ARCHIVED - Broadcasting Decision CRTC 2002-390

Broadcasting Decision CRTC 2002-390

Ottawa, 29 November 2002

CTV Television Inc.
Montréal, Quebec

Application 2001-1378-8
Broadcasting Public Notice CRTC 2002-33
26 June 2002

Licence renewal for CFCF-TV

The Commission renews the licence for CFCF-TV Montréal until 31 August 2008. The Commission also finds that the licensee must assume responsibility for tangible benefits amounting to $800,000 that were approved when WIC Television Ltd. purchased a controlling interest in CFCF-TV in 1997.

Introduction

1.

The Commission received an application by CTV Television Inc. (CTV) to renew the licence for CFCF-TV Montréal. The licence renewals for other CTV television stations were addressed in Licence renewals for the television stations controlled by CTV, Decision CRTC 2001-457, 2 August 2001 (Decision 2001-457). In that decision, the Commission set out conditions of licence that would apply to all of the CTV stations, while conditions unique to particular stations were set out in individual decisions addressing each station.

2.

CFCF-TV was not included in the process leading to Decision 2001-457 because the Commission had not yet approved CTV's application to obtain control of the station. However, now that CFCF-TV is controlled by CTV, the Commission considers it appropriate to adopt the same approach for its renewal as it used for other CTV stations. Consequently, it will make the licence for CFCF-TV subject to the general conditions for CTV stations set out in Decision 2001-457, and will address matters that apply particularly to CFCF-TV in this decision.

3.

The major issue relating to the renewal of CFCF-TV is the extent to which CTV should be responsible for benefits commitments made, but not fully discharged, when CFCF-TV was purchased by a previous owner. This issue is addressed in the following section of this decision. As well, the decision addresses possible spending requirements related to long-form documentary programs.

Responsibility for benefits commitments

Changes of control since the last CFCF-TV licence renewal

4.

In Renewal of licence for CFCF-TV Montréal, Decision CRTC 95-105, 24 March 1995 (Decision 95-105), the Commission renewed the licence for CFCF-TV from 1 September 1995 to 31 August 2002¹. Since the issuance of Decision 95-105, the control of CFCF-TV has changed.

5.

In Decision CRTC 97-484, 22 August 1997 (Decision 97-484), the Commission approved a transfer of control of CFCF-TV to 3321118 Canada Inc., a company controlled by WIC Television Ltd. (WIC).

6.

On 28 October 1999, CanWest Global Communications Corp. (Global) informed the Commission that it had entered into an agreement that would result in Global's acquisition of controlling interests in certain broadcasting undertakings formerly controlled by WIC. This agreement included the acquisition by Global of WIC's controlling interest in CFCF-TV. Because the transaction was expected to close before the Commission's consideration of applications for approval of transactions flowing from the WIC-Global agreement, the Commission was asked to approve a trust arrangement. On 17 December 1999, the Commission approved a trust arrangement to hold the shares formerly held by WIC that Global proposed to acquire, with Mr. L.R. Sherman as the trustee.

7.

In Acquisition by CanWest Global Communications Corp., through its wholly-owned subsidiary CW Shareholdings Inc., of the ownership interests held previously by WIC Western International Communications Ltd. in various conventional television stations and in certain other broadcasting undertakings, Decision CRTC 2000-221, 6 July 2000 (Decision 2000-221), the Commission denied the application to transfer to Global indirect ownership of CFCF Television Inc., the licensee of CFCF-TV. In its application, Global had indicated that it planned to sell CFCF-TV within 12 months after acquiring it. The Commission considered that the public interest would be served by leaving responsibility for the sale of CFCF-TV in the hands of the trustee. The decision, however, approved Global's acquisition of the ownership interests previously held by WIC in various other conventional television stations, as well as in certain other broadcasting undertakings.

8.

The transfer of control of CFCF-TV to its current owner, CTV, was approved in 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, Decision CRTC 2001-604, 21 September 2001 (Decision 2001-604).

9.

In Acceptance of revised benefits package associated with the acquisition of CFCF-TV Montréal, Broadcasting Decision CRTC 2002-40, 15 February 2002 (Decision 2002-40), the Commission approved a revised proposal by CTV for the disbursement of tangible benefits that represented incremental expenditures of $14.15 million rather than the $12.5 million that CTV had originally proposed.

