ARCHIVED - Broadcasting Decision CRTC 2015-200

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Reference: 2014-609

Ottawa, 19 May 2015

Gestion Appalaches inc.
Thetford Mines and Victoriaville, Quebec

Application 2014-0524-1, received 6 June 2014

Various radio stations in Thetford Mines and Victoriaville - Change in effective control

Subject to certain changes, the Commission approves the application by Attraction Radio inc. (Attraction Radio), on behalf of Gestion Appalaches inc. (Gestion Appalaches), for authority to acquire the shares and change the effective control of Gestion Appalaches.

The Commission finds that the transaction, as modified in this decision, serves the public interest and furthers the achievement of the objectives set out in the Broadcasting Act with respect to the Canadian broadcasting system.

As part of the tangible benefits resulting from this transaction, $374,500 must be expended over the next seven years on initiatives that will provide Canadians with a range of programming choices and Canadian creators with more opportunities to showcase their talent.

To ensure compliance with the Common Ownership Policy, the Commission directs Attraction Radio, as a condition of approval, to file a technical change application by 13 August 2015 to reduce to under 5% the population included in the overlapping area of the primary contours of CKYQ-FM Plessisville and CFDA-FM Victoriaville, as well as to shut down the transmitter CKYQ-FM-1 Victoriaville.

Application

1. Attraction Radio inc. (Attraction Radio), on behalf of Gestion Appalaches inc. (Gestion Appalaches), filed an application for authority to acquire the shares and change the effective control of Gestion Appalaches, pursuant to section 11(4) of the Radio Regulations, 1986 (the Regulations).
2. Gestion Appalaches is the parent company of the following licensees:
   • Radio Mégantic ltée, licensee of CKLD-FM Thetford Mines, Quebec, and its transmitter CJLP-FM Disraeli;
   • Réseau des Appalaches (FM) ltée, licensee of CFJO-FM Thetford Mines, Quebec, and its transmitter CFJO-FM-1 Lac Mégantic; and
   • Radio Victoriaville ltée, licensee of CFDA-FM Victoriaville, Quebec.
3. Attraction Radio is owned by Attraction Média inc. (80%) and Ooük Management Inc. (20%) and controlled by Richard Speer.
4. Gestion Appalaches is a corporation owned by François Labbé (90.91%), Annie Labbé (2.82%) and Fiducie familiale F. Labbé (6.27%). Effective control of Gestion Appalaches is exercised by François Labbé.
5. The proposed transaction will be effected through the transfer of all of the issued and outstanding shares in the share capital of Gestion Appalaches to Attraction Radio.
6. Following the transaction, Gestion Appalaches would be wholly owned by Attraction Radio and controlled by Richard Speer.
7. The Commission received interventions commenting on the application from the Association québécoise de l’industrie du disque, du spectacle et de la vidéo (ADISQ) and Groupe Radio Simard, to which Attraction Radio replied. The interventions and the purchaser’s reply are addressed further in this decision. The public record for this application can be found on the Commission’s website at www.crtc.gc.ca or by using the application number provided above.

Regulatory framework

8. The review of ownership transactions is an essential element of the Commission’s regulatory and supervisory mandate under the Broadcasting Act (the Act). Since the Commission does not solicit competitive applications for changes in effective control of broadcasting undertakings, the onus is on the applicant to demonstrate that approval is in the public interest, that the benefits of the transaction are commensurate with the size and nature of the transaction, and that the application represents the best possible proposal in the circumstances.
9. The Commission must consider each application on its merits, based on the circumstances specific to the application. In addition, the Commission must be assured that approval of a proposed ownership transaction furthers the public interest as expressed in the objectives of the Act.

