ARCHIVED -  Decision CRTC 87-574

Decision

Ottawa, 16 July 1987

Decision CRTC 87-574

699554 Ontario Inc.

Leamington and Sarnia, Ontario - 870263100 - 870264900 - 870265600 - 870266400

At a Public Hearing in Toronto on 28 April 1987, the Commission considered applications by 699554 Ontario Inc. (699554, the applicant) for approval to acquire the assets and for licences to continue the operation of CKJD and CJFI-FM Sarnia and of CHYR/CHYR-7 Leamington upon surrender of the current licences issued to Rogers Broadcasting Limited (Rogers), subject to the same terms and conditions as the current licences except for significant changes to the Promise of Performance of CJFI-FM Sarnia and a request that the licence to be issued for that station be an experimental F.M. licence as described in section 16 of the Radio Regulations, 1986.

Parties to the Transaction

The shares of 699554 are held 9% by Gerald L. Kennedy, 24% by Donald C. Chamberlain and 67% by Eastern Broadcasting Co. Ltd. (Eastern).

Eastern controls eight smaller market radio stations in Atlantic Canada and is 90% owned by Maritime Broadcasting Company Limited (Maritime), the licensee of three radio broadcasting undertakings in Halifax. Maritime, in turn, is 100% owned by Key Radio Limited (Key), a subsidiary of Maclean Hunter Limited (Maclean Hunter), and the licensee of six Ontario radio stations. Maclean Hunter, one of Canada's largest cable television operators including the cable television undertaking in Sarnia, is held 20.7% by Maclean Hunter Holdings Limited and 79.3% by the public and is controlled by its management. It owns 100% of CFCN Communications Limited, licensee of five radio undertakings in Alberta and of CFCN-TV Calgary and its eleven rebroadcasting stations in Alberta and British Columbia.

In addition to being the licensee of the stations which are the subject of this decision, Rogers is the licensee of CFTR and CHFI-FM Toronto and holds 80% of the shares of MTV Holdings Corp. which in turn holds a controlling interest in Multilingual Television (Toronto) Ltd., licensee of CFMT-TV Toronto. Rogers is owned 100% by Rogers Communications Inc. which has extensive interests in the cable industry west of the Ontario/ Quebec border, and is Canada's largest cable television operator. Rogers Communications Inc. is ultimately owned and effectively controlled by Edward S. Rogers.

The Proposed Transaction

699554 proposes to acquire the assets of CHYR and CHYR-7 Leamington and of CKJD and CJFI-FM Sarnia for $1.6 million. $20,000 of the capital required for the transaction will be equity investment. The balance will be realized by way of a commitment from Steven Harris, in his capacity as an officer of and on behalf of Eastern, Maritime, Key and Maclean Hunter, to purchase debt securities in the amount of $3.2 million (capital loan $2.2 million, promissory note and operating loan $1 million revolving).

The Commission has no concerns with respect to the availability or adequacy of the required financing and notes that the $1.6 million purchase price agreed to by the parties is approximately the same as the net book value of the stations, none of which are currently profitable.

The Proposed Benefits

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.

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 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 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 cha-racteristics and viability of the broadcasting undertakings in question, and the scale of the programming, management, financial and technical resources available to the purchaser.

The benefits identified in these applications and addressed at the public hearing are outlined below.

1. Local Ownership and Management

In its application, 699554 acknowledged the importance of local, autonomous ownership and management. To this end, the applicant proposed to have two of the shareholders, Messrs. Kennedy and Chamberlain, reside in Sarnia to manage the day-to-day operations of CKJD and CJFI-FM. At the hearing, Mr. Kennedy stated:

This arrangement is vital to the achievement of significant results within a reasonable time frame. Mr. Chamberlain and I have each been in the business in excess of twenty years and we believe our experience provides us with a sound base on which we can successfully manage these stations.

With respect to CHYR/CHYR-7 Leamington, the applicant proposed to retain long-time manager, Lou Tomasi.

In its application, 699554 also addressed the advantages of the involvement of Eastern:

Eastern Broadcasting has developed a style of locally-managed stations that has proven that the managing shareholder has a tremendously positive effect on the quality of service provided, and to the long-term viability of a small market station.

