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ARCHIVED -  Public Notice CRTC 1996-138

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Public Notice
  Ottawa, 16 October 1996
  Public Notice CRTC 1996-138
  COMMISSION'S APPROACH TO DEALING WITH LOCAL MANAGEMENT AGREEMENTS IN CANADIAN RADIO MARKETS
  On 30 November 1995, the Commission issued Public Notice CRTC 1995-204 entitled "Call for Comments on the Commission's Approach to Management Agreements Between Licensees of Radio Programming Undertakings" (the Call).
  The Call was issued due to certain Commission concerns regarding a local radio management agreement (LMA) between Newcap Inc. (Newcap), licensee of CFDR and CFRQ-FM Dartmouth, and Sun Radio Limited (Sun Radio), licensee of CIEZ-FM Halifax.
  This LMA was the first such agreement reviewed by the Commission involving two licensees in a radio market comprised of three or more licensees. In the Commission's view, the LMA raised certain issues requiring further consideration. The primary concern was that the potential cost savings associated with the rationalization of radio operations could give parties to the agreement a competitive advantage over other radio licensees operating in that market.
  Historically, licensees proposing the implementation of LMAs have submitted draft copies of the agreements to the Commission, seeking assurance that such agreements do not constitute a breach of either paragraph 11(4)(a) of the Radio Regulations, 1986 (the radio regulations) or of the general condition of licence. Paragraph 11(4)(a) of the radio regulations states:
   (4) Except as otherwise provided pursuant to a condition of its licence, a licensee shall obtain the prior approval of the Commission in respect of any act, agreement or transaction that directly or indirectly would result in
   (a) a change by whatever means of the effective control of its undertaking;
  The general condition of licence states:
   Except as authorized by the Commission, the broadcasting undertaking licensed hereby shall be operated in fact by the licensee itself.
  In the Call, the Commission noted that, in each of the cases where it has reviewed management agreements in the past, it has stipulated that the following criteria be met:
 
  • distinct and separate programming and news services and management were to be maintained;
 
  • the ownership of all assets of each undertaking was to remain with each licensee involved; and
 
