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Ottawa, 23 December 1992
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Decision CRTC 92-821
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NEWCO Niagara Television Limited
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Hamilton, Ontario - 920180700
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Following a Public Hearing commencing 5 October 1992 in the National Capital Region, the Commission approves the application by NEWCO Niagara Television Limited (NEWCO), on behalf of its wholly-owned subsidiary, Niagara Television Limited, licensee of CHCH-TV Hamilton, for authority to transfer effective ownership and control of the licensee through the transfer of all of the issued shares of NEWCO from MH Acquisition Inc. to 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. In addition to these two CTV affiliates and their numerous transmitters across British Columbia, WIC owns CITV-TV (IND) Edmonton, CKKX-TV (IND) Calgary, CITV-TV-1 (IND) and 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 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. (CANCOM). The vendor is a subsidiary of Maclean Hunter Limited (MHL), a company with extensive holdings in the cable, radio and television sectors of the Canadian broadcasting system. MHL acquired ownership of CHCH-TV in 1989 as part of a much larger transaction involving the transfer to MHL of effective control of the broadcasting interests of Selkirk Communications Limited (Decision CRTC 89-766). 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. Approval of that transfer was denied by the Commission in Decision CRTC 89-768.
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The Commission dealt with applications for authority to transfer effective control of CHCH-TV on two other occasions. In Decision CRTC 90-1072, the Commission denied approval of a proposal that would have placed ownership of the Hamilton station in the hands of a partnership of MHL and the owners of CFPL Broadcasting Limited. Last year, however, in Decision CRTC 91-804, the Commission approved an application for authority to transfer effective control of CHCH-TV to WIC, subject to the condition that, within two years of the decision's date, a completed application be submitted for authority to transfer the ownership or effective control of either CHAN-TV or CHEK-TV from WIC to a third party. WIC elected not to exercise the authority granted it in Decision CRTC 91-804, choosing instead to file the present application, together with arguments and supporting evidence as to why it should be permitted to purchase the Hamilton station and retain ownership of both CHEK-TV and CHAN-TV.
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THE BENEFITS PACKAGE
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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.
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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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According to the applicant, the tangible benefits associated with the current application represent incremental expenditures of approximately $9 million over five years. The purchase price attached to this transaction is approximately $45 million. The proposed benefits include capital and operating expenditures totalling $3.5 million for the purpose of upgrading the news facilities of CHCH-TV, acquiring a new SNG/Microwave Vehicle, expanding the Hamilton station's existing Queen's Park news bureau and establishing an Independent Satellite News (ISN) news bureau in Montréal.
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At the hearing, the applicant confirmed its commitment to direct the remaining $5.5 million of the benefits package entirely to the payment of licensing fees to independent producers for the production of new Canadian programming in under-represented categories for broadcast on CHCH-TV. WIC also stated that administration of the full amount, and control over approval of the projects to be produced in association with independent producers, will remain the responsibility of CHCH-TV's senior management:
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This money would not be used at all for [equity] investment. What we are saying is that this $5.5 million is licence fees for programs that would run on Hamilton only...
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WIC's intent is to have the Management Committee at CHCH make the decisions related to the acquisition of Canadian programming at the station level at CHCH. There have been no other discussions involving the $5.5 million being attached to the WIC fund or to the Allarcom fund.
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At another point during the hearing, WIC offered the clarification that, while most of this programming would receive first play on CHCH-TV, some productions may receive a first window elsewhere, such as on pay or specialty services and, perhaps, on conventional television stations other than CHCH-TV.
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Also of importance, in the Commission view, are the intangible benefits that will result from this transaction, including the managerial and financial support that WIC will bring to the operations of CHCH-TV following the prolonged period of uncertainty the station has undergone regarding its ownership. The Commission notes in this regard the experience and proven abilities of this western-based broadcaster. The Commission has no concerns with respect to the availability or the adequacy of the required financing, and is satisfied that the benefits promised by WIC are significant, unequivocal and commensurate with the size of the transaction. It is satisfied that, under WIC's ownership, CHCH-TV will perform at a level that reflects its important position as an independent station operating in Canada's largest market.
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For all of the reasons outlined above, the Commission considers that approval of this application is in the best interests of CHCH-TV, the viewers it serves, and the broadcasting system as a whole.
