ARCHIVED - Decision CRTC 2000-222
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Decision CRTC 2000-222 |
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| Ottawa, 6 July 2000 | |
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Corus Entertainment Inc. Across Canada, Western Canada, and at various individual locations - 200000662 |
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| 25 April 2000 Public Hearing in Vancouver | |
Sale of WIC Premium Corporation approved, conditional upon the subsequent divestiture of that company's 50% voting interest in The Family Channel Inc. |
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| The Commission approves the application by Corus Entertainment Inc. (Corus) to acquire all of the issued and outstanding shares of WIC Premium Corporation (WIC Premium). This approval is conditional upon the filing of an application, within six months of today's date, for the sale of the 50% voting interest in The Family Channel Inc. As a further condition, the trustee must retain in trust the shares of The Family Channel Inc. pending their sale by the trustee pursuant to paragraph 4 e) of the Corus Trust Agreement. | |
| In addition to its shareholdings in The Family Channel Inc., WIC Premium is licensee of ten radio stations across Canada. It has ownership interests in two additional radio stations and in a number of licensed pay, pay-per-view and other discretionary television services. Corus, the purchaser, is also a company with extensive holdings in Canada's radio industry, and in specialty and conventional television services as well. It is an affiliate of Shaw Communications Inc. (Shaw). Shaw is Canada's second largest distributor of cable television service; it holds controlling interests in a direct-to-home (DTH) undertaking and two satellite relay distribution (SRDU) undertakings. | |
| On 19 May 1995, the Commission published its report to the government entitled Competition and Culture on Canada's Information Highway: Managing the Realities of Transition (the Convergence Report). In that report, and through recent decisions, the Commission established that cable licensees and their affiliates should generally not be permitted to acquire ownership or control of, or to increase the size of their existing holdings in, discretionary programming undertakings until there is sufficient capacity on cable networks to prevent undue preference. | |
| The Family Channel is a national discretionary pay television service. It is available to the subscribers of most cable undertakings, principally on an analog basis. With respect to such matters as terms of delivery and carriage, the Commission remains of the view that there is insufficient analog channel capacity on cable networks to overcome concerns related to undue preference in the cable distribution of affiliated discretionary services primarily on an analog basis. Accordingly, the Commission has required the divestiture of shareholdings in The Family Channel Inc. | |
| The Commission is satisfied that the concerns mentioned above do not present themselves in the context of the indirect ownership by Corus of WIC Premium's holdings in various other discretionary television services. Unlike the Family Channel, these other pay television services are not primarily dependent on analog distribution on cable. In fact, 95% of those who are subscribers of cable systems owned by Shaw, and who also subscribe to any of the pay television services concerned, now receive them in a digital format using set-top boxes. | |
| Regarding the consolidation of ownership within Canada's radio industry occurring as a consequence of this transaction, the Commission notes that such consolidation is, in all aspects, consistent with its common ownership policy for radio. Moreover, it is satisfied that Corus will emerge with the capacity it needs to bring about increased diversity among the radio formats provided by its stations in the various markets concerned, and to ensure that each offers its own distinct news voice. It is further satisfied that these objectives can be attained without unduly affecting the competitive dynamics of any given market, or impinging on other individual radio broadcasters to the point where their ability to meet regulatory obligations would be threatened. | |
| Finally, the Commission has determined that the tangible and intangible benefits proposed by the purchaser are commensurate with the size and nature of the transaction and, subject to the divestiture requirement noted above, that approval is in the public interest. | |
Background |
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| 1. | At the Vancouver public hearing in April of this year, the Commission considered applications proposing the dispersal among three companies of the broadcasting holdings previously owned by members of the Griffiths family through WIC Western International Communications Ltd. (WIC). The hearing marked the final stages of a complex transaction that had its beginnings two years earlier. Details concerning the events leading up to the 25 April hearing are set out in Notice of Public Hearing CRTC 2002-1. They are also summarized in Decision CRTC 2000-221 of today's date which, among other things, approves (subject to certain conditions) the transfer to CanWest Global Communications Corp. of most of WIC's previous holdings in over-the-air television stations in British Columbia, Alberta and Ontario. In another decision issued on 30 June 2000 (Decision CRTC 2000-213), the Commission approved the acquisition by Shaw of WIC's previous holdings in Canadian Satellite Communications Inc. (Cancom). |
