ARCHIVED - Broadcasting Decision CRTC 2002-206

Broadcasting Decision CRTC 2002-206

Ottawa, 26 July 2002

John Sherratt, on behalf of a corporation to be incorporated
Belleville, Ontario

Applications 2002-0061-8 and 2002-0062-6
Public Hearing in the National Capital Region6 May 2002

CJOJ-FM and CHCQ-FM Belleville - Acquisition of assets

In this decision, the Commission approves the applications by John Sheratt, on behalf of a corporation to be incorporated, to acquire the assets of CJOJ-FM and CHCQ-FM Belleville, and for broadcasting licences to continue the operation of each undertaking.

The applications

1.

The Commission received applications from John Sherratt, on behalf of a corporation to be incorporated (OBCI), to acquire the assets of the radio programming undertaking CJOJ-FM Belleville from Belleville Radio Limited and of CHCQ-FM Belleville from CHCQ Limited, and for broadcasting licences to continue the operation of each undertaking.

2.

The vendor, Mr. Anthony Zwigg, currently owns both Belleville Radio Limited and CHCQ Limited. While CJOJ-FM has been in operation for many years, the Commission awarded Mr. Zwigg a broadcasting licence to operate CHCQ-FM in New FM country music station in Belleville, Decision CRTC 2000-155, 11 May 2000 (Decision 2000-155).

3.

The purchaser, Mr. John Sherratt, had been assisting Mr. Zwigg in establishing CHCQ-FM and in the operation of CJOJ-FM. As he became more involved in these activities, Mr. Sherratt decided to make an offer to Mr. Zwigg for the purchase of the two stations. He stated that, after receiving that offer, Mr. Zwigg did not market the stations or seek offers from other prospective purchasers.

4.

The applicant indicated that the two parties established a pricing scenario that would reflect the value of each station and the fact that CHCQ-FM had been licensed for less than two years. The applicant stated that the proposed purchase price would total $1,456,610 for CJOJ-FM, and $541,351 for CHCQ-FM.

5.

The proposed price for CJOJ-FM was established independently from that of CHCQ-FM and was based on twice the sales revenues generated in the broadcasting year ending 31 August 2001.

6.

The proposed price for CHCQ-FM represented the actual capital expenditures up to the time the station began operation, plus 10% of those expenditures to offset intangibles and financing costs. The applicant indicated that it would receive no consideration for any operating losses incurred by CHCQ-FM.

7.

Mr. Sherratt stated that CJOJ-FM had been unprofitable over the past three years and that CHCQ-FM had not yet achieved profitability. For these reasons, Mr. Sherratt did not propose any tangible benefits. The applicant argued, however, that the proposed transaction would produce significant intangible benefits. As a resident of Belleville and as someone with considerable broadcasting experience and resources, Mr. Sherratt stated that he would be able to ensure that the stations would be operated in the best interests of the community and would provide high quality programming.

8.

Mr. Sherratt agreed to fulfil all of the outstanding commitments and obligations related to Canadian talent development for both CJOJ-FM and CHCQ-FM, as outlined in Decision 2000-155. Specifically, he stated that he would allocate $2,000 to Canadian talent development initiatives in each remaining broadcast year of CJOJ-FM's current licence term, which expires 31 August 2005, as well as $2,000 in each remaining broadcast year of CHCQ-FM's current licence term, which ends 31 August 2006. The commitments related to CHCQ-FM would be over and above the $400 that the station must spend in each broadcast year on Canadian talent development under the Canadian Association of Broadcasters' (CAB) plan.

Interventions

9.

The Commission did not receive any interventions in connection with these applications.

The Commission's analysis and determination

10.

The Commission is concerned when parties acquire broadcasting undertakings and sell them shortly thereafter. It therefore examines such acquisitions carefully in order to ensure that they do not compromise the integrity of the licensing process.

11.