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The Commission expects the applicant to ensure that the expenditures of $9 million included in the benefits package are made in accordance with the timetable outlined in the application, and to file annual reports on its progress in this regard. 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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IMPACT ON THE CTV NETWORK
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Decision CRTC 91-804 addressed at some length the issues arising from the expansion of WIC's role within the independent television sector following its acquisition of CHCH-TV, in particular the impact of such expansion on the operations of the CTV television network. WIC, by audience reach, is the second largest CTV affiliate after Baton Broadcasting Incorporated. The Commission noted in its decision that the acquisition of CHCH-TV would place WIC in a situation "...where most of its revenues are derived from independent television stations operating in competition with CTV in three of Canada's major markets".
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While concluding that the expansion of WIC's role within the independent television sector was in the public interest, the Commission identified as a concern the heightened potential for conflict of interest between WIC's independent television holdings and its participation in the CTV network, and the possibility that this might hamper resolution of the ownership dispute then ongoing between CTV's shareholders. The Commission made no determination in its 1991 decision whether it would be in the public interest that WIC remain an active participant in the CTV network. Nevertheless, it expected WIC to play a "positive and constructive role" in bringing about a resolution of the ownership disagreements within the network, in concert with the network's other shareholders.
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The Commission notes that there have been a number of encouraging developments affecting the CTV network in the year since issuance of Decision CRTC 91-804. The network's weak financial performance in recent years, which had served to deepen the divisions between shareholders, is now showing signs of improvement. In the Commission's view, WIC has made reasonable efforts throughout this period to meet the Commission's expectation that it play a constructive and positive role in resolving the differences between shareholders.
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At the 5 October hearing, WIC offered a number of strong assurances, or "Safeguards for CTV", designed to dispel any concerns the Commission might have regarding the potential negative impact of the transaction on the network. The assurances are as follows, as stated in a letter submitted at the hearing, at the Commission's request:
1. WIC agrees to broadcast the Network schedule and Special Network Service as determined by a majority of CTV's Board of Directors and approved by the CRTC at CTV's upcoming renewal hearing.
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2. Until the CTV licence renewal hearing, WIC agrees to abide by the current Network schedule. 3. WIC acknowledges that they are not seeking to lower the current requirement of 40 hours per week.
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4. WIC will not compete for CTV incumbencies.
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5. WIC will not compete to acquire programs CTV has declared its interest in (i.e. WIC will not compete for a program CTV has identified as a possible replacement for a program that has been "dropped") as long as such replacement program is not a program that is being raided from CHCH-TV.
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6. If WIC acquires a program (i.e. as part of a package) that CTV has declared an interest in, WIC will make that program available to the Network at WIC's cost.
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7. WIC will adhere to Station Sales Time programming policy determined by a majority of the CTV directors.
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The Commission notes these assurances offered by WIC.
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THE COMMISSION'S OWNERSHIP POLICY AND THE ISSUE OF DIVESTITURE
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The rationale underlying the Commission's conditional approval in 1991 was based upon its longstanding ownership policy, which generally precludes the common ownership of two television stations broadcasting in the same language in the same market. In Decision CRTC 91-804, the Commission recognized the economic circumstances that led the Board of Broadcast Governors to conclude in 1963 that the market was then unable to support a stand-alone Victoria station, and the Board's decision, therefore, to approve the common ownership of CHAN-TV and CHEK-TV. The Commission, however, determined in 1991 that economic circumstances had improved significantly, and that the market had acquired "...sufficient strength to support the operation of these stations, each under separate ownership".
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In its current application, WIC indicated that it had examined the financial, social and other consequences of the various divestiture options available to it, including the differing implications associated with the choice of either selling CHEK-TV or CHAN-TV, and the question of whether it would be more advantageous to operate a single station in the market as a CTV affiliate or as an independent. WIC advised that, if it were to divest, the hypothetical choice it considered to be the least damaging financially would be to sell CHEK-TV and retain ownership of CHAN-TV as a CTV affiliate. Even so, the applicant presented evidence, including the results of an independent market study, predicting that such a choice would have a serious impact on WIC's revenues and its continued ability to provide the present level of service.
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According to the financial analysis presented by the applicant, CHAN-TV's annual advertising revenues would decline by between $8 million and $14 million following the divestiture of CHEK-TV, with a commensurate drop in operating income. WIC argued that, in order to ensure the continued viability of the Victoria station, any new owner of CHEK-TV would be compelled to re-orient the station's local programming to Vancouver and to compete with other players in that larger market for audiences, advertising and acquired programming, all of which would serve to reduce CHAN-TV's revenues and its abilities to contribute to the system and, at the same time, dramatically reduce the amount of local service provided to the residents of Victoria and Vancouver Island. The applicant added that the pressure to cut operating costs in these circumstances would oblige WIC to review the operation of CHAN-TV's rebroadcasting network throughout British Columbia's interior. Among the interventions submitted in support of WIC's application were well over 100 from the province of British Columbia, including those filed by individuals, representatives of the production and entertainment industries, broadcasters, advertisers, associations and institutions, elected representatives, various municipal governments and the Government of British Columbia, all urging the Commission not to oblige WIC to divest of either CHAN-TV or CHEK-TV.
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The concerns of these interveners regarding the impact of any potential divestiture echoed many of those raised by the applicant. Some stressed the unique circumstances of the greater Vancouver market, in particular the fact that, while Victoria forms part of that market economically, the provincial capital represents a distinct market from a social and cultural perspective, constituting a separate community that warrants its own television service. These interveners expressed concern that putting an end to the common ownership of the two stations would remove the synergies that make possible the provision of a high level of locally-oriented service to Victoria and Vancouver Island.
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Other interveners raised the possibility that divestiture could have negative consequences province-wide by reducing the ability of both stations to provide local and regional reflection. Specifically, they argued that, under separate ownership, the reduced aggregate advertising revenues to be generated by the two stations would reduce the ability they now share collectively to meet foreign competition, provide employment, and to produce new local and regional programming directed to the stations' respective markets.
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The Commission has examined the financial data and other information brought forward by WIC in its application and at the hearing regarding the potential impact of divestiture. It has also given careful consideration to the views on this issue contained in the interventions submitted by concerned parties from within British Columbia.
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The Commission has benefitted from the financial information submitted by WIC, but considers that the applicant may have overestimated the extent to which divestiture would reduce the station's audience and revenues. It does, however, acknowledge that there would be a measurable impact on CHAN-TV's profitability that could reduce WIC's capacity to expend on local or acquired Canadian production and its ability to maintain its system of rebroadcasting transmitters throughout the province's interior. More importantly, the Commission recognizes the unique realities of the Vancouver/Victoria market and the potential negative impact of divestiture, particularly on Victoria and Vancouver Island service. The Commission has therefore determined that the public interest is better served by acceptance of the status quo and has decided not to make its approval of the present application subject to the condition that WIC divest itself of either CHAN-TV or CHEK-TV.
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The Commission wishes to emphasize that its determination in this regard represents the continuation of an exception to, and should not be interpreted as signalling any departure from, its general policy prohibition against the common ownership of two television stations broadcasting in the same language in the same market.
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EMPLOYMENT EQUITY
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In Public Notice CRTC 1992-59, the Commission announced implementation of its employment equity policy. It advised licensees that, at the time of licence renewal or upon considering applications for authority to transfer ownership or control, it would review with applicants their practices and plans to ensure equitable employment. Based on the public record, including the reports provided to the Commission by Employment and Immigration Canada and the discussion with the parties at the hearing, the Commission is pleased to commend the present management of CHCH-TV on the station's general approach to achieving employment equity.
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By comparison, the Commission finds that WIC's approach to the matter of employment equity leaves room for improvement. In the Commission's view, WIC should examine the approach developed at the Hamilton station. As a first step, and without delay, the Commission expects WIC to develop and implement an effective plan of action to ensure that adequate employment equity practices are followed on a corporate-wide basis. The Commission further recommends that WIC promote equitable representation in on-air staff positions and voice-overs in programming and commercial messages that it produces. The Commission will review these matters at the time of licence renewal.
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OTHER MATTERS
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At the hearing the Commission raised with WIC certain accounting practices employed by CHAN-TV in calculating expenditures on Canadian programming. While certain of these practices are matters that the Commission may wish to discuss further with WIC, the Commission has determined that they are not a material factor in the present decision.
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Allan J. Darling
Secretary General
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