ARCHIVED - Transcript / Transcription - Gatineau, Quebec - 2004-06-08
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TRANSCRIPT OF PROCEEDINGS
FOR THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES DU
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
SUBJECT / SUJET:
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 8, 2004 Le 8 juin 2004
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
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.
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.Canadian Radio-television and
Conseil de la radiodiffusion et des
Transcript / Transcription
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 /
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 8, 2004 Le 8 juin 2004
TABLE OF CONTENTS / TABLE DES MATIÈRES
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR:
Sun Radio Limited (CIEZ-FM) 378 / 2226
CHUM Limited (CIOO-FM & CJCH)
Newcap Inc. (CFDR & CFRQ-FM)
INTERVENTION BY / INTERVENTION PAR:
Halifax JAMZ 95.7 Inc. 499 / 2895
REPLY BY / RÉPLIQUE PAR:
Sun Radio Limited (CIEZ-FM) 535 / 3055
CHUM Limited (CIOO-FM & CJCH)
Newcap Inc. (CFDR & CFRQ-FM)
PRESENTATION BY / PRÉSENTATION PAR:
CJRN 710 Inc. (CKEY-FM-1) 549 / 3144
Gatineau, Quebec / (Gatineau) Quebec
--- Upon resuming on Tuesday, June 8, 2004
at 0900 / L'audience reprend le mardi
8 juin 2004 à 0900
1439 THE CHAIRPERSON: Good morning and welcome back to our hearing.
1440 Commissioner Pennefather, please.
1441 COMMISSIONER PENNEFATHER: Thank you, Madam Chairman.
1442 Good morning gentlemen, and good morning to you, Madam Gittens.
1443 Am I saying your name correctly?
1444 MS GITTENS: Yes.
1445 COMMISSIONER PENNEFATHER: Good morning. Nice to see you here.
1446 MS GITTENS: Thank you.
1447 COMMISSIONER PENNEFATHER: I wanted to address the local sales agreement in some detail and I have a number of questions for both of the groups so I will address certain questions specifically to either Newcap or Rogers. Obviously we can work back and forth on some of the points, but some of the questions are very specific to the Newcap station and some to the Rogers organization.
1448 Just to set us back a little bit to where we were yesterday and then go forward, we are looking here at a local sales agreement which is in operation. I think what will be extremely useful is to understand the specifics, the detailed impact of this agreement in your case, on the day-to-day operations of the stations, and in particular the day-to-day operations of the Newcap station.
1449 Obviously that will help us determine as well the impact of this agreement on the market as a whole. We are talking about four English commercial stations in the market of Sudbury.
1450 Building from there, we are looking at, as well, the concerns raised by the Commission in it's July 24th letter to the parties regarding this particular agreement and some specific areas of concern to look to.
1451 I think when we do get to that point we have reached a point of our conversation where we will deal with some policy considerations. Those, amongst others, include the impact of this kind of business agreement on diversity of voices in the market, on effective control of the licensees and, clearly, on the whole notion of competitiveness in those markets.
1452 That is the gist. We are going to go to detail and then to the policy considerations.
1453 You mentioned yesterday, Mr. Miles, in your address that you did not see policy considerations. I think by the end of our discussion you will see the basis on which we are looking at some policy considerations in the day-to-day practical impact in this kind of agreement and our concerns and we look forward to your answers.
1454 We are also looking at seven-year licence renewals for the four stations. So remember as well that while there is a certain history to this file, I want to also focus on a going-forward basis. While we have had a look at this LSA as it stands today, why is it necessary to continue on a going-forward basis as we look at these renewals?
1455 Just to set the context again, we are talking about CHNO, Mr. Steele, that you bought in 2001 from Haliburton. Mr. Miles, you reminded us that you purchased the Sudbury stations in 2002. In fact, Commission approval is dated April 2002.
1456 The LSA in question was signed in February of 2002 to take effect in June.
1457 Am I correct on those dates?
1458 In other words, the agreement was under discussion prior to the completion of the purchase from Standard.
1459 MR. MURRAY: Yes, that is correct.
1460 COMMISSIONER PENNEFATHER: So let's look at CHNO now. Again, this station was purchased from Haliburton in 2001.
1461 What was the financial status of CHNO when you entered into this agreement, Mr. Steele?
1462 MR. R. STEELE: Dave, can you answer that?
1463 MR. MURRAY: Certainly. The status of the station can be reflected sort of in our 2002 CRTC returns in which there was only $400,000 of revenue. The expenses were $600,000. We lost about $200,000 that first year. Haliburton was doing similarly prior to that. It was only launched I think one year prior to that as an FM, November of 2000.
1464 COMMISSIONER PENNEFATHER: The flip was in 2000, I believe.
1465 MR. MURRAY: Right.
1466 COMMISSIONER PENNEFATHER: You bought it as an FM station and when you had it, in the period 2000-2001 for example, was it a profitable station or an unprofitable station?
1467 MR. MURRAY: Unprofitable.
1468 COMMISSIONER PENNEFATHER: That is what I had assumed.
1469 How long did you run the station as a standalone pursuant to your purchase?
1470 MR. MURRAY: From November until May. November of 2001 was our first month and the first month of the sales agreement was June of 2002. So November to May.
1471 COMMISSIONER PENNEFATHER: During that time how did you manage the sales functions?
1472 MR. MURRAY: The same way you would manage any radio station. We had a sales manager, three full-time sales representatives I believe, and one telemarketing employee.
1473 COMMISSIONER PENNEFATHER: So when you were discussing in February, or perhaps even earlier, with Rogers, what made you decide to enter into a sales agreement as you did? What was the reason for that?
1474 You didn't have a great deal of time, it would appear, to see how it would work as a standalone. On what basis did you decide to go ahead with combined service, combined stations?
1475 MR. MURRAY: I think perhaps some context to that could be given by Tom Manton to give you an idea of some of the difficulty we had trying to field a standalone sales team in Sudbury with the turnover that we had. It was very frustrating.
1476 Tom, can you --
1477 MR. MANTON: Thank you, Dave.
1478 When I was up there in November and met with the sales manager -- and at that point in time primarily there was one senior sales rep, if you will, who happened to be his daughter. They had had massive turnover. I did return several weeks later trying to set up the interview process and we had advertised that we were looking for sales representatives and ultimately did hire, I believe, two or three. Unfortunately, they perhaps weren't of the calibre that I would have loved to have been able to place.
1479 COMMISSIONER PENNEFATHER: We will come back to this point later -- I think judging from our conversation yesterday it won't surprise you to know -- to really look at why, on that experience, whether you really had time to assess your ability to function as a standalone and on a going-forward basis could you in fact run the station as a standalone station? It is that period of time when you were that I found interesting to understand why you chose to go forward.
1480 Mr. Miles, what was the rationale for Rogers entering into this agreement to represent Newcap in terms of sales? What was the rationale?
1481 MR. MILES: Just before, if I could make a couple of comments.
1482 I found yesterday very instructive and hope and expect that we will get into some sort of dialogue about local sales agreements versus LMAs, although it was covered yesterday. But I think it is imperative that we sort of try to understand the difference between the two things.
1483 I know sitting there yesterday I could certainly understand the Commission coming from an LMA and trying to get it back into an LSA. We sort of looked at it differently. We have never been in an LMA and so an LSA -- and now, looking at what you were talking about with regards to the policy concerns, I understand a bit of where you are coming from and later on we will get to that.
1484 I need just a half of a moment of course to mourn the loss of the Calgary Flames. We carry that team on The Fan 960 in Calgary and some of us have had to pay off bets from last night of a loonie or two.
1485 COMMISSIONER PENNEFATHER: Not at this table.
1486 MR. MILES: Yes, I'm afraid so. So if I could just have that moment to sort of regroup myself I think we will get in with it.
--- Laughter / Rires
1487 COMMISSIONER PENNEFATHER: On the other hand, our colleague from the east was a little more elated thanks to Mr. Richards and his MVP, which he duly deserved. So P.E.I. also feels a little less -- and Québec, a little less upset.
1488 MR. MILES: Actually all of Canada because of so many Canadians playing on both the teams. I just thought it was great.
1489 THE CHAIRPERSON: French Canadians, at that.
1490 MR. MILES: Yes, absolutely. Absolutely.
1491 In a period of somewhat differing kind of headlines, it has been great and interesting headlines on the thing. As I say -- and this is an aside, it has nothing to do with this, but Commissioner Williams heard me on this.
1492 On the weekend we were talking about the business of being in sports radio. If you think that local sales agreements are some difficulty, let me tell you being in the business of sports radio is difficult. We carry the Flames on our Calgary station. On a good year we will lose $1.3 million. This year they made it all the way up to the last game before they lost the Stanley Cup. We will probably lose a $1.295 million. It's a tough business.
1493 I think that that is not a bad lead-in, however, for me to try to explain about why we wanted we wanted to get into a local sales agreement.
1494 The business of radio was, I thought, an interesting conversational starter yesterday and it got me thinking along about what the business of radio is.
1495 It is my belief that the business of radio is to provide service to the community, it is to make sure that we are supportive to the community and attract listeners and each one of the different formats has to compete very strongly to attract listeners to that, because at the end of the day there is a business model that says we must deliver customers to the clients that support this economic model. It sounds relatively simple and, frankly, I think it is simple, just not easy.
1496 So we get into markets and -- as a matter of fact, sitting in this room there are four people, all of whom take an instructive and guiding part in the Radio Marketing Bureau in which we try to sell radio against the other competition that is out there.
1497 Radio has roughly managed to garner about a 9.9 share of the market. Newspapers are well over 30 per cent, I think they are 32 or 33. They have slipped a little bit in the past. Television is around the high 25, 26, 27 per cent. Outdoor accounts for about 10 per cent.
1498 So sort of before you get up and go out and make the first call, there is only about 10 per cent of the available money left for radio to be sold.
1499 Radio to be helpful and radio to survive and radio to continue to have our business model, we must deliver results to those clients and at the same time ensure that we perform differing news voices to the community, we provide support for the community services, and that we each address our formats the best we possibly can in order to build up that constituency.
1500 Looking at that, there were four diverse formats in the Sudbury market. We ran an AM radio station, as we explained yesterday, that we moved into news. We have a broad-based female adult contemporary, a rock, more a targeted male format, and a top 40 format. At the end of the day, that is as good as it gets because you are able to deliver different kinds of formats to a rather diminishing audience of clients.
1501 So for the good of radio and for the betterment of our product -- and I say product sort of generally -- it was, we thought, useful to be able to provide a unified voice for radio as a medium, and at the same time ensure that we had an agreement in place that addressed none of the concerns that we felt were important that were imperative, which is: We had no control over their programming, we have no control; we have no control over their management, they have their own program director, their own management; we have their own newsroom, they are in a separate building. In fact, later on it will be useful to hear Rick sort talk about how the week-by-week operations between the two companies go. I think it would be instructive.
