ARCHIVED -  Decision CRTC 97-482

Decision

Ottawa, 22 August 1997

Decision CRTC 97-482

Consortium Quebecor, on behalf of a company to be incorporated (TQS inc.)

Montréal, Quebec - 199703864Montréal, Québec, and Rimouski, Quebec-199703963 - 199703971 - 199703989Montréal, Quebec - 199703872 - 199703880 - 199703898 - 199703906 - 199703913

Transfer of effective control of TQS inc., a company to be incorporated and to be controlled by Communications Quebecor inc. - Application approved

Renewal of the broadcasting licences of CFJP-TV Montréal, CFAP-TV Québec and CJPC-TV Rimouski and of the "Télévision Quatre Saisons" network until 31 August 2001

Corporate reorganizations - Applications approved

1. Following a public hearing held in Montréal beginning on 7 July 1997, the Commission approves the application by Consortium Quebecor, on behalf of a company to be incorporated (TQS inc.), for authority to acquire effective control of TQS inc. TQS inc. will be controlled by Communications Quebecor inc. (CQI), the majority shareholder (58.52%) in Consortium Quebecor. The other Consortium shareholders are Canadian Satellite Communications Inc. (Cancom), with a 19.49% interest, Cogeco inc. (19.99%), and the other affiliates of the "Télévision Quatre Saisons" network.

2. Further, following the above application, the Commission renews the broadcasting licences of CFJP-TV Montréal, CFAP-TV Québec and CJPC-TV Rimouski, and the licence of the "Télévision Quatre Saisons" network (collectively called TQS) from 1 September 1997 to 31 August 2001, subject to the conditions in effect under the current licences as well as those conditions specified in this decision and in the licences to be issued. This four-year period will enable the Commission to follow more closely TQS's development in the hands of its new owners and to make certain that the commitments made by those owners have, indeed, been implemented.

3. The Commission also approves the applications by Le Groupe Vidéotron ltée (GVL) and CF-12 inc. (CF-12 - the corporation resulting from the privatization of the corporation formerly known as CFCF inc.) to carry out a corporate restructuring in order to split-off the various broadcasting and cable undertakings owned by CF-12. These applications were necessary in order to proceed with the sale of TQS and of the Réseau de Télévision Quatre Saisons inc. (RTQS), a 20% partner in Canal Indigo, a general partnership, and the English-language television station CFCF-TV Montréal, which are the subject of Decisions CRTC-97-483 and 97-484, also issued today.

BACKGROUND

4. The present applications were submitted to the Commission as a follow-up to Decision CRTC 97-84 dated 27 February 1997, in which the Commission denied the application by GVL for permission to acquire effective control of TQS and required GVL to dispose of TQS to a third party not related to GVL. In that same decision, the Commission established an expedited procedure for filing and processing future applications in order to minimize any negative impact on TQS. The Commission also clarified certain details of the terms of the voting trust agreement established following GVL's public offer to purchase CF-12's shares.

5. Under the terms of his mandate, it was up to the trustee to ensure that a new application for approval of the transfer of control of TQS represents the best possible proposal in the circumstances, considering the Commission's general concerns about transactions of this nature and any particular concern in the circumstances.

6. When he appeared at the public hearing, the trustee, Mr. André H. Caron, confirmed that, in his opinion, the choice of a new purchaser was carried out equitably and openly and in full compliance with applicable Commission regulations and policies. In reply to questions from the Commission, he explained in detail the procedure followed, how every potential purchaser was provided with the same information and had to meet the same requirements and provide the same information. Mr. Caron also explained how Quebecor's proposal stood out clearly and favourably from the other proposals received, and the fact that GVL did not participate directly or indirectly in the selection made. Following its examination, the Commission is convinced that the sale process respected its concerns and the integrity of the broadcast licensing process.

INTRODUCTION

7. The applicant claimed that an alliance of CQI, Cancom and the TQS affiliates offered natural complementarity and unique benefits in relaunching TQS. In particular, the applicant stated that CQI's publications and TQS's stations already share their approach and philosophy in their common concern to be very close to the people and to reflect their everyday situation. The affiliates, for their part, bring their intimate knowledge of the network and their long experience in broadcasting, while Cancom is able to spread the network's coverage beyond its present boundaries. The applicant also expects to take advantage of the considerable synergy created by CQI's sales and marketing know-how in the area of print media, for the benefit of TQS. The Commission also noted the potential advantages for TQS of CQI's expertise in distribution and its international presence. The Commission considers that these advantages and synergies represent significant intangible benefits in support of the present applications.

