ARCHIVED -  Decision CRTC 89-513

Decision

Ottawa, 27 July 1989

Decision CRTC 89-513

Telelatino Network Inc.

Toronto, Ontario - 880939400Multilingual Television (Toronto) LimitedToronto, Ontario - 890080500

Following a Public Hearing held in Toronto on 13 March 1989, by majority decision, the Commission denies the application by Telelatino Network Inc. (Telelatino), licensee of a national Italian- and Spanish-language specialty programming service, for approval to transfer effective control of the licensee through the transfer of 100% of the 1,000 common shares and 10,000 Series A preferred shares to Multilingual Television (Toronto) Limited (MTV).

Conditional upon approval of the above-noted application, MTV had also applied for renewal of the national network licence for the specialty programming service which expires 31 August 1989. While MTV proposed that the Telelatino service be operated as a unilingual Italian service, it indicated that it would offer programming directed to both Italian- and Spanish-speaking audiences if required to do so by the Commission. In light of the denial of the above-noted application, the Commission is unable to consider the renewal application filed by the proposed purchaser, which was predicated on MTV's ownership of the specialty service.

Telelatino is controlled 67.5% by Mascia Enterprises Limited, a company owned by Mr. Emilio Mascia andmembers of his family. The remainder of Telelatino's shares are owned by five companies and individuals in blocks, each representing 10% or less of the total voting shares.

MTV is the licensee of CFMT-TV Toronto, the only ethnic television station in Canada. At the time of the hearing MTV was 64% owned, directly or indirectly, by Rogers Broadcasting Limited (RBL), licensee of radio stations CFTR and CHFI-FM Toronto. RBL now owns 100% of MTV.

RBL, which has a 25.4% ownership interest in YTV Canada, Inc., a national specialty programming service, is a subsidiary of Rogers Communications Inc. (RCI), which owns 100% of Cantel Inc., a company offering cellular telephone service. It holds a minor ownership interest in Canadian Satellite Communications Inc. (CANCOM) and Astral Bellevue Pathé Inc., a Canadian production company. RCI also owns 100% of Rogers Cablesystems Inc. which, through subsidiary companies, owns 100% of cable television undertakings serving a number of communities in western Canada, including the metropolitan areas of Vancouver and Victoria and part of Calgary, as well as Ontario-based cable undertakings which serve 14 communities, including part of Toronto. RCI holds a 45% interest in Western Cablevision Ltd., which controls the licensee companies of the cable television undertakings serving New Westminster, Surrey, Abbotsford and Clearbrook, British Columbia. The Rogers group of companies is ultimately controlled by Edward R. (Ted) Rogers of Toronto.

The Commission notes that the proposed purchase price is $1.47 million. In addition, MTV would retire the debt of Telelatino which, Mr. Mascia noted, "now exceeds $2 million".

There are two other agreements which are related to this transaction. One would provide MTV, through Telelatino, with the distribution rights in Canada for programming from RAI Radiotelevisione Italiana and RAI Corporation Italian Radio TV System, New York (RAI programming), which rights are currently held by Mascia Enterprises Limited. The second agreement is a personal services contract whereby Mr. Mascia would join the MTV Board of Directors and also serve as Executive Producer of Italian programming for CFMT-TV and Telelatino.

Mr. Mascia has been involved in ethnic broadcasting in Canada for more than 30 years. He stated at the hearing that Telelatino requires additional capital investment, improved technical facilities for programming and enhanced marketing resources in order to stabilize and strengthen the company, meet the conditions of its licence and add to the diversity of the programming it currently distributes. He indicated that the Telelatino shareholders had held discussions with others involved in the field of ethnic broadcasting in Canada, but considered that only MTV was prepared to make a firm offer that they deemed to be fair. Further, Mr. Mascia stated that he had been impressed by the programming and other improvementswhich have been effected at CFMT-TV since RBL acquired a controlling interest in the station pursuant to Decision CRTC 86-586 dated 19 June 1986.

As stated in a number of decisions relating to applications for authority to transfer the ownership or effective 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.

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 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 broadcasting undertakings in question, and the scale of the programming, management, financial and technical resources available to the purchaser.

MTV stated in its application and at the hearing that the "first and foremost and most overwhelming benefit of the proposed transaction, would be the saving of a failing service". It noted that when it acquired the over-the-air ethnic broadcasting service CFMT-TV, the situation was not dissimilar in that there was a need for an infusion of capital.

MTV stated that it gave "long and serious thought" as to how the acquisition of Telelatino might permit MTV to improve CFMT-TV's programming and how it could improve the programming and marketing of Telelatino without risking the financial integrity of MTV.

