ARCHIVED -  Decision CRTC 95-593

Decision

Ottawa, 25 August 1995

Decision CRTC 95-593

Craig Broadcast Systems Inc.

Winnipeg, Manitoba and Regina, Saskatchewan - 942423500 - 942424300Edmonton, Alberta - 942425000Selkirk, Manitoba - 942329400

Approval of applications for authority to transfer the assets of CKMM-FM Winnipeg and CKIT-FM Regina, and, through the sale of shares, effective control of CIRK-FM Edmonton, to Craig Broadcast Systems Inc.; and to transfer the assets of CFQX-FM Selkirk to the partners of Western World Communications Limited Partnership

Following a Public Hearing in Winnipeg beginning on 5 June 1995, the Commission approves the applications by Craig Broadcasting Systems Inc. (Craig) for authority to acquire the assets of CKMM-FM Winnipeg and CKIT-FM Regina from the partners of Western World Communications Limited Partnership (WWC) and for broadcasting licences to continue the operation of these undertakings.

The Commission also approves the application by Radio One Edmonton Corporation, licensee of CIRK-FM Edmonton, for authority to transfer effective control of the licensee through the transfer of all of the licensee's issued and outstanding shares from Forvest Broadcasting Corporation (Forvest) to Craig.

Further, the Commission approves the application by Forvest, on behalf of itself, Western World Communications Corp. and Radio One Investments Inc., the partners of WWC, for authority to acquire the assets of CFQX-FM Selkirk from Craig, and for a broadcasting licence to continue the operation of this undertaking.

The Commission, upon surrender of the current licences, will issue new licences to Craig, expiring 31 August 1997 and 31 August 2001 for CKMM-FM and CKIT-FM, respectively; and to the partners of WWC expiring 31 August 1997 in respect of CFQX-FM. The licences will be subject to the same conditions as those in effect under the current licences, as well as to any other condition specified in this decision and in the licences to be issued.

The 31 August 1997 expiry date of the new licences for CKMM-FM and CFQX-FM coincides with the regional expiry date. In the case of CKIT-FM, the current licence expires 31 August 1995; an expiry date of 31 August 2002 would normally be indicated for the station's next licence renewal under the Commission's regional plan. However, such a licence term would be longer than the maximum seven years permitted. With regard to CIRK-FM, the Commission notes that the current licence for this station expires 31 August 1996.

In view of the approvals granted herein, it would appear that no further action is required on applications numbers 941439200 and 941476400, submitted by Craig and WWC, respectively, for the licence renewal of CFQX-FM and CKIT-FM. These applications were announced in Public Notice CRTC 1995-79 dated 12 May 1995.

Background

Craig is indirectly controlled by long-time broadcaster, Mr. A. Stuart Craig of Brandon. In addition to the three radio stations now coming under Craig's ownership as a result of this decision, the company is and will continue to be the licensee of the independent station CHMI-TV Portage La Prairie/Winnipeg, radio stations CKX and CKX-FM Brandon, and CKX-TV Brandon (CBC) and its three associated transmitters.

WWC is controlled indirectly, through Forvest, by Mr. Clint Forster of Victoria. Until the early 1990s, Mr. Forster was active in Saskatchewan's cable television industry. Since then, he has been involved in the ownership of a number of radio properties in western Canada. In addition to his acquisition of CFQX-FM Selkirk approved by this decision, Mr. Forster will remain with direct or indirect control of CFQC-FM and CJWW Saskatoon, and of CKCK Regina.

Proposed redirection by Forvest of benefits and of financial responsibilities for Canadian talent development

In Public Notice CRTC 1993-68 dated 26 May 1993 and entitled "Application of the Benefits Test at the Time of Transfers of Ownership or Control of Broadcasting Undertakings", the Commission stated that it would "expect the purchaser of an undertaking to fulfil any benefit commitments that the current licensee of the undertaking has not fulfilled."

According to the applications, unfulfilled financial commitments either promised by Forvest as benefits at the time it acquired ownership of the Edmonton, Regina and Winnipeg stations in the early 1990s, or representing Forvest's undischarged responsibilities for Canadian talent development expenditures in respect of the three stations, would total approximately $260,000 through to 31 August 1995. A second amount of approximately $369,000 represents unfulfilled benefits and Canadian talent development initiatives that Forvest would otherwise have been expected to implement in 1995-96, the last year of its benefit obligations.

The applications propose that responsibility for the second amount of $369,000, will be assumed by Craig. Craig has confirmed its commitment to spend this amount, but sought authority to spend the bulk of the money over a five-year period; some initiatives would be carried out over a period of seven years. Although the initiatives it has proposed differ from those initially offered by Forvest, the expenditures would be directed to the same communities that they were originally intended to benefit. The Commission notes that two of the stations being acquired by Craig, namely CKMM-FM Winnipeg and CKIT-FM Regina, have been unprofitable over the three years preceding the filing of these applications. CIRK-FM Edmonton, while profitable, has experienced an erosion in its profitability over the same period. Given these circumstances, the Commission has accepted Craig's plans for the expenditure of the $369,000.

