ARCHIVED -  Decision CRTC 86-367

Decision

Ottawa, 18 April 1986

Decision CRTC 86-367

APPLICATIONS FOR AUTHORITY TO TRANSFER EFFECTIVE CONTROL OF TÉLÉ-MÉTROPOLE INC. TO POWER CORPORATION OF CANADA

Montreal (Quebec) - 853209500 - 860059500

Table of Contents

PARTIES TO THE TRANSACTION

THE TRANSACTION

OWNERSHIP POLICY CONSIDERATIONS

PROPOSED BENEFITS

a) Business Expertise of Power Corporation

b) Expansion of Export Markets

c) Reinvestment of Profits

d) Canadian Content

e) Continuation of Present Level of Performance

THE DECISION

THE INTERVENERS

At a Public Hearing held in Montreal on 17 and 18 March 1986, the Commission considered applications by élé-Métropole Inc.(Télé-Métropole) for authority to transfer the effective control of the licensee company through the transfer of 1,434,318 Class A voting shares and 1,746,958 Class B shares from the Estate of J.A. DeSève, the J.A. DeSève Foundation and Ciné-Monde Inc. to ower Corporation of Canada Power Corporation).

The Commission, for the reasons outlined below, denies the applications for the transfer of effective control of Télé-Métropole to Power Corporation.

PARTIES TO THE TRANSACTION

Télé-Métropoleis involved mainly in television broadcasting and related activities and is among the ten largest broadcasting companies in Canada.

Télé-Métropole is the licensee of CFTM-TV Montreal, the largest and most important private French-language television station in Quebec and one of the leading Canadian television stations in terms of local production. It also owns 100% of C.J.P.M.-T.V. Inc., which is the licensee of CJPM-TV Chicoutimi and CJPM-TV-1 Chambord, and is a minority shareholder (33.5%) of Pathonic Communications Inc., the licensee of CHEM-TV Trois-Rivières and CHLT-TV Sherbrooke. The proposed transaction covers all of these broadcasting interests held by Télé-Métropole.

Other companies owned exclusively by Télé-Métropole and active in broadcast-related fields include: Paul L'Anglais Inc., which is responsible for national advertising sales for TVA affiliates; J.P.L. Productions Inc. which operates a large audio-visual production centre; and Sonolab Inc. which is active notably in the area of post-production and dubbing.

Since 1981, Télé-Métropole has also been involved in a joint gas and oil exploration program in Western Canada, in association with Westburne Petroleum & Minerals Ltd.

Pathonic Communications Inc. controls Télé-Capitale Inc. which is the licensee of CFCM-TV Quebec, CFER-TV Rimouski and its Sept-Iles rebroadcasting transmitter. It also holds a minority interest (34%) in Télé-Inter Rives Ltée, licensee of CIMT-TV Rivière-du-Loup.

Télé-Métropole thus controls 100% of two (2) of the ten (10) TVA affiliates, including CFTM-TV, the network's flagship station, and has corporate ties to five (5) of the network's other largest stations.

The important role of Télé-Métropole provincially is reflected not only by its corporate structure, but by the province-wide exposure and reach of the programming produced by CFTM-TV Montreal. In addition to producing most of the programming distributed by the TVA network, and its ownership of 16.6% of the network's shares, the productions of CFTM-TV are available to nine other TVA affiliates. On average, this production represents more than 60% of all programming broadcast by the other TVA affiliates throughout Quebec. CFTM-TV programming is available to almost 100% of Quebec's French-speaking listeners, and constitutes an essential component of the province's second French-language television service.

Cable licensees throughout Canada also have access to CFTM-TV programming via the TCTV service which is distributed by the Canadian Communications Satellite Inc. (CANCOM) network.

Télé-Métropole's financial position is excellent. Between 1981 and 1985 net earnings ranged from $13.7 million to $16.1 million. In 1985, the company's net earnings amounted to $15.4 million on total revenues of $97.8 million.

The vendors under the proposed transaction are the Estate of J.A. DeSève, the J.A. DeSève Foundation and Ciné-Monde Inc. As a consequence of Decision CRTC 69-395 dated 11 December 1969, Télé-Métropole has been under the control of the five executors of the Estate of J.A. DeSève. For its part, the J.A. DeSève Foundation is a charitable foundation established in 1966; Ciné-Monde Inc. is a company currently involved in the provision of management services.

