ARCHIVED -  Transcript / Transcription - Gatineau, Quebec - 2004-06-07

Various broadcasting applications /

Plusieurs demandes en radiodiffusion

HELD AT: TENUE À:

Conference Centre Centre de conférence

Ooutaouais Room Salle Outaouais

Portage IV Portage IV

140 Promenade du Portage 140, promenade du Portage

Gatineau, Quebec Gatineau (Québec)

June 7, 2004 Le 7 juin 2004

Transcripts

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

Transcription

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès-verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.

Various broadcasting applications /

Plusieurs demandes en radiodiffusion

BEFORE / DEVANT:

Andrée Wylie Chairperson / Présidente

David Colville Commissioner / Conseiller

Ronald Williams Commissioner / Conseiller

Jean-Marc Demers Commissioner / Conseiller

Joan Pennefather Commissioner / Conseillère

ALSO PRESENT / AUSSI PRÉSENTS:

Sylvie Jones Legal Counsel /

Conseillere juridique

Mike Amodeo Hearing Team Leader /

Chef d'équipe de l'audience

Pierre LeBel Secretary / Secrétaire

HELD AT: TENUE À:

Conference Centre Centre de conférence

Ooutaouais Room Salle Outaouais

Portage IV Portage IV

140 Promenade du Portage 140, promenade du Portage

Gatineau, Quebec Gatineau (Québec)

June 7, 2004 Le 7 juin 2004

PAGE / PARA

PHASE I

PRESENTATION BY / PRÉSENTATION PAR:

Newcap Inc. (CJLB-FM) 7 / 42

C.J.S.D. Incorporated (CKPR & CJSD-FM) 8 / 53

Newcap Inc. (CHTN) 88 / 595

Maritime Broadcasting System Ltd. (CFCY & CHLQ-FM) 95 / 635

Newcap Inc. (CHNO-FM) 199 / 1301

Rogers Broadcasting Limited

(CJMX-FM, CJRQ\FM & CIGM) 211 / 1365

Gatineau, Quebec / Gatineau (Québec)

--- Upon commencing on Monday, June 7, 2004

at 0930 / L'audience débute le lundi

7 juin 2004 à 0930

1 THE CHAIRPERSON: A l'ordre, s'il vous plaît. Good morning, ladies and gentlemen, and welcome to our public hearing.

2 Bonjour, mesdames et messieurs. Nous vous souhaitons la bienvenue à notre audience.

3 My name is Andrée Wylie and I am the Vice-Chair of Broadcasting at the CRTC. I will be chairing this hearing.

4 Joining me on the Panel are my colleagues: to my right, David Colville, who is the Vice-Chair of Telecom and Regional Commissioner for the Atlantic.

5 To Mr. Colville's right is Ron Williams, who is Regional Commissioner for Alberta and the Northwest Territories.

6 As well, to my left if Commissioners Jean-Marc Demers and Joan Pennefather.

7 The Commission team working with us includes Mike Amodeo, who is the Hearing Team Leader; Sylvie Jones, Legal Counsel; and Pierre LeBel, Hearing Secretary.

8 Please don't hesitate to speak with them if you have any questions about procedure.

9 First, we will hear the first nine licence renewal applications in Broadcasting Notice of Public Hearing CRTC 2004-3. These applications for licence renewal deal, in particular, with business agreements entered into or contemplated between broadcasters in the same markets; specifically, local management agreements or local sales agreements.

10 The Panel intends to study the appropriateness of these business agreements or arrangements while ensuring that broadcasters involved continue to offer diversity in programming and to preserve the independence of news sources.

11 In particular, we will be studying existing or proposed agreements for the Thunder Bay, Charlottetown, Sudbury and Halifax markets.

12 We will also be looking at the possibility of putting in place mechanisms or safeguards in order to promote the diversity of voices and to ensure that the licensees involved continue to meet their regulatory obligations.

13 To this effect, the Commission could impose conditions of licence in accordance with Section 11.1 of the Radio Regulations, 1986, in order to permit licensees to operate their stations consistent with the terms of certain business arrangements.

14 We will then look at the application for the licence renewal of CKEY-FM Fort Erie and its transmitter in St. Catharines.

15 In response to the initial publication of a notice of this application in 2002, the Commission received an intervention alleging that CKEY-FM's programming originated from a studio in Buffalo, New York. The Commission then questioned the licensee, CJRN 710 Inc. and republished the application in 2003.

16 In response, it received new interventions alleging that the station's programming had an American orientation and was dependent on an American broadcaster.

17 The Commission then reviewed the new information that had been provided by the licensee, as well as excerpts from the programming broadcast by CKEY-FM.

18 During the course of this hearing the Panel intends to discuss with the licensee its compliance with the station's condition of licence with regard to advertising and local programming.

19 We also intend to discuss with the applicant its compliance with certain requirements of the Radio Regulations with regard to program logs, music lists and the broadcasting of Canadian musical selections.

20 Finally, the Panel will examine the issue of the licensee's control of the radio station or its programming.

21 Finally, we will look at the application presented by Brian Cooper and Daniel McCarthy to operate a new English-language commercial FM radio station in Kincardine, as well as transmitters in Goderich and Port Elgin, Ontario -- which I think has changed its name to Saugeen Shores.

22 We will follow that with the application from Bayshore Broadcasting Corporation to operate a new English-language commercial FM radio station in Port Elgin.

23 These two applications are competing for the use of frequency 97.9 in Port Elgin.

24 We expect this hearing to take approximately three days. We will begin each day at 9:00 a.m. and adjourn at approximately 5:00 p.m. We will let you know as soon as possible if there are any changes to the schedule.

25 You must turn off your cell phones and beepers while you are in the hearing room as they are an unwelcome distraction for participants and Commissioners. We are counting on your cooperation in this regard at all times. Please pass on the message to those who are not here yet, and maybe your colleagues.

26 Before beginning the hearing, I invite the Secretary, Mr. LeBel, to explain the procedures that we will be following.

27 Mr. LeBel.

28 MR. LeBEL: Thank you, Madam Chair.

29 Before we begin, just a few housekeeping matters.

30 First, I would like to indicate that the Commission's examination room is located in the Papineau Room adjacent to the hearing room. Public files of the applications being considered at this hearing can be examined there.

31 The telephone number, as indicated in the agenda, is Area Code 819, 953-3168.

32 Second, there is a verbatim transcript of this hearing being taken by the court reporter at the table to my left, in the centre. If you have any questions about how to obtain all or part of the transcript, please approach the court reporter during a break for information.

33 Madam Chair, we will proceed with the appearing items on the agenda.

34 As you have indicated, Madam Chair, we will hear the first nine applications market-by-market, starting with the Thunder Bay market, then Charlottetown, Sudbury and, finally, the Halifax-Dartmouth markets.

35 We will hear the applicants in each market before proceeding to the questions, and the applicants will be given 20 minutes each to make their presentation.

36 Applicants are also expected to be available for Phase III to respond to the interventions submitted to their applications or to answer any further Commission questions concerning non-appearing interventions.

37 Madam Chair, we will now proceed with Items 1 and 2 on the agenda, which are applications by Newcap Inc., to renew the licence of the commercial radio programming undertaking CJLB-FM Thunder Bay, expiring 31 August 2004; and an application by C.J.S.D. Incorporated to renew the licence of the commercial radio programming undertakings CKPR and CJSD-FM in Thunder Bay, expiring 31 August 2004.

38 Appearing for Newcap Inc. is Mr. Rob Steele, and Mr. Steele will introduce his colleagues.

39 Appearing for C.J.S.D. Incorporated is Mr. Fraser Dougall, and Mr. Dougall will introduce his colleagues.

40 You have 20 minutes each to make your presentation.

41 THE CHAIRPERSON: Good morning.

PRESENTATION / PRÉSENTATION

42 MR. R. STEELE: Good morning.

43 Madam Chair, Members of the Commission and Commission staff, I am Rob Steele, President and Chief Executive Officer of Newcap Radio. I apologize for the order on the presentation. It is a little different.

44 To my left is Mark Maheu, who is Executive Vice-President and Chief Operating officer of Newcap Radio.

45 Behind me is Peter Steele, Vice-President of Industry affairs with Newfoundland Capital. Next to him is Dave Murray, who is Vice-President of Operations.

46 And directly behind me is Tom Manton, who is Vice-President of Sales for Newfoundland Capital.

47 MR. MAHEU: We recognize that the Commission has requested us to appear here today to discuss our request to continue the LMA in effect between CJLB-FM and CKPR-AM and CJSD-FM in Thunder Bay.

48 As the Commission knows, on Friday Newcap Radio filed a letter with the Commission indicating that we wished to withdraw our request to continue the LMA with C.J.S.D. Incorporated. The agreement with C.J.S.D. calls for Newcap to provide 12 months' notice of termination.

49 Accordingly, we have sent a letter to C.J.S.D. on Friday, June 4, 2004 giving our 12 months' notice.

50 In our letter on Friday to the Commission, we requested that we be permitted to operate under the LMA for an additional nine months past the date of the expiry of the licence to give us time to wind up our LMA.

51 We would be pleased to reply to any questions you may have.

--- Pause

52 THE CHAIRPERSON: We will now hear your presentation.

PRESENTATION / PRÉSENTATION

53 MR. DOUGALL: Thank you. Sorry for the delay.

54 Good morning, ladies and gentlemen of the Commission. My name is Fraser Dougall and I am the President of C.J.S.D. Incorporated, which is applying for licence renewals of CKPR and CJSD-FM in Thunder Bay.

55 I would like to spend my 20 minutes by introducing my two colleagues, give a short bio on each, make a few remarks about the company's history and its current position in the Thunder Bay market, invite each of my two colleagues to make a brief comment and then provide some concluding remarks of my own.

56 With me today is Mr. Kevin Klein, Vice-President and General Manager of C.J.S.D. Inc. and Mr. Donald Caron, Chief Financial Officer.

57 580 CKPR has a long and distinguished career in Thunder Bay dating back to 1931, and CJSD-FM has an equally distinguished reputation dating back to 1948. Ownership of the stations has been consistent since 1931 and it is probably one of the rare situations in Canada with such long-term ownership stability.

58 Great pride is taken in the outstanding contributions made to the community consistently for well over 70 years. I would like to ask that this great contribution be allowed to continue for at least the next seven years with licence renewals for the maximum period allowed.

59 I would now like to introduce Mr. Kevin Klein, Vice-President and General Manager of C.J.S.D. Inc. to elaborate on this contribution.

60 Mr. Klein, I would like to point out, is deeply involved in the community as a relative newcomer but in keeping with the culture of my company. Mr. Klein is a former newspaper publisher, and in our community Kevin is a member and a newly elected director of the Port Arthur Rotary Club. He is involved with several organizations, founding director of Leadership Thunder Bay, a member of the Martial Arts Committee, the Parent Advisory Board for Norwester School, a member of the CAB Small Market Advisory Committee.

61 He is involved with local sports as soccer and hockey coach for youths and a registered official with Hockey Northwestern Ontario.

62 Mr. Klein, please.

63 MR. KLEIN: Thank you. Good morning.

64 I am going to address a couple of the benefits and first the community benefits of C.J.S.D. Incorporated.

65 C.J.S.D. stations have helped raise over $2 million. Attached in the package you received this morning are some letters that you can read at your leisure. In the last calendar year that $2 million has been raised for local charitable organizations.

66 Recently we used our combined forces to raise over $60,000 cash for two local families whose children required organ transplants and financial assistance. Our combined efforts touched the entire city and the lives of many during a ten-hour period. Again inside that package a letter is attached.

67 C.J.S.D. stations are able to promote diverse forms of music and arts -- letters are attached to that as well -- including the promotion of school performances, concerts, and on-air programming featuring local artists and the incredible development of East Indian music in our region.

68 Our stations strive to develop local talent. One initiative was the release of a CD called "Thunder Bay's Own", which you have copies of, featuring singers in the community we serve between the ages of 16 and 25.

69 One of those performers on the CD has also made it through the top 130 of "Canadian Idol". We are pretty proud of that.

70 Our stations have been able to donate in excess of $100,000 cash to enhance the teaching of music in area schools.

71 Advertising benefits of the C.J.S.D. stations: our stations made it possible to provide an option for local business owners to the monopoly of the daily newspaper. As a former publisher, I can attest to the fact that daily newspapers dominate the advertising market in many small to medium communities across Canada. When stations are fragmented in their sales efforts, the benefits of broadcast advertising do decrease.

72 The daily newspaper monopoly in Thunder Bay boost sales of $17 million in revenues, compared to $5.8 million earned among the five radio stations in Thunder Bay.

73 Together we provide competitive full market advertising opportunities to small local business operators, thus improving their reach and the rate of success for broadcast advertising.

74 According to Statistic Canada, Thunder Bay's out migration will continue to have an impact on the community we serve.

75 Statistics indicate that 1.8 people a day are leaving our community, and a recent published article now claims that three people a day are leaving our region. This affects marketing locally and nationally. As a group of stations, we provide the options necessary to effectively sell advertising in a shrinking community.

76 The recent introduction of competition, two small Low Power FMs had an immediate negative impact on the rate and reduced revenues on a per station basis of $4.00 per point.

77 The benefits to the community of C.J.S.D.

78 Our stations provide the best local news coverage for the community we serve. Presently, as an LMA, we have ten reporters to cover the region. Independently this may not be possible.

79 Our stations provide more live news coverage of local events, double that of our competitors and 30 per cent than the local CBC station.

80 One of our stations, 580 CKPR, is the only commercial station in the country to air University Hockey games, which showcases the talents of our young people living in the community we serve -- the Thunder Wolves.

81 A further defining characteristic of our programming is the extent to which we have achieved interactivity with our audiences with Thunder Bay's only phone-in shows, opinion polls, editorials, phone-in classifieds and radio messaging to remote seasonal residents -- with all of the above reflected in our outstanding Internet sites which are heavily accessed by the citizens we serve.

82 One site was recently recognized as Central Canada's Best News site by the RTNDA.

83 Do our stations benefit the community?

84 Yes. We have received no negative interventions.

85 Yes. We have received positive letters of support from the community, given our commitment to the people we serve.

86 Yes. Our station's diverse programming has given special interest groups the opportunity to be heard.

87 Yes. With the support our stations have been able to give charitable organizations, we have played a key role in the development and continuation of many community events.

88 In closing for me, the Commission's introduction of the LMA had a positive impact on our business and improved the quality of life in our community through shared resources. The Commission's LMA has created the ability to provide diverse programming, more local news coverage, enhanced community involvement and grown the careers of several broadcast professionals and their families.

89 The Commission introduced a beneficial strategic plan with the LMA, beneficial to broadcasters and the people we serve.

90 MR. DOUGALL: Thank you, Kevin Klein.

91 I would now like to speak to the issue of the LMA as requested in the CRTC Notice dated May 27th requiring us to do so.

92 It is my understanding that the local management agreements were created in conjunction with the Commission to allow radio licensees to reduce operating overheads, regain financial viability and at the same time maintain or increase diversity in local programming.

93 As we all acknowledge, local radio service is an essential component in the Canadian Broadcasting system, and the LMA has been critical in the maintenance of local service and the creation of programming diversity in Thunder Bay. This LMA has been about sales and administration efficiencies with programming control remaining separate and distinct.

94 We wish to advise the Commission that we are in full compliance with the requirements of the Commission for the maintenance of separate, distinct news and other programming services and management thereof, as well as for the retention of ownership and effective control of its undertakings.

95 This full compliance can be demonstrated both in terms of contractual compliance imbedded within the LMA Agreement itself, as well as in the terms of the operational compliance, the day-to-day management and implementation of the agreement.

96 Prior to the LMA model, the CRTC itself challenged the industry to make proposals and commitment to cure the radio "illness". We did and it worked.

97 The LMA policy initiative has effected a clear reversal of the conditions that the LMA was designed to address. Thunder Bay is the Commission's "Success Story".

98 The market conditions and propensities that spawned the LMA in the first place have not changed. What did change were the tools available to local radio through the LMA to address them, and I thank the Commission for that opportunity.

99 I can confidently say that it is Mission Accomplished.

100 And now I would like to introduce Mr. Donald Caron, Chief Financial Officer of C.J.S.D. Incorporated, and once again just give you, believe me, a small indication of just how deeply imbedded in the fabric of society in Thunder Bay we are.

101 Don Caron has been a member of the board of directors and student advisor of Junior Achievers for many, many years; on the Board of Trustees of St. Joseph's Hospital and chairperson; many years on the Lakehead University Board of Governors and various committees; a long-standing member of St. Margaret's Church and Parish Council, including many committees; and is presently on the St. Joseph's Foundation of Thunder Bay -- Thunder Bay's largest care group, by the way, far exceeding the size of any other publicly owned hospital -- on the Board of Directors and various committees; and is hopefully smiling back there, because last week as the Chair of the Hogarth Riverview major fund-raising campaign, they just successfully met their goal of $2.5 million.

102 Mr. Caron, please.

103 MR. CARON: Thank you and good morning.

104 I would like to give a brief financial history of the Thunder Bay market.

105 Prior to the introduction of the management agreement, all three commercial radio stations were financially unstable, and the history of instability and attendant operating losses is on record with the CRTC.

106 The CRTC itself noted in relation to the Thunder Bay market (May 1999 submission) -- and I quote:

"Unfortunately, competition among various types of media (e.g. Radio, Television and Print Media) for shrinking advertising revenue has had a serious negative impact on the Radio industry, particularly in smaller markets like Thunder Bay."

107 Following the implementation of the management agreement in March of 1995:

108 Both licensees achieved a satisfactory level of profitability. Six consecutive years of operating losses were replaced by a loss in the transition year and four consecutive years of moderate profitability following the transition year (1995).

109 In conclusion, the relevant financial facts that supported the LMA agreement of March 1995, the CAB submission of 1996, the submissions by C.J.S.D. Incorporated April 2000 and Newcap Inc. highlighting the economics of the LMA, the interventions to application 2002-0479-3 and the CRTC Broadcast Decision, CRTC 2003-487 all support the need in the Thunder Bay market for the continuation of the LMA to ensure the economic viability of the radio broadcast operations.

110 MR. DOUGALL: Thank you, Donald Caron.

111 The Commission is aware that my partner in the LMA, Newcap Broadcasting, has served notice that it wishes to cancel the LMA. That being the case, we request that the LMA as a condition of licence be extended to the time when the LMA will expire as per the conditions of notice of termination in the LMA contract.

112 In closing, Madam Chair, I note that there are absolutely no negative interventions to the licence renewal application for 580 CKPR and CJSD-FM and that there is substantial support for renewal.

113 We respectfully request a licence renewal term of seven years, and I thank the Commission for the opportunity to appear before you this morning.

114 Thank you.

115 THE CHAIRPERSON: Thank you, gentlemen, and good morning to all of you.

116 Before we start, I think it is important to remember that an LMA, or local sales agreement, are consensual agreements between parties.

117 In your presentation, Mr. Klein, you say that it is your understanding that local management agreements were created in conjunction with the Commission. I think they were created with the permission or the acknowledgement of the Commission, but it is not, I don't think, a Commission endeavour. It is a contract between he parties.

118 When these consensual agreements are no longer consensual, we may have some questions, some concerns, but it is not our agreement. It is yours, albeit in 1995 we were satisfied with the terms of it with regard to our regulatory responsibilities.

119 We acknowledge, of course, the receipt on June 4th of the letter from Newcap indicating:

120 (1) it was withdrawing its request for a condition of licence authorizing the continuation of the LMA pursuant to section 11.1 of the Radio Reg; and

121 (2) it was requesting the extension of the LMA for a further six months -- I guess it is clarified now to nine months because the expiry of the licence is at the end of August -- and copying the Commission with a notice of termination sent to C.J.S.D., the partner, pursuant to Clause 3.2 of the agreement between the parties, which requires 12 months' notice.

122 I see, Mr. Dougall, that you acknowledge having received this notice, and I take it that you agree that Clause 3.2 allows Newcap to give you this notice and to terminate the LMA.

123 MR. DOUGALL: Yes, I do.

124 THE CHAIRPERSON: In this letter, Mr. Steele, the request is for a further six months, but now nine months, and 12 months' notice. So it would be nine months from August 31st.

125 MR. DOUGALL: That is correct, yes.

126 THE CHAIRPERSON: Since the notice was given in June.

127 MR. DOUGALL: Yes.

128 THE CHAIRPERSON: The notice also postulates, Mr. Dougall, earlier, if agreed to by both parties.

129 Any possibility of that?

130 MR. DOUGALL: Well, possibilities are endless in this business. We haven't seriously had time to address that at this point. The notice just came no more than a matter of hours ago, Friday morning for us.

131 THE CHAIRPERSON: At the moment we are going to proceed on your agreement that it would be terminated next June?

132 MR. DOUGALL: That is the only understanding that we have at this point.

133 THE CHAIRPERSON: Clause 14.4 of this agreement indicates that the agreement constitutes the entire agreement between parties.

134 Is that still the case -- this was of course in 1995 -- that the agreement we have before us is the only agreement between the parties, Mr. Steele?

135 MR. R. STEELE: Yes, that is the case.

136 THE CHAIRPERSON: You would agree, Mr. Dougall?

137 MR. DOUGALL: Yes, I do.

138 THE CHAIRPERSON: Do either of you have any other radio station in the market concern with whom there is an agreement that would possibly fall within the definition of 11.1 of the Regulations?

139 MR. DOUGALL: Being an LMA?

140 THE CHAIRPERSON: Or a local sales agreement, or any agreement that could arguably fall under the definition of an agreement as defined in the Regulations.

141 MR. DOUGALL: Yes. In my case of C.J.S.D. Incorporated, we have a local sales agreement with one of the newly licensed low power stations in the region.

142 THE CHAIRPERSON: More than one?

143 Which stations would you have a sales agreement with?

144 MR. DOUGALL: It is not more than one; it is just one. With one of the --

145 THE CHAIRPERSON: With Northwest Broadcasting?

146 MR. DOUGALL: Yes. CFQK.

147 THE CHAIRPERSON: CFQK-FM.

148 You will see, as we proceed with this hearing, that a local management agreement that is called that between the parties may not be the only agreements that we feel fall within the Regulations.

149 Have you had a look at the definition of a local management agreement that falls within the Regulations in the last --

150 MR. DOUGALL: Can you refer me to a particular source?

151 THE CHAIRPERSON: 11.1 of the Regulations.

152 MR. DOUGALL: I don't have one in front of me.

153 THE CHAIRPERSON: You are here for renewal of your licence, and any separately from the arrangements with Newcap, if you have an arrangement that falls within that definition with another station, it would be of some concern of course to the Commission if you are not applying along with this station for authority to have it.

154 MR. DOUGALL: Right.

155 THE CHAIRPERSON: It means:

"... an arrangement, contract, understanding or agreement between two or more licensees ... that relates directly or indirectly to any aspect of the management, administration or operation of two or more stations that broadcast in the same market."

156 So we will be discussing local sales agreement, for example, as well as possibly requiring permission, authorization from the Commission.

157 You will be here throughout the hearing?

158 MR. DOUGALL: We hope to be.

159 THE CHAIRPERSON: As we proceed further into the discussion of what it is the Commission considers falls within that section, at reply stage you may have something to tell us about the ability of the Commission to renew your licence for seven years without addressing this other arrangement you have with this party, unless you have some way at the moment to explain to us the extent to which it doesn't fall within the definition that I just read you.

160 MR. DOUGALL: Might I have a few moments to consider that -- not right now but during the course of the next hour or two?

161 THE CHAIRPERSON: Yes. And perhaps in reply you can get back to us.

162 You will have heard discussions with the parties. Just calling the arrangement something else may not take it out of that definition.

163 As a preliminary matter, do you actually have a written agreement with that station?

164 MR. DOUGALL: Yes, we do, and I do believe we did it in consultation with some Commission staff. They have been apprised, if not having a copy of the sales agreement itself.

165 THE CHAIRPERSON: Yes. You can certainly follow up on the discussion.

166 As you know, the way the Regulations work now is that authorization from the Commission is required since 1999 when the Regulations were amended. So whether it is with Newcap or another station, if it falls within that definition, it would require our approval.

