ARCHIVED - Decision CRTC 2001-604

Decision CRTC 2001-604

See also:  2002-40

Ottawa, 21 September 2001

CTV Inc.
Montréal, Quebec 2001-0565-2

Application processed by
Public Notice CRTC 2001-77
dated 11 July 2001

CTV Inc. is authorized to acquire effective control of CFCF-TV Montréal, subject to the condition that it increase the amount of the tangible benefits to a level commensurate with the Commission's determination regarding the value of the transaction

In Public Notice CRTC 2001-77, the Commission announced receipt of an application by CTV Inc. for authority to acquire control of CF Television Inc., licensee of CFCF-TV Montréal. The applicant proposed to purchase all of the issued and outstanding shares of the licensee company. These shares are currentlyheld in trust by Mr. L.R. Sherman on behalf of Global Communications Limited (70%) and Capital Communications CDPQ Inc. (30%).

According to the benefits policy outlined in Public Notice CRTC 1999-97, the dollar value of tangible benefits generally required of applicants in transactions involving the transfer of control oftelevision undertakings is set at 10% of the value of the transaction, as accepted by the Commission. In this case, CTV Inc. has proposed tangible benefits of $12.15 million, or 10% of the $121.5 million the applicant had set as representing the value of the transaction. In PN 2001-77, the Commission raised concerns about CTV's valuation of the transaction. Specifically, it noted thatCTV Inc. made this valuation without taking into consideration the long-term debt of CF Television Inc. (approximately $20 million). In its notice, the Commission indicated that it might reach a finding that the transaction's value should include the long term debt, and that such a finding would have implications regarding the adequacy of the package of tangible benefits proposed by the applicant.

Value of the transaction

Four interveners, including the Canadian Conference of the Arts (CCA), the Directors Guild of Canada (DGC), the Association des Producteurs de Films et de Télévision du Québec (APTFQ) and L'Association québécoise de l'industrie du disque, du spectacle et de la vidéo (l'ADISQ) generally considered that long-term debt should be included when determining the value of transactions. The Canadian Association of Broadcasters, on the other hand, supported CTV's position. It considered that the purchase price was the proper indication of the value of a transaction, and that pre-existing debt should not be included for the purpose of calculating the amount of the benefits payments that must be made under the terms of the Commission's television policy.

As indicated earlier, the Commission's television policy states that it will "generally expect applicants to make commitments to clear and unequivocal tangible benefits representing a financial contribution of 10% of the value of the transaction, as accepted by the Commission."

In previous transactions, the Commission has generally calculated the value of a transaction, for the purpose of establishing tangible benefits, on the basis of the percentage of equity held. In most transactions, the value of the transaction has been determined to be the purchase price or the amount actually paid by the buyer, and this amount usually included the existing debt and any acquisition premiums.

As the applicant has pointed out, however, the Commission, made an exception to this practice when, in Decision CRTC 2000-86, it approved an application by CTV Inc. to obtain an 80% controlling interest in NetStar Communications. In that application, the Commission used the purchase price to determine the level of tangible benefits, but the price did not include NetStar's long-term debt. The decision, however, made it clear that the Commission was not adopting this approach as a general practice. Instead, the decision stated: "It [the Commission] notes, however, the position of some interveners that the value of the transaction does not necessarily equal the purchase price, and that such an approach could be inaccurate, depending on the debt load of the enterprise. The Commission will expect applicants in future transactions, to demonstrate that the measure they have used to determine the value of the transaction is the most appropriate under the circumstances."

After considering the positions of the applicant and the interveners, the Commission has determined that the value of the transaction should include CF Television Inc.'s long-term debt of approximately $20 million. With this adjustment, the value of the transaction, as accepted by the Commission, is now$141.5 million. If the transaction is to match the requirements of the Commission's policy, it should thus generate tangible benefits totalling at least $14.15 million, rather than the $12.15 million proposed by CTV Inc.

