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Decision
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Ottawa, 6 September 1988
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Decision CRTC 88-583
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Mount-Royal Broadcasting Inc.
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Montreal, Quebec -880740600 -880742200 -880745500 -880741400 -880743000
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Following a Public Hearing in Trois-Rivières, Quebec on 5 July 1988, the Commission approves the applications by Mount-Royal Broadcasting Inc. (Mount-Royal) to acquire the assets of Montreal radio stations CFCF, CFQR-FM and CFCX (short wave), owned by CFCF Inc., and to obtain broadcasting licences to continue the operation of these stations as well as the radio networks that provide for the retransmission of baseball games of the Montreal Expos and hockey games of the Montreal Canadiens that are broadcast on CFCF.
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The Commission will issue licences to the applicant upon surrender of the current licences. The licences of CFCF, CFQR-FM and CFCX will expire 31 August 1993 and will be subject to the conditions specified in this decision and in the licences to be issued. The licence of the network that rebroadcasts the Montreal Expos games will expire 31 October 1988, while that of the network that rebroadcasts the Montreal Canadiens games will expire 30 June 1990, which dates correspond with the expiry dates of the current licences.
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Parties to the Transaction
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The applicant is a new broadcasting company that was set up specifically for the purpose of this transaction. Control of Mount-Royal (55% of the common shares) is held by Mr. Pierre Béland of Saint-Lambert, Quebec through a holding company, Belcand Mount-Royal Holdings Inc. The other shareholders in the applicant company are the two institutions providing financial backing for the transaction, Royal Trustco Limited (40% of the common shares) and the Toronto-Dominion Bank (5% of the common shares). Mr. Béland's principal associate in Belcand Mount-Royal Holdings Inc. is Mr. Pierre Arcand of Montreal, who owns 30% of the shares in this holding company.
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Both Mr. Béland, who will serve as President and General Manager of the new enterprise, and Mr. Arcand, who will be Vice-President and Director of Programming, have extensive experience in broadcasting and, in particular, a thorough knowledge of radio in the Montreal market. Indeed, both have worked for a number of years in the Télémédia group, which is one of the largest broadcasting concerns in the country, where they have held various management positions. These include, in the case of Mr. Béland, the positions of General Manager of CKAC, which remains one of the most popular radio stations in Montreal, Vice-President of the FM division and President of Télémédia Québec; and in the case of Mr. Arcand, News Director of Télémédia, Vice President of CKAC and Senior Vice-President of Télémédia.
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The vendor, CFCF Inc., one of the largest broadcasting concerns in the province of Quebec, has invested by far the largest part of its assets in the television and cable television sectors. In addition to the broadcast undertakings that are the subject of the current applications, CFCF Inc. is the licensee of CFCF-TV Montreal, an affiliate of the CTV network; CFJP-TV Montreal, the flagship station of the Réseau Quatre Saisons; television stations CFAP-TV Quebec City and CJPC-TV Rimouski, which are affiliated with the Quatre Saisons network; and the Réseau Quatre Saisons. CFCF Inc. also has a large cable television undertaking serving more than 190,000 subscribers in the western part of Montreal and in Laval.
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CFCF and CFQR-FM have played a pioneer role in terms of Canadian broadcasting. CFCF was the first radio station to be established in the country. CFQR-FM became the first truly successful commercial FM station in Canada in the early 1960s and, with its adult-oriented musical format, dominated the Montreal market for almost twenty years. During the 1980s, however, both stations have suffered a sharp decline. The last three BBM fall surveys, those for 1985, 1986 and 1987, indicate that CFQR-FM has accounted for between 4% and 6% of total listening hours in the central Montreal market, while CFCF garnered a 2% to 3% share. At the same time, the total confirmed revenues of CFCF and CFQR-FM have been decreasing since 1985, with losses of about $1.5 million a year since 1983, a situation which is mainly attributable to the AM station.
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CFCF Inc. stated at the hearing that the main reason for disposing of its radio stations is its wish to concentrate its efforts and investments primarily in its television and cable television interests which currently represent 99% of its assets and account for 96% of its revenues. It also indicated that these radio stations have now reached a crucial point and that the best way of ensuring their future in the highly competitive Montreal market is to entrust their ownership to experienced radio broadcasters who would be willing to devote all of their energies to these radio stations.
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Financing
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The agreement between the two parties indicates that Mount-Royal offered to acquire the undertakings in question for a base price of $10 million, to which would be added $550,000 in organizational costs and an additional $1,250,000 for the acquisition of fixed assets, for a total of $11.8 million. The total amount of financing available for the transaction is in the order of $12,380,000 including $530,000 in capital stock, $11,250,000 in long-term loans, and an operating line of credit of $600,000.
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In assessing the overall financial viability of the proposal, the Commission has taken into consideration the applicant's revenue, expense and cash flow projections, the considerable size of the loans involved, as well as the terms of the loan agreements entered into by Mount-Royal and its creditors, Royal Trustco Limited and the Toronto-Dominion Bank.