167 What is the agreement called?

168 MR. DOUGALL: It is called a local sales agreement.

169 THE CHAIRPERSON: We can pursue that and perhaps have further questions at reply.

170 In the letter that the Commission received Newcap states that it has no wish to enter into any further agreement with C.J.S.D. or any local sales agreement.

171 Mr. Steele, if I read from the agreement, it says that Newcap -- and I quote:

"... does not wish to enter into a local sales agreement or any other business arrangement with C.J.S.D. Incorporated subsequent to the dissolution of the LMA."

172 Would you accept my addition of the words "formal or informal" after "any other business arrangement" so that it would read:

"... any other business arrangement, formal or informal, with C.J.S.D. Incorporated."

173 MR. R. STEELE: I will let Mr. Maheu answer that.

174 MR. MAHEU: We would have no objection to the addition of the words "formal or informal".

175 THE CHAIRPERSON: Yes, because there are some cases where arrangements that are not translated into a written contract are possible.

176 So you would have no problem with that.

177 MR. DOUGALL: Madam Chair, may I interject at this point?

178 THE CHAIRPERSON: Yes.

179 MR. DOUGALL: I think it is maybe useful in your considerations to understand that since 1944 we have had informal agreements with Newcap's predecessors and continue with them in arrangements other than what you may be considering as normal business arrangements; namely, the rental of tower space and equipment, and so forth, that may inadvertently get caught up in your definitions here.

180 THE CHAIRPERSON: That is an interesting comment.

181 What do you suggest that we could add to exclude those?

182 MR. DOUGALL: I would hate to suggest off the cuff right now; I'm sorry.

183 THE CHAIRPERSON: What you want to say, I assume, Mr. Steele, with regard to the operation of the station's activities would then exclude the problem that Mr. Dougall has just raised?

184 MR. MAHEU: If I may, Madam Chair?

185 THE CHAIRPERSON: Yes.

186 MR. MAHEU: When I on behalf of Newcap said that we would not have a problem with the Commission adding "formal or informal", we were operating on the assumption that you meant specifically or directly activities or processes that went to sales.

187 THE CHAIRPERSON: To the operation of the station.

188 MR. MAHEU: Yes, to the central operations of the station that are generally within the purview of the Broadcasting Act. Tower location, rental agreements, and things like that tend not to be.

189 THE CHAIRPERSON: As long as the understanding is that with regard to the activities, no formal or informal agreements, because there are sometimes informal agreements that may well still fall within the definition of local management agreements.

190 MR. DOUGALL: Madam Chair, may I point out, though, that nothing is more fundamental to operations than the transmission itself.

191 THE CHAIRPERSON: So what would be the words?

192 MR. DOUGALL: I honestly don't know at this point.

193 THE CHAIRPERSON: We will find some way of not --

194 MR. DOUGALL: This just came up, so I am sure there is a way to make a distinction between the various areas.

195 THE CHAIRPERSON: You will be on the record explaining these technical arrangements are not related to the sales or the programming output of the station.

196 MR. DOUGALL: All right; thank you.

197 THE CHAIRPERSON: Thank you. That is a good point on your part, a good clarification.

198 Mr. Steele or your colleague, Mr. Maheu, you have no further comment about this, as long as it is clarified that it is with regard to the sales activities and the programming output.

199 MR. MAHEU: Yes, Madam Chair, it is Newcap's position that there are arm's length agreements on things like tower rental space, even sometimes contracting out engineering services, et cetera, that are really arm's length activities that have no direct bearing on the day-to-day operation fundamentally to a radio operation. That would need to be clarified to some degree.

200 THE CHAIRPERSON: It certainly makes our regulation definition a little less perfect than I thought.

201 MR. MAHEU: 11.1 is certainly all-encompassing. I am not a lawyer, but a lot can be read into or out of 11.1, given its broad definition.

202 THE CHAIRPERSON: Yes. Mr. Dougall may be called to the bar by spring if he is not already a lawyer.

203 I address my questions when I want an answer from Newcap to you, Mr. Steele and to you, Mr. Dougall, but you are obviously free to have any of your colleagues answer.

204 Mr. Steele, in a February 12th letter in answer to one of the Commission's questions -- this was when you still wanted the LMA to continue for seven years -- it was coupled with a comment that you expected the market to grow in that period to allow for the termination of the LMA and perhaps new licences in the market prior to the end of the seven-year renewal term Newcap would likely apply, you say in that response, to the Commission for a second FM service.

205 Do you see the day when the market will be capable of sustaining this plan for a new station? Is that one of the reasons why you feel that you can be on your own now and not in an LMA arrangement with C.J.S.D.?

206 MR. R. STEELE: I will pass that to Mr. Maheu.

207 MR. MAHEU: The fundamental reason we have decided to give notice of our participation in the LMA is really a business decision. This business, as we all know, changes rapidly.

208 Although we have certainly enjoyed our partnership with C.J.S.D. Inc. since 1995, and we believe that the LMA as it was executed in the marketplace served the medium of radio and the listeners of the Thunder Bay area extremely well, since our letter to you in February circumstances for Newcap Radio have changed.

209 We find ourselves in a position now of moving forward with our company, where we felt it was best from this point forward to operate totally independently in the marketplace. We feel that we have the resources and the wherewithal to compete in the Thunder Bay market on our own. That facilitated the letter of June 4th to the Commission.

210 At the time when the letter was written on the 12th of February we were of one opinion, and since that time our opinion and information about the marketplace has changed. We have a plan to move forward that we feel we can effectively compete in the marketplace.

211 THE CHAIRPERSON: Is the decision of Newcap to terminate the LMA in any manner conditional, for example, on a subsequent Commission decision, a transfer, another LMA, the closing of any business deal?

212 In other words, it is obvious, I think, Mr. Dougall, that this is not your first choice and that this notice therefore could be withdrawn.

213 You are here, Mr. Steele, for a seven-year term. And although as recently as February we were told that you wanted the LMA to continue for seven years, now that has changed.

214 Is that conditional upon any other decision of the Commission?

215 MR. R. STEELE: Mr. Maheu.

216 MR. MAHEU: Madam Chair, our decision and our request to go forward on a stand-alone basis, after a nine-month extension of the LMA with your permission, is unconditional and unequivocal regardless of any other circumstances, future Commission approvals required for anything else in the marketplace.

217 After that nine-month transitional extension of the LMA to fulfil our contractual agreement with C.J.S.D. Inc., it is our intention to operate completely independently in the marketplace of Thunder Bay regardless of any subsequent rulings from the Commission.

218 We are prepared to go forward and go on our own.

219 THE CHAIRPERSON: The two parties probably have a joint rate card right now. Would that be true?

220 MR. DOUGALL: We have many rate cards. I would like Mr. Klein to address the question, though, if he would.

221 THE CHAIRPERSON: I am just wondering what would change --

222 MR. KLEIN: Yes, Madam Chairman, we do.

223 THE CHAIRPERSON:  -- in that regard.

224 MR. KLEIN: Yes, we have a rate card for the three stations, 580 CKPR, CJSD and CJLB, that offer various options to the advertisers in Thunder Bay.

225 So to answer your question, yes.

226 THE CHAIRPERSON: And Mr. Caron or Steele, you have nothing to add?

227 MR. CARON: No, Madam Chair; thank you.

228 THE CHAIRPERSON: Of course this happened quite quickly, so most of the information we have, at least from Newcap, is not quite the same as what we are contemplating today.

229 To some extent, the Commission is interested in knowing just how things are conducted now and how the radio business will be conducted with the effect of the termination since both of you are here for a seven-year renewal.

230 In its 1995 letter acknowledging that the agreement between you was acceptable to it, the Commission referred to -- and I quote:

"... the grouping under one roof --"

231 Of C.J.S.D.'s roof, that is.

"... all sales and administrative activities of the three stations."

232 And under Clause 4.1 C.J.S.D. was made responsible for the management of this part, the responsibility except for the programming and news.

233 Are these stations currently under one roof in one site?

234 MR. DOUGALL: Yes, Madam Chair, they are.

235 THE CHAIRPERSON: Of course, our concern is how this is all going to be unravelled. The facilities or the premises are those of C.J.S.D., et cetera.

236 Technically, you each have your own staff?

237 MR. DOUGALL: Yes, Madam Chair. The building does not belong to C.J.S.D. Incorporated. It is a tenant in the building along with many other companies. Newcap pays rent, just like the other companies in the building.

238 THE CHAIRPERSON: So the effect on C.J.S.D. would not be that dramatic at the level of the facilities or premises.

239 MR. DOUGALL: We haven't had time to think through just what adjustments have to be made. I'm sorry, I really can't answer that.

240 THE CHAIRPERSON: You have other stations in the market as well, in the Thunder Bay market, and they are all within that same premise?

241 MR. DOUGALL: Radio stations?

242 THE CHAIRPERSON: Yes.

243 MR. DOUGALL: No, we don't. I own the Marathon station, a complex of stations. That is 240 miles away.

244 THE CHAIRPERSON: So only CKPR. There is also the television stations.

245 MR. DOUGALL: Yes, I'm sorry, I got off track there. Yes.

246 THE CHAIRPERSON: Are all these in the same facilities, in the same premises?

247 MR. DOUGALL: In addition to others as well, yes. It is a large building with lots more capacity to rent to even more tenants.

248 THE CHAIRPERSON: I see you postulate, I believe in your presentation this morning, that there would be possibly a loss of staff as well with the termination of the LMA.

249 MR. DOUGALL: I think if one were to look at human nature as it has been applied in the marketplace for the last couple of thousand years and if you were to accept the view that future performance is likely to be based on past behaviour, one can see that there will be an economic logic brought to the Thunder Bay market once the LMA splits up.

250 In other words, we only have to look back ten years to see what the future is going to be like, unless there is a huge change in human nature, like I say.

251 THE CHAIRPERSON: In your presentation this morning, Mr. Dougall, in the closing, there was a paragraph that was not read on the record.

252 Was that a mistake or on purpose?

253 It is under the part of the presentation entitled "Closing", and it reads:

"Collapsing the LMA would be devastating to our business and most importantly to the community we serve as broadcast providers. Surely our services would decrease as the staff levels would have to be adjusted accordingly."

254 I don't think that was read into the record.

255 MR. DOUGALL: It may not have been by Mr. Klein.

256 I think it speaks to the issue of human nature that I just spoke to in a much broader sense.

257 THE CHAIRPERSON: Are you withdrawing the word "devastating"?

258 MR. DOUGALL: No.

259 THE CHAIRPERSON: Did you realize that that was not read into the record?

260 MR. DOUGALL: Yes.

261 THE CHAIRPERSON: And that was intentional?

262 MR. DOUGALL: Yes.

263 THE CHAIRPERSON: Newcap has given us numbers of the effect of termination, the difficulty there would be if we didn't allow the LMA to continue. Both of you of course have stated quite clearly that the only reasonable model for the next several years was the continuation of the LMA.

264 Mr. Steele, you have given us some financial effects of the termination, which were outlined in your supplementary brief and some very specific numbers attached.

265 I am looking at page 4 I think of your supplementary brief where -- or it is in response to a deficiency.

266 It is in a letter, your letter of February 12th, where you talk of $650,000 in construction costs, $850,000 in non-capital costs, including start-up. So $2.1 million for the first full year after a six-month start-up period would be the cost of getting reorganized, as well as a change in that $600,000 annually is now saved in operating costs.

267 Those numbers were given at page 4 of the February 12th letter.

268 Do you still believe that these breakdown numbers are valid?

269 MR. R. STEELE: Dave Murray prepared our supplementary brief, so I will let Dave speak to that.

270 MR. MURRAY: I think the answer to that is that the numbers are somewhat unknown, based on a confidential situation that could happen in that market.

271 As Mr. Maheu said, what we wrote on February 12th, our circumstances in that market have changed.

272 If you want me to respond to where they came from, what we were thinking on February 12th, we were intending to move from the building, set up an entirely independent business, leasehold improvements, rental of a building, move our tower probably, and create a sales team because the sales were taken care of by our partner.

273 There would be losses for a period of time while we created a new business. Then we are talking about the $2.1 million is sort of the break-even expense level after the start-up for the first year.

274 Is that what you are after?

275 THE CHAIRPERSON: So you are confident on these breakdowns that you could retain your positive PBIT or at least after how long would it take to get back to a positive PBIT under this scenario?

276 MR. MAHEU: Madam Chair, since our filing of February 12th, as Mr. Murray referred to, a close re-examination of the marketplace by Newcap has revealed other opportunities and other options that we feel are better for us going forward.

277 We are confident that following the wind-up of the LMA, if approved by the Commission, nine months following the expiry of this particular licence term, we will be in a position to continue to contribute to the marketplace, as CJLB has done for many years, and do it in a manner that provides a positive PBIT for Newcap.

278 While we are on this particular area that you are asking, I would like to briefly comment on Mr. Dougall's comment about history being a good predictor of the future.

279 I think we have seen in this particular marketplace over the past number of years a revitalization and a stabilization of revenues in the marketplace that the LMA have brought forth. Newcap is an operator of 61 licences in markets across the country, from Corner Brook, Newfoundland, to Cold Lake, Alberta, in markets large and small.

280 We are confident of our ability to be able to participate in a meaningful way in Thunder Bay, to not only serve the listeners of the community but to do so in such a way with advertisers that there is a good competitive rivalry choice; but the important point being that radio still remains a vital, vibrant and effective option for advertisers.

281 The way things used to be in the marketplace long ago when other people were around may not necessarily be an indicator of what things are like in the future.

282 THE CHAIRPERSON: Our concern of course is the effect of your plans, your seven-year plans, on the listeners.

283 I notice that one of the important benefits in your supplementary brief, on page 2, you have four different reasons why we should continue the LMA for seven years. One of them is the advantages or benefits for the listening public.

284 Can you comment on what the effect will be on the listeners of CJLB-FM according to the benefits that you have listed there, which was diversity of format, a wide choice of music and personalities, community involvement, digital studio technology which you were capable of achieving because of the combination under the LMA between the two stations.

285 Do you have any comment about the extent to which Newcap's new plans will continue to supply these benefits to the listening public?

286 MR. MAHEU: Madam Chair, we at Newcap Radio are very confident in being able to deliver on the promises that we made regardless of our situation going forward as an independent stand-alone operator. Once the LMA winds up, we are prepared, willing and able to deliver on the promises we made as part of the condition to renew our licence for the full seven years.

287 We are committed to providing and continuing to provide format diversity, musical choice in the marketplace. Our commitment to the community is unparalleled and unchallenged, and nothing in that respect in any way, shape or form will change.

288 We are fully committed to the marketplace. We have been there for many, many years. We would like to be there for many, many more years and we will do whatever it takes, financially or otherwise, to fulfil the commitments and the promises that we made, regardless of the fact that we no longer wish to remain in an LMA after the nine-month wind-up and we decide to go it alone.

289 THE CHAIRPERSON: Mr. Dougall, your application, at 3.2, is for renewal on the same terms and conditions. Of course, the terms and conditions now will be changed, if the Commission were to accept a nine-month period, at least starting with the second year.

290 For the record, you are still applying for a seven-year renewal?

291 MR. DOUGALL: Yes, Madam Chair, I am.

292 THE CHAIRPERSON: What would be the effect of the Commission not granting -- you see, you can give notices between each other, but you need our approval to have an LMA at all. So there is regulatory room there for shortening the period.

293 What would be the effect of shortening it to let's say six months after the renewal date or even at the renewal date?

294 Mr. Dougall?

295 MR. DOUGALL: It is honestly just too early for me to give you an adequate response on that. We have just been given notice. We haven't had an opportunity at all to consider what shortening the period might be with Newcap.

296 I might add, though, that the LSA that C.J.S.D. Inc. has with Northwest Broadcasting is not as material to our operations. That was done as a favour to try and keep the poor little guy in business for a while. If that was not considered positively by the Commission, it wouldn't bother me one bit if there was no condition of licence related to it at all.

297 It was done as helping somebody out kind of a basis who was barely struggling along. I don't wish to make that an issue in front of the Commission.

298 THE CHAIRPERSON: No. Presumably, though, you will have to consider whether it does need approval. The Commission has expressed before circumstances where it was prepared to allow this type of arrangement.

299 Not having seen it, it is certainly difficult to know whether it would require our approval or not. But more about that will be discussed during the hearing, about the effect of various clauses in the local sales agreement.

300 Mr. Steele, if we were to ask you the same question: What if the Commission, rather than accepting your additional nine months from renewal, required the termination of the LMA at renewal or a shorter period. What would be the effect on your plans for CJLB?

301 MR. R. STEELE: We would accept if you wanted to shorten the term. I will let Mark talk to the effect it would have.

302 MR. MAHEU: Our first choice, obviously, would be to have a full seven-year licence renewal, even if it included a condition of licence at the LMA wind-up after the contract period of 12 months' notice ended, which would take us into nine months of the first year of our renewal.

303 Madam Chair, you can appreciate the fact that we are wanting to change the conditions in the marketplace. As such, it is going to require a large amount of capital expense on our part in one way, shape or form to put ourselves into a position to have separate facilities, staff and so on.

304 There will be a capital outlay in the market in some manner to make that happen.

305 As a public company with shareholders, we also have a fiduciary responsibility to make prudent decisions as it relates to spending. Obviously we would wish the greatest amount of certainty that we could have to make those capital improvements and to deploy our capital in Thunder Bay, knowing full well that we have a business and a licence there longer than a short period of time.

306 In order for us to make long-term plans, which is our goal in Thunder Bay, to continue doing business there as we have done for many, many years, our preference would be to have a licence renewal for the full seven years.

307 If the Commission felt that it needed some comfort on the issue of the LMA, to make our seven-year renewal with a condition of licence that said that the LMA would wind up no later than nine months into the first year of a seven-year renewal, we would be very happy with that.

308 THE CHAIRPERSON: Obviously if you no longer want to have a contract between you within that period, that is as far as it could last. My question was more: What would be the effect of the Commission finding that a shorter period than nine months from August was more in keeping with the regulatory regime that it has in place -- which would be its choice, because you now need our authority to continue it.

309 You have agreed as parties to terminate this contract in nine months past renewal, but we could terminate our agreement to continuing in that fashion earlier.

310 Just for the record, as Mr. Dougall spoke to it, what would be the effect if the Commission didn't give a full nine months? Your agreement, it is just a question of notice as between you, not a regulatory matter.

311 MR. R. STEELE: Just as a point of clarification, that was my understanding of what the question was: if the nine-month notice was shortened to dismantle the LMA as opposed to the seven-year term renewal.

312 THE CHAIRPERSON: What would the effect be?

313 MR. R. STEELE: We would have to have obviously a reasonable amount of time to dismantle and terminate the LMA.

314 Perhaps Mark could comment specifically on what the effect would be.

315 MR. MAHEU: Madam Chair, the effect depends on the amount of time we would be granted.

316 THE CHAIRPERSON: What would be, in your view, the shortest timeframe that would be reasonable to continue serving the public and re-arrange your affairs?

317 MR. MAHEU: Those considerations were certainly part of the original discussion and agreement between C.J.S.D. Inc. and Newcap. That is where the 12 months' notice came in. There was considerable discussion on the shortest period of time that we could get out of that in such a way that it would not affect service to the community.

318 That is not to say that with technological improvements and changing conditions in the marketplace that we would not be able to do it sooner.

319 I guess that would be something that if the Commission would like to impose a shorter wind-up period, speaking for Newcap, we would do whatever it took to comply with what the Commission felt was most appropriate for the market, knowing full well that you have always been reasonable on these things and would never put service to the community in jeopardy. So we are fine there.

320 MR. DOUGALL: Madam Chairman, may I make a supplementary comment on that question?

321 It is theoretically possible to consider two overlapping jurisdictions here: one being the licence period, the period of renewal by the Commission; and a separate legal document requiring the two parties to honour the 12-month notice.

322 So hopefully there will not be a conflict between these two as consideration goes forth.

323 THE CHAIRPERSON: Yes. My question was to have you comment on that.

324 Mr. Dougall, it is not that we want to make life more difficult for you this morning, but we take note of the fact that you have two radio stations in the market and two television stations, as we discussed earlier, under Thunder Bay Electronics.

325 So these four stations are under common control. You would agree?

326 MR. DOUGALL: Yes, I do.

327 THE CHAIRPERSON: Are there synergies between the radio and the television stations?

328 MR. DOUGALL: Very much so.

329 THE CHAIRPERSON: Would you describe what they are.

330 MR. DOUGALL: They are administrative, engineering, programming. They are sales to some degree. News coverage is very extensive. There is a very high degree of interconnectivity between them.

331 THE CHAIRPERSON: You will see by my second question that you are not helping yourself by your first answer.

332 So there would be not only administrative synergies, costs and so on, and technical ones. There would be also sales. Advertising campaigns, for example, would be cross-promoted on the stations?

333 MR. DOUGALL: I am going to ask Mr. Klein to answer that.

334 THE CHAIRPERSON: My question is more on your answer that there are synergies in news coverage and programming.

335 As you know, the Commission has shown a concern in the last ten years, with a number of instances of cross-ownership and concentration of ownership, that there is a reduction in the diversity of programming and of news and of editorial comments and has in a number of cases not dissimilar to yours required some amount of separation to ensure independence in the programming area.

336 I am sure we don't have any concern with the synergies in cross-promoting, administrative costs, technical costs, but I would like you to expand on the fact that you have answered that there was also a lot of synergies in news coverage and programming, with a view to addressing the concern I have expressed.

337 MR. DOUGALL: Thank you. Yes, I am very happy to.

338 I was speaking in very general terms. I would like Mr. Klein to respond in more specific terms to that.

339 MR. KLEIN: Thank you. First on the issue of programming on television and radio, obviously their programming is very distinctive. There are no real synergies with the programming. We do our programming separately for television and have a separate programming department that works independently, obviously.

340 In the news department we take advantage of the fact that we can use the synergy there to cover more local events. We have opinions, various opinions on 580 CKPR. We have the open line show where we ask for opinions. Our news on both the radio stations, on both 580 CKPR and CJSD, have anchors. They will prepare their own stories, their own newscasts, using the reporters from television to help gather some material.

341 It is very difficult in many markets across the country to have reporters that can go out for radio. So we take advantage of them as gathering the stories.

342 But as for presenting it, as I say, 580 CKPR has the opinion poll. We have a daily opinion that is provided by one member of the news team. We have phone-in polls.

343 So we certainly give a diversity in our news. The synergy is simply for the coverage of more local events that our reporters can attend.

344 MR. DOUGALL: I would like to point out that the sum of the parts is indeed a great deal larger than the parts individually.

345 I would like also to point out that in the latest BBM ratings book that just came out for television in the market, of the top 20 of the top 10 shows in the market our Thunder Bay television is number one. It easily outrates every American imported or national Canadian show in the market.

346 THE CHAIRPERSON: The Commission in the last few years has added conditions of licence in two cases where there was cross-ownership between radio and television. One recent case is with Global in Winnipeg, and there is also some situations where Cogeco owns television and radio in the same market.

347 I would like to see whether these conditions would be any problem for you to maintain and assure independence between the TV and the radio.

348 One condition reads:

"The radio station hires its own journalists for local programming purposes."

349 It would be a requirement that the journalists in television and radio are different.

350 MR. DOUGALL: Madam Chair, I think if you were able to spend a little time in Thunder Bay you would see that we far exceed any logical or reasonable condition of licence that could be put on for separation of news.

351 In fact, we have our own news directors for each of the stations, news reporters and gatherers.

352 And since you brought up the subject of Thunder Bay television, I also have, which I created in 1972, and which the former Chairman of the Commission has pointed out publicly to the benefit of Thunder Bay television, my two advisory councils.

353 They are appointed by the public, and these people engage in regular meetings in the course of the year. In the last couple of years they voted, independently of themselves, to come together and form this one joint advisory council.

354 What happens is I choose the area to be represented, whether it is rural women's league or the pastors or whether it is the educational components, business components. We even advertise on television and on radio opens on this Advisory Council for people that are say heavy consumers of television and do nothing else.

355 These people are acting in an advisory capacity and have been taking their job very seriously for the last 30 years. They make a distinction on their own as to what is good or bad in advertising and news coverage and local news coverage as it applies to television specifically.

356 But they are not on an island and insulated by themselves. They also look at the coverage of the local newspapers and all the radio stations. They have been very helpful to us and appreciative of the fact that we do work hand in hand with them and are very responsive to their concerns.

