ARCHIVED -  Public Notice CRTC 1990-112

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Public Notice

Ottawa, 17 December 1990
Public Notice CRTC 1990-112
Radio Market Criteria
At the 26 June 1990 Public Hearing on proposed changes to the FM Radio Policy, the Commission sought the advice of the public on a number of questions regarding the practices and procedures it follows in its consideration of applications to establish new commercial radio stations, both AM and FM.
These questions were framed against the background of radio's declining share of advertising revenue, the generally poor profit performance of radio, particularly of AM radio, in recent years and a continuing demand by persons seeking licences to establish new stations in radio markets.
One of these questions was whether a set of objective criteria could be developed for use by the Commission and the public to determine if a market can support an additional commercial radio station.
The establishment of such a set of criteria and the publication of relevant data about a market might enable all parties to avoid situations in which, after the considerable effort and expense taken to prepare and consider applications, the Commission determines that the market is not capable of supporting the additional station and consequently denies all applications.
Comments at the Hearing
While persons and organizations appearing before the Commission, including the Canadian Association of Broadcasters (CAB) and the Central Canada Broadcasters Association (CCBA), were generally supportive of the notion of an established set of criteria, there was no agreement on what the criteria might be, or the most appropriate changes to the Commission's procedure.
The CAB suggested that it would be useful if the Commission were to undertake a marketing study when it received an application for a new station, and then make public the findings of the study, so that all parties involved could proceed from a single frame of reference. The CAB was not prepared at the hearing to discuss these matters in full, but stated that it would be willing to participate in future discussion.
Individual broadcasters proposed other changes. Twigg Communications Limited (Twigg) expressed concern regarding the Commission's current practice of announcing the receipt of a proposal for a given market in a public notice and issuing a "Call" for any other interested parties to submit applications for the same market. Twigg suggested that no such "Call" be issued unless and until the Commission was able to satisfy itself that the market could support a new service. Maclean Hunter Limited argued that "Calls" should be specific as to what format(s) would be most appropriate in the circumstances so that a more precise comparison of applications could be made.
The Commission's Proposal
After reviewing these comments, together with the history of recent applications and other data, the Commission proposes the following modifications to its practices with respect to the processing of applications for conventional commercial AM and FM undertakings:
1. The Commission proposes to apply the list of objective criteria set out below, as tools to assist in assessing the ability of markets to support additional commercial stations.
2. It will prepare, and publish at a later date, data relevant to each radio market, to be used in applying the objective criteria.
3. In the case of any market for which it receives a complete application, it will commission and publish the results of an independent study investigating more fully the market's general capacity to support an additional commercial station.
4. It will change its procedures for processing applications to accommodate the above. Each of these items is described in more detail below.
The Criteria
The objective of the following criteria is to permit early identification by potential applicants of situations in which further investigation would very likely reveal that the market would not be able to support an additional commercial station.
The Basic Criterion
The introduction of an additional commercial AM or FM station must not affect the ability of existing commercial AM and FM stations to discharge their programming responsibilities.
The Specific Tests
1. Group Profitability
 To measure this indicator, the Commission will determine the average profitability of all commercial stations in the market over the preceding 5 years. Should this profitability be negative, the market will be deemed to have failed this test. Profits are measured before interest expense and taxes.
2. Individual Profitability
 To measure this indicator, the Commission will examine whether each of the stations in the market was profitable or unprofitable in each of the preceding 5 years. The total number of instances where stations were profitable will be compared with the number where they were unprofitable. Should the number of unprofitable station-years be equal to or greater than the number of profitable station-years, the Commission will consider the market to have failed this test.
3. Revenue Growth
To measure this indicator, the Commission will examine the total advertising revenues within the market. If advertising revenues have exhibited no positive real growth (i.e. after inflation) over the preceding 5 years, the Commission will consider the market to have failed this test.
The first two tests would identify markets in which existing commercial licensees are generally in a long-term money-losing state. To introduce another station would likely exacerbate the situation.