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At the hearing, the applicant first of all pointed out that the anglophone population of Montreal still constitutes the third-largest English-speaking community in Canada and that it represents a significant radio market that should generate close to $25 million in advertising revenue this year. According to the applicant's revenue projections, the two stations should earn approximately $5 million in 1989, which is 26% to 28% more than both actual 1987 advertising revenues and the forecasts for 1988.
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It maintained that an increase in revenue of approximately $1 million for the two stations in the first year is reasonable and is actually in some respects even a conservative estimate in light of certain factors on which its revenue projections are based. It emphasized, firstly, that in projecting 1989 revenues of $3,200,000 for CFQR-FM and of $1,800,000 for CFCF, it would simply be restoring revenues to the levels previously reached by the stations some five years earlier, namely in 1983/84 and 1984/85.
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The applicant also pointed out that its revenue forecasts are based on an assumption of zero growth in the anglophone advertising market between 1988 and 1992, while this market actually expanded by 60% between 1980 and 1986. The forecasts also assume a relatively small increase in the use of available advertising time: specifically 46% in the first year, rising to 55% in the fifth year in the case of CFQR-FM, while comparable Montreal FM stations have been achieving rates of 70% to 75%; and, in the case of CFCF, 33% in the first year rising to 46% by the fifth year. The applicant also considers its audience projections to be realistic. These are 475,000 for CFQR-FM in 1993, which represents the level achieved by this station in 1984, and 275,000 listeners for CFCF.
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Finally it pointed out that, in assessing the 1988 revenues, it should be noted that CFCF and CFQR-FM experienced an abrupt decline in advertising early in 1988 as a result of the sense of uncertainty and insecurity created by rumours that the stations would be sold. It estimated the loss in sales at some $400,000.
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Mount-Royal further indicated that its revenue, expenses and cash flow projections were also made in the context of its overall recovery plan for these stations and the concrete measures already implemented to this end pursuant to a management agreement signed with CFCF Inc. in March 1988. It pointed out that, among other things, the sales department had been completely reorganized and placed under the supervision of a new vice-president of sales, with fifteen years experience in broadcasting.
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According to the applicant, the various administrative measures implemented to date have already produced results. In the ten-week period prior to the public hearing, combined local sales for the two stations had increased by some 30% compared with the same period in 1986/87. It also stated that presales to date for the first quarter of the next fiscal year, that is from September to December 1988, are consistent with the projections submitted in support of its applications. In a letter dated 17 July 1988, the applicant submitted to the Commission the latest figures available to it for 1987/88 which indicate a stabilization of total revenue at a slightly higher level than those achieved in 1986/87, and a reduction in expenses of approximately $600,000 compared with the figures for the previous year. The projected losses would thus be reduced by some 50% in comparison with those recorded in 1986/87. The applicant further stated that the implemented and planned spending cuts would not affect the quality of service since they consist primarily of an administrative reorganization. It also noted that programming expenditures will increase from $800,000 in 1988/89 to more than $1 million during the fifth year of operation.
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In light of all the above, especially the experience of the two major partners and their considerable knowledge of the Montreal broadcasting market, the fact that the financial projections submitted in the context of the new management team which is already in place are realistic, and the favourable conditions under which the loans have been obtained, notably the financial flexibility from which the applicant will benefit during the first two or three years of operation due to the fact that the $7.5 million term loan need not start to be repaid until the third year and the $2.5 million debenture not until the sixth year, the Commission has concluded that the financial structure devised by the applicant is viable and that its revenue forecasts are reasonable in the circumstances of the Montreal market.
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Benefits Resulting from the Transaction
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As stated in a number of decisions relating to applications for authority to transfer effective ownership or control of broadcasting undertakings, 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 yields 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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Having determined that the proposed transaction meets the minimum prerequisite of financial viability, the Commission assessed the advantages which, according to the applicant, would result from the present transaction. Mount-Royal emphasized in particular the establishment of a new broadcasting company that is specifically oriented toward the operation of radio stations, to be staffed by Montreal executives with extensive radio broadcasting experience who are capable of successfully operating these radio stations which have experienced serious financial difficulties during the past few years. The applicant also noted that the establishment of this new company would lead to a reduction of concentration of ownership in terms of Montreal broadcast undertakings and that the proposed changes to CFQR-FM's programming would enable it to repatriate a significant number of Montreal listeners who currently listen to American radio stations.
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With regard to more tangible benefits, the applicant proposed to increase the duration of each of CFQR-FM's newscasts from 90 seconds to 4 minutes, and to increase the total amount of broadcast time allocated each week for newscasts from 3 hours to 4 hours 35 minutes. It also proposed to broadcast CFCF-TV's newscast, "Pulse News", on CFCF radio between 6 p.m. and 7 p.m. Monday to Friday, resulting in a total of 12 hours 35 minutes of news a week. The applicant proposed to hire an additional journalist for the news department during the third year of operation, which will enable the evening newscasts that currently originate with an agency to be replaced by local newscasts. The Commission also notes the proposal to establish an advisory committee to ensure that the views of the anglophone community of Montreal are reflected in the programming of CFCF and CFQR-FM.