Public interest

10. The public interest is reflected in the numerous objectives of the Act and the Canadian broadcasting policy set out in section 3(1) of the Act. In the context of its examination of this transaction, the Commission has paid particular attention to the following provision of the Canadian broadcasting policy:

    the programming provided by the Canadian broadcasting system should (i) be varied and comprehensive, providing a balance of information, enlightenment and entertainment for men, women and children of all ages, interests and tastes, (ii) be drawn from local, regional, national and international sources, (iv) provide a reasonable opportunity for the public to be exposed to the expression of differing views on matters of public concern [section 3(1)(i)]

Commission’s analysis and decision

11. The transaction will have a positive impact on the diversity of voices in Canada as the synergies that will result from the transaction will allow Attraction Radio, an independent broadcaster, to solidify its financial situation. The presence of financially robust independent broadcasters:
    • allows the Canadian broadcasting system to provide as diverse and wide a range of programming as possible by offering Canadians of all ages, interests and tastes a balance of information, enlightenment and entertainment programming, as required under section 3(1)(i)(i) of the Act; and
    • promotes the broadcast of differing views on matters of public concern, as required under section 3(1)(i)(iv) of the Act.
12. Further, the transaction will allow the local and regional stations acquired by Attraction Radio to better compete with out-of-market stations from certain adjacent urban centers, thereby fostering the broadcast of local and regional programming, as set out in section 3(1)(i)(ii) of the Act.
13. In light of the above, the Commission finds that this transaction serves the public interest as it will benefit both Canadians and the broadcasting system and furthers the achievement of the objectives of the Act.
14. The Commission’s decision that the proposed transaction, with the changes discussed below, is in the public interest is based on an assessment of the transaction in light of the regulatory framework set out above. In examining the proposed transaction and the interventions received, the Commission focused on the following issues:
    • whether the application complies with the Common Ownership Policy;
    • whether additional measures should be imposed regarding the soliciting of local advertising;
    • whether the calculation of the value of the transaction is appropriate and consistent with general Commission practices and policies; and
    • whether the proposed tangible benefits package is consistent with general Commission practices and policies.

Common ownership policy

15. The Common Ownership Policy for radio^{Footnote 1} sets out a number of objectives, including ensuring the presence of distinct news in the community, ensuring genuine competition and ensuring the diversity of music formats. According to the Commission, limiting ownership of stations in a given market is one of the most effective ways to ensure diversity of voices in a community.
16. Consistent with this policy, in markets with less than eight commercial stations operating in a given language, the Commission permits a licensee to own up to two stations operating in that language in the same frequency band.
17. The guidelines set out in Broadcasting Information Bulletin 2010-341 are used to determine the number of stations serving a particular market. In radio markets where audiences are close together, the Commission must analyze the overlapping areas between stations operating in the same language to determine whether a station serving an adjacent market should be considered a presence in the market in question. The guidelines indicate the following:
    • Where the population in the overlapping area constitutes 15% or more of the population of the market, the existing station will be included when assessing the number of stations operating in a particular language in that market.
    • Where the population in the overlapping area includes less than 5% of the population of the market, the station will generally be excluded when assessing the number of stations operated by that person in a particular language in that market.
    • Where the population in the overlapping area comprises 5% or more, but less than 15% of the market, the Commission will give consideration to the following factors:
      • whether the station in question accepts advertising from local businesses in that market, and
      • whether that station broadcasts news and public affairs coverage of particular interest to listeners in that market.

Victoriaville market

18. Attraction Radio currently owns CKYQ-FM Plessisville and its transmitter CKYQ-FM-1 Victoriaville. It proposed to purchase CFDA-FM Victoriaville and CFJO-FM Thetford Mines, the primary (3 mV/m) contour of which encompasses the Victoriaville market. To comply with the Common Ownership Policy, the purchaser proposed to shut down its transmitter CKYQ-FM-1.
19. The Commission notes that despite the shutdown of this transmitter, CKYQ-FM still represents a third French-language FM presence in that market because:
    • its overlapping area would encompass 8% of the population in the primary contour of CFDA-FM; and
    • Attraction Radio acknowledged that it broadcasts advertising for local businesses in Victoriaville and devotes part of its news and public affairs coverage to matters of specific concern to Victoriaville listeners.

