelmorex justify the significant difference between TWN/MM’s PBIT and those projected by the other 9(1)(h) services in this proceeding?
  3. Describe the risks associated with TWN/MM recording lower-than-projected profits in the prospective term.
  4. What consequences would a potential rate reduction have on TWN/MM’s operations in the prospective term? Provide a detailed list of changes to TWN/MM’s proposed COLs and other commitments (including those related to the operation and improvement of the NAAD system and those related to CPE), along with full supporting rationale and evidence, for the following scenarios (with cost adjustments included):
    1. For the scenario that TWN/MM is renewed with mandatory distribution at a wholesale rate of $0.22 (Submit both 5-year and 7-year projections).
    2. For the scenario that TWN/MM is renewed with mandatory distribution at a wholesale rate of $0.20 (Submit both 5-year and 7-year projections).
    3. For the scenario that TWN/MM is renewed with mandatory distribution at a wholesale rate of $0.18 (Submit both 5-year and 7-year projections).
  5. Please resubmit TWN/MM’s financial projections to reflect each scenario described in question (d).
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