Power Corporation, the purchaser, is a large, highly diversified holding and management company. It is controlled by Paul Desmarais and his family through a number of affiliated companies. In addition to its activities in the field of financial services (Power Financial Corporation and its affiliates, including The Investors Group, Great-West Life Assurance Company and Montreal Trustco Inc.) and in the pulp and paper industry (Consolidated-Bathurst Inc.), Power Corporation holds large interests in the newspaper industry.

Power Corporation owns 100% of Gesca Ltée which, in turn, controls La Presse Ltée, publisher of La Presse, one of the Montreal's major dailies which is distributed broadly throughout Quebec. Power Corporation also owns 100% of Les Publications J.T.C. Inc., which publishes three other dailies in the province (Le Nouvelliste in Trois-Rivières, La Tribune in Sherbrooke and La Voix de l'Est in Granby). Through its ownership of Les Journaux Trans-Canada (1982) Inc., Power Corporation also holds indirect control of radio station CHEF Granby.

Moreover, Paul Desmarais personally holds interests in Prades Inc. and Katenac Holdings Limited. Prades Inc. controls Télévision de la Baie des Chaleurs Inc., licensee of TVA-affiliated station CHAU-TV Carleton and its rebroadcasting transmitters. Prades Inc. also controls the licensee companies operating CKSM Shawinigan and CFLP Rimouski. For its part, Katenac Holdings Limited controls licensee companies operating television and radio stations in Kingston, Peterborough, Barrie and Collingwood, Ontario.

Power Corporation also holds interests in Pargesa Holding SA, a European multinational active primarily in the field of financial services, and which holds indirect control of Compagnie Luxembourgeoise de Télé-diffusion. This company operates, among others, a French-language television station (RTL) which broadcasts principally to French and Belgian listeners.

Power Corporation has a very solid financial base, with assets of approximately $1 billion. Unaudited figures reflect net earnings of $152 million in 1985.

THE TRANSACTION

Power Corporation has agreed to purchase 1,434,318 Class A voting shares, representing 99.6% of the voting shares of Télé-Métropole, as well as 1,746,958 Class B non-voting shares, at a price of $30.75 each, for a total of $97.8 million, together with the sum of $7.7 million, upon CRTC approval of the transaction, as repayment by Power Corporation of debentures held by the Estate of J.A. DeSève and the J.A. DeSève Foundation; this would bring the total value of the transaction to $105.5 million. Under this proposal, Power Corporation would acquire 41% of the capital stock of Télé-Métropole.

The proposed transaction does not involve any debt financing; the sum of $97.8 million has already been placed in trust by Power Corporation.

The factors noted above, including the financial scale of the transaction, the importance and prominence of the principal parties, the impact and implications of the transaction on broadcasting in general and on French-language television in Quebec in particular, all point to the major significance of the transaction, particularly in the Quebec context.

OWNERSHIP POLICY CONSIDERATIONS

The ownership of broadcasting undertakings is an essential element of the Commission's regulatory and supervisory mandate under the Broadcasting Act with a view to achieving the fundamental objectives of the Act for a strong Canadian broadcasting system.

Beyond the stipulation of Canadian ownership, a primary concern that must characterize the structure of the Canadian broadcasting system is that it be sufficiently diverse to achieve the objectives set out in subsection 3(d) of the Act which requires that:

the programming provided by the Canadian broadcasting system should be varied and comprehensive and should provide reasonable, balanced opportunity for the expression of differing views on matters of public concern and the programming provided by each broadcaster should be of high standard, using predominantly Canadian creative and other resources.

As the Commission does not solicit applications for transfers of ownership or control of broadcasting undertakings, it considers it to be the sole responsibility of the applicant requesting such transfer to demonstrate to the Commission that the application as filed is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature. In this regard, the Commission has developed general policy guidelines for disposing of applications for changes of ownership or effective control of all classes of broadcasting undertakings.

The first test any applicant must meet is that the proposed transfer of ownership or control yield significant and unequivocal benefits to the communities served by the broadcasting undertakings, to the Canadian broadcasting system as a whole, and that it is in the public interest.

These guidelines have not been set out in detail in the regulations specifically so that the Commission can maintain sufficient flexibility to assess each case on its own merits, on the basis of the applicant's overall proposals and commitments, particularly in terms of programming and service to the communities involved, and taking into account regional, social, cultural, economic and financial considerations.

