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Decision
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Ottawa, 10 June 1988
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Decision CRTC 88-405
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Radio Drummond (1980) Inc.
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Communications Grantham Inc.Drummondville, Quebec -874007800 -874008600
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Following a public hearing in Quebec City on 7 March 1988, the Commission denies applications for authority to transfer effective control of Radio Drummond (1980) Inc. and Communications Grantham Inc., licensees of CHRD and CJDM-FM Drummondville respectively, through the transfer of all of the common issued and outstanding shares in Radio Drummond (1980) Inc. to COGECO Inc., and through the transfer of all of the class "A" voting shares and class "D" non-voting shares in Communications Grantham Inc., representing 100% of the issued and outstanding shares in that company, to Radio Drummond (1980) Inc. (67.48% of the voting shares), and to COGECO Inc. (32.52% of the voting shares). Radio Drummond (1980) Inc. would have thus become the parent company of Communications Grantham Inc., which would have been controlled indirectly by COGECO Inc.
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Through its subsidiaries, COGECO Inc. (Cogeco) operates television stations CKTM-TV and CFKM-TV Trois-Rivières and CKSH-TV and CFKS-TV Sherbrooke, as well as radio stations CFGL-FM Laval and CJMF-FM Quebec City. In Decisions CRTC 88-406 and 88-407 of today's date, the Commission has approved the transfer to Cogeco of effective control of radio stations CKBS and CFEI-FM Saint-Hyacinthe, as well as CHLC and CKDO-FM Baie-Comeau and CFRP Forestville, Quebec.
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Cogeco also has indirect interest in a number of cable undertakings in central and eastern Quebec with more than 130,000 subscribers, making it the third largest cable operator in the province of Quebec. Cogeco also holds a minority interest in Premier Choix: TVEC Inc., which is licensed to operate the French-language pay television service Super Écran and the specialty programming service, Le Canal Famille. In addition, Cogeco is a member of the Consortium de télévision Québec-Canada which is licensed to operate the French-language specialty television programming service TV5, and has an interest in Les Productions SDA Ltée, a private production company.
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For its part, Radio Drummond (1980) Inc. (Radio Drummond) acquired the assets of station CHRD from Radio Inter-Cité (1978) Inc. in 1981. This AM station has been serving the Drummondville area for almost 35 years. Communications Grantham Inc. (Communications Grantham) was authorized to operate a new FM station in Drummondville on 21 January 1987 (Decision CRTC 87-56). The new station was to be operated in the Group I music format on a joint basis with station CHRD. Station CJDM-FM commenced broadcasting on 15 August 1987. BBM data for the fall of 1987 indicated that CHRD and CJDM-FM were in first and third positions, respectively, in their market.
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Reasons for the transactions
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At the March hearing, Mr. Pierre Thibault, President and majority shareholder in Radio Drummond and Communications Grantham, stated that he had decided to dispose of his broadcast undertakings because of increasingly difficult operating conditions arising from stronger competition and the fact that [TRANSLATION] "AM, like FM, doesn't always have the human nor, especially, the financial resources necessary to both remain competitive and offer a top quality product". In response to the Commission's concerns regarding the FM station and the proposed rapid change of control of an undertaking that had been licensed and had commenced broadcasting only in 1987, Mr. Thibault acknowledged at the hearing that the procedure "may seem unusual", and explained that despite CJDM-FM's good performance in the first audience surveys, the anticipated revenues have not materialized.
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Benefits proposed by the purchaser
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As stated in a number of decisions relating to applications for authority to transfer effective control of a broadcasting undertaking, 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 broadcast 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 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 broadcast undertakings in question, and the scale of the programming, management, financial and technical resources available to the purchaser.
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In terms of non-qualtifiable benefits to be derived from these applications, Cogeco mentioned the considerable increase in financial stability and human resources that would be available to the two stations if they were to affiliate with a larger communications organization and the resultant synergistic effect. Cogeco also stated that in retaining the existing staff of the two stations it would be ensuring continuity of service, and it pledged to abide by all of the conditions and commitments in respect of each station.
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With regard to quantifiable benefits, Cogeco proposed to hire a full-time journalist who would be responsible for CJDM-FM's local news programming, representing an additional cost of $60,000 over five years. Cogeco also proposed to hire another full-time host/researcher to prepare foreground programming for the FM station, representing an additional cost of $81,900 over five years.
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As a means of promoting Canadian talent, Cogeco proposed to offer annual scholarships of $500 each to four students in the music program at the Drummondville CEGEP, representing a further cost of $10,000 over five years, as well as contributing an annual grant of $1,000 to a local theatre company, representing a further $5,000 over five years.
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Cogeco estimated the total value of the quantifiable benefits resulting from these applications at $156,900 in direct costs over five years, including $15,000 for Canadian talent development. Cogeco also referred to its plan to make additional contributions for the promotion of the Drummondville International Folklore Festival, and to broadcast the year-end recital by music students at the local CEGEP, representing indirect costs in the order of $37,500 over five years.
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In applying the benefits test, the Commission considers only those that are clearly additional to commitments already made by the licensee and that would not be realized if the proposed transaction did not take place. This principle is particularly appropriate in cases involving a new broadcast undertaking to which the Commission has recently issued a licence on the basis of the proposal that was submitted to it and on the strength of the applicant's commitments.
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In this respect, the Commission notes that CJDM-FM's current Promise of Performance mentions one full-time journalist and two part-time employees to be assigned initially to the news service. A second full-time journalist was to be hired in 1990. However, in a letter dated 15 November 1987, the licensee advised the Commission that the full-time journalist had not yet been hired. When asked about this matter at the March 1988 hearing, the licensee explained that because of certain problems, notably with regard to its music programming, it had been obliged to reassign some duties and that "the full-time journalist was replaced by a music director". The licensee also indicated that a stringer was currently in charge of CJDM-FM's news.