357 Each of them goes back to their constituency, must be re-elected year after year, or else another person is put forward. We accept whatever nominees have been provided for us.

358 There is just one, but certainly a major safeguard by the public for the independence of news and local programming, radio as distinct from television and other sources.

359 THE CHAIRPERSON: Mr. Dougall, thank you for that.

360 I will read you the two conditions of licence, and perhaps you can get a -- I don't think you have had notice, from what I can see from the record, of this question before. So you can have a look at them and in reply tell us whether either of these conditions would be a problem, since they are the ones that we have been imposing.

361 The one to Cogeco is -- I read you the first part:

"- The radio stations hires its own journalists for local programming purposes.

- The radio station's journalists are assigned exclusively to preparing and presenting information programming aired by the radio station; and

- The radio station's journalists report directly and exclusively to the station's director of dadio programming."

362 We will give you as well one that was imposed on Global, which reads as follows:

"In order to ensure that the radio station's newsgathering and news management activities are separate from those of CKND-TV --"

363 The news gathering, I gather, would be a problem.

"... the licensee shall maintain a separate radio newsroom and employ a separate radio news director and a team of journalist/announcers. The news director shall control the news stories that the radio station will broadcast and the presentation of news on the radio station shall be accomplished by dedicated radio station personnel."

364 MR. DOUGALL: Again, I think we are ahead of the curve on this. We do most of that.

365 THE CHAIRPERSON: Very good.

366 So do get from our staff the actual wording of these stations.

367 MR. DOUGALL: Thank you.

368 THE CHAIRPERSON: And that, added to what you have explained to us how you manage on the record, will be helpful to us, just so that you know exactly how these are written and whether they are a problem, which you can tell us at reply.

369 I gather, from what you are saying, that again you are ahead of the game.

370 You may be in the court any minute now. You already have a law degree now. You are doing much better than us.

371 Those are my questions for you. I thank you both for your co-operation.

372 We understand, Mr. Dougall, that your game plan and mine were altered. So we certainly appreciate your co-operation.

373 My colleagues may have some questions and legal counsel may have as well.

374 Commissioner Colville.

375 COMMISSIONER COLVILLE: Thank you very much.

376 I just want to go back -- and I appreciate this question might be hypothetical, given the change of events as of last Friday.

377 I am going back to the letter that Vice-Chair Wylie took you too. This is a question for Mr. Maheu or Mr. Steele, or Mr. Murray who actually signed the letter of February 12th.

378 It was the answer to Question 5 on page 4.

379 I am not focusing so much on the dollar amounts. I was just curious about the answer to the question which was assessing the impact of terminating the LMA: Please provide the estimated costs, and so on.

380 The answer was:

"The investment required to terminate the LMA and operate CJLB-FM on a stand-alone basis would include finding space and building new studios, hiring and training several new staff, the costs of the physical move and starting from scratch to build a sales team and create relationships with clients."

381 Given our awareness of situations in other markets, I was curious that when asked about the impact of terminating the LMA, the answer was we would have to find space in a new building and create a new separate sales team and not moving from an LMA to an LSA.

382 I am curious to know why you discounted that alternative even back in February.

383 I recognize that you have changed your approach entirely now, but why back in February was an LSA as an alternative to the LMA and the view that we must get to separate facilities with a separate sales team considered the option to an LMA?

384 Mr. Maheu, that is probably before your time, I suppose.

385 MR. R. STEELE: I think there is no question that if we were preparing that supplementary brief last week, it would be slightly different than what we submitted to you in February.

386 Mark, do you want to elaborate a little bit as to why that would be?

387 MR. MAHEU: Sure.

388 COMMISSIONER COLVILLE: It's a difficult question for you, Mr. Maheu. Why did they decide to do this before you were there?

389 MR. MAHEU: Yes, it is a difficult question. I can say with a great degree of certainty that had I been there, you may have read something different.

390 But it is on the record, and it is what we felt at the time would be most appropriate.

391 Subsequent to the 12th of February we have reviewed our situation in the marketplace and feel that from a business point of view and a service point of view, a different approach is in the best interests of listeners, advertisers and Newcap. That is strictly our position, speaking for no one else.

392 The exact cost of doing so may vary a little bit. I think those were pretty good estimates at the time.

393 I wouldn't mind if Mr. Murray would like to elaborate a little bit further on the reason behind the February 12th --

394 COMMISSIONER COLVILLE: To be clear, my question is not to the dollar figures. It is the philosophy that says a totally separate operation is an alternative to an LMA, not an LSA.

395 MR. MURRAY: Yes, I would be happy to comment on that, taking that into consideration.

396 Question No. 5 is a very broad question. When we are talking about what will we do if we terminate an LMA, the calculations presented in a response to that were sort of on a worst case scenario.

397 If we had to do all of the things, basically set up a brand new radio station from scratch, there is a great deal of costs. While we had our distinct news and programming people in place, the other side of the business would have to be built. Then if we took that to physical premises, et cetera, these are the costs that we would estimate.

398 We were not saying that that is exactly the plan we would do. We don't know. As we have seen, we have changed our tact. We have other opportunities now. Those were our best guesses at that time.

399 You plan a process but then as you move through that process, the process can change and improve, or sometimes get worse. So these are estimates.

400 COMMISSIONER COLVILLE: Thank you.

401 I have one final question.

402 Given the circumstances of the Thunder Bay market and the line of questioning that Vice-Chair Wylie just went through with Mr. Dougall and his situation with radio stations and television stations, would you have considered, and perhaps still do consider, yourself to be the weaker party to the LMA, and probably benefited the most?

403 MR. R. STEELE: That's a tough question. Obviously, we don't have as much horsepower as Mr. Dougall has. So I guess in that way we would -- I don't know, I guess we would be -- weaker is not the term I would use.

404 Do you mean we would be disadvantaged being outside of the LMA?

405 COMMISSIONER COLVILLE: That perhaps is the corollary to the question, although I was thinking: Did you have the most to gain by being the party to the LMA?

406 MR. MAHEU: Mr. Commissioner, I think at the time the marketplace was in a downward spiral, and stagnant for the most part, in terms of revenue with radio stations unable to generate enough revenue to be profitable.

407 At that time for us, in 1995, obviously I wasn't here but in reviewing the records previous to that it was a very tough go in the marketplace.

408 Whether or not we were the weaker of the partners, that fact that we were able to come to an agreement and be part of an agreement that had us all working together tells me that we were certainly a strong enough competitor to be reckoned with and that we needed to be part of something in order for it to be successful.

409 I think it served the market well and continues to serve the market well in a number of ways.

410 Going forward, as Rob said, I don't think we want to position ourselves as a weaker player in the marketplace. We are prepared to stand, invest and compete to the very best of our ability.

411 MR. R. STEELE: Let me just add to that. I don't feel that we would have more to gain as a result of that LMA. Our percentage should be on par with our partner.

412 COMMISSIONER COLVILLE: When you talk about the market being served, do you think that the market will now be better served with your operating as an independent?

413 MR. MAHEU: If I may, Mr. Commissioner, I think the market will be served differently. To say that it would be served better I don't think gives enough credit to what is being done in the market by radio to this point. Although the service will be of a different type and may be more varied in some ways, I would not characterize it as better or more well served.

414 COMMISSIONER COLVILLE: Mr. Dougall, did you want to comment on either of those questions?

415 MR. DOUGALL: The first one being...?

416 COMMISSIONER COLVILLE: Was Newcap perhaps viewed as the weaker player or perhaps gained the most by being a party to the LMA in view of the fact of your number of stations and being in the TV business as well in the marketplace?

417 MR. DOUGALL: I guess that depends on what you mean by weaker or stronger. Are we talking ego, pride? Are we talking psychologically or financially?

418 Financially, just look at the records of the losses in the radio years leading up to the LMA and then look at the $2.5 million net profit to Newcap in the very few short years that the LMA was at its most effective.

419 Then think ahead to human nature and what happens in the marketplace with varieties of format when LMAs are collapsed or when we go back to us and them on the streets in terms of programming and sales, and so forth.

420 I think one can only project ahead by looking back at past activity.

421 COMMISSIONER COLVILLE: If we look at the economics, are you saying that Newcap had the most to gain, then, or perhaps gained the most?

422 MR. DOUGALL: I think that is very obvious to me, financially speaking.

423 COMMISSIONER COLVILLE: Thank you.

424 Thank you, Madam Chair. Those are all of my questions.

425 THE CHAIRPERSON: Commissioner Demers.

426 COMMISSIONER DEMERS: Thank you, Madam Chair.

427 Mr. Dougall, when you referred to 1972, it reminded me that I was probably questioning you at that time as Commission counsel. And I remember you.

428 Have we given you the chance to say everything you wanted to say this morning?

429 MR. DOUGALL: I have a lot of things to say about a lot of things, and not all of them are called for. I am trying to speak to the requirement of talking about the LMA and so forth.

430 I suppose it could be pointed out that there is the possibility that the Thunder Bay market could be better served if there was an LMA extension or if there was a commitment not to duplicate or overlap existing formats by virtue of somebody trying to get more competitive by going after the mainstream audiences which attract the mainstream clients that we have right now.

431 Right now we have as diverse a number of formats in the market for five commercial radio stations that you would have if they were all separate and distinct in ownership. By human nature alone, there would be a winnowing down of the number of formats to what people perceived to be the most lucrative one or two.

432 I don't have a really good feeling.

433 I have had a good relationship with Newcap. They have been and are excellent gentlemen and business people. Perhaps in their consideration of expanding their presence in the market that has not been presented here yet today, perhaps that might be a factor in driving them to become independent. I think we can prove somewhat conclusively that there is a good track record of financial success with the LMA, and without it there just hasn't been that success.

434 When you look at the market, this article that appeared just a few days ago in the Thunder Bay Daily News says "Thunder Bay in Decline", and it goes on to mention the declining numbers of people that are leaving.

435 "Northwest population in gloomy trend" doesn't make me feel really good about the market in terms of population growth. In fact, we have seen that it has been shrinking a lot. So it is going to take enormous concentration of effort in trying to grow the advertising dollars within that market.

436 We also have empirical evidence to show that there has been a shrinkage of overall advertising dollars in the market. Although one sector may grow a little bit for a while, then it will shrink back.

437 I hope I am not wandering too far here. You did ask if I had any other things to say. Yes, I have a lot to say, but I want to try and stick to the issue as well.

438 THE CHAIRPERSON: Now that you are a lawyer, Mr. Dougall, you have to be very careful.

439 MR. DOUGALL: Thank you. I hope I have been.

440 COMMISSIONER DEMERS: Mr. Dougall, you referred to a radio station you have in Marathon. Quantitatively, do you cover these areas with any repeaters in television?

441 MR. DOUGALL: No. We have been applying for the extension of the CBC portion of the television licence starting in about 1956 to go up to the Geraldton complex area, and we are never allowed to do it.

442 The CBC was the governing licensing body at the time, and they preferred to extend the signal to the Thunder Bay Region out of Toronto to the east and out of Winnipeg to the west. So Thunder Bay itself was not able to grow.

443 Fortunately, with the access to Bell ExpresVu and Star Choice, we are now available at least on satellite in the Geraldton complex, as we call it, and to the Marathon complex.

444 We are now seeing quite a drive by the local people to subscribe to the satellite services, because they can now get what they consider to be the local service for the first time in a meaningful way.

445 COMMISSIONER DEMERS: Relative to size of your city, how far is the city which has as many people as you have in Thunder Bay, east and west?

446 MR. DOUGALL: How many people in the city and then how many in the surrounding district to the east?

447 COMMISSIONER DEMERS: Where is a city in the east, for example, which is the size of Thunder Bay?

448 MR. DOUGALL: I'm sorry. You would have to go about 650 miles east to Sudbury.

449 COMMISSIONER DEMERS: And west?

450 MR. DOUGALL: And west about 457 miles to Winnipeg, road miles.

451 COMMISSIONER DEMERS: Thank you, Mr. Dougall.

452 Thank you, Madam Chair.

453 THE CHAIRPERSON: Legal counsel?

454 MS JONES: Hi, Mr. Dougall.

455 Would you please file a copy of the sales agreement you have with CFQK?

456 MR. DOUGALL: Will we provide one?

457 MS JONES: Could you please file one with the Commission, a copy of one?

458 MR. DOUGALL: Certainly.

459 We were informed during consultations with certain staff members that it was not necessary at the time, but we will be certainly doing that.

460 MS JONES: Thank you.

461 Can you also confirm that each station is responsible for its own news and programming?

462 MR. DOUGALL: Yes, I can, absolutely.

463 MS JONES: Thank you.

464 THE CHAIRPERSON: There are no appearing intervenors.

465 We will take a break and perhaps you can have a look at these proposed conditions of licence with regard to the news and independence between your television stations and radio stations. They appear not to be a problem, but you may have some comments on whether they are not.

466 It may well be that the Commission will attach a condition of licence as it has in other similar situations, or it may not. But at least we want to know whether there is a problem.

467 If you wish to address further on the record the reason why there appears to be no need to interpret the sales agreement you have with CFQK as a local management agreement, perhaps you can expand on that as well.

468 MR. DOUGALL: Thank you.

469 THE CHAIRPERSON: It is the renewal of one party to this agreement.

470 Again, I thank you for your cooperation. We will take a 15-minute break. So we will be back shortly after 11:15 in reply, either party. If Newcap has reply as well to -- were there non-appearing intervenors? There were. So if you have any reply.

471 And we will certainly hear from you, Mr. Dougall. Thank you.

472 We will be back in 15 minutes.

--- Upon recessing at 1100 / Suspension à 1100

--- Upon resuming at 1132 / Reprise à 1132

473 THE CHAIRPERSON: Mr. Secretary, please.

474 MR. LeBEL: Thank you, Madam Chair.

475 I will now ask the two applicants to respond to any interventions, if they have any response, and I will ask Newcap to go first.

476 MR. R. STEELE: We have no response.

477 MR. LeBEL: Thank you.

478 I will now ask C.J.S.D. to respond to any interventions, if they have any response.

479 MR. DOUGALL: I note that the many, many, many interventions are all in support of the licence renewal application. I am just happy to point that out one more time. Thank you.

480 MR. LeBEL: Thank you.

481 THE CHAIRPERSON: Mr. Dougall, we were to hear from you as to whether you had any comments at this time about the conditions of licence that the Commission has imposed on other situations of cross-ownership between TV and radio.

482 MR. DOUGALL: Yes, Madam Chair, I have had an opportunity to give a cursory reading of the two decisions in Winnipeg and in Trois-Rivières, I believe.

483 I would like to make a few general comments on it, and then I would like to invite Mr. Klein and Mr. Caron to give some supporting comments on this.

484 In the case of Global and Rogers Communications in Winnipeg, the condition of licence there ensuring that the radio station's news gathering and news management activities are separate from those of the television, I have to point out that we are talking about two of the largest media companies in Canada in one of the largest markets in Canada.

485 You are looking at the smallest guy in the business here, with a $39 rate card. I have to admit that I have been able to survive over the years through creativity and flexibility.

486 These are huge companies that can well afford to divide and conquer. I need flexibility in order to survive. I don't know what the conditions in the marketplace are going to be in two or three years -- hopefully, a lot better than what some of the local newspaper articles are leading us to believe right now.

487 I feel that a condition such as this is very unnecessary in Thunder Bay. It is a very small market. There have been no complaints about our news coverage one way or the other. We have award-winning news coverage on the television station.

488 When I look at some of the other conditions here where the radio station hires its own journalists for local programming purposes and they are more or less prevented from contributing to the television pool, again, I need flexibility to provide the very best news coverage. And circumstances do change from year to year, circumstances that are beyond my control; shrinking markets, as an example.

489 So I need to be free to be flexible to respond.

490 This is all very last minute, and I really reserve the right to come back in the future and make further comment because this is very immediate.

491 I do want to leave you with some thoughts of a very definite nature this morning. I will give you an example.

492 If my radio reporters that contribute to the overall news pool were taken out and strictly dedicated to the radio effort, then my top-rated television news show, upon which I depend for a great deal of my very modest survival, could very well be in jeopardy.

493 I would like to ask Mr. Klein to make a few comments of his own right now.

494 MR. KLEIN: Thank you.

495 I think what I would like to do is give you an example of how we use this service.

496 In the recent Ontario election our radio station 580 CKPR delivered the results live in the evening of the election, as did our television operation, but both independently with the anchors and with opinions available -- one with a gentleman from the university on the radio station, both very distinctive.

497 Where we used the synergy was in the reporters in the field to send back the information, thus allowing the anchors on radio and on television to make their own interpretation of the information coming back.

498 So we try in all instances to use the bodies to cover more of the local events going on. If they are simply sending back the information, it allows the anchors of the two distinctive products to prepare their own news and their own opinions and their own views.

499 The bodies truly do allow us to attend more functions. It allowed us to have a reporter at every election office in Thunder Bay, which if it was radio independently they would not be able to do that. They just wouldn't have the bodies.

500 MR. DOUGALL: Our news room is far more extensive together, to the degree that it is together, given that there is a great deal of separation, particularly on the opinion and the editorial and the drawing of conclusions side.

501 The pool is much larger than the separate pieces added up would ever be. That is part of the creativity and the flexibility that we need.

502 There are many times when the radio reporters and news people respond and report directly to the radio program director. And even under differing circumstances, the radio program director is always responsible for the news content that goes on the radio in any event, quite distinct from whatever contributions those people may make to the television operation.

503 I would like Mr. Donald Caron to give a short supplementary too.

504 MR. CARON: Thank you.

505 I would just like to emphasize Mr. Dougall's comments. Thunder Bay is a very small market with a limited range of advertising revenue, as reported over the last number of years. Our reports to the CRTC will confirm this.

506 With the entrance of other competitors in this market over this period, the revenue base in most of these years during this period did not grow and merely resulted in the redistribution of the revenue base among more participants. So we all share differently in that particular base.

507 Our opportunity to manage, to improve our cash flow and our EBITDA has been a challenge during this period because of this declining base, basically is it what it is. We all share the same pie, as well refer to it.

508 Mr. Dougall commented that the news in television is number one, and we reached this point by the ability to share our resources. Without the ability to share our resources and have to go out and recruit individual separate people for each one of our enterprises would significantly impact negatively on our EBITDA, which is very important in this market.

509 As I said in my brief earlier, we have only had four profitable years in the last ten. So we are vulnerable to that extent.

510 MR. DOUGALL: Madam Chair and Members of the Commission, I would also like to point out that our survivability in Thunder Bay in radio, and hugely in television believe me, depends on our localness; the localness of our programming and our news. That is what makes us distinct in the marketplace from the 547 other channels that are coming in there, not including the music ones.

511 Let's compare that with the local daily monopoly newspaper that has no local requirement, no Canadian requirement. They can run very efficiently CP and other network stories. And this is where we gain a real competitive advantage because of our subject matter, all of which is local.

512 Mr. Klein has one final comment.

513 MR. KLEIN: Just to touch on that a little bit.

514 Being the small organization that we are, we don't have the resources outside the community to gather news from the region. If we were a member of a larger media company that had stations within 100 miles, we could probably use their reporters to feed information to us.

515 But we also take the time to send a reporter out there and gather information from those areas, as a newspaper would or as a larger organizations have the opportunity to do. We do not.

516 MR. DOUGALL: In conclusion, I would like to point out that just recently because of our growing fame, I might say, in local and regional news, we have struck an agreement with the CBC Television Network to provide them with stories emanating from our region, which they will use on the network.

517 And we have recently concluded and activated a similar agreement with the CTV Television Network, whereby we will feed them news stories for broadcast on their network. We have had several instances of that in the very recent past.

518 We are very proud of our localness. It's what makes us unique and distinct, and we feel we need the flexibility to be able to maintain our life-line.

519 THE CHAIRPERSON: Mr. Dougall, if it was reduced to the separate preparation and presentation of news, would that resolve it?

520 Is it the news-gathering where the synergies are required? I heard you say opinions and editorials are separate.

521 MR. DOUGALL: They are.

522 THE CHAIRPERSON: If we required the continued separate preparation and presentation of news, would that be difficult? Would that create difficulty?

523 MR. DOUGALL: I don't know if it would present a difficulty now, but going out three years or five years, the proposition is: Would we feel like we were in a straightjacket at some point when we could take advantage of some rising star that had got a very good means of connecting with people on one medium?

524 Then why shouldn't we be able to further use that resource in one of the other media that we have?

525 THE CHAIRPERSON: Yes. Your approach to not the Rogers situation but the Cogeco situation and the situation with Global in Winnipeg is that it is a very large market with very large companies. On the other hand, this desire for us to enhance the possibility of diversity is even increased in a smaller market.

526 MR. DOUGALL: And diversity you have.

527 THE CHAIRPERSON: I understand it has to be balanced with one's resources.

528 MR. DOUGALL: And diversity you have in programming as a result of a centralizing of ownership and control.

529 THE CHAIRPERSON: Thank you. We have your position on the record.

530 Counsel...?

531 MS JONES: Thank you.

532 Mr. Dougall, could you give us your views as to whether the agreement that you have with CFQK falls under the definition of a local management agreement in the Regulations.

533 MR. DOUGALL: I can say equivocally it is does not.

534 MS JONES: Why?

535 MR. DOUGALL: Because a local management agreement, according to section 11.1, paragraph 1, goes on to read:

"Local Management Agreement means an arrangement, contract, understanding or agreement between two or more licensees or their associates that relates directly or indirectly to any aspect of management --"

536 He manages his own affairs there.

"... administration --"

537 I'm not sure what he does.

"... or operation."

538 And he does all of that.

539 MS JONES: Thank you.

540 You said earlier that you would file with the Commission that sales agreement.

541 MR. DOUGALL: Yes.

542 MS JONES: For the record, could you file it by Friday, June 11th?

543 MR. DOUGALL: I believe we can, yes.

544 MS JONES: Also, a few minutes ago you said that you reserve the right to come back for further comments on the COL with respect to the separation of news rooms.

545 If you have further comments that you want to make, could you also please file them by this Friday, June 11th?

546 MR. DOUGALL: Yes.

547 MS JONES: Thank you. Those are all of my questions.

548 THE CHAIRPERSON: Commissioner Colville.

549 COMMISSIONER COLVILLE: Thank you, Madam Chair.

550 I want to ask both of you this question.

551 Mr. Dougall, you just took us through the definition again, and I think it was you who earlier raised the issue about depending on how widely we read this definition may capture some business arrangements that have gone on for years that have not been a particular concern.

552 The example you gave was sharing of transmitter space, for example, and the agreements that various parties have in many ares of the country to share transmitter space, and a wide reading of this definition perhaps would capture that.

553 I am wondering whether you would have any comments about the kinds of issues that one might consider could or should be read to be outside of this definition.

554 I appreciate that this is probably not put to you like a lot of the issues that you have had to deal with this morning and that you haven't had a chance to give a lot of thought to this. But any help you could provide us in that respect now would be appreciated.

555 I offer Mr. Steele or Mr. Maheu, or anybody else at the table, to comment on it as well.

556 MR. DOUGALL: Thank you.

557 It is my understanding that the CRTC in the past has itself defined the difference between a local manage agreement and a local sales agreement. I think we can refer to one particular decision.

558 I am going to ask Mr. Klein if he can recall what that decision is.

559 MR. KLEIN: The question is directed to what we would consider to be outside of that?

560 COMMISSIONER COLVILLE: If you want to comment on the sales piece, that's fine.

561 You raised earlier this morning the technical issues, like sharing transmitter space, engineering support, that sort of thing. I was wondering whether you could be helpful to us in is there a way to define that? Or are there other aspects of that technical piece?

562 MR. DOUGALL: I believe there are. I think it would take more than a few minutes, quite some massaging to try and determine a little more closely what they may be.

563 Certainly transmitter space, antenna space, tower space all come to mind, as does the maintenance of that.

564 As well, I can see reception, other building duties, sharing of premises as possibilities. I can see bookkeeping and other -- I was going to say non-operational. But what's operational and what isn't is really what we are trying to get at here.

565 I can certainly see sales under some circumstances as being non-operational in the true sense of broadcasting, which is the programming of content.

