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Ottawa, 18 October 1991
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Decision CRTC 91-804
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NEWCO Niagara Television Limited
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Hamilton, Ontario - 910541200
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Following a Public Hearing in the National Capital Region beginning on 8 July 1991, and subject to the condition set out below, the Commission approves the application for authority to transfer effective control of NEWCO Niagara Television Limited (NEWCO), licensee of CHCH-TV Hamilton, through the transfer of all of the issued shares of the licensee company from MH Acquisition Inc. to WIC Western International Communications Inc. (WIC).
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WIC, through its subsidiary Westcom TV Group Ltd., owns both CHAN-TV Vancouver and CHEK-TV Victoria. For the reasons set out below, the Commission's approval of the present application is subject to the condition that, within two years of today's date, a complete application be submitted to the Commission for authority to transfer the ownership or effective control of either CHAN-TV Vancouver or CHEK-TV Victoria from WIC to a third party.
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In a separate decision issued today, the Commission has accorded CHCH-TV a one-year administrative licence renewal, from 1 September 1992 to 31 August 1993, subject to the terms and conditions specified in the current licence. This will provide the station's new ownership sufficient time to establish itself before the Commission next considers the licence renewal of CHCH-TV.
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In addition to the above-noted Vancouver and Victoria CTV affiliates and their numerous transmitters across British Columbia, WIC owns CITV-TV (IND) Edmonton, CKKX-TV (IND) Calgary, CKRD-TV (CBC) Red Deer, CISA-TV (IND) Lethbridge and CHBC-TV (CBC) Kelowna. WIC's broadcast holdings also include ownership of nine radio programming undertakings in major cities across Canada, the pay television and experimental pay-per-view licensee Allarcom Pay Television Limited, 50% of a second pay television licensee (The Family Channel) and 51.1% of Canadian Satellite Communications Inc.
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The purchase price for the shares of NEWCO is approximately $45 million. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or the adequacy of the required financing.
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The vendor is a subsidiary of Maclean Hunter Limited (MHL), a company with extensive holdings in the cable, radio and television sectors of the broadcasting industry. MHL acquired ownership of the financially-troubled CHCH-TV in 1989 (Decision CRTC 89-766), as part of a much larger transaction involving the transfer to MHL of effective control of the broadcasting interests of Selkirk Communications Limited. As a further part of that 1989 transaction, MHL had sought authority to transfer effective control of the Hamilton station to CFPL Broadcasting Limited, licensee of CFPL-TV London. This application was denied by the Commission in Decision CRTC 89-768. In Decision CRTC 90-1072, the Commission denied another application for authority to transfer effective control of CHCH-TV, this time to a partnership of MHL and the owners of CFPL Broadcasting Limited. In each instance, the Commission was not convinced that the applicant had developed the strategies and business plan that would be necessary to improve the station's financial performance.
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The Commission is satisfied that the shortcomings of the two applications described above are not present in the application currently before it. The Commission notes in this regard the applicant's realistic long range business plan, including WIC's proposal to maintain an appropriate ratio of Canadian to foreign program expenditures.
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In reaching its decision, the Commission has weighed carefully the concerns raised by interveners regarding, in particular, the significant expansion of WIC's role within the broadcasting system, the growth of WIC's holdings within the independent television industry, the possible negative impact of this growth on the future of the CTV network and, more specifically, the potential for conflict of interest between WIC's existing responsibilities as a CTV affiliate and its increasing involvement as the operator of independent stations across the country.
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The Commission has also considered the potential shift that could occur in the competitive balance between commercial television licensees, particularly in terms of foreign program acquisition.
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Further, the Commission has given consideration to WIC's ownership of both CHAN-TV Vancouver and CHEK-TV Victoria. The fact that a single owner holds two television licences in essentially the same market represents an anomaly that clearly runs counter to the Commission's ownership policy, which generally precludes the ownership of two television stations broadcasting in the same language in the same market.
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Each of the matters noted above is addressed further, later in this decision.
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The Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings. Thus, 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. 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 and at the hearing, WIC committed, as a benefit of this transaction, to make direct operating and capital expenditures totalling a minimum of $8.25 million over five years. These incremental expenditures are to be directed principally to the production of new programming and to improvements in local and national news coverage.