Plessisville market

20. Attraction Radio currently operates CKYQ-FM Plessisville and proposed to purchase CFDA-FM Victoriaville and CFJO-FM Thetford Mines, the primary contour of which encompasses the Plessisville market. CFDA-FM would be considered a third presence in that market because its overlapping area would encompass 29.8% of the population in the primary contour of CKYQ-FM.

Technical change

21. Should this application be approved, Attraction Radio would operate three French-language FM radio stations in both the Victoriaville and Plessisville markets and would therefore be in non-compliance with the Common Ownership Policy. To comply with the policy, it would accept as a condition of approval the filing of a technical change application to reduce to under 5% the population included in the overlapping area of the primary contours of CKYQ-FM Plessisville and CFDA-FM Victoriaville.

Intervention and reply

22. ADISQ expressed concern that the technical change application proposed by the purchaser could cause signal loss for some listeners. ADISQ wondered whether there were other viable solutions to ensure the purchaser’s compliance with the Common Ownership Policy without affecting listeners.
23. Attraction Radio replied that although it had not initially requested an exception to the Common Ownership Policy, it now considers that it would be in the public interest to entertain an exception to the policy to enable listeners in the markets of Victoriaville and Plessisville to continue to have access to the same number of local signals. The purchaser indicated that if the Commission were to determine that an exemption was not appropriate, it would comply with the Common Ownership Policy.

Commission’s analysis and decision

24. The Commission considers that the exception requested by Attraction Radio in its reply is not appropriate because it did not officially make the request and there has been no call for interventions in this regard in the context of this proceeding.
25. While acknowledging ADISQ’s argument that the technical changes will cause signal loss for some listeners, the Commission considers that the benefits of consolidating the independent broadcasters will outweigh the signal loss.
26. To ensure compliance with the Common Ownership Policy, the Commission directs Attraction Radio, as a condition of approval, to file a technical change application by 13 August 2015 to reduce to under 5% the population included in the overlapping area of the primary contours of CKYQ-FM Plessisville and CFDA-FM Victoriaville, as well as to shut down the transmitter CKYQ-FM-1 Victoriaville.

Local advertising

27. In its intervention, Groupe Radio Simard (Radio Simard) expressed concern that Attraction Radio would solicit local advertising in the Saint-Georges market, which is currently served by Radio Simard stations. It therefore requested that the Commission impose a condition of licence that would clearly prohibit the stations to be purchased by Attraction Radio and whose contours overlap those of Radio Simard stations from soliciting advertising outside their respective markets.
28. Attraction Radio replied that this would give Radio Simard a competitive advantage since its stations are not subject to a similar condition of licence.

Commission’s analysis and decision

29. The Regulations define the market of an FM radio station as its 3mV/m contour or the central area as defined by Numeris,^{Footnote 2} whichever is smaller. In this case, the primary (3 mV/m) contour defines the market of CHEQ-FM Sainte-Marie (operated by Attraction Radio) and CKLD-FM and CFJO-FM Thetford Mines (currently operated by Gestion Appalaches).
30. Although the primary contours of these stations overlap those of the Radio Simard stations in Saint-Georges, they do not encompass the city of Saint-Georges. The Commission also notes that these stations are subject to a condition of licence^{Footnote 3} prohibiting them from soliciting local advertising during any broadcast week in which less than one-third of the programming aired is local. In Broadcasting Decision 2014-633, the Commission explained the policy underlying this condition of licence as follows:

    The requirement to devote at least one-third of the broadcast week to local programming before a station can solicit or accept local advertising is based on the policy that a licensee should only be able to generate revenue from a community if it is providing a strong local service.

31. The Commission expects the purchaser to operate its stations in accordance with the current conditions of licence and the policy set out above and considers it unnecessary at this time to impose further regulatory measures regarding advertising.