Given the extent to which ownership transactions differ in terms of their magnitude and complexity, the Commission, in considering the application as filed, must be satisfied that the benefits, both those that can be quantified in monetary terms and the others, even though they may not easily be measurable in terms of their dollar value, are commensurate with the magnitude of the transaction and that they reflect the responsibilities to be assumed, the characteristics and viability of the broadcasting undertakings in question and the scale of resources available to the purchaser, i.e. programming, management, financial and technical.

Benefits accruing from the transaction could include quality of service improvements, increased Canadian programming initiatives and expenditures, contributions to the development of English- and/or French-language Canadian talent and related production industries (film, records, videos, script and development and others). Such benefits could also include the provision of enhanced expertise, management and leadership capabilities, broader exposure, nationally and internationally, of popular Canadian programs of high quality, and other similar proposals for the enhancement of the Canadian broadcasting system.

Concentration of ownership within the broadcasting system is not in itself necessarily of concern to the Commission, provided that there continues to be an effective degree of diversity of ownership and of programming sources to ensure that the objectives of the Act are met. Today's highly competitive communications environment in every market as well as the high costs and risks involved dictate that the ownership structure must undoubtedly be composed of broadcasting holdings of various sizes, including larger entities with larger pools of resources, which are strong enough to compete with foreign competition and have the capacity to produce Canadian programming of competitive quality. The Commission will continue to deal with such issues on a case-by-case basis and will have to be satisfied that the purchaser demonstrates that the advantages of any such concentration clearly outweigh the disadvantages, and that the transaction is in the public interest.

In the case of applications involving media cross-ownership, the central concern is that in any given region there continues to be available a diversity of information, opinion and broadcast sources to provide the communities served with differing points of view on matters of public concern. This fundamental concern for diversity of information is an essential element of the structure and programming of the broadcasting system of any democratic society. Because of this, the onus is on the purchaser to demonstrate that adequate safeguards have been put in place to protect that requisite diversity. These could include appropriate management and operational policies and practices, adherence to a strict editorial code-of-ethics, the establishment of consultative committees, or other such measures and mechanisms developed in consultation with the communities concerned.

In this regard, the Commission would expect to receive detailed plans and commitments so as to be in a position to assess the nature, extent, impact and adequacy of the proposed safeguards.

In each case, however, before the Commission is prepared to consider such specific concerns as the potential impact of concentration or media cross-ownership, it will first want to be satisfied that the purchaser has met the first test and that it has demonstrated that clear, significant and unequivocal benefits will accrue to the Canadian broadcasting system as a whole, and to the communities concerned and that approval of the transaction is in the public interest.

PROPOSED BENEFITS

Given the magnitude of this transaction, the Commission has examined the applications and evidence at the hearing in great detail in order to determine whether the transfer of control of Télé-Métropole to Power Corporation would yield significant and unequivocal benefits to the communities served and to the Canadian broadcasting system as a whole, and that it is in the public interest.

At the hearing it was clearly established that divestiture of Télé-Métropole would be of benefit to the Estate of J.A. DeSève and its various components in that it would ensure access to increased and steady revenues on a permanent basis. In this regard, it was noted that the Estate's source of annual revenue would at least triple in size, and that it would acquire the autonomy and stability necessary to plan more effectively its donations to the charitable and other institutions that it supports.

At the same time, with respect to Télé-Métropole, Power Corporation indicated that its ownership participation would offer the following benefits:

a) Business expertise of Power Corporation

Power Corporation stated that it would make its business expertise available to Télé-Métropole. Over the years, Power Corporation has clearly acquired substantial national and international expertise in a large number of fields. It must be noted, however, that in its own field, Télé-Métropole has also been successful in maintaining its enviable position as one of the ten largest broadcasters in Canada, and remains one of the country's most profitable television companies.

b) Expansion of export markets

Power Corporation stated that it would facilitate Télé-Métropole's expansion into export markets through Power Corporation's connection with Pargesa Holding SA and, indirectly, with Compagnie Luxembourgeoise de Télédiffusion (RTL). In the Commission's view, the development of French-language television in Canada, and particularly in Quebec, would benefit very significantly from such a relationship. Given that Télé-Métropole is a highly developed and mature company, and in light of the increasingly competitive environment in which it operates, this potential European partnership would undoubtedly lead to very significant spin-offs, particularly in the field of television co-production.