In the present case, the Commission notes that it awarded a broadcasting licence to Mr. Zwigg to operate a second station in Belleville following a public process that was not competitive. No other party submitted an application in response to Call for applications for a broadcasting licence to carry on a radio programming undertaking to serve Belleville, Public Notice CRTC 1999-103, 2 July 1999. The Commission, therefore, is satisfied that approval of the present application to transfer the assets of CHCQ-FM would not prejudice the interests of other parties.

12.

In granting Mr. Zwigg this broadcasting licence in 2000, the Commission noted that, taken as a whole, the commercial radio stations serving the Belleville market were unprofitable and that most of the losses at the level of profit before interest and taxes were sustained by Mr. Zwigg's existing station CJOJ-FM. The Commission found that this fact supported Mr. Zwigg's argument that "its competitive position must be improved if it was to be able to continue to provide an alternative radio voice to residents of the Belleville area." The Commission also noted that its Commercial Radio Policy 1998, Public Notice CRTC 1998-41, 30 April 1998 (Public Notice 1998-41) places an increased emphasis on competition as a way of ensuring that programming choice is available to Canadians.

13.

The Commission considers that the pricing structure outlined in the present applications for the sale of the two stations is fair and transparent. The purchase price for CJOJ-FM is based on a generally accepted means of valuation in the industry. The Commission has no concerns with respect to the availability or the adequacy of the required financing.

14.

Based on the evidence provided by the applicant, the Commission is satisfied that the vendor would not profit from the sale of CHCQ-FM and concludes that the sale of the assets of CHCQ-FM would not compromise the integrity of the licensing process.

15.

With regard to benefits associated with the proposed transaction, the Commission notes that neither CJOJ-FM nor CHCQ-FM is profitable. Consistent with Public Notice CRTC 1998-41, the applicant is, therefore, not required to propose specific tangible benefits in connection with the transaction. The Commission agrees that important intangible benefits would be realized from the proposed acquisition of assets. CJOJ-FM and CHCQ-FM would be owned by a resident of Belleville who has both the resources and experience to ensure that the stations serve the needs of the community and offer high quality programming. The Commission finds that the proposal meets the objectives of the Broadcasting Act.

16.

Accordingly, the Commission approves the applications by John Sherratt, OBCI, for authority to acquire the assets of CJOJ-FM and CHCQ-FM, and for broadcasting licences to continue the operation of these stations.

Issuance of the licences

17.

The Commission will only issue the licences once:

· the vendor has surrendered the current licences to the Commission; and

· the Commission has received documentation establishing that an eligible Canadian corporation has been incorporated in accordance with the applications in all material respects.

18.

The licences will expire on the current expiry date for each station: 31 August 2005 for CJOJ-FM, and 31 August 2006 for CHCQ-FM. The licences will be subject to the conditions set out in New licence form for commercial radio stations, Public Notice CRC 1999-137, 24 August 1999.

19.

Consistent with Decision 2000-155, it is a condition of CHCQ-FM's licence that, in addition to its commitments under the CAB's plan for Canadian talent development, the licensee make direct contributions to Canadian talent development of at least $2,000 in each broadcast year.

20.

Also consistent with Decision 2000-155, the Commission expects the licensee to fulfil CJOJ-FM's current commitment to allocate at least $2,000, in each broadcast year, to expenditures on Canadian talent development.

21.

The Commission reminds the licensee that all of these contributions must meet the Commission's criteria for generally accepted direct expenditures on Canadian talent development, as set out in Appendix I to An FM Policy for the Nineties, Public Notice CRTC 1990-111, 17 December 1990.

Employment equity

22.

In accordance with Implementation of an employment equity policy, Public Notice CRTC 1992-59, 1 September 1992, the Commission encourages the licensee to consider employment equity issues in its hiring practices and in all other aspects of its management of human resources.

Secretary General

This decision is to be appended to each licence. It is available in alternative format upon request, and may also be examined at the following Internet site: www.crtc.gc.ca