2. New Studio Complex - Sarnia

At the hearing, 699554 undertook to expend $350,000 to establish a new station/office complex for CKJD and CJFI-FM immediately upon approval of the applications. The applicant indicated at the hearing that the studio equipment of both stations requires total replacement and that the studio facilities are quite unsuitable. In this regard, the applicant stated:

The completion of this new facility will be a great morale booster to the staff of the stations as well as a clear indication to the community of our dedication and commitment to a first-class radio service.

3. Single Frequency - Leamington

With respect to CHYR/CHYR-7 Leamington, the applicant proposed to apply to the Commission, in a separate application, for approval to change to a single frequency that would be operable both day and night, bringing to an end its status as "the only AM

radio station in the world that operates on two frequencies". Mr. Tomasi explained that the use of two frequencies has caused frustration for the station's audience and that the technical problems related to the twice daily frequency changes have resulted in the station often being off the air "until we can contact an engineer". The capital costs associated with this technical change amount to $250,000.

4. Advantages to Staff

The applicant has undertaken to provide greater access to new career advancement opportunities at associated radio stations in Eastern, Central and Western Canada as well as the opportunity to enhance management and supervisory skills through participation in training sessions and seminars conducted by Eastern under the auspices of the Maclean Hunter training group.

5. Maintenance of Diversity and Programming Improvements

While proposing significant changes to the Promise of Performance for CJFI-FM, 699554 proposed only minor changes to the programming of the AM stations in order to maintain diversity in the communities served.

The applicant has proposed that, upon approval of these applications, the stations will become members of the Newsradio subscriber group which, in its opinion, will result in "enhanced on-air news actuality reporting at each station," the availability of "new sources of news coverage in Sarnia and Leamington" and access to an increased number of "high quality spoken word features".

699554 also proposes to undertake immediately extensive market research for each station in order to "be more familiar with the needs and desires of the community" and to be in a position to "more adequately respond to them". It has allocated a total budget of $50,000 to be spent on such research.

6. Promotion of Canadian Talent

a) Regional Performer Support Program

The applicant has committed to provide in excess of $10,000 per year in indirect costs (which would amount to $32,500 between the date of this decision and 30 September 1990, which is the expiry date of the licences issued to Rogers) for advertising support on behalf of local talent performing in Leamington and Sarnia. In this regard, 699554 proposed to offer free air-time for 30-second commercial announcements to be broadcast in advance of, or during such appearances. In addition, the Commission notes that the applicant proposed to make its studios available to local artists for recording purposes.

b) Regional Record Sales Support Program

699554 has allocated air-time valued at $5,000 per year to promote the sale of records recorded by regional performers by providing free advertising. The total commitment between the date of this decision and 30 September 1990 would be $16,250 in indirect costs.

c) Contribution to FACTOR/CTL

The applicant has made a firm commitment to contribute $5,000 per year to FACTOR/CTL. At the end of the first profitable year for the group of stations, this annual contribution will increase to $7,500.

Based on the evidence presented at the hearing which indicates that the stations, as a group, are not likely to be profitable until at least the end of 1991, the Commission has estimated the value of this benefit to be $16,250 in direct expenses between the date of this decision and 30 September 1990.

In addition to the above-noted commitments, the applicant proposes to continue the community radio workshop concept and other local talent initiatives which exist under Rogers' ownership.

The decision

The Commission has carefully considered the benefits outlined in the applications. Those which were quantified in monetary terms, including both direct and indirect expenditures, total approximately $715,000, which is a significant amount when one considers the size of the markets to be served, the fact that each of the stations involved has been unprofitable for a number of years and that 699554 does not project profitability for the stations until at least 1991. The Commission has also taken note of the commitments which have financial value but which were not quantified, such as the addition of the Newsradio programming, staff training programs and the maintenance of Rogers' current commitments for the promotion of local talent.

With respect to those benefits which are not easily measurable in terms of their dollar value, the Commission is of the opinion that strong, experienced local ownership and management is an important consideration. The Commission has also considered the management style of Eastern and Maclean Hunter which "attract strong local management, set broad policy guidelines" and treat their stations "as separate companies operating much like some of their other companies operate with separate boards of directors and a very strong high level of autonomy." It has taken note of the applicant's statement:

Eastern Broadcasting, a small company with extensive small market experience ... and, in turn, Maclean Hunter bring financial [resources] which brings financial stability together with access to a vast array of human and technical resources in sales, programming and administration. This is a tremendous advantage for any small operator.

The Commission considers that this strong financial backing combined with the enthusiasm of the purchaser, which is demonstrated through its commitments to undertake immediately technical improvements and market research for each of the stations, will greatly assist the stations in reaching their potential in the communities which they serve and in achieving a reasonable level of profitability.

Having examined the applications as submitted and the statements made at the public hearing, the Commission has concluded that 699554 has adequately demonstrated that the proposed transfers of ownership are in the public interest and that the benefits to the communities to be served are commensurate with the size of the transaction and the viability of the undertakings.

The Commission further considers that the issues of concentration of ownership and cross-media ownership have been adequately addressed by the parties and do not raise concerns with respect to these applications.

The Commission notes that neither Maclean Hunter nor Eastern have any other broadcast interests in Sarnia or Leamington. Maclean Hunter is, however, the licensee of the cable television undertaking serving Sarnia. In this respect, the Commission has taken note of Mr. Harris' assurances that the cable company in Sarnia is removed from the radio operations and that there might be:

some positive elements to the cable company being there with the facilities; there might be some promotions that we could do between cable and broadcasting to the betterment of the community.

Accordingly, for all the reasons noted above, the Commission approves the applications for authority to acquire the assets and for licences to continue the operation of CKJD and CJFI-FM Sarnia and CHYR and CHYR-7 Leamington, upon surrender of the current licences issued to Rogers Broadcasting Limited subject to the same terms and conditions as the current licences, except for those changes which are addressed in the sections of the decision which follow.

The Commission will issue licences to 699554 Ontario Inc. for CKJD and CJFI-FM Sarnia and CHYR and CHYR-7 Leamington expiring 30 September 1990, which is the expiry date of the current licences. The licences will be subject to the conditions specified in this decision and in the licences to be issued.

Proposals for programming changes

In its applications, 699554 proposed minor changes in the programming of the AM stations involved in this transaction, as well as more significant changes to the Promise of Performance of CJFI-FM Sarnia. These proposals are addressed below.

CHYR/CHYR-7 Leamington

The Commission notes that 699554 plans to place increased emphasis on coverage of the local Leamington market and that it proposes to increase sports programming by ten hours per week and to decrease, by an equivalent amount, the station's advertising content.

CKJD Sarnia

The principal changes proposed for CKJD are related to spoken word content and music programming. With respect to the proposal to reduce news programming from 7 hours 30 minutes to 5 hours per week, 699554 explained at the public hearing that the station is currently broadcasting only 3 hours 45 minutes of news each week and that, therefore, the proposal to broadcast 5 hours of news weekly actually represents an increase in news programming. It further stated that the focus of the newscasts would be "predominantly local."

With respect to the proposed music-related changes, the Commission has no concern with the proposals to increase the weekly amount of General Popular music by 3 hours 55 minutes and to decrease Country music by 2 hours per week.

CJFI-FM Sarnia

The Commission notes that CJFI-FM currently serves Sarnia with a Group I (Pop and Rock-Softer) format and that the applicant plans to continue operating in this format but with a number of significant Promise of Performance changes.

On a weekly basis, 699554 proposes to: decrease the amount of spoken word programming from 20 hours 10 minutes to 11 hours 40 minutes; eliminate the current 6 hours of category 6 music (Traditional and Special Interest); decrease the amount of foreground programming from 20% to 9% and the total amount of foreground and mosaic programming from 50% to 33%; increase from 45% to 90% the use of hit music; and increase the maximum number of times a musical selection may be repeated in the course of a week from 15 to 35. Because several of these proposals would not otherwise meet the requirements of the Radio Regulations, 1986 (the regulations) and the Commission's FM radio policies, 699554 asked that the Commission issue an experimental F.M. licence for CJFI-FM, as described in section 16 of the regulations.

In support of this request, 699554 stated that due to Sarnia's location on the Canada-U.S. border, it has "a very high American radio presence which has attracted a large Canadian listenership". It further stated that Sarnia's economy in recent years has been "soft" because of its reliance on the petro-chemical industry and that this has had a "devastating financial impact".

