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Decision
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Ottawa, 6 July 1990
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Decision CRTC 90-630
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Telelatino Network Inc.
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Toronto, Ontario - 900093600 - 900092800
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Following a Public Hearing commencing 5 April 1990 in Toronto, the Commission approves the application for authority to transfer control of Telelatino Network Inc. (Telelatino) through a corporate restructuring and recapitalization, which will result in a reduction of the number of voting shares held indirectly by Emilio Mascia and members of his family from 67.3% to 27.4%. In effect, control will pass from Mr. Mascia to the licensee's Board of Directors.
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The restructuring will also see the infusion of $800,000 in new equity funding through the addition of four new shareholders who themselves, or whose principals, will serve on the licensee's Board of Directors. The four new director/shareholders include ethnic broadcaster J. Lombardi, owner of CHIN and CHIN-FM Toronto, D.A. Iannuzzi, publisher of the Italian-Canadian newspaper "Corriere Canadese" and Canadian businessmen A. Pelliccione and J. Vitale. According to a new Shareholders Agreement dated 5 April 1990, the company's thirteen-member Board of Directors will consist of one representative of each of its ten shareholders, with the exception of an additional nominee accorded Mr. Mascia, and two representatives of the Hispanic/Spanish communities.
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The Commission also renews Telelatino's licence, from 1 September 1990 to 31 August 1993, authorizing it to carry on a network for the distribution, to cable television affiliates on a discretionary basis, of a national specialty service consisting of programming directed solely to the Italian and Hispanic/ Spanish communities. The licence will be subject to the conditions specified in the appendix to this decision and in the licence to be issued.
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Background
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Telelatino was licensed in 1984 (Decision CRTC 84-444), at which time conditions of licence were imposed by the Commission specifying, among other things, minimum Canadian content requirements and minimum expenditures for Canadian programs. The licensee was also prohibited from distributing any commercial messages on its undertaking.
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From the time it commenced operations in late 1984, Telelatino encountered financial difficulties for a number of reasons, including inadequate cable penetration. Although the Commission, in 1986, lowered Telelatino's Canadian content requirements and authorized the licensee to distribute a limited amount of national advertising, Telelatino continued to have problems meeting its obligations for Canadian program expenditures and Canadian content. Telelatino's financial and other difficulties have been referred to at length in various decisions over the years, most recently in Decision CRTC 89-513. In that decision, the Commission denied an application for authority to transfer effective control of Telelatino to Multilingual Television (Toronto) Limited, based on the conclusion reached by a majority of the Commission that the tangible benefits proposed were inadequate, and that the proposals with respect to Canadian programming were insufficient.
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The Commission, in Decision CRTC 89-513, granted Telelatino a short-term licence renewal, but put Telelatino on notice that, in considering any future application, whether ownership-related or for licence renewal:
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...the Commission will wish to be assured that the licensee is in compliance with all existing requirements...any future application must meet the spirit and intent of the original licensing decision.
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The current applications for authority to transfer control and for licence renewal were submitted in January 1990. Based on the monitoring of Telelatino's operations over the six months ending 28 February 1990, the Commission determined that the licensee was in compliance with the requirements of its licence and, accordingly, proceeded with consideration of these applications at the 5 April hearing in Toronto.
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Application for Transfer of Control
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Because the Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings, 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. As a first test, the applicant must demonstrate that the proposed transfer will yield significant and unequivocal benefits to the community served by the broadcasting undertaking 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 that may not easily be measured in terms of dollar value, are commensurate with the size of the transaction and 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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In its application to transfer control, Telelatino stated that approval would bring about a number of important benefits. It noted, in particular, the following:
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The proposed restructuring of Telelatino has as its primary aim a recapitalization of a company which is technically insolvent. The financial stability that will result from it will allow Telelatino to continue in operation and will put Telelatino in a position, in the short and long-term, to fulfill better its mandate under its broadcasting licence. The applicant also noted that, under the proposed restructuring, ownership of Telelatino would remain in the hands of the ethnic communities the service is designed to serve. It underlined the added strength the company would gain from the broadcasting experience, business background and financial resources of the new director/shareholders. In addition to noting the approximately $800,000 in new equity funding from the new directors/shareholders, the applicant emphasized the following:
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Based on the financial stability achieved by the expansion of the shareholder group, and on the personal guarantee of existing and prospective shareholders, a line of credit of $400,000 will be made available to Telelatino, should there be any shortfalls or any requirement for additional funds to meet Telelatino's obligations under its licence.
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As a further benefit, the applicant stated that, contingent upon Commission approval of a proposal to increase the number of minutes of commercial messages permitted on the service from 3 to 8 minutes per hour, the proposed restructuring would enable Telelatino to adhere to a commitment made in the context of its application for licence renewal, whereby its distribution of Canadian programming will increase from the present level of 10% to 15% of the total hours distributed in year 1, rising to 20% in year 3. It added that the financial revitalization of the specialty service would allow formulation of "...more realistic plans for distribution in an increased number of markets and for satellite delivery in a reasonable time frame". Telelatino put forward, as the tangible benefits that would flow from the corporate restructuring, proposals for direct expenditures amounting to approximately $3,277,000 over a projected five-year licence period. This sum includes approximately $2,674,000 for the production or acquisition of Canadian programming, which amount, according to the applicant, will be used for "... increased production with independent producers in Montreal and elsewhere." The applicant has also committed $253,500 for the capital and operating costs associated with new facilities Telelatino plans to occupy and a further $350,000 for the purchase of new technical equipment.
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The Commission notes that this last amount, representing proposed expenditures on technical equipment, does not include the cost of new audio-visual recording equipment that the applicant, at the hearing, committed to purchase. The Commission expects the licensee to obtain this equipment without delay, with a view to ensuring compliance with the log and record-keeping requirements of the Specialty Services Regulations, 1990 (the regulations).
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The Commission has assessed the tangible and intangible benefits proposed by the applicant. In light of Telelatino's very serious financial difficulties, the Commission has placed particular importance on the commitment and resolve of the licensee's new and continuing shareholders, not only to ensure the continued operation of the service, but also to bring its overall quality and scope much more closely in line with that envisaged by the licensee, and by the Commission, when the service was originally licensed in 1984. In general, the Commission is satisfied that the benefit of a continuation and improvement of the existing service, together with the other tangible and intangible benefits identified by the applicant, are significant and unequivocal, and commensurate with the size and nature of the transaction, taking into account the scale of the resources available to the new shareholders. Moreover, the Commission is satisfied that approval of the application is in the public interest.
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The Commission expects the applicant to ensure that, as a minimum, all of the proposed expenditures are made in accordance with the schedule outlined in the application and discussed at the hearing. Although the licensee's proposed expenditures for Canadian programming are effectively included under this expectation, the applicant made a commitment at the hearing to ensure that, as a minimum, 16% of its gross revenues are devoted to the acquisition of, or investment in, Canadian programming.
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Accordingly, the Commission has imposed, as a condition of the renewed licence, a requirement that Telelatino expend on Canadian programming in each year, as a minimum, the greater of the projected amounts set out in its application, or 16% of the licensee's gross revenues earned in the previous year.
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Given the importance placed by the Commission on the business experience and financial resources available to individual members of the expanded shareholder group, and the role the Commission expects these individuals to play in bringing about a substantial improvement in the licensee's performance, the Commission has also decided to impose a condition of licence prohibiting the transfer or issuance of any share in the licensee company without prior Commission approval.
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Application for Licence Renewal
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As stated above, the Commission is optimistic that the upcoming licence term will see an improvement in Telelatino's financial fortunes and that, under the direction of its revitalized ownership, the licensee can make substantial progress towards fulfilling its mandate as a national specialty service. In the Commission's view, a significant step in this direction is the licensee's commitment, beginning 1 September 1990, to increase the Canadian content of its service from 10% to 15% of the total number of hours distributed and, beginning 1 September 1992, to increase it further from 15% to 20%.