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The Commission notes that, as part of the $8.25 million, WIC will allocate $5 million over five years to fund the production of new programming in under-represented categories for broadcast on CHCH-TV. In the Commission's view, these additional expenditures on Canadian programming, coupled with the applicant's plans to maintain reduced expenditures on non-Canadian product, effectively respond to the Commission's concern in previous years regarding the disproportionate expenditures by the station on foreign programming.
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The $5 million, which is in addition to the expenditures on Canadian programming required of CHCH-TV by condition of licence, will be administered by the management of the Hamilton station. WIC has committed to ensure that a portion of the $5 million is made available to CHCH-TV without delay, in order that at least some of the programming produced under this initiative is telecast in the 1992/93 season.
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The Commission has also assessed the various intangible benefits identified by WIC as flowing from this transaction. It agrees with the applicant that WIC will provide much-needed management stability and financial support to the operations of CHCH-TV. In addition, the Commission notes the proven interest and experience of this western-based broadcaster in the creation of high quality Canadian programming, and is satisfied that the new owner has the capacity to ensure that CHCH-TV performs at a level that reflects its important position as an independent station operating in Canada's largest market.
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The Commission considers that approval of this application will enable CHCH-TV to benefit from access to WIC's program production fund and enhanced opportunities for program exchange. On balance, it is the Commission's view that the broadcasting system and the viewing public will also gain from WIC's emergence as a stronger and more competitive component of Canada's independent television sector.
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In general, the Commission is satisfied that the benefits package promised by WIC is significant, unequivocal and commensurate with the size of the transaction. Moreover, for the reasons cited above, the Commission is satisfied that approval of this application is in the best interests of CHCH-TV and the viewers it serves, and of the broadcasting system as a whole.
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The Commission expects the applicant to ensure that the expenditures of $8.25 million included in the benefits package are made in accordance with the timetable outlined in the application. The Commission also expects the applicant to ensure that the focus of CHCH-TV's programming, particularly the station's news and public affairs programming, remains directed to the area CHCH-TV is licensed to serve, that being Hamilton and the Niagara Peninsula.
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Certain interveners, most notably CanWest Global Communications Corp. (CanWest) and Baton Broadcasting Incorporated (Baton), expressed concern that this transaction, and the resulting expansion of WIC's holdings in the independent television sector, would lead to an escalation of competition among Canadian buyers for foreign programming and, inevitably, to higher prices for such programming. According to CanWest, this would be to the detriment of the system as a whole by weakening the ability of commercial broadcasters to meet their commitments for expenditures on Canadian programming.
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In response to this concern, WIC stated at the hearing that it would maintain CHCH-TV's newly-adopted strategy of not competing for national rights to foreign programs, except to protect its "incumbencies", or those programs to which it currently holds the rights, against bids by other Canadian buying groups. Nevertheless, CanWest argued that the application should only be approved on condition that WIC refrain from acquiring national rights to foreign programming. However, neither CanWest nor CTV was prepared to abide by any industry arrangement, tacit or otherwise, for the protection of incumbencies.
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The Commission has considered this matter carefully. Although it recognizes that WIC, through its efforts to protect incumbencies, may emerge as a new buyer of national rights and that foreign program costs may rise as a result, the Commission does not consider the concerns in this regard to outweigh the benefits of the current transaction. The Commission also notes that the potential exists for the emergence of a new national buying group regardless of this transaction.
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Nor does the Commission consider either reasonable or practical CanWest's suggestion that WIC be constrained from purchasing national programming rights. In the Commission's view, any such requirement would be an unwarranted departure from its practice not to intrude in the program acquisition activities of the broadcasting industry. Ultimately, it will be the broadcasting industry itself, and the individual business decisions of its players, that determine the extent and impact of the competition for foreign programming and consequent increases in prices for such programming.
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Although the Commission is satisfied with the benefits that will result from WIC's purchase of CHCH-TV, and considers that the expansion of WIC's role within Canada's independent television industry is in the public interest, the Commission is concerned about the potential consequences for the future of the CTV network. As the Commission advised WIC at the hearing, it is the Commission's responsibility to ensure that, in approving this application to stabilize the ownership and the operations of CHCH-TV, it does not create a more serious problem elsewhere within the system, notably within the CTV network.
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Ever since the last CTV network renewal in 1987, the shareholders of CTV have been at an impasse regarding the drafting of a new shareholders agreement. Although the Commission has urged CTV to resolve its internal differences in this regard, the network's financial performance in recent years has only served to deepen the divisions.