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When the Commission pointed out to Cogeco at the hearing that its proposal to hire a full-time journalist was in fact equivalent to fulfilling one of the licensee's commitments and that it could not therefore be considered as an additional benefit accruing from these transactions, Cogeco proposed to hire the second full-time journalist, who would have been hired in 1990, as soon as the Commission approved the transaction. The Commission considers that this proposal, which would advance the implementation of a commitment made by the licensee, would represent an additional cost of $18,000, rather than the $60,000 proposed in this regard.
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Similarly, the Commission considers that Cogeco's offer to hire an additional full-time host/researcher at a cost of $81,900 over five years does not represent an unequivocal additional benefit resulting from the transactions. Whereas CJDM-FM's Promise of Performance calls for a full-time researcher, the licensee stated at the hearing that [TRANSLATION]: "the researcher has been replaced by a secretary in the sales department who also does a little research in her spare time".
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Accordingly, the Commission has evaluated the total value of the quantifiable benefits resulting from these applications at $33,000 in direct costs over five years; that is, the $15,000 contribution for Canadian talent development and the $18,000 mentioned above, as compared with the $156,900 proposed by Cogeco.
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The Commission also notes that generally the extent of a licensee's investment in programming truly reflects the efforts it is prepared to make to provide its audience with quality service or to improve that service. In this regard, at the hearing the Commission reviewed the five-year programming budget filed with Communications Grantham's original application for an FM licence and compared it with Cogeco's programming proposals in this regard. The comparison revealed that the additional projected expenditures would be some $36,000 higher, over five years, than the original forecasts by Communications Grantham. The Commission notes that this comparison substantiates, within 10%, the Commission's conclusions regarding the quantifiable benefits.
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Based on all the information submitted to it, and taking into account its general concerns with respect to transactions of this nature, the Commission is not satisfied that the proposed benefits are commensurate with the size and nature of the transactions and, accordingly, it considers that the applications do not constitute the best possible proposal in the circumstances.
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The Commission also considers that the integrity of the licensing process is called into question in the present instance, in view of the proposed transfer of control of the new FM station so soon after it was licensed. It is the opinion of the Commission that such a transfer could be justified only in circumstances that were totally unexpected and beyond the licensee's control and that did not exist when the licence was issued.
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The arguments presented by the licensee included increased competition, a lack of resources and revenues that did not match its forecasts. These are all factors which, despite the unknown elements inherent in the establishment of any business in an open market, should have been analysed, assessed and, to a reasonable degree, foreseen in the context of a basic market analysis at the time of the original application. In the circumstances, the Commission finds it unacceptable and unjustifiable that Communications Grantham, having been granted a licence in January 1987 and having commenced broadcasting in August of the same year, had decided to dispose of its broadcasting undertaking only a few weeks later, that is in October 1987.
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The Commission has therefore determined that the applicants have not satisfactorily proven that the proposed transfers of control would yield significant and unequivocal benefits for the communities served and for the Canadian broadcasting system as a whole, or that approval of these transfers would be in the public interest. Consequently, in view of the fact that the benefits proposed by the purchaser are clearly inadequate, and of its concerns with respect to the proposed transfer of a recently authorized FM station and the vendors' unconvincing arguments, the Commission has decided to deny the applications to transfer effective control of Radio Drummond (1980) Inc. and Communications Grantham Inc. to COGECO Inc.
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The Stations' Performance
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As part of its examination of these applications, the Commission asked the licensees to submit self-assessments of the programming broadcast by CJDM-FM during the week of 1 to 7 November 1987 and 3 to 9 January 1988, and of that broadcast by CHRD during the week of 3 to 9 January 1988.
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CJDM-FM's self-assessment revealed serious problems in several areas, notably with regard to French-language vocal music, Canadian content and foreground programming. The information provided indicated a high percentage of English-language music, too high a repeat factor, and the use of too many hits. The program logs also contained a number of irregularities.
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When asked about these matters at the hearing, the licensee stated that it had experienced difficulties in honouring its Promise of Performance commitments during the start-up phase of the station, but that the problems noted either had been or are being rectified.
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The Commission reminds the licensee of the importance of taking all the necessary measures to ensure that it is in compliance with its commitments and with existing policies and regulations. The licensee is therefore required, until further notice, to submit to the Commission weekly reports attesting to its full compliance with the levels of French-language vocal music, Canadian content and foreground programming.
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Furthermore, CHRD's self-assessment of the programming broadcast during the week of 3 to 9 January 1988 indicated that it was in compliance in terms of its French-language vocal music and Canadian content, with the exception of one day during that week when the Canadian content level was 24% rather than the minimum required level of 30%. The logger tapes submitted for that week were virtually inaudible.
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With respect to the logger tapes, Radio Drummond is required to submit a report within 60 days of the date of this decision confirming that recording equipment is in place, that it is operational, and capable of meeting the requirements of subsections 8(5) and 8(6) of the Radio Regulations, 1986 at all times. The licensee is also required to set out in this report the precise measures it has taken to correct the problems noted in the self-assessments in order to ensure that it is in full compliance at all times with Commission policies and regulations.
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The licensees are also required to submit to the Commission within 90 days of the date of this decision a report describing the steps they have taken to eliminate sex-role stereotyping on the air, as required by Public Notice CRTC 1983-211 dated 16 September 1983, with which the licensees have not yet complied.
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Finally, the Commission will monitor closely the performance of stations CJDM-FM and CHRD, and will examine with the licensees the manner in which they have fulfilled their obligations at the next renewal of these licences, which expire on 30 September 1990.
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Fernand Bélisle
Secretary General
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