8. After reviewing all the evidence on the file for this matter, the Commission is convinced that approval of the transaction placing TQS under CQI's umbrella is in the public interest. In authorizing this transaction, the Commission is taking into account TQS's precarious financial situation, the new owners' strong financial resources, the new vitality that can be created by the arrival of a partner like CQI in the French-language television industry and its intimate knowledge of the Quebec environment through its print media. The Commission considers that the interest of the affiliated stations in the ownership of TQS will facilitate their relations with the network and should strengthen the regional contribution to the vision and operation of TQS, particularly for the province-wide broadcasting of news from the regions. The Commission also considers that the measures proposed by the applicant to ensure the editorial and functional independence of TQS and the CQI print media are essential, and that applying these measures will ensure TQS's independence and make it so that the plurality of voices in Quebec in the area of information will not be affected by approval of this transaction. In the light of all the foregoing, the Commission has concluded that the proposal in this case is the best possible one in the circumstances and that its approval is likely to benefit the Canadian broadcasting system as a whole. The Commission has also concluded that the regulatory provisions and its policies on transfer of ownership of broadcasting undertakings have been respected throughout this process.

STUDY OF ISSUES

9. The application to transfer control of TQS raised certain ownership concerns, particularly with regard to cross-media ownership and its possible impact on the editorial independence of TQS, on the diversity of voices and on its possible repercussions for the independent producers. The licence renewal applications also raised concerns regarding programming, specifically its orientation, philosophy and content.

The new owners

10. CQI is a wholly owned subsidiary of Quebecor inc. (Quebecor), which is a large vertically and horizontally integrated Canadian corporation carrying on operations in North America, Europe and Asia in four major sectors: publishing and distribution, printing, newspapers and multimedia. Quebecor employs over 33,000 people worldwide, and its total revenue for 1996 was over $6 billion.

11. CQI has interests in various communications undertakings and is involved in the fields of publishing and the distribution and sales of newspapers, magazines, weeklies, books and records. CQI's revenue represents less than 7% of Quebecor's total revenue, but this does not reflect the importance of its involvement and of its influence in the area of communications, particularly in Quebec, through the three dailies it operates in Montréal, Québec and Sherbrooke, whose combined circulation represents more than 42% of the circulation of all dailies in Quebec, as well as 54 regional weeklies, which it owns and which cover practically all regions of Quebec. CQI also has a daily newspaper in Winnipeg and seven regional newspapers in Manitoba.

12. Until now, CQI has not held any interest in regulated broadcasting undertakings. Its arrival on the broadcasting scene thus raises certain concerns, including cross-media ownership and the need to ensure editorial independence in those undertakings.

Cross-media ownership and editorial independence

13. The Commission has always been concerned to preserve the diversity of media voices in the regions served by broadcasting undertakings. In this case, CQI could not hold an interest in TQS unless measures are taken to ensure TQS's editorial independence.

14. These concerns are particularly strong in Montréal and Québec, the two main cities in Quebec where CQI will operate both a local daily and a local television station. The Journal de Montréal is the most widely read newspaper in Quebec, and the Journal de Québec also holds first place in its market. As for the TQS stations, CFJP-TV Montréal and CFAP-TV Québec offer a private general commercial television service in those communities.

15. At the public hearing, there was a detailed discussion of the best way of ensuring a clear line of demarcation between the activities of CQI's dailies and weeklies and TQS's newsrooms. CQI also pointed out that the means to be established for that purpose should not prevent TQS from benefiting from Quebecor's know-how, or possible synergy between the two entities, for example in the areas of management, sales and marketing.

16. In order to respond to the concerns of the Commission and certain interveners in this connection, the applicant proposed a number of commitments in its applications and at the public hearing. After carefully studying each of these commitments, the Commission decided to impose compliance with some of them as conditions of licence. It is also counting on compliance with the other commitments, so that all the measures taken will guarantee the editorial independence of TQS.

17. One of the main topics of discussion at the public hearing was the matter of representation by CQI and Quebecor on TQS Inc.'s board of directors. CQI maintained that the majority investor could not be an absent investor, and that on the contrary it was duty bound to be represented on the board, and that it is to TQS's benefit that it be present. However, to ease the concerns in this respect, CQI agreed that its presence on TQS Inc.'s board of directors be a minority one. In accordance with the applicant's commitments, the following are conditions of licence:

· that the person acting as chair of the board of directors, president or chief executive officer of Quebecor not sit on the board of directors of the licensee;

· that the majority of the members of the licensee's board of directors be composed of persons who do not belong and have never belonged to the board of directors of Quebecor, CQI or any other corporation or undertaking directly or indirectly controlled by Quebecor or CQI.