The Commission, however, is concerned by Forvest's plans regarding the remaining $260,000 in unfulfilled commitments to benefits and Canadian talent development. Specifically, rather than negotiate an agreement with Craig whereby the latter would inherit these obligations as purchaser of the stations in question, Forvest requested the Commission's permission to redirect these expenditures to CJWW and CFQC-FM Saskatoon and to CFQX-FM Selkirk, away from the stations it is selling to Craig and, more importantly, away from the communities they serve. Moreover, despite the fact that this amount should have been spent prior to the end of 1994-95, Forvest proposed to schedule the spending of the $260,000 over a further period of seven years. In the Commission's view, Forvest's request to redirect these benefits and other financial obligations would not be in the public interest, and it is accordingly denied.

The Commission therefore requires Craig, as the purchaser of CKIT-FM, CKMM-FM and CIRK-FM, to assume all of Forvest's financial obligations attached to these stations in respect of unfulfilled benefits and expenditures on Canadian talent development. With respect to the portion of these expenditures that should otherwise have been made by Forvest by the end of 1994-95, the Commission requires Craig to spend the $260,000 in question within one year of the date of closing of this transaction, and to file a report with the Commission, within 60 days of closing, setting out its proposals for meeting this requirement.

The Commission notes that, under the agreements between the parties, Craig is to pay $6.15 million for the three stations it is purchasing from Forvest, and Forvest will pay Craig $2.4 million for the assets of CFQX-FM Selkirk. Based on the evidence filed with the applications, the Commission has no concerns with respect to the availability or the adequacy of the net financing required by Craig to complete the purchase of the three stations from Forvest. At the hearing, however, the Commission questioned Craig regarding the financial strain that acquisition of the three stations could later place on the applicant's operations should its financial projections prove to have been overly optimistic.

The Commission's concern was that a shortfall in revenues might affect Craig's ability to meet the obligations it is assuming from Forvest for unfulfilled benefits and Canadian talent development expenditures, or to implement the benefits discussed below, which have been proposed in the context of the current applications. The Commission therefore places significant weight on the applicant's response that its revenue projections have been prepared "in a very conservative manner" and that, even if its plans for the three stations should prove less successful than anticipated, this would not place an unbearable financial strain on Craig. With regard to the Commission's requirement that Craig assume responsibility for an additional $260,000 in benefits and Canadian talent development expenditures not discharged by Forvest, these are expenditure requirements that have clearly not been reflected in Craig's projections. The Commission notes that the parties may be able to renegotiate their agreements to take these expenditure requirements into account.

Benefits

Because the Commission does not solicit competing applications for authority to transfer effective control of broadcasting undertakings, the onus is on applicants to demonstrate to the Commission that the applications they file represent 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, applicants must demonstrate that the transfers they propose will yield significant and unequivocal benefits to the communities served by the broadcasting undertakings concerned and to the Canadian broadcasting system as a whole, and that approval 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.

In Forvest's application to acquire the assets of CFQX-FM Selkirk from Craig, the applicant proposed tangible benefits representing incremental expenditures of $186,500 over seven years. Of this amount, $45,500 will be used to fund an annual CFQX-FM talent hunt, while a further $21,000 is earmarked as annual contributions to independent organizations involved in the development of Canadian country music artists. The Commission considers these proposed expenditures of $66,500 to represent acceptable benefits.

Forvest proposed that the remaining $120,000 be used to pay the salary of a Canadian talent development co-ordinator over a six-year period. The duties of this new position would be to implement the new CFQX-FM benefits noted above, as well as to oversee the disbursement of funds and implement various initiatives representing Forvest's existing commitments to Canadian talent development through its Saskatoon stations CJWW and CFQC-FM.

The Commission notes that, according to information provided by Forvest, the combined direct expenditures on Canadian talent development by the three stations concerned would amount to $38,500 per year. Some $14,000 of this will consist of direct contributions to independent organizations involved in Canadian talent development. Only $24,500 per year would be directed to initiatives that might require any degree of on-going preparation or involvement by the person who would be employed in the proposed new position; these are duties that Forvest indicated would be carried out by existing staff in the first year, just as they have been hitherto.

Although the Commission has, in the past, accepted the hiring of a Canadian talent development co-ordinator as a quantifiable benefit of an ownership transaction, the duties have included the implementation of initiatives representing a budget far greater than that involved in the present case. In the circumstances, the Commission has determined that the applicant's proposed initiative regarding the hiring of a new Canadian talent co-ordinator is not sufficiently significant to qualify as a benefit of this transaction.

Given that the Selkirk station is a profitable undertaking, the Commission has determined that the acceptable quantifiable benefits proposed by Forvest, representating incremental expenditures of $66,500, are not commensurate with the purchase price of $2.4 million attached to the assets of CFQX-FM.

