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Decision
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Ottawa, 28 September 1989
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Decision CRTC 89-767
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163831 Canada Inc.
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Verdun, Quebec - 882795800 - 882796600
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Following a Public Hearing commencing 29 May 1989 in the National Capital Region, the Commission denies the applications by 163831 Canada Inc. for authority to acquire the assets of radio stations CKVL and CKOI-FM Verdun from Radio Futura Ltd. (Radio Futura) and for broadcasting licences to continue the operation of these stations under the same terms and conditions as the current licences.
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163831 Canada Inc. is a wholly-owned subsidiary of Selkirk Communications Limited (Selkirk). As outlined in Public Notice CRTC 1989-110 which introduces Decisions CRTC 89-766 to 89-771 of today's date, at the same hearing the Commission considered other proposals to transfer ultimate control of Selkirk's various broadcasting undertakings to Maclean Hunter Limited (MHL). Specifically, the proposals called for the transfer of all of Selkirk's voting shares to MH Acquisition Inc., a wholly-owned subsidiary of MHL, followed by a corporate reorganization, including the sale of certain of the assets to new MHL subsidiaries or to third parties. These applications are the subject of the decisions referred to above. Because Selkirk had filed the present applications with the Commission before MHL applied to obtain control of Selkirk, MHL and Selkirk appeared at the hearing as joint purchasers. While MHL pledged to honour each of the commitments made by Selkirk and its subsidiary with respect to the Radio Futura stations, it did not offer any supplementary proposals.
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CKVL and CKOI-FM have been active in the Montreal radio market since 1946 and 1950, respectively. According to the BBM ratings for the fall of 1988, CKVL's share of the metropolitan Montreal listening hours was 4% while CKOI-FM's share was 5%. CKOI-FM and CKVL ranked 10th and 11th, respectively, of the 17 radio stations in the market. In addition, CKOI-FM's powerful signal enables it to attract a large audience beyond the metropolitan market.
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CKVL has not shown a profit from 1983 to 1988 and the decrease in its revenues has resulted in a substantial increase in its operating losses. For its part, CKOI-FM has remained profitable over the same period, and its operating revenues compare favourably with the broadcasting industry average. Nevertheless, in 1988 the station experienced a slight decrease in its revenues and a significant reduction in its profits.
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In view of these circumstances, the Commission was especially concerned about the applicant's plans to redress CKVL's financial situation and to improve that of CKOI-FM, as well as its specific programming proposals designed to achieve those ends. Given the unique cultural characteristics of the Montreal market, the Commission was also interested in examining the measures proposed by MHL to integrate these two stations into its corporate structure while preserving their individual identities and allowing them to benefit from the substantial resources at MHL's disposal.
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The Commission is particularly concerned about the very optimistic five-year financial forecasts submitted by the applicant and the lack of specific measures to substantiate the anticipated turnaround in CKVL's financial situation as well as the projected increase in CKOI-FM's profits during the next few years. In the case of CKVL, the Commission considers that the applicant's financial projections, which indicate increased revenues and diminishing losses, from more than $1 million a year for the last five years to as little as $134,000 by 1994, are unrealistic in the absence of a detailed plan for improving the operation of this station. Similarly, the applicant projected a 51.7% increase in CKOI-FM's profits in 1990 and subsequent increases in profits of between 16.6% and 21.9% from 1991 to 1994, considerably higher than this station has been able to achieve in the past. The Commission also considers that these forecasts are unrealistic.
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In this regard, the Commission notes that, while the applicant has referred to a new programming strategy and a greater emphasis on sales and promotion with respect to CKVL, it did not submit precise operating plans or concrete proposals for improvements that would account for the major financial recovery anticipated in its projections. The Commission notes that the programming budget does not increase significantly over the next five years, and that no precise plans were proposed to modify the programming, except for the addition of a daily 60-minute public affairs program and the hiring of two full-time reporters. The Commission is not satisfied that the proposed programming initiatives for the AM station go far enough to improve upon the service currently offered to the public. Similarly, in the case of CKOI-FM, with the exception of the addition of 30 minutes per week of news programming, the applicant did not submit concrete proposals for programming improvements.
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With regard to the benefits of integrating CKVL and CKOI-FM into the MHL corporate structure, MHL said:
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We believe that these stations while operating autonomously in Montreal, will benefit within the regional alliances which will be possible with our other stations in Ontario and in Eastern Canada.
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The applicant mentioned that exchanges of program material and staff would be possible, but provided no details as to how such interaction between English- and French-language stations could be achieved, while preserving the identities of the two stations. Nor did the applicant identify any safeguards in this regard or specify how these stations would benefit from integration into an organization that operates on a national scale or the roles that CKVL and CKOI-FM would play within MHL. The Commission also considers that MHL failed to demonstrate that such integration would not adversely affect the ability of these stations to continue to reflect the unique cultural characteristics of the Montreal market.
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In light of the foregoing, the Commission has concluded that the applications for authority to acquire the assets of CKVL and CKOI-FM do not represent the best possible proposal in the circumstances and, accordingly, it has denied the applications.
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Further, with respect to the benefits associated with the transaction, the Commission notes that it rejected more than half of the $7,803,000 in tangible and quantifiable benefits proposed by the applicant over five years. Specifically the Commission excluded $4,180,000 in capital expenditures for the construction of a new building to accommodate the two stations and the purchase of new studio equipment and furniture. As discussed at the hearing and consistent with Commission policy reiterated in Public Notice CRTC 1989-109 of today's date, the Commission considers that costs related to the maintenance or improvement of broadcast facilities generally constitute part of the normal costs of doing business and if, as in this particular case, replacement facilities are needed, they are required irrespective of the proposed transfer.
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Although the remaining quantifiable benefits accepted by the Commission have a relatively large dollar value attached to them, the Commission has consistently emphasized that, in examining transactions of this nature, the quantifiable benefits proposed by an applicant are not assessed with reference to any benchmark or formula. Furthermore, the Commission is not satisfied that the remaining benefits, taken as a whole, would yield measurable improvements either to the community served by the stations or to the Canadian broadcasting system that are of a magnitude the Commission considers reasonable to expect in the circumstances, given the important position the applicant occupies in Canada's radio industry, and consequently, the leadership role it should provide.
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For all these reasons, the Commission concluded that it would not be in the best interest of the Canadian broadcasting system to approve these applications.
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Fernand Bélisle
Secretary General
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