ARCHIVED -  Decision CRTC 88-275

Decision

Ottawa, 8 April 1988

Decision CRTC 88-275

APPLICATION FOR AUTHORITY TO ACQUIRE THE ASSETS OF BUSHNELL COMMUNICATIONS LIMITED BY NATION'S CAPITAL TELEVISION INCORPORATED - 872945100

TABLE OF CONTENTS

PARTIES TO THE TRANSACTION

BACKGROUND TO THE PUBLIC HEARING

INTERVENTIONS

PROGRAMMING

a) Canadian Program Expenditures

b) Local Program Expenditures

c) Co-operative Programs

d) Information Programs

e) Music and Entertainment Programs

f) Program and Talent Development

g) Social Issues

BENEFITS OF THE TRANSACTION

a) Programming

b) Technical

c) Interest Charges

d) Management Fees

CONCENTRATION OF OWNERSHIP

IMPACT ON THE CTV TELEVISION NETWORK

OTHER ISSUES

CONCLUSION

APPENDIX

Following a public hearing in the National Capital Region on 26 January 1988, the Commission approves the application by NATION'S CAPITAL TELEVISION INCORPORATED (NATION'S CAPITAL) to acquire the assets of, and for a licence to continue the operation of, CJOH-TV Ottawa, CJOH-TV-6 Deseronto and CJOH-TV-8 Cornwall from BUSHNELL COMMUNICATIONS LIMITED (BUSHNELL).

The Commission will issue a broadcasting licence to NATION'S CAPITAL to continue the operation of CJOH-TV and its rebroadcasters upon surrender of the current licence issued to BUSHNELL. The licence will expire 31 October 1992 and will be subject to the conditions specified in the Appendix to this decision and in the licence to be issued. It should be noted that the conditions and expectations set out in this decision generally relate to the broadcast year commencing 1 September 1988 and each subsequent broadcast year, or portion thereof, during the licence term.

PARTIES TO THE TRANSACTION

NATION'S CAPITAL is a wholly-owned subsidiary of BATON BROADCASTING INCORPORATED (BATON). BATON or its subsidiary companies own and operate various television stations, including the following: CFTO-TV Toronto, CKCK-TV Regina, CFQC-TV Saskatoon, CKOS-TV/CICC-TV Yorkton and CKBI-TV/CIPA-TV Prince Albert. BATON also owns AM radio station CFQC in Saskatoon. BATON is ultimately controlled by the Eaton family of Toronto.

BUSHNELL is a wholly-owned sub-sidiary of STANDARD BROADCASTING CORPORATION LIMITED (STANDARD). STANDARD owns and operates several radio stations as well as one cable television company in Ontario and one in Quebec. The company is ultimately controlled by SLAIGHT COMMUNICATIONS INCORPORATED (SLAIGHT).

In addition to the assets of CJOH-TV and its rebroadcasters, NATION'S CAPITAL is purchasing the assets of the following related companies: Carleton Productions Limited, a wholly-owned subsidiary of BUSHNELL which owns and operates a television production company, and Independent Communications Services Limited, a wholly-owned subsidiary of BUSHNELL which provides sales support and management or administrative services to BUSHNELL and Carleton Productions Limited. While the asset purchase agreement names BATON as the purchaser, the applicant advised the Commission that, pursuant to that agreement, the agreement will be assigned to NATION'S CAPITAL.

CJOH-TV is an affiliate of the CTV Television Network.

BACKGROUND TO THE PUBLIC HEARING

In Decision CRTC 85-1146 dated 14 November 1985, the Commission approved the transfer of ownership and effective control of STANDARD to SLAIGHT. In the same decision, the Commission approved the acquisition by STANDARD of the assets of CJOH-TV Ottawa, CJOH-TV-6 Deseronto and CJOH-TV-8 Cornwall from BUSHNELL COMMUNICATIONS LIMITED (OLD BUSHNELL). However, in Decision CRTC 86-1178 dated 3 December 1986, the Commission approved an application by a new company entitled BUSHNELL COMMUNICATIONS LIMITED (BUSHNELL) to acquire the assets of CJOH-TV Ottawa and its rebroadcasting stations from OLD BUSHNELL and for a broadcasting licence to continue the operation of these undertakings. As noted in the decision, this transaction involved an intercorporate re-organization but no change of effective control.

In 1987, following a public hearing in respect of competitive applications, the Commission approved an application by NATION'S CAPITAL for a licence to operate a new, independent, English-language television station to serve the National Capital Region (Decision CRTC 87-151 dated 2 March 1987).

By Order in Council P.C. 1987-815 dated 28 April 1987, Her Excellency the Governor General in Council referred Decision CRTC 87-151 back to the Commission for reconsideration and hearing. Consequently, in CRTC -Notice of Public Hearing 1987-55, the Commission announced that a public hearing would be held in the National Capital Region commencing 24 August 1987.