In the case of Craig, the proposed benefits include commitments for incremental expenditures totalling approximately $346,500 over five years. Of this amount, however, the Commission has disqualified $150,000, which has been allocated to initiatives that fall within the categories of proposed benefits that have been generally rejected as such for reasons outlined by the Commission in Public Notice CRTC 1993-68 dated 26 May 1993. The remaining amount of approximately $196,500 constitutes the acceptable incremental benefits package associated with this transaction.

The rejected benefits include expenditures of $25,000 and $35,000 over five years, which were proposed by Craig as the salaries for part-time cultural and entertainment reporters at CKIT-FM and CKMM-FM, respectively. According to Craig, these part-time reporters would be involved in the daily production of two or three, one-minute-long, program inserts. In neither case does the Commission view the initiative as having sufficient significance to be accepted as a benefit under the Commission's expectations for new or enhanced programming.

In the case of CIRK-FM, Craig proposed to create a new full-time staff position for an entertainment reporter who will be involved in the production of enhanced on-air programming, including reports from cultural and musical events in and around the Edmonton area. Although the Commission has accepted this initiative as a significant benefit, it has disqualified as a cost of doing business an expenditure of $90,000 over five years that Craig proposed to allocate as a car allowance for this reporter.

As noted above, two of the stations being acquired by Craig have been unprofitable over the three years preceding filing of these applications; the third, while profitable, has experienced an erosion in its profitability over the same period. Nevertheless, Craig has proposed acceptable quantifiable benefits representing incremental expenditures of approximately $196,500; the bulk of this amount will be spent over five years, although some will be spent over a seven-year period. The benefits are incremental in that they are over and above the financial obligations that Craig assumesfor benefits or Canadian talent development expenditures left unfulfilled by Forvest in respect of CIRK-FM, CKMM-FM and CKIT-FM.

In considering these applications, the Commission has also taken into account the intangible benefits of these applications. These include the strong managerial expertise available within the Craig organization, the instrumental role this expertise has played in enhancing the operational success of the broadcasting undertakings coming under Craig's ownership, the company's expressed commitment to the stations it is now acquiring, and its demonstrated commitment to the radio industry in general.

The Commission is satisfied that the transaction will improve Craig's operational position in the radio industry. It also considers that approval will enable Forvest to realize its objectives by allowing the company to concentrate its efforts and resources on its remaining radio properties. The Commission notes in this regard, Forvest's commitment to maintain the longstanding focus of CFQX-FM's programming on Selkirk and the Interlake region, particularly in the area of news and community programming.

In general, the Commission is satisfied that, taken as a whole, the transfers of ownership proposed in these applications will yield significant and unequivocal tangible and intangible benefits to the communities served by the broadcasting undertakings concerned and to the Canadian broadcasting system, and that approval of the applications is in the public interest.

Clearly, given the failure of Forvest's application to meet the benefits test, the acceptable tangible benefits offered by Craig and Forvest take on added importance as elements underlying the Commission's decision to approve the overall transaction. Despite having disqualified a number of benefits proposed by Craig and Forvest, the Commission requires the applicants to ensure that all proposed expenditures included in their respective packages of tangible benefits, including those that have been disqualified by the Commission, are made in accordance with the schedules outlined in the applications.

Other matters

By its acceptance of a number of Canadian talent initiatives as benefits of these transactions, and by its requirements regarding fulfilment of undischarged responsibilities in this area, the Commission has reaffirmed the particular importance it attaches to the development of Canadian talent. It is satisfied with the adequacy of the annual budgets and the initiatives that will be devoted to this objective by Craig and Forvest. The Commission encourages them to continue their efforts towards the support, development and on-air exposure of local and regional talent.

In Public Notice CRTC 1992-59 dated 1 September 1992 and entitled "Implementation of an Employment Equity Policy", the Commission announced that the employment equity practices of broadcasters would be subject to examination by the Commission. In this regard, the Commission encourages Craig and Forvest to consider employment equity issues in their hiring practices and in all other aspects of their management of human resources.

Regarding the new licences to be issued to Craig for CKMM-FM Winnipeg and CKIT-FM Regina, and to the partners of WWC for CFQX-FM Selkirk, it is a condition of licence in each case that the licensee adhere to the guidelines on gender portrayal set out in the Canadian Association of Broadcasters' (CAB) "Sex-Role Portrayal Code for Television and Radio Programming", as amended from time to time and approved by the Commission.

Similarly, is a condition of licence for each of these three stations that the licensee 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.

With respect to CKIT-FM, and as stipulated in the current licence, it is a condition of licence that the licensee refrain from soliciting or accepting local advertising for broadcast during any broadcast week when less than one-third of the programming aired is local. The definition of local programming shall be as set out on page 8 of Public Notice CRTC 1993-38, or as amended from time to time by the Commission.

Allan J. Darling
Secretary General