No firm proposal, however, has been submitted to the Commission in this regard. Power Corporation stated that study sessions had been held to identify potential areas of collaboration between the two parties, and that a committee composed of representatives of Télé-Métropole and the Compagnie Luxembourgeoise de Télédiffusion has been established, under the supervision of Power Corporation, to examine possible areas of collaboration more closely.

c) Reinvestment of profits

The Commission has also taken note of Power Corporation's commitment at the hearing to reinvest 60% of Télé-Métropole's profits in that company, with the remaining 40% to be paid out as dividends to shareholders. The Commission notes that this is essentially the same policy followed by Télé-Métropole.

d) Canadian content

Power Corporation also confirmed that it would maintain the current level of Canadian content in the programming broadcast by Télé-Métropole, and did not propose to increase it.

e) Continuation of present level of performance

Power Corporation stated that it considered Télé-Métropole's performance to be "excellent" and that, in its opinion, [translation] "maintaining such a performance could be a significant benefit in itself". Accordingly, Power Corporation agreed to adhere to Télé-Métropole's commitments described in the last decision renewing CFTM-TV's licence (Decision CRTC 85-677 dated 22 August 1985) and promised to correct the "minor" shortcomings noted in the decision. However, it failed to specify the means by which it proposed to do so.

Power Corporation stated that it would establish the following goals for Télé-Métropole's board of directors:

1) to allocate at least $1 million per year to independent productions during the five years following a favourable decision;

2) to increase its co-operation with Telefilm Canada and the Société générale du cinéma in the creation of quality productions;

3) to contribute positively, through its European contacts, in resolving the problems related to the dubbing of programs from other languages to French;

4) to contribute $50,000 to Musicaction in each of the next five years;

5) to provide two and a half hours per week of captioned programming for the hearing impaired beginning one year following approval of the transaction;

6) to facilitate the distribution of Télé-Métropole programming to Francophones living outside Quebec; and

7) to ensure that Télé-Métropole's interests in the communications and other related fields are diversified, and to divest of its holdings in oil and gas.

In order to assess whether Power Corporation's proposals would yield significant and tangible benefits to the public and to the broadcasting system as a whole, the Commission questioned the present licensee on its achievements since its last licence renewal in August 1985.

1) With respect to Télé-Métropole's contribution to independent production, it was revealed that Télé-Métropole has invested more than $600,000 in independent productions and co-productions since last June. This does not include its commitment to invest $156,000 in a television series that was abandoned for reasons beyond Télé-Métropole's control, and its commitment to invest $250,000 over a one-year period for script and concept development.

2) Based on the evidence before it, the Commission notes that co-operation between Télé-Métropole and Telefilm Canada has reached its highest level in 1985. Power Corporation, however, did not submit any firm plans for continued co-operation nor did it indicate that it would follow an approach any different from that followed by Télé-Métropole.

3) The Commission notes that there has been no progress on the French-language dubbing problem. Power Corporation stated that this would be a matter for discussion with its European partners at future meetings.

4) With regard to support for the production and broadcast of French-language music, Télé-Métropole stated that it had made a special effort in this field in its television programming. As discussed at the hearing, the amount of $50,000 earmarked for Musicaction, which was proposed by Power Corporation as part of the current transaction, was assessed by the Commission in the light of the much larger sums committed to Musicaction in the context of other, smaller transactions, in particular the recent acquisition of English-language radio stations in Montreal.

In the Commission's view, the increasing lack of French-language vocal music production has reached a critical point; it is thus only reasonable to expect the largest private French-language broadcaster in Canada to be sensitive to the serious implications of this problem on the objectives of the broadcasting system, and to be prepared to take appropriate action.

5) With respect to captioned programming for the hearing impaired, Télé-Métropole has made a commitment to broadcast three hours and thirty minutes of such programming per week by September 1986. Moreover, its largest contribution to TVA network programming, the daily program "Les Nouvelles TVA", has been captioned since March 1986. The Commission notes that Télé-Métropole's commitments in this area effectively match and even exceed those of Power Corporation.

6) Regarding the objective of facilitating the distribution of Télé-Métropole programs to Francophones living outside Quebec, CFTM-TV programming has been available via satellite from CANCOM across the country through TCTV since 1981. Furthermore, the Commission notes that Power Corporation did not indicate how it would improve upon the present situation.

7) As for its plans for the divestiture of its oil and gas properties, Télé-Métropole stated at the hearing that it had already decided to curtail its activities considerably in this field and would likely sell all of its current interests eventually. Power Corporation stated that it was its firm intention to sell these interests.