However, prior to the hearing, BATON entered into an agreement to purchase the assets of CJOH-TV and its related companies from BUSHNELL. On 14 July 1987, BATON and NATION'S CAPITAL advised the Commission that they were surrending the authority granted to NATION'S CAPITAL in Decision CRTC 87-151 to operate a new independent television station. Accordingly, in CRTC - Notice of Public Hearing 1987-63 dated 15 July 1987, the Commission announced that the 24 August 1987 public hearing was cancelled.

In CRTC - Notice of Public Hearing 1987-83 dated 1 December 1987, the Commission announced that a public hearing would be held in the National Capital Region commencing 26 January 1988 to consider the application by NATION'S CAPITAL to acquire the assets of CJOH-TV and its related companies.

INTERVENTIONS

The Commission received 16 written interventions with respect to this application. Eleven expressed unqualified support for the application, two expressed support with conditions, and three were opposed.

Three independent production companies, Lawrence Herzog Productions Ltd., The James Shavick Film Companies and Avenue Television & Telecommunications, as well as YTV Canada Ltd., supported the application citing BATON's past record regarding independent producers. The Saskatchewan Branch of the Alliance of Canadian Cinema, Television and Recording Artists (ACTRA) and Geoff Wilson, M.P. (Swift Current - Maple Creek), both referred to BATON's positive record in Saskatchewan in their letters of support.

CAP Communications (CAP) and CHUM Limited, which each operate CTV affiliates, intervened in support of the application and both stated that approval would result in a strengthened CTV Network. CAP appeared at the hearing to emphasize that any concerns relating to BATON's role in CTV should not be the subject of conditions of licence imposed upon this applicant or upon any other CTV affiliate.

Mr. Edward J. Billo of Ottawa commented in a written intervention that the application would result in a more stable broadcasting environment in the Ottawa area and would provide significant benefits to the public. The Ottawa Civic Hospital said that CJOH-TV's longstanding involvement in the community would be enhanced under BATON, and the Religious Advisory Committee to CFTO-TV wrote to commend BATON on its involvement with religious groups in Toronto and its similar plans for CJOH-TV in Ottawa.

The Ottawa-Hull Film and Television Association (OHFTA) supported the application in principle but raised a number of concerns with respect to script and program development as well as the level of support proposed by the applicant for programming produced by local independent producers. In its appearance at the public hearing, OHFTA suggested conditions of licence in this respect.

The Canadian Captioning Development Agency Inc. expressed support conditional upon the applicant outlining more specifically the levels of closed-captioned programming to be offered to hearing-impaired viewers. The Ontario Closed Caption Consumers felt that they could not support the application as originally filed because it failed to specify a detailed commitment with respect to closed captioning. It proposed a condition of licence specifying minimum amounts of local closed-captioned programming for CJOH-TV.

British Columbia Television Broadcasting System Ltd. (BCTV) appeared at the public hearing to intervene against the application. According to BCTV, approval of the application would result in BATON gaining effective control of the CTV Network. BCTV argued that such a situation would not be in the public interest and it suggested that, if the application were approved, the Commission impose a condition of licence limiting BATON to a maximum of 25% ownership of CTV in any future re-structuring of the network. BCTV also proposed a condition of licence which would require more balanced program production for the CTV Network as between BATON and the other CTV affiliates.

Another opposing intervention was filed by Mr. C.A. Billowes who argued that this application constituted "trafficking" of a broadcasting licence.

The Commission acknowledges the contributions made by all of the interveners and wishes to emphasize that it has given careful consideration to all of the concerns raised.

PROGRAMMING

The Commission has indicated in a number of recent decisions with respect to applications for authority to transfer effective control or acquire the assets of licensees that it is the sole responsibility of the applicant requesting approval of such a transfer or acquisition to demonstrate to the Commission that its application is the best possible under the circumstances, taking into account the Commission's concerns regarding concentration of ownership and related issues. The first test any applicant must meet is that the proposed transaction 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 be in the public interest.

In CRTC - Notice of Public Hearing 1987-83, the Commission said that it would discuss with the applicant how the transaction would result in an increase in the quality and diversity of Canadian programming, including local programs.

In the application and at the public hearing, NATION'S CAPITAL and BATON made various proposals with respect to increasing the quality and diversity of Canadian programming to be broadcast on CJOH-TV. The Commission believes these commitments will produce significant benefits to the community and the broadcasting system as a whole. Furthermore, the Commission notes NATION'S CAPITAL's assurances that all the programming benefits proposed by the applicant are minimum commitments and will be met regardless of whether NATION'S CAPITAL attains its financial objectives.

The following are the most important programming commitments made by the applicant, as well as relevant expectations or conditions of licence considered appropriate by the Commission:

a) Canadian Program Expenditures

In its application, NATION'S CAPITAL proposed to spend $10.4 million on Canadian programming in 1988/89 and $3.9 million on non-Canadian programming, for a total of $14.3 million. At the public hearing the applicant made additional Canadian program commitments, noted below, which increase the proposed 1988/89 expenditures to $14.7 million. This compares to proposed expenditures by BUSHNELL of $9.7 million on Canadian programming and $3.8 million on non-Canadian programming, for a total of $13.8 million in 1987/88.