| 2. | WIC Premium is a company recently formed by the amalgamation of WIC Premium Television Ltd. with WIC Radio Ltd. In Decision CRTC 2000-70, the Commission authorized this amalgamated entity to serve as licensee of the ten radio stations previously licensed to WIC Radio Ltd. In the same decision, the Commission approved WIC Premium's ownership of direct and indirect interests in two additional radio stations, and in various pay, direct-to-home pay-per-view, video-on-demand, and specialty service undertakings previously held indirectly by WIC. |
| 3. | These holdings include a 50% voting interest in The Family Channel Inc., licensee of a national, English-language pay television service. The Family Channel Inc., itself, holds a direct 40% voting interest in TELETOON Canada Inc., licensee of a national French- and English-language specialty television undertaking that offers a service consisting predominantly of animated programming. The appendix to this decision lists the various broadcasting undertakings of which WIC Premium is the licensee, or in which it has an ownership interest. |
| 4. | Directly or indirectly, Corus owns, effectively controls or holds minority voting interests in a number of licensee companies. These broadcast holdings include its 100% direct ownership of three wholly-owned subsidiaries, that operate 32 radio stations across Canada, including stations in Quebec, Ontario, Alberta and British Columbia. They also include 100% indirect ownership of two companies licensed to carry on five conventional television stations in Ontario and Quebec, and two others licensed to provide the national children's specialty services YTV and Treehouse. In addition, Corus holds an indirect 20% interest in TELETOON Canada Inc. via YTV Canada, Inc. |
| 5. | Corus is a company effectively controlled (75.5%) by Mr. JR Shaw through his direct and indirect holdings and a voting trust agreement. Shaw Communications Inc. is also a company effectively controlled by Mr. JR Shaw. This makes the two companies "affiliates" of each other, as that term is defined in the Convergence Report of 19 May 1995. Shaw Communications Inc. is Canada's second largest cable television distributor, and holds controlling interests in a DTH undertaking and two SRDU undertakings. |
| 6. | As mentioned in this decision's summary, the Commission examined three principal issues in its consideration of the Corus application to purchase all of the issued and outstanding shares of WIC Premium. These issues are: the potential for undue preference that arises (in the absence of sufficient capacity on cable networks) from the involvement of a cable distributor or its affiliate in the ownership of discretionary programming services; the consolidation of ownership within the radio industry and its impact on diversity of voices and competition; and the adequacy of the proposed benefits. Each of these issues is discussed further below. |
Concerns for undue preference arising from cable and discretionary programming service cross-ownership |
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| 7. | In its Convergence Report and in recent decisions (for example, see Decision CRTC 98-487), the Commission has taken the view that cable licensees and their affiliates should generally not be permitted to acquire ownership or control of, or to increase the size of their existing holdings in, discretionary programming undertakings until there is sufficient capacity on cable networks to prevent undue preference. |
| 8. | The Commission has considered the arguments advanced by Corus in support of its application, including its position that international market trends point to a convergence of program production and distribution that is both inevitable and desirable. It has considered the applicant's contention that concerns about undue preference are largely addressed by the structural separation now in place between Corus and Shaw (including separate boards of directors having distinct fiduciary obligations, and shareholding groups that are significantly different and that will continue to diverge). The applicant's view in this regard is notwithstanding its acknowledgement of the fact that it and Shaw are affiliates (as defined in the Convergence Report). |
| 9. | The Commission also notes that, while the Shaw Code of Conduct is a positive initiative, it is not sufficient to allay concerns regarding undue preference, particularly insofar as it does not explicitly address issues relating to channel placement, packaging and pricing. |
| 10. | In the Commission's view, the distribution environment remains one in which cable companies, through their ownership of the broadband capacity used to deliver discretionary services, continue to control the bottleneck through which these services must pass in order to reach the vast majority of their subscribers. The market power of the cable industry, relative to that of other forms of distribution, gives cable companies, particularly the larger ones, the potential to influence such things as wholesale fees for discretionary services, their packaging, their channel placement and, ultimately, their success. In this environment, the Commission continues to be concerned about the potential for undue preference in relation to the cable distribution of affiliated discretionary services, particularly those distributed primarily on analog channels. |