566 COMMISSIONER COLVILLE: Thank you.

567 Mr. Maheu, Mr. Steele or Mr. Murray, anyone who might want to offer a comment.

568 MR. MAHEU: Thank you, Commissioner.

569 Just following up on Mr. Dougall's statements of which issues may, we might suggest, fall outside of the definition of 11.1.

570 In looking at it, I think there is some agreement that it is rather broad and all-encompassing in terms of what it catches, to the point where, taking a look at management and control of an enterprise, by delegating an outside contractor to clean your building, are you in effect delegating control of an enterprise?

571 At Newcap we have been of the opinion whereby we may outsource or contract out some areas of an operation, but at no time do we ever lose control or management, supervisory or otherwise, of those particular things.

572 In other words, if we were talking about the idea of contracting out some engineering services because of certain circumstances in a marketplace, that in effect by itself we don't believe violates the spirit of the agreement because at no time do we ever lose control over the enterprise. The person doing the work or performing the duties reports directly to us. It is done to our specifications. We are paying them, and so on.

573 So there may be a number of areas, depending on circumstances and market size and so on, where things may fall outside of the agreement.

574 Leasing tower space also brings into question, which I am sure will be the subject of some discussion at some point during these hearings.

575 Technically, if you read 11.1, contracting out your national sales to another organization could be interpreted by some -- we don't believe so, but it could be interpreted as being outside.

576 THE CHAIRPERSON: The definition talks about agreements between two or more licensees or their associates, presumably if it is a national sales rep, that is outside of both --

577 MR. MAHEU: What if --

578 THE CHAIRPERSON:  -- unless it's owned, of course, by one of the licensees.

579 MR. MAHEU: Those are questions for greater minds than mine. There are certainly some things that we do believe fall outside: technical. Some basic reception, and things like that could definitely be considered outside of 11.1.

580 THE CHAIRPERSON: I see some legal work for Mr. Dougall here to interpret this.

581 COMMISSIONER COLVILLE: Did you have another comment, Mr. Dougall?

582 MR. DOUGALL: I am going to leave well enough alone; thank you.

583 MR. KLEIN: I think she was suggesting a career path.

584 COMMISSIONER COLVILLE: Thank you very much, gentlemen. Those are all of my questions.

585 THE CHAIRPERSON: Thank you to both of you, and especially to you, Mr. Dougall. This wasn't, I am sure, your easiest appearance before the Commission. At least you didn't have that long a time to prepare.

586 We appreciate your cooperation, all of you.

587 We will take five minutes to allow for a change of parties. We will hear the two presentations of the next item and then break for lunch.

588 Thank you, again.

--- Upon recessing at 1152 / Suspension à 1152

--- Upon resuming at 1155 / Reprise à 1155

589 THE CHAIRPERSON: Mr. Secretary, please.

590 MR. LeBEL: Thank you, Madam Chair.

591 We will now hear Items 3 and 4 on the agenda, which are an application by Newcap Inc. to renew the licence of the commercial radio programming undertaking CHTN Charlottetown, expiring 31 August 2004; and an application by Maritime Broadcasting System Limited to renew the licences of the commercial radio programming undertaking CFCY and CHLQ-FM Charlottetown, expiring 31 August 2004.

592 These stations have been operated since 1994 under local management agreement, and during the next licence term the only cooperation arrangement that would exist between the two broadcasters would be a proposed sales agreement.

593 Mr. Steele and Mr. Robert Pace will introduce their colleagues.

594 Gentlemen, you have 20 minutes each to make your presentation.

PRESENTATION / PRÉSENTATION

595 MR. R. STEELE: Technically, it is still morning. So, good morning, Madam Chair, Members of the Commission and Commission staff.

596 For the record, I am Rob Steele, President and Chief Executive Officer of Newcap Radio.

597 To my right is Mark Maheu, Executive Vice-President and Chief Operating Officer and David Murray, Vice-President Operations for Newcap Radio.

598 To my left is and Tom Manton, our Vice-President of Sales.

599 And at the side table is Peter Steele, Vice-President of Industry Affairs with Newfoundland Capital.

600 We are here today to request a full seven-year renewal for our station, CHTN-AM, in Charlottetown. We believe that our record of service, the diverse programming format that we provide and our compliance with the Radio Regulations, the Commission's policies and our conditions of licence have earned a full renewal for the station.

601 I would now like to ask Mark Maheu to present our renewal application.

602 MR. MAHEU: Good morning.

603 CHTN-AM was the very first radio station in which Newcap invested. We purchased it from its original owners back in 1985. The station never made a penny for its owners and unfortunately Newcap continued on in that tradition as well.

604 However, with the cooperation of our partners at Maritime Broadcasting we have been able to return the station to profitability and ensure the maintenance of a distinct music format and editorial voice.

605 The station provides a music format that is not available on FM band due to the hit limits on FM. Oldies music has a niche on AM that FM stations cannot duplicate. We attract an older audience with more women listening than men.

606 The Good Time Oldies format appeals to people who grew up in the height of the Top 40 radio era, when "boss jocks" and new rock and pop artists like Elvis, the Beatles, the Guess Who and the Stampeders were providing music for a new generation of teens. The format brings back the music of that era for a 50-plus audience.

607 Canadian content is more often difficult for this format since the music pre-dates the introduction of the Canadian content regulations and the development of FACTOR and other Canadian Talent support initiatives. Nevertheless, the station has always met and exceeded its regulatory requirements.

608 CHTN provides a fine service to the community in other ways as well.

609 It is the voice of the PEI Rocket hockey team, broadcasting their home and away games.

610 It provides 10 newscasts per weekday concentrated in morning and afternoon drive as well as elsewhere in the day. Our newsroom at CHTN, under the supervision of News Director, Anne MacRae, provides three hours of news per week.

611 We are involved in the support of a large number of charitable and community events, including:

612 (1) the Big Brothers Big Sisters Bowl for Kids Sake each year;

613 (2) Easter Seals Ambassador Tour with reports twice a day during the six days of the tour;

614 (3) Public Service Announcements for local events are a regular feature on CHTN. The station's support has included many local organizations such as Child Safety Link, Girl Guides, Parkinson's Disease, Katimavik, PEI Theatre Festival, Queen Elizabeth Hospital Foundation, Special Olympics, Spud Minor Hockey, Muscular Dystrophy and Canadian Cancer Society.

615 We recognize that the Commission has requested us to appear here today to discuss the appropriateness of the local sales agreement which could result once we dissolve the local management agreement between CHTN and MBS's two Charlottetown stations, CFCY and CHLQ-FM.

616 The LMA is clearly responsible for the favourable financial results recorded by radio stations in Charlottetown and even though we fear that termination of the LMA will immediately cause a reduction in profits, we recognize that the Commission's policy does not encourage such agreements in profitable markets.

617 However, we do wish to continue with a sales cooperation agreement with MBS. We believe that as a stand-alone we can maintain a diverse format and keep our tuning share, while maintaining a cost structure that means we can be viable.

618 However, we would be concerned that without the ability to sell with the other radio stations on the Island, our stand-alone AM radio station would have trouble converting our audience share into reasonable revenues. Alone we cannot provide the range of demographics that either the local newspaper or CBC Television can, and we believe that we could not maintain sufficient revenues to maintain a quality radio service.

619 For this reason, we would like to continue a sales association with MBS which would allow us to be a part of a local sales package just as we are part of a national package with them.

620 I would now like to ask Dave Murray to give a little history of our association with MBS in Charlottetown.

621 MR. MURRAY: Good day, Madam Chair and Members of the Commission.

622 Newcap acquired CHTN-AM in 1985 from its original owners. The station had been an economic disaster since its inception -- it never made money for the previous owners. Unfortunately, we were not much more successful. While we were able to increase the listening share to some extent, the station continued to lose money each year until we entered into the LMA in 1994.

623 Whereas in other markets we have requested technical changes or applied for additional licences to be more competitive and broaden our service offering, Charlottetown and PEI offer a different order of challenge.

624 With a very small population in the city, and indeed in the province, we were sure that the market would not meet the Commission's market criteria. In fact, several applications for new FM stations in the province had been denied on economic grounds.

625 When MBS approached us with a proposal to cooperate with them, we realized that frankly, we did not have any other choice. From a programming point of view, our AM station was never going to be able to challenge their FM station or their strong AM heritage station with a mainstream format. Whatever we did in a programming sense they could trump on FM with a better signal, and if we looked for a more targeted niche other than Oldies, the market was not large enough to support it.

626 So we agreed to enter into the agreement. We drafted an agreement and conferred with Commission staff to ensure we addressed their concerns before implementation.

627 We saw immediate results -- in fact, we saw positive cash flow from the first month until the present.

628 MR. MAHEU: In the Notice of Public Hearing, the Commission indicated that it wished to examine the various arrangements up for discussion "taking into account the objective of fostering diversity of programming, independence of news voices in each of these markets".

629 Madame Chair, Charlottetown already benefits from diversity of news voice with two separately programmed news operations. And the market has more program diversity than in the past with three distinct formats available: Oldies on CHTN, Country and Full Service on CFCY and Adult Contemporary programming on CHLQ-FM.

630 CHTN provides a fine service to the community in other ways as well.

631 Our proposal for an local sales agreement to replace the LMA will restore even more control of the operations to Newcap. We see no reason to change format or to reduce our programming commitments -- in fact, the contrary.

632 We believe that for the reasons outlined in this presentation we have earned a full seven-year renewal.

633 We would be pleased to reply to any questions that you and the Commission may have.

634 THE CHAIRPERSON: We will hear the presentation of the other party.

PRESENTATION / PRÉSENTATION

635 MR. PACE: I will just check my watch here.

636 Good afternoon, Madam Chair, Commissioners.

637 My name is Robert Pace --

638 THE CHAIRPERSON: We are all turning into lawyers.

639 MR. PACE: I am the Chairman of Maritime Broadcasting System Limited (MBS Radio).

640 We are pleased to appear before you to present our applications for licence renewal for our two Charlottetown stations: CFCY-AM and CHLQ-FM.

641 Before we begin our presentation, I would like to introduce the other members of our panel.

642 On my left is Merv Russell, President and CEO of MBS Radio. And on my right is Frank Lewis, a life-long resident of Prince Edward Island and the Vice President and General Manager of CFCY and CHLQ for the past 38 years.

643 He joined when he was ten.

--- Laughter / Rires

644 MR. PACE: MBS Radio has a long and proud commitment to local radio in the Maritimes. From our beginnings in 1969 in Campbellton, New Brunswick, MBS Radio has evolved into a truly regional broadcaster, with twenty-three radio stations serving Nova Scotia, New Brunswick and PEI.

645 Our local ownership means we have deeply-rooted ties to the Maritime community, with a thirty-five year tradition of community service in the markets in which we operate.

646 Frank.

647 MR. LEWIS: You said the other day that I was the founding director of this station, which is 80 years old.

648 For 80 years, CFCY-AM has played a vital role in the lives of Islanders and has a proud heritage of outstanding service. CFCY-AM has been instrumental in promoting local talent and in developing the careers of some famous PEI natives, such as Stompin' Tom Connors, the late Gene MacLellan and Don Messer.

649 And on Saturday nights for more than 20 years CFCY-AM has been the home to the Eric MacEwen Show, a two-hour weekly special dedicated to local Island and Maritime talent. Eric has been recognized by the East Coast Music Association and played a key role in the discovery of both the Barra McNeils and the Rankin Family.

650 Despite the considerable economic challenges and audience fragmentation currently faced by AM stations, we have continued the tradition of local talent development at CFCY-AM, promoting PEI's latest artists, such as Richard Wood, Lennie Gallant, Ninth Hour, Jericho Road, Cynthia Macleod and Kim Albert.

651 CHLQ-FM, or Magic 93, is our Adult Contemporary Charlottetown station. CHLQ provides a music and information source for an 18-44 audience with a 50/50 split of current and gold music.

652 Throughout this licence term CHLQ has been active in all major community events including: The Confederation Centre of the Arts summer Theatre Festival, The Festival of Lights during Canada Day weekend, The Festival of the Fathers during Labour Day weekend, The Canadian Cancer Society's Relay for Life, The Children's Wish Foundation Wishmaker Parade and The Queen Elizabeth Hospital Foundation.

653 CHLQ has also provided exposure for developing talent through airplay and interviews. Additionally, CHLQ provides commercial airtime to support new talent through our "Performer Support Program". This program provides 25 30-second commercials featuring an artist's music and talking about the availability of the music in the marketplace. We are proud of these accomplishments and look forward to continuing them throughout the new licence term.

654 Merv.

655 MR. RUSSELL: As the Commission is aware, CFCY and CHLQ have operated under a local management agreement since August 1, 1994 with the remaining Charlottetown radio station, CHTN-AM, owned by Newcap Broadcasting.

656 Unanimous participation in the LMA by all three Charlottetown stations has given the stations opportunities of economies of scale, while at the same time guaranteeing diversity of programming and ensuring that no station suffers the anti-competitive effects of exclusion as was highlighted by the Commission's Public Notice 1999-55.

657 Therein the Commission stated that it wished to ensure that LMAs would not have a significant negative impact on the diversity, dynamics or the competitive forces in any given market.

658 In August 2003 the Commission extended the authority for the Charlottetown LMA until the expiration of the current licences on August 31, 2004. As required by the Commission, CFCY and CHLQ will terminate the LMA on or before that date.

659 With the termination of the LMA, the MBS and Newcap stations will operate independently from shared facilities.

660 MBS and Newcap will retain the distinct management of our respective programming and news services. Individual News Directors and Program Directors will continue to report to individual General Managers for each owner. There will be no crossover of voices between the MBS and Newcap stations.

661 MBS employees will operate all live and voice-tracked programming for CFCY and CHLQ. MBS and Newcap will complete independent CRTC annual returns, and each owner will employ separate workforces, paid through separate payroll systems and reported independently to Canada Customs and Revenue Agency.

662 The only cooperation between the MBS and Newcap stations will be in local sales, and Integrated Media Sales will continue to represent the stations nationally.

663 Robert.

664 MR. PACE: For the past ten years that it has been in existence, the Charlottetown LMA has served the stations well -- allowing the three Charlottetown stations to share operational synergies, while maintaining a diversity of voices in the market. We support the Commission's case-by-case approach for assessing the appropriateness of an LMA, taking into consideration the specific needs of the radio broadcasters involved and the particular market.

665 In Charlottetown the LMA worked well because all stations in the market participated and all stations benefited equally from the operating efficiencies brought about by the LMA.

666 Regional players are important to the health of the Canadian broadcasting system and play a vital role in providing diversity, perspective and truly local content. LMAs and SMAs have in the past allowed regional stations facing financial difficulties to benefit from operational synergies and economies of scale, while at the same time maintaining diversity of voices.

667 We believe that applied in accordance with the Commission's policy, there is still a vital role for LMAs and SMAs. MBS believes this review of LMA-LSA agreements is very important.

668 It should be pointed out in this case by case review that the Charlottetown renewals did not warrant any opposing interventions, and the agreement between Newcap and MBS has served listeners, advertisers, employees in a very positive way.

669 Madam Chair and Commissioners, we are here today seeking your guidance and counsel on how any future sales agreements should be structured and formatted.

670 Frank.

671 MR. LEWIS: Thanks, Robert.

672 In closing, Madam Chair, Commissioners, we look forward to the renewal of the licences of CFCY-AM and CHLQ-FM Charlottetown for a full licence term.

673 Upon approval, we will continue our longstanding tradition of community involvement and support of worthy causes throughout our Province's capital. We are committed to providing the residents of Charlottetown with high-quality local radio service while creating opportunities for the exposure and development of Canadian talent wherever possible.

674 Madam Chair, Commissioners, we thank you for the opportunity to appear before and would be pleased to answer any questions you may have.

675 THE CHAIRPERSON: Thank you to all of you.

676 We will now break for lunch and pursue our questioning after lunch.

677 We will resume at quarter to two. So at 1:45 we will be back to continue the hearing of these three renewal applications.

678 Thank you.

--- Upon recessing at 1212 / Suspension à 1212

--- Upon resuming at 1345 / Reprise à 1345

679 THE CHAIRPERSON: Order, please. Welcome back to our hearing.

680 Mr. Secretary, please.

681 MR. LeBEL: Thank you, Madam Chair.

682 I think we were about to begin the questioning of those two applications.

683 COMMISSIONER COLVILLE: And you were about to turn it over to me.

684 THE CHAIRPERSON: I shouldn't have had that drink at lunch.

--- Laughter / Rires

685 THE CHAIRPERSON: Mr. Colville, do proceed.

686 COMMISSIONER COLVILLE: Thank you, Madam Chair.

687 I don't know where to start now.

688 Thank you, both, for your presentations just before the lunch break.

689 I must say I was struck by the seating arrangement, and I was wondering whether there was anything we should read into the particular seating arrangement. Whereas with Thunder Bay we had a couple of representatives from each of the parties to the agreement at the front table, here we have one party at the front and another at the back.

690 MR. P. STEELE: I was worried, Mr. Commissioner, they were going to put me in purgatory over here by myself.

691 COMMISSIONER COLVILLE: It must have been something you said this morning.

692 Perhaps I can start with this question, and maybe I will put it to Mr. Steele and Mr. Pace, recognizing that many of the people who come before us who are licensees have probably spent most, if not their entire, working career working in the regulated business, either cable or radio or television licensee, whereas I know that in your case, Mr. Steele and you, Mr. Pace, as well, you have come to this business having been businessmen in other fields as well.

693 I would perhaps just put the question of what do you consider to be the business of radio.

694 Mr. Steele...?

695 MR. R. STEELE: The business of radio. Strictly from a business perspective?

696 COMMISSIONER COLVILLE: Yes.

697 MR. R. STEELE: Basically, it is about creating a product, a product that will garner an audience. That audience will only be attracted to the product provided that there is something meaningful in it for them, either news, entertainment or whatever. But they are attracted to that product, whereby you build up enough of an audience demographic in radio speak to go and take that audience and be able to deliver that audience or expose that audience to advertisers.

698 Advertisers ultimately want to sell their products and they want to tell their story. They will advertise on the station, i.e. the product, to reach that audience. And it becomes a commercial enterprise from that perspective.

699 COMMISSIONER COLVILLE: Would you say it is selling an audience to advertisers? Is it too trite to put it that way?

700 MR. R. STEELE: That's right. From strictly a business perspective. I realize there are other obligations, having the exposure and power, an obligation to service the community in which you live. You have to do so in a very judicious way.

701 COMMISSIONER COLVILLE: Mr. Pace, would your view be similar to that?

702 MR. PACE: Similar but different.

703 When I got into this business about ten years ago now, the two people on both side of me here made it very clear that what we have in radio or a licence is public trust. I never forgot that advice and background.

704 So yes, it is to provide the ability to create an audience but it is also, I believe the more that I am in it -- and I think Merv might want to add to this as well.

705 It is an ability to provide a product and sell it to an advertiser and create listeners, but it is also a business that we can support our communities, we can create talent in this country on an ongoing basis.

706 I think that is what radio is. It is a community vehicle. We support our community.

707 So I think we are the same but we are driven -- maybe it is because we come from the Maritimes that community and local is very important to us. I am not saying it is not important across the country, but it is particularly important because we are in very small communities.

708 COMMISSIONER COLVILLE: I didn't mean this as a trick question.

709 MR. PACE: No, not at all.

710 COMMISSIONER COLVILLE: That's why I deliberately emphasized what do you see as the business of radio. That is why I emphasized that.

711 I suppose you might turn to the colleagues on either side of you and say: Well, that's all well and good but at the end of the day I have to make a dollar at this.

712 MR. PACE: Yes. I believe that if you are strong in your community, you are supporting your community, you are going to have a good business.

713 I have other businesses, and I have always found that; that if you are giving back to the community and you are supporting the community, you in turn will grow a pretty profitable business.

714 I don't know if that answers your question, but it is just my own view.

715 COMMISSIONER COLVILLE: I asked that question because I was struck by the answer -- and perhaps this is consistent with your comments, Mr. Pace -- in a letter to Lyne Renaud on February 16th, in answering the question of how this business arrangement will enable the parties to achieve maximum economic viability and continue to operate on a competitive basis.

716 In the answer you said:

"Competition is maintained as each station competes for audience by following corporate policies, procedures and guidelines for programming content."

717 I was trying to see in that where the competition was for the business of radio.

718 MR. PACE: I guess in that community -- and Frank can speak to it because he is more familiar with Charlottetown.

719 You have one newspaper in Charlottetown, which is a large newspaper: no competition. It is not unlike Thunder Bay which we have just talked about.

720 So the competition in that marketplace is TV, the one newspaper, the one cable company. It is not like bigger markets across Canada. It is quite distinct that way.

721 So that is where I would say the competition is.

722 COMMISSIONER COLVILLE: Mr. Steele, would you have a comment on that? I appreciate this was not your answer.

723 MR. R. STEELE: There are probably some nuances to Atlantic Canada that may differ from Western Canada where we also do business. But with respect to the business of radio, the markets are remarkably similar: for example, Lloydminster and say Moncton, in terms of size, taste, demographic profile.

724 From a regional perspective, it is harder to define what is uniquely exclusive about our region, our region meaning Atlantic Canada versus western, from a business perspective and building the product, creating the product.

725 I would probably defer a little bit from Mr. Pace on that one.

726 COMMISSIONER COLVILLE: I take your point, Mr. Pace, about one newspaper. But looking at it from our perspective in terms of licensing stations in a market, historically we have tried to look at the economics of a given market and then decide how many stations a market can perhaps sustain and how many could be sustained in a competitive environment where we could have two or three or more stations, perhaps in some cases some owners owning two of the three or more, but a number of just different groups competing in a market.

727 Here we don't have that competing for the business in the market. I take it your view was that there is competition because we are competing for audience by following our corporate policies for programming, but we are not competing in the marketplace in terms of sales.

728 That is really where I was coming from in terms of this idea.

729 So presumably the Commission had decided that this market could sustain three stations and two players. So we don't have the one newspaper situation.

730 We don't see that competition, so I guess that is the issue we are trying to probe here.

731 In thinking about that issue, perhaps I will put this question, Mr. Steele.

732 We talked earlier this morning about dealing with the situation in Thunder Bay, and you had proposed that you eliminate the LMA and operate totally separately. Here in Charlottetown we have a different situation where you together are proposing to do away with the LMA and replace that with a sales agreement.

733 How would you characterize this Charlottetown situation as being different and unique?

734 MR. R. STEELE: That is obviously a very valid question and a fairly complex one. I will let Mr. Maheu elaborate on that.

735 MR. MAHEU: Mr. Commissioner, there are a number of differences between the situation we found ourselves speaking to you about this morning in Thunder Bay and what we are presenting and speaking to you now about in Charlottetown.

736 First and foremost, our situation in Thunder Bay, in terminating the LMA and going forward as a stand-alone operator competing vigorously in the market, we are able to do so a little more effectively in Thunder Bay at this point in time because we have an FM station there. Hot 105 is a well-regarded and highly rated and popular radio station in the market.

737 With an FM stand-alone on the FM band we are in a position to compete for revenue and share of audience and so forth in a more effective manner than we are with an AM radio station standing alone in a market the size of Charlottetown.

738 Also what is a little bit different is that the business arrangements that we have in Thunder Bay differ from the business arrangements and the relationships we have in Charlottetown.

739 The business relationships we have enjoyed in Charlottetown with Maritime for these many years are such that our first choice would be to continue that relationship -- a relationship that has benefited the market in terms of providing diversity and, going forward, changing that relationship from a local management or marketing agreement to strictly a sales agreement.

740 To answer your question specifically, an FM in Thunder Bay versus an AM in Charlottetown and the business relationships that exist between our partners in Thunder Bay and our partners in Charlottetown --

741 COMMISSIONER COLVILLE: In considering those two factors, how significant would the AM versus FM aspect of it be, particularly given the comment that was made in your opening presentation, how you've got a station that "had never made a penny for its owners and unfortunately we continued on in that tradition".

742 Regardless of that situation, is converting that station to an FM something that you would have considered or might consider?

743 MR. MAHEU: It is certainly a consideration. How quickly or if it would change our competitive situation quick enough that we would see a financially viable station is unknown at this point in time. But it is certainly something we have considered, I understand, from time to time and would consider in the future.