According to the application, the projected expenditures on Canadian programming would increase by 5% in each year of a new licence term, whereas expenditures on non-Canadian programs would increase by 8%. However, in his closing statement at the hearing, Mr. Douglas Bassett, the President and Chief Executive Officer of BATON and NATION'S CAPITAL, said that NATION'S CAPITAL would maintain, on average during the licence term, the ratio of Canadian to foreign program expenses established in the first year of operation. In 1988/89, CJOH-TV's expenditure on Canadian programs would be at least 73% of total spending on all programming.

The Commission considers that the importance of Canadian programming should be reflected in the licensee's expenditures on such programming relative to expenditures on non-Canadian programs. Accordingly, it is a condition of licence that the proportion of total expenditures on Canadian programs to total expenditures on all programs for the year ending 31 August 1989 amount to at least 73% and that, at a minimum, this proportion be maintained in each subsequent year to the end of the licence term.

b) Local Program Expenditures

In the application, NATION'S CAPITAL proposed to broadcast a total of 28 hours per week of local programming representing an increase of 9 hours per week over the amount of local programming currently being broadcast on CJOH-TV. This represents an increase of more than 25%. NATION'S CAPITAL and BATON also proposed to spend a total of $7,881,000 on local programming in 1988/89. This amounts to an additional expenditure of $1,421,000 over and above the planned expenditure by BUSHNELL for the year. However, it should be noted that this incremental expenditure includes $525,000 in contributions by CFTO-TV and BATON's Saskatchewan stations towards co-operatively produced programs so that the total investment by NATION'S CAPITAL would be $7,356,000.

The Commission considers that the applicant's commitment to increased expenditures on local programming should reflect CJOH-TV's financial capacity. Accordingly, it is a condition of licence that NATION'S CAPITAL invest a minimum of $7,356,000 in direct local program production expenditures for the year ending 31 August 1989 and that in each subsequent year this expenditure increase, at a minimum, in direct proportion to the year-over-year increase in CJOH-TV's total revenues, as reported in its Annual Return for the previous year. In no year shall this expenditure be less than that of the previous year.

c) Co-operative Programs

BATON pointed out that one of the benefits of the transaction would be the ability to improve the quantity and quality of local programming by producing some local programs co-operatively for broadcast within the BATON group. This approach was envisaged by the Commission's policy set out in Public Notice CRTC 1985-58 to promote the development of local Canadian programs.

As noted earlier, BATON has indicated that in 1988/89 a total of $525,000 from CFTO-TV, CKCK-TV and CFQC-TV would be allocated to CJOH-TV for the production of the co-operative programs "News World Watch" and "Highschool Confidential". This $525,000 forms part of the total of $1,421,000 that NATION'S CAPITAL has committed for incremental, direct, out-of-pocket program expenditures in 1988/ 89. The Commission notes that BATON advised at the hearing that the $525,000 to be allocated to CJOH-TV by CFTO-TV and BATON's Saskatchewan stations for new co-operative programming in 1988/89 is not a part of any past commitment made by those stations and will not be considered as new programming by CFTO-TV and BATON's Saskatchewan stations in their forthcoming licence renewal applications.

d) Information Programs

Of the additional 9 hours per week of local programming proposed by NATION'S CAPITAL, over 8 hours will be programming in the information category. NATION'S CAPITAL proposed to increase the amount spent on such programming by $857,000 in the first year.

The late-evening news program, "Nightline", will be extended from five to seven days per week and six new production staff will be added to the news department. A major new public affairs program, "News World Watch", will be produced by CJOH-TV in co-operation with the other Baton television stations. The program will provide an in-depth analysis of current news stories and will be broadcast to BATON's stations live, by satellite, from Ottawa on Sundays at noon.

Other new, local information programs to be offered by NATION'S CAPITAL include: "Eye on Ottawa", a daily program featuring community events; "Ottawa Outdoors", a weekly series highlighting regional recreational activities; "The Church Here and Now", produced with the co-operation of the various local religious faiths; and "Pollywog", a new children's series to be produced at CFTO-TV with segments coming from CJOH-TV.

The Commission notes that CJOH-TV currently provides a very successful local news and information service. The additional programming proposed by NATION'S CAPITAL will not only provide Ottawa-area viewers with a greater range of local information and public affairs programming but will also enrich the program choices available to viewers of BATON stations elsewhere.

e) Music and Entertainment Programs

The Commission, while recognizing the importance of information programming for local television stations, wishes to underline the role to be played by these stations in the development of local talent.

NATION'S CAPITAL proposes to enrich the existing CJOH-TV drama series "Highschool Confidential", by $200,000 per year. BATON has indicated that this series will be broadcast on all the BATON television stations. CJOH-TV will also have new funds in order to produce segments for a new children's series, "Putnam's Emporium", which will be produced by CKCK-TV in Regina.