The third test indicates a contracting market. To increase the number of competitors in such a situation would not be in the public interest and would be potentially harmful in all but extraordinary cases.
It should be noted that while the above tests would permit the early identification of most cases where Commission approval of an application would be highly unlikely, they do not guarantee total fulfilment of the basic criteria. Certain markets may, at a given moment, have a distorting factor in their statistics so that their lack of capacity to support the introduction of a new commercial service cannot be brought to light by application of only these three specific tests. It is expected that such cases will be identified by the ensuing, more comprehensive study specific to the market.
Relevant Data
The financial data relevant to group and individual profitability of stations, and to the growth of radio revenues in the various radio markets across Canada, will be made public and updated on an annual basis by the Commission.
The Commission notes that some data is currently available from Statistics Canada or is privately assembled by the industry itself. The Commission's publication will supplement these in a form and manner that will facilitate application of the criteria.
For any given market, these data will consist of:
1. The five-year average of Profits before Interest and Taxes (PBIT) for all stations as a group.
2. The total number of instances over the preceding five-year period in which individual stations within a market have been profitable or unprofitable on an annual basis.
3. The five-year average of the annual growth rate of radio revenues in the market.
There will be certain restraints due to the need to preserve confidentiality regarding the financial performance of individual operations. The Commission will adhere to its standard guideline of releasing all information except where this would be to the competitive disadvantage of individual licensees. The Commission therefore requests comments as to whether it should publish the results for each station in a market or market aggregates only.
In the attached appendix, the Commission provides an illustration of the type of data that it would publish with respect to the various markets, using Vancouver as an example. This illustration includes a sample format for individual station data using fictitious station figures in each case.
Changes to Procedure
The Commission's current procedure for processing applications for individual markets is as follows:
1. An application is received.
2. Through correspondance with the applicant, the Commission ensures that the application is complete and free of deficiencies.
3. The Commission issues a Call, making the public aware of the application it has received and providing all other interested parties the opportunity to submit their own application.
4. All complete applications are considered at a public hearing.
5. A decision is rendered.
The Commission proposes to modify its procedure as follows:
1. Following receipt of a complete application, but before issuance of a Call, it will commission an independent study to investigate more fully the capacity of the market to support an additional station.
2. The findings of the study will be made available to the applicant, who will then be required to decide whether to continue, given the findings of the study and the published criteria of the Commission.
3. (a) If the applicant decides to continue, i) the study will then be made public, ii) a Call will be issued, and iii) all complete applications will be considered at a public hearing.
(b) If the applicant decides not to continue, the process will be terminated and its application returned. The study will be placed on the public record.
The above study will be limited to a consideration of the general financial capacity of the market and of the individual commercial radio licensees serving that market. It will provide projections of radio market capacity for the future and will highlight any specific relevant features of the local economy.
A maximum of six such studies will be undertaken in any year. This number approximates the average number of yearly "market entry" hearings held by the Commission over the past four years. Priority for consideration at hearings will be determined on the basis of feasibility as indicated by the criteria and studies, and the date of receipt of complete applications in the Commission. The Commission emphasizes that the proposed modifications to its procedure do not envisage any unilateral decision on its part to terminate the process following the first stage described above, even if the independent study concludes that the market cannot support an additional station.
The Commission also emphasizes that the purpose of the independent market study will be solely to test the market's ability to support a new station and will not examine the appropriateness of any format(s) or the potential audience.
If the process does result in a Call, applicants will be expected to carry out their own market studies in support of their individual applications and, through reference to the Commission's new criteria, to demonstrate the capacity of the market to support the additional service they wish to provide. Applicants will also be expected to address the appropriateness of their chosen format.
Public Comment
The Commission invites public comment on the proposed process and criteria for use in the Commission's market study as well as to the nature of the data it will publish. It also invites comments on what elements should be included in the market studies submitted with applications before they are deemed adequate and complete. The Commission's objective is to ensure that the market studies submitted by competing applicants are comprehensive and provide an adequate framework for analysis and comparison. Closing date for submission of comments is Friday, 1 March 1991.