  • each licensee was to retain responsibility for the programming and news staff employed by its undertaking(s).
  It also noted that, again in each case, at least one of the licensees was experiencing financial difficulty.
  Generally, once the Commission is satisfied that the implementation of a particular LMA will not result in any change in the effective control of the undertakings in question, and will not take responsibility for their operation out of the hands of their respective licensees, the parties to the LMAs are so informed in writing, and are thus free to implement the proposed agreement.
  The Call
  The Commission indicated in the Call that it would welcome comments with respect to the Newcap/Sun Radio management proposal, and to its approach to radio management agreements in general, having regard to three questions in particular:
  (1)  Should the Commission continue to consider adherence to the criteria outlined in the Call as sufficient to ensure that effective control remains unchanged? Should additional criteria apply and, if so, what should they be?
  (2)  Should the Commission limit the implementation of management agreements to markets where there are only two radio licensees?
  (3)  In a market served by three or more licensees, would it generally be preferable to accept closure of a radio station rather than allow its licensee to enter into a management agreement with the licensee of another undertaking?
  The Commission received a total of 18 submissions from interested parties. Of these submissions, 9 were from broadcasting industry representatives, while the remainder were received from individual members of the public and other interested parties.
  With respect to the Commission's criteria for assessing LMAs, the Canadian Association of Broadcasters (CAB) argued in its submission that the existing criteria are workable and sufficient to ensure that effective control remains unchanged. In the CAB's opinion, LMAs are a positive mechanism; it argued that the radio industry must be permitted to continue to seek creative solutions, such as those offered by LMAs, in order to regain economic viability, and to maintain local radio service and diversity in programming.
  Pelmorex Radio Inc. also stated that the criteria outlined in the Call are sufficient to ensure that effective control remains unchanged. Pelmorex suggested that the Commission need not consider the financial position of any of the participants in LMAs, and that any precondition that at least one of the parties to an LMA must be in financial difficulty would unfairly discriminate against profitable stations that want to improve their profitability by entering into such agreements.
  In their submissions, the broadcasting industry representatives were unanimous in their view that under no circumstances would it be preferable for a station to close when a viable business plan can be put in place to maintain local service.
  In contrast, parties outside the industry expressed concern about the effects of the alleged radio monopolies created by LMAs, such as the introduction of artificially-inflated radio advertising rates, and the inability of certain advertisers and outside producers to access airtime.
  In its submission, the Conseil provincial du secteur des communications du Syndicat canadien de la fonction publique (CPSC/SCFP) stated that the criteria identified in the Call are clearly insufficient to ensure the maintenance of effective control of broadcasting undertakings. The CPSC/SCFP argued that it is illusory to believe that such agreements do not result in "pseudo-competition" with respect to programming and news. In the CPSC/SCFP's opinion, this type of agreement generally establishes a "shared-monopoly" situation in which the participants agree to co-ordinate programming and divide the advertising market in order to limit the effects of true competition. The CPSC/SCFP stated further that, on a day-to-day basis, it cannot imagine that production teams, sales teams and even journalists employed by parties to an LMA would continue to operate as if they were in a genuine competitive situation. The CPSC/SCFP concluded that radio management agreements should be prohibited in two-licensee markets, at the very least.
  In his submission, Mr. Raymond Bonin, MP, Nickel Belt (Sudbury), stated that the Commission's current approach to evaluating the acceptability of radio management agreements neglects the principle of community interest. Mr. Bonin stated that while attention is paid to the maintenance of distinct programming and news services, the Commission fails to impose measurable and enforceable performance criteria and requirements on the licensees to ensure that a management agreement neither lessens competition in a market nor adversely affects the community interest by sacrificing quality in, and responsibility for, local programming.
  In responding to the Call, the Director of Investigation and Research at Industry Canada's Competition Bureau provided comments focusing on the implications for competition arising from radio management agreements. The Director stated:
  My  concern is the potential use of management agreements as a means of increasing the revenues of radio programming undertakings at the expense of advertisers who rely upon and benefit from competition in the sale and supply of advertising...
  With respect to complaints from the public alleging that licensees involved in LMAs have been engaging in anti-competitive behaviour, the Director indicated that such complaints have been brought to the Bureau's attention and are being examined pursuant to its mandate under the Competition Act.
  The Commission's determination
  Following its review of all of the submissions received, the Commission, by majority vote, is convinced that the implementation of LMAs in any radio market, regardless of location or size, would not be contrary to the public interest.
  In large markets, residents have access to a wide range of competing formats and editorial voices. In the Commission's view, any concerns regarding the impact of LMAs are mitigated by the natural competitive safeguards inherently present in such markets.
  In small or remote markets, the risk of the creation of local radio monopolies is heightened. Nevertheless, in these circumstances, the Commission considers that co-operation between radio licensees to ensure the provision of two or more distinct programming voices would be far preferable to a situation in which a radio licensee becomes a monopoly provider simply by virtue of its only radio competitor going silent. Should a licensee be forced to withdraw from a market as a result of station closure, the negative impact would be the loss of a distinct voice; in a small or remote community, the impact of such a loss would be more pronounced than in a large urban centre.
  Accordingly, the Commission's majority is satisfied that LMAs are acceptable so long as they do not contravene the radio regulations and the general condition of licence. It is also satisfied that the much-needed flexibility LMAs provide to radio licensees in their efforts to survive in an increasingly competitive multimedia environment outweighs the concerns raised in the submissions discussed above.
  In reaching its determination in this matter, the Commission has taken into account, among other things, the following considerations:
 
  • the radio industry's chronic financial difficulties;
 
  • the increasing competition for limited advertising dollars;
 
  • the direct benefits of LMAs with respect to the maintenance of local radio stations particularly in small and remote markets; and
 
  • the Commission's understanding that parties to LMAs will ensure that the terms of such agreements make clear provision for the maintenance of separate, distinct news and other programming services and management, and for the retention of effective ownership and control of their respective radio broadcasting undertakings, as required by the radio regulations and the general condition of licence.
  Licensees will, therefore, be free to implement appropriate LMAs, regardless of the location or size of the affected radio market, so long as they do not contravene the radio regulations and the general condition of licence. The Commission, however, considers it likely that some radio licensees will wish to file proposed LMAs for the purpose of obtaining a determination from the Commission, among other factors relating to the operation and effective control of each undertaking, that, under the terms of any particular LMA as drafted, the ownership of all assets will remain with each licensee, that separate, distinct news and other programming services and management will be maintained, and that each licensee will retain responsibility for the news and other programming staff employed by its undertaking(s). The Commission will continue to review LMAs submitted by licensees for this purpose.
  Allan J. Darling
Secretary General
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