744 COMMISSIONER COLVILLE: Of the two factors, how important would that be?

745 MR. MAHEU: In terms of factors being having an FM versus an AM and the business relationship with partners?

746 COMMISSIONER COLVILLE: Yes.

747 MR. MAHEU: I think in the case of Charlottetown the business arrangement and the relationship with the partners is as important. I don't think one is more important than the other in Charlottetown.

748 COMMISSIONER COLVILLE: You have indicated that the only cooperation will be in sales but that you will be -- I forget the term you used, but essentially you are going to be in the same building which you are in now, I assume.

749 Who owns the building?

750 MR. PACE: Maritime.

751 COMMISSIONER COLVILLE: You are the sole owner?

752 MR. PACE: Yes.

753 COMMISSIONER COLVILLE: Newcap has no financial interest in the building at all.

754 I take it you haven't completed a sales agreement. Is that correct? We don't have a copy of it, in any event.

755 MR. R. STEELE: That is correct.

756 COMMISSIONER COLVILLE: What is the status?

757 MR. R. STEELE: We have been working on that.

758 MR. MAHEU: That's correct.

759 COMMISSIONER COLVILLE: What is the status of the sales agreement?

760 MR. MURRAY: We have not yet agreed on all the terms of the sales agreement. We have thrown some things around and anticipate that we will come to an agreement shortly.

761 COMMISSIONER COLVILLE: Thrown some things around.

762 I presume that the two parties have been in discussion as to what shape or form this sales agreement might take?

763 MR. MAHEU: There has been discussion between both parties in what would form a sales agreement going forward. Those discussions and negotiations have been intermittent over the past nine to twelve months, in round figures.

764 Although it is something obviously that, going forward, is important and we understand the urgency of the situation. As our LMA would be winding up here soon, there is more urgency than ever.

765 Obviously in early April -- I can't speak for Maritimes but I can certainly speak for Newcap -- when the notification from the CRTC came down that this hearing for a licence renewal in Charlottetown would become an appearing item with the Commission's goal of taking a look at these types of agreements, the negotiations came to a stop until such time as we had a better sense and an idea of what lies ahead.

766 We are prepared to continue to negotiate and put an agreement together in relatively short order.

767 COMMISSIONER COLVILLE: If were to look at the LMA and elements of that agreement that might relate to sales and financial aspects of that, do you have that with you?

768 MR. MAHEU: Mr. Commissioner, could we pause for a moment here to see if we have it on file.

769 MR. MURRAY: I don't think I brought it. It's on file.

770 COMMISSIONER COLVILLE: It's on file. I have it. I wanted to pose a few questions so I don't want to be unfair.

771 MR. MURRAY: Go ahead. I know what it says.

772 COMMISSIONER COLVILLE: There are a number of sections here that I am curious about the extent to which they might form part of a sales agreement.

773 For example, under the heading "Term", Section 3.3., it says:

"Newcap will continue to have full and complete access to all the records and accounts of the business and specifically all customer lists --"

774 Would that sort of clause be part of a sales agreement?

775 MR. MURRAY: I think what you seem to be getting at is what is the difference between an LMA and an LSA. Do you want me to talk about that or do you want to talk about specifics?

776 COMMISSIONER COLVILLE: What I am getting at is: What is this LSA going to look like?

777 MR. MURRAY: I would say that a local management agreement, and that particular local management agreement, is an agreement between ourselves and Maritime where one party is given control of all aspects of the business except for programming and news and editorial control.

778 That is exactly the way that one is operated. We are in the same facilities and we share profits. There is a profit-sharing element. So if you are sharing profits, you are sharing everything pretty much, other than programming and news and editorial control.

779 COMMISSIONER COLVILLE: Right.

780 MR. MURRAY: A sales agreement is far from that in that we would contract Maritime to sell air time on our station, but we would have to make dramatic changes to the way we run CHTN in Charlottetown.

781 We would have to put a general manager in place. All aspects of the business will be put back in place, and we will simply accept sales orders from a joint sales team that is using the clout of the combined audience share to compete more effectively with television and newspaper, the much larger advertising mediums.

782 So there are dramatic differences between a sales agreement. We would have our own record.

783 So that particular clause would not really be pertinent, because we will have the broadcast orders for CHTN. We will own them. They won't be part of a collaborative business.

784 COMMISSIONER COLVILLE: Will you have access to each other's financial records?

785 MR. MURRAY: No.

786 COMMISSIONER COLVILLE: There will be no access.

787 MR. MURRAY: No, no need.

788 COMMISSIONER COLVILLE: If I look at Clause 8.1 in the existing agreement, there is a formula for dividing the "profits of the business in accordance with this agreement as follows", and there is a particular schedule for sharing the profits of the business.

789 How will the revenues of the sales be allocated between the stations?

790 MR. MURRAY: That has yet to be determined, but there are a couple of different alternatives.

791 We could determine that CHTN will get the amount of revenue that is associated with the air time that is sold on their station, less a certain commission or cost.

792 We could agree, alternatively, to share the revenue of the three stations like we do in Sudbury, as an example.

793 That is what we haven't worked out. It is a complex negotiation. As Mr. Maheu said, we hope to reach a conclusion on that, but we haven't as yet in Charlottetown.

794 COMMISSIONER COLVILLE: Might it be an arrangement similar to what is existing under the LMA? Is that one of the options that you would consider?

795 MR. MURRAY: No, not at all.

796 COMMISSIONER COLVILLE: Why not?

797 MR. MURRAY: Because when you are sharing profits, there is the tendency for more decisions to be intertwined. We strictly want this to be a sales agreement, like our national sales representation agreement where the LMS in Charlottetown represents the three radio stations. They present prospective orders from advertising agencies and the commercials fall on probably all three stations frequently.

798 COMMISSIONER COLVILLE: So we would not see any formula like 8.1.

799 MR. MURRAY: No.

800 COMMISSIONER COLVILLE: As you have already indicated, there would be no sharing whatsoever. In fact, you would guard carefully the financial figures for the respective radio groups?

801 MR. MURRAY: I'm sorry, I didn't catch the last part of the question.

802 COMMISSIONER COLVILLE: You would be guarding and consider confidential the financial information of each of the station groups.

803 MR. MURRAY: Yes, absolutely.

804 COMMISSIONER COLVILLE: One in your case and two in the other.

805 MR. MURRAY: Yes.

806 COMMISSIONER COLVILLE: That's Mr. Pace.

807 So none of the aspects that are in the existing LMA listed under Financial matters which talk about financial guarantees and how you would calculate the profits of the stations would be done on a joint basis.

808 MR. MURRAY: No. They wouldn't be pertinent to a sales agreement.

809 COMMISSIONER COLVILLE: All the profitability, all the expense related issues would be done totally independently?

810 MR. MURRAY: Newcap would be responsible for 100 per cent of all of its expenses, other than sales expense. Commission to sales reps, for example, clearly would have to be deducted from CHTN's revenue, but 100 per cent of all of the other expenses we would be responsible for.

811 COMMISSIONER COLVILLE: Under Section 9 -- it is again reporting and record-keeping. I notice under Section 9.1 it talked about Maritime:

"... will maintain adequate and separate books and records of the business --"

812 You have been keeping separate books all along, but the information was shared so that each party would know what the financial aspect of the other station was.

813 That will be totally independent?

814 MR. MURRAY: Yes.

815 COMMISSIONER COLVILLE: What might one expect to see in this agreement if none of this stuff is going to be there? You must have some general idea of what shape or form of this sales agreement is likely to take.

816 MR. MURRAY: I think the agreement, without committing either company, will cover things that Maritime as the exclusive sales agent for CHTN would be responsible for; things like representing CHTN to clients.

817 Probably there would be collaboration on commercial production, because if you produce one commercial and it is to run on all three stations, you are going to copy it and send it to the other station. We would very likely have our own producer and our own creative writer and things of this nature.

818 So those types of things would be defined in the agreement, I would guess.

819 COMMISSIONER COLVILLE: How much of the advertising would you expect would run on all three stations, and how much of the sales activity would be the one organization selling for your station?

820 MR. MAHEU: I think, Mr. Commissioner, it would depend on the circumstances. We talked earlier about the business of radio, and radio on the business side of things is a frequency and targeting medium.

821 There are certain clients that look to reach certain types of consumers, and they will choose certain types of radio station formats to effectively reach certain people at times.

822 Whether all three are part of a buy, or two or a single station, it has been our experience that multi-station buys are sometimes the exception and not the rule; that advertisers look to single stations or a combination of two stations to reach their advertising goals.

823 These are things that need to be negotiated into an agreement between Maritime and Newcap.

824 If we were going to have Maritime as our exclusive sales agent representing our radio station and the advertising that we have available for sale, we would want certain things to be covered in an agreement: how the station is represented.

825 We may put in certain sales targets and objectives that we would expect that sales organization to reach. We would have obviously negotiation on cost to us for them to do such a thing in terms of commissions and cost of sale.

826 So there are a bunch of things like that that would have to be considered in an agreement.

827 Inside of that agreement do we put provisions on whether it is a one-station sale or a multi-station sale? Clients have to buy all three? I couldn't imagine us ever putting a caveat or a provision in for things like that because we would want to bring as flexible an advertising solution to the advertising community as we possibly could.

828 COMMISSIONER COLVILLE: So the sales force will be Maritime's sales force?

829 MR. MAHEU: It could well be. That is part of the negotiation. In some cases you could have a situation where one company represents for the sale of air time. You may have a situation where it is a combination of employees: some Newcap, some Maritime. How many of each if we are doing that?

830 Those are things that have to be negotiated.

831 COMMISSIONER COLVILLE: How do you know that this arrangement is better for you than doing it on your own?

832 MR. MAHEU: As you heard from us in our opening comments, Newcap has owned this radio station CHTN since 1985. Previous to 1985 -- and I could be wrong, but I believe the station went on the air in 1974.

833 The history, as we understand it, is that up until the time we purchased it, it never made a profit, never. The radio station continued to lose money until we entered into a local management agreement with Maritime in the mid-1990s.

834 How do we know that we couldn't do better on our own? History in this particular case, because of the market size, the type of market it is, what the opportunities are in the market, has led us to believe that our best course of action to continue to provide service and diversity in that marketplace is to approach the sale of advertising, on a going-forward basis, in a collaborative way with Maritime.

835 We have taken a look at it, including what you had suggested earlier -- and this has been done I am sure over a number of years -- what our opportunities are to potentially change the station to an FM. Would we be in a position to compete against a well-established FM radio station in the market, a franchise heritage AM station in the market, a newspaper, a television operation, outdoor, et cetera.

836 It is our considered opinion, based on our past experience in that marketplace, that a collaborative sales effort between MBS and Newcap going forward is our best option.

837 COMMISSIONER COLVILLE: How do you know that, though? These LMAs were all started when radio generally in the country was having difficulty, and radio in some smaller markets in particular was having a huge problem, starting with Sault Ste. Marie where the first of these was initiated.

838 Since then radio generally has improved its situation considerably across the country. There are areas where it has been somewhat problematic, but generally speaking radio has done much better over the past number of years than it was in the early to mid-1990s when these LMAs were put in place.

839 Looking at it from a business perspective, how do you know that you couldn't do better on your own than having your competitor, so to speak, selling ads for you on your station?

840 MR. MAHEU: In that context --

841 COMMISSIONER COLVILLE: That is why I asked the question about the business of radio at the outset. You are both business people coming to this thing, and at the end of the day you want to make a buck. The nature of competition is I want to beat the brains out of my competitor and drive him to the ground.

842 That is what the competitive juices do in this capitalist society that we live in.

843 MR. MAHEU: You have described radio very well and very succinctly. It is a very competitive business.

844 But in the business of radio, as was talked about earlier when we opened up the discussion, the business of radio is essentially the same everywhere. It is a combination of doing business through service to the community and building an audience and being able to take that audience and translate it into some sort of revenue that we hope is large enough to sustain a business going forward.

845 In Charlottetown the size of the market, the number of radio stations operating there and the other media, advertising competitors that we have, create a bit of a different scenario and a different situation that we believe is unique, unique enough that an LMA has been allowed to exist there for the past seven years.

846 The Commission was fully aware of that. It recognized the specific circumstances that were unique to that marketplace.

847 Radio has done a much better job over the past say five to ten years in turning its fortunes around, some of it spurred on by an improving economy.

848 Your specific question of how do we know for sure whether or not we would be better going forward in this situation or competing on our own, to be totally frank, you don't know until you actually are in that situation and go about trying to make the very best of it. Nothing is for sure, and I wouldn't sit here today and guarantee that it is better going better this way than the other way.

849 Our considered opinion as professionals and having experience in the industry, and taking a look at the past performance of the station in the market, our best educated guess based on the facts at hand would say that we would have a better opportunity to continue to provide the kind of service and diversity that is in the market through a collaborative sales agreement or collaborative sales effort rather than going it alone.

850 COMMISSIONER COLVILLE: You can't really know that if you had your own sales force competing against Mr. Russell and Mr. Pace and his team that you might be more successful in the marketplace than the share that you will get out of this arrangement.

851 MR. MAHEU: We don't know that for a fact.

852 What I do know is that if we did have to go it alone, if that was the result and we had to operate alone, we would be a very, very difficult and tough competitor and we would do whatever it would take to try to succeed.

853 We would probably lose a lot of money doing it, but it is our licence and it is our responsibility. If that were the only course of action for us, then we would absolutely give it our best effort, as we do in every market. We are tough competitors.

854 I can tell you, based on our experience and our analysis of the market, it would be a costly money-losing proposition for some time.

855 COMMISSIONER COLVILLE: Do you believe that to be the case, that it would be a money-losing proposition for some time?

856 MR. MAHEU: At this point in time to go it alone. That is not to say at some point that we reach a break-even and start to generate positive cash flow on that radio station.

857 It did not make any money from its sign-on in 1974 until the time we purchased it in 1985. It never made a dime from 1985 until the time we entered into a local management agreement with Maritime.

858 Have we learned more? Are we better? Are we more proficient at what we do? Have some technological advances come along that could potentially help us? Are we in a position to attract more capable people to our company to help us out? Yes.

859 Would we be better off going it alone financially? Absolutely not, at least for the short term and immediate future.

860 That is not to say at some point we would not be successful, but we will definitely lose. Newcap will definitely lose money immediately out of the gate on a stand-alone, non-collaborative sales approach in the market.

861 COMMISSIONER COLVILLE: Mr. Pace, I am not trying to exclude you or your team from any of these questions. If there is anything you want to jump in on, feel free to do so.

862 MR. PACE: He's getting warmed up.

863 COMMISSIONER COLVILLE: Mr. Russell?

864 MR. RUSSELL: Mr. Colville, this grey hair takes me back a long ways with the CHTN.

865 COMMISSIONER COLVILLE: I've got a lot more than you have.

866 MR. RUSSELL: But I'm losing a lot more back here.

867 CHTN went on the air around Christmas 1974, because I was across the street at Eastern with Frank Lewis at the time and Jack Schoone owned that company, as we all remember. CHTN had 20 years of straight losses until 1994 and it went through four owners in the interim period.

868 I am familiar with CHTN from another perspective inasmuch as it was the first station when I was with Newfoundland Capital, Newcap, it was the first station that I brought in to Newcap, CHTN. It was brought in as a lame duck. The terms were pretty reasonable.

869 From 1985 until when Newfoundland Capital took it on, until 1994, again it completed the 20 years. And that is not an unusual situation for a stand-alone AM. If you recall, we purchased CHER in Sydney, a stand-alone AM that had been in trouble for 30 years. It was floating out there in the ocean. It was bankrupt two or three times. It had several owners. When the rules changed, we had an opportunity of purchasing it.

870 It is not windfall for us, but we completed that arrangement. We have maintained the licence. We have maintained the service and we have created diversity within the marketplace in Sydney.

871 So I don't find the CHER situation, which was a long-term embarrassment stand-alone, a whole lot different than the multiple owners that had CHTN and couldn't make a go of it. It's had a tough history until Newfoundland Capital took it on and we made the arrangement.

872 The arrangement for the LMA was a discussion between Mr. Templeton and myself. But the intent of us going into that is prior to Rob Pace and Dale Godsoe and I buying the company Maritime. It goes back to Maclean-Hunter. It was Maclean-Hunter who -- I believe it was Mr. Murray or Mr. Maheu this morning suggested that we had gone and proposed an LMA. That was the thrust of the Maclean-Hunter operation at that time.

873 We had orders from 777 Bay: Go out and make arrangements because the radio business is going to be tough for the next few years. That is where it came from. That is the genesis of it.

874 I believe that CHTN, since 1994, has served its community extremely well. I know Frank Lewis can speak to that.

875 It is a radio station that adds diversity within the marketplace.

876 MR. PACE: I think it is important to just reflect. Prior to the LMA, what you had was two formats. You had two AC and one Country. As soon as the LMA was put into effect, the very first thing that happened is that we added diversity by establishing an Oldies format on CHTN. Then automatically, rather than having two formats servicing those listeners, we had three.

877 So there is an obvious benefit from the LMA right from the get-go.

878 The second point was that for the first time in 30 years the employees of all these stations had brand new facilities. Because we were able to generate respectable returns here and get a return on investment, the owners were able to put the money back into facilities. So the facilities in Charlottetown are state of the art, and they are as good as any place in Canada.

879 I don't think if we had the LMA in place that the owners, the shareholders, whether it was a publicly traded company or private, would make that investment. I think we should reflect somewhat on the positives that have come out of this arrangement. Those are two that are very clear to me.

880 COMMISSIONER COLVILLE: I take your point, particularly on the format issue. I guess there is no question that that entered the Commission's mind, not only when we dealt with the LMA issue but also with changing the ownership policy a number of years ago: that while the change in ownership policy or the LMA may actually reduce competition in the marketplace, competition for the business vis-à-vis advertisers, it may reduce that competition, but it may provide you with music diversity, format diversity, in the sense that we are not competing against each other and all chasing the same flavour of the month sort of thing when it comes to musical taste.

881 But of course the Commission had a concern in terms of news and public affairs programming; hence the condition that was placed upon the LMA situation.

882 So I take your point on that. The other side of that is you do reduce the competition that you have in the marketplace between those stations competing for advertisers.

883 That is the concern that we have. It is a two-fold concern here.

884 That takes me back to the first questions that I was asking related to your answer to that question in the interrogatory early on, Mr. Pace, that the business of radio is more than just the music part of it from our concern. We license any given market based on our assessment of the economics of that market, in terms of the number of competing players, competing stations we can have in a market.

885 Then we have -- and I don't mean to use this term in a pejorative sense. But we have a sort of conspiracy, if you will, among the players to not compete against each other, and that way we can enhance our overall profitability.

886 And that is the struggle we are having here today: to what extent should we allow that conspiracy to take place, to conspire not to compete against each other in a market so we can all be better off?

887 I guess that is where we have to try and be satisfied where this may be appropriate and where it is not.

888 You raised the issue about the building. I was struck by the fact that in Thunder Bay, when asked the question about terminating the LMA -- I think I raised this this morning -- that the answer from Newcap was: Well, we would have to have a separate building and a separate sales force.

889 The answer wasn't: Well, if we have to terminate the LMA, we will go to an LSA. Which somewhat surprised me, knowing the situation in Charlottetown and other places that we will be talking about before the week is over.

890 If the immediate conclusion in Thunder Bay was if we have to terminate the LMA we will have a separate building and a separate sales force, why didn't we come to the same conclusion in Charlottetown: we are going to be in the same building and we are going to have a combined sales force?

891 MR. MAHEU: Mr. Commissioner, I think you may have already asked that question ten minutes ago in a slightly different way, and that was when you asked --

892 COMMISSIONER COLVILLE: Just seeing if we get the same answer.

893 MR. MAHEU: That's all right. When you asked us the difference between what was going on in Thunder Bay, our proposal there and our proposal in Charlottetown.

894 I go back to our previous answer on behalf of Newcap. In each case, the business arrangement in Thunder Bay and our partnership in Thunder Bay is different than it is in Charlottetown. Our relationship with our partners and what we feel is best for the market and our competitive ability is different.

895 Therefore, we would have a different approach in Thunder Bay, where we are prepared to move out, have a separate premises, and do what we have to do.

896 In Charlottetown we have a different relationship with our partner, and our business arrangements are guided accordingly. That is the difference.

897 COMMISSIONER COLVILLE: Take us through how, if I am an employee of one or other of the stations, my day-to-day work environment will be different under the new arrangement from the LMA.

898 If I come to work at that station, obviously I should be seeing some change. What is the change I am going to see? I am going to be coming into the same building, doing pretty much the same job.

899 What is the difference I am going to see if this is such a profound change from this local management arrangement that all we are doing is having this one sales team go out and sell our station for us?

900 MR. MURRAY: As we indicated, we have not reached all of the terms of the agreement, nor have we concluded that we are going to stay in the same building. That has been Maritime's suggestion.

901 COMMISSIONER COLVILLE: Wasn't this a building built for these three stations?

902 MR. MURRAY: CHTN has separate programming and news facilities now. If we were to look at the business case of keeping our radio station in that same building, then we would have to have separate facilities for all aspects of our business.

903 We would have to have a place for our general manager. We would have to have a place for our own producers and copy people and admin people, et cetera.

904 So we have not determined fully what the terms of that is and whether or not it wouldn't be better to move into a separate facility down the road. That is part of the things that we are negotiating and why haven't reached agreement.

905 The point here is that we would have an absolute separate business in that building. It would be no different than us being on the fifth floor and them being on the seventh floor of Queen Square in Dartmouth where we used to be with CFDR, with our Halifax radio stations.

906 COMMISSIONER COLVILLE: We will get to that one.

907 The three radio stations are the only tenants in the building, the only occupiers of the building?

908 MR. PACE: That's correct.

909 COMMISSIONER COLVILLE: And the building was built to house these three stations.

910 MR. PACE: That's correct: separate studios, separate news rooms.

911 COMMISSIONER COLVILLE: Mr. Murray, when you talk about agreement, I presume you are going to be reaching agreement on how the sales activity is going to take place and how the revenues from the sales will be shared as among the stations.

912 The aspect of the business of how Newcap, or Maritime for that matter, is going to operate from an administrative point of view separately presumably is not something that is up for negotiation with Maritime.

913 Presumably you have to decide. The front row here has to decide, outside of the LMA, how are we going to operate and manage the station. I would have thought that was not something up to negotiation with Maritime.

914 MR. MURRAY: No. I'm sorry I gave you that impression. What I was talking about was Maritime's suggestion that we can operate independently in that building is something that we have to consider whether or not there is a better alternative.

915 COMMISSIONER COLVILLE: So you haven't decided that.

916 MR. MURRAY: Not completely, no.

917 COMMISSIONER COLVILLE: Do you have any idea how many more staff you are going to require to operate outside the LMA?

918 MR. MURRAY: Yes. Would you like the numbers?

919 We will need approximately four more people: a general manager; an accountant if you will; and a couple more people, multi-purpose people in the operation, perhaps copy, production.

920 COMMISSIONER COLVILLE: Mr. Pace, how many more are you going to need?

921 MR. PACE: I will ask Frank Lewis that question. I will pass it on to you.

922 MR. LEWIS: I don't know what the number would be, but it is obvious we may need a couple more people in the sales area, and I think it is pretty obvious that we might need more people in news and of course a general manager. I don't know beyond that what else, from my standpoint. I don't know whether Merv has an idea.

923 MR. RUSSELL: I think it is reasonable to assume there would be five additional people on our side.

924 COMMISSIONER COLVILLE: So nine more people altogether.

925 Why would you need more people in news, Mr. Lewis?

926 MR. LEWIS: I think we would have to do news a little bit differently than we do it now -- not differently, but obviously we are going to have to do everything separately. We are going to be in a separate location as we are now, but I think to do a good job in the news area, which we like to do, I think we would need at least another person or two in the news department.

927 COMMISSIONER COLVILLE: I would have thought news was all done separately already anyway.

928 MR. LEWIS: Well, it is, but I think we would probably need -- as I say, I think we would legitimately need one more news person.

929 COMMISSIONER COLVILLE: Mr. Russell, you said more people in sales. Why would you need more people in sales? You already have a combined sales force here, and that is going to continue.

