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Decision
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Ottawa, 1 May 1987
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Decision CRTC 87-334
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Moffat Communications Limited, Edmonton, Alberta - 862298700
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Table of Contents
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PARTIES TO THE TRANSACTION
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THE PROPOSED TRANSACTION
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PROPOSED BENEFITS
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a) Larger Resource Base
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b) New Programming
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c) Staff-Related Benefits
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d) Development of Canadian Talent
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e) Canadian Enrichment Syndication Centre
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THE DECISION
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At a Public Hearing held in Calgary, Alberta on 17 February 1987, the Commission considered an application by Moffat Communications Limited (the purchaser, Moffat) for approval to acquire the assets and for a licence to continue the operation of CISN-FM upon surrender of the current licence issued to CISN Radio Ltd.
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A majority of the Commission, for the reasons outlined below, denies the application.
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PARTIES TO THE TRANSACTION
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CISN Holdings Ltd. is the major shareholder of CISN Radio Ltd. (842 Class A common and 4,538 Class B shares) with the minor shareholder being BGM Systems (158 Class A common and 694 Class B shares). Mr. Robert McCord of Edmonton, indirectly controls the licensee by virtue of his 51% control of CISN Holdings Ltd. Mr. McCord holds the positions of President and General Manager of the licensee company.
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CISN-FM was first licensed by Decision 81-797 dated 29 October 1981, following a competitive process, with the licence granted to an independent operator, Robert McCord, on behalf of a company to be incorporated. Its independent status was considered, at the time of licensing, as being a valuable new dimension in the Edmonton radio market and has been maintained to this date.
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Moffat is owned 52.1% by Randall L. Moffat Holdings Limited, which, in turn, is owned 100% by Randall L. Moffat. The remaining shares of Moffat, which trade publicly, are held by several shareholders, none of whom controls more than 3.6% of the voting shares of the company.
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Moffat is the licensee of one radio station in Ontario, two radio and six television stations in Manitoba, one radio station in Saskatchewan, three in Alberta including CHED Edmonton, and two in British Columbia. It has 100% ownership of Relay Communications Ltd., licensee of CKYB-TV Brandon and its rebroadcasting stations at Dauphin and McCreary, Manitoba. Moffat also owns 80% of Winnipeg Videon Incorporated which operates cable television undertakings in Winnipeg and Pinawa, Manitoba.
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Moffat has a solid financial base with assets of approximately $66.5 million. It reported a net income of $3.7 million in 1985.
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THE PROPOSED TRANSACTION
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Moffat proposed to acquire the assets of CISN Radio Ltd. at a purchase price of approximately $6.3 million. The purchaser has made arrangements to finance the transaction through a bank loan and the Commission has no concerns relating to the availability and adequacy of the required financing.
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PROPOSED BENEFITS
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As stated in a number of decisions relating to applications for authority to transfer ownership or effective control of licensee companies, and because the Commission does not solicit applications for such transfers, 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.
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The Commission reaffirms that 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.
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In particular, the Commission must be satisfied that the benefits, both those that can be quantified in monetary terms and others which may not easily be measurable in terms of their dollar value, are commensurate with the size of the transaction and that they 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.
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In assessing the present application, the Commission has taken note of the fact that Moffat is the licensee of CHED, an AM radio station in Edmonton, and that were this application to have been approved, the licence of CISN-FM would change from an independent to a joint licence with CHED. This clearly would be of benefit to Moffat, which noted that FM is growing at a faster rate than AM and which anticipated combining the technical and accounting areas of the operations. The purchaser also anticipated that there would be combined advertising sales:
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There is very likely to be a combined rate card but it's not something we've looked at in detail from an efficiency standpoint or from an absolute unit cost standpoint. It's something that we classically do in other markets where an AM-FM combination exists and it tends to be a general industry practice.
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Further, the Commission notes that the building housing the existing CISN-FM facilities would be sold and that CISN-FM would be re-located to the building which houses CHED. At the public hearing, it was indicated that this would result in occupancycost savings in excess of $225,000 per year.
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In addition to the above-noted factors, at the public hearing the purchaser cited specific benefits which would accrue from the transaction. These are addressed below.
