ARCHIVED -  Public Notice CRTC 1999-176

Public Notice

Ottawa, 1 November 1999

Public Notice CRTC 1999-176

Local Management Agreements

Summary

The Commission has adopted the amendments to the Radio Regulations, 1986 (the regulations) which are attached to this public notice. These amendments were put forward for public comment in Public Notice CRTC 1999-55. They were registered with the clerk of the Privy Council on 28 October 1999, and came into effect on that same date. They will be published in Part II of the Canada Gazette on 10 November 1999.

1. In Public Notice CRTC 1999-55 dated 31 March 1999 (PN 1999-55) the Commission invited public comment on proposed amendments to the regulations regarding Local Management Agreements (LMAs) for licensees of radio broadcasting undertakings. The proposed amendments resulted from a public process that was initiated in 1998 after the Commission announced its new common ownership policy in Public Notice CRTC 1998-41, Commercial Radio Policy 1998, dated 30 April 1998. That document raised the question of the continued appropriateness of the existing policy regarding LMAs.

2. The proposed amendments were intended to provide the Commission with the necessary tools for assessing the impact of local management agreements by requiring that licensees obtain prior authorization, in order to operate a radio station under such arrangements. Such authorization would be implemented by way of a condition of licence. The proposed amendments also provided for a transition period allowing existing LMAs to continue for a prescribed period of time.

3. The Commission received ten submissions in response to PN 1999-55. Five submissions were from radio broadcasters, two from the general public and one from each of the Friends of Canadian Broadcasting, the Canadian Association of Broadcasters and the Commissioner of Competition - Competition Bureau.

A changing environment

4. The Commission's Commercial Radio Policy 1998 addresses the challenges of a constantly changing environment. More specifically, the common ownership policy now allows a licensee to own more than one AM and one FM undertaking in the same language in the same market. The Commission is convinced that this increased flexibility in ownership within the radio industry will enable it to strengthen its overall performance, and attract new investment. This, in turn, should assist the industry to compete more effectively with other forms of media and enhance its contribution to the support of Canadian cultural expression.

5. LMAs in the past have typically provided economies of scale for radio stations experiencing financial difficulties, while still ensuring compliance with the Commission's ownership requirements. The Commission continues to consider LMAs to be appropriate tools for radio broadcasters, offering an alternative business model that provides flexibility and creates opportunities for economies of scale.

6. The Commission is, however, concerned about the possibility that an LMA may have a detrimental effect in a given market. The Commission is concerned that the increased market power of the LMA parties over other radio licensees in that market or potential new entrants could have a negative impact upon the ability of those licensees to meet their broadcasting obligations.

7. Accordingly, the Commission wishes to ensure that it is able to fully assess the consequences of either the introduction or the continuation of an LMA in a given market, especially with a view to ensuring that all radio broadcasters will continue to have the ability to achieve the objectives of the Broadcasting Act.

The Commission's new LMA policy

8. The regulations have now been amended to provide a mechanism that will allow the Commission to assess the appropriateness of an LMA in a given market. The amendment to the regulations will allow licensees to enter into or operate their stations pursuant to an LMA, provided that it is authorized by the Commission by condition of licence.

9. As a result of the amendment, any radio broadcaster wishing to enter into an LMA with another radio licensee will be required to seek Commission approval to amend its radio licence by adding a condition of licence to that effect. The application would be evaluated in the context of a public process.

Guiding principles for new or existing LMAs

10. The Commission has carefully considered the comments made by several interveners regarding the need to have clear criteria in the regulation for the assessment of the appropriateness of an LMA. However, the Commission is of the view that the appropriateness of an LMA will vary from one situation to another and from market to market. Furthermore, each LMA situation will reflect the specific needs of the radio broadcasters wishing to enter into or continue with the arrangement. Consequently, the Commission will evaluate LMAs on a case-by-case basis, taking into consideration all the relevant circumstances.

11. The Commission sets out below some guiding principles to assist radio broadcasters in evaluating which alternative business model would generally be considered by the Commission to be more appropriate under the circumstances.

12. The Commission reminds all licensees that an LMA must not constitute a change in the effective control of the undertaking. Such a change of control would require the prior approval of the Commission under section 11 of the regulations. The Commission will continue to expect that the following conditions are met:

· Parties to an LMA must ensure that distinct and separate programming and news services are maintained, and that their management remains under the respective responsibility of each licensee. This includes the program director and the news director, as well as any other related staff assigned to programming and/or news activities; and

· All assets of the undertakings involved in an LMA must remain in the ownership of each respective licensee.

13. In addition, the Commission will be generally inclined to approve LMAs that:

· Include unprofitable stations;

· Include a number of stations that does not exceed the number of undertakings that may be commonly owned under the ownership policy; and

· Are limited to a specific term and represent a temporary alternative business model that will allow the broadcasters to improve their performance.

14. In exceptional circumstances, the Commission may approve an LMA that groups a number of stations in excess of the limit allowed under the common ownership policy. Radio broadcasters will be required to clearly demonstrate that the grouping of radio stations in excess of the allowable limit is in the public interest and that it does not create a situation of inequity within the market.

The transitional period

15. In PN 1999-55, the Commission proposed to amend the regulations to allow for a transition period for existing LMAs entered into before 31 March 1999. The proposed transition period was defined as:

Until the earlier of:

a) the earliest date at which any licence issued in connection with a station that is operated pursuant to the agreement expires, and

b) the date on which the current term of an agreement expires, excluding any subsequent renewal.

16. In that notice, the Commission also required that all radio broadcasters involved in an LMA file a copy of the agreement. As a result, the Commission received seven agreements involving radio broadcasting undertakings in Fredericton, Charlottetown, Thunder Bay, Saskatoon, London, Regina and Halifax. The Commission has reviewed these agreements to assess the appropriateness of the proposed transition period.

17. With the exception of the Regina LMA, all existing arrangements are on a continuing basis with no specific renewal term. Under the proposals set out in PN 1999-55, the transition period of these agreements would have ended at the date of the licence renewal of the affected radio stations, at dates up to 31 August 2004.

18. The Commission notes the CAB's comments regarding potential scenarios under the proposed regulations, in which some broadcasters could be compelled to dissolve an LMA earlier than others, consequently facing substantial financial challenges due to the lack of sufficient time to assess their options and amend their business plan. The Commission also recognizes that it may be appropriate to assess LMAs earlier than the date of the licence renewal.

19. In view of continuing changes in the radio industry and the need for certainty, the Commission has determined that the transition period for LMAs existing as of 31 March 1999 will extend to 31 December 2001. At that time, all radio broadcasters still involved in an LMA will be required to have a condition of licence authorizing the continued operation of their station pursuant to the LMA.

This notice is available in alternative format upon request, and may also be viewed at the following Internet site: http://www.crtc.gc.ca

Secretary General

Whereas, pursuant to subsection 10(3) of the Broadcasting Acta, a copy of the proposed Regulations Amending the Radio Regulations, 1986, substantially in the annexed form, was published in the Canada Gazette, Part I, on April 10, 1999, and a reasonable opportunity was thereby given to licensees and other interested persons to make representations to the Canadian Radio-television and Telecommunications Commission with respect to the proposed Regulations;

Therefore, the Canadian Radio-television and Telecommunications Commission, pursuant to subsection 10(1) of the Broadcasting Acta, hereby makes the annexed Regulations Amending the Radio Regulations, 1986.

Hull, Quebec, 27 October 1999

Secretary General

REGULATIONS AMENDING THE RADIO REGULATIONS, 1986

AMENDMENT

1. The Radio Regulations, 19861 are amended by adding the following after section 11:

Local Management Agreement

11.1 (1) The definitions in this subsection apply in this section.

"local  management agreement" means an arrangement, contract, understanding or agreement between two or more licensees or their associates that relates, directly or indirectly, to any aspect of the management, administration or operation of two or more stations that broadcast in the same market. (convention de gestion locale)

"associate " has the same meaning as in subsection 11(1). (liens)

(2) Except as otherwise provided in subsection (3) or under a condition of its licence, a licensee shall not enter into, or operate its station pursuant to, a local management agreement.

(3) A licensee may operate its station pursuant to a local management agreement that was entered into before March 31, 1999 until December 31, 2001.

COMING INTO FORCE

2. These Regulations come into force on the day on which they are registered.