1502 COMMISSIONER PENNEFATHER: I was going to go there, yes.
1503 MR. MILES: Yes.
1504 COMMISSIONER PENNEFATHER: That is why I mentioned I would like to -- certainly I would like to come back to the general points you have raised. It is very helpful.
1505 Also, as I understood in your January deficiency letter, you focused on the purpose of this particular agreement as two things, if I understood it: cost savings and sales force. I think that is the point you just put your finger on.
1506 What I'm after at this point -- and I would like to go back to your points, thank you for raising them and setting that scene -- but in the balancing act that we undertake, obviously we want to look at, having said that, what is the impact?
1507 Just very quickly, then, before I go back to Newcap, strictly speaking though the Rogers stations per se, this local sales agreement, what we are looking at is trying to see if in fact there was any impact financially in terms of cost savings for the Rogers stations. I'm going to ask the same question of the Newcap group.
1508 You may want to file this information later, but when we look at the financial data the Commission has access to between 2001 and 2003, it is a little difficult to identify the cost savings within each of the expense areas and also to identify the impact on revenues per se.
1509 So in fairness, to get a kind of sense of a local sales agreement and it's impact on your day-to-day operations, we would appreciate having some information, some more precise information on each station describing the quantity and the nature of the cost savings resulting from the agreement within programming, within technical, within sales and promotion, and within administration and general accounts. You may want to file that with us later.
1510 The reason I am raising this is, we noticed a significant increase in admin and general expense accounts for Rogers stations and so what we are looking at here is to demonstrate that the resources recorded in the expense account have not been subject to common management.
1511 MR. MILES: Sure.
1512 COMMISSIONER PENNEFATHER: So it is to distinguish between those elements which are standard drill and those which are common so we can get a sense of where the LSA has had an impact.
1513 Am I clear and is that something you can table with us?
1514 MR. MILES: Yes, it is.
1515 First of all, in a moment I am going to ask Ms Gittens because we had anticipated that call. There are some great advantages of working for Rogers and there are some bad advantages of working for Rogers. Some of them are in the administrative costs and have nothing to do with Newcap, let me tell you.
1516 But in general if we sort of talked about the savings and the expenses and things like that, I guess the savings come from the ability to have a group of salespeople who have the ability to sell four different radio stations with the correct demo to the correct client at that particular time. So we have chosen to reinvest those savings into more salespeople out on the force so we completely cover the field and compete against single-source newspaper, single-source television station and single-source Outdoor.
1517 That sort of would be one of the things that we would do.
1518 The engineering thing specifically, we will come back an answer that question, unless you want me to address it now.
1519 COMMISSIONER PENNEFATHER: A little later I will ask the question.
1520 MR. MILES: Yes.
1521 COMMISSIONER PENNEFATHER: But again, I guess you have understood then that what we are trying to get at is the impact of the sales agreement on those increased expense areas, in particular in administration and general: (a) is there anything that is specifically not part of the combined management.
1522 What I find important to understand, too, is what impact your contract with Newcap has had on those administration and general expenses and on sales and promotion expenses, because it is in there that we can perhaps get some specifics.
1523 On the revenue side, there has been a significant increase in the revenues for CJMX-FM and CJRQ-FM between 2001-2003.
1524 Were any or part of the additional advertising revenues the result of the agreement?
1525 MR. MILES: If I could just go back to the administration thing, because I think Ms Gittens does have some answers to that and it is how we sort of classify them. Then I will come right on to the one about the revenue.
1526 MS GITTENS: Good morning. Just as a general comment, we acquired the stations in April 2002. So first of all, in terms of looking from 2001 and 2003, for the CRTC 2001 return we can't comment because we didn't own the stations at that time.
1527 The 2002 return that was filed was really a stub from our time of ownership from April 29, 2002 to August 2002. So the first full year that we filed would have been August 2003, just as a point of clarification.
1528 In terms of the admin and general costs, as Gary eluded to being part of Rogers is a benefit and as part of that benefit we get allocated costs that come in from the Rogers corporate group. That would account for the increase, because there is a significant part of being part of the Rogers group of companies that we get allocated costs to our stations.
1529 MR. MILES: We will file that and specifically identify it for you.
1530 COMMISSIONER PENNEFATHER: Okay. Thank you.
1531 MR. MILES: In answer to your question specifically, no, there are no additional administrative costs as a result of the agreement that we have. Again, they run their radio stations, we run our radio stations. I would like to have their head office charges instead of ours but, look it, that's not possible in a great world.
1532 COMMISSIONER PENNEFATHER: What about in the sales and promotion? I take your point, but even 2002-2003 there is a significant increase.
1533 Can you identify for us if that increase is directly related to the local sales agreement?
1534 MR. MILES: The increase in the sales would be of course the additional sales staff that we took on in order to sell the other radio station. So we probably -- not probably, I know we added three bodies and put in a sales manager and things like that. So that's where that one is.
1535 I think it is also important for us to differentiate between sales promotion, because I know that was one of the issues in the intervention, versus radio station promotion.
1536 "Radio station promotion" is what we do in each one of our radio stations to build up that community that listens to either our AC station or adult contemporary or a rock or a country station.
1537 "Sales promotion" is something that we would do for the Sudbury Ford dealer who wanted to run a contest and we needed to put ballot boxes out and go out and have entries and he made a draw at the end of the day for all the people that came into his showroom.
1538 There are two very distinct and separate entities within it so the promotion that we will outline for you in absolute detail was us promoting our radio station in a true competitive spirit, because that's what we have to do. These are entities, these are living, breathing things, they have program directors, they have announcers, they take pride in their product and they want their station to be the very best even amongst ourselves.
1539 So that is probably where that is and, again, we will file a detailed explanation for you.
1540 COMMISSIONER PENNEFATHER: Thank you.
1541 That is important because let me ask it this way: It sounds to me that you would be doing that exact kind of sales promotion and a lot of the activity described in your presentation here, your opening remarks, anyway as Rogers stations. You don't need -- correct me if I'm wrong -- a local sales agreement to undertake the activities you just described for the Rogers stations, do you?
1542 MR. MILES: No, I actually thought that was -- the reason we put it in is we felt is was instructive as to the fact that we have an agreement but it's only a sales agreement and we are still in there competing for audience, for people to listen to our particular station -- just as I'm sure Newcap are, although I can't speak for them. So it is that.
1543 The sales agreement is about the business of selling to a client and the business of ensuring that we are able to target the right radio station against their particular group.
1544 For example, let's take that car dealership because it's not a bad category for radio. When our sales people go in -- and Rick will give you a couple of examples in a moment -- this person may well be deciding to sell trucks one week and, without being stereotypical, that may well be better off on the country station with a news talk format, and the next day they have a new product coming up that appeals to an 18-24 category. The campaign should be on the Newcap station with the top 40 thing.
1545 Hence, when you start talking about -- and I haven't forgot your question which is tell me about the increase in the revenues on the different stations -- that ebbs and flows with seasonality, it ebbs and flows with the type of clients. If the car business is good there is going to be more business on the rock station and probably on the youth station. If the car business falls off, the truck business is good, it i's going to be the country station.
1546 What we are quite proud of, and I mean this absolutely sincerely, what we are quite proud of is, in the Sudbury market, we have been able to take the radio revenue from a national average of 9.9 to 12.4-12.5 per cent. We have done our job by selling radio for the business of radio and allowed the clients to get the right station lined up with their right category.
1547 COMMISSIONER PENNEFATHER: Thank you.
1548 We are going to come back to that, what it means in practical, but I'm going to turn to Newcap now and if you could come back to me as well on the revenues and the costs and the impact of the agreement specifically on your revenues as well we would appreciate that.
1549 Mr. Steele, I'm going to ask you the same questions on the financial implications of the local sales agreement with the financial data we do have from 2001 to 2003. We have used that comparison understanding -- and I also have looked at back to 1995 and forward history of the station here, but to make our point on the impact of the local sales agreement I think we will look at 2001 to 2003.
1550 Again, we want to get a clear understanding of how the local sales agreement has impacted cost savings for Newcap.
1551 MR. R. STEELE: Okay. Thank you.
1552 COMMISSIONER PENNEFATHER: So if you could break that down in terms of where we find the cost savings in each of the expense areas.
1553 MR. R. STEELE: The LSA was actually negotiated between Mr. Maheu's predecessor with us and Mr. Miles. Dave Murray was privy to that whole thing, so Dave is in the best position to answer that.
1554 MR. MURRAY: I unfortunately don't have the 2001 CRTC returns with me because those were filed by Haliburton Broadcasting. I think we have them, obviously we had their financial reps before we bought them but just I didn't think to bring them.
1555 For 2002, as I said before, we had revenue of $415,000, expenses of $590,000. In 2003 the revenue was $760,000 and expenses $480,000. If you take the sales expenses out, our other non-sales expenses actually increased. You would also have to take into consideration the fact that we only had 2002 for 10 months, although -- it gets into all kinds of comparisons.
1556 But in effect we didn't really change the way we -- the sales agreement didn't change the way we ran the business. We are still in the same facility, we have about the same number of employees and we do the same types of things. So there is not a huge difference. I don't see a huge difference here at all.
1557 COMMISSIONER PENNEFATHER: What I would appreciate, if you could take another look at that and file with us, to go a little bit further, where you can demonstrate in the expense, as I asked of Mr. Miles, the expenses in terms of programming, technical sales and promotion, admin in general, any specific areas of cost savings in each of those components. If you could get that back to us.
1558 MR. MURRAY: Is the question in relation to the LSA?
1559 COMMISSIONER PENNEFATHER: That's right, in the sense of we are looking at the impact of the LSA. Where were there cost savings specifically related to the LSA? Not business as usual, but the LSA had an impact and according to the purpose of his LSA a part of it was cost savings. We are looking to find those cost savings. Where did they occur in those four areas? If you could get back to us on that if you don't have it right away.
1560 MR. MURRAY: Sure. I would say that the purpose of the LSA wasn't really cost savings, it was sales enhancement. Clearly from Newcap's perspective we would save in terms of cost of sale, because in a standalone small radio station, a growing radio station, you have to have more sales reps than you typically can afford to pay for. The cost of sale is 20-25 per cent on commissions, et cetera. Then, after you have done it for three or four years and the revenue gets to $1.7 million, or some such number, then you can have the correct number of sales reps and they can all pay for themselves and get a reasonable return.
1561 Other than that there really aren't any -- there are no material cost savings from an operational standpoint.
1562 As you suggested, I will definitely look at the detailed numbers and get back to you.
1563 COMMISSIONER PENNEFATHER: Okay. I think that is important because fundamentally the LSA, as I understand it in English, in black and white, says that the sales functions, as per your comments yesterday, sales management has been contracted to Rogers. So one would assume something of a difference in the expenses related to sales and promotion.
1564 MR. MAHEU: Madam Commissioner, in terms of the contracting out, the agreement certainly stipulates that Rogers is our local sales representative in the Sudbury marketplace for CHNO-FM, but at no time ever do they take control away from us in the way we can manage our business. So I think to characterize it as managing sales is not accurate.
1565 In spite of the fact that Rogers represents us to retail clients for the sale of advertising to them, CHNO-FM has always and will always continue to retain absolute and final say on what we run, how we run it, where we run it, what we will accept in terms of rate and everything else. In terms of management and control of the airtime that we run on the radio stations, although Rogers sells it for us we maintain total management of how it runs, where it runs, when it runs and what we charge and what we will accept in terms of rate and so on.
1566 As Mr. Murray said, just to put maybe not too fine a point on it, from Newcap's point of view the sales collaboration we have in Sudbury, from our point of view, had a lot more to do with providing an effective sales proposition for radio in the marketplace which we cold participate in and had nothing to do, from our point of view, on finding a way to save money.
1567 As Mr. Murray indicated, we will file with the Commission the specifics of our expenses and we believe that you will see that there has been very little reduction, if any, in the other non-sales areas. The benefit of a collaborative sales effort is bringing costs of sales down to a more manageable, realistic level for a small market.
1568 What our intent in this particular agreement was to enhance our ability to sell radio in the marketplace against single-source television, single-source Outdoor, single-source print and not having to do with saving money in other areas of the operation.
1569 COMMISSIONER PENNEFATHER: I am quoting. When I say "cost savings", that is a comment made in January 29th deficiency response by Rogers making it very clear that that was one of the objectives of this agreement.
1570 But that aside, I am going to now keep on the very specific day-to-day so I can understand what the words you are using mean in terms of the way the station operates right now.
1571 Getting to the point about the sales force in the market versus other players, we will come back to, but specifically how does it work at CHNO is what I'm after.
1572 The financials, just to complete this story, show us a very significant drop, without revealing any confidential information, a very specific drop between 2002-2003 in the expense account of sales and promotion. An explanation of that helps us understand what that specifically means.
1573 As well, on the revenue side what has been the impact of the local sales agreement on your revenues, in your view?
1574 MR. MAHEU: Madam Commissioner, just to finish off here your comment about the dramatic drop in sales and promotion spending, there are very specific and reasonable explanations for that. We will file that with the Commission and --
1575 COMMISSIONER PENNEFATHER: Specifically too, the local sales agreement -- and we can go through with the details of it shortly -- quite clearly has an activity taken from Newcap to Rogers for reasons that you feel are very valid, et cetera, in terms of managing the station. But one would assume that there would be a connection between the fact that Rogers is appointed by Newcap as the sole and exclusive advertising sales representative would have an impact on those expense accounts.
1576 What we are looking at is specifically how the sales agreement affected those expense accounts. There may be other factors which we would be interested in knowing, but that is one of the points here. Okay?
1577 MR. MAHEU We will file that forthwith.
1578 COMMISSIONER PENNEFATHER: And on the revenues?
1579 MR. MAHEU: On the revenues, speaking for Newcap, in a market the size of Sudbury and the condition the market was in when we originally purchased the radio station from Haliburton in 2001, the collaborative sales effort between Rogers and Newcap has been good news for us in terms of our ability to grow revenues in a marketplace that has experienced some difficult times.
1580 Our revenues, as a result of the collaborative sales effort, have increased since the agreement came into force and radio as a medium is doing a much better job in the marketplace, being able to compete against single-source advertising competitors. The amount of revenue on a per-station average has grown, the amount of money billed in the marketplace has grown and we have participated in that.
1581 So we believe that the result, from a Newcap point of view, has been very good and very effective for us. It has allowed us to start to generate revenues that make our position in Sudbury a good one. We have gone from the proposition of losing money in a radio market to being able to generate enough revenue that we can continue to provide service and enhance services and keep doing what we are doing in Sudbury and it has been very good for us.
1582 COMMISSIONER PENNEFATHER: Thank you.
1583 I would appreciate if you got back to us on one point, however, in the way the numbers on revenues are indicated.
1584 Strictly speaking we see, in the filings 2002-2003, a decrease. There is a column called "Other Revenue" which sits there with a number attached to it. Could you get back to us on what that "Other" is? It is just a clarification we need, because it is skewing the way that one is analysing the revenue.
1585 MR. MURRAY: Are you are talking about in 2003?
1586 COMMISSIONER PENNEFATHER: Yes, I am.
1587 MR. MURRAY: I can tell you exactly what that is.
1588 The nature of our agreement with Rogers is that the revenue that CHNO actually airs is recorded there as "Local Revenue" and the "Other Revenue" is the difference between the share that we are entitled to for the agreement and the airtime that actually ran, the value of the airtime on CHNO.
1589 Does that make sense?
1590 COMMISSIONER PENNEFATHER: That's very interesting.
1591 So let me repeat to make sure that I have understood it and then, Mr. Murray, you can clarify again.
1592 The way you are presenting your revenues then is impacted by the local sales agreement, because you are placing in a column called "Other Revenue" specifically related to the sales agreement?
1593 Is that correct or is it the reverse?
1594 MR. MURRAY: One hundred per cent of the revenue is contributable to the sales agreement. Perhaps we were incorrect in doing this, so please tell me if are and we will change it.
1595 The revenue that is in "Local" and "National" represents the value of airtime commercials on CHNO-FM. The amount of money in "Other Revenue" is the difference between our share of the four stations' revenue and the value of the revenue on CHNO-FM, so we thought it was appropriate to put that in "Other Revenue".
1596 Perhaps it should have been in "Local" and "National".
1597 COMMISSIONER PENNEFATHER: Perhaps you could get back to us on that and we may have some further questions, but it is significant in terms of assessing the impact of the local sales agreement on revenues for the station going forward.
1598 Let me ask you, Mr. Maheu -- sorry, Mr. Steele, I assume to ask the questions of the group, so if I have mistakenly addressed it please correct me.
1599 MR. R. STEELE: All right.
1600 COMMISSIONER PENNEFATHER: CHNO, Mr. Murray, I think you would agree, has now reached a positive PBIT in 2003. What would be the impact of not having the combined sales functions that are currently in place under the agreement?
1601 MR. MAHEU: The impact for Newcap in Sudbury for CHNO of not having a collaborative sales effort would be very negative for us as a standalone FM in a marketplace. Looking back to the history of the station prior to the collaborative sales agreement, sales effort between Rogers and Newcap, it is an easy connect the dots exercise I think to see that we would be at a big sales disadvantage in the marketplace immediately.
1602 The whole premise behind the local sales agreement with Newcap and Rogers was to be able to bring a critical mass radio solution to advertisers. We were very pleased to be part of that, because we felt it was important with the competition in Sudbury for the advertising dollar that radio needed to present a united front to be competitive and to get on the radar screen and have an opportunity to build some revenue share in the market against other media.
1603 For us not being part of that agreement, we are a standalone FM in a market against a very formidable programming and sales competitor. We hold our own on the programming end right now. We compete vigorously and we believe we do a very good job in Sudbury. But Rogers, in terms of sales, are a very formidable competitor, they do an excellent job, and it would be three stations, three Rogers stations against one for the English marketplace and it would certainly be bad news for us.
1604 COMMISSIONER PENNEFATHER: You have raised a lot of important points there. I am going to come back to them, but I am going at this from trying to fill a little bit of a different conversation this morning so that the Commission can get also on record more of the sense of why you think this is appropriate.
1605 You have just gone through a thesis which is one very important this morning in terms of the positioning or radio advertising versus other players in the market, which we will come back to. But one would have thought, and again this is why this is an area of policy concern, that you license different players and different owners in the market to take on a competitive challenge in that regard, not to work it together but to take on a competitive challenge separately.
1606 In that light, you were looking at your licence and what you have in place to fulfil your obligations as a licensee in counterbalance to that.
1607 My question again is: In the importance of having diversity and diversity of ownership, and importance of maintaining a strong competition in the market, even with the challenge of other players after advertising dollars from television, newsprint et cetera, why couldn't you go it alone, considering the fact that you got this licence in 2000, you have seen some improvement, you are now in a profitable position.
1608 This is why I need to know specifically for your station, not for the advertising per se in the marketplace, for your station, why do you need this local sales agreement?
1609 MR. MAHEU: Madam Commissioner, we are here for a licence renewal for CHNO-FM. We would like it for seven years. There seems to be some question, at least maybe I'm reading this wrong into your questioning, but there seems to be some connection in the Commission's between distinct editorial voices and diversity in a marketplace and what impact agreements of this type have on them. In terms of our collaborative sales effort with Rogers, in no way, shape or form has it ever, will it ever impact on the editorial voice, the diversity that we bring, or the management and control of the station.
1610 The fact that Rogers represents us for the retail sale of advertising has no influence on how we run our radio station. We own it. We operate it. We manage it day-to-day. We take very great pride in what we do in the marketplace. In our opening comments we highlighted a number of contributions we make to the community and we are looking forward to doing that for the next seven years.
1611 So if there is any misunderstanding -- and in other questioning about other markets this came up as well and Sudbury is no different. Regardless of the fact that we have another broadcaster representing us for the retail sale of advertising, that has no connection whatsoever to how we operate our business, how we remain distinct, how we remain independent and how we continue to provide diversity to the market.
1612 Actually, just from an anecdotal point of view, there can probably be a good case made that these types of agreements and these types of arrangements actually in a way foster and promote diversity in marketplaces.
1613 There are four distinct formats, four distinct offerings on the English side in Sudbury which, for a market that size, is rather amazing. Each company and each radio station is trying to carve out it's own niche to bring a consolidated offering to the advertiser.
1614 But in terms of CHNO, this being a hearing to look at the renewal of our licence, we believe we have done a very good job since we purchased the radio statio in 2001 and we would very much like the opportunity to continue serving that market for the maximum amount of time. We believe that the way we have set our business up in Sudbury and the way we operate it day-to-day warrants that renewal for the full term.
1615 COMMISSIONER PENNEFATHER: Lets look, then, at a little bit more about you, CHNO, and how you run the business.
1616 I take your points. Thank you for those.
1617 I think, though, that what we are trying to is take both sides of that argument at the same time and look at it one after another, but they do get mixed.
1618 In other words, yes, you make your point about control. You said that a great deal yesterday as well in other questioning. At the same time, the importance of this local sales agreement, we couldn't go on without it. So there is a mix there where the agreement comes into play in the day-to-day operations and, as we said yesterday and as you are stating today, that may be a good thing, an essential thing, something we could live without. But just to get a sense of how it really works in the day-to-day is where I'm going to go now.
1619 Let's look at news, if we could.
1620 Yesterday you chose to respond to a number of comments from friends. I am not going to be referring to that intervention. I am going to just ask straight up some questions about how the news, for example, is handled.
1621 Just generally speaking, I think Mr. Murray said a little while ago that you have the same number of employees that you did in 2001. Our records show a considerable drop in the number of employees.
1622 How many staff do you have currently at CHNO?
1623 MR. MURRAY: Right. You are referring to our returns 2002 compared to 2003 and what they show is nine employees in 2003, which included sales employees, two sales employees at that time, and in August 2003 we are showing five employees.
1624 COMMISSIONER PENNEFATHER: Five.
1625 MR. MURRAY: We actually have seven today. That was sort of at that point in time.
1626 What happened to change that was we laid off two sales people and we transferred the commercial producer, so that person came from programming. The other position, the other difference, is our traffic person was actually transferred to the Rogers building simply because it was more convenient to -- that is where all the paper was on the sales side. So that is the from nine to five.
1627 COMMISSIONER PENNEFATHER: So you have five?
1628 MR. MURRAY: Now we have seven.
1629 COMMISSIONER PENNEFATHER: Now you have seven.
1630 What do they do, those seven people?
1631 MR. MURRAY: I should refer that to Rick Tompkins. I generally know, but he has the firsthand knowledge.
1632 MR. TOMPKINS: The seven different employees, one of them including myself, I take care of the programming, the music, the promotions and some of the imaging that lends itself to the programming.
1633 After that, we have a different bunch of announcers. We have a morning announcer, a morning co-host, which also includes a newspersons. Then I have an afternoon drive announcer, plus one swing shift announcer, as well as a casual swing announcer that fills in for holidays, and a cruiser person. That rounds out the team over here at our station.
1634 COMMISSIONER PENNEFATHER: So when you said yesterday, Mr. Maheu, that your focus and commitment to news-gathering and delivery has not changed since the LSA came into effect, are we saying that there is one person for news at CHNO?
1635 MR. TOMPKINS: Yes, there is one person for news.
1636 MR. MURRAY: As there was prior. As there was for Haliburton.
1637 COMMISSIONER PENNEFATHER: I think they had a considerable number -- slightly more employees than five when you took it over.
1638 But let's look at -- one person. Is that an announcer? Does that person also do the news-gathering? Does that person do the editorial? Does that person do the interviews, follow up, local events? Is that that one person?
1639 MR. TOMPKINS: Yes. She is our newsperson. She works as a morning co-host, but she is our newsperson. She does the gathering, she writes the newscast and she delivers the newscast.
1640 COMMISSIONER PENNEFATHER: Are you comfortable that you can provide quality news and local programming with one person?
1641 MR. MAHEU: If I may, Madam Commissioner, the format that CHNO-FM is in is a contemporary hit radio format. We program that radio station based on the needs, wants and expectations of a particular demographic group.
1642 Contemporary hit radio tends to be younger by nature and the news, information and presentation of that information and news is somewhat different than you would find on a conventional, older-targeted radio station. Much of what would go on in a morning show in terms of talk, although not happening inside of a formal newscast at the top or the bottom of the hour, is still valuable information and a valuable repartee and exchange and a timely, topical discussion of news, events and issues that are of concern and of interest to people that we are targeting and trying to reach. These folks are predominantly in that 12-to-34-year-old category.
1643 The expectation that these listeners have, we know from the research we have done, in terms of news and information, is for nontraditional forms and presentations and such. We employ that on many other stations that we own across the country that are in a similar format.
1644 We know that a formal CBC-style news presentation will not work with and 18 or a 20-year-old inside of a contemporary hit format. So we put together news and information and deliver it in such a way that our audience finds it satisfying and acceptable.
1645 In the case of Z-103 in Sudbury, our co-host in the morning is also our newsperson and there is a -- inside of that morning program there are regularly schedules newscasts, but there is also a great number of exchanges between the morning host and the co-host where local news and information and weather and sports, and I'm sure this morning they were talking about a sad day for the Calgary Flames and they are going to talking about how warm it is going to be in Sudbury, there is a heat wave coming through central Ontario.
1646 Those types of things happen outside of regular newscasts and we believe that even with the one designated person, the combination of that person and our other announcers, provide the kind of service that our listeners expect from us.
1647 COMMISSIONER PENNEFATHER: Thank you for that.
1648 I'm sure I wasn't referring to a CBC comparison, but obviously in the same format, same style, same demo, there may be other stations where more than one person has all of these jobs, although I imagine she can carry many jobs at the same time.
1649 Where does your news come from? Where do you get the news? What is your source?
1650 MR. TOMPKINS: It comes from a variety of sources. In the morning her first cast is at 6:00 a.m., so she gathers faxes that would have come in from the police or the fire department. She also chases down things through phone calls. She also gathers information off the Internet, which dealing with our entertainment end of our news is very necessary.
1651 We also have broadcast news wire service which is fed with local and national stories, so they definitely provide us with a lot of well-rounded news. She also has the ability to, I guess you could say scope the other news that is going on in the city, be it the MCTV evening news the night before, or even our competing radio stations, to make sure she is hitting all the local stories.
1652 COMMISSIONER PENNEFATHER: Just a small hint, gentlemen. Next time perhaps we could balance the table by bringing her with you.
1653 I couldn't resist. Sorry about that.
1654 What I'm getting a sense of is a really tight operation in terms of the five to seven people you have going there. The next question is clearly one that you can expect: Are you sharing any of the news-gathering activities with the Rogers stations?
1655 MR. TOMPKINS: None.
1656 COMMISSIONER PENNEFATHER: None at all?
1657 MR. TOMPKINS: Nothing.
1658 COMMISSIONER PENNEFATHER: Do you have any specific measures in place that assure that your staff is working exclusively in the news area, or any other programming area, just for your station? Do you have any specific measures in place in that regard?
1659 MR. TOMPKINS: Yes, specifically to my instructions that is not supposed to be shared with any other station, especially the Rogers stations.
--- Laughter / Rires
1660 COMMISSIONER PENNEFATHER: Thank you.
1661 Mr. Miles, I wanted to ask you on the news side, you said very clearly that the AM station has a focus on news and I imagine that the FM stations as well have a particular approach with the demographic, and so on.
1662 In the Rogers station are there measures in place to assure that the staff of your stations work exclusively for your stations?
1663 MR. MILES: Yes. I am going to actually turn this part of the question over to Rick because you should hear it from the general manager of the operation.
1664 Although I will tell you that listening to Newcap, the staffing model they have for that particular format in that size of a market I think, look, it sort of the same sort of general number that we would have specifically for stations of similar size. As you know, we operate them in big markets and in small markets, and excluding the salespeople that the staffing level is between eight and eleven people, depending on the variety of the format. So it sounds as if we were running a standalone station in that marketplace it would be a similar kind of model that we would have.
1665 But to answer your question specifically, here is Rick Doughty.
1666 MR. DOUGHTY: Yes, from the news and programming part all of our programming people and news people know that they work exclusively for Rogers and that any information we gain remains with Rogers.
1667 I think the biggest thing that does it is not that you have to have a rule. These people have pride and passion in their job and there is nothing better than scooping your competitor and coming up with in the morning "the story" for Sudbury and knowing that your competition did not have that story.
1668 COMMISSIONER PENNEFATHER: So there is no sharing or staff transfers in terms of news facilities, vehicles, newsrooms, in the field operations, no staff transfers or exchanges there?
1669 MR. DOUGHTY: No.
1670 COMMISSIONER PENNEFATHER: Were there any staff transfers at the time of the local sales agreement, of any kind?
1671 MR. DOUGHTY: Specifically news and programming or any kind period?
1672 COMMISSIONER PENNEFATHER: Any kind.
1673 MR. DOUGHTY: There was one individual who did traffic with Z-103 that is now continuing to do the traffic commercial placement for that radio station.
1674 MR. MILES: But is employed by Rogers and not employed by Newcap.
1675 COMMISSIONER PENNEFATHER: Okay.
1676 Just before we go to that, because that will help us understand your specific duties under the agreement, Mr. Miles, you did mention this before so just to get it clear on the record.
1677 The Commission had noted in it's July 24th letter that it had a concern about the contractual arrangement regarding engineering services. Can you describe for us, is this still the case? Is Rogers contracted to do engineering for Newcap and, if so, what is involved?
1678 MR. MILES: I'm going to ask Rick to outline the specific instances of it. I know that this will be an opportunity to come back to this, if I may, when we get into the more philosophical differences between a local management agreement and a local sales agreement.
1679 I clearly see where the Commission is coming from, because under a local management agreement many of those things you just described would naturally occur, they were sort of under the direction of one person and one control and all the rest of it. Under a local sales agreement, where the only issue is the selling of radio time as an outsource, then none of those other issues are in there and I would love to talk about that further.
1680 Rick, I would turn this over to you.
1681 MR. DOUGHTY: The engineers that are employed with Rogers do some contract work with Newcap. I know that Newcap also contracts CBC for their recent installation of their tower, so it is a combination of people that supply the service to them.
1682 MR. MILES: Commission, the other thing that I think -- and I understand why the Commission is bringing this one up. It frankly was sort of low on that totem pole and perhaps when we get back into what the regulations are, and the policies, it is sort of that low barrier with too many exclusions and not enough inclusions, something like that.
1683 But the contracting out of engineering services is common across radio stations. We have a history of providing engineering services to one another. They are a bit of a unique fraternity -- I hope there is nobody wearing the little ring on their finger, the silver one, but those engineering people -- yes, that's what I was afraid of. I was wondering how deep I was going to get myself into in this one.
1684 But there are examples. A good associate of mine, and a long-term friend who runs a series of radio stations in small markets in Saskatchewan and Manitoba, actually has as a revenue source contracting out of engineering services and contracts engineering services to big radio stations in major markets. So this kind of thing was going on.
1685 We sort of found that it had nothing -- again our version, not the Commission's -- that had to do with control or actually running of the radio stations. It is very difficult, very difficult to get qualified engineers into the more remote parts of any place in Canada -- I don't care whether it is Ontario north or whether it is in Moosejaw, Saskatchewan or where it is -- so we try to, as much as possible, because they are absolutely transparent, all they are concerned with is making sure these radio stations stay on the air and making sure things get fixed.
1686 So that is the nature of the agreement. There is certainly nothing machiavellian about it and the cost savings is probably not very much money because, unfortunately, these kinds of positions are not in the $200,000 or $300,000 range.
1687 COMMISSIONER PENNEFATHER: Thank you.
1688 Just before we leave the programming area it is important for us to understand, I think you both said you compete with each other vigorously for audience.
1689 You have both cancelled the BBM subscription, so how do you go about understanding your target audience if you don't have your BBM information?
1690 MR. MILES: Thank you for that question.
1691 This whole issue about BBM and about continuous measurement, we have found in markets that are outside of the major markets -- and I will come back to the reason for that -- that the local furniture dealer is less interested in whether the radio station has a 12 or a 24 or a 36 share. He is really quite interested in on Monday morning did the campaign that he ran on the country music station deliver people into the showroom and was it measurably effective against his newspaper ad that he didn't run that week or about his television buy that they are busy trying to get him convinced to be done.
1692 The result and how you know that you are doing service to the community is in some of those examples that we tried to outline in our presentation yesterday afternoon, which is that one of the drives to help raise money had $12,000 and we expect to double it next year. We are appealing to that community. We know their likes and dislikes. We have all of the research that goes into it and that is why we provide just the best programming that we can.
1693 BBM is more for major markets where there are a lot of car dealers, a lot of furniture outlets and each one of them are specifically identified with different kinds of demographics and things like that and in a measure.
1694 I know this is digressing, but the whole measurement system really needs to be updated and things like that. Hopefully we are moving towards that where we have more systems of measurement, more reviews, hopefully four times a year, of which they will be measured across the markets. At the end of the day, Sudbury is going to be measured this fall and it's going to be there. We may not take -- we as Rogers Broadcasting -- may not take the results of that. We don't have to. They are measuring it.
1695 By the way, BBM continued to measure Sudbury even when we weren't in it. The measurement availables are there. It is not the dynamic for the marketplace.
1696 COMMISSIONER PENNEFATHER: The agreement, Mr. Miles, places Rogers as managing partner for all four stations when it comes to being the sole and exclusive advertising sales representative for the Newcap station in the territory. Let's look at these sales functions in detail to be sure we understand what they are.
1697 Could you describe what specifically the functions are that you undertake as the sole and exclusive advertising sales manager for the four stations?
1698 MR. MILES: Remember that the sales manager was managing the sale and not managing the inventory on the other station. So as Newcap had indicated, each one of the four different formats has different kinds of commercial islands within it and it is up to Newcap to determine where they are going to put their commercial islands in their programming, the same as our commercial islands in our all-news or in our country music station is different.
1699 COMMISSIONER PENNEFATHER: But the traffic person is at Rogers.
1700 Is that correct?
1701 MR. MILES: That is correct, but I was getting to that one.
1702 Again, where they decide to place commercial inventory breaks in their format is different than where we place it on the adult contemporary station, different from where we place it on the rock station, and far different from where we place it on the country station.
1703 The traffic manager is just a function of placing ads within those things after we get instructions from Newcap about "We have good for six minutes of commercial time between 8:00 and 9:00 in the morning". When the sales is developed and put out, then the traffic puts in and says "Well, there is a hole at eight o'clock and there is another place at 9:00 and a place a four o'clock in the afternoon" and that is where it goes in.
1704 In terms of how the actual sales functions go on, perhaps I could turn it over to Rick and he could give you an outline of how the sales activities go and what the communication is with Newcap, if that would be helpful.
1705 COMMISSIONER PENNEFATHER: That would be very helpful. I think starting at the top, the promotions coordinator for example, what is the role of that person in terms of both stations and feel free to describe it. I would like to hear your understanding as well, Mr. Steele, on these specific sales functions from Newcap's point of view.
1706 MR. DOUGHTY: I think on a day-to-basis the sales department runs itself, where we have a local sales managers, we have three separate sales teams for the three FM properties. The salespeople take care of every step of the process from the time they go out and they make the sales call, from the time they prep for the call in conjunction with each other to go out with a united front to sell radio to the client, product comes back in. All of the process is handled through the traffic department, which Gary explained places the commercials; a creative department which writes a commercial, a united front, a united campaign for the client so it is a consistent message across all of the radio stations.
1707 COMMISSIONER PENNEFATHER: Sorry to interrupt.
1708 So all three FMs are presented as a package then in this scenario you are painting? Your program coordinator would have three FMs to position a client according to their needs on the three. So they are presented as a package together, those three FMs?
1709 MR. DOUGHTY: That is sort of a wide statement. It depends on obviously the value of the client, what the client is able to invest in. Every client, the calls are made differently. If we are going into --
1710 COMMISSIONER PENNEFATHER: Your coordinator has that option to present the package then?
1711 MR. DOUGHTY: The program coordinator doesn't present the package. The salespeople present the package to the client and the sales administrative assistant would help develop it.
1712 The program coordinator is where the salespeople go. If a salesperson decided "I would like to do a contest on station A, B or C", they would take that proposal into the promotions department and the promotions coordinator and say, "Here is a contest I would like to run for Cambrian Ford on this station", The program coordinator would then meet with the individual program director for the station and the sales manager and the decision would be made whether that would be executed or not.
1713 So it is one part of the sales process, but the program coordinator is strictly a coordinator, where they take the information from the sales rep, they present it to the program director, sales manager. The decision is made wether it is the right promotion for the right station by the program director, because he wants to make sure that contest appeals to his listeners, then the program coordinator works with the salesperson to help make sure that it is executed, making up banners, making up ballot boxes, getting the promotion on-air.
1714 MR. MILES: I believe it is actually a promotion coordinator. I get worried when we talk about program coordinators because program people are in charge of programming and promotion is that sort of separate and different kind of --
1715 COMMISSIONER PENNEFATHER: I think you have hit the word "separate".
1716 Comment on the idea, though, that in order to really achieve in impact that you have discussed previously on getting a better spin on radio advertising, as opposed to television as opposed to news, and that this is a combined station approach which you say is one that will improve your position overall with all four stations.
1717 Would there not then be a time when programming strategies would be discussed in order to make sure that that revenue impact was as good as you think it would be? Is it not a logical assumption that there would be a connection, that there would be a lining up of different approaches in terms of programming?
1718 Let's say Mr. Miles and team gave a very long and interesting list of community events for example where there is a positioning of the radio stations, would there not be joint discussions on that positioning in the community to make sure that it was a coordinated approach?
1719 MR. MAHEU: Absolutely not, Madam Commissioner. To kind of restate the obvious again, the only collaborative effort between Rogers and Newcap in the Sudbury market is in one of sales.
1720 Just following up on Mr. Doughty's comments about -- terminology aside, program coordinator, sales coordinator, we talk in terms of sales and promotions and, for instance, Rogers has the exclusive sales agent for Newcap's time in the marketplace, from time to time brings promotions that are driven by clients, they would like to conduct a certain type of promotion or whatever, and those things do not hit the air until they go through Rick, who is our operations manager, and there are times where Rick says "No way".
1721 Salespeople, being the way they are, sometimes are very zealous and our approach is to make sure that the sales promotions -- and there are two types of promotions, there are station promotions that are strictly to promote the radio station and enhance its audience and its goodwill with it's listeners. Those are different kinds of promotions. We are talking about sales promotions that radio stations participate with clients to help generate more revenue for clients and generate revenue for the stations.
1722 But even in that case, although Rogers has a very good understanding of what our target audience is and what we are trying to accomplish, salespeople, being salespeople, sometimes do bring things in that are not acceptable to us and we say "No, we will not conduct that promotion because it doesn't fit the format of our station. Here are some ideas that we could present to you to possibly modify it and change it, but unless you are willing to do that we aren't willing to run it." Again, that is an example of maintaining the kind of control and the separation.
1723 We are also in a separate building. Our operation is in a separate premises from Rogers and that also limits the contact. We have never, and have no intention of collaborating with Rogers on lining stations up or anything else.
1724 We are in a great format, one that we are quite good at doing. We do it in a number of markets across Canada in competitive and non-competitive situations and we believe that we bring the kind of passion and resources to this format of adult or contemporary hit radio targeting 12-to-43-year-olds and we have no reason to want to change that format or modify it. We do not talk about programming, we don't talk about lining stations up. It never comes up and it is not part of a discussion we have.
1725 COMMISSIONER PENNEFATHER: So just to get back to the specifics then, I take your point about the difference between sales promotion and station promotion. When we looked back at the expense accounts we can see where staff are for station promotion, as I understand you are saying, but ad promotion is over at Rogers.
1726 So the activities under the agreement include traffic, credit, sales, invoicing, collection, sales tax remittance, sales management and commercial production services for the combined stations.
1727 Am I correct?
1728 MR. MILES: Correct.
1729 COMMISSIONER PENNEFATHER: The commercial production services comprise what functions?
1730 MR. MILES: Recording of the commercials for the client.
1731 COMMISSIONER PENNEFATHER: It is in this context that we say there is no connection between those decisions as to what will sell and programming?
1732 MR. MILES: Correct.
1733 COMMISSIONER PENNEFATHER: In looking at those services what would be your comment on perhaps a mechanism wherein some of those activities would remain with Newcap, for example billing and collection?
1734 Could you comment on the possibility that the Commission would impose that certain measures such as billing and collection remaining with Newcap, whereas the other duties remaining with Rogers would take place? Could you comment on what the impact would be and how you would react?
1735 MR. MILES: Yes, and I will actually have Ms Gittens explain what the process is right now.
1736 I know I seem to be going on and on and on about how we sell radio today and the kind of radio environment but --
1737 COMMISSIONER PENNEFATHER: No, I appreciate that both of you give us the day-to-day because I had hoped that is what we could get on the record this morning.
1738 MR. MILES: Thank you very much. Thank you for that.
1739 A couple of things that I think are important for us to realize that have changed with regards to how the competition has changed and evolved throughout the entire market with regard to how we sell radio, I think it could be classified as saying before we got into the trouble -- "we" being radio collectively and we had to put in LMA's and then consolidation -- is that we were a number of disparate little units running around each trying to figure how to bring in enough money to pay for the rent and sell at whatever price. It didn't matter whether you were a furniture dealer and if I had a rock-based format and you were selling love seats, I was going to go in and try and get the money, as much as I could, and salespeople being salespeople were more driven by commissions then they were about service to the client.
1740 Through the leadership of the Radio Marketing Bureau and, frankly, by great broadcasters and they are sitting in this room today, what we have had to do with our sales department is to say "You have to go in and get from the client what he needs". So this is really marketing, it is not about what I have to sell. Here is the list of three stations and, by the way, I want you to buy all three of them and I have a really good deal on them today." It is going in and finding out what we need from the clients.