Expanding on the need for an experimental F.M. licence, it explained:

The cornerstone of these applications is CJFI-FM. With the program content we propose, this station has the potential to become, under effective local management, a viable local service, able to compete on equitable terms with U.S. FM stations, while retaining a distinct Canadian identity and fulfilling its role as a community-oriented radio station. In order to achieve this, CJFIFM must, in our view, be granted the opportunity to compete fairly for audience against the many U.S. FM stations that presently generate more than 74% of Sarnia's FM tuning.

It asked for "more regulatory freedom" and the same "special status" now afforded CJOM-FM and CKLW-FM Windsor by virtue of their experimental F.M. licences which were issued following a special review of the Windsor radio market (Public Notice CRTC 1984-233 dated 25 September 1985). 699554 stated that it would repatriate Canadian listeners by means of a strong local orientation through enrichment and news programming.

The Commission has carefully assessed the evidence presented in the applications and at the public hearing and is not convinced that CJFI-FM requires the relief requested in order to strengthen its viability.

It notes that 24% of the FM tuning in Sarnia is to Canadian stations, while in Windsor only 13% of the Canadian FM tuning is to Canadian stations, and that CJFI-FM alone attracts as much audience in Sarnia (7%) as do the two local FM stations in Windsor which attract 4% of the audience each. The Commission further notes that Rogers had never expressed the need for an experimental F.M. licence for CJFI-FM and considers that 699554, through its associations with Eastern and Maclean Hunter, has extensive experience operating smaller market stations as well as considerable human and financial resources which should enable it to attract Canadian listeners without special dispensation. At the public hearing the applicant indicated that, although the applications were prepared under the premise that CJFI-FM would be granted an experimental F.M. licence, the transaction is not conditional upon the issuance of such a licence.

Accordingly, in the absence of specific market studies and other documentation clearly establishing that extraordinary measures are required to ensure the success of CJFI-FM, the Commission denies the request for an experimental F.M. licence.

The Commission considers, however, that some of the proposed changes to the Promise of Performance for CJFI-FM can be approved in part even without experimental F.M. status. The Commission, therefore, approves an increase in the use of hit music from 45% to 49% and an increase in the weekly maximum repeat factor from 15 to 18. It further approves a decrease in foreground programming from 20% to 15%. These levels are in accordance with regulatory and policy requirements for joint F.M. licences.

The Commission's FM policy requires joint licensees to broadcast 50% combined foreground and mosaic programming and therefore the proposal to reduce the level of this programming from 50% to 33% is denied as is the proposal to eliminate Category 6 music. In this regard, the Commission notes that Traditional and Special Interest music is not offered by any other Canadian FM station received over-the-air in Sarnia and that if this proposal were to have been approved, Sarnia audiences would have to tune to American stations in order to receive this type of programming.

With respect to the proposal to reduce spoken word programming (categories 1 to 4), the Commission is of the opinion that the station must retain its Canadian identity and its local orientation, both of which are most recognizable through spoken word material. The Commission, therefore, denies the proposal to reduce spoken word programming from 20 hours 10 minutes to 11 hours 40 minutes per week.

Interventions

Mr. Earl Rosen, Executive Director of the Canadian Independent Record Production Association (CIRPA), appeared at the public hearing in support of the applications but asked that the applicant consider increasing the Canadian content level of music broadcast on CJFI-FM from 20% to 30%. The Commission notes that the 20% Canadian content level proposed by the applicant does not represent a reduction from the current Promise of Performance and that it is, in fact, the minimum level required for Group I stations.

An intervention was also presented by representatives of Sarnia Broadcasters Limited, licensee of CHOK Sarnia (CHOK), opposing the concept of an experimental F.M. licence for CJFI-FM. In its intervention, CHOK maintained that radio stations in the Sarnia market are not subject to competition from U.S. stations to the extent that the Windsor stations are and that a heavy emphasis on Canadian news, particularly local news, combined with increased community services would assist in the repatriation of Canadian audiences.

In replying to the CHOK intervention, 699554 reiterated the rationale for an experimental F.M. licence and emphasized that local orientation will be stressed in its programming.

Fernand Bélisle
Secretary General