The 1997 benefits package

10.

In its application to acquire CFCF-TV in 1997, WIC proposed a tangible benefits package with a total value of $7 million (the WIC benefits package). The WIC benefits package included the following elements:

• the establishment of a $4 million fund that would be made available to Quebec independent producers to create English-language programs in under-represented programming categories (the production fund). The production fund would be administered by a subsidiary of WIC known as WIC Entertainment Inc., rather than by CFCF-TV itself.

• the purchase of a fully digital mobile production truck (the production truck) costing $3 million to assist in the production of telethons and other live programming.

11.

In Decision 97-484, the Commission accepted the portion of the benefits package related to the production fund, but did not accept the portion of the benefits package related to the production truck. With respect to the production truck, the Commission stated:

In the Commission's view, this expenditure is a normal part of doing business and, thus, falls within the categories of proposed benefits that have generally been rejected as such for the reasons outlined in Public Notice CRTC 1993-68². Consistent with this policy, the Commission expects the applicant to ensure that the expenditures totalling $7 million over the remainder of the licence term, as proposed in this application, are made in accordance with the timetable outlined at the public hearing.

Notwithstanding the disqualification of this amount, the Commission is generally satisfied that the remaining tangible and intangible benefits, taken as a whole, are commensurate with the size and nature of the transaction and that approval of this application is in the public interest.

12.

In a letter to WIC on 10 October 1997, the Commission confirmed to WIC that, even though it would not qualify as a tangible benefit, it still expected WIC to fulfil its commitment to purchase the production truck.

CTV's position with respect to responsibility for the WIC benefits

13.

As part of its examination of the current licence renewal application for CFCF-TV, the Commission questioned CTV about the disbursement of the WIC benefits package since the period for the implementation of the WIC benefits package was coming to an end. The questioning also reflected the Commission's position, set out in Building on success - A policy framework for Canadian television, Public Notice CRTC 1999-97, 11 June 1999 (the television policy), that the purchaser of a broadcasting undertaking must fulfil any of the vendor's outstanding benefits commitments. In reply, CTV submitted that, because WIC Entertainment Inc., the company that was to administer the production fund, had been purchased by Global, CTV had no way of determining the extent to which the required expenditures had been made. It further considered that it should not be responsible for the WIC benefits package for the reasons set out below.

CTV had been denied procedural fairness

14.

CTV noted that the Commission did not question CTV about the status of the WIC benefits package at the time that it applied to purchase CFCF-TV. It submitted that the first time the matter was raised with CTV was six months after the sale had closed. CTV considered that the lack of questioning on the part of the Commission raised a legitimate expectation on the part of CTV that the outstanding portion of the WIC benefits package would not be applied to the transaction.

Previous owners had not been required to fulfil the WIC benefits package

15.

CTV considered that it was unfair for the Commission to require CTV to fulfil the WIC benefits package given that the Commission had not placed the same requirement on the previous owners.

CTV conducted its due diligence under difficult circumstances

16.

CTV submitted that, due to the circumstances of the sale, it had conducted its due diligence examination prior to the acquisition of CFCF-TV with Global, a company that had never owned the CFCF-TV shares and had never operated the station. As such, it was not possible to determine the outstanding amount of the WIC benefits package.

CTV proposed its own benefits package when it acquired CFCF-TV

17.

In accordance with Decisions 2001-604 and 2002-40, CTV is implementing its own tangible benefits package that has a value of $14.15 million. CTV considered that the Canadian broadcasting system was already benefiting significantly from its acquisition and ownership of CFCF-TV.

It would be unfair to require CTV to be responsible for the WIC benefits package as well as its own benefits package

18.

CTV considered that requiring it to implement two benefits packages would amount to "a double payment" of benefits and would not be commensurate with the size and nature of the transaction.

The circumstances surrounding CTV's acquisition of CFCF-TV are unique

19.

CTV submitted that the circumstances set out above surrounding its acquisition of CFCF-TV made this case unique. It also noted that CFCF-TV had experienced five years of ownership turmoil, and that CTV had owned CFCF-TV for only one year of the period to which the WIC benefits package applied. CTV concluded:

Given the exceptional circumstances involved in the 1997 WIC benefits and for all the reasons outlined above, we respectfully submit that it would be unfair and inappropriate to hold CTV responsible for fulfilling the 1997 WIC benefits.

Positions of interveners concerning the WIC benefits package

20.

In Broadcasting Public Notice CRTC 2002-33, 26 June 2002 (Public Notice 2002-33), the Commission announced that it had received CTV's application to renew the licence for CFCF-TV and provided an opportunity for interested parties to comment on the application. Public Notice 2002-33 addressed the WIC benefits package as follows:

The Commission has a longstanding policy requiring purchasers to assume the responsibility of fulfilling any benefits commitments that previous licensees have not fulfilled. Correspondence on the file indicates that CTV has encountered difficulties confirming the extent to which the previous owners had fulfilled the 1997 benefits. For several reasons CTV is unwilling to assume responsibility for discharging these benefits.

21.

In its intervention, The Directors Guild of Canada (the Directors Guild) submitted that CTV must assume responsibility for discharging the WIC benefits package. The intervener considered that allowing CTV not to fulfil the commitment would likely "create a precedent that would result in the elimination of a longstanding and important public policy." The Directors Guild considered that, on the basis of documents on the public record, only $423,430 of the $7 million had been spent, and it was not clear that even that amount met the requirements of Decision 97-484.

22.

The Directors Guild submitted that there was no evidence that the $3 million dollars had been spent on the production truck, and that CTV should either fulfil that commitment or apply to the Commission to redirect the $3 million to other benefits. The Canadian Independent Record Production Association fully supported the position taken by the Directors Guild.

23.

The Canadian Film and Television Production Association (CFTPA) also considered that, if CTV were not required to fulfil the commitments that formed part of the WIC benefits package, the Commission's benefits policy would be at risk. It considered that CTV had sufficient resources to meet unfulfilled past obligations over a new seven-year licence term.

24.

L'association québécoise de l'industrie du disque, du spectacle et de la vidéo (l'ADISQ) expressed concern about the difficulties that CTV and the Commission had experienced in tracking the fulfilment of commitments associated with the WIC benefits package. L'ADISQ considered that the Commission should expand its use of directives and measures such as the submission of annual reports on the fulfilment of commitments related to tangible benefits.

25.

L'Institut des arts de la scène suggested that CTV should be responsible for a proportion of the programming benefits that would reflect the fact that it had only owned the station for one year of the five year benefits period. Since WIC had proposed to devote a total of $4 million over five years to the production fund, the intervener considered that CTV should be responsible for $800,000 of the WIC benefits package.

CTV's reply to interventions

26.

In reply to the concerns expressed by interveners, CTV reiterated the reasons set out earlier concerning why it should not be responsible for the implementation of the WIC benefits package. It further submitted that the circumstances surrounding the sale of CFCF-TV were unique, so adopting CTV's position on the matter would not constitute a precedent with respect to the responsibility of purchasers for benefits packages proposed by previous owners.

27.

CTV disagreed with the Directors Guild's position that there was no evidence that the production truck had been purchased, stating: "CTV understands that $3 million of the WIC benefits package has been satisfied."

28.

CTV further indicated that, in addition to the benefits package it was implementing as required by Decision 2001-604, it was also in the process of making a capital investment of approximately $17 million to relocate, refit and digitize CFCF-TV.

The Commission's analysis

Status of the WIC benefits package

29.

Under the terms of Decision 97-484, the WIC benefits package consisted of two components. The first was the establishment of a $4 million dollar production fund to be made available to independent producers to create English-language programs in under-represented program categories.

30.

CTV submitted three documents from WIC Entertainment Inc. that addressed expenditures on the production fund:

• A WIC Entertainment Inc. memo showing benefit expenditures of $786,467 during 1997-98 related to the production of four programs.

• A WIC Entertainment Inc. document showing total benefits expenditures of $1,036,467 from 1 September 1997 to 31 August 1999. The document did not include a breakdown to indicate the amount spent in each of the two years, or the titles of the programs that were licensed.

• A WIC Entertainment Inc. document showing "adjusted" benefits expenditures totalling $423,430 from 1997 until 30 June 2000. The reduction from the amount in the previous document was due to the fact that WIC Entertainment Inc. was no longer counting expenditures on seasons 3 and 4 of the Emily of the New Moon series toward the fulfilment of benefits.

31.

CFCF-TV also submitted its own list of "under-represented programs" that had been obtained from Quebec producers and broadcast on CFCF-TV.

32.

The Commission considers that WIC Entertainment Inc., which administered the production fund, had the best view of the fund's activities, and accepts the amount set out in the latest WIC Entertainment Inc. document that was filed by CTV. The Commission therefore finds that the production fund spent $423,430 of the $4 million dollars required under Decision 97-484.

33.

The second initiative was the commitment to expend $3 million dollars on the production truck. In Decision 97-484, the Commission indicated that it considered that the production truck was a normal cost of doing business and did not qualify as a tangible benefit according to the criteria outlined in Application of the Benefits Test at the Time of Transfers of Ownership or Control of Broadcasting Undertakings, Public Notice CRTC 1993-68, 26 May 1993 (Public Notice 1993-68). However, consistent with its practice in 1997, the Commission indicated that it still expected WIC to carry out the disqualified initiative. The rationale for this approach was that the benefits package formed an integral part of the application that was placed before the public. The Commission therefore considered that, if a transfer of control were approved, each initiative, including an initiative that was not considered to be a benefit to the broadcasting system, should be implemented as described.³

34.

The Directors Guild submitted that there was no evidence that the $3 million dollars had been spent on the production truck, and that CTV should either fulfil that commitment or apply to the Commission to redirect that amount to other benefits. CTV maintained that the truck had been purchased but had been transferred to Global. The record of the proceeding is unclear with respect to whether or not the production truck was purchased.

CTV's responsibility for the WIC benefits package

35.

The Commission's policy with respect to the fulfilment of benefits commitments made by an undertaking's previous owner is set out in the television policy. Paragraph 26 of the television policy reads as follows:

The Commission considers benefit commitments to be part of a licensee's obligations and, as such, they should be implemented regardless of any subsequent ownership change. The Commission will therefore continue to expect the purchaser of an undertaking to fulfil any of the vendor's outstanding benefit commitments.

36.

In this respect, the television policy was reiterating a policy set out in Public Notice 1993-68 where the Commission stated that it expected "the purchaser of an undertaking to fulfil any benefits commitments that the current licensee of the undertaking has not fulfilled."

37.

Although CTV has not disputed the existence or general applicability of the benefits policy, it cited a number of reasons, set out earlier in this document, why it considered that an exception should be granted in the case of its purchase of CFCF-TV.

38.

The Commission disagrees with CTV's argument that it has been denied "procedural fairness" in this matter. As noted above, the Commission's policy that a purchaser is responsible for the vendor's outstanding benefits commitments is a long-standing one. The WIC benefits package was clearly described in Decision 97-484, which is a public document. Further, in connection with the current application, CTV submitted documents to the Commission related to WIC Entertainment Inc.'s activities with respect to the production fund. At least one of these documents was provided to CTV during the due diligence process. The Commission considers that CTV should therefore have been aware of the existence of the WIC's benefits package and of the Commission's policy requiring the purchaser of an undertaking to fulfil outstanding benefits commitments. The Commission further notes that it never granted permission to either WIC or Global to suspend the funding of the WIC benefits package.

39.

The Commission further considers that the benefits package that CTV must implement with respect to its own purchase of CFCF-TV does not nullify its obligations to fulfil the WIC benefits package. CTV's benefits package fulfils CTV's own obligations under the television policy which states that the Commission 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." It also considers that CTV's expenditures to upgrade CFCF-TV's technical plant are expenditures that have been freely initiated by the licensee to maintain a competitive business.

40.

The Commission does, however, agree with CTV that the transfer of CFCF-TV took place under unusual circumstances. The station was under a trusteeship for nearly two years and it appears that no payments associated with the WIC benefits package were made during that extended time period. The Commission also agrees that CTV's negotiations with Global were unusual in that Global at no point had actually operated the station.

41.

In light of the above, the Commission considers that it is appropriate to assign responsibility to CTV for a proportion of the production fund that reflects the fact that it had only owned the station for one year of the five year benefits period. Since WIC had proposed to devote a total of $4 million over five years to the production fund, the Commission finds that CTV is responsible for $800,000 of the WIC benefits package that was associated with the production fund. It expects CTV to make this expenditure over the new licence term. This expenditure must be over and above CTV's own benefits package that was approved following its purchase of CFCF-TV. The Commission further requires CTV to submit a report on its dispersal of the $800,000 associated with the WIC benefits package concurrent with the filing of each annual return.

42.

With respect to the production truck, the Commission noted earlier in this decision that it is unclear from the record of this proceeding whether the purchase had taken place. Given this uncertainty, and given that the initiative was assessed as not contributing a significant benefit to the broadcasting system in Decision 97-484, the Commission finds that it is not appropriate, under the circumstances, to obligate CTV to fulfil the commitment to purchase the production truck.

43.

The Commission emphasizes that its findings in this proceeding relate to the unique circumstances of CFCF-TV at this time. The Commission's policy that the purchaser of an undertaking must fulfil the vendor's outstanding benefits commitments remains in effect.

Expenditures on long-form documentaries

44.

The Canadian Independent Film Caucus (CIFC) noted that CFCF-TV proposed to spend an average of 0.37% of its total program expenditures on long-form documentaries over the next seven years. The CIFC argued that 1.5% of total television viewing by Canadians was to long-form documentaries. It therefore submitted that CFCF-TV should spend 1.5% of its total program budget on such programming.

45.

In its reply to the CIFC intervention, CTV noted that both CTV and CFCF-TV were strong supporters of long-form documentaries. It noted that the tangible benefits package approved in Transfer of effective control of CTV Inc. to BCE Inc., Decision CRTC 2000-747, 7 December 2000, included a commitment to spend $18 million over seven years for the development of 35 hours of long-form documentaries. CTV also noted that part of the benefits package that CTV proposed when it purchased CFCF-TV was a commitment to spend $7.8 million for the development of the Signature Presentations, which will include long-form documentaries and dramas from Canadian independent producers.

46.

As well, CTV noted that, in the television policy, the Commission eliminated all requirements for expenditures on Canadian programs. It further noted that, in Decision 2001-457, the Commission imposed a requirement on CTV stations to broadcast on average a minimum of eight hours per week of priority programs, which include long-form documentaries, in prime time. CTV considered that, in light of its commitments and the Commission's position set out in the television policy, it would be inappropriate for the Commission to impose a requirement for fixed spending on a particular program category.

47.

As CTV noted, the television policy indicated that the Commission was eliminating expenditure requirements on Canadian programming. The Commission was concerned that such requirements did not provide licensees with the flexibility required to adapt their programming to a highly competitive marketplace. In light of the television policy, and CTV's existing commitments to long-form documentaries, the Commission does not consider that it is necessary or appropriate to impose a requirement with respect to expenditures on long-form documentaries, as the CIFC suggested.

Conclusion

48.

The Commission renews the licence for the television programming undertaking CFCF-TV Montréal. The licence will be subject to the terms, conditions of licence and commitments set out below, as well as to those contained in Decision CRTC 2001-457.

Terms

49.

The licence will be in effect from 1 December 2002 to 31 August 2008. This licence expiry date coincides with that of other CTV stations.

50.

The Commission notes that this licensee is subject to the Employment Equity Act and therefore files reports concerning employment equity with Human Resources Development Canada.

Conditions of licence

51.

In each broadcast year, the licensee shall caption 90% of all programming during the broadcast day, including 100% of all category 1 - News programming.

52.

In addition to the requirements of condition of licence number 7 set out in Appendix 2 to Decision CRTC 2001-457, the licensee shall broadcast in the second year of the licence term an average of 2 hours per week of described Canadian priority programs from categories 7 (Drama) and 2b (Long-form documentary), between 7 p.m. and 11 p.m.

In fulfilling this condition, a minimum of 50% of the required hours must be original broadcasts. Further, the licensee may broadcast up to one hour per week of described children's programming at an appropriate children's viewing time.

Commitments

The Commission notes the licensee's commitment to broadcast on CFCF-TV a minimum level of local programming of 15.5 hours in each broadcast week.

The Commission also note the commitment that CFCF-TV will control $50,000 in annual program development funds which will be made available to independent producers in the Montréal market.

The Commission further reminds the licensee that it must fulfil the tangible benefits package associated with its purchase of CFCF-TV, as set out in Decisions 2001-604 and 2002-40.

Secretary General