In addition to the financial obligations with respect to the purchase price and the retiring of the existing debt, MTV indicated that significant expenditures would be required for Canadian programming initiatives and acquisitions and for extensive marketing efforts aimed at improving the low subscriber base of Telelatino. In this regard, it noted that Telelatino had had a "very discouraging" 1988 cable launch of its service in Montreal and that in some of its "key markets" in Ontario, Telelatino is offered to subscribers as part of the basic service or through the "negative option" approach. On this basis, the licensee nets as little as $0.11 per subscriber rather than the $7.35 per subscriber which it receives from those cable companies that distribute Telelatino as a discretionary service.

Other intangible benefits identified by MTV related to a proposal to increase the hours of broadcast from 90 to 126 hours per week and, under the unilingual Italian format, the hiring of 20 additional production staff and a 400% increase in Canadian programming expenditures to give "greater value perception and appreciation for the service".

MTV stated that approval of the transaction in the unilingual Italian format would result in an increase in the amount of Canadian programming from the present level of 10% of 90 hours per week (9 hours) to 25% of 126 hours per week (31.5 hours) in the fifth year of a new licence term. The Commission notes that in the first year, Canadian programming would account for 19 hours of Telelatino's weekly schedule. MTV's application indicated, however, that if Telelatino was required to continue to operate under the existing bilingual format, Canadian content in the first year would amount to approximately 13 hours each week and that by year five of a new licence term it would be only 25 hours. Further, no Canadian programming material would be broadcast between 7:30 p.m. and 10:30 p.m. and the investment in Canadian programming would be lower. Specifically, MTV stated:

  If the Commission were to impose a specific condition of licence that Telelatino, upon renewal, must continue to provide a significant component of its program schedule in Spanish, we would accept such a condition provided that the Commission's expectations related to Canadian content programming were materially lower than they would be in the case of an Italian-only service.

With respect to expenditures for Canadian programs, the Commission notes that in the unilingual format these would represent 33% of gross revenues in year 1 and 27% in year 5. Canadian programming expenditures in the first year under a bilingual scenario would have represented 23% of gross revenues and 26% by year 5.

MTV proposed that the Commission authorize eight minutes of advertising per hour, including advertising which the Commission considers to be "retail" in nature. The current licence permits only national advertising and specifies a maximum of three minutes per hour.

MTV also stated that approval of the share transfer transaction would result in Telelatino employees having access to MTV training and career advancement programs and to its employee benefit package. MTV noted that it intended to relocate Telelatino to CFMT-TV's office and production centre in Toronto in order to take advantage of the facilities and support systems and to effect certain cost savings. While it did not identify them as benefits of the transaction, MTV stated at the hearing that Telelatino would be able to take advantage of CFMT-TV's production and editing equipment, its satellite down-links, and the planned back-up generator. It indicated that although its computerized traffic billing system would be available for use by Telelatino, MTV would have to purchase additional computer hardware and software as well as pay a second licence fee for Telelatino's use of the computer programs. It estimated the value of the expenses related to the computer billing system at $75,000.

With respect to proposed benefits which are quantifiable in dollar terms, MTV stated that capital expenditures in the amount of $200,000 would be made to construct offices for Telelatino and that a further $400,000 would be spent for a new master control room and equipment exclusively for the use of Telelatino. It indicated that there would be an annual savings to Telelatino of approximately $50,000 per year because it would be able to use MTV's transcoding equipment to convert the technical format of video programs from other countries to that compatible with Canadian equipment.

Further, MTV stated that if the Commission were to accept its proposed unilingual Italian concept, it would establish a $300,000 production fund to be spent during the first five years under its ownership. MTV stated that the monies would be dedicated and earmarked for the development of high-quality programming series in Italian which would be broadcast on Telelatino and then made available to CFMT-TV and other broadcasters at no cost. The purchaser advised that this production fund would not be established if the Commission were to require that Telelatino continue to provide programming for both the Italian and Hispanic communities.

The Commission has carefully reviewed the benefits identified by MTV and has not accepted the savings related to the transcoding equipment as a benefit since it considers this to be part of the normal cost of doing business. Consistent with past practice, the staff training and career advancement programs and the employee benefit package have also been disregarded. Nor, asaddressed later in this decision, have the proposed benefits related to Canadian content that are predicated on the acceptance of a unilingual programming format been accepted as benefits by the Commission.