1741 There are a couple of initiatives that we have actually done that, with forbearance, somewhere in this thing we would like to talk about. One is a Pulp Fiction, where we have had great success in identifying clients that have been in the newspaper business and figuring out how to make it work better for their specific thing. It may well be one station, it may well be CHNO; it may be two stations, it may be CHNO and the AC station; it may just be the country music station, but it has to do with what the client needs because otherwise we are never, ever going to survive in this business.
1742 With that we have actually started to improve the sales training, we have spent more money on sales training then we have ever done before. I'm not just talking Rogers, I'm talking all the way across the industry.
1743 In that the client has sort of expected to have his business simplified. Everybody is time starved. These clients are no different than anybody else. They have four different sales people coming in all trying to sell radio. They just don't give the time and attention needed to make sure the medium gets sold correctly. So part of making these things easier is we traffic out of one building The traffic department could well be over at Newcap. It is a mechanical function. It is not anything about how many commercials in each hour, that is Newcap's prerogative. The same thing with the billing.
1744 So, Kim, could you just outline briefly what happens on the billing system?
1745 MS GITTENS: Sure. On the billing side with the invoicing, the invoices have each distinct station logo on it. So the CHNO invoices are on CHNO invoices, they are all complete and distinct.
1746 I guess in terms of just following up on to Gary's response, this is a client-driven approach where it is not just sales but also sales delivery. So we are having unified sales teams sell the stations, but then if we had three people calling for collections, then the back end of it would be, I guess -- what's the word, it would be decentralized. It wouldn't be a centralized approach, which in terms of trying to provide the best service for the client, there is one contact for collections collecting on behalf of all four stations. In terms of the fact that we are doing that, it is sales and sales delivery combined.
1747 MR. MILES: Also attached to the invoice for each one of the stations is an affidavit that says what spots ran on that particular station under that station's letterhead. So this is more a back office trying to make sure that we smooth the transition process out.
1748 COMMISSIONER PENNEFATHER: Thank you.
1749 I think too what I would want to keep in mind though, is while all those pieces of the puzzle could be described as mechanical, I don't think that the advertising component of running the station is a secondary or mechanical process.
1750 As we said yesterday, I think Mr. Steele you said, the business of radio is essentially, if not central -- advertising is central to the success of radio and understanding your market, making money in your market, is essential.
1751 If I could just keep on the terms of the agreement, I have one question regarding the actual agreement itself.
1752 Mr. Maheu, yesterday you made the point about the importance of control. There is also a statement in the January 29th deficiency response from Rogers regarding the advertising rate card which seemed to contradict Article 4, paragraph 4 of the Term Sheet.
1753 Article 4, paragraph 4 of the Term Sheet says:
"The rate card value of any advertising airtime sold for the combined stations shall be determined by Rogers in its sole discretion." (As read)
1754 Yesterday I think, Mr. Maheu, you said that you would never accept a situation in which the rate card would not remain in the hands of the licensees.
1755 Could you explain?
1756 MR. MILES: May I first start because it was our response.
1757 When we talked about the rate card, we were talking about establishing the rates for the clients as compared with what we were instructed to sell the station for. That was our mistake in that one. It wasn't that we were setting their rates, we were talking about the rate in front of the client, because that really is part of the problem where one person comes in and says is the rate different from another rate?
1758 I turn it over to Newcap.
1759 MR. MAHEU: Rogers Communications can set the rate card all they want. What we will accept is our decision. So if that is a process by where they are pricing their radio stations and then pricing ours as part of a consolidated offering to a client, that is their prerogative.
1760 But in terms of where we stand on it, we maintain control of what advertising we will accept and what advertising rate we will accept. If they want to somehow combine the offering in such a way, and how they present it is their business, when it comes to accepting it, it is on us and remains that way.
1761 COMMISSIONER PENNEFATHER: This Term Sheet also includes a profit sharing mechanism, percentages are set and with some evolution planned for based on other activities.
1762 Mr. Maheu, does this profit sharing mechanism not, in your view, shall I say dampen the enthusiasm for competitiveness, in the sense that knowing what the share would be would somewhat limit your interest in increasing your revenues or moving more competitively against Rogers since they are your manager in this area and they are setting those percentages?
1763 MR. MAHEU: First of all, Madam Commissioner, just for the record to correct it, it is not a profit sharing agreement. It is a revenue sharing agreement. We do not share profits.
1764 The revenue share agreement that we have with Rogers, a lot of thought went into that, thought to making sure that a consolidated proposition for advertisers in the market had the potential of being successful while at the same time allowing each radio station and each owner to make their own decisions.
1765 We are free, as we have always been, to serve the needs of the market based on what the market calls for. We do research in the market. We may not subscribe to BBM, but we know with a great degree of certainty what our listeners expect, need and want from radio in the market. That is why we are in the format that we are in, because we felt that was the best way to serve the biggest possible constituency of people in the marketplace. That was our focus and that was our purpose.
1766 Does it take away any incentive for us to do better? No, not at all. Newcap operates radio station is markets large and small across the country. We are in single-source markets where we are the only commercial radio station. We could probably be in any format we wanted to be and have an audience, but that is not the way we approach it and nor does it take away any incentive for us to be the best we can be even though in many of our markets our only competition is the Canadian Broadcast Corporation.
1767 That goes to the issue of the kind of company that we are and the kind of broadcasters we are. Mr. Miles mentioned it earlier in his statements about Rogers and we would echo that, that there is a great deal of pride with the people who work in this business and I know Newcap people are very passionate about what they do and they live in this community. They know the people that listen to them and their neighbours listen to them, so there is a great deal of pride.
1768 Our incentive in the Sudbury market is to be the best radio station we can be for the largest number of people we can possibly serve. Knowing that no one radio station can be all things to all people, we have carved out a niche for ourselves in a contemporary hit radio format that we believe serves the market well.
1769 The sales collaboration we have with Rogers right now provides us with the opportunity at revenue levels sufficient enough that we can make a small profit in the marketplace and continue to offer that service, but in no way would it ever take away our incentive to be the best we could be.
1770 COMMISSIONER PENNEFATHER: Mr. Maheu, you have achieved a comfortable -- well, a good PBIT level, share of the market is quite good as I see it. Going forward, would you be able to function -- and I am considering everything you have just said about where you position yourself -- without the LSA? Would you be comfortable to go forward without the LSA?
1771 MR. MAHEU: We would not be comfortable with that.
1772 COMMISSIONER PENNEFATHER: Could you manage?
1773 MR. MAHEU: We can manage through anything. It would certainly not be our preference. We are in the business of doing great radio in markets across the country.
1774 Obviously we consider ourselves good operators and we look for every opportunity to serve the community, while at the same time enhancing our ability to generate revenue and be profitable. It is a commercial business, as we discussed yesterday, and the business of radio. So we have responsibilities to a number of constituencies, listeners, regulators, shareholders, advertisers and we try to serve those constituencies equally and well.
1775 Our preference -- and I think the market statistics and the way the market is shows clearly that a consolidated ratio offering in the market helps radio, helps radio continue to provide the kind of diversity, editorial voices and service to the market against single-source competition.
1776 But regardless of what happens we are in the Sudbury market to stay. We bought the radio station on that premise. We think we have found a better way to do it and a more effective way as a medium to compete. We would hope that the Commission would see it that way and would allow us to continue to do what we have done in the marketplace, but if not we are going to be there. We will lose money, but we will be there.
1777 COMMISSIONER PENNEFATHER: I will reverse the hockey usual breaks and this will be the first 40 and we will take a break.
1778 I have some questions I would like to go back to your comments earlier, Mr. Miles and Mr. Maheu, on the general context. I want to keep with the Sudbury market. My colleagues may also have some questions.
1779 We could take a break now, Madam Chairman.
1780 THE CHAIRPERSON: We will take a 15-minute break. So we will be back at 20 to 11:00.
--- Upon recessing at 1037 / Suspension à 1037
--- Upon resuming at 1045 / Reprise à 1045
1781 THE CHAIRPERSON: Commissioner Pennefather.
1782 COMMISSIONER PENNEFATHER: Thank you, Madam Chairman.
1783 Welcome back, everybody. Just going back over a couple of points to make sure that we have it as clear as we can.
1784 The first question, Mr. Murray, on the discussion of the famous "Other" column in the revenue area, just so that I'm sure I understood you, the breakout you described under "Local" and "National", but particularly "Local Time Sales", would be your revenues of CHNO.
1785 Is there any component of that amount which is related to the local sales agreement or is that just --
1786 MR. MURRAY: Yes.
1787 COMMISSIONER PENNEFATHER: Yes.
1788 MR. MURRAY: Yes. All of the revenue recorded in 2003 was generated as a result of the local sales agreement.
1789 COMMISSIONER PENNEFATHER: So the amount under "Local Time Sales" was generated as a result of the local time agreement and the amount under "Other" was generated as a result of the local --
1790 What is the difference between why it is in column "Local time sales" as per normal and why is some in the "Others" category?
1791 MR. MURRAY: I think that it is filed incorrectly and that the entire amount should have been filed in local and national revenue.
1792 COMMISSIONER PENNEFATHER: So in effect the local and national revenue is the revenue you are receiving under the local sales agreement?
1793 MR. MURRAY: Correct.
1794 COMMISSIONER PENNEFATHER: Your portion.
1795 MR. MURRAY: We could refile that if you like.
1796 COMMISSIONER PENNEFATHER: Well, as we discussed earlier, if you could file with us an explanation of that component --
1797 MR. MURRAY: Included with that when we --
1798 COMMISSIONER PENNEFATHER: -- not just lumping them. It's interesting why you would have chosen to do it that way.
1799 The only reason is to understand the points we have been making about the effect of the local sales agreement on revenues and what would that column look like without a local sales agreement was part of the questions as well.
1800 MR. MURRAY: Yes. Looking at that other revenue is misleading to you. That shouldn't be there, so we will refile that correctly when we explain the expense situation as well, at the same time.
1801 COMMISSIONER PENNEFATHER: Okay. On the rate card, just again so I understand, using a very general idea, if I understand it, let's say the three FM's are presented to a client for valid reasons as a package at a certain rate set by Rogers. Newcap may not set the same rate, let's say it is a lower rate and it sold to the client at the higher rate set by Rogers, what happens to the balance?
1802 MR. DOUGHTY: On the rate card which was set by the local market sales manager -- and I guess rate cards are really set by clients as to what the client will pay in a given market against all of your competition -- the rate card is set for each individual station. So we have four separate rate cards for the four stations.