Accordingly, the Commission approves the application for authority to transfer effective control of CF Television Inc. subject to the condition that CTV Inc., within 60 days of today's date, return to the Commission with a revised proposal for the disbursement of tangible benefits representing incremental expenditures of at least $14.15 million. This amended package of benefits must be acceptable to the Commission. It must therefore take into account the concerns discussed below regarding certain of the initiatives proposed as benefits by CTV Inc. in its original application. Further, CTV Inc. must file a detailed annual report, concurrent with the submission of its annual return, in each of the next five years, demonstrating that the tangible benefits are incremental to all existing CFCF-TV commitments.

Proposed benefits

Among the initiatives proposed by CTV Inc. as benefits of the transaction is the allocation of $6 million over five years to the CTV Signature Series. Of this amount, more than $3.8 million is allocated to independent producers in Quebec for the production of programs that will present Quebec stories to viewers. The Commission accepts this as a benefit of the transaction. Other acceptable benefits include the expenditure of $1.275 million on grants to various Quebec and national organizations for training, for promoting Canada's multicultural and multilingual diversity in broadcasting, and for other broadcast-related purposes.

CTV Inc. also proposed to direct the sum of $1.875 million over five years to establish and operate a Montréal development office. Certain interveners, namely the DGC, the CCA and the Canadian Film and Television ProductionAssociation, were concerned that almost half of this amount ($875,000, or $175,000 per year) is allocated to administrative expenses. The DGC, noting the station's existing programdevelopment commitment of more than $240,000 per year, asked whether it was reasonable that, on an annual basis, $175,000 be spent on administering the disbursement of an additional $200,000 on program development.

In the Commission's view, the amount earmarked by the applicant for meeting the administrative costs of operating the proposed development office appears excessive. The Commission therefore requires the licensee to demonstrate, as part of the revised benefits proposal mentioned in paragraph 8 above, that any funds allocated for the Montréal development office are truly incremental, and will be over and above current staff and other administrative expenses.

CTV Inc. proposed to spend a further $3 million over five years on the operation of an investigative journalism unit. In correspondence with the applicant, the Commission asked for an indication of the amount of programming that would be broadcast as a result of this proposal. It also sought an explanation as to why this programming should be considered a benefit incremental to the programming that now makes up the regular news offering on CFCF-TV.

The applicant responded that the initiative might result in one additional feature or report every two weeks. CTV Inc. indicated, however, that it would be very difficult to establish a fixed numberof hours of programming that this initiative would generate. The applicantalso indicated that these segments would be incremental to the 14 hours 50 minutes of original, local news programming aired by the station each week. This amount is pursuant to an expectation imposed by the Commission in renewal Decision CRTC 95-105.

The Commission has considered the applicant's arguments in support of this initiative and its acceptability as a benefit. It is not satisfied, however, that the applicant has adequately demonstrated how the work of the investigative journalism unit would be distinguishable from, or incremental to, the news reporting function carried out by the station's existing staff in the production of features and reports for broadcast as part of the regular CFCF-TV newscasts.

Accordingly, the Commission does not view the applicant's plans for an investigative journalism unit as an acceptable benefit. It directs CTV Inc., in its amended benefits package, to include plans to reallocate the sum of $3 million to other initiatives acceptable as benefits. In so directing the applicant, the Commission reminds CTV Inc. that expenditures involving local news and non-news programming are acceptable as benefits provided there is a clear demonstration of the incremental nature of the expenditures and hours of broadcast. The Commission further notes that it did not allow a similar initiative to qualify as a tangible benefit in the context of an application for the transfer of effective control of TVA to Quebecor Média inc. (Decision CRTC 2001-384).

Local reflection

As noted earlier in this decision, CFCF-TV is expected to broadcast 14 hours 50 minutes per week of original, local news during its current licence term whichexpires31 August 2002. In Decisions CRTC 2001-457 to 457-13 dated 2 August 2001, the Commission renewed the licences of the group of television stations then under the ownership or effective control of CTV Inc. The Commission accepted the model proposed by that company whereby each of its major stations would provide at least 15 hours 30 minutes per week of local reflection and news programming. In light of the above, the Commission expects CTV Inc. to include, in the next licence renewal application for CFCF-TV, a commitment to increase the amount of local reflection and news programming broadcast to a minimum of 15 hours 30 minutes per week.

This decision was made and communicated to the applicant orally on 29 August 2001, pursuant to the CRTC Rules of Procedure.

Secretary General