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A condition of licence requiring adherence to these commitments is set out in the appendix to this decision. Other conditions have been imposed as well, setting out minimum requirements for expenditures on Canadian programming and prescribing the proportions of the overall service to be directed to its Italian and Hispanic/Spanish audiences, respectively.
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The Commission directs the licensee, on or before 30 September 1990, to submit a revised Promise of Performance incorporating the commitments made in its applications for both the transfer of control of the undertaking and renewal of its network licence.
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The Commission reminds the licensee that, for the purpose of the conditions of licence set out in the appendix, "Canadian program" means a program as defined in section 2 of the regulations. The Commission firmly expects Telelatino, throughout its new licence term, to follow closely all of the Commission's policies and regulations with respect to the definition and measurement of Canadian content.
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Further, the Commission directs Telelatino to file a report on or before 30 September 1991, and each 30 September thereafter, setting out the measures it has taken to increase and improve the Hispanic/Spanish portion of its Canadian content programming, together with the titles of the Canadian productions broadcast on the undertaking, indicating the percentage of the total number of hours that have been directed to its Italian and Hispanic/Spanish audiences, respectively.
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The Commission recognizes the difficulty in obtaining foreign-language programming available in closed-captioned form compatible with North American decoders. The Commission, however, reminds the licensee that Canadian and other North American programming dubbed for sale overseas may be available for closed-captioned presentation in its original language, together with its dubbed sound track. The Commission encourages the licensee to fully explore these possibilities and to file a report on its findings within twelve months of the date of this decision.
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The Commission also encourages Telelatino to provide direct access to its operation by the deaf and hard-of-hearing community, and to install a Telephone Device for the Deaf (TDD). The Commission expects Telelatino to abide by the Portrayal Guidelines contained in the document published by the Canadian Association of Broadcasters (CAB) in May 1989, entitled "A Broadcasters Guide to Canada's Cultural Mosaic". Further, the Commission expects the licensee, in respect of all of the Canadian programs it distributes on its undertaking, to adhere to the CAB's Guidelines on Violence, as amended from time to time and approved by the Commission.
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In addition, the Commission requires Telelatino to keep its accounts in such a way that will allow it to file, as part of its Annual Return under the Broadcasting Act, and in the format to be prescribed by the Commission, a report for each year detailing the amounts expended on or invested in the production or acquisition of each Canadian and each non-Canadian program or series intended for distribution on the licensee's undertaking.
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At the hearing, Telelatino stressed that its projections of improving financial health for the service, as well as its commitments to raise the level of Canadian content in its network schedule, assumed Commission approval of a request to expand the amount of commercial messages carried on its undertaking from the present level of three minutes per hour to eight minutes. It also requested that it be permitted to distribute local or regional advertising during three of those eight minutes.
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The licensee's proposal for an expansion in the number of minutes of commercial messages it is permitted to distribute, and in particular its request for authority to distribute local or regional advertising, was opposed by ethnic broadcasters Multilingual Television (Toronto) Limited (CFMT-TV Toronto) and CKMW Radio Limited (CIAO Brampton). Opposition was also expressed by, among others, Télévision Ethnique du Québec (TEQ), a not-for-profit umbrella organization representing the interests of 44 Canadian independent producers who provide programming for a special programming channel distributed by three cable television licensees serving the Montreal area: CFCF Inc., Vidéotron Ltée, and Télécâble des Mille-Îles Inc.
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Among the concerns expressed by intervenors was that approval of such increased commercial activity, particularly the three minutes per hour of local or regional advertising, would have an immediate impact on the ability of ethnic broadcasters to attract advertising revenues in their local markets. The licensee of CFMT-TV Toronto also argued that Telelatino's proposal would represent a "step in the transformation of Telelatino from a discretionary pay model to a broadly distributed, advertiser-supported television service without a corresponding commitment to or investment in Canadian produced programming".