1803 The rate card then fluctuates based on supply and demand. Certain times of the year our rates are higher because we have a better demand for our product, and certain times of course are lower when we have no commercials running at all through the month of February.
1804 As well, on the rate card there are increments that are already developed and built into so that as a client invests more on an individual radio station they get a lower rate. All of those steps for the rates to go up and down are included on the rate card which is given to Newcap as our proposal as to how we will sell their radio station. They approve the rate card and then our sales managers and sales reps work within the guidelines that are built into the rate card.
1805 COMMISSIONER PENNEFATHER: Do you concur? Do you have anything to add?
1806 MR. MAHEU: No. We concur.
1807 COMMISSIONER PENNEFATHER: Staff took me aside very gently and told me I was mispronouncing your name. Have I been doing that?
1808 MR. MAHEU: Yes, ma'am.
--- Laughter / Rires
1809 COMMISSIONER PENNEFATHER: Great apologies. I share the problem. Believe it or not Pennefather is often mispronounced as "Pennyfeather" or various varieties thereof.
1810 So how should I be saying your name?
1811 MR. MAHEU: "Mahew".
1812 COMMISSIONER PENNEFATHER: Thank you, sir. Thank you for those clarifications on the rate card.
1813 Let's turn to the Sudbury market and move into a discussion of some of the broader issues here and some of your comments in your presentation, Mr. Miles.
1814 Certainly both of you gentlemen and your team have been discussing the value of this Term Sheet, this agreement as one wherein you would present a more solid force, a radio proposal that would have more impact vis-à-vis other players. But another side of looking at that is to say that the result is considerable market power in the radio market per se in the hands of Rogers. Let's say that we look at it from that point of view.
1815 When you look at it from that way and you see that in fact Rogers has -- the four English radio stations are basically three Rogers, one Newcap -- in terms of the results of this sales agreement exercising considerable market power in the radio market in Sudbury. The effect of that and a concern that we would have, and the implication perhaps, one which I would like to hear you out on, is the impact of that on the possibility of new entrants into the market.
1816 I understand in your reply to interventions you do have a comment on what you consider to be the size of the advertising market in Sudbury and the size of the radio market. I believe you have indicated therein, and even this morning, Mr. Miles, that you are up to about 12 per cent now, I think that is what the intervention said.
1817 As I understand it, too, the average for the radio positioning in markets across Canada within any given market is about 14 per cent, so you are exercising pretty good impact in terms of the radio market in Sudbury. But that could be seen as market power, limiting the access to that market by other players.
1818 So could you comment on this sales agreement while you present it as a way to improve the positioning of radio advertising versus other players getting that, what you have called $61 million advertising market in Sudbury, versus the fact that it also kind of locks that market up in the hands of Rogers in terms of the radio market and other entrants. This could cause a competitive issue for the Commission in terms of other entrants, for example.
1819 Could you give us some comment on that?
1820 MR. MILES: I would be pleased to.
1821 Actually, I thought the dichotomy is somewhat amusing, I guess is one of the words to use to describe it, because the better we make the market, the more profitable the operators become, which when you are before a hearing everybody says "So will the market" -- I know we don't use market criteria any more for granting of licences, but we have now created a far better radio market which obviously is going to lead to increased applications to take part in this one and hence more licensing. So here we are as operator actually trying to raise the bar so that the market becomes even better.
1822 I would love to be able to see radio share grow. You mentioned 14.4 per cent. The national average is something like 9.9 per cent in terms of where we have always been historically along this line.
1823 That really has been the problem. Without putting too fine a point on it, when the Commission saw the need on behalf on the radio group for LMA's, we were struggling to try and get in and around that kind of share of market. The Commission has indicated that radio profitability is back at a very high level, but it is only back to levels sort of before the 1990s.
1824 So we have increased the revenue, we have made radio a more powerful vehicle in the Sudbury market, and I guess that means that there are more opportunities then for licensing because there is more pie for it to be shared.
1825 COMMISSIONER PENNEFATHER: That assumes a positive outlook in the market. Without going into too much detail, in Sudbury we are looking at very limited, if not negative, population growth. Realistically though isn't there a concern we should have in terms of the limits of the radio market and that you perhaps have reached that limit in terms of what you have pulled together in this sales agreement?
1826 MR. MILES: Without appearing to be confrontational, the short answer is no, I don't believe that.
1827 Is there a limit to the newspaper for taking 33 to 38 per cent of the market being a single-source paper? Who is stopping television? They are taking 28 to 33 per cent with three networks, or two and whatever CHUM calls theirs for being the third one.
1828 These are the marketplaces that we are fighting to go on with as we are today. We are now looking at possibility of satellite radio services coming into it, certainly affecting marketplaces like this.
1829 I think what we have really done in Sudbury is, we have stopped radio from being a commodity.
1830 Do you know that there are six advertising agencies in Canada that control 80 per cent of the national advertising money? They want to make radio a commodity. They want to be able to say, "I don't care if Taco Bell is the right kind of client for the CHNO targeted 18-34". They say, "Because I am buying General Motors for $4.00 cost per point in Sudbury, that is what you are going to sell that radio station for".
1831 This is a fight against these bigger forces, bigger box stores coming in, consolidation of agencies, bigger clients, in commoditizing what radio is about in an attempt to make sure that we actually get in and put the right client in front of the right radio station with the right sales promotion and that the radio station continues to make sure that it develops its constituency by providing service to that area.
1832 COMMISSIONER PENNEFATHER: Yesterday, Mr. Steele, you had a conversation, I believe with my colleagues but particularly with Vice-Chair Colville, and I think I heard you say you understood this point: How would we know if the market would have evolved differently without a local sales agreement? Here we are in a situation in this case where we have one in operation.
1833 If we go back to my earlier comments about the context and the facts -- to quote you, "the facts, ma'am, on the table" -- how would we know how this market would evolve without this local sales agreement? Because, in effect, if we look at the dateline, although you started out without one it was very quickly after the start of your ownership that this local sales agreement was put in place.
1834 Mr. Miles, the agreement was discussed even prior to approval of your purchase of the Standard stations. So, in effect, we haven't seen the market functioning without this local sales agreement.
1835 What is your comment in this particular case on that point?
1836 MR. R. STEELE: I think the answer to that is you really don't. You can't really know. At best it is an educated guess.
1837 I don't want to appear crass or anything like that by talking about the business of radio, but from a business perspective you try to make your best guess going forward. What is the best way to operate this station and get a return, in the meantime encompassing all the obligations you have with respect to the community, community service and all that thing, because all that stuff is good business. It makes good business sense to do that.
1838 Let's be clear. The LSA in Sudbury is a preferable economic route that we would like to go. As Mark said earlier, if we weren't permitted to operate the LSA there we would go it alone and we will try our best to make a go of it. As entrepreneurs we try to make the thing work and we will be persistent about it and we will believe that we will have success.
1839 By having the LSA, does it diminish the quality of programming or diversity or any of those things? Hopefully I think we have been able to put our case forward that it hasn't.
1840 COMMISSIONER PENNEFATHER: Let me just push that point a little bit for the record for you to respond.
1841 I asked a number of questions earlier about newsgathering for example and the kind of shop that you have now. There is an argument that it sounds limited in terms of what the expectations are from local programming under the understood policy. I'm not introducing any new ides there, it is just simply the way that we look at your obligations in terms of local programming and your local impact and just looking at CHNO on its own.
1842 The timing of the LSA is one in which one would think you made adjustments in terms of bringing the staff considerably down from where it was, other ways that you have put the management team together or developed your staff complement and your plans for when you would have news and the kind of news you would have were influenced by that agreement.
1843 There is a sense where you could argue that as a result of that agreement there has been an impact at CHNO in terms of programming. The choices you have made as to the amount of news you do, as to how it is done, as to the fact that promotions are -- while you have station promotions in-house, as I understand it, ad promotions, your impact in the community is in the hands of Rogers. Your revenue future is very linked to this local sales agreement. It is difficult to not see a connection with the programming concept of the station.
1844 MR. R. STEELE: I guess the fundamental question there is: Would it be any different if the LSA didn't exist? We would put forth that no, it would not be.
1845 Rick, perhaps you can add to that or concur with me.
1846 MR. TOMPKINS: Definitely. On the programming side of things we feel -- and I speak for the entire team that works for me -- we are very aggressive and very true to the CHR forum and we try to give that information across to our audience. We, as a whole would take -- and I heard it mentioned several times before -- great pride in being a very well-received radio station in the marketplace. I don't see how that would change regardless of.
1847 We do our programming very independently. Actually, I do it with Rob Meise from Newcap and Steve Jones, the Vice-President of programming from Newcap. So the three of us put our programming heads together and we really have developed a great product. Prior to the last book of numbers we probably are in better shape than we were before.
1848 COMMISSIONER PENNEFATHER: Just in passing, is this what was meant in one of the deficiencies about connecting with your -- I think it was V-P, Newcap programming. I think there is a deficiency dated February 12th, or it may have been earlier correspondence, on the way that you put your programming concepts together with Newcap players around the country.
1849 Is that correct? Is that what you meant by conferring on --
1850 MR. MURRAY: Rick probably doesn't have that correspondence in place, but yes, that is exactly what we are talking about. He reports on programming concerns to Rob Meise and Steve Jones.
1851 The point that we were trying to make in that correspondence is that Newcap, it has absolute distinct programming.
1852 MR. TOMPKINS: Yes.
1853 MR. MURRAY: If I can just try to deal a little bit with your concern on the number of people. We don't have Haliburton Broadcasting's 2001 CRTC return, but it sounds like, from what you are saying, there is a dramatic change in the number of employees. I don't know if Haliburton was allocating -- Sudbury was their centre of operations for a network of stations and I don't know if they were allocating a number of people from their network to that or something.
1854 Because Rick can tell you, he has been there for many years, that we eliminated one position. It was the commercial producer's position, plus sales people which Roger's has taken of.
1855 So there is very little difference and I am puzzled at that.
1856 COMMISSIONER PENNEFATHER: That's fine. I think too the most important thing is what you have now and who does what and what does that mean in terms of your obligations to the community and to your licence.
1857 MR. MAHEU: If I may, Madam Commissioner, in response to your question, your proposal to Mr. Steele about how would things be different going forward if there was no LSA?
1858 The one thing I can say on behalf of Newcap and CHNO is that going forward the one thing that would not be different would be the service we provide to the community. We really look at these things distinctly and separately.
1859 Regardless of what our fortunes may be in terms of being successful in selling against single-source advertising competitors or whether we are allowed to continue with a collaborative sales effort with Rogers, those things are important, but the one thing that does not change is what we do in the community, how we operate the radio station and the contributions we make.