At the hearing, NATION'S CAPITAL proposed a new series of 30 half-hour music programs, "Search for the Stars". The series will be produced and broadcast by CJOH-TV and will feature local Ottawa-area musical talent. NATION'S CAPITAL said the annual, direct cost of "Search for the Stars", including prize money, would be $155,000. The Commission notes this commitment by the applicant and expects this series, or a similar local music series, to be broadcast in each year of the licence term.

Moreover, the Commission considers that the licensee is capable of exceeding the commitments to entertainment programming noted above and that more is required for CJOH-TV to meet the varied needs of its audience. The Commission notes that, within its proposal to broadcast 28 hours per week of local programming, NATION'S CAPITAL committed to only 2 hours and 52 minutes of local entertainment programs in its Promise of Performance. The Commission considers that this is an insufficient amount of local entertainment programming for a station in a market the size of Ottawa and that any increase in such programming should not be achieved at the expense of other categories of local programming.

Accordingly, it is a condition of licence that CJOH-TV broadcast a total of at least 28 hours per week of local programming in the year ending 31 August 1989, including at least 2 hours and 52 minutes of entertainment programming, and that in each subsequent year the licensee broadcast, at a minimum, an additional 30 minutes per week of local entertainment programming with a corresponding increase in total weekly local programming, as follows:

Total Entertainment Total Local Programming
Broadcast Year Programming (Hrs/Week) (Hrs/Week)

1988/89 2h52 28h
1989/90 3h22 28h30
1990/91 3h52 29h
1991/92 4h22 29h30
1992/93 4h52 30h

and that expenditures on these additional entertainment programs will be in addition to the minimum level of expenditure on local programming required by the second condition of licence in the Appendix to this decision.

At the 26 January 1988 public hearing, BATON noted that CJOH-TV would have access to and would participate in the production of a number of special programs to be produced by BATON.

These specials would include a major dramatic mini-series, "The History of Canada", a children's special, "The Admiral and the Princess", a number of music specials featuring Quebec singer Véronique Béliveau and public affairs specials under the series title "Sounding Board". It was made clear at the hearing that these specials would be produced by BATON regardless of whether this application was approved. With this approval, CJOH-TV will be assessed approximately 20% of the production costs of these specials or their equivalent. In the first year of a new licence term, this assessment will amount to at least $588,000, according to BATON. In return, CJOH-TV will be entitled to a corresponding percentage of any revenues these specials generate for BATON.

The Commission expects that any expenditures by CJOH-TV with respect to BATON-produced specials will be over and above the minimum level of expenditure on local programming required by the second and third conditions of licence listed in the Appendix to this decision. In addition, the Commission notes that NATION'S CAPITAL will continue to broadcast such local specials as the Children's Hospital Telethon, the Kiwanis Auction, a Country Music Christmas Special and various Youth Talent specials. The Commission considers that these local specials are an important part of CJOH-TV's service to the community and that they should retain their local orientation.

f) Program and Talent Development

In response to the intervention by the OHFTA, NATION'S CAPITAL committed to double the existing CJOH-TV program development fund from the current $50,000 per year to $100,000 per year and to ensure that the fund is administered by a Board of Trustees, including representatives of the local independent production community. In the past, little of this fund has been directed to new, local talent at the outset of their careers. At the hearing, however, Mr. Bassett said:

... this $100,000 is [to be] used for script and concept development for programs to be produced by local Ottawa-region writers, directors, and producers to encourage the development of innovative projects and Canadian creative talent.

Furthermore,

... no Baton-associated company would be available to tie in to that $100,000 development fund. Any amounts not used in any particular year will be rolled over for use in subsequent or following years.

The Commission notes these commitments and expects the $100,000 annual program development fund to be increased each year by the rate of inflation as measured by the Consumer Price Index. The Commission also expects NATION'S CAPITAL to submit to the Commission an annual report describing the administration of the fund and outlining the specific disbursements to local independent writers, directors and producers.

The Commission also notes the commitment by the applicant to reserve a minimum of 30 minutes per week in the CJOH-TV schedule for programming produced by local Ottawa-area independent producers. In 1988/89 this period will be on Saturday mornings and NATION'S CAPITAL has indicated it will actively search for an independently-produced children's series.

However, the Commission is of the view that the independent production community in the National Capital Region is capable of producing more than the 30 minutes per week of programming proposed by the applicant. Independent productions can contribute to more quality and diversity in CJOH-TV's programming and help to promote local talent. Consequently, the Commission expects CJOH-TV to broadcast, as a minimum, the following average number of hours of locally-produced independent programming in each broadcast year:

1988/89 0.5 hours per week 1989/90 0.5 hours per week 1990/91 1.0 hour per week 1991/92 1.0 hour per week 1992/93 1.5 hours per week

The Commission expects that expenditures by the applicant on these additional programs will be over and above the minimum level of expenditure on local programming required by the second condition of licence listed in the Appendix.

g) Social Issues

In order to better serve viewers with impaired hearing, NATION'S CAPITAL and BATON proposed to close caption all of the pre-recorded programs co-produced or co-financed within the BATON group of companies. This commitment will result in CJOH-TV broadcasting at least 73 hours of closed captioned programming each year and is expected to cost at least $146,000 in 1988/89. Discussion also took place at the hearing with respect to the possibility of CJOH-TV close captioning some or all of its local news programming.