18. To ensure a clear line of demarcation with CQI, the applicant also undertook to have TQS operated independently from the other CQI entities, that there be no sharing of management personnel between CQI and TQS, that the staff of each retain its independence and that the general directors or editors of CQI and TQS be independent and authorized to make routine decisions. The Commission considers that this demarcation is primordial and, accordingly, expects the licensee to comply with all these commitments.

19. As additional guarantees of the level of independence and separation of the newsrooms, the applicant proposed implementing a code of professional conduct and forming a watchdog committee to review any complaints. The following will therefore be conditions of licence:

· that a code of professional conduct be filed within 60 days of the date of this decision, and that it and any future amendment be approved by the Commission;

· that a watchdog committee be formed, and that, within 60 days of the date of this decision, the licensee file, for Commission approval, a project to that end, indicating the structure and operation of this committee, the nature of the complaints it is to handle, and a description of the complaint-settling mechanism and the powers of the committee. Any future amendment to the mandate or operation of this committee will also be subject to Commission approval.

20. The applicant also made the commitment that no person directly or indirectly associated with Quebecor will be associated with TQS's editorial committee, that the news services of TQS's television stations and of the "Télévision Quatre Saisons" network will remain separate from those of the Journal de Montréal, the Journal de Québec and the other newspapers or CQI's print publications, and that each will continue to establish its editorial policy independently. The Commission expects the licensee to respect these commitments which are essential for TQS's editorial independence.

Canadian independent production

21. The Commission considers that the applicant's renewal plans for TQS should also benefit the Canadian independent production sector. In this regard, the Commission notes that independent production has always held a position of choice at TQS, even before the Broadcasting Act explicitly mentioned it in the context of the Canadian broadcasting policy. The applicant acknowledged this situation at the public hearing, by stating that:

[TRANSLATION] TQS's original mission was to do business with independent producers. That was one of the basic pillars in TQS's original mission... It is our firm, real and sincere intention to continue doing business, as in the past, with the independent production sector.

22. The role of independent production in TQS's programming was discussed at length at the public hearing, in order to clarify the commitments made and guarantee continuity in this respect.

23. As pointed out in Decision CRTC 97-84, the Commission recognizes the necessity for the applicant to maintain a firm control on TQS's expenditures, including programming expenditures, in order to enable the undertaking to return to profitability. The Commission also wishes to ensure that the synergy expected with TQS's affiliates is not achieved to the detriment of the independent producers. In this regard, the Commission notes that two of the broadcasters affiliated with TQS have production companies, and that the applicant stated its intention of using those production companies to fill out TQS's programming schedule. Additionally, the agreement among the new TQS shareholders stipulates that preferential treatment should be given to the latter as to the supply of goods and services. When questioned on this subject at the public hearing, the applicant repeated its commitment always to make significant use of the independent production sector. It also mentioned the limited production capacity of its affiliates' production facilities, and the fact that their contribution would be a supplement to the TQS programming schedule, especially for daytime programming.

24. The Commission also considers it important to ensure that the Canadian independent production sector be able to participate with the new owners of TQS in programming on a basis comparable to the past experience. During discussions at the hearing regarding the monies allocated to independent production, TQS's representatives stated that, over the previous three years, investments were, on average, $8.5 million. Following the hearing and at the Commission's request, TQS's representatives on 16 July 1997 placed on the public file explanations of the accounting methodology and the calculation method used to determine its investments for the years from 1994 to 1996. In light of the information provided, the Commission excluded from its calculations firstly, the expenditures connected with productions committed to TQS affiliates and secondly, previous special adjustments, which results in a new average of $8.6 million. Consequently, the Commission has decided to apply the following condition of licence to TQS:

· that each year the licensee spend at least $8.6 million from its total programming budget on programming produced by Canadian independent producers, excluding undertakings directly or indirectly related to shareholders of the licensee.

25. In accordance with TQS's accounting method and calculation methodology, the Commission notes that this amount excludes the amounts paid to acquire professional sports broadcasting rights (category 6). Moreover, the $8.6 milion would be spent over and above TQS's billings for technical services and the direct costs for labour provided by TQS, if the case arises. The Commission also notes that, as well as the funds mentionned above, the applicant made a commitment to contribute an additional $1,850,000 over five years to the independent production sector, a commitment that will be subject to a condition of licence, as discussed in this decision's section on the benefits of this transaction. This condition stipulates that no portion of that $1,850,000 be granted to undertakings directly or indirectly related to the TQS shareholders.