930 MR. RUSSELL: It is my feeling -- and we have discussed this on a number of occasions -- that we could use at least one more, if not two more, sales people in our sales department. It is coming up to budget time, and when Pace and I run into Charlottetown to review the budgets for next year for our two radio stations we are going to be a bit aggressive on revenues next year, and that is going to require additional sales people as well.

931 On that news aspect, one of the elements that we are going to have, sometimes when it comes to vacation periods there is a cross-over of voices. What we have suggested in the model going forward with the sales agreement is that there would be no cross-over of voices. So we would have separate voices, MBS voices, on CHLQ and CFCY, and that would manifest itself into at least one more announcer and one more news person.

932 COMMISSIONER COLVILLE: If Maritime were not part of the sales agreement, would you still need two more sales people? How many sales people would you need relative to what you have now?

933 MR. RUSSELL: Your sales people, it depends on how much we are anticipating in revenues for next year. We have some sales people that have lists of 140 clients. We don't think that we can properly service those clients effectively with that size of a list.

934 COMMISSIONER COLVILLE: Mr. Maheu, Mr. Steele or Mr. Murray, if you were spinning this operation off and had two more sales people, how would that change your business equation?

935 MR. MAHEU: Spinning the operation off meaning...?

936 COMMISSIONER COLVILLE: Totally, no sales agreement.

937 MR. MAHEU: Standing alone out in the marketplace?

938 COMMISSIONER COLVILLE: Just like Thunder Bay.

939 MR. MAHEU: We would probably -- we may do things differently than MBS, but as an AM stand-alone in the market having to go out on our own, we would probably have a sales department of between four and six, trying to generate as much business as possible.

940 The general manager would be a general manager/general sales manager in that particular case, probably carrying a list.

941 Not to put too fine a point on it, but what was mentioned earlier about what we would need to add in terms of people, they talked about five. That is all basically management and admin -- four or five.

942 MR. MURRAY: Yes, four.

943 MR. MAHEU: We are set there. In terms of our news and our programming, it has always been separate and distinct, and we would not have to add any there.

944 MR. R. STEELE: Just one other point in referring to Thunder Bay, in Thunder Bay there is an FM and the market is a little larger than Charlottetown.

945 COMMISSIONER COLVILLE: I take your point.

946 MR. R. STEELE: And these are very distinct differences.

947 COMMISSIONER COLVILLE: If we look at some of the financial figures over the last few years, from 1999 to 2003, we can see that there was significant -- well, perhaps in some cases less significant -- savings in a number of areas, in program, over the period across the three stations, about a 4.5 per cent savings in program, 10 in technical, almost 15 in sales promotion, a 27 per cent increase in administrative expenses.

948 Can you explain the increases there?

949 MR. MURRAY: Are you talking about the five-year period?

950 COMMISSIONER COLVILLE: Yes, 1999 to 2003, over that five-year period.

951 MR. MURRAY: I think from Newcap's standpoint, as shown by the agreement, all of those costs are allocated or proportioned. We get 25 per cent of everything.

952 Perhaps Maritime should speak to the specifics of that, although we do add some costs at the head office level, allocation, as I believe they do. So I suspect that is part of it.

953 COMMISSIONER COLVILLE: This is across all three stations over the five-year period.

954 MR. MURRAY: Right. But it is showing up in admin, you are saying.

955 COMMISSIONER COLVILLE: Yes. We see the admin for all three stations increasing by almost 30 per cent over the five-year period.

956 MR. MURRAY: Right. What I am saying is the local management agreement provides for profit sharing. Then after that point, after the profits are disbursed, each company applies other costs to the business that is outside of the management agreement. I suspect those are probably the costs that have increased in both companies, more so than the admin costs at the station level.

957 I would refer to Maritime for more details.

958 MR. PACE: I don't have those figures right in front of me, but we can look at those and find out exactly what it is.

959 Off the top, it seems to me that part of those admin expenses may have been the actual construction of the new building, and after we got the new building up to speed it was a significant improvement in some antiquated equipment that we had.

960 But I have to be honest with you. I don't know exactly if that is the case. I think that is perhaps it, but we can provide that information.

961 COMMISSIONER COLVILLE: Does CHTN pay rent under the LMA?

962 MR. PACE: Yes.

963 COMMISSIONER COLVILLE: CHTN's admin and general went up -- let me put it this way -- more than double the FM station, according to our figures here.

964 MR. PACE: We are just good negotiators.

965 MR. MURRAY: Yes. That bears fruit on what I was saying. That must be because of the head office allocations. It is after the fact.

966 The admin costs would be divided 75:25 and then once we get those numbers, we apply either costs -- there are other costs to running CHTN than simply what happens over in Charlottetown. So we apply some of the costs of our head office to all of our businesses.

967 So those costs went up, and they all fall into admin.

968 COMMISSIONER COLVILLE: Where would I find the cost savings resulting from the LMA?

969 MR. MURRAY: The LMA took place in 1994, so they would have happened immediately then. I don't have that with me either. I don't have costs going back to 1993.

970 COMMISSIONER COLVILLE: I'm looking for the numbers. In what categories would I find those numbers?

971 Where are you making the savings? It is costing you 34 per cent more to run the business.

972 MR. MURRAY: I'm not following your question.

973 COMMISSIONER COLVILLE: Where would I find the cost savings for the LMA. In what sort of categories of operations here would I be looking to find the savings that were generated over this period of time as a result of the LMA?

974 MR. MURRAY: In 1994 when the LMA went in place, we eliminated a receptionist, a general manager, sales people and other people. We retained all of our programming and news.

975 So the costs would have been in administration, technical and sales.

976 MR. RUSSELL: Mr. Commissioner, one of the big costs I recall vividly was we were pounding on one another pretty good promotionally on the island. Like you see here in the city, I was amazed today with all the signs on buses. We had signage everywhere, and we were buying promotions for this and buying promotions for that, and more vehicles on the road than you could shake a stick at.

977 We cut back in that area when we had our cooperative agreement in place, and I remember that was a substantial saving to us.

978 COMMISSIONER COLVILLE: In the last five years it shows about a 15 per cent reduction in sales and promotion. So promotion would be part of that savings.

979 MR. RUSSELL: Right.

980 COMMISSIONER COLVILLE: When we look at about a 5 per cent decrease in programming expenses, is that reflected in staff savings?

981 MR. MURRAY: You are referring to CHTN again?

982 COMMISSIONER COLVILLE: I am referring to the group here. CHTN in fact had the highest.

983 MR. MURRAY: Reduction or...?

984 COMMISSIONER COLVILLE: Yes. It had the highest reduction in program expense.

985 MR. MURRAY: Right.

986 COMMISSIONER COLVILLE: How did you save in program expense?

987 MR. MURRAY: I think probably the biggest saving was in terms of digital automation. We put the new system in place and were able to save on staffing and benefits and stuff. It would have been around -- I don't remember the exact date but over that five-year period we upgraded our digital automation.

988 COMMISSIONER COLVILLE: Is that something you would have done anyway? Is that done independent of the arrangement with Maritime?

989 MR. MURRAY: Yes. That savings was not a function of the LMA. Like I say, the LMA went in place in 1994. The savings from the LMA were enjoyed immediately which, as we indicated, we became profitable immediately through dramatic savings.

990 As Mr. Russell indicated, promotion would have been a huge element of that.

991 You are asking us about savings in the last five years.

992 COMMISSIONER COLVILLE: Right.

993 MR. MURRAY: They had nothing to do with the LMA because the LMA has not changed in the last five years. So those savings would have been from digital automation and other efficiencies put in by ourselves on the programming side and by Maritime on all other aspects of the business, yes.

994 COMMISSIONER COLVILLE: Perhaps, Mr. Russell, since you answered the earlier one, I see for CFCY somewhat less but significant program expense saving.

995 Would that also have been with the switch to digital?

996 MR. RUSSELL: Frank, you would be more current on it.

997 MR. LEWIS: I don't have any figures in front of me. I can't recall now just where that -- I don't know. I don't have the numbers in front of me and I don't know where that would be.

998 MR. RUSSELL: We should have brought Owen Barnhill(ph) along with us.

999 We can get that.

1000 COMMISSIONER COLVILLE: I am not looking for precise numbers. I am trying to get an idea of it.

1001 MR. RUSSELL: A feel for it, yes.

1002 COMMISSIONER COLVILLE: So you don't know.

1003 Perhaps you could explain to what extent the LMA, in your view, both sides, has been beneficial in terms of generating additional advertising dollars, beyond what you would have gotten on your own.

1004 MR. MAHEU: Speaking for Newcap, Mr. Commissioner, the LMA has been for the Charlottetown market anyways, speaking for Newcap from an effectiveness point of view has been for the last seven years a very welcome Godsend really in terms of our ability to compete effectively in the marketplace against other media.

1005 Prior to the LMA we had a situation where not only was CHTN, as an AM radio station, competing against two other radio stations in the market for advertising dollars, we found ourselves competing with the newspaper, television, outdoor, Yellow Pages, Pennysaver, whatever it happened to be. We are one of many, many advertising choices.

1006 The benefit over the past number of years of being involved in an LMA has been a much more effective consolidated radio sales effort against other media choices, unregulated and regulated, in the market.

1007 We have obligations to the public, and we are bound by regulations and many of our competitors are not.

1008 We have certain costs. We have expenses and obligations to fulfil, along with our goal of being a financially viable enterprise in a marketplace. Not crying the blues, not trying to make an excuse.

1009 But in Charlottetown, as a specific example, a very small market, very small. We were talking about Thunder Bay. It is about one third the size of Thunder Bay.

1010 In that particular case, there are three radio stations in Charlottetown, two of which are owned by MBS, one of which is owned by us, fighting each other and battling it out in the most competitive way we possibly could, spending money to do it; trying to do as good a job as we possibly could for listeners while at the same time trying to bring an effective advertising solution to the advertising community in Charlottetown, which is not that large.

1011 So, overall, the benefits over the past seven years have been radio's ability to continue to provide excellent service to the listeners of the marketplace, format diversity, while at the same time bringing a consolidated advertising opportunity that allowed radio as a medium to compete much more effectively with other ad competitors in the marketplace.

1012 That is Newcap's opinion.

1013 COMMISSIONER COLVILLE: Mr. Pace?

1014 MR. PACE: I can't add much to that, other than I think the LMA -- the facts speak for themselves. There were 20 years of losses on CHTN. As soon as we put the LMA vehicle in place -- I think the LMA vehicle for small markets is a great vehicle. I don't think we should be shy at all in pointing out the fact that it is.

1015 It led -- and this is a perfect example -- to diversity of choices in the marketplace for the listeners but also for the advertisers. As well, it created an opportunity to put forth a profitable situation for both companies, and both companies have put money back into this.

1016 I don't believe that in these small markets, if we were left there to compete as we were, you would have had the result that we have today.

1017 That is about all I can add to it.

1018 COMMISSIONER COLVILLE: If we looked at those same figures over the last five years, it shows that the PBIT for all of the stations is positive and for CHTN has been positive and a fairly decent figure.

1019 Given that, what is your view about whether or not CHTN can be viable outside the LMA, and how long do you think it will take for CHTN to be profitable?

1020 MR. R. STEELE: I think it won't be viable outside the LMA unless we are allowed to be into an LSA.

1021 COMMISSIONER COLVILLE: Outside the LMA. Let's assume you have an LSA for the first part of this question.

1022 MR. R. STEELE: Right.

1023 COMMISSIONER COLVILLE: Assuming you have no LMA but you have the LSA that you are contemplating but haven't completed yet, can CHTN be profitable?

1024 MR. R. STEELE: On an LSA?

1025 COMMISSIONER COLVILLE: Yes.

1026 MR. R. STEELE: Yes, it can. I mean, the costs will increase. It will be, I would speculate, less profitable because we will be a distinct business with our own management and programming, et cetera. But it will be profitable.

1027 COMMISSIONER COLVILLE: How long do you think that will take?

1028 MR. R. STEELE: My guess would be --

1029 COMMISSIONER COLVILLE: You're the boss.

1030 MR. R. STEELE: I think it would be profitable right from the get-go.

1031 COMMISSIONER COLVILLE: Right from the get-go.

1032 MR. R. STEELE: As soon as we dismantle this thing -- your costs are going to increase, but they are not going to increase that dramatically that it is going to put us into a negative situation.

1033 MR. MAHEU: If I may follow up --

1034 COMMISSIONER COLVILLE: You are going to be responsible for delivery.

1035 MR. MAHEU: I would like to thank my boss for making those promises.

1036 We agree that we can be profitable under a collaborative sales agreement or collaborative sales approach with MBS. Our profitability is going to fall. We are doing okay now under the LMA. We anticipate that our profitability will fall immediately, because our expenses are going to go up.

1037 But we will still be marginally profitable, which is better than the alternative before we were into any collaboration with MBS: year after year after year of negative PBIT in the marketplace, and for CHTN particularly. I can only speak for us. We lost money every year.

1038 So faced with the prospect of a meagre profit versus the spectre of going back to the old dark days of losing money in Charlottetown again, making a small profit we area comfortable with that.

1039 We know with our increased expenses it will be some time before we reach the level of profitability that we have now, probably two to three years at least.

1040 MR. R. STEELE: Also bear in mind, as you pointed out earlier, the business of radio has gotten better versus when we first entered into the LMA. So that, combined with the situation that exists there now in Charlottetown, I think we will still be profitable.

1041 COMMISSIONER COLVILLE: You have your objective.

1042 MR. RUSSELL: Mr. Colville, I just thought -- behind Tom here.

1043 COMMISSIONER COLVILLE: No. I see you.

1044 MR. RUSSELL: I think I have come up with the answer you wanted on where did that type of money go.

1045 When we went into the LMA situation, we were spending a ton of money on promotion at BBM period all around the island. We also cancelled our subscription to BBM, contracted out local research and in-house research, which satisfies the clients. That saving alone was in excess of 50 grand a year.

1046 So I think that might be a reflection of the percentage that you saw.

1047 COMMISSIONER COLVILLE: Let's go back to the second part of my question and let's assume that the Commission denies an LSA. Can CHTN be profitable?

1048 MR. R. STEELE: It would be a long arduous task.

1049 COMMISSIONER COLVILLE: How long?

1050 MR. R. STEELE: I will speculate and say -- with an AM, I will probably be retired from Newfoundland Capital.

1051 In other words, my own feeling, quite frankly, is that it cannot be profitable as a stand-alone AM in that marketplace.

1052 Mark, do you want to comment?

1053 MR. MAHEU: Mr. Commissioner, I agree with Rob. I think as a stand-alone AM having to compete on its own against entrenched heritage competitors in the radio business and the other media options that are available on the island, we are going to lose money for the foreseeable future. And I mean years over years over years.

1054 If we were faced with that situation, our only option would be to apply for some sort of relief with the Commission and Industry Canada to try to compete more effectively. That would probably mean trying to get an FM signal in the marketplace if there was one available.

1055 Even then, being on a bit more of a level playing field, it would still be some years, probably three to five, by the time you position, advertise, promote and brand a product that can build an audience large enough. It would also mean a change of format for us because the format we are in now, you cannot do it on FM.

1056 So we would be looking at doing market research, having to do another format. And the temptation might be to find a format that goes where all the money is and then we are back to the same old thing: less diversity in the marketplace, spiralling down of revenues, where we don't feel the market would be best served.

1057 Going forward as an AM, we will never, for the record, ever be in a position to be profitable as a stand-alone AM in the market.

1058 COMMISSIONER COLVILLE: So you couldn't sell your station to enough advertisers to make it profitable to compete against Maritime.

1059 MR. R. STEELE: If you were able to build up similar to what Maritime has in that marketplace, like we have in Newfoundland with VOCM or CFCW out west, a heritage AM station, which obviously takes years, by definition of being a heritage. Conceivably, yes, you could do something with it.

1060 Again, if you are looking at the business of radio, it wouldn't make sense for us to continue with that.

1061 COMMISSIONER COLVILLE: How much incremental revenue do you expect to get from the sales agreement above what you would get independent on your own?

1062 MR. R. STEELE: I will let Dave answer that.

1063 MR. MAHEU: It's a judgment and it's an educated guess.

1064 Mr. Commissioner, are you talking about the difference in revenue that you feel we could do on our own as a stand-alone AM versus --

1065 COMMISSIONER COLVILLE: You obviously feel that LSA has a financial benefit to this operation than not having it, than being totally independent on your own. You are going to incur all of the other expenses to be on your own anyway; all the LMA stuff to get out of the LMA.

1066 MR. MAHEU: Yes.

1067 COMMISSIONER COLVILLE: You talked about four more people, a general manager, an accountant and a couple more people. So you are going to incur all of that.

1068 MR. MAHEU: Right.

1069 COMMISSIONER COLVILLE: You have to make a business decision, Mr. Steele, Mr. Maheu and Mr. Murray. Are we going to operate the station as a complete stand-alone and compete against the fellow sitting behind you, or are we going to conspire to sell ads as a group?

1070 And looking at it from a business perspective, I have a decision to make: Do we go on our own or do we work with them to do this?

1071 We are going to work with them because we are going to get more money and it will help make the station profitable.

1072 We can do that right away as opposed to never.

1073 MR. R. STEELE: That is essentially our view.

1074 COMMISSIONER COLVILLE: So what is the incremental revenue that you are going to get that changes that equation?

1075 MR. MAHEU: The incremental revenue -- the exact amount is hard to determine, but the incremental revenue is going to come from, and we are going to benefit by bringing a consolidated radio solution to advertisers in the market.

1076 We would not have enough critical mass as an AM stand-alone to be competitive against two radio stations, let alone a newspaper, an outdoor company or whomever, to do enough revenue to support the kind of expenses it would take to run the station as a stand-alone.

1077 You also enter into an area as to how the market was before the LMA days, where there was zero rate integrity in the market and it was pretty much a free-for-all with stations trying to compete.

1078 So the difference between the amount of money, the incremental difference between -- we are going to have the same expenses, relatively speaking, either way. What we are talking about is the difference of being able to generate enough revenue to cover those expenses.

1079 COMMISSIONER COLVILLE: That's my question.

1080 MR. MAHEU: Really what we are looking at, when we say going forward we are going to be looking at probably a marginal profit being in a sales collaboration with Maritime. We have a sense of what that might be without having negotiated anything with them.

1081 Obviously we have some minimum numbers in our mine.

1082 It could be well in the neighbourhood -- the difference between what we would be able to do sales-wise, revenue-wise in a collaborative sales agreement versus a stand-alone AM, we are out on our own, could be well north of seven, $800,000, swing either way.

1083 We operate a number of stand-alone stations, single service markets, out west and in Newfoundland. We don't face the same competitive pressures that we do in Charlottetown with two other radio stations in the market, both bigger than us, both with a bigger head start, infrastructure, audience base, client base.

1084 We can compete in those markets. We do it out west. We do it in Newfoundland. But the circumstances are much different in those places than we find in Charlottetown.

1085 I would say if you want it on the record, we are looking at probably somewhere a revenue difference of five to $700,000, at least for the first few years.

1086 COMMISSIONER COLVILLE: This incremental revenue will come largely from advertisers who will buy your station along with one or two of theirs who otherwise wouldn't buy yours at all?

1087 MR. MAHEU: That is correct. Our offering in the marketplace in CHTN becomes much more attractive to advertisers when it is bundled with the other radio stations on the island.

1088 We have just spent the last seven years talking to advertisers on the island, and I think Mr. Russell and Mr. Lewis could speak to this more clearly.

1089 I know we have positioned this offering with businesses on the island for many, many years now and the benefits of radio versus other media, and bringing in of critical mass to the table where we are competitive with a local newspaper or island-wide reach and other outdoor advertising options and so on.

1090 If we were not doing this together going forward, we are going to have to back-pedal on that and then talk about the benefits of radio overall and then, once we have convinced clients of that, start talking to them about the benefits of doing business with us instead of somebody else.

1091 We do that in competitive markets all the time. But in this particular market, given the size, the scope and the history of the marketplace, it becomes increasingly difficult to do.

1092 COMMISSIONER COLVILLE: How far along are you in negotiations as between the two parties in terms of reaching some sort of agreement on this sales arrangement?

1093 What I am getting at is: When can the Commission expect that you would have a completed agreement?

1094 MR. MAHEU: Well, it has certainly been our goal all along to have some sort of agreement done, negotiated out and have something that we can all agree on, well before the expiry of our licence, because things are going to have to change. The Commission has made that very clear, going along on deficiency, that it is time to get out of the LMA, folks. This market is now profitable and you need to do something else.

1095 We know it is coming. And our relationship with MBS is an interesting one. They are great partners in Charlottetown, but there have been some other areas where we are going to have to agree to disagree.

1096 COMMISSIONER COLVILLE: We noticed.

1097 MR. MAHEU: Those situations tend to -- human beings being the way we are, those types of things can get in the way of good people coming to an agreement. But we understand the urgency of the situation. We are aware of what our responsibilities are.

1098 I am quite sure that we are going to be able to conclude a successful negotiation in the very near future, and I would be surprised if it took more time than the end of the month or shortly thereafter to have something done.

1099 I can't speak for Maritime on that. But strictly from Newcap's point of view, we are ready to get that done.

1100 COMMISSIONER COLVILLE: When you say the end of the month, are we looking at weeks away from reaching an agreement?

1101 MR. R. STEELE: Sure.

1102 COMMISSIONER COLVILLE: Do you share that view, Mr. Pace?

1103 MR. PACE: Yes, I agree with that.

1104 I think we are all looking, everybody in this room, for a little signal from you people. Everybody is kind of sitting here, and we know that we have been told that LMAs are no longer appropriate but there is not a clear signal that LSAs are and how one should put an agreement together.

1105 A little guidance -- and I have made it in remarks -- on what an LSA, an appropriate LSA that would be favourably looked at by the Commission would certainly be helpful to all broadcasters, I believe.

1106 If that was out today, or the end of this week, I am certain that the broadcasters -- I will speak for ourselves but also Newcap here. I am sure one could sit down quite quickly and hammer out a negotiated LSA.

1107 COMMISSIONER COLVILLE: One of the concerns that we would have -- and I think Vice-Chair Wylie mentioned this earlier this morning -- if at the end of the day all the LSA is is the same agreement, stroke out LMA at the top of the first page and write in the words local sales agreement, and effectively we have three stations operated as one, or perhaps five as one, or whatever, then to the extent the Commission has a concern about LMAs we would still have a concern about an LSA if it is just an LMA by a different name.

1108 That is really why I have been probing in these questions earlier this afternoon. If we have this profit-sharing arrangement where the books are open and essentially we are still operating this as one business, then nothing has really changed.

1109 In spite of our efforts to license competitors in a marketplace, we don't see competition in front of us at all. All we see is three stations operated as one, or whether it is a different arrangement where perhaps there is some benefit, particularly in a small market, to keep stations going that otherwise might not survive.

1110 It is not our job to try and kill off radio stations in the marketplace, certainly.

1111 Obviously then if we are weeks away from concluding an agreement, you must have been negotiating this for some time and have a pretty good idea of what shape this agreement is likely to take.

1112 MR. MAHEU: Mr. Commissioner, we do and these agreements are not as simple as they might seem. I do need to get something on the record where Newcap's opinion differs from MBS' opinion.

1113 Mr. Pace was just talking about looking for a signal and a little direction from the Commission on sales agreements. That is exactly the type of stumbling block we have run into in part of our negotiation where we are of a different opinion. We are of the opinion that local management agreements are in no way, shape or form akin to local sales agreements.

1114 Sales have never been part of the regulatory purview of the Commission. There have been national sales agreements forever where other companies represent radio stations for the sale of national air time.

1115 We feel as a company and as an industry overall, we have been very responsible in the way we have gone about the marketing and sale of our time. In fact, the Commission, in Decision 2000-203, Milestone Broadcasting and Standard Broadcasting -- I won't quote it back, but the essence of that decision was very clear that the CRTC referred to in that decision that an LSA is not an LMA.

1116 We have been operating on that premise for some time.

1117 So speaking for Newcap, we are not here looking for a signal or guidance on how we should structure the retail sale of our air time. We certainly under an LMA situation filed our agreements with the Commission. They were reviewed. They were fine. Those days are over now. We understand that in going forward.

1118 We have a collaborative sales effort in some places and we would like to have one in Charlottetown. We feel that that is a negotiation between the parties at hand and that nothing has changed in terms of our editorial control over programming, our control over news. The separation of church and state, so to speak, in those areas is very clear. We have no problem with that at all.