The Commission considers that NATION'S CAPITAL is in a position to take a leading role concerning service to the hearing-impaired. Accordingly, the Commission expects that the commitment to close caption all pre-recorded programs which are co-produced or co-financed within the BATON group of companies will be fulfilled and that CJOH-TV will broadcast at least 73 hours of closed-captioned local programming in each year of the licence term.

In addition, the Commission expects NATION'S CAPITAL to introduce the closed captioning of headline items and local weather information in all of CJOH-TV's local news programming during the course of the licence term. Such closed captioning in local news programs should be in addition to the existing signing service currently provided by the station.

As described at the hearing, CJOH-TV has created a committee responsible for the pre-screening of programs to identify potential sex-role stereotyping in its produced and acquired programming. In addition, the Canadian Association of Broadcasters' (CAB) guidelines on sexist language have been distributed to all program production staff.

With respect to violence, CJOH-TV pre-screens all acquired programs and has developed an in-house set of guidelines for its production personnel. The Commission notes that NATION'S CAPITAL has endorsed the CAB's voluntary code regarding Violence in Television Programming.

The Commission wishes to remind NATION'S CAPITAL of the importance it places on the efforts of local television stations to accurately reflect the needs of ethnic groups in their programming. The Commission encourages NATION'S CAPITAL to contact the various ethno-cultural groups in the Ottawa area to ascertain their needs and concerns regarding local programming.

With respect to various social issues, the Commission is generally satisfied with the performance of the existing licensee and the proposals and commitments made by the applicant.

The Commission wishes to commend CJOH-TV for its active participation on the CAB's Societal Issues Committee and encourages NATION'S CAPITAL to continue this positive approach to social issues.

BENEFITS OF THE TRANSACTION

In considering an ownership transfer of this magnitude, the Commission carefully assesses not only those benefits which can be quantified in monetary terms, but also those which are not easily measurable in terms of their dollar value. In the present application, the Commission has also examined the advantages which may accrue to the applicant as a consequence of this transaction. The results of these assessments enable the Commission to determine whether the benefits of the proposed transaction are commensurate with the advantages accruing to the applicant.

At the 26 January 1988 public hearing, the Commission discussed with BATON the various quantifiable and non-quantifiable advantages to BATON that would result from approval of the transaction. It was agreed that approval of this transaction would result in a stronger and more influential BATON within the Canadian broadcasting system. With respect to programming, it was agreed that the acquisition of CJOH-TV would enable BATON to achieve greater economies of scale through the spreading of various programming and administrative costs over a larger number of television stations.

In addition to these general advantages, BATON agreed that this transaction would result in an increase in regional advertising revenues to CJOH-TV and CFTO-TV of $25 million to $50 million over a five-year period, of which approximately 60% would flow to CFTO-TV. Further, since BATON has its own advertising sales division, Glen-Warren Broadcast Sales, the applicant projected a gross saving to CJOH-TV of approximately $10 million in sales representative fees over five years. These fees will now flow to BATON rather than to an external sales agent and will represent a net advantage to BATON once sales expenses have been deducted.

The Commission notes that approval of the transaction will result in financial and other advantages to BATON which should be reflected in benefits to the Canadian broadcasting system.

In their application and at the public hearing, BATON and NATION'S CAPITAL proposed a variety of quantifiable and non-quantifiable benefits. The Commission has examined these proposals and considers that the most significant non-quantifiable benefits of this transaction are as follows:

º BATON's financial resources will result in an increase in the quantity and quality of local programming and a strengthened local television station.

º A stronger CJOH-TV will contribute to a stronger, more competitive CTV Television Network and a more distinctive Canadian broadcasting system.

º There will be an increase of 9 hours per week in the local programming broadcast by CJOH-TV and a reduction of 2 hours per week in the non-Canadian programming broadcast by CJOH-TV.

º The co-operative programming proposed by the applicant will result in an increase in the quality and diversity of the local programming offered by CJOH-TV and the other BATON television stations in other regions of Canada.

º There will be increased opportunities for co-operative funding and production at both the regional and national levels and Canadian talent will have additional opportunities for participation, exposure and growth in regional and national quality programs.

º Independent producers in the Ottawa area will have access to the CJOH-TV schedule.

º There will be an increased flow and exchange of entertainment and information programming amongst the regions in which BATON operates resulting in an increase in the diversity of programming in these regions.

º CJOH-TV will have access to the management and programming expertise and the financial resources of BATON.