Also discussed at considerable length at the hearing were the benefits which would accrue to CFMT-TV and its owner MTV, and flow through to RBL should MTV acquire Telelatino. When asked at the hearing why MTV would be interested in acquiring what it considers to be a failing service, RBL stated:

 From the point of view of Rogers, we are doing it primarily because, in our view, it makes good business sense to do it ... We believe that there is a tremendous opportunity in multicultural or ethnic television in Canada.... The purchaser also acknowledged that if the acquisition were approved and the related agreements came into force, MTV would benefit from Mr. Mascia's experience as an ethnic broadcaster and have the ability to secure distribution rights to RAI programming.

MTV stated that access to this programming will provide new opportunities and emphasized that CFMT-TV should be able to get "larger audiences, better audiences and turn that into more advertising dollars".

MTV stated that if the transaction were approved, it would be in a position to reduce or split the cost of its production and programming on both CFMT-TV and Telelatino. In this regard, the unilingual Italian format proposed 19 hours of Canadian content per week in the first year, of which 8.5 hours (including 3.5hours of repeats) would be produced specifically for Telelatino by CFMT-TV. An estimated production cost of $1,500 would be paid to CFMT-TV for each of the new programs. Under the bilingual format, 4.5 hours (including 1.25 hours of repeats) of the weekly total of approximately 13 hours of Canadian programs in the first year, would be produced for Telelatino by CFMT-TV. MTV anticipated that a production cost of approximately $1,400 per hour would be charged to Telelatino by CFMT-TV.

Under both the unilingual and bilingual scenarios, Telelatino would purchase 8.5 hours (including 2.5 hours of repeats) of CFMT-TV programming each week at a projected cost of $450.00 per hour. Initially, this would consist entirely of CFMT-TV news programs which would be "re-packaged" and edited for broadcast on the specialty service. At the similar estimated rate of $450.00 per hour, CFMT-TV would purchase approximately 12.5 hours per week of foreign RAI programs from Telelatino.

The Commission notes that if this transaction had been approved, MTV would have had two full services on which to place advertisements and from which to derive revenues. In this regard, MTV stated that it would introduce package selling of advertisements on the two undertakings. While the Commission recognizes that this arrangement would assist Telelatino in selling commercial availabilities that are not regularly sold out except in the case of the popular Sunday soccer games, it notes that the benefits of this "joint marketing proposal" would accrue more to CFMT-TV, MTV and RBL than to Telelatino subscribers or to the Canadian broadcasting system. The Commission also notes other benefits for MTV, including tax advantages and economies of scale to be realized from common ownership of two ethnic programming services.

The Commission has fully assessed the proposed benefits of the present transaction along with the many and important advantages which would accrue to MTV and RBL. In consideration of the scale of the programming, management and financial resources available to the purchaser, a majority of the Commission considers that the tangible benefits proposed are inadequate and that the proposals with respect to Canadian programming are insufficient.

Since the current licence of Telelatino expires 31 August 1989, the Commission has decided to renew the licence of the specialty service for a period of six months from 1 September 1989 to 28 February 1990, subject to the same terms and conditions as set out in the appendix to Decision CRTC 88-896 dated 22 December 1988 and in the current licence.

This six-month term will provide Telelatino with the opportunity to explore fully various options with respect to the future of the service. In light of the situation, this may entail a renewal application or a further ownership-related application which fully addresses the concerns set out in this decision. Further, the Commission hereby puts Telelatino on notice that the Commission will wish to be assured that the licensee is in compliance with all existing requirements and that any future application must meet the spirit and intent of the original licensing decision (Decision CRTC 84-444 dated 24 May 1984).

The Commission was impressed by the many interventions filed and presented at the hearing by members of the Hispanic community stressing the need for Spanish-language programming on Telelatino and other broadcast services. With respect to the availability of over-the-air programming directed to this segment of the public, the Commission notes the statement by the Canadian Hispanic Congress-Ontario that CFMT-TV has deleted over 300 hours per year of Spanish-language programming. MTV explained that, at the time of the hearing, it was broadcasting only one hour per week of such programming which, when repeats are included, will be increased to three hours per week effective 1 September 1989. The Commission also reiterates the statement made on 24 May 1984 in the Introductory Statement to Decisions CRTC 84-444 to CRTC 84-446:

 Taking into account economic and spectrum considerations, the Commission is concerned with the need to strengthen and develop further the availability across Canada of quality Canadian multilingual broadcasting services to enhance the overall diversity of the Canadian broadcasting system and its ability to serve the social, cultural and linguistic needs of all segments of Canadian society.