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While Telelatino dismissed the concerns of the licensees of CFMT-TV and CIAO, it stated that it "was prepared to recognize Montreal as a special situation", and indicated that it would "...accept a condition of licence preventing us from selling non-national advertising in Montreal, until September 1992". The Commission has weighed the intervenors' concerns against the financial difficulties that Telelatino may continue to encounter in its new licence term, even with the infusion of additional equity funding from the new shareholders. Based upon all of the evidence, the Commission considers that increased commercial activity will be essential to the economic survival of Telelatino's ethnic specialty service.
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Accordingly, except as qualified below, the Commission has decided to permit Telelatino to increase the amount of commercial messages distributed on its undertaking from three to eight minutes per hour, no more than three minutes of which may consist of local or regional advertising. The Commission recognizes that this change may have an impact on CFMT-TV and CIAO; the Commission, however, does not consider that such impact would create undue harm or hardship for either of these broadcasters. At the same time, the Commission has imposed a condition of licence prohibiting Telelatino from distributing on its undertaking any local or regional advertising from the Province of Quebec during the new licence term. In this regard, the Commission has taken into account Telelatino's stated willingness not to distribute local or regional advertising in Montreal for a period of at least two years, and the fact that the Commission will have the opportunity to review this particular matter in less than three years time in the context of Telelatino's next application for licence renewal.
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Finally, the Commission notes that the licensee's proposal to increase the Canadian content of its service to 20% in the third year included plans to begin the production of its own news programming. This would, in the Commission's view, represent a significant departure from the type of programming service proposed by the licensee and approved by the Commission in 1984.
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Given the concerns of intervenors that Telelatino should adhere closely to its specialty service mandate and, once again, the fact that this is an issue that the Commission will have an opportunity to review within a period of less than three years, the Commission, by condition of licence, has prohibited Telelatino from producing any Canadian news for distribution on its service.
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Alain-F. Desfossés
Secretary General
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Appendix to Decision CRTC 90-630
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Telelatino Network Inc.
Conditions of Licence
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1.The distribution of Canadian programs by the licensee on its undertaking shall comprise
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a) not less than 15% of the total hours devoted to all programming during the first four semesters of this licence term (commencing 1 September 1990); and
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b) not less than 20% of the total hours devoted to all programming during the final two semesters (commencing 1 September 1992).
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2.During the licence term commencing 1 September 1990, the licensee shall devote to the acquisition of, or investment in, Canadian programming, the greater of
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a) in each year, a minimum of 16% of the licensee's gross revenues earned during the previous year; or
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b) a minimum of $400,000 in year 1, $420,000 in year 2 and $588,000 in year 3.
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3.The licensee shall provide a network programming schedule consisting of ethnic programming, of which a minimum of 90% will be program TYPE A and a maximum of 10% will be program TYPES C and D, as defined in Schedule II of the Specialty Services Regulations, 1990.
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4.The licensee shall provide a minimum of 90 hours per week of ethnic programming, of which a maximum of 55% will be directed to Italian audiences and a minimum of 45% will be directed to Hispanic/Spanish audiences.
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5.The licensee shall restrict the distribution of commercial messages on its undertaking to a maximum of eight minutes per hour, none of which may include local or regional advertising from the Province of Quebec, and no more than three minutes of which may consist of local or regional advertising solicited or sold elsewhere. For the purpose of this condition, messages promoting the licensee's programs and distributed by the licensee on its undertaking shall not constitute commercial messages.
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6.There shall be no transfer or issuance of any share of the licensee company without the approval of the Commission having first been obtained.
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7.The licensee shall not produce any Canadian news, reports or actualities for distribution on its undertaking.
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8.The licensee shall adhere to the Canadian Association of Broadcasters' (CAB) self-regulatory guidelines on sex-role stereotyping, as amended from time to time and approved by the Commission.
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9.The licensee shall adhere to the provisions of the CAB's Broadcast Code for Advertising to Children, as amended from time to time and approved by the Commission.
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