º All the quantifiable programming and capital commitments made by the applicant are guaranteed and will be met regardless of CJOH-TV's actual revenues.

Also important in the assessment of overall benefits are those which can be clearly quantified, evaluated and monitored. These include the following:

a) Programming

In their written application, NATION'S CAPITAL and BATON committed to spend an additional $1,070,000 on local programming in 1988/89 over and above BATON's estimates of the expenditures projected for that year by BUSHNELL. The Commission is satisfied that these additional program expenditures represent incremental benefits to CJOH-TV and the broadcasting system which would not occur if the transaction did not take place.

The $1,070,000 has been allocated by NATION'S CAPITAL as follows:

1. 12 new production
staff at CJOH-TV: $ 500,000

2. Allocation to the co-
operative programs
"News World Watch" and
"Highschool Confiden-
tial" from other Baton
stations: 525,000

3. Other direct program
expenses: 45,000

TOTAL: $1,070,000

In addition to the above, NATION'S CAPITAL committed to the following incremental program expenditures at the 26 January public hearing:

4. New local music series
"Search for the Stars"
- including the value
of prizes: $155,000

5. Closed-captioning
commitment: 146,000

6. Enrichment of the
program development
fund: 50,000

TOTAL: $351,000

Total direct program benefits for 1988/89 therefore amount to $1,421,000. Assuming a 5% increase per year, the total direct program benefits over a five-year period would total $7,851,000.

b) Technical

In its application NATION'S CAPITAL committed to spending, over a five-year period, a total of $4,815,000 on capital improvements and additions to CJOH-TV. These additions include conversion to stereophonic transmission and the purchase of a "live-eye" satellite/microwave news mobile.

NATION'S CAPITAL also committed to spend $2,500,000 on capital improvements and additions at Carleton Productions, a separate production company which is associated with CJOH-TV and forms part of the assets to be purchased in this transaction. Since Carleton Productions is not a regulated undertaking, however, the benefits that may be associated with its purchase have not been considered as benefits with respect to this transaction.

At the public hearing, the Commission questioned BUSHNELL regarding the capital expenditures projected by BUSHNELL prior to its agreement to sell the assets of CJOH-TV and Carleton Productions to BATON. These projections, provided after the hearing, indicate that if this transaction had not been approved, BUSHNELL would have spent a total of $2,465,000 on capital improvements and additions at CJOH-TV and $3,365,000 at Carleton Productions over the same five-year period. Accordingly, the Commission considers that the five-year net benefit to CJOH-TV with respect to specific capital improvements and additions committed by NATION'S CAPITAL is $2,350,000.

c) Interest Charges

As is evident from the financial statements submitted by the applicant and from CJOH-TV's 1987 Annual Return, the station is currently burdened with significant annual interest payments resulting from SLAIGHT's purchase of BUSHNELL in 1985. These interest payments amounted to $5,207,000 in reporting year 1987 and were projected to remain the same in the future.

In the application and at the public hearing, BATON made the commitment that any interest payments associated with its purchase of the assets of CJOH-TV and Carleton Productions would not appear in the financial statements of CJOH-TV. Indeed the financial projections submitted by NATION'S CAPITAL indicate no interest charges for the proposed licence period.

The Commission considers that this commitment by the applicant is a quantifiable benefit to CJOH-TV, and indirectly to the community it serves, of approximately $26,000,000 over a five-year period.

d) Management Fees

Under its current owners, CJOH-TV has been charged $1,600,000 each year as a management fee. This fee has been paid to various SLAIGHT companies in exchange for management services provided by them.

In the application, NATION'S CAPITAL said these management fees would be reduced to $300,000 per year. The Commission considers that this commitment represents a quantifiable benefit of the transaction in the amount of $1,300,000 per year or $6,500,000 over five years.

CONCENTRATION OF OWNERSHIP

BATON is the licensee of CFTO-TV, the CTV affiliate in Toronto, as well as CTV and CBC affiliates and one radio station in the province of Saskatchewan. In 1986, BATON's television stations received 11% of total Canadian broadcasting revenues and the company ranked as the largest of all private-sector television licensees in Canada. In Ontario, BATON has been the second-largest licensee in terms of television revenues after Global Communications Limited. With approval of this application it will move into first place. If one considers Canadian broadcasting revenues as a whole, including those of television, radio and cable licensees, approval of this transaction will move BATON from sixth to third place. BATON is, therefore, a very influential force in Canadian broadcasting.

The Commission notes that none of the interveners expressed concerns about potential concentration of ownership.

The Commission has stated clearly in past decisions that concentration of ownership is not, in and of itself, a concern provided there continues to be an effective degree of diversity of ownership and of programming sources to ensure that the objectives of the Broadcasting Act are met. Today's highly competitive communications environment, as well as the high costs and risks involved in broadcasting, require that the ownership structure of the industry be composed of broadcasting holdings of various sizes, including larger entities with significant pools of resources, which are able to compete effectively with non-Canadian broadcasters and have the capacity to produce high-quality, competitive, Canadian programming.

