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Decision
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Ottawa, 27 August 1987
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Decision CRTC 87-696
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Park Country Broadcasting Ltd.
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Red Deer, Alberta - 863389300Southern Alberta Broadcasting LtdLethbridge and Taber, Alberta- 863391900 - 863390100
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Following a Public Hearing in Red Deer, Alberta on 9 June 1987, the Commission approves the applications by Park Country Broadcasting Ltd. (Park Country),licensee of CKGY Red Deer, and by Southern Alberta Broadcasting Ltd. (Southern), licensee of Lethbridge and CKTA Taber, to transfer the ownership and effective control of the respective licensees to Shaw Cablesystems Ltd. (Shaw).
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With respect to the application by Park Country, the transaction will be effected through the transfer of 16,825 common shares from Mr. R.D. Stephen (7,500) and BGM Systems Ltd. (9,325) to Shaw.
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The transaction proposed by Southern will be achieved by a transfer of Class "A" common voting shares and 5,000 preferred non-voting shares from the existing shareholders to Shaw.
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Duties to the Transactions
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Park Country is controlled by R.D. Stephen (55.4%) through BGM Systems Ltd. The remaining shares (44.6%) are held by Mr. Stephen directly. Park Country is an established broadcasting company in the Red Deer market, as licensee of the country music AM station CKGY Red Deer.
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Mr. Stephen indicated that factors contributing to the decision to sell Park Country included the financial resources available to Shaw and its ability to provide for the growth of CKGY, particularly through the financing of a planned power increase, his continued association with the station and the development of new careers for the station's staff within the Shaw organization.
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Southern is controlled by the Brown family of Lethbridge and is the licensee of CHEC Lethbridge, which operates in a pop and rock music format, and of CKTA Taber, a country music station.
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At the hearing, Mr. William C. Brown, President of Southern, stated that for six years following the death of its founder in 1974, the company had experienced a period of trusteeship, during which time it sold its FM station due to large losses the company was sustaining. Since then, badly needed capital improvements totalling $560,000, coupled with the retirement of a large amount of long term debt have put further strain on the company's financial resources. When two of the shareholders recently asked to be divested of their hold ings, the board, unable to meet these requests, decided to entertain offers to purchase the company.
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The reasons for accepting Shaw's offer to purchase, Southern indicated that all staff would be guaranteed their positions; the Brown family members could, if desired, continue their financial and manage rial association with the company; and the extensive financial resources available to Shaw would provide security for the radio stations in the competitive southern Alberta market.
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Based in Edmonton, Shaw is the fourth largest cable company in Canada, with participation in fifteen systems in eastern and western regions of the country, including the Red Deer cable undertaking. For the past seventeen years, Shaw has focused exclusively on cable television and has now, as stated at the hearing by its President Mr. James Shaw, reached a stage where diversification is both possible and desirable. Mr. Shaw further explained that the company wished to enhance its broadcasting holdings and maintained that it considered it appropriate to invest its earnings in radio.
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Subject to Commission approval of a separate application by Park Country to acquire the assets and for a licence to operate CFCR-FM Red Deer and of the applications under consideration herein, Shaw Cablesystems Ltd. intends to create a radio division, composed of the two country stations, CKTA Taber and CKGY Red Deer and the two rock and pop music stations, CHEC CKTA Lethbridge and CFCR-FM Red Deer.
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The Proposed Transaction
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Shaw proposes to purchase 100% of the outstanding shares of Park Country for $3,533,000. The purchase price is to be paid by the issue of 45,000 of Shaw's Class B non-voting shares at $19.75 each, for a total of $888,750; with the remaining $2,644,250 to be paid in cash.
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Shaw proposes to purchase 100% of the outstanding shares of Southern for $2.9 million. The purchase price is to be paid by the issue of 27,848 of Shaw's Class B non-voting shares totalling $550,000; 1,110,000 senior preferred shares, series 1, valued at $1,110,000; with the remaining $1,240,000 to be paid in cash.
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The Commission notes that the cash payments will be drawn from reserves in the amount of $26 to $27 million, presently available to Shaw as a result of a public issue made in the past year.
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The Commission further notes that upon receiving a favourable decision on the related application involving Park Country's proposed acquisition of CFCR-FM Red Deer, Shaw will pay an additional $825,000, of which $575,000 would represent the purchase price of the assets of the station and the remaining $250,000 would be allocated for various technical improvements.
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Based on the evidence filed with the applications, the Commission has no concerns with respect to the availability or adequacy of the required financing.
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The 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 and 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 be easily 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 program ming, management, financial and technical resources available to the purchaser.
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The proposed benefits identified in the applications and addressed at the public hearing are outlined below. Local Management
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In order to ensure continuity of local management, Shaw indicated that, should the Commission approve these applications, it would appoint Mr. Rod Stephen as manager of the new Radio Division. Mr. Stephen has been involved in the Alberta broadcasting industry for the last 32 years, most notably as President of Park Country. In addition, the Brown family members would be given the opportunity to retain their present positions in the company and would have a representative on the Board of Directors.