26. The licensee must file with the Commission an annual report on its contributions to Canadian independent production, which shall be part of the TQS public file. The Commission accordingly expects the licensee to maintain TQS's past accounting methods and calculation method, as used in its explanations provided on 16 July 1997. The Commission also notes that the above amount is a minimum, and it encourages the licensee to exceed that objective. The Commission plans to study whether the objective of guaranteeing the independent production sector a share in the licensee's programming at a level comparable to the past experience has been achieved.

Programming

27. At the public hearing, the applicant explained the constraints it had to face when filing the licence renewal applications. Because of the expedited procedure for filing applications and the fact that it could not have access to all the required information, the applicant was able to provide the Commission only with the information it had at the time. For that reason, the proposed programming filed and the financial forecasts for the programming are embryonic and do not make it possible to see clearly the long-term evolution planned for TQS or to predict its exact future contribution to the French-language television broadcasting sector.

28. The Commission also notes that because of the planning necessary for television broadcasting, the 1997-1998 broadcasting season is already in place, and the licensee will have to broadcast the inventory it has and respect the programming contracts already signed. Thus, it will be two or three years before the licensee will truly be in a position to make its mark on TQS's programming. Furthermore, the licensee does not expect to achieve profitability until its third year of operation, and it stated that, once it had succeeded in improving its cash flow, it would be available for new programming expenditures.

29. Given the above constraints, the licensee was not able to make firm commitments as to programming, and the ultimate programming direction remains uncertain. In these circumstances, the Commission has decided to renew TQS's licences for a period of four years. That period should enable the applicant to firmly establish its action plan for its programming and to better define its commitments and planned expenditures on programming and in other related areas. It will also enable the Commission to follow more closely TQS's development and to verify the effectiveness of the measures set in place to minimize the concerns related to cross-media ownership and compliance with the various requirements and expectations specified in this decision.

30. At the last licence renewal for CFAP-TV Québec (Decision CRTC 92-561), the Commission indicated its intention of studying the next renewal at the same time as that of other Québec television stations. In the present circumstances, the Commission considers this is still a valid objective and a legitimate expectation. However, given the transactions and other changes affecting TQS since that time, and CFAP-TV's satisfactory efforts in the area of local production in Québec, the Commission considers that it will be more beneficial to consider the TQS licences together at their next renewal.

31. The Commission also noted the applicant's general objective of returning to TQS's original programming mandate and to make the service bolder and more intuitive, but still close to its audience, and more cosmopolitan. As for films, the Commission noted the applicant's intention of returning to the practice of theme evenings devoted to specific film genres, and encourages TQS in this context to broadcast as many Canadian films as possible.

32. In accordance with the commitments made by the applicant, CFJP-TV will be required, by condition of licence, to broadcast at least 14.5 hours of local news per week in Montréal, and CFAP-TV will be required, by condition of licence, to broadcast at least 9.2 hours of local news per week in Québec. It is also a condition of licence that the licensee spend at least $120,000 per year on developing programs, including $50,000 per year that must be allocated to drama. Furthermore, in accordance with the commitments now in effect with regard to Canadian programming directed to the youth, the Commission expects the licensee to broadcast a 30-minute information program each week for young people and a daily broadcast for that same audience.

33. It is a condition of licence that the licensee adhere to the guidelines on the depiction of violence in television programming set out in the Canadian Association of Broadcasters' (CAB) Voluntary Code Regarding Violence in Television Programming, as amended from time to time and accepted by the Commission. The application of the foregoing condition of licence will be suspended as long as the licensee remains a member in good standing of the Canadian Broadcast Standards Council.

34. It is also a condition of licence that the licensee adhere to the provisions of the CAB's Broadcast Code for Advertising to Children, as amended from time to time and accepted by the Commission.

35. It is a condition of licence that the licensee adhere to the guidelines on gender portrayal set out in the CAB's Sex-Role Portrayal Code for Television and Radio Programming, as amended from time to time and accepted by the Commission. The application of the foregoing condition of licence will be suspended as long as the licensee remains a member in good standing of the Canadian Broadcast Standards Council.

Advantages of the transaction

36. The applicant stated that the first and main advantage of the transaction was to permit TQS to return to profitability. Its challenge, in the short term, is to maintain the second French-language commercial general television service and then to revitalize it. The applicant pointed out that this was actually an operation to rescue an undertaking that was in serious financial difficulty, and that the other benefits of the transaction should be assessed in that context.