In considering issues related to concentration of ownership, the Commission pays particular attention to the degree of competition in the market concerned. At the present time, four Ottawa-area television stations serve English-language viewers and another three serve French-speaking viewers. In addition, the region is well-served by local radio and the print media. The Commission notes the commitment by the applicant that it will not oppose the licensing of a new, independent, English-language, television station in Ottawa should applications for such an undertaking be considered in future by the Commission.

At the 26 January 1988 hearing, Mr. Bassett argued that the best means of combatting viewer fragmentation is through strong local stations with sufficient financial resources to provide high-quality, competitive, local programming.

The Commission considers that approval of this transaction will not result in any diminution of competition or reduce the quality of programming available to viewers in the Ottawa area. While BATON's role within the Canadian broadcasting system will be strengthened by this decision, the Commission also considers that any concerns with respect to concentration of ownership on a national or provincial level are clearly outweighed by the significant and unequivocal benefits outlined above. Furthermore, the level of high-quality, local programming broadcast will be considerably enhanced through co-operative arrangements among the BATON stations and increased opportunities for the local production community. In addition, the Commission considers it a benefit of this transaction that CJOH-TV will have access to BATON's management, administrative and programming expertise, as well as its overall financial strength. The Commission also notes BATON's management philosophy, as expressed by Mr. Bassett at the hearing:

We believe, and our record is proof of this, that the best corporate policy is to ensure you have the best local executives in place, and then to let them do their jobs, without interference and without second-guessing. Local management attuned to the needs of each community has been the key to our success.

With respect to the acquisition of non-Canadian programming, the Commission notes that CJOH-TV will continue to purchase such programming of its own choosing and that BATON will not establish a central buying office for its television stations.

In concluding that this transaction is in the public interest, the Commission notes the firm commitment on the part of BATON to local management and control, including the applicant's intention to appoint seven new members from the Ottawa region to the Board of Directors of NATION'S CAPITAL to replace seven of the current members of the thirteen-member Board. The Commission expects NATION'S CAPITAL to submit a revised list of the members of the Board within three months of the date of this decision.

IMPACT ON THE CTV TELEVISION NETWORK

BATON currently owns the CTV flagship station CFTO-TV in Toronto, as well as the CTV affiliates in the province of Saskatchewan. According to the revised CTV affiliation agreement of 29 November 1987, BATON's share of the network's revenues and costs was 25.6% in reporting year 1987. This would climb to approximately 33.7% with the purchase of CJOH-TV.

Under the current CTV ownership arrangements, each of the eleven different owners has an equal ownership share of the network and one vote on the Board of Directors. Approval of this transaction reduces the number of owners by one. In other words, approval of this transaction will not alter the existing ownership structure of the CTV Network nor will it increase BATON's voting strength relative to that of the other owners.

At the public hearing, Mr. Bassett stated that Baton is "... committed to strengthening the CTV network and to working vigorously within the network to achieve that goal". In this regard, Mr. Bassett also said:

A strengthened CTV is necessary for Baton's continuing strength. We firmly believe that there must be the will to do what is necessary to strengthen CTV. And we are quite prepared to recognize that for our company that may mean taking on considerably more financial burden.

Furthermore, BATON denied that it wished to control the CTV network and indicated it "support[s] the notion that regional balance is important for a national service".

Finally, Baton said there is a will among all the existing shareholders of CTV to negotiate a new ownership agreement and that such negotiations should be conducted among the owners of the CTV Network.

At the public hearing, two CTV shareholders intervened with comments regarding the potential impact of the transaction on the organizational structure, viability and performance of the network.

BCTV, represented by its Chairman of the Board, Mr. Ray Peters, argued that approval of the application would lead to control of the CTV network by BATON and that such control would not be in the public interest. Mr. Peters said the existing CTV ownership structure was originally designed to reflect all regions of the country and he claimed that BATON's dominant influence within the network had resulted in a lack of regional balance in program content and production. Accordingly, BCTV requested that the Commission either deny the application or impose a condition of licence restricting BATON's ownership and control of the network to not more than 25% and requiring a more balanced approach to network program acquisitions.

Mr. Bill McGregor, President of CAP, licensee of the CTV affiliate CKCO-TV Kitchener, acknowledged that any new CTV shareholders' agreement will recognize the fact that the size and number of CTV affiliates, and their desire for regional involvement, has and will continue to evolve. Mr. McGregor expressed optimism that a new ownership agreement would be reached and he suggested that the Commission reaffirm its position with with respect to regional involvement, production and participation in the CTV network. Mr. McGregor also stated that approval of this application could be beneficial to the network and that any future ownership of the CTV network must be "... representative of the diverse interest of our coverage, with no single entity being in a position to dictate to the other shareholders ...".

The Commission considers that a strong CTV Television Network is an essential element in the Canadian broadcasting system. The role that the CTV network should play in the broadcasting environment of the next five years is clearly set out in Decision CRTC 87-200 dated 24 March 1987 which renewed CTV's network licence.