Value of the transaction

32. Pursuant to the letter of offer dated 28 February 2014, the purchase price is $5 million. The letter also provides that the value of the working capital to be transferred amounts to $550,000 and that an adjustment to the price is expected based on the actual value of the working capital on the closing date. The purchaser indicated that the value of the working capital was $1,731,763 on 28 February 2014. The Commission notes that according to the financial statements, the value of the working capital was $1,782,255 on 31 August 2013.
33. The letter of offer requires Gestion Appalaches and its subsidiaries to be free of debt as of the close of the transaction, and there is no indication that the purchaser will assume any debt. Further, Attraction Radio indicated that it would assume the lease of a vehicle with an estimated residual value of $9,921 and that it would not be necessary to renew the lease to meet the undertaking’s needs.

Intervention and reply

34. ADISQ submitted that the value of the working capital in excess of $550,000 should be included in the transaction value. It noted that the letter of offer provides that if the amount of working capital is higher at the close of the transaction, the purchase price will be increased as follows: the value of the actual working capital shown on the financial statements less $550,000. Since the amount of working capital at closing is unknown, ADISQ encouraged the Commission to proceed in accordance with its practices and take into account the value of the working capital shown on the financial statements of 31 August 2013. ADISQ also noted that Attraction Radio agreed to add to this amount the residual value of a vehicle lease worth $9,921.45. ADISQ therefore concluded that the transaction value should be $6,291,921.45 and that as a result the tangible benefits should be increased.
35. In its reply, Attraction Radio stated that the purchase price adjustment ($1,232,255^{Footnote 4}) should not be added to the value of the transaction. It noted that in Broadcasting Regulatory Policy 2014-459 (the revised Policy), the Commission set out a simplified approach to tangible benefits and determining value of the transaction to exclude working capital not being transferred at closing. Since the working capital being transferred is $550,000, the purchaser was of the view that only this amount should be added to the value of the transaction. Finally, Attraction Radio noted that the revised Policy now excludes vehicle leases and changed its position by stating that the amount of $9,921.45 should not be added to the value of the transaction. Consequently, it indicated that the value of the transaction should amount to $5,550,000.

Commission’s analysis and decision

36. Given that during the proceeding, the possibility of considering this application in light of the revised Policy was not raised and that interested parties did not have an opportunity to comment on the application of the revised Policy to this case, the Commission considers it appropriate to apply the policy that was in effect at the time of the filing. Accordingly, the value of the transaction must include the value of the working capital exceeding the $550,000 amount provided for in the purchase agreement ($1,232,255), as well as the residual value of the leased vehicle ($9,921). 
37. The Commission notes that the working capital adjustment would also be included in the value of the transaction if the transaction were to be evaluated under the revised Policy since it states that working capital is excluded from the value of the transaction (1) if it is not transferred to the purchaser at closing and (2) if the purchase agreement does not provide for any adjustments to the purchase price to account for the working capital. In this case, the purchase agreement clearly states that the purchase price will be adjusted based on the value of the working capital, and the Commission cannot know that value at the close of the transaction.
38. In light of the above, the Commission considers it appropriate to add to the value of the transaction:
    • $1,232,255, which represents the difference between the working capital value set out in the financial statements of Gestion Appalaches for 31 August 2013 ($1,782,255) and $550,000; and
    • $9,921, which represents the residual value of the vehicle lease.
39. The Commission therefore adjusts the value of the transaction as follows:

Value of the transaction

Proposed tangible benefits package

40. In applications involving transfers in ownership or control of radio undertakings, applicants must demonstrate that the transaction would yield significant and unequivocal benefits for the Canadian broadcasting system. This objective is articulated in the Commission’s tangible benefits policy,^{Footnote 5} which established that contributions proposed as tangible benefits should represent a certain percentage of the value of the transaction as a substitute for a competitive licensing process.
41. Consistent with the Commission’s policy on tangible benefits, parties seeking to acquire ownership or control of profitable radio undertakings are expected to propose a tangible benefits package equal to no less than 6% of the value of transaction. In accordance with this policy, Attraction Radio proposed in its application a tangible benefits package of $300,000 and added $595 to account for the vehicle lease.
42. In accordance with the allocation formula for tangible benefits set out by the Commission in the Campus and community radio policy^{Footnote 6} and maintained in the revised policy, Attraction Radio proposed to allocate the total tangible benefits over seven broadcast years as follows:
    • 3% to Fonds RadioStar;
    • 1.5% to MUSICACTION;
    • 1%, at the purchaser’s discretion, to any eligible Canadian content development (CCD) initiative; and
    • 0.5% to the Community Radio Fund of Canada.

Intervention and reply

43. ADISQ maintained that Attraction Radio should specify which eligible CCD initiatives (the discretionary 1%) it intended to fund given that the Commission sometimes determines that certain initiatives are not eligible.
44. The purchaser indicated that it had not provided details on initiatives to avoid having to file several applications with the Commission to reallocate amounts. According to Attraction Radio, flexibility with respect to the initiatives funded is necessary given that over a period as long as seven years, they can disappear or change without notice.

Commission’s analysis and decision

45. With respect to ADISQ’s intervention, the Commission does not generally require applicants to provide details regarding the initiatives they intend to fund as part of applications for changes in effective control. However, in accordance with Broadcasting Public Notice 2006-158 (the 2006 Commercial Radio Policy), they do have to provide those details when filing their annual returns.
46. In light of the value of the transaction as revised by the Commission, the Commission directs the licensees belonging to Gestion Appalaches to pay a tangible benefits package totaling $374,500 (6% of the revised value at $6,242,176) in accordance with the allocation formula set out above in equal annual payments of $53,500 over the next seven broadcast years. The licensees are responsible for ensuring that the discretionary portion (1%) of the tangible benefits contribution is allocated to third parties eligible for CCD funding, as set out in the 2006 Commercial Radio Policy.
47. The funded initiatives will provide Canadians with a range of programming choices and Canadian creators with more opportunities to showcase their talent.

Conclusion

48. In light of all of the above and subject to certain changes and the condition of approval set out at paragraph 26 of this decision, the Commission approves the application by Attraction Radio inc., on behalf of Gestion Appalaches inc., for authority to acquire the shares and change the effective control of Gestion Appalaches. Attraction Radio must comply with the terms and conditions in effect under the current licences. The transaction as modified in this decision serves the public interest and furthers the achievement of the objectives set out in the Act with respect to the Canadian broadcasting system.

Employment equity

49. In accordance with Public Notice 1992-59, the Commission encourages the licensees to consider employment equity issues in their hiring practices and in all other aspects of their management of human resources.

Secretary General

Related documents

• CFLZ-FM Fort Erie - Licence amendment, Broadcasting Decision CRTC 2014-633, 8 December 2014
• Simplified approach to tangible benefits and determining the value of the transaction, Broadcasting Regulatory Policy CRTC 2014-459, 5 September 2014
• Campus and community radio policy, Broadcasting Regulatory Policy CRTC 2010-499, 22 July 2010
• Revised guidelines for the application of the Common Ownership Policy for Radio, Broadcasting Information Bulletin CRTC 2010-341, 4 June 2010
• Conditions of licence for commercial AM and FM radio stations, Broadcasting Regulatory Policy CRTC 2009-62, 11 February 2009
• Diversity of voices - Regulatory policy, Broadcasting Public Notice CRTC 2008-4, 15 January 2008
• Commercial Radio Policy 2006, Broadcasting Public Notice CRTC 2006-158, 15 December 2006
• Commercial Radio Policy 1998, Public Notice CRTC 1998-41, 30 April 1998
• Implementation of an employment equity policy, Public Notice CRTC 92-59, 1 September 1992

* This decision is to be appended to each licence.

Date modified:

2015-05-19