| 11. | The Commission notes, however, that HomeTheatre, SuperChannel and MovieMax are no longer reliant on analog carriage. Moreover, in the case of Shaw's cable systems, they are delivered to 95% of all subscribers in a digital format. These facts, coupled with the Access Rules, the provisions contained in section 9 of the existing Broadcasting Distribution Regulations, and certain obligations regarding undue preference that the Commission intends soon to incorporate into the pay and specialty television regulations (see Public Notice CRTC 2000-6), minimize the concern relating to undue preference. |
| 12. | In these circumstances, the Commission has decided to approve the Corus application, conditional upon the filing of an application, within six months of the date of this decision, for the sale of the 50% voting interest in The Family Channel Inc. As a further condition, the trustee must retain the shares of The Family Channel Inc., pending their sale by the trustee pursuant to paragraph 4 e) of the Corus Trust Agreement. Given the continuing limitation on analog channel capacity, and consistent with recent decisions in this regard, the Commission considers that the concerns expressed in the Convergence Report regarding the ownership of discretionary programming services by affiliates of cable licensees remain valid. |
| 13. | The Commission also notes in this regard the existing indirect ownership by Corus of 100% of the national children's specialty services YTV and Treehouse and of 20% of TELETOON. To the extent that there is an overlap in the audiences attracted to The Family Channel and to these other services, the Commission considers that it is in the interests of increased diversity, voices and competition for the 50% voting interest in The Family Channel Inc. now held by WIC Premium to pass from that company to a third party. |
| 14. | The Commission wishes to emphasize that its decision in this particular case should not be taken as a benchmark, precedent or other indication of how the Commission will decide to manage the pending transition to digital. |
Consolidation of radio station ownership |
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| 15. | Under the Commission's common ownership policy (Public Notice CRTC 1998-41), in markets with less than eight commercial radio stations operating in a given language, |
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| 16. | The Commission notes that the current transaction is fully consistent with the policy set out above. In fact, it is only in the markets of Vancouver and Edmonton where the number and class of the radio stations that Corus is acquiring through its purchase of WIC Premium, when combined with those that Corus already owns or controls, reaches the limit of 2 AM and 2 FM stations set by the policy. |
| 17. | An intervention addressing the common ownership policy was filed by Mr. W. Plunket of Weston. According to Mr. Plunket, the acquisition by Corus of CILQ-FM North York, in combination with its existing ownership of CFNY-FM Brampton and CING-FM Burlington, will give Corus ownership of three FM stations in a market, or one more than the number permitted under the policy. Mr. Plunket bases his conclusion on his belief that while CING-FM is licensed to serve Burlington and has studios located in that community, its programming is being directed towards a Toronto audience. |
| 18. | The Commission notes that, even though a portion of CING-FM's audience is in Toronto, it is treated as a Hamilton/Burlington station by the Bureau of Broadcast Measurement (BBM). More importantly in the Commission's view, CING-FM is licensed as a Burlington station, and is appropriately considered as such for the purpose of the policy noted above. |
| 19. | In PN 1998-41, the Commission emphasized that it: |
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| 20. | Accordingly, the Commission stated that in assessing an application filed in accordance with the common ownership policy, it will ".consider the impact of the application on the diversity of news voices and the level of competition in the market." |
| 21. | The Commission notes that, in each of the markets affected, there is an extensive variety of voices and media outlets, and the absolute number of radio voices will increase significantly in future months, particularly in Southern Ontario. This is as a consequence of recent decisions by the Commission approving applications for several new radio stations, including those that will serve London, Hamilton, Barrie and Toronto. Without prejudicing the outcome of future public processes, the Commission notes further that calls have also been issued for applications to provide new radio services in each of Calgary and Vancouver. |
| 22. | With respect to the levels of competition, there is no doubt that the transaction will increase the market power of Corus. Corus is already established as a significant player in all of the markets affected except one (Winnipeg). In each case, however, the Commission considers that there is sufficient competition in the market to minimize any concerns about concentration. It notes that in each market, Corus must compete with at least two, and sometimes as many as four other strong, successful and experienced radio competitors. The Commission notes that none of these competitors, including Rogers Broadcasting Limited, CHUM Limited, Standard Radio Inc. and Newcap Inc., nor any other smaller local competitor, intervened in opposition to this application. |
