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Ottawa, 19 August 1992
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Decision CRTC 92-589
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965427 Ontario Inc.
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Kitchener, Ontario - 920161700 - 920162500
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Following a Public Hearing in Toronto beginning on 19 May 1992, the Commission approves the applications for authority to acquire the assets of CKKW and CFCA-FM Kitchener from Electrohome Limited (Electrohome), doing business under the name and style of "CAP Communications", and for broadcasting licences to continue the operation of these undertakings, under the same terms and conditions as the current licences.
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The Commission will issue licences to 965427 Ontario Inc. (965427), expiring 31 August 1996, upon surrender of the current licences. The licences will be subject to the same conditions as those specified in the current licences as well as to any other condition specified in this decision and in the licences to be issued.
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965427, the purchaser, is owned by two shareholders: Jack Schoone (51%) and Irving Zucker (49%). Both Mr. Schoone and Mr. Zucker have extensive experience in broadcasting and have operated radio stations in southern Ontario and throughout Canada for more than three decades. Mr. Schoone, who will hold effective control of the radio stations, will take up residence in the Kitchener area and will be responsible for the day-to-day management of CKKW and CFCA-FM. Electrohome, the vendor, is a publicly-traded company ultimately controlled by members of the J.A. Pollock family. In addition to CKKW and CFCA-FM, Electrohome is licensee of the CTV affiliates CKCO-TV Kitchener and CFRN-TV Edmonton.
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CKKW and CFCA-FM currently share facilities with CKCO-TV in Electrohome's television broadcast centre. At the hearing, Electrohome stated that one of the reasons for disposing of the radio stations was its wish to focus its efforts on its television operations. Moreover, Electrohome acknowledged that, in the current joint television/radio organization, "a lot of the attention [had been given] to the television operations" and that CKKW and CFCA-FM would benefit from owners who are committed to concentrating on radio operations.
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The purchase price relating to this transaction is $5.5 million. Based on the evidence filed with the applications, the Commission has no concerns with respect to the availability or the adequacy of the required financing.
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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 applications filed are the best possible proposals 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 transfers will yield significant and unequivocal benefits to the community served by the broadcasting undertakings and to the Canadian broadcasting system as a whole, and that they are 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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The Commission has assessed the various projects and initiatives put forward by the applicant as being the benefits associated with this transaction. In general, the Commission is satisfied that the benefits package is clear and unequivocal and that approval of these applications is in the public interest.
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The applicant has proposed benefits, tangible and intangible, which would total $4.188 million.
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Among the intangible benefits that 965427 identified as flowing from this transaction, the applicant emphasized the extensive broadcasting experience and the solid financial resources that the Messrs. Schoone and Zucker would bring to these financially troubled stations.
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965427 also made a commitment to maintain the AM service for a minimum of five years despite any continuing financial losses. The Commission notes in this regard that, although the FM station's revenues have increased slightly since 1990, the combined results of CFCA-FM and CKKW revealed losses before interest and tax in each of the past four years (1988-1991) and a projected loss for 1992. Accordingly, the Commission accepts this commitment as an intangible benefit.
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In conjunction with the commitment to preserve the AM service, 965427 claimed that its preparedness to absorb projected tax losses for CKKW of $2.888 million over five years would constitute a quantifiable benefit of this transaction. The Commission, however, notes the applicant's statement at the hearing that only 60% of CKKW's expenses would be eliminated if the station were closed. If it operated in isolation, CFCA-FM would lose the benefits associated with the efficiencies of a joint AM/FM operation, and would therefore have to assume 40% of the expenses currently allocated to the AM station. The Commission therefore does not accept the $2.888 million figure claimed by the applicant for projected tax losses for CKKW over five years as a quantifiable benefit, either tangible or intangible.
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The Commission has noted the comments made by Electrohome at the hearing that CKCO-TV's higher visibility has hampered the development of the radio stations' image and prevented them from realizing a "distinct presence" in the Kitchener market. The Commission agrees with the applicant that the relocation of CKKW and CFCA-FM to new facilities, separate from the television station, will help the radio stations to establish their own unique identity in the community.
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The applicant also claimed as a tangible benefit of this transaction capital expenditures of $1 million related to its commitment to move CFCA-FM and CKKW from their present location, which they share with CKCO-TV, to new state-of-the-art facilities. According to 965427, these expenditures would be directed to building new studios and to purchasing new equipment. The Commission has analyzed the proposed expenditures and has determined that the $1 million figure claimed by the applicant for this initiative is significantly higher than the average costs that might be reasonably expected for the type of new studios and technical equipment proposed. Accordingly, the Commission has decided to assign a value of $800,000 to this commitment as a tangible benefit.
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The Commission accepts as a tangible benefit 965427's commitment to provide in cash and/or goods and services $50,000 each year for five years to the broadcast education program at Connestoga College.
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The Commission, however, disqualifies as a benefit the applicant's proposal to allocate $70,000 to fund separate market research projects designed to assist in the repatriation of listeners who currently tune to stations located outside the Kitchener-Waterloo market. As outlined in Public Notice CRTC 1989-109, the Commission considers costs related to marketing surveys to be normal business operating expenditures.
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The Commission expects 965427 to ensure that all of the $1.3 million in proposed expenditures included in the benefits package are made in accordance with the schedule outlined in the applications.
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The Commission further expects 965427 to submit a report, at licence renewal time, containing precise details concerning implementation of the benefits promised under these applications, including the various budgetary expenditures associated with each benefit.
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The Commission notes that CFCA-FM operates in a Group 1 format (Softer Pop and Rock). Decision CRTC 90-382, which approved Electrohome's application to change CFCA-FM's vocal-to-instrumental ratio from 45:55 to 75:25, noted the licensee's commitment to continue to target the station's programming to the 35 and over demographic group. While 965427 indicated that it wishes to expand CFCA-FM's appeal to attract younger listeners, the Commission notes the applicant's commitment to continue to target the FM station's programming to those over 35 years of age. Specifically, 965427 stated:
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We hope to adjust, not necessarily totally change this radio station [CFCA-FM]. We want to protect the core audience we have, but adjust downward to a point where it becomes a 35+ radio station.
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The Commission reaffirms the particular importance it attaches to the development of Canadian talent. In its applications to acquire the assets of these radio stations, 965427 stated that it will assume responsibility for all existing commitments to Canadian talent development by CKKW as well as the initiatives proposed in the renewal application noted below for CFCA-FM. In view of the approval granted herein, no further action is required on application (911843100) submitted by Electrohome for the renewal of the licence for CFCA-FM, which was heard at the Toronto Public Hearing on 19 May 1992.
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The Commission acknowledges the intervention submitted by Conestoga College in support of these applications.
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Allan J. Darling
Secretary General
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