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a) Larger Resource Base
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In its application, Moffat stated that CISN-FM would be strengthened "through access to a new and larger resource base including financial resources and stability, marketing and sales support, programming expertise and access to both in-house and external professional advice."
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In assessing the potential impact of this benefit, the Commission has considered the history and development of CISN-FM noting that, in a highly competitive market, the station has succeeded in attracting and maintaining a loyal audience and that it has been operating at a profit since 1984. Moreover, its 1986 pre-tax profit was much higher than in 1985. The Commission further notes that the station has always been operated in substantial compliance with its Promise of Performance and that the licensee has provided significant support to Canadian talent, particularly through its contributions to the Alberta Recording Industry Association (ARIA).
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While the Commission agrees that there would be certain advantages to CISN-FM in becoming part of the Moffat group of stations, particularly in terms of economies of scale, the Commission considers that, given the past performance of the station and its current financial status, such advantages would not likely be significant.
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b) New Programming
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Moffat proposed to add six and onehalf hours per week of new foreground programming, five hours of which would replace repeated American programming. The Commission acknowledges the merit in replacing repeated American programming with new Canadian-produced foreground programs. However, it considers that the significance of the benefit derived from this proposal would be lessened by the fact that much of the new programming would be scheduled for broadcast in less than prime listening hours. For example, Cross Country Connection would be scheduled at 11:00 p.m. on Saturdays.
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Moffat would increase the combined foreground/mosaic level from 40% to 50%, to comply with the minimum requirement for joint licensees under the Radio Regulations, 1986.
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c) Staff-Related Benefits
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The Commission agrees that the purchaser's proposal to add one fulltime and two part-time programming staff would benefit CISN-FM to the extent that it could result in higher-quality programs.
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The Commission notes that Moffat allocated $125,000 annually for sales staff training programs, but is not persuaded that the training of sales staff would represent a benefit in the context of this application.
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With respect to the contention that ownership by Moffat would result in an improved ability to attract and retain qualified staff, the Commission finds it difficult to assess this benefit. The Commission notes that many independent stations have been successful in maintaining qualified personnel.
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d) Development of Canadian Talent
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i) Contributions to ARIA and FACTOR/CTL
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CISN-FM Radio Ltd. was instrumental in the formation of ARIA which, in its five-year history, has become a collective voice for Alberta's musicians, songwriters, studio owners and music publishers through its activities, including seminars and workshops. Its membership numbers in excess of 750, and in 1986 it held its first annual awards banquet. Mr. David Foster, a prominent Canadian record producer whose work has resulted in international acclaim, has made a commitment to ARIA to produce each year a song written by an Albertan. ARIA is currently undertaking discussions with parties interested in supporting the organization through corporate sponsorship.
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CISN-FM, under the terms of an agreement with ARIA which expires at the end of 1987, contributed $25,000 and was to have matched funds raised elsewhere by ARIA up to an additional $25,000 in 1986; for 1987 the commitment is to match funds raised by ARIA, up to a maximum of $50,000.
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Moffat undertook in this application to guarantee funding to ARIA at a minimum rate of $25,000 during each year of the new licence term. In addition, the purchaser committed to match funds raised elsewhere by ARIA, to a maximum of $25,000 per year.
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Should ARIA not raise an additional $25,000 from outside sources, Moffat would have contributed any remaining balance of its $50,000 annual commitment to FACTOR/CTL. Over a five-year licence term, this important benefit would have local, regional and national implications.
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The Commission notes Moffat's intention to establish an Advisory Board to act as a resource group for ARIA and to work with ARIA's Board of Directors to assure continuity of the association in future years, and has also noted Mr. McCord's statement made at the public hearing that CISN-FM would still carry out this commitment if this application is not approved.
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ii) Commitment to the Broadcast of Canadian Music
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CISN-FM currently has a commitment to spend $3,000 each year for the broadcast of live, or tape-delayed, Canadian music. In its application, Moffat proposed to increase this budget to $10,000 per year.
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These monies would be allocated for the program Cross Country Connection, for which Canadian country-music performing artists would be taped by CISN-FM during appearances in Edmonton and in Hamilton by Moffat's AM station, CHAM. Moffat also proposed to involve other broadcasters in this initiative to provide broader exposure to Canadian country-music artists.