Allan J. Darling
Secretary General
Appendix to Public Notice CRTC 1990-112/
Annexe à l'avis public CRTC 1990-112
Data Sheet/Fiche de renseignements
Vancouver Radio Market/Marché radiophonique de Vancouver
1. Five-year Average Annual Profit - Before 15%
Interest and Taxes (PBIT) of Market as a
Whole, as % of Revenues/Moyenne quinquen-
nale du taux de profit annuel avant
intérêts et impôts (PAII) du marché dans
l'ensemble, en pourcentage des recettes
2. Number of Stations with Positive 74%
PBIT, as a % of All stations, Over
1985-1989/Nombre de stations ayant un
PAII positif, en pourcentage de toutes
les stations, au cours de 1985-1989
3. Five-year Average Annual Revenue Growth of 2.63%
Market as a Whole, After Inflation/Moyenne
quinquennale du taux de croissance annuelle
des recettes du marché dans l'ensemble,
après inflation
Profit Before Interest and Taxes
Profit avant intérêt et impôts (PAII)
1985 1986 1987 1988 1989 1985-89
1 344 245 (126) 776 908 *
2 775 424 169 236 36 *
3 456 267 487 (145) 985 *
4 788 3567 3455 1458 1671 *
5 1562 1443 1356 945 2448 *
6 5682 3353 3464 3351 2556 *
7 700 1456 4554 3565 3580 *
8 3566 4464 (336) 564 902 *
9 - - (8966) (7848) (2721)*
10 (673) (352) 26 (679) (984)*
11 - (332) (6194) (871) (370)*
12 356 447 56 (542) (650)*
13 (657) (89) 821 (1) 543 *
14 - - - - 371 *
15 564 3658 3370 3262 50180 *
Total, $ PBIT/ 7,863 10,051 6,616 5,035 4,163
Total PBIT as a 19.8 23.0 14.2 10.0 8.2 15.0
% Revenue/PAII
en % recettes
Total, No. of
Stations/Nombre 12 13 14 14 15
des stations
No. Unprofitable/ 2 3 3 5 5
Non rentables
% Unprofitable/ 17 23 21 36 33 26.0
non rentables
% Profitable/ 83 77 79 64 67 74
*These figures are fictitious and do not make use of actual data in the market nor do they add up to the totals shown/Ces chiffres sont fictifs et ne représentent pas les données réelles du marché ni ne concordent avec les totaux affichés
Vancouver Radio Market Revenues - 1984 to 1989
(in constant $)/
Recettes du marché radiophonique de Vancouver - 1984 à 1989
(dollars constants)
Station 1984 1985 1986 1987 1988 1989 AVERAGE/ MOYENNE
1 8445535 3685531 9865416 2345509 3334588 3946454*
2 2647630 3466905 7897316 3321130 3442197 3332632*
3 1563653 3234424 4655953 3224655 3226640 3679943*
4 3567768 1335646 1332559 9755336 8956545 8976496*
5 3688519 1335436 1367855 2243433 1445562 345540*
6 445550 76540 44433 875506 789326 864483*
7 5786231 8974336 8643360 9433136 3453277 886422*
8 8645666 365441 864449 762354 864560 864764*
9 443292 984335 1335563 8976548 3678872 3246698*
10 5576543 3356730 3587518 1467321 8759822 3325652*
11 7644300 6554272 6554298 6778946 8764337 7983241*
12 4564332 2455028 1234443 9878871 3564760 1356474*
13 9807750 8769931 3687474 9863548 8759073 3567453*
14 356880 345887 335987 9871431 7895431 7632677*
15 3478782 9765667 2024651 1553285 5433568 6784435*
TOTAL 29458122 30128882 32272123 31792610 32263268 33484624
% CHANGE/ 2.28% 7.11% -1.49% 1.48% 3.79% 2.63%
*These figures are fictitious and do not make use of actual data in the market nor do they add up to the totals shown/Ces chiffres sont fictifs et ne représentent pas les données réelles du marché ni ne concordent avec les totaux affichés

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