1119 We are looking to be in a position in Charlottetown, number one, to have our licence renewed for CHTN for seven years so that we can keep doing what we are doing there and be as effective as we possibly can in serving the community and bringing diversity and choice to the marketplace which might not otherwise be there.

1120 We would like to do it within the parameters of the Broadcast Act, within the best practices of the industry and in a manner that is acceptable to our partner and hopefully the Commission.

1121 It has been our opinion from the get-go that relationships and local sales that are legal, that are ethical, that are in the best spirit of the Broadcasting Act, are not an issue.

1122 I know the Commission has some questions and in some cases may disagree, and that's what these hearings may bring out. But from our point of view, there is absolutely nothing similar between an LMA and an LSA. They are very different things, and the Commission has said so itself in other decisions.

1123 COMMISSIONER COLVILLE: I don't think anybody here is suggesting that these arrangements are illegal or unethical. I think Vice-Chair Wylie this morning went through the definition, which says -- and I will repeat it:

"... an arrangement, contract, understanding or agreement between two or more licensees of their associates that relates directly or indirectly to any aspect of the management, administration or operation of two or more stations that broadcast in the same market."

1124 I don't know how a sales agreement would fall outside of that.

1125 I don't think the Commission is suggesting we wouldn't necessarily approve one. But it seems pretty clear that a sales agreement would be an agreement between two licensees relating directly to probably one of the most important aspects of the management, administration and operation of stations in a market. I don't know how you could reach any other conclusion.

1126 MR. MAHEU: Well, Mr. Commissioner, we have. The description you just put forth is a very broad, all-encompassing description and there are probably several absurd examples that we could come up with that would absolutely not make a hill of beans worth of difference in diversity, editorial voice or how a radio station operates or how it serves the community that would be out of bounds.

1127 COMMISSIONER COLVILLE: Mr. Maheu, you will recall I started this questioning by asking what is the business of radio.

1128 As I understood from both Mr. Steele and Mr. Pace, notwithstanding the other aspects of it, part of the business of radio is selling audiences to advertisers. There is not much more that is fundamental to running the business than that, it seems to me.

1129 So an agreement for two licensees to get together to share in that fundamental aspect of the business seems pretty significant and would seem to me -- I think it seemed to us to fall squarely within that definition.

1130 As I said, it is not our view that necessarily we wouldn't approve it. In our view, it would fall within that definition.

1131 Then the question seems to me to be: Is it justified in certain markets?

1132 MR. R. STEELE: I agree with that and it is significant. Again, in the case of CHTN in Charlottetown, it is significant because if we are allowed to proceed under an LSA, it is worth doing. If we were not allowed, we would have to make a business decision.

1133 So that is very significant. We fully agree with you on your perspective on that.

1134 COMMISSIONER COLVILLE: Mr. Maheu, you made a passing comment just a few minutes ago about the Charlottetown market being profitable, which raises a question from our perspective looking at the economics of a market -- and we do this regularly, of course, when people apply to have a new station in a market: to try to take a look and get an assessment of whether a market could sustain one or more new stations.

1135 As all of you at the table here are very familiar, we went through that exercise a couple of months ago in Halifax.

1136 Given the situation in Charlottetown where the numbers are not really reflective of the reality of the market as one might normally expect to find if it was a competitive situation, I wonder if you could comment on that in terms of us -- as you said, the Charlottetown market is profitable. If we were to look at it from the point of view of how would we be able to make a judgment as to whether or not a market like Charlottetown in fact, given its profitability, could sustain even more stations, given the fact that the arrangement that we have in place distorts the financial figures.

1137 MR. MAHEU: If I understand what you are saying, Mr. Commissioner, judging from the financial performance of the market, how would the Commission determine whether or not there was room for another entrant in the market?

1138 COMMISSIONER COLVILLE: Does the LMA or LSA mask the reality of the marketplace? And if it does, how do we get to the bottom of what the real situation is?

1139 MR. MAHEU: Mr. Colville, I think definitely in this situation the LMA would give you a best case scenario on the upside of what the market is capable of doing in terms of revenue.

1140 When you are able to take a consolidated radio offering of three good radio stations to advertisers and bring that critical mass to bear against competitors, you are going to see a best case scenario. And I think we have seen that in terms of revenue.

1141 I think, going forward, it would not surprise me in the least if we were unable to work in a collaborative way on local retail sales, the market would drop almost immediately because there is going to be no critical mass offering. There is going to be direct competition between two radio operators for the sale of radio ad time to customers, and that is going to make the market go down.

1142 Even if the market is growing at whatever average rate it is growing, those increases or growth are going to be eaten up with discounts, rate adjustments, et cetera.

1143 I can certainly speak from Newcap's point of view. If we are operating alone as a stand-alone AM, to generate revenue and to cover our expenses we are going to have to sell radio air time for whatever we can get for it. If that is not very much, then we are going to have to sell a whole lot of it at not very much. And that is certainly going to being the marketplace down.

1144 So to answer your question, we don't believe at this point in time -- there is barely room for the three of us, and there was only room for the three of us in an LMA situation. In a sales collaborative approach things would probably remain much the same. On a stand-alone going forward basis the market would probably drop.

1145 So I think from a revenue point of view, you are looking at a best case scenario of what the market is capable of at this point.

1146 COMMISSIONER COLVILLE: I guess we can really never know what it would be. That is the problem that the Commission has in front of it. We have a situation where the Charlottetown market looks profitable --

1147 MR. R. STEELE: And it is profitable.

1148 COMMISSIONER COLVILLE: And it is profitable. But it is more profitable than it would be if we had a real competitive situation and one station competing against two, where one station may not be profitable at all.

1149 We can't know that because of the situation. And we will never know that.

1150 MR. MAHEU: Hopefully, you will never know that, yes.

1151 COMMISSIONER COLVILLE: Unless we license a new station and upset the balance.

1152 MR. R. STEELE: That is a tough call.

1153 MR. MAHEU: It is. But based on the experience of the marketplace where you have prior to the LMA an AM and an FM competing against an AM and they are out there duking it out for a share of radio's advertising dollars in the marketplace versus going forward with a collaborative approach of selling a consolidated radio offering to advertisers, we know what the market is capable of.

1154 It would make sense to assume that for that collaborative effort to end, the market would drop.

1155 COMMISSIONER COLVILLE: We have talked about the possibility of not having an LSA. I am not sure I understand your position about LSA fitting within our definition of LMA as an agreement between licensees. We have gone through the definition.

1156 Is it your view that an LSA would not require our approval?

1157 MR. MAHEU: Depending on the sales agreement. If it is a sales agreement that is in effect having one radio station in a market contracting out sales to another broadcaster, where the broadcaster that is contracting out sales continues to maintain total control over the enterprise, editorial control, a separate editorial voice, news and programming control -- I'm sorry?

1158 MR. MURRAY: The rate.

1159 MR. MAHEU: That is the other important thing too, in terms of managing the enterprise, that we control the rate. We have the right to say no.

1160 We don't see that necessarily the same way as falling within that definition.

1161 We still have total management control over what is being done. The only thing we are not doing is presenting and selling and signing the order with the customer. That is part of the business function of radio, as was discussed in your opening question. The sale of advertising is certainly a very important component of the business function of radio.

1162 As a licensee, when we contract out the sale of national advertising to another company, some of these companies have ownership roots inside radio broadcasters that we may or may not compete with in a marketplace.

1163 The radio station, the licensee still has the ability and the right, regardless of whatever contracting has taken place, to say we will not accept this commercial because of the type of creative that it has; that it doesn't fit our format or it doesn't fit our local standard. We have the right to say no because it doesn't meet our rate requirements.

1164 We maintain total control and management control of the enterprise, even if that part is contracted out.

1165 That is the position we have taken. Even if we contract the actual presentation and closing of a deal, we still have the ultimate say and the ultimate control over whether we are going to take that deal and on what terms we are going to take it.

1166 COMMISSIONER COLVILLE: Is it your view that you would file any agreement with the Commission but that the agreement doesn't require Commission approval?

1167 How would we know, unless you do that -- even if I accept your point of view, how would we know whether in fact the agreement meets all that criteria unless we have it?

1168 MR. MAHEU: There is a fundamental difference between filing a notice and filing an agreement for approval. I guess it depends on --

1169 COMMISSIONER COLVILLE: I am just trying to understand your view.

1170 MR. MAHEU: Sure.

1171 COMMISSIONER COLVILLE: What would you expect of us if I accept your view that it doesn't require approval because of all that you have just said? How are we going to be satisfied that in fact it doesn't trip over the line for all of the issues that you have just talked about?

1172 MR. MAHEU: Then the Commission I am sure has a number of alternatives, from simple to complex. You could simply require a broadcaster, maybe as part of a licence renewal, or whatever, to file a notice of an agreement that they may have in a marketplace -- not requiring approval but just so it is on file.

1173 Broadcasters, for the most part, would likely want that on a confidential basis and not part of the public file, because it may form the essence of a confidential business practice, or so on. You could do that.

1174 I don't think many broadcasters would have a real issue with that.

1175 If it goes to the issue of requiring approval, it would be hard for us to say yes to that without knowing what criteria the Commission would use, in the absence of any public process that has taken place to date, of what the essence of that agreement should, can or cannot have.

1176 If you are asking the question "if you are willing to agree with us on this side, are we willing to agree with you that there should be some sort of notification", speaking for Newcap, we wouldn't have a problem with sending the Commission a notice, on a confidential basis, of what sales practice agreement we have in place with another radio station.

1177 COMMISSIONER COLVILLE: It would be your view, then, I take it, if that sales practice agreement did trip over the line in terms of now getting into some of the management activities -- and I am just taking your view now -- that would fit into this and require approval.

1178 MR. MAHEU: If we filed our notice with the Commission that we were involved in a collaborative sales effort with another broadcaster in a marketplace, on a confidential basis, and the Commission found that elements of that agreement were in contravention of any part of the Broadcast Act, our expectation would be that we would be notified by the Commission that, based on our interpretation of the Broadcast Act, you are doing this and we don't feel that you could do this. And you need to know that we think you would be out of compliance.

1179 Then we would take appropriate action or we would come and speak with Commission staff to get clarification, or whatever.

1180 That is different from an approval. That is different from submitting a sales agreement that is negotiated in good faith between two parties and sending it to the Commission, certainly not knowing what the criteria are outside of the Broadcasting Act.

1181 COMMISSIONER COLVILLE: You agree that a management agreement should be subject to Commission approval.

1182 MR. MAHEU: Are you talking about an LMA?

1183 COMMISSIONER COLVILLE: Yes.

1184 MR. MAHEU: You know, if you use the United States as an example -- and this is where management agreements started. I worked there at the time when they started, and I put one of the first ones together in a state.

1185 At the time, those were in direct response to the economic situation radio was facing mostly with severely declining AM tuning and the proliferation of Class A lower power stations popping up in areas all around major markets.

1186 In those particular cases, the FCC took the position that broadcasters acting in good faith could make an arrangement whereby they could combine operations, as long as each one maintained control.

1187 I think at the time they put in a provision -- and when I returned from the United States to Canada I was surprised that there weren't provisions in some agreements.

1188 The FCC would not allow an agreement that didn't include -- any agreement that included a termination clause would not be acceptable. In order for a licensee to maintain total control, they needed to exit out of an agreement if it didn't make sense for them.

1189 So in those particular cases, it was a very simple form.

1190 In Canada, LMAs because of the multiple licence ownership issue, the Commission has made it quite clear that unless they are in the most extreme of cases -- and we thought maybe Charlottetown was one of those cases, but the Commission has notified us, with no exception, that Charlottetown doesn't even qualify any more.

1191 LMAs have really gone the way of the do-do bird, and the multiple licence ownership in most markets can take care of that.

1192 That is a very long circuitous answer, Mr. Colville, around the idea that at this point in time it really doesn't matter what I think, because they are over, for all intents and purposes. I think Thunder Bay was the last one.

1193 I am not sure of that, but I think it may have been. Those days are gone.

1194 COMMISSIONER COLVILLE: Mr. Steele, you were reaching for the microphone there at one point.

1195 MR. R. STEELE: Your question specifically was: Do we agree with the Commission wanting to document or regulate LMAs. That was your question. Right?

1196 Do we agree with that?

1197 COMMISSIONER COLVILLE: More specifically: Did you agree that LMAs should be subject to Commission approval?

1198 MR. R. STEELE: Right. I would say yes, we do.

1199 The area I think --

1200 COMMISSIONER COLVILLE: Sorry to interrupt you, but I guess my follow-up question then is: How can we be satisfied that an LSA, even if it meets your criteria, isn't an LMA, unless we look at it?

1201 MR. R. STEELE: The hesitation there for why we are a little touchy on this is because within the radio fraternity right now vis-à-vis the CAB, regulation of sales is sort of a contentious issue. That is, quite frankly, why we are -- we agree that you have to validate or regulate this LMA situation.

1202 To the point that you made earlier that it is significant being whether or not you are in an LSA or not, it can directly affect profitability, my own personal view is that the Commission should give it its blessing; that it should be regulated. That is my own personal view.

1203 I know that will get me into a lot of trouble probably with the radio fraternity. All I can say is that is Newcap's perspective.

1204 COMMISSIONER COLVILLE: I have often said tell us what you think, not what you think we want to hear.

1205 I think those are all of my questions, Madam Chair.

1206 THE CHAIRPERSON: We will take a break and Commissioner Pennefather, for one, has questions. I have a couple as well.

1207 I would like you to think about it during the break, so I will ask them now.

1208 Whether you agree or not, I think there is a question as to whether an LMA can be converted into an LSA with little amendment and vice versa, and that a joint sales agreement could easily fall within the definition we have.

1209 In fact, Mr. Dougall pointed out to us that perhaps you could even have sharing lease space for the antennae fall within it.

1210 Quite possibly even informal arrangements or understanding between the parties, beyond a written contract of an LMA or an LSA, could actually have an impact that falls within that definition.

1211 I don't think it is a forgone conclusion that the Commission would not approve LMAs, or LSAs even if it fell within the definition. But you seem to think we have a problem. I think you have a problem.

1212 If you wanted to change your LMA into an LSA -- and we all agree that maybe they could look the same -- you could have had a draft one to say this is what we think will help us, for the following reasons, and even if you conclude it is an LMA, approve it because that's what would serve the market best to reach your two aims -- which were, if I recall, to ensure diversity of programming and independence of news voices.

1213 It would have been easier if you would have had a draft of what you thought was ideal for you, and then we could have discussed whether or not it suited us and suggested changes, if necessary. You would have agreed or not agreed.

1214 And having said all that, we could have said yes, it falls within the definition but we approve it for this market, for the following reasons.

1215 Therefore, rather than addressing it from what it is that will be left to do by the two parties to meet our two objectives, can you come back and tell us what it will not include so that it is not an LMA in the sense of having any impact on diversity of programming and independence of news.

1216 You have given us a list of what will be left, but what should it not have? What would be the safeguards inside that LSA that keeps it at a local sales agreement?

1217 It is not an easy thing to do on the lam, but you are asking for a seven-year renewal. You have been operating under an LMA. You are of the opinion that we wouldn't agree to any continuation of LMAs in any situation, no matter what the arguments. But you will have an LSA, but we don't know what it is going to be.

1218 If you can come back in 15 minutes and give us a little more help as to what you will not put in the LSA -- because once you leave here and you come to an agreement and you call it an LSA, given all these years you have operated together, it is a little bit late to say we will give you notice we have an agreement but not if you think you have to agree or disagree with it.

1219 It is a seven-year licence renewal. You don't want a one-year renewal while you come to negotiations as to what your LSA looks like, do you.

1220 Perhaps you can come back and give us a little more help, and Commissioner Pennefather will have some questions for you.

1221 So 15 minutes. We will be back at 4:00.

--- Upon recessing at 1540 / Suspension à 1540

--- Upon resuming at 1600 / Reprise à 1600

1222 THE CHAIRPERSON: Order, please.

1223 Commissioner Pennefather, please.

1224 COMMISSIONER PENNEFATHER: Thank you, Madam Chair.

1225 I wanted to pursue a couple of comments I heard, I think from Mr. Murray, and then a couple of the statements in the comments that you gave earlier, Mr. Russell.

1226 First of all, Mr. Murray, in discussing with Vice-Chair Colville the potential LSA, you used the term "decisions that are intertwined" which will be part of this agreement.

1227 What kind of decisions were you talking about? What did you mean when you said "decisions will be intertwined"?

1228 You were talking about, for example, the sharing of profits. Is that the only decision or are there other decisions you are assuming will take place in an LSA that will be entwined?

1229 MR. MURRAY: You are saying that when I was commenting about how the LMA worked in the past --

1230 COMMISSIONER PENNEFATHER: No. You were commenting on the possible LSA, and you were talking to Commissioner Colville about that possible agreement. You said certain decisions will be entwined.

1231 MR. MURRAY: I think what I said -- and correct me if I am wrong -- is I was asking: Did you want to know the difference between an LMA and an LSA? And I said one of the huge differences was profit sharing. If you are sharing profits, your many decisions benefit the entire business. Maritime is not going to go and spend $100,000 on television advertising for CFCY without getting our approval of that, because if we are sharing profits we would in effect be paying 25 per cent of that.

1232 Does that seem to answer the question?

1233 COMMISSIONER PENNEFATHER: Yes, that is exactly right. I assume you may have meant that.

1234 Just so that I understand clearly then, if you have such a mechanism and you are looking at it in terms of profit sharing, when you talk about the decisions that would be made, would any of those decisions -- for example, on a promotion, or a sales promotion, or a pitch that you would be giving, would there be a sharing of decision-making in that regard on the kind of promotion that you would be doing and the kind of sales pitch?

1235 MR. MURRAY: Are you referring to the LSA, the future LSA?

1236 COMMISSIONER PENNEFATHER: That's correct.

1237 MR. MURRAY: I think -- and keep in mind that we haven't worked out all of those details necessarily.

1238 I think what would happen in an LSA in terms of a promotion, the individual owner would be have 100 per cent control of that decision because that is on-air content and it affects the on-air product. We have always been 100 per cent in control of that.

1239 For example, under the LMA, Newcap had control of the on-air promotions on CHTN and Maritime would have control of theirs. So in that example there wouldn't be any collaboration.

1240 COMMISSIONER PENNEFATHER: When you talked about dramatic changes as well in this discussion about what could happen on a going-forward basis, what kind of dramatic changes did you mean?

1241 MR. MURRAY: Well, having our own general manager either in that building or in separate facilities would be a very dramatic change: separate accounting, separate bookkeeping.

1242 If we were to agree to stay in that facility, we would have to be comfortable that that facility was completely separate and we could lock it up and keep it confidential, et cetera. We would be in control of absolutely all aspects of the operation of CHTN.

1243 So those are the dramatic. There are probably many more as well.

1244 COMMISSIONER PENNEFATHER: That is the kind of detail that would be interesting to know.

1245 I can take one example, and I will take it from Mr. Russell's comments. I am trying to get a practical sense of the day-to-day here.

1246 On page 3 of your comments you say in looking forward and in some description of this new agreement you say there will be no cross-over of voices, which means (a) was there a cross-over of voices: and (b) what kind of voices are we talking about?

1247 Is this programming? Is this promotion? What was it?

1248 MR. RUSSELL: The cross-over of voices happened primarily at vacation time when we would be short an individual. That individual's voice would be recorded and put into the automation system. It might be a voice that normally would not be on that radio station. It could be the other. It just happened at vacation periods or in situations of illness.

1249 In the new environment that would not happen.

1250 COMMISSIONER PENNEFATHER: Are these news announcers, for example?

1251 MR. RUSSELL: This was primarily on-air programming, like overnight automation and things of that nature.

1252 COMMISSIONER PENNEFATHER: So it was the voice of announcers.

1253 MR. RUSSELL: It was not news, no.

1254 COMMISSIONER PENNEFATHER: Thank you. Those are my questions.

1255 MR. RUSSELL: Thank you.

1256 THE CHAIRPERSON: Do you have any further help? I see you are smiling.

1257 Do any of you have daughters? Suppose you had said to your 13-year-old daughter "you are not allowed to go out on a date". Would it be easier for her to say "I have a date with Billy to go to the McDonald's and then to a movie; is that okay" than to say "I'm going to McDonald's and to a movie with Billy but I don't need your permission because it's not a date"?

1258 COMMISSIONER COLVILLE: And then you say "I want to meet Billy first".

1259 MR. MAHEU: You took the words right out of my mouth, Mr. Commissioner. I have a 13-year-old daughter and we have had this discussion.

1260 What is different in this case, though, that I am her parent and I am responsible for her wellbeing and she is a minor. I am also her father and I love her. So I approach that situation a little bit differently than a business, although I love this business.

1261 THE CHAIRPERSON: But surely you can see the parallel. Our children is the public interest.

1262 MR. MAHEU: Correct.

1263 THE CHAIRPERSON: The diversity of voices, et cetera.

1264 Do you have any more to say about what you will not put in an LSA to escape it coming under section 11; or even if it does, to convince the Commission that that is a good idea in Charlottetown under the circumstances?

1265 MR. MAHEU: Madam Chair, you bring up a very good point.

1266 If I may digress for maybe 25 seconds and go back to our original application for the renewal of our licence in Charlottetown, our original proposal in the application was to continue with the local management agreement as it had existed for the previous seven years.

1267 We were informed by the Commission in deficiency that that was no longer an option in Charlottetown, the reason being that it was stated in the deficiency -- and I don't have the exact words in front of me and I am sure Mr. Murray has them somewhere. The deficiency explained that the Commission does not allow local management agreements in profitable markets.

1268 We replied to the Commission and said: Could we have a little more time? Could we have another year to make some sort of other arrangements? And we were granted that and here we are today looking for a seven-year renewal on CHTN.

1269 Our best approach we felt to maintain the diversity in the marketplace and to continue to provide service to the people of Charlottetown was a collaborative sales effort that would replace the local management agreement that had been in place for the previous years.

1270 To answer your question specifically, Madam Chair, about what would a collaborative sales agreement or a local sales agreement not include, in our mind a sales agreement would not include profit sharing. It would not include joint general management. It would not include integrated traffic and billing. It would not include a requirement for any station in the collaborative sales group to accept advertising that they did not wish to air on their station or at rates that they found were unacceptable.

1271 Those elements would not be part of a sales agreement in Charlottetown.

1272 THE CHAIRPERSON: What would be your reaction if I said that an LSA will exclude expressly these items?

1273 MR. MAHEU: I think we would be saying the same thing a different way, if I understand your meaning.

--- Background noise / Bruit de fond

1274 THE CHAIRPERSON: I hope you are not applying for an LMA, whoever is buzzing.

1275 COMMISSIONER COLVILLE: It's worse. He is applying for a radio station.

--- Laughter / Rires

1276 THE CHAIRPERSON: Simply we will be later on this week looking at a situation where there is a joint sales agreement and all kinds of other things are happening as well, because those things are not included; they are not excluded either. Exclusions sometimes could be more indicative of what will not happen.

1277 Legal counsel.

1278 MS JONES: Thank you.

1279 I would like to follow up on the lengthy discussions with you had with the Commissioners, would you be filing a copy of a draft agreement in the next three weeks, or would you not be in a position to do so?

1280 MR. MAHEU: Speaking for Newcap, we will make on a best efforts basis to provide the Commission with a draft copy or a copy of a proposed sales agreement between ourselves and Maritime at the earliest possible moment.

1281 Our goal would be to have it to you by the end of the month, but we have not had a chance to confirm that with our partner.

1282 MR. PACE: Yes, we can make that confirmation.

1283 MS JONES: Thank you.

1284 THE CHAIRPERSON: Thank you, gentlemen.

1285 We will adjourn this part of the hearing and will now hear the presentations by the next applicants for renewal and follow up with questioning in the morning.