The Commission believes that issues relating to the ownership of the CTV network and regional balance in program sources which were raised at the 26 January 1988 public hearing should in the first instance be resolved by CTV itself. The Commission is confident that approval of this application will not materially affect the present ownership structure of the CTV network or regional involvement, production and participation in the network. Any significant change in the ownership structure of CTV would, of course, require approval by the Commission.

OTHER ISSUES

As noted above, in his intervention Mr. Billowes suggested that the proposed transaction would amount to "trafficking" of a broadcasting licence. In this regard, the Commission notes a statement made by Mr. Allan Slaight at the hearing indicating that the sale of CJOH-TV will result in a loss, since the net proceeds of the sale will be lower than the price he paid for these same assets in 1985.

At the hearing, the Commission pointed out that there are several communities west of Ottawa, including Pembroke, Chalk River and Deep River, which are not able to receive any CTV station over-the-air. To this concern, BATON replied as follows:

... if we get requests such as we had in Saskatchewan to bring a CTV signal in certain areas like Deep River, we of course, like we have done in Saskatchewan, [would] make application to the Commission to extend the signal.

Broadcasters are receiving an increasing number of complaints from viewers concerning the lack of stereo on Canadian television stations and the substitution on cable of monophonic Canadian signals in place of stereo signals on U.S. channels. The Commission notes that NATION'S CAPITAL has made a commitment to convert CJOH-TV and its rebroadcasters in Cornwall and Deseronto to stereophonic sound by 1990.

CONCLUSION

After careful analysis of all the commitments made by NATION'S CAPITAL and BATON and after due consideration of the advantages of the transaction to BATON, the Commission is satisfied that approval of this transaction will yield significant and unequivocal benefits to the undertakings concerned, the communities they serve, and the Canadian broadcasting system as a whole.

While the Commission recognizes that the size and influence of BATON will increase as a result of the approval of this transaction, it does not consider that the number of programming sources available to viewers in the Ottawa area will be lessened or that competition will be reduced. The benefits of this transaction to the Ottawa region and the Canadian broadcasting system outweigh any possible concerns with respect to concentration of ownership on a regional or national level. In this regard, the Commission notes that the Canadian broadcasting system consists of a number of large broadcasting entities which, along with many smaller entities, provide an overall balance in the broadcasting environment.

The Commission considers that approval of this transaction is in the public interest. In consideration of the important role that CJOH-TV and BATON should play in Canadian television broadcasting, the Commission attaches to the licence the conditions listed in the Appendix. Furthermore, the Commission expects NATION'S CAPITAL to fulfill all of the commitments proposed in the written application and at the public hearing, as well as those expectations identified in this decision.

Fernand Bélisle
Secretary General

APPENDIX

CONDITIONS OF LICENCE

The licence issued pursuant to this decision shall be subject to the following conditions:

1. It is a condition of licence that the proportion of total expenditures on Canadian programs to total expenditures on all programs for the year ending 31 August 1989 amount to at least 73% and, at a minimum, that this proportion be maintained in each subsequent year to the end of the licence term.

2. It is a condition of licence that NATION'S CAPITAL invest a minimum of $7,356,000 in direct local program production expenditures for the year ending 31 August 1989 and that in each subsequent year this expenditure increase, at a minimum, in direct proportion to the year-over-year increase in CJOH-TV's total revenues, as reported in its Annual Return for the previous year. In no year shall this expenditure be less than that of the previous year.

3. It is a condition of licence that CJOH-TV broadcast a total of at least 28 hours per week of local programming in the year ending 31 August 1989, including at least 2 hours and 52 minutes of entertainment programming, and that in each subsequent year the licensee broadcast, at a minimum, an additional 30 minutes per week of local entertainment programming with a corresponding increase in total weekly local programming, as follows:

Total Entertainment Total Local Programming
Broadcast Year Programming (Hrs/Week) (Hrs/Week)

1988/89 2h52 28h
1989/90 3h22 28h30
1990/91 3h52 29h
1991/92 4h22 29h30
1992/93 4h52 30h

and that expenditures on these additional entertainment programs will be in addition to the minimum level of expenditure on local programming required by the condition of licence regarding direct local program production expenditures.

4. It is a condition of licence that NATION'S CAPITAL adhere to the Canadian Association of Broadcasters' self-regulatory guidelines on sex-role stereotyping, as amended from time to time and approved by the Commission.

5. It is a condition of licence that NATION'S CAPITAL adhere to the Canadian Association of Broadcasters' Broadcast Code for Advertising to Children of October 1987 (English version) and January 1988 (French version), as amended from time to time and approved by the Commission.

6. It is a condition of licence that CJOH-TV make available, in the vertical blanking interval, closed captioning for persons with impaired hearing.

7. It is a condition of licence that CJOH-TV operate as part of the network operated by the CTV Television Network Limited.