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Broadcasting Decision CRTC 2003-122
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Ottawa, 23 April 2003
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Durham Radio Inc.
Oshawa, Ontario
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Applications 2002-0749-0 and 2002-0750-8
Public Hearing at Montréal, Quebec
3 February 2003
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CKGE-FM and CKDO Oshawa - Acquisition of assets
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The Commission approves the applications by Durham Radio Inc. to acquire the assets of the radio stations CKGE-FM and CKDO Oshawa.
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The applications
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1.
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The Commission received applications from Durham Radio Inc. (Durham) for authority to acquire the assets of the radio programming undertakings CKGE-FM and CKDO Oshawa from 591989 B.C. Ltd. (591989), a wholly owned subsidiary of Corus Entertainment Inc. (Corus), and for broadcasting licences to continue the operation of the undertakings.
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2.
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Currently, 591989 operates CKGE-FM in an adult contemporary format that stresses public affairs, and CKDO in an oldies format that features local news and sports. Durham proposed to continue in these formats but, through pooled efforts between its stations, will broadcast programming that would consist of more local news, sports and the promotion of local entertainment and community events relevant to the Oshawa community.
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3.
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The Commission received 16 interventions in support of the applications.
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Introduction
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4.
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In considering these applications, the Commission sought to ensure that the acquisition by Durham of the stations would meet the terms of the Commercial Radio Policy 1998, Public Notice CRTC 1998-41, 30 April 1998 (the Policy) with respect to issues of concentration of ownership as well as benefits packages. The Commission also examined the purchase price to determine whether the proposed sale of assets could constitute licence trafficking.
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Concentration of ownership
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5.
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Durham, which is owned 80% by Douglas E. Kirk, is the licensee of CJKX-FM Ajax. The Commission notes that, under the definition of a market as set out in the Radio Regulations, 1986, CJKX-FM, CKGE-FM and CKDO all operate in the same market.
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6.
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Under the terms of the Policy, a licensee may own up to three commercial radio stations in a market with fewer than eight commercial radio stations in a given language, provided that no more than two stations operate in the same frequency band. Oshawa is such a market.
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7.
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The Commission finds that the acquisition by Durham of the two additional stations that are the subject of this decision would meet the terms of the Policy.
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Benefits
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8.
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Given that CKGE-FM and CKDO have been unprofitable over the five years preceding the filing of this application, Durham has not proposed a benefits package for this transaction. The Policy states that the Commission will forgo benefits requirements for unprofitable undertakings. In light of the above, the Commission finds that Durham is not required to satisfy the benefits requirements at the time of the ownership change.
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9.
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The Commission reminds the applicant that it must fulfil any benefits commitments that the current licensee has not fulfilled.
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Potential for licence trafficking
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10.
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In Acquisition of assets, Decision CRTC 2000-87, 24 March 2000 (Decision 2000-87), the Commission approved an application by 591989 to acquire from Power Broadcasting Inc./Diffusion Power inc. (Power) the assets of Power's radio programming undertakings located in Ontario.
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11.
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The Commission notes that radio broadcasting involves the use of public frequencies. Licences to operate such undertakings are obtained following a public, and often competitive, process. Those with broadcasting licences should use them first and foremost to provide service to the public. Such licences should not be acquired primarily for investment purposes. The Commission is therefore concerned when parties acquire broadcasting undertakings, sell them after a short period of time, and receive significant financial gain from the transaction.
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12.
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Given the relatively short period of time between 591989's purchase of CKGE-FM and CKDO from Power and the proposed sale to Durham, the Commission examined the circumstances of the sale and the extent to which 591989 may have profited from it to determine whether or not the current transaction constitutes licence trafficking.
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13.
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The value of the transaction approved in Decision 2000-87 was $107.5 million. This amount, however, included Corus's purchase of 17 radio stations and 4 television stations from Power. The Commission has used several valuation methodologies, particularly the revenue and Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) multiples, to determine a reasonable value for the Oshawa stations as of 1999. Based on its review, the Commission estimates that $5 million is a reasonable approximation of the price paid by 591989 in 1999 for the two Oshawa stations. The value of the current transaction is $3.9 million.
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14.
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Assuming that $5 million is a reasonable estimate of the value of the two Oshawa stations when they were acquired by 591989 and considering that the stations are being sold to Durham for $3.9 million, the Commission finds that 591989 is not profiting from the sale.
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The Commission's determination
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15.
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The Commission has assessed the three issues discussed above. It finds that the proposed transaction meets the terms of the Policy with respect to issues of ownership and benefits. The Commission also finds that the proposed transaction does not constitute licence trafficking.
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16.
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Accordingly, the Commission approves the application by Durham for authority to acquire the assets of the radio programming undertakings CKGE-FM and CKDO Oshawa from 591989, and for broadcasting licences to continue the operation of the undertakings.
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17.
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The Commission expects the applicant to adhere to its commitment to double the contribution to Canadian talent development set out as conditions of licence in Decision 2000-87. The licences for the newly acquired stations will each therefore be subject to the condition that the licensee will contribute $6,000 annually per station, instead of the existing requirement of $3,000 each, to Canadian talent development. Furthermore, the Commission notes that Durham has also committed to double the amount it contributes to Canadian talent development with respect to its licence for CJKX-FM, from $400 to $800. In sum, for the three stations, Durham committed to contribute $12,800 per year to develop Canadian talent in the Oshawa and Ajax markets through station-sponsored initiatives. A condition of licence to this effect is set out below.
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Issuance of the licences
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18.
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The Commission will issue the licences once the vendor has surrendered the current licences to the Commission.
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19.
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The licences will expire on 31 August 2006, the current expiry date. They will be subject to the conditions of licence set out in New licence form for commercial radio stations, Public Notice CRTC 1999-137, 24 August 1999.
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20.
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The licences will also be subject to a condition of licence that the licensee expend $12,000 each year to develop Canadian talent in the Oshawa market by contributing $6,000 annually on behalf of each of its two newly acquired Oshawa stations, CKGE-FM and CKDO. The Commission further expects the licensee to contribute $800 annually to develop Canadian talent on behalf of its existing Ajax radio station, CJKX-FM.
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21.
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The Commission requires the applicant to submit an executed copy of the following documents:
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- the applicant's revised By-law No. 4, reflecting the applicant's compliance with the requirements set out in Direction to the CRTC (Ineligibility of Non-Canadians), which ensure that, at all times, at least 80 % of the members of Durham's board of directors are Canadian;
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- the applicant's trademark licence agreement between Corus and itself; and
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- the vendor take back note attesting to the availability of part of the required financing for the project.
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22.
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The applicant must inform the Commission of the date on which this transaction has been completed.
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Employment equity
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23.
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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.
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Secretary General
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This decision is to be appended to each licence. It is available in alternative format upon request, and may be examined at the following Internet site: http://www.crtc.gc.ca
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Date Modified: 2003-04-23