37. As an additional contribution, the applicant proposed tangible benefits representing commitments of $2.3 million over a five-year period. The main commitment consists in allocating, over five years, a further $1,850,000 to the independent production sector, over and above the budgets so allocated in the past. The licences are, therefore, subject to the following condition:

· that TQS allocate an additional $1,850,000 over five years, over and above the programming budgets allocated in the past, to independent production, to the acquisition of programming produced by Canadian independent producers, and that no portion of that $1,850,000 be granted to undertakings directly or indirectly related to the TQS shareholders.

38. The applicant also proposed three other commitments likely to benefit the Canadian broadcasting system. Over the next five years, the applicant proposed to allocate $250,000 to the Centre d'études sur les médias for a study of violence on television, $50,000 to the Alliance pour l'enfant et la télévision, to be spent on development and production of broadcasts for children, and $150,000 to the Regroupement québécois du sous-titrage for research into voice recognition, which can lead to an increase in the amount of broadcasts of closed captioned programming for the hearing-impaired. The Commission expects the licensee to implement each of those commitments as proposed, and according to the planned timetable.

39. In the area of closed captioned programs for the hearing-impaired, the Commission expects the licensee to increase each year the number of hours of closed-captioned programming broadcast by TQS. The Commission notes, in this connection, that the objective planned at the last licence renewal was exceeded in 1995-1996 with the broadcasting of 1,086 hours of closed-captioned programs. The Commission encourages the licensee to pursue these efforts and to study the possibility of partnerships in this area in order to find innovative solutions enabling the development of television adapted to the deaf and hard-of hearing.

CORPORATE RESTRUCTURING

40. As mentioned at the beginning of this decision, the applications by GVL and CF-12 for authority to proceed with the corporate restructuring were designed mainly to make it possible to split-off the various television broadcasting and cable distribution undertakings now under CF-12 so that they could be sold to separate third parties.

41. The Commission approves the application (199703872) by GVL on behalf of CF Cable TV inc. (CF Cable) for authority to fold Société de Gestion CF Câble TV inc. into CF-12. Société de Gestion CF Câble TV inc. holds 100% of the shares of CF Cable.

42. The Commission approves the application (199703880) by GVL, on behalf of CF Cable, for authority to transfer effective control of CF Cable and its cable subsidiaries to GVL or to a wholly-owned subsidiary to be named.

43. The Commission approves the applications (199703898, 199703906, 199703913) by GVL, on behalf of TQS inc., a company to be incorporated, for authority to transfer the assets of the television stations CFAP-TV Québec, CFJP-TV Montréal and CJPC-TV Rimouski and of the television network "Télévision Quatre Saisons" from CF-12 to a company to be incorporated (TQS inc.), and for broadcasting and network licences to carry on the above undertakings upon surrender of the existing licences issued to CF-12 and subject to the same terms and conditions as the existing licences.

44. Upon surrender of the existing licences, the Commission will issue new licences, subject to the same terms and conditions as the existing licences as well as any other conditions specified in this decision and in the licences to be issued. However, this authority shall not come into force, and the licences will not be issued, until such time as the Commission receives documentation establishing that a qualified Canadian company has been incorporated in accordance with the requirements in all material respects and that it may be issued a licence.

45. In approving in today's decisions, the transfer of effective control of TQS and of the English-language station CFCF-TV Montréal and the alternate application relating to RTQS, the Commission is disposing of all the applications relating to the broadcasting undertakings under CF-12, if the cable distribution assets that were the subject of Decision CRTC 97-84 dated 27 February 1997 are included. The approval of the transfer of effective control of TQS and CFCF-TV to third parties not related to GVL is in accordance with the terms and conditions of Decision CRTC 97-84. Accordingly, Vidéotron ltée is authorized immediately to exercise effective control of CF Cable and its cable distribution subsidiaries. In addition, by the approval of application 199703880, GVL is authorized to take over effective control of CF Cable and its cable distribution subsidiaries, either directly or through a wholly-owned subsidiary to be designated. Given the various applications approved today, the parties are authorized to end, at their convenience, the voting trust agreement binding them to date.

46. Given this decision, the Commission does not have to rule on the alternate application (199703921) by GVL, on behalf of TQS inc., for authority to transfer control of TQS inc. to GVL and to place the shares with a trustee for subsequent sale in the event of a denial by the Commission.

INTERVENTIONS

47. The Commission had taken into account all the interventions filed in connection with this matter. It thanks the interveners for their contributions to its deliberations.

This decision is to be appended to each of the broadcasting undertaking licences affected.

Laura M. Talbot-Allan
Secretary General

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