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While the Commission recognizes that this initiative would be worthwhile, as noted earlier in this decision, it considers that the significance of this benefit would be reduced by the proposed scheduling of Cross Country Connection. Moffat was unable to provide any details with respect to other potential participating stations.
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e) Canadian Enrichment Syndication Centre
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At the public hearing the purchaser explained the role of the proposed Canadian Enrichment Syndication Centre and the financial commitments proposed:
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With the approval of this application, we have committed to provide a minimum of $50,000 in year 1, $75,000 in year 2 and $100,000 in each of years 3 through 5 for the establishment and operation of a Canadian Enrichment Syndication Centre. The purpose of the centre will be to act as a clearing house, or lending library, of some of the best Foreground and Mosaic programming in Canada.
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For some years, we have recognized that such a centralized facility for spoken word programming would greatly benefit the FM broadcasting industry. Programming will include that produced by Moffat's four FM stations, as well as programs purchased from creative talent across Canada.
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Moffat proposed that the centre be located in Vancouver because it has the largest available talent pool of any market where Moffat is currently licensed to broadcast. The centre would make its programming available at no cost to smaller Canadian radio stations, enabling them to provide listeners with high-quality programs which they may find too expensive to produce themselves.
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Moffat explained that the establishment of the centre was contingent upon approval of this transfer of assets because it is of the opinion that it requires a fourth FM station to make the centre viable.
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The proposed $425,000, five-year budget for the centre would include the hiring of a full-time coordinator who would be provided with assistance by the support staff of Moffat's two radio stations in Vancouver.
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The Commission encourages Moffat to pursue and develop this important initiative. It is impressed by the concept of the Enrichment Syndication Centre and considers that the proposal has the potential to be of great value in developing Canadian talent, particularly writers and producers. It notes, however, that Moffat offered no elaboration on this potential, and provided no details with respect to the amount or nature of the programming which would be produced by the centre beyond that currently produced by its existing stations.
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THE DECISION
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The Commission has taken note of the five-year financial commitments of the purchaser as summarized at the public hearing:
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- The Canadian talent development to ARIA and FACTOR, $125,000;
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- Cross-Country Connection, $35,000;
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- Sales staff training $125,000; and
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- the Canadian Enrichment Syndication Centre, $425,000
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For the reasons outlined above, the Commission has discounted the $125,000 allocated to the training of sales staff. It has therefore concluded that the firm financial commitments of Moffat which should be considered in the context of the application amount to $585,000 over a five-year licence term.
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Although the application proposed a benefit package totalling $585,000, the Commission is concerned that services and benefits of an equally important but less quantifiable nature would not be realized through the transaction to the extent that the broadcasting audience has a right to envisage. In particular, the Commission finds that the purchaser's intentions for Cross-Country Connection and the Canadian Enrichment Syndication Centre fall short of the wideranging potential benefits to which Moffat could have committed itself with respect to these important initiatives.
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In light of all of the foregoing, it is the Commission's opinion that the value of the benefit package, both quantifiable and non-quantifiable, is not sufficiently significant when one considers the size and nature of the transaction, the financial and human resources available to the purchaser, the appreciable savings and advantages that could be realized by Moffat from operating CISN-FM as a joint licensee with CHED, and the potential loss of the independent status of a licensee in the Edmonton market. The Commission has therefore concluded that the applicant has not demonstrated, to the Commission's satisfaction, that the proposed transfer of ownership would yield clear and unequivocal benefits to the communities served, to the broadcasting system as a whole, and that it is in the public interest. Accordingly, by majority decision, the Commission denies the application by Moffat Communications Limited, to acquire the assets and for a licence to continue the operation of CISN-FM upon surrender of the current licence issued to CISN Radio Ltd.
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Should CISN Radio Ltd. continue to view the sale of the station as being desirable for economic or other reasons, the Commission would require any prospective purchaser to establish that its proposals would result in significant and unequivocal benefits, quantifiable and non-quantifiable, commensurate with the circumstances of the transaction.
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Fernand Bélisle
Secretary General
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