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Among the proposed tangible benefits that are quantifiable in terms of their dollar value, the Commission accepts the financial support provided to the "All City Stage Band", a group of Montreal musicians, in the form of $125,000 in direct costs over five years and notes an additional $150,000 in indirect costs in the form of promotional support; the annual $1,000 contribution to Musicaction; and a direct contribution of $25,000 over five years to the annual radiothon in support of the Montreal Symphony Orchestra, with additional indirect promotional costs of $125,000; the hiring of a full-time journalist at a cost of $150,000 over three years; and the addition of a weekly public affairs program on CFCF starting in the second year, for a total of $60,000 during the last four years.
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The Commission notes that the applicant's plan to revitalize the two stations includes moving them from their present location, which they presently share with CFCF Inc.'s Montreal television stations, CFCF-TV and CFJP-TV. The applicant submitted that it is essential to have an "independent" location in order to restore staff confidence and pride and to create a sense of identification with the new orientation and objectives of the stations and, hence to ensure a better image and improved program quality. The cost of such a move is evaluated at $300,000 by the licensee.
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The Commission also notes that station identification jingles and those used in commercial messages would be produced in Canada rather than in the United Stated, as is currently the case. This represents additional direct costs of $75,000 and $150,000 over five years for CFCF and CFRQ-FM respectively.
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However, the Commission cannot consider the amount of $250,000 that the applicant had submitted was required to replace CFQR-FM's antenna as a tangible and quantifiable benefit, because of a measure of ambiguity as to whether the antenna should be replaced or repaired, and the absence of valid justifications on the part of the applicant.
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In view of the financial situation of these stations, the Commission is convinced that the benefits noted above constitute significant and unequivocal benefits commensurate with the size and nature of the transaction, and that approval of these applications would be in the public interest.
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In other respects, as part of the above-mentioned revitalization plan, Mount-Royal proposed to amend the Promises of Performance of CFCF and CFQR-FM. In particular, it proposed changing CFCF's current predominantly talk format to a musical format along the lines of "Music of your Life", consisting of hits from the 40s to the 70s. It noted that in this manner it would be aiming at the 45-and-over Montreal audience, which is currently offered with a limited choice of licensing options. It also noted that its proposed music format is not one currently offered in the market since the English-language stations CJFM-FM, CHOM-FM and CKGM primarily aim at younger audiences and CJAD operates mainly in a talk format.
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In the case of CFQR-FM, the applicant pointed out that the current trend among adult-oriented FM stations is to play a larger proportion of vocal music because such music is considerably more readily available than are instrumental selections. While remaining within the authorized parameters of a Group I station, the applicant proposed to change the ratio of vocal to instrumental selections broadcast on CFQR-FM from 30/70 to 65/35 and to reduce the amount of traditional and special interest music (category 6) from 6 hours to 2 hours per week. The applicant indicated that its proposed change in the vocal/instrumental ratio of musical selections would ensure that CFQR-FM continued to be targeted primarily to an adult audience between the ages of 35 to 54 while giving it a distinctive identity compared with other English-language FM stations in Montreal, since most of its vocal music selections would be drawn from the recent and past repertoires and since it would continue to be the only FM station in Montreal to feature so much instrumental music (35%).
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The Commission has taken note of the proposed amendments to the programming of CFCF.
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With regard to those proposed in CFQR-FM's Promise of Performance, it approves the change in the ratio of vocal to instrumental music selections from 30/70 to 65/35. The Commission notes, however, that by increasing to 65% its proportion of vocal music selections, CFQR-FM will cross the 50% threshold prescribed by the policy and could thus, of its own volition, broadcast anywhere between 51% and 100% of such music. The possibility that the applicant's proposed amendments to CFQR-FM's Promise of Performance could affect the balance of English-language radio services in Montreal was raised in interventions submitted at the public hearing by CKGM/CHOM-FM (CHUM Québec) and by Standard Broadcasting, the licensee of CJAD and CJFM-FM Montreal.
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Following the discussions on this topic at the hearing, and as agreed by the applicant, the Commission imposes as a condition of the licence of CFQR-FM that the percentage of category 5 vocal music selections may at no time exceed 65%, measured on a weekly basis. The Commission has also taken note of the applicant's undertaking to ensure that the vocal and instrumental selections are distributed evenly throughout the broadcast day.
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With regard to the written intervention submitted by the Canadian Independent Record Production Association, the Commission notes that the applicant's proposal to broadcast a level of 20% Canadian content for category 5 music is in accordance with Commission policy.
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Further, the Commission denies the proposal to reduce the amount of category 6 music broadcast by CFQR-FM from 6 hours to 2 hours per week. The Commission considers that the arguments presented at the hearing by the applicant were not convincing, since this type of music is particularly well suited to CFQR-FM's proposed musical format.
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The licences of CFCF and CFQR-FM are subject to the condition that the licensee adhere to the CAB's self-regulatory guidelines on sex-role stereotyping, as amended from time to time and approved by the Commission.
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Fernand Bélisle
Secretary General
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