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Against this background, the Commission notes that the audience reach of WIC's two CTV-affiliated stations makes it the second largest of the network's participants, after Baton. With the acquisition of CHCH-TV, however, WIC will find itself in a situation where most of its television revenues are derived from independent television stations operating in competition with CTV in three of Canada's major markets.
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The Commission's concern is that the expansion of WIC's holdings in the independent television sector may heighten the potential for conflict of interest between WIC's investments in those holdings and its continued participation in the CTV network, and that this, in turn, could render more difficult any resolution of the ongoing CTV ownership dispute. This concern was also raised at the hearing by Baton:
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The application before you complicates even more the issue of shareholder responsibility in CTV. WIC, while maintaining an equity interest in CTV and operating two affiliates, would be establishing the foundation of a national service directly competitive with CTV. It is more than reasonable to assume that the resulting conflicts cannot be worked out.
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Other interested parties, however, took a somewhat different position on this issue. Mr. John Cassaday, CTV's President and Chief Executive Officer, made the following statement at the hearing:
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Assuming that continued support of the network remains a priority in the enlightened self-interest of all affiliates, we do not believe that cross-ownership is unmanageable for the CTV Board.... We do not oppose the application, assuming CTV can count on WIC's continued support in strengthening and maintaining the network. This support would take the form of continued support of the conditions and terms of the shareholders/ affiliation agreements.
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This position was endorsed at the hearing by Electrohome Limited, licensee of CFRN-TV Edmonton and CKCO-TV Kitchener, and whose Vice-President, Mr. Bill McGregor, currently serves as CTV's Chairman. In its application, WIC noted that other CTV shareholders also have ownership of independent television stations. WIC stated, however, that it "reaffirms its continued commitment to CTV and looks forward to assisting CTV to meet the challenges and opportunities facing it". In response to CTV's written intervention, WIC further confirmed that it would "declare its interest in any conflict of interest circumstance and will abstain from voting in any such circumstance, just as it always has". The Commission places considerable importance on these commitments and expects WIC to adhere to them.
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Although the Commission's position remains unchanged, that the ownership disagreements within the CTV network must be settled by the CTV shareholders themselves, it sees an increasingly urgent need for resolution of these problems. It expects WIC to play a positive and constructive role in bringing about such a resolution, in concert with the network's other shareholders.
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It is not clear at this time whether it would be in the public interest that WIC remain an active participant in the CTV network. The Commission notes that, should WIC choose to continue its participation in the CTV network, an appropriate opportunity to review this matter will present itself in the context of the Commission's consideration of the required divestiture application.
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With regard to such divestiture, the Commission notes that, in 1963, a transaction was approved whereby Vantel Broadcasting Company Limited, then owner of CHAN-TV, acquired ownership of CHEK-TV. At the time, the Victoria station was being operated as a CBC affiliate. Subsequently, in 1980, CHEK-TV was permitted to switch its affiliation to the CTV network on the Commission's understanding that the CBC would construct a new owned-and-operated station to serve Victoria. For budgetary reasons, however, the proposed Victoria station was never built, and the provincial capital was left to continue with service received from CBUT Vancouver.
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In the economic climate of the times, the 1963 transaction represented the rescue of a failing undertaking. The concern, then, was that the market was unable to support a stand-alone Victoria station, and that CHEK-TV could only continue in service if it and CHAN-TV were brought under common ownership.
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Over the years, circumstances in the Vancouver/Victoria market have improved significantly. In fact, both CHAN-TV and CHEK-TV have enjoyed profitability throughout the 1980s. In the Commission's view, the market now has sufficient strength to support the operation of these stations, each under separate ownership.
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The Commission notes in this regard that, for the 1991/92 broadcast year, the Board of Directors of CTV has permitted CHEK-TV to broadcast as little as seven and a half hours per week of CTV's network programming scheduled simultaneously with CHAN-TV in the evening broadcast period; all of this programming is Canadian-produced. Thus, in essence, the Victoria station is operating as an independent station as regards the foreign content of its program schedule, while benefitting from the Canadian programming supplied by the CTV network.
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Given the foregoing, and the fact that, as a result of this decision, WIC will have ownership of independent television stations in three major markets, the Commission considers that it is now appropriate and timely to rationalize the current situation in the Vancouver/Victoria market by requiring WIC, as a condition of this approval, to divest of either CHAN-TV or CHEK-TV, thereby bringing about the separate ownership of that market's three privately-owned television stations.
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Allan J. Darling
Secretary General
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