1860 Whether we make a small profit in the marketplace or lose our shirts is not going to change the fact that we are still going to have people on the air doing programming. We ares still going to be doing news. We are still going to be involved in public events and community causes and concerns.
1861 We understand that that is the price of doing business in any marketplace. We understand that it is an expectation that listeners have of us. It is an expectation that the Commission has of every operator and we are very proud and very happy to fulfil those obligations above and beyond. So that will not change at all.
1862 What the sales collaboration between Newcap and Rogers does do, though, in our opinion going forward, is it puts radio into a position in the marketplace (a) to be more competitive; (b) that the stations involved in the marketplace have an opportunity to generate the kind of PBIT and bottom line that would allow the extension of more services in the future.
1863 It is one thing to operate in a marketplace and provide service and lose money, and when you are doing so without profits there is no reinvestment in capital and there is no increase in employment and there is less opportunity for people. This sales agreement and the revenue that a consolidated radio offering provides does provide a much brighter future for higher levels of service going forward.
1864 We have only been in this situation now a relatively short period of time, but we know that nothing will change on the service side and on the programming side regardless of what the Commission's feelings are on the sales collaboration going forward. That you can take to the bank.
1865 COMMISSIONER PENNEFATHER: To where? To the bank?
1866 MR. MAHEU: "The bank". Not the Royal Bank -- well, it's fixed now.
1867 COMMISSIONER PENNEFATHER: I was going to say, it was a long few days.
1868 I take that, but at the same time you could take your words and argue for a standalone station because of the forcefulness of your commitment.
1869 Secondly, because -- and here is where the policy concerns do come up, Mr. Miles, is there is of course the approach to a market in which we can say rather than have one block moving the radio advertising market forward, we would have different players, different owners moving the market forward and leaving the market open for competition in a way that would assure that diversity as well. Those are the balancing of components that we need to look at, which is why this is an agreement.
1870 Under the Regulations 11.1 this agreement does touch on, does deal with the operations and management of certain aspects of the stations concerned and so it is being discussed in line with the guidelines in 99 -- I think it is 179. Those guidelines also raised in these circumstances were the points that were raised in the Commission's letter of July 24th.
1871 It is in that sense that this agreement is being discussed and I think you made the point, Mr. Miles, that you wanted to point out the differences between management agreements and sales agreements.
1872 I think that you can look at different agreements and find there may be different components. It is the impact. It is the results. It is the facts that how in the day-to-day operations, how in the financial implications and how in the evolution of the market does this agreement impact at the same time what the Commission is trying to achieve in terms of diversity competitiveness. It is in that sense that policy issues, I think, I would pose, come forward.
1873 Your proposal to supply notification, in light of that, how would that work?
1874 Let's take it as a given that we can accept that there are policy considerations, how would notification work in that regard?
1875 MR. MILES: Can I take a couple of minutes to work through this one, if you don't mind? I know I sound like I'm going on and on.
1876 I thought in listening to the questioning of Newcap about the difference in the marketplaces, we operate radio stations in markets of similar size. Lethbridge would be a good example. It is about 85,000 people. It is in an area in southern Alberta, although with oil at $40 a barrel, not bad.
1877 BBM is in that particular marketplace. There are four FM radio stations. We have two; the people across the street have two. There is a television station that takes money out of the marketplace. There is a newspaper that takes money out of the marketplace. There are billboards. Outdoor activities.
1878 If you go back and look at when Haliburton was in -- Rick has just reminded me -- that revenue when Haliburton was in the marketplace -- it is not as if we have created a new radio station and dropped it in this was an existing radio station -- was 20 per cent lower than it is currently.
1879 So with the sales agreement we have achieved a 20 per cent increase in revenue. All the rest of the things have been separate and operated.
1880 We have not achieved anywhere close to that in Lethbridge and we have the same sales practices, we do the same sales training, we have 180 Degree Solutions which brings in clients and teaches the how to think about their business differently, we have Pulp Fiction, we have all these kinds of things. There is not a 20 per cent. This, in Alberta, which is not a bad little province to be in given the current economic situations.
1881 So if I come back into sort of the sales agreement, we would suggest to you that when we looked at the policy that you are looking at -- and I think you got into some of the areas of where it was pretty grey yesterday, which was that sort of the bar was somewhat low and then you would get into arguing about whether the engineering agreement could only be for four hours a week versus two hours a week -- I'm exaggerating a bit, but I think the problem is that that barrier is a bit low.
1882 We actually looked upon it very differently. We said, "What can it not be? It can't be an LMA so we can't effectively have any degree of control or disciplines over the other operator's radio station, so hence we are not in the programming business with them. We are not in the news business with them. We are not in any of their management control. We don't set the rates. We don't accept --" That has all of their operations in a separate building, standalone, are completely up to Newcap. In fact Rick will tell you that his contact with the people is once a week that they meet to discuss the campaigns, and in some cases turn them down.
1883 So if we think if we put all of those into the agreement -- which was laid out about this is not about any kind of control, it is only about marketing radio so that we don't get into the commoditized business. So we suggested that the Commission should receive notification and have the contract sent to them and you could take a look. And if it started to then get over into some areas of concern, then the Commission would be doing what we are doing today, which is having a dialogue about it and cleaning up those areas of concern.
1884 COMMISSIONER PENNEFATHER: Thank you, Mr. Miles.
1885 In fact, those are my questions, Madam Chairman. Thank you very much for your patience with my detailed questions and I look forward to further discussion.
1886 Thank you.
1887 THE CHAIRPERSON: Thank you.
1888 Vice-Chair Colville.
1889 COMMISSIONER COLVILLE: Thank you, Madam Chair.
1890 I am thinking of the line, "What we have here is a failure to communicate".
--- Laughter / Rires
1891 COMMISSIONER COLVILLE: I think it has been an interesting discussion, both yesterday and today, about this issue. I think I have a better understanding of what you think our concern is, but I'm not sure what you think our concern is is really our concern.
1892 We have had a lot of discussion and I guess I was struck -- I'm saying that, Mr. Miles, your comments kept me awake about half the night thinking about a couple of statements you made in your presentation yesterday. You said in your written submission, after talking about the sales agreement:
"In our submission, these same issues are policy considerations are not applicable to sales agreements". (As read)
1893 You went on to say:
"They do not affect the level of programming diversity and editorial news voices available to the local community". (As read)
1894 Then again on page 16 you said:
"Unlike local management agreements there are no policy concerns involved". (As read)
1895 This morning, Mr. Maheu, you said:
"Nowhere do they take control away from us. We have management and control of airtime". (As read)
1896 You went on say later, in answer to another question:
"There is no influence on editorial voices". (As read)
1897 That's fine, if you think that is all our concern is.
1898 But I think our concern goes beyond that and I think there is a policy concern that is simply the aspect of competition on the street which extends beyond programming, diversity and newsgathering and the news issues that we talked about. It speaks to the competitiveness of the radio stations in the marketplace from a sales point of view.
1899 I guess that is an aspect of the policy issue which goes to ownership questions. When we addressed, several years ago, the case of looking at how many stations should an individual operator be allowed to own in a market, one of the factors in considering that is the competitiveness of the stations from a sales point of view in addition to issues of diversity of programming, issues around independence of news, and so on.
1900 So I think from our perspective there is in fact another policy issue here which goes beyond the concerns that you seem to think that we have. So the ones you think we have, that's fine, and the LMA -- I can understand where this concern may well be rooted, because when we put our concerns or framework around the LMA issue that is what we said our concern would be about diversity of programming and independence of news and so on. So I can understand where the: Well, if we satisfy that concern I guess the Commission is going to be happy. But it hasn't addressed the concern about the competitiveness in the marketplace of actually selling the stations.
1901 We have spent a lot of time this morning talking about this notion of single-source. I guess the issue for us isn't necessarily, it seems to me, that the Commission would want to prevent, just as a matter of course, these kinds of sales agreements anywhere. It may be that is the case, but it may be that there is a legitimate case that can be made that these sorts of agreements should be permitted so that stations can agree among themselves, in effect, to not compete against each other in the marketplace.
1902 If that is the case, then one would ask: Well when would that be reasonable? When should that be permitted to, in effect, run against our ownership criteria, which presumably would presume that stations are in fact competing against each other in the marketplace.
1903 Mr. Doughty said, in answer to a question this morning, "There is nothing better than scooping your competitor". I guess that applies to news, but I'm sure that as a sales force, whether it is competing against the Pulp competitor or the TV competitor, there is nothing better than scooping the sale too. I'm sure your sales people get great satisfaction out of winning a sale away from the newspaper or the TV station and, in markets where you compete against radio stations, scooping the sale against a competing radio station.
1904 So we talked this morning and both of you raised this issue. I think, Mr. Maheu, you said:
"It is important to bring cost of sales down in small markets against single-source". (As read)
1905 Again you said:
"Radio needed to present a united front to be competitive". (As read)
1906 Mr. Miles, you have mentioned that as well. Again we have this issue about single-source markets.
1907 I guess I have been rambling on here a bit and I will give you both a chance to comment, but that I think is another aspect of the issue that is of concern to us. That is why we are concerned about the issue that we talked about yesterday, and whether we talk about Charlottetown or Thunder Bay or Sudbury or Halifax, that is an aspect of this issue that is a concern to the Commission that goes beyond program diversity, which is hugely important, goes beyond independence of news, which is hugely important, but competitiveness is another issue for us, hence our ownership criteria, which we did change a few years ago.
1908 I guess I would like you to comment on that and then comment on the issue of why is it that we should permit this in some markets and what is it about those markets that one could use as some sort of criteria to say" Yes, it should be permitted here but perhaps not somewhere else?
1909 Mr. Miles, perhaps I will turn to you first and then Newcap can comment, Mr. Steele or Mr. Maheu, or anybody else for that matter.
1910 MR. MILES: Certainly listening to the conversation and the discussions yesterday I have a better sense of where you are coming from with regards to that area, which is: Are we competitive against one another?
1911 But if I go back, and as I understand the reasons that we put in LMA's and then hence moved into the consolidation and you were limited to the number of stations that you had, was so that we could actually improve the economic viability of the radio industry and provide a model that allowed sustainability, that allowed diversity, that allowed independent news sources and allowed us to compete more effectively against an ever-diminishing competitive -- an ever-increasing competitive area of single-source operations.
1912 That is the reason that we want to ensure that we take the marketplace and raise it up, so that we can continue to provide more employment, continue to pay better people, we can continue to add more resources to our operations in Sudbury.
1913 What happens in the reverse of it is that you start to get into the same downward spiral as we had to make these other moves to correct along the line.
1914 I keep coming back to the fact that we really have just got radio back into an economic position in terms of percentage of profitability and things like that that we had prior to