1286 We will see you again obviously. You will be experts by then.

1287 We will take a five-minute break to allow for a change.

--- Upon recessing at 1612 / Suspension à 1612

--- Upon resuming at 1615 / Reprise à 1615

1288 THE CHAIRPERSON: Mr. Secretary, please.

1289 MR. LeBEL: Thank you, Madam Chair.

1290 We will now hear Items 5 and 6 on the agenda.

1291 THE CHAIRPERSON: Excuse me. Do we have everybody?

1292 MR. R. STEELE: No.

1293 THE CHAIRPERSON: We will wait for another minute or two.

1294 MR. LeBEL: I can read that in the record in the meantime, Madam Chair.

1295 THE CHAIRPERSON: Go ahead, Mr. Secretary.

1296 MR. LeBEL: Thank you, Madam Chair.

1297 We will hear Items 5 and 6 on the agenda, which is an application by Newcap Inc. to renew the licence of the commercial radio programming undertaking CHNO-FM Sudbury, expiring 31 August 2005; and an application by Rogers Broadcasting Limited to renew the licences of the commercial radio programming undertakings CJMX-FM, CJRQ-FM and CIGM Sudbury, expiring 31 August 2004.

1298 The Commission indicated that the renewal of these stations would be considered at this proceeding following a complaint filed by Friends of Canadian Broadcasting in respect of the local sales agreement between these broadcasters.

1299 Mr. Rob Steele and Mr. Gary Miles will introduce their colleagues.

1300 You have 20 minutes each to make your presentation.

PRESENTATION / PRÉSENTATION

1301 MR. R. STEELE: It is afternoon now. So, good afternoon, Madam Chair, Members of the Commission and Commission staff.

1302 For the record again, I am Rob Steele, the President and Chief Executive Officer of Newcap.

1303 To my right, slightly out of breath, is Mark Maheu, Executive Vice-President and Chief Operating Officer of Newcap. To his right is Dave Murray, Vice-President of Operations.

1304 To my left is Rick Tompkins, Operations Manager of CHNO-FM, our Sudbury FM station.

1305 In the second row is Tom Manton, Vice-President Sales for Newcap and Peter Steele, Vice-President of Industry Affairs with Newfoundland Capital.

1306 We are here today to present our application to renew the licence of CHNO-FM, Newcap Radio's CHR FM station in Sudbury. While we understand that the Commission's principal reason to have us appear is to discuss the local sales agreement between ourselves and Rogers, we do believe that a bit of context would be appropriate.

1307 Rick.

1308 MR. TOMPKINS: Newcap acquired the station in 2001 from Haliburton Broadcasting which had owned and operated the station in tandem with a French-language radio station, CHYK-FM. In fact, the station is still in the same building with CHYK.

1309 Haliburton operated the station as part of a chain of northern Ontario stations, as did the previous owner to them, Pelmorex.

1310 As such, the station enjoyed economies of scale and the possibility of being part of a larger sales group.

1311 As we always do when entering into a market for the first time, we analyzed the technical, programming and sales aspects of the station. Technically, we determined that the expenditure of $300,000 to move the station to the CBC tower and upgrade the signal strength would give us a more competitive signal in the market. These changes were implemented last fall.

1312 We also undertook a review of the formats in the market. With our competitor Telemedia providing Country, AC and Rock in the market, we determined that the Contemporary Hit format that Haliburton launched was indeed the best opportunity for audience growth and set out to improve the product through music testing and better programming features.

1313 Z-103 has been a strong contributor to the community. Here is a partial list of how we contributed.

1314 Sudbury Dragon Boat Festival: We provide $20,000 in air time to promote this charitable event each year. Last year the money raised went to the Sudbury Heart & Soul Campaign to provide funds for our regional health care facility.

1315 Lung Association's Festival of Trees: We provide $3,000 in air time to promote this fundraiser, as we have for five years running. $40,000 was raised. We have also assisted with The Lung Association with their "Pull For Kids" and their "Dinner at the Races/Casino Night".

1316 United Way: We have provided assistance to the local United Way for their "All-Nighter Movie Event", as well as the United Way's Bearskin Airlines Charity Golf tournament.

1317 Human League: We have provided support for their "Charity Golf Classic" for five years now. Z 103 commits over $5,000 of air time to promote this event as they provide breakfasts for children in need.

1318 Heart & Stroke: Z 103 was the official media sponsor of this year's "Big Bike For Heart".

1319 Operation Red Nose: We have supported this "drive the holiday cheer person home" for four years running. We provide over $3,000 in public service announcements every holiday season to them.

1320 Easter Seal: Every year we support the Easter Seal Telethon by volunteering our time to answer the phones. Last year we also ran a public service promotion with them entitled "Nickels for the North" that involved the local schools raising nickels.

1321 Summerfest: We have been a media sponsor of the summer festival that combines music and carnival-like fun for four years as well. Its purpose is to raise money for Muscular Dystrophy.

1322 Northern Lights Festival Boreal: This heritage musical festival has been supported by Z-1 03 for the past four years.

1323 Despite our investments in technical services, research and our community involvement, revenues did not increase. Moreover, the real problem was not sales against our radio competitor, although they certainly had an advantage, but rather television and print.

1324 Bell Globe Media blankets the north with their centre in Sudbury and can offer both national and local clients access to a wide range of demographics with one purchase point. They can also offer access to most of the northern Ontario markets through a single buy.

1325 The local newspaper, the Sudbury Star, can make a similar offering. Radio is more difficult to buy with at least two calls necessary to reach a similar range of demographic groups.

1326 And radio had stagnated in sales. According to the Commission's financial records, the five stations operating in 1999 generated just over $6 million in revenues, or an average of $1.2 million per station. By 2001, the six stations in the market garnered just over $7 million, or an average of $1.17 million.

1327 The stations were not very profitable. At the pre-tax profit level they showed a loss in 1999 rising to 5.7 per cent in 2001.

1328 With the arrival of Rogers as a new licensee, both parties saw an opportunity to make radio a more competitive buy against print and television. We decided to build upon our experience of selling in tandem nationally through our rep houses and to sell locally as a group of stations. And so an LSA was put in place.

1329 MR. MAHEU: To date the major complaint has come from the Friends of Canadian Broadcasting, a Toronto-based national lobby group, with no infrastructure in northern Ontario. The Friends presented an initial complaint in 2003 and have subsequently filed an intervention to this application.

1330 Their complaints about our operations have no basis in fact at all. They seem to be based upon rumour, perhaps from a disgruntled former employee of one of the stations. We categorically deny all of the allegations in their written intervention.

1331 They chose not to appear at this hearing.

1332 Let's look at their claims one by one.

1333 The allegation that many residents of the Sudbury area are greatly concerned to note a dramatic reduction in local news coverage since the LSA was implemented.

1334 The fact is it is interesting to note that not one of these many residents took the time to make their concerns known to the CRTC in this process or at any other time. Our focus and commitment to news gathering and delivery has not changed since the LSA has come into effect.

1335 The news delivery on the Contemporary Hit radio station is tailored to the young audience that this type of station attracts. We still run six newscasts every morning, positioned as "Reality Checks" and they are loaded with content.

1336 Allegation: After the LSA was implemented in June 2001, all Newcap staff were terminated, except for three full-time announcers and an operations manager. There were also two part-time announcers currently who work on a sporadic basis. There is no news staff. There is no administrative staff, no receptionist, no commercial producer or copywriter, just four full-time employees: three announcers and a manager.

1337 The facts are the LSA was effective in 2002, not 2001. Other than the sales staff, only one fulltime person was eliminated in June 2002. The commercial production position was eliminated. One news person was laid off and replaced by a fulltime news person as part of our morning show team. She is responsible for both the on-air news and for news gathering.

1338 It is common for co-hosts to fill this fulltime news position.

1339 Administration of payroll and accounts payable are handled centrally at our head office, and reception duties are shared with Haliburton's French-language CHYC-FM, who are our neighbours in our building.

1340 Allegation: There is no Newcap news staff to cover press conferences or City Council meetings, but yet Newcap has local news ready at 6:00 a.m. with local content.

1341 Then they intimate that our news-gathering is done by Rogers.

1342 Fact: As we just said, we have a morning news host who is also responsible for news gathering. Technology allows a journalist faster access to a variety of sources, including downloading of information from various websites and, of course, the telephone can reach out to police, fire and other sources.

1343 In addition, Broadcast News provides a range of local, regional, national and international stories.

1344 What is also clear is that there is no sharing of news resources with Rogers. We believe that we now provide a better news service than we actually did in the past.

1345 Allegation: Rogers engineering staff is responsible for ali technical aspects of the Newcap station, including the Newcap transmitter and the computer systems.

1346 Fact: In the fall of 2003 Newcap invested approximately $300,000 to upgrade the signal strength of CHNO-FM and to move the facility to the CBC transmitter site in Sudbury. Newcap utilized a turnkey contract with the CBC, instructing them to handle 100 per cent of the planning and installation of the upgrade. Maintenance of the facility will be overseen by the CBC with minimal involvement from Newcap staff.

1347 CHNO-FM did not have a full-time engineer prior to the purchase by Newcap and one is not required.

1348 Newcap relies on the CBC staff as well as Rogers engineering staff.

1349 Allegation: Newcap announcers are heard on Rogers stations and Rogers announcers are heard on Newcap stations.

1350 Fact: There is no sharing of announcers between our station and Rogers.

1351 There is one way that voices can be heard across stations and that is during commercial announcements. Clients often ask for individual announcers to voice their spots. For example, here in Ottawa, some personalities are often heard across stations even though they work for another company.

1352 Further, when commercial voicing is done, clients often request a wider number of voices so that they can distinguish their spots from other ones on a given radio station. So in this case, sometimes announcers can be perceived to be working on a number of stations.

1353 But let me be clear here. There are no news voices and no on-air shifts in common between our station and theirs.

1354 Allegation: While the Newcap and Rogers studios are several kilometres apart, all recorded elements that are broadcast by the Newcap station are stored on a shared computer server located in the Rogers building. The Newcap station retrieves music and commercials instantly from the Rogers operation via a dedicated high speed land line.

1355 Put simply, the only elements truly originating from the Newcap studios are the live voices of the announcers. The Newcap on-air studio is an extension of the Rogers building.

1356 Fact: All programming elements are created in our studios and aired from our building either live or, where recorded, on our own hard drives. The only on-air elements that come from Rogers are the commercials which are produced by them as part of our agreement.

1357 Madam Chair, we are outraged by the Friends' allegations. They are based upon rumour or speculation or uninformed speculation at that. Clearly Friends have misunderstood how we at Newcap operate in the Sudbury market.

1358 The Commission has indicated in the Notice of Public Hearing that it wishes to explore whether the LSA is in fact an LMA. We can state unequivocally that it is not.

1359 Newcap has its own building, its own studios, programming and news staff and policy. Our decisions are made by ourselves with a view to serving the audience we have targeted, with a view to growing the share of tuning to our radio station.

1360 We compete with Rogers. But just as we are in competition with other broadcasters in the markets but share national sales representations, we believe that this is the market, with the strong newspaper and print competition, our best way to maximize radio's advertising share to make it easier to buy.

1361 The Notice of Public Hearing also indicates that you wish to undertake this examination with a view to seeing its impact on editorial viewpoints and programming diversity.

1362 Madam Chair, we have a completely separate news operation from Rogers as we have outlined previously. And the market is served now, as it was when we purchased the station from Haliburton, by four separate and distinct formats: our Contemporary Hit Radio, Rogers AC, Country and Rock formats, in addition to Haliburton's French-language FM radio station.

1363 We believe that the performance of our station in meeting its obligations merits a full seven-year renewal term.

1364 We would be pleased to reply to any questions you may have.

PRESENTATION / PRÉSENTATION

1365 MR. MILES: Madam Chair, Members of the Commission, I am Gary Miles, CEO Radio, Rogers Broadcasting Limited.

1366 With me today, on my left, is Kim Gitten, Corporate Controller for Rogers Radio.

1367 To my right is Rick Doughty, Vice-President, Ontario North Cluster and General Manager, Sudbury Radio; and Alain Strati, Director, Business and Regulatory Affairs.

1368 We are pleased to have the opportunity to appear before you today to present our applications for the licence renewals of our three radio stations in Sudbury.

1369 Although having only owned and operated these stations since 2002, Rogers Broadcasting has already established a commendable record of local radio service in this region. We believe the Commission's renewal of our licences in Sudbury will allow us to further develop our radio stations and continue to serve the needs and demands of local listeners and the local community.

1370 Our presentation this afternoon will focus on two principal issues:

1371 1. The operations of our Sudbury station.

1372 Since 2002 Rogers Broadcasting has undertaken significant financial investments and programming initiatives to improve the quality and service of our radio stations. These investments and initiatives have made for better stations -- stations that we feel have established a greater degree of programming diversity in the market.

1373 2. The appropriateness of our local sales agreement.

1374 Our sales agreement in Sudbury is focused on the specific sales and sales-related functions of our radio stations. It in no way impacts the programming choices we as radio programmers and operators make. We retain every incentive to invest in the programming for EZ Rock, Q-92 and CIGM, and build stronger audiences for each of them.

1375 In April 2002 the Commission approved our purchase of 14 radio stations from Standard Radio. Most of these stations are located in different markets across Ontario North, including Sudbury, and were part of the former Telemedia radio group.

1376 We have always placed particular emphasis on the programming aspects of our radio stations, and Sudbury is no different. Using the experience and expertise we have gained, we have made every effort to improve the programming quality of EZ Rock, Q-92 and CIGM.

1377 We provide extensive research and consulting services and have improved programming delivery and content.

1378 Sudbury radio programmers attend and participate in specialized training courses, such as our Program Directors University.

1379 Sudbury programmers have access to additional programming expertise and resources, whether it's our senior programming team or programmers at other Rogers stations. They attend annual meetings with other program directors from all of our stations across the country.

1380 We have also recently created a new position for a Program Manager to serve all of our Ontario North stations, including these in Sudbury. With particular insight about this region, that person will again serve as a valuable resource and assist our programmers in Sudbury to develop the best and most reflective local programming for their stations.

1381 Rick.

1382 MR. DOUGHTY: One of our strongest contributions to date has been our focus on local news coverage. News is vital, especially in a regional market like Sudbury.

1383 Although local listeners may have access to a vast number of other media resources for their news, it is imperative that they also have access to strong local news sources, and we have worked to fulfil that important objective.

1384 In Sudbury we have decided to focus our news efforts on one station: AM 790, CIGM. Although essentially a country music station, we have made significant programming investments to also build up the station as a reliable and effective source for local news and information.

1385 News has become a core mandate for CIGM, with more newscasts, more news-related programming and more special news features.

1386 Weekdays, CIGM produces newscasts every half-hour from 5:30 a.m. to 9:00 a.m., and then every hour throughout the day from 9:00 a.m. to 6:00 p.m.

1387 On weekends CIGM produces hourly newscasts on Saturday and Sunday mornings.

1388 CIGM newscasts consist of a full five-minute information package, with news, weather, community information and in-depth special local news features. A recent five-day feature focused on the expansion and consolidation of the Sudbury Regional Hospital.

1389 A common thread throughout all of this coverage is the strong emphasis on local news. About 80 per cent of the news stories produced for our station newscasts cover local events from the Sudbury community. That's about 2000 local news stories broadcast on our stations each and every month.

1390 Special local events like elections and town hall meetings are also important to local listeners and are extensively covered by CIGM.

1391 For the municipal election, CIGM produced segments profiling all of the local candidates, segments which also aired on EZ Rock and Q-92.

1392 During the recent Ontario provincial election CIGM hosted live local candidate debates. We are planning to do the same for the federal election in progress.

1393 Election night results are covered by CIGM and broadcast live on EZ Rock and Q-92.

1394 Rogers Broadcasting operates all-news or news-based stations in Toronto, Vancouver and Kitchener. The experience and expertise gained from those stations has helped us to develop a news focus for an AM station like CIGM and establish a strong local news service for the Sudbury community.

1395 Of course, EZ Rock and Q-92 also produce their own newscasts, broadcast during weekday drive periods, and carry CIGM-produced special news features. However, they also have a role as a strong promotional vehicle for the news focus of CIGM. EZ Rock and Q-92 will often promote to their listeners, to make them aware of in-depth local news content available on CIGM.

1396 Our Sudbury stations have long-established track records of community involvement and leadership. Whether it's through direct contributions and participation, or the use of station facilities to promote initiatives, our station always gets involved.

1397 For example:

1398 EZ Rock is a strong supporter of the annual Mother & Daughter Walk for Heart & Stroke. Rich and Gary, our morning team on EZ Rock, have been honorary chairs for the past two years. Last year the event was attended by more than 2,000 local area residents.

1399 All three stations work closely with the Sudbury Regional Hospital Foundation on a number of fundraising events. Believe it or not, at one event Q-92's very own Jeff Williams was actually entombed in concrete and raised almost $40,000 in less than 48 hours.

1400 The morning show teams from all of our three stations also helped to raise money for the WKRP Golf Tournament in support of the Sudbury Manitoulin Children's Send a Kid to Camp Program. The event raised $12,000 in its very first year and hopes to more than double that this year.

1401 Another important component of our involvement with the local community is our contribution of donated, free air time for public service announcements. All told, in 2003 over $1.8 million of air time, across all three stations, was provided to local charities, institutions and organizations to assist them in the promotion of their local events and fundraisers.

1402 In addition to the usual music, news and local information, there is also another way our radio stations get the attention of Sudbury listeners, and that is through audience promotions, prizes and giveaways.

1403 The promotional department of our Sudbury stations is always very busy conjuring up new ideas to get more listeners to tune in to our stations. These promotional ideas become important points of differentiation. They provide a strong incentive to drive new listeners to our stations.

1404 Over 300 couples entered our Q-92 Big Fat Sudbury Wedding promotion, where a lucky couple won an all-expenses paid wedding in Sudbury, as well as a honeymoon in Niagara Falls. The reception was hosted by our Q-92 morning show team, with the wedding ceremony even broadcast live on the station.

1405 We all know how difficult winters can be in Sudbury. In EZ Rock's January in Jamaica contest, four listeners joined the EZ Rock morning show team for an all-expenses paid, one-week vacation to the Boscobel Resort in Jamaica. Morning show programs were broadcast "live" back to Sudbury during the course of the entire week.

1406 With many major recording acts not making the trip to Sudbury, our stations promote concert caravans, taking price-winners on trips to larger cities to see their favourite music artists in concert.

1407 In total, our Sudbury stations do about 35 to 40 of these concert caravans a year. Our most recent concert caravan winners flew to Quebec City to see Shania Twain, and they flew in style, in the comfort of a private jet.

1408 Since our purchase, we have made every effort to improve the quality and reliability of each of our new Sudbury stations, making more than $500,000 in technological infrastructure capital investments.

1409 Almost 70 people work at our radio stations in Sudbury, and they all contribute to our success. However, with the purchase by Rogers, they now have additional opportunities for growth and development. Many have been promoted internally, while others have chosen to pursue opportunities with Rogers stations in other markets.

1410 Our employees now have access to do so much more in terms of skills and training. Rogers Radio has developed internal courses like Program Directors University and Sales Managers University to provide employees with the practical radio broadcasting skills they need to advance in their careers.

1411 In less than two years six Sudbury employees have already taken advantage of these types of courses. Four other employees have participated in other Executive Summits and Leadership Forums.

1412 Employees also have access to a complete package of corporate training programs. Even better, Rogers recently launched an electronic learning, Internet version for many of these programs.

1413 This e-training initiative has been particularly successful to date with employees at our radio stations. Skills and training programs like Managing at Rogers, Project Management and Win/Win Negotiations are now much more accessible for our employees in Sudbury.

1414 Gary.

1415 MR. MILES: All of these different elements enable us to develop and maintain three very different radio stations. Each one is focused on a different music format and uses its tone and style as a foundation upon which to produce entertaining and informative local programming. All of these elements together create stations that serve niche audiences and enhance the diversity of programming available to radio listeners in Sudbury.

1416 EZ Rock is an FM station with an Adult Contemporary music format. It's a station focused on adult women, mostly in the broad 25 to 54 year-old age group. All of EZ Rock's programming elements -- the music, the on-air personalities, the news stories, the community information and yes, even the advertising -- are all focused on reaching and speaking to adult women in the Sudbury community.

1417 Over at Q-92, our sister FM station, it has a Rock format in Sudbury, with a target audience of adult men in the somewhat narrower 25 to 44 year-old demo. Rock music and adult men create a different audience, requiring a different programming approach.

1418 Our AM station CIGM 790 is also quite different. Its audience is mixed, and skews a bit older, about 35 to 64. More importantly CIGM is a music format station operating on an AM frequency. The inferior sound quality of AM is always a barrier when competing with other FM stations. As a result, to arm CIGM with an additional competitive advantage, we have also programmed it to become a strong source for local news and information.

1419 The operation of EZ Rock, Q-92 and CIGM in Sudbury demonstrates the degree of programming diversity that exists in this market. Each station serves a particular segment of the market, its own local community as it were, where the music, programming and editorial content of that station must reflect the needs and demands of that community.

1420 In Sudbury we have also entered into a sales agreement with Newcap Broadcasting. The nature of the sales agreement is such that the sales and sales-related functions of the Newcap station are managed by Rogers Broadcasting. In essence, we act as a sales and sales fulfilment agent for Newcap in the Sudbury market.

1421 Rogers Broadcasting is responsible for securing local, regional and national radio advertising contracts for all of these stations. We are also responsible for all duties related only to the sale of advertising air time -- i.e., the traffic, the invoicing, the collection and the commercial production services.

1422 These sales functions aside, the provisions of the sales agreement itself highlight that the other programming, operational and managerial responsibilities are retained by each broadcaster.

1423 Other than limited sales functions, both Rogers and Newcap continue to provide all programming, operations and managerial services for their respective stations. Programming, news and editorial points of view remain the prerogative and focus of each radio station operator.

1424 Each of the operators has completely separate staff and management teams in Sudbury, operating out of separate studio and office facilities.

1425 As part of this licence renewal process the Commission has indicated its desire to examine the appropriateness of our sales agreement in Sudbury, taking into account the objective of fostering diversity of programming and independence of news voices in each radio market.

1426 We do not believe that sales agreement such as ours involve policy concerns. As a result, we do not think the same type of safeguards for local management agreements are also appropriate for sales agreements.

1427 Put simply, sales agreements provide radio operators with the tools necessary to leverage the selling power of radio, to compete more effectively in local markets against what are often larger advertising, single-source alternatives such as television, newspapers, the Yellow Pages and billboards. They reflect the business realities faced by radio operators today.

1428 In our submission, these same issues or policy considerations are not applicable to sales agreements. Unlike management agreements, sales agreements are limited to the group sales efforts between the stations involved. They do not affect the level of programming diversity and editorial news voices available to the local community.

1429 Given the inherent differences between management and sales agreements, we do not believe it is necessary for the Commission to consider a policy shift where it would begin to review and approve business arrangements such as sales agreements.

1430 However, should the Commission conclude differently, we would suggest a form of notification requirement and a more appropriate safeguard for sales agreements. A notification requirement would ensure that the Commission is made aware of all sales agreements and able to investigate further any important policy issues that may arise.

1431 Our stations in Sudbury provide an essential service to the local community. They each offer distinct formats, which are very popular with local listeners. The market of Sudbury is being well served, as our stations provide a diverse array of programming options and a number of different editorial news voices.

1432 The local sales agreement is limited to the sales functions of our stations. They provide us with an opportunity to better present the case for radio to advertisers in Sudbury. However, they do not impact the diversity of programming and the independence of news voices in the market.

1433 In Sudbury Rogers Broadcasting remains focused on our own programming initiatives to broaden the level of service and the ultimate success of our stations.

1434 In our submission, sales agreements should not require prior Commission approval. Unlike local management agreements, there are no policy concerns involved. However, should the Commission conclude differently, we would also submit that a notification requirement is more appropriate for sales agreements.

1435 We believe that the approval of the licence renewal applications for our Sudbury radio stations is in the public interest and respectfully request that each of these stations should be renewed for a full licence term.

1436 Thank you, as usual, for your time and attention. We would be glad to answer any questions you may have at the appropriate time.

1437 THE CHAIRPERSON: Thank you, gentlemen. The appropriate time will be 9 o'clock tomorrow morning.

1438 We will adjourn then for the day and resume at 9 o'clock tomorrow morning with the questioning of these two panels. Thank you.

--- Whereupon the hearing adjourned at 1650, to resume

on Tuesday, June 8, 2004 at 0900 / L'audience

est ajournée à 1650, pour reprendre le mardi

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