THE DECISION

Although the Commission does not question the ability and willingness of Power Corporation to fulfill all the commitments made by Télé-Métropole at its last licence renewal and to maintain the present high level of performance, it considers that the applicant has not demonstrated, to the Commission's satisfaction, that many of the specific benefits it proposes are not either already offered or planned by Télé-Métropole, or that they could not be offered by it. Moreover, none of the other proposed benefits were sufficiently concrete or detailed to permit examination and assessment by the Commission.

Having carefully examined the applications as submitted and the statements made at the public hearing, the Commission has concluded that the applicant has not demonstrated, to the Commission's satisfaction, that the proposed transfer of control would yield significant and unequivocal benefits to the communities served, or to the broadcasting system as a whole, and that it is in the public interest. Accordingly, the Commission denies the application to transfer effective control of Télé-Métropole to Power Corporation.

In view of Télé-Métropole's high level of profitability and the prominent position it currently occupies, the Commission is convinced that it should continue to play a decisive role in the development of Frenchlanguage television in Canada. The Commission remains willing to consider applications to purchase Télé-Métropole, should the present owners continue to view such a sale as being desirable. However, in line with the guidelines outlined in this decision, the Commission would require any prospective purchaser to establish, beyond any doubt, that its proposals would result in significant and unequivocal benefits.

THE INTERVENERS

In light of the importance of Télé-Métropole and Power Corporation, in terms of their size and of their impact on the milieu in which they operate, as well as the concerns raised with regard to concentration and media cross-ownership, the applications generated a great deal of public interest, particularly in Quebec.

The Commission received eleven interventions: four were in support of the transaction, five were opposed, and the remaining two were comments. Nine interveners appeared at the hearing. Interventions in favour of the application were presented by Claude Fournier, the Syndicat général du cinéma et de la télévision (section Télé-Métropole), the Syndicat canadien de la Fonction publique, and the École polytechnique de Montréal. Those in opposition were submitted by the Fédération professionnelle des journalistes du Québec, the Syndicat des professeurs de l'Université Laval, the National Federation of Communication Workers, the Institut canadien d'éducation des adultes (which also tabled a petition accepted by the parties at the hearing), and the Comité social Centre-Sud de Montréal. Comments were received from the Conférence nationale des conseils régionaux des communications du Québec and the Association des techniciens de Télé-Métropole.

The interveners supporting the transaction saw in it benefits for the development and future growth of Télé-Métropole, particularly in its potential access to the European French-language market. Union representatives in particular noted the need to inject fresh blood into Télé-Métropole's management and direction, to augment programming resources and to reinvest profits in operations and, for these reasons, they expressed support for approval of the transaction.

Opposing interveners saw the transaction as a threat to the diversity of news voices because of the cross-ownership of the television station CFTM-TV and the daily La Presse that would result. They stated, among other things, that they did not consider that the maintenance of two distinct newsrooms at CFTM-TV and La Presse would offer a sufficient safeguard, even taking into account the protective measures provided for in the journalists' collective agreements and the news and public affairs policy that Power Corporation planned to establish at CFTM-TV. The Fédération professionelle des journalistes du Québec and le Syndicat des Professeurs de l'Université Laval added that the only acceptable compromise that would gain their support would be for Power Corporation to agree to divest itself of its newspaper interests. Self-censorship by journalists was also identified as a potential threat to the professional freedom of journalists in this situation. The view was also expressed that the concentration of ownership resulting from an approval of the transaction must be assessed in the context of the limited size of the Quebec market. Comments by the other interveners dealt with essentially the same concerns.

The Commission considers that the interveners have raised fundamental issues, and it thanks them for their valuable contribution to the proceedings. Since the Commission has determined that the applicant has not met the first test, in that it has failed to provide conclusive evidence that approval of the transaction would result in significant and unequivocal benefits, the Commission does not find it necessary, in the context of these applications, to deal with the specific concerns raised with respect to concentration and media cross-ownership.

As stated in many previous decisions, the Commission reiterates that it gives careful consideration to concerns raised by interveners, and to the particular circumstances of a given market, in this case the Quebec market. Furthermore, when considering any future transactions raising similar concerns, the Commission will require the applicants to demonstrate that the significant benefits, including the safeguards they might propose, clearly outweigh any potential negative effects.

Fernand Bélisle
Secretary General