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Financial Stability
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Shaw proposed that the financial stability that it will provide to these three stations is a significant benefit. Given Shaw's extensive resources, both Park Country and Southern were convinced that the continuity of the high standards set by the stations would be guaranteed as a result of these share transfers. As submitted by Mr. Brown, "Shaw has the financial resources to compete comfortably in our tight marketplace, and will provide the kind of security that we could not offer in the foreseeable future."
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Moreover, Shaw's purchase of South ern will resolve the ownership problems experienced by the Brown family, by allowing those members of the family who wish to pursue other interests the opportunity to divest themselves of their holdings in the company and those who wish to remain, the chance to participate in the management of the stations.
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Enhanced Program and News Exchange
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Given the similarities in format between CKTA and CKGY, and CHEC and CFCR-FM respectively, and in the market size and community of interests amongst the areas served, Shaw maintained that a greater degree of program and news exchange could be achieved by all four stations through their common ownership. To avoid centralization of the production of programs, Shaw proposed that each station would produce programs for the purposes of exchange, on a week ly, rotating basis. Such programming would have a news, agricultural or musical orientation.
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While exchanges of this nature currently take place to some extent between the two country stations, Shaw contended that such exchanges a would be enhanced and expanded upon, given the structural support of the new radio division.
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Promotion of Canadian Talent
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a) Project Discovery
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Shaw has developed a novel approach to this important area in its proposed "Project Discovery", an initiative which would effectively combine the resources of cable and radio to promote regional and provincial talent.
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Essentially, over a five-year period, the project will produce videos of local entertainers, which will be given to those artists for their own promotional purposes. The videos will also be retained by Shaw for as sembly into programs that would be distributed on a monthly basis on all of its cable systems, nationwide. The Shaw-owned radio stations will promote the programs, inviting local entertainers to audition for "Project Discovery" and the programs will also be simulcast on the appropriate country or rock music radio stations. In addition, all selected contestants will be paid for their performances.
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In order to provide further exposure of these regional performers, the Commission notes that a commitment has been secured from CableNet Limited, indicating its willingness to participate in Project Discovery, by running the program on its cable system in Lethbridge.
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The proposed video production schedule projects the production of 100 videos performed by 20 artists in the first year and 50 videos by 10 artists in each of the four subsequent years.
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Shaw has allocated $593,000 for this initiative over the next licence term. Direct cash costs of $275,000 will be made up of payments to the artists at $100,000 and production costs at $175,000. The indirect, in-house contribution will amount to $318,000, consisting of non-cash production costs of $180,000 and radio promotion and broadcast time, valued at $138,000.
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Summarizing the benefits to be derived from "Project Discovery", a Shaw highlighted the identification of Alberta talent through promotion and auditions conducted by the four radio stations; cash support to each of the artists selected, totalling $100,000; the production of approximately 300 separate, high quality videos featuring, in total, the performances of 60 local artists over the next five-year period; the production of 60 cable television programs featuring the videos of the selected artists; national exposure of these artists on the fifteen Shaw cable systems, with a potential reach of approximately 1 million Canadian viewers nation-wide, and additional exposure through broadcasts of the program on the CableNet Limited system in Lethbridge and of the video sound tracks on the Shaw radio stations.
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b) Contribution to FACTOR/CTL
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The four radio stations involved in this application do not presently contribute to FACTOR/CTL and Shaw has proposed an annual commitment of $10,000, to be considered as a $2,500 contribution by each of the stations. Over the course of the next five-year period, therefore, Shaw proposed a total commitment of $50,000 to FACTOR/CTL.
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The Decision
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The Commission has carefully considered the benefits outlined in the applications and has concluded that all three parties involved in these transactions have 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 transactions and the viability of the undertakings.
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With respect to those benefits which are not easily measurable in terms of their dollar value, the Commission recognizes the stability and financial strength that the resources available to Shaw will afford these undertakings. It further recognizes the continuity of local management, and the exchange of programs and news which will be facilitated by the creation of the new radio division as benefits resulting from these transactions.
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The Commission considers that those benefits which were quantified in monetary terms, including both direct and indirect expenditures and particularly those in the amount of $593,000 allocated to "Project Discovery", are significant when the size of the markets to be served is taken into account.
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The Commission notes Shaw's commitment to allocate $500,000 towards a power increase, stereo signal and studio improvements for CKGY. The Commission wishes to point out that the proposed power increase of CKGY, cited by Shaw as a benefit amongst the other improvements, is subject to an application being filed with and approved by the Commission to amend CKGY's current licence.
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With respect to the issue of concentration of ownership and cross-media ownership, the Commission considers that, although the approval of this decision will result in Shaw's owning Red Deer's cable system as well as two of its radio stations, the benefits of the relationship between the two media, particularly those that will be realized through the proposed "Project Discovery", outweigh any perceived problems arising from concentration of ownership and cross-media ownership in the Red Deer market.
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The Commission notes that at the Red Deer hearing it also considered renewal applications for CKGY Red Deer (863599700), CHEC Lethbridge (863303400), and CKTA Taber (863308300). Decisions respecting these applications will be published separately.
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The Commission acknowledges the numerous interventions submitted by representatives from the respective areas' business communities and governments as well as interested residents, all in support of the applications.
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Fernand Bélisle Secretary General
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