| 23. | At the same time, the Commission is convinced that, for reasons related to such matters as the greater economies of scale that Corus will enjoy as a consequence of this transaction, and the increased opportunity it will have to consolidate facilities and administrative functions, Corus will be able to implement its plans to diversify the formats of the various stations it operates in a given market, and ensure that each provides its own distinct news voice. |
The benefits test |
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| 24. | Because the Commission does not solicit competing applications for authority to transfer the ownership or control of programming undertakings, the onus is on the applicant to demonstrate that the benefits proposed in the application are commensurate with the size and nature of the transaction. In its policy framework for Canadian television (Public Notice CRTC 1999-97), the Commission stated that it generally expects applicants wishing to purchase television broadcasting undertakings to propose clear and unequivocal benefits, to the communities in question and to the broadcasting system as a whole, representing a minimum of 10% of the dollar value of the transaction (as accepted by the Commission). In the case of radio stations, the Commission's commercial radio policy (Public Notice CRTC 1998-41) calls for benefits representing a minimum of 6% of the value of the transaction. |
| 25. | Of the amount Corus has agreed to pay for the shares of WIC Premium under this transaction, the applicant has identified $200 million as representing the asset value of the radio stations licensed to or owned by WIC Premium. It claimed $114 million as the value of WIC Premium's direct and indirect shareholdings in the licensees of the various discretionary television programming undertakings involved. This latter amount includes a valuation of $25 million for the 50% share interest in The Family Channel Inc., which valuation, itself, contains consideration of $10 million in respect of that company's 40% shareholding in TELETOON. Based on the evidence filed with the application, the Commission has no concern with respect to the financial arrangements underlying the transaction, and considers the above amounts to be reasonable estimates of the fair market value of the regulated properties concerned. |
| 26. | Against the valuation of $200 million for the radio station interests, Corus has proposed benefits in the form of expenditures totalling $12 million over seven years, or 6% of the valuation. Benefits include contributions of $6 million to a fund to promote and market Canadian music and an additional $4 million to FACTOR. Corus confirmed that benefit expenditures will be incremental to all existing commitments by the stations in respect of Canadian talent development or programming, and to any residual benefits accepted by the Commission offered in the context of previous ownership decisions. |
| 27. | Tangible benefits offered by Corus in respect of its purchase of WIC Premium's holdings in discretionary television broadcasting undertakings represent incremental expenditures of $12.5 million over seven years, or more than 12% of the valuation attributed to these holdings. |
| 28. | The applicant proposed that it be permitted to reduce the amount of the expenditures offered as the tangible benefits of this transaction if asked by the Commission to sell any of the broadcasting interests acquired through its purchase of WIC Premium. It further proposed that the size of the reduction be proportional to the value, relative to the whole, of the broadcasting interests it must sell. The Commission considers the applicant's proposal to be reasonable in the circumstances. |
| 29. | As noted above, the valuation attached to WIC Premium's 50% voting interest in The Family Channel is $25 million. This represents 21.9% of the value of $114 million attached to all of WIC Premium's television interests. Accordingly, the Commission considers it reasonable that the applicant reduce by 21.9%, from $12.5 million to $9.8 million, the amount of the expenditures it will make over seven years - these being the tangible benefits associated with its acquisition of WIC Premium's other television holdings. |
| 30. | The Commission acknowledges that the 21.9% reduction in the overall amount of the expenditures discussed above will oblige the applicant to modify its benefit plans to a degree, and that these modifications may involve more than a simple pro rata reduction in the amounts devoted to any given initiative. Corus is therefore to file with the Commission, within ninety days of today's date, its revised plans for the expenditure of the $9.8 million in benefits, including the amount to be allocated to each project. |
| 31. | The Commission discussed with Corus certain aspects of its proposed programming benefits, including: the overall proportion of these benefits that would be potentially directed to Corus itself; the fact that a substantial proportion of the expenditures will take the form of equity investments in new program production; the applicant's plans to retain responsibility for the administration of much of the proposed spending on benefits; and the issue of where the expenditures will be made and whether such disbursement would fairly take into account the fact that the bulk of broadcast properties involved in this transaction are licensed to serve residents in Western Canada. |
