ARCHIVED -  Decision CRTC 88-652

Decision

Ottawa, 19 September 1988

Decision CRTC 88-652

Legerbourg Inc.

Trois-Rivières, Quebec -880378500

Following a Public Hearing in Trois-Rivières, Quebec on 5 July 1988, the Commission denies the application for authority to transfer effective control of Legerbourg Inc., licensee of CIGB-FM Trois-Rivières, through the transfer of 102 common voting shares, representing 51% of the issued and outstanding shares in that company, from Guy Leblanc, Maurice Bourget, Jean-Louis Guillot and François Dufresne (each with 25.5 common shares) to COGECO Inc.

Parties to the Transaction

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, CJMF-FM Quebec City, CKBS and CFEI-FM Saint-Hyacinthe, CHLC and CKDO-FM Baie-Comeau and CFRP Forestville, Quebec.

Cogeco also has significant indirect interest in a number of cable undertakings in central and eastern Quebec, including systems in Trois-Rivières, Shawinigan, Drummondville and Rimouski which together have approximately 140,000 subscribers, making it the third largest cable operator in the province. Cogeco also indirectly holds a minority interest in Premier Choix: TVEC Inc., which is licensed to operate Super Ecran, the French-language pay television service and Canal Famille, the specialty programming service. Cogeco is also a member of the Consortium de télévision Québec-Canada which is licensed to operate the French-language specialty television programming service TV5, and it has an interest in Les Productions SDA Ltée, a private production company.

On 5 March 1979 the Commission authorized Legerbourg Inc. to operate CIGB-FM (Decision CRTC 79-198). This station is the only local FM station serving Trois-Rivières and is operated in the Group I music format. Since 1984, CIGB-FM's total revenues have increased considerably making it among the best performing FM stations financially in the province of Quebec for the fiscal year ending 31 August 1987. According to the BBM surveys in the fall of 1987, CIGB-FM had the third largest radio audience in the central Trois-Rivières market with 18% of hours tuned and a 31% reach. The top two stations were the local AM station CHLN, which is affiliated with the Télémédia network and CJTR, which is affiliated with the Radiomutuel network.

The four shareholders who together hold 51% of the shares in the licensee company stated at the hearing that they had decided to divest themselves of their holdings because they no longer share the same interests and objectives and that for personal or professional reasons they had decided either to retire gradually from their respective careers or to redirect their activities and investments to other sectors. They explained that they had chosen Cogeco primarily because of their confidence in the purchaser, Cogeco's deep roots in Trois-Rivières and the guarantee that CIGB-FM would continue to fulfill its local commitments. The Commission notes that the remainding (49%) of the licensee's shares would continue to be held by Radiomutuel Inc.

Cogeco intends to acquire 51% of the licensee's common shares for a sum of $1,690,000. It stated at the hearing that it would also assume the licensee's outstanding financial obligations, which are less than $97,100. The Commission has noted the statement made at the hearing to the effect that [TRANSLATION] "the Cogeco Group and its shareholders guarantee the financial aspects of the transaction". It further notes that a bank letter has been submitted confirming the availability of a sum of $6,125,000 for the purpose, among other things, of this transaction and, accordingly, it has no concerns as to the availability or adequacy of the required funds.

The Commission's Policy on Ownership Transactions

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.

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.

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.

Once it is satisfied that the first criterion relating to the benefits resulting from the proposed transaction has been met, the Commission must examine other problematical aspects, such as, in the case of this application, questions about concentration of ownership and cross-media ownership resulting from Cogeco's ownership of cable, television and radio undertakings in the same market of Trois-Rivières.

In this respect, as stated in a number of previous decisions, the Commission wishes to reiterate that concentration of ownership within the broadcasting system is not in itself necessarily a concern, provided that there continues to be a significant degree of diversity of ownership and of programming sources in order to ensure that the objectives of the Broadcasting Act are met. Given today's highly competitive environment in all sectors of communications, as well as the high costs and risks involved, the ownership structure must be be composed of broadcasting undertakings of various sizes, including large entities with substantial resources available to them that are sufficently strong to compete with foreign undertakings and have the capacity to produce quality, competitive Canadian programming.

In addition, the Commission must be convinced that the purchaser has proven that the advantages of such concentration clearly outweigh any possible disadvantages and that the transaction is in the public interest.

With respect to applications involving cross-media ownership, the Commission's main concern is to ensure that, in any given region, there continues to exist a variety of opinions, sources of information and of broadcasting that allow the communities served to be offered differing views on matters of public concern. This basic concern regarding the diversity of information is an essential element in the structure and programming of the broadcasting system of any democratic society, and explains why the onus is on the purchaser to prove that suitable measures have been taken to protect this indispensable diversity.

In each case, however, before it is prepared to even examine specific concerns such as the possible impact of concentration of or cross-media ownership, the Commission must be convinced that the purchaser has satisfied the first criterion and has proven that the transaction will yield clear, significant and unequivocal benefits for the Canadian broadcasting system as a whole and, in particular, for the communities served.

In view of these principles and the evident dominance that would be exercised by Cogeco in the Trois-Rivières market, particularly in terms of local information, the onus is on the applicant to demonstrate to the Commission's satisfaction that this transaction would be in the public interest.

Benefits of the Transaction

In terms of the non-quantifiable benefits to be derived from this application, Cogeco mentioned its close ties with the area, the significant increase in human resources, programming and marketing that would be made available to CIGB-FM if it were to affiliate with a larger communications organization and the resultant synergistic effect. Cogeco also emphasized that in retaining the existing staff of the station it would be ensuring continuity, and it pledged to honour the Promise of Performance and the commitments made by the licensee in the context of its application for licence renewal, which was submitted for consideration at the same hearing.

With regard to more tangible benefits, Cogeco proposed to add three 31/2-minute newscasts per week day to be broadcast after 6:00 p.m. Monday to Friday, for a total of 521/2 minutes, which would raise the total amount of news from 4 hours 45 minutes to 5 hours 37 minutes per week. It also proposed to add 6 hours of foreground programming originating from CFGL-FM Laval to the 16 hours 25 minutes set out in the current Promise of Performance. The Commission has also noted Cogeco's proposals to make the resources of the CKTM-TV newsroom available to that of CIGB-FM, to subscribe to the French-language FM network service of Broadcast News, and to offer communications students joint radio television training at CIGB-FM and CKTM-TV.

In terms of the proposed tangible benefits that are quantifiable in terms of their dollar value, Cogeco proposed to add a full-time host/researcher, representing a net investment of $100,000 over five years in comparison with the sum of $125,000 originally claimed, in view of the fact that the new host will replace a technician representing a cost of $5,000 a year, and to hire a stringer responsible for preparing and presenting daily on-air reports on arts and culture in the region, representing a expenditure of $40,000 over five years. With respect to news, Cogeco proposed to obtain for the station at a cost of $65,000 over five years a mobile broadcast vehicle equipped with a cellular telephone, and to add a second full-time journalist in the newsroom, representing $125,000 over five years. As a means of promoting Canadian talent, Cogeco undertook to contribute $1,000 per year to Musicaction and to sponsor at least two local artists at provincial music competitions, representing a total outlay of $65,000 over five years. The Commission also noted the proposed investment in new equipment amounting to $40,000 over five years including, in particular, the acquisition of an emergency generator for the studios, computerizing the newsroom and the purchase of compact disc players. The Commission has discounted a sum of $15,000 allocated for the purchase of compact discs, since it considers this to be a normal business expense.

In considering all of the tangible and intangible benefits resulting from the transaction, particularly the tangible ones that it has accepted, which together represent operating expenses of $395,000 and capital expenditures of $40,000 over five years, the Commission considers that this proposal meets the first criterion referred to above and that the proposed benefits constitute significiant and unequivocal advantages commensurate with the size of the transaction.

Nevertheless, as emphasized earlier, it was also incumbent upon Cogeco to demonstrate that the benefits of the transaction, combined with the proposed measures and its other commitments, clearly outweigh any possible disadvantage that could result from increased concentration of ownership of broadcast undertakings in Trois-Rivières and that the approval of the application under these circumstances would be in the public interest.

Concerns relating to Concentration of Ownership

As indicated at the beginning of this decision, Cogeco, through its subsidiaries, has been licensed to operate two television stations in Trois-Rivières, namely CKTM-TV, which is affiliated with the CBC's French-language network, and CFKM-TV, which is affiliated with the Quatre Saisons network. The two stations are also authorized to broadcast programs produced locally, CFKM-TV having received the authority to do so on 28 June 1988 (Decision CRTC 88-437), in particular news programs of local and regional interest. The Commission also notes that these two television stations share the same newsroom and the same news director. According to the fall BBM survey, in 1987, CKTM-TV and CFKM-TV together accounted for 40% of the total television viewing time in Trois-Rivières and achieved audience shares of 89% and 69% respectively.

Through another of its subsidiaries, La Belle Vision Inc., Cogeco also operates cable systems in Trois-Rivières and Shawinigan. The two undertakings operate a dynamic community channel with programming that reflects local and regional concerns. In 1987, they together accounted for more than two thirds of the subscribers and of the total revenues of cable undertakings in the region.

The addition of CIGB-FM to the group of broadcasting undertakings under Cogeco's control would accentuate even more its presence and influence in the Trois-Rivières market.

In its preliminary statement at the public hearing, Cogeco expressed its conviction that [TRANSLATION] "a real measure of diversity of ownership and of programming sources will continue to exist in Trois-Rivières following acquisition of CIGB-FM by Cogeco". It said that this view was supported by virtue of the fact that a number of radio and television signals can be received in this area, and pointed out that all the major radio and television networks are represented in Trois-Rivières, namely the French CBC service, Télé-Métropole, Quatre Saisons, Télémédia, Radiomutuel and the American ABC, NBC and CBS networks, and that these signals would still be present following the proposed acquisition.

As to whether a diversity of opinions and of sources of information and broadcasting, which enable the community served to be offered different views on matters of public concern, would continue to exist, Cogeco stated that [TRANSLATION] "as far as national and international news is concerned, we believe that the question doesn't even arise". It pointed to the presence of the main networks referred to above, the planned introduction of TV5 on cable, and access to the print media.

With respect to local and regional news on the other hand, Cogeco stated that "the acquisition of CIGB-FM by Cogeco will in no way reduce this diversity; in fact it will add to it". To this end, it mentioned in particular that the significant advantages that it proposed were all designed to emphasize the local character of the station and to strengthen its ability to provide better service to the people of Trois-Rivières, and it referred to the efforts of competing radio and television stations in terms of local news and the presence of a dynamic and aggressive local and regional press. Cogeco concluded its views on this topic by declaring [TRANSLATION]:

We therefore feel...that our acquisition will not present any disadvantages and in fact will have several benefits for the region served.

Because of rapid changes in the Canadian broadcasting sector, the increasingly strong competitive situation and the need to expand into foreign markets, Canadian broadcasting undertakings have in recent years felt the need to combine forces and to reaffirm their position in the market through mergers, takeovers and acquisitions of assets. This trend is perhaps more noticeable in Quebec in view of the relatively small number of large broadcasting companies, the limitations inherent in the French-language market in North America and the increasing active influence exerted by the important European French-language market.

This trend toward the consolidation of broadcasting resources undeniably entails certain advantages, particularly in terms of capacity to produce a greater number of better quality Canadian programs, which are not only of the most significant benefit to the immediate audience but which can also enable some of these programs to make their mark on both the national and international level. The Commission considers, however, that the formation of increasingly large corporate entities, whose influence is felt in all aspects of broadcasting, entails greater responsibilities which these undertakings must take into consideration and which they must be willing to assume as representatives of the public interest.

When it is obliged to rule on the validity and possible repercussions of a proposal which results in an increase in the extent of concentration of ownership or of cross-media ownership in a single market, and when such a proposal is put forward by an organization that wishes to play a leading role in the broadcasting system whether at the national, provincial or regional level, the Commission expects in return that the organization first must itself be prepared to propose control measures, guarantees or clear policies as to the means by which it intends to counter any negative repercussions that may arise as a result of its proposal. In addition, in view of the increased responsibilities that the organization in question is asking to assume, the Commission expects it be prepared to go beyond the minimum requirements and strict regulatory standards in order to ally any fears, real or perceived, that its proposal might raise. This is especially important when the quality and impartiality of the news broadcast in a particular region could be called into question, either on the basis of the actual circumstances or in the public's perception.

The Commission notes first of all that no control measures were proposed in the application to transfer control of CIGB-FM to Cogeco. It was not until its presentation at the public hearing and in response to questions by the Commission that Cogeco put forward certain proposals in this regard. In particular, Cogeco offered to ensure the complete separation of the CIGB-FM and CKTM-TV newsrooms if the Commission considered such a measure to be necessary, although it pointed out that it did not consider that it would be in the best interest of CIGB-FM's listeners to do so.

According to Cogeco's statements at the hearing, CKTM-TV has a newsroom staff of eight to which can be added the two full-time journalists and stringer assigned to CFKM-TV since as noted earlier they share a single newsroom and report to the same news director. On the other hand, the CIGB-FM newsroom currently has just one full-time journalist and one stringer, to which would be added a part-time journalist, as was proposed by Legerbourg Inc. at the hearing in the context of the licence renewal application for the station and as confirmed by Cogeco.

The Commission pointed out to Cogeco in this regard that while its proposal to allow the news staff of CIGB-FM to have access to the resources of the CKTM-TV newsroom while preserving the radio station's autonomy by virtue of the fact that any step in this direction would be in response to an initiative by CIGB-FM, could in theory have certain advantages in terms of the pooling of resources it could also present serious disadvantages. In effect, this would leave the door open for the possibility of a reduction in the diversity of local news sources, since by virtue of the disproportion in the size of the two newsrooms' staffs and the competitiveness at the local news level, CIGB's limited newsroom staff could eventually be compelled to rely almost exclusively on the CKTM-TV news staff as a source of local news. In response, and in order to prevent the risk of undue concentration of information and in order to offer greater autonomy to the CIGB-FM newsroom, Cogeco proposed at the hearing to hire a second full-time journalist for the radio station while undertaking to ensure that there would be complete separation between the newsrooms of CIGB-FM and CKTM-TV, if the Commission so required.

While it recognizes that there are some positive elements to this proposal that strengthen Cogeco's initial application, the Commission notes first of all that the undertaking to separate the CIGB-FM newsroom from that of CKTM-TV remains a measure that would be difficult to control. Moreover, even if this separation which isn't wanted by Cogeco were to be put in place, the perception that the Cogeco television stations would exercise an influence by virtue of the reduced strength of CIGB-FM's newsroom would nonetheless continue to exist for the newsmakers and for the general public. Further, the Commission considers that the proposal to hire a second full-time journalist and the plan to obtain a mobile broadcast vehicle for the station truly represent a bare minimum if the radio station is to provide an adequate local news service in a market such as Trois-Rivières and would not be sufficient in and of themselves to counter the perception that there was an influence, as mentioned earlier, or to create a situation clearly allowing the establishment of real autonomy for CIGB-FM's news service.

On a completely different subject, the hearing also provided the occasion to examine another ramification of the proposed transaction. Where a proposal entails an increase in cross-media ownership within a single market, particularly one in which cable systems are involved, the Commission specifically expects that precise mechanisms or policies will be put in place to ensure that there is access to the cable systems for the authorized services that wish to be distributed by them in such a way as to prevent the refusal to distribute a service being motivated by the wish on the part of the licensee of the cable undertaking to offer protection to one or more of the television stations of which it is also the licensee in this same market. Such a concern is even more understandable in the case of a cross-media ownership situation that involves one or more television stations and a cable undertaking in the same market, particularly in light of the number of cable systems that Cogeco has -and thus its power to accord or to deny access -and in light of the growing influence of diversified companies such as Cogeco which, in addition to its radio, television and cable interests, is also involved in the Super Ecran pay television service and in the Canal Famille and TV5 specialty programming services.

In response to this particular concern, Cogeco first of all noted that it has owned La Belle Vision Inc. since 1972 and there have never been any problems with respect to access to this or to any other cable company under Cogeco control. To reassure the Commission, it further stated that it was prepared to set up a three-member local committee which would serve as ombudsman, handle any complaints relating to access, and report on these to Cogeco and to the Commission. With regard to its policy on access for specialty programming services, Cogeco stated that [TRANSLATION] "as in the past, from the moment that a licensee has been authorized by the Commission to provide such a service, that service has been provided and we will continue to provide such services in the future".

As emphasized during the hearing, the Commission's concerns about access in the present case are not based on Cogeco's past performance in this area, but rather were intended to determine whether the company had adopted a clear policy for the future given its expanding responsibilities. Its access policy as stated at the hearing in response to questions by the Commission appears to be satisfactory in this respect. In terms of relevant mechanisms that would guarantee such access, Cogeco suggested the formation of a monitoring committee. In this regard, the Commission notes that recent experience has illustrated the limits of such a mechanism where it is a question of evaluating complex issues or of rendering decisions within a short time, and thus does not consider that in this particular case it is an appropriate or sufficient mechanism.

Conclusion

Having reviewed all of the evidence with respect to the present matter, the Commission has concluded that the applicant has failed to provide satisfactory proof that the proposed benefits, when considered together with the measures proposed by Cogeco at the hearing to compensate for any disadvantages that could result from the transaction, unequivocally outweigh the potential disadvantages arising therefrom.

As indicated above, the Commission considers that the benefits of the present application would in themselves have been sufficient to meet the first criterion had it not been for the implications regarding concentration of ownership and cross-media ownership. Specifically, having analyzed Cogeco's proposal with respect to the limited measures that would be put in place to ensure the autonomy of the CIGB-FM newsroom, in the Commission's view, this does not eliminate the risk of a reduction in the range of local and regional news sources, in a market the size of Trois-Rivières.

Consequently, the Commission has determined that approval of the application as presented for the transfer of control of CIGB-FM to Cogeco would not serve the public interest.

The Commission has taken into consideration the intervention made at the public hearing by Radiomutuel Inc.

Fernand Bélisle
Secretary General