Given this concern and in order to protect the integrity of the Telelatino programming concept as set out in Decision CRTC 84-444, and in view of the strong desire of the Hispanic community for Spanish-language programming, the Commission considers that any future application should ensure that both the Italian and Hispanic communities of Canada are served. For this reason the Commission was not prepared to consider the $300,000 production fund predicated on a unilingual model as a benefit of the share transaction.

With respect to the full implementation of this national licence, while the Commission can fully appreciate how financial constraints can have an impact on intentions, a future application should include firm plans to examine the national distribution of the Telelatino service.

Finally, the Commission would want to be assured that there would be no reduction in potential access by the Canadian independent production community to Canadian broadcasting undertakings exhibiting ethnic programming, as originally intended in 1984.

The Commission acknowledges the 146 interventions filed with respect to these applications, approximately two-thirds of which supported theirapproval. The majority of the opposing interventions were submitted by individuals and organizations representing the Hispanic community who were opposed to MTV's stated preference for converting the service to a unilingual (Italian) format, and interveners from the Montreal area who opposed the distribution of Italian programming on a discretionary basis. The Commission thanks all of the interveners for their participation in the public process.

Fernand Bélisle
Secretary General

Dissenting Opinion of Commissioners Louis R. Sherman, Rosalie Gower and Paul McRae

In the opinion of Vice-Chairman Sherman and Commissioners Gower and McRae, the application by Multilingual Television (Toronto) Ltd. (MTV or Rogers) to acquire Telelatino should be approved. Notwithstanding the significant investment and effort made by Mr. Mascia to serve the Italian and Hispanic communities, the service to date has not been successful due largely to undercapitalization, inadequate marketing and problems with cable carriage. Under the Rogers organization with its considerable financial resources, marketing and sales skills and programming expertise, there would seem to be a strong opportunity for Telelatino finally to achieve reasonable success and it would be premature to deny that opportunity. In our view, it is a significant benefit to salvage a failing service which under new ownership would provide increased amounts of third language programming on a discretionary basis as well as more Canadian programming relevant to the large, stable Italian community and the small but growing Spanish-speaking sector.

We recognize that the improved service would not only benefit the two language groups: it would also offer considerable benefit to MTV by securing access to quality programs from RAI, by offering a second window for foreign and domestic product, by presenting joint sales opportunities and by providing scheduling advantages and other economies of scale for Telelatino and MTV.

For these reasons, in our opinion, the Commission should have required more commitments from MTV in respect of Canadian content than is contained in the present proposal. Instead of the Canadian content level suggested by MTV of 10% in year 1, 12% in year 2 and 15% in year 3, ultimately rising to 20% in year 5, we would recommend that the levels should be 10%, 15% and 20% for years 1, 2 and 3 respectively. This is above the 15% Canadian content level per year contained in the original licence. MTV has promised a Canadian programming expenditure of 35% of the total programming budget in year 1, 46% in year 2 and 43% in year 3, ultimately rising to 49% in year 5. Since the original figure was 43%, we find these levels acceptable.

In conjunction with requiring more Canadian content which is relevant to the two language groups, we would have allowed more flexibility in advertising revenues to give the service every chance of success. At present, Telelatino is allowed 3 minutes of national advertising per hour. We would have allowed 8 minutes per hour as requested by the licensee, requiring the Italian commercials to be national, but allowing the additional flexibility of both local and national commercials for the Spanish service.

Under this scenario, had Rogers found these new conditions unacceptable, it would have had the option of refusing the licence or resubmitting another proposal.

In our opinion, because of the need to re-launch the service in a more viable format, it would not be realistic to expect the national aspect of this licence to be implemented in any meaningful way in the three-year time frame which we recommend for a licence term. However, by 1992, there should have been sufficient time to test the interest of these two communities in the continuation and expansion of the service as evidenced by subscriber and advertising revenues. Implementation of the national aspect of the licence would be discussed at that time. Had this application been approved, Rogers would have acquired a national specialty service licence. It is clear that any changes to the terms of that licence, which is issued to Telelatino, would have to be approved by the Commission.

In regard to interventions at the hearing referring to the Montreal market, the service is discretionary and if the citizens do not find it a useful, attractive service, they will not subscribe to it.

In summary, Vice-Chairman Sherman and Commissioners Gower and McRae are of the opinion that the MTV application represented a good opportunity for a worthwhile service to survive and succeed; perhaps the best opportunity in its existence to date. It would have benefitted two important ethnic communities in Canada; it would have offered benefits to other players in the system and substantial benefits to the system as a whole while allowing the original shareholders an opportunity to recover their investment. For these reasons in our opinion, it should have been given this chance.