| 32. | With respect to the first of these matters (the potentially self-directed nature of the benefits), the Commission notes that most of the proposed spending directed to on-screen benefits will indeed be for new productions of a type that might fit very comfortably into the schedule of YTV. From this perspective, the expenditures could be perceived as self-serving of Corus. On the other hand, the Commission notes that the benefits will largely involve new, independent program production in under-represented areas within the category of children's programming. On this basis, the Commission has accepted the proposed expenditures as incremental and unequivocal benefits. The Commission, however, expects the applicant to ensure that no portion of the expenditures is counted towards satisfaction of the expenditure or exhibition requirements of any of the licensed programming services falling under its ownership or control. |
| 33. | With respect to the applicant's claim of equity investments as benefits, the Commission's policy does not expressly preclude acceptance of such investments as benefits. There is, however, the question of whether such a benefit remains unequivocal should it earn a financial return. The Commission notes the applicant's statements that the likelihood of a financial return on such an investment is remote, and that any return would be modest at best. The Commission also notes the commitments made by Corus that any return it may nonetheless earn from equity investments will be reinvested in incremental Canadian program initiatives, and that its equity investments will be incremental to the "normal level" of licence fees paid for exhibition rights to the programming. The Commission expects Corus to adhere to these commitments. |
| 34. | In response to deficiency questions before the hearing, Corus explained that its motivation for retaining responsibility for administering benefit expenditures was to ensure that administrative costs are kept to a minimum. It also noted that almost all of the expenditures would be on independent production. According to Corus, the one possible exception would be funding earmarked for the production of a children's series based on Aboriginal stories and destined for initial broadcast on YTV and on the Aboriginal Peoples Television Network (APTN). The applicant agreed, however, to place responsibility for administering expenditures in the hands of an independent third party should the Commission so require. |
| 35. | With the exception of funding for the joint APTN/YTV co-production, the Commission expects that expenditures associated with all programming initiatives be administered by a Commission-approved independent production fund. Corus shall provide the Commission, within ninety days of today's date, the name of the fund that will administer these initiatives. |
| 36. | On the question of where and in what proportion the benefits should be allocated, Great North Communications Ltd. expressed support in its intervention for the applicant's plan to offer the benefits on a national basis. It suggested that this would ensure their deployment to where ".they can be used most effectively". British Columbia Film, however, argued in its intervention that the proposed benefits should provide a return to the regions most affected by the transaction. The Alberta Motion Picture Association (AMPIA) expressed a similar view, but acknowledged that the applicant's past performance has been good in this area, so recommended that no specific percentage of the benefits should be allocated to Western Canada. |
| 37. | The Commission, having weighed the various views on this matter, considers that the expenditures should be allocated in a fashion that provides adequate opportunities for small- and medium-sized regional producers to access the available funding. It expects Corus to ensure that this is the case. |
| 38. | Based on all of the foregoing, and subject to the various expectations noted in the preceding paragraphs, the Commission is satisfied that the benefits proposed by Corus are clear, unequivocal and commensurate with the size and nature of the transaction, and that approval of the application is in the public interest. |
| 39. | The Commission thanks all of those who participated in this process, whether through their interventions or through their attendance at the public hearing. |
Other matters |
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| 40. | The Commission notes that the following applications, initially scheduled for consideration at the 25 April 2000 Vancouver hearing, have been superseded by completion of the intracorporate transaction approved in Decision CRTC 2000-70 and by the application approved in this decision: |
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| Secretary General | |
| This decision is to be appended to the licences. It is available in alternative format upon request, and may also be examined at the following Internet site: http://www.crtc.gc.ca | |
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Broadcast holdings of WIC Premium Corporation |
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| WIC Premium is licensee of : | |
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| WIC Premium owns 100% of: | |
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| WIC Premium owns 80% of: | |
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| WIC Premium owns 50% of: | |
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| The Family Channel Inc. owns 40% of: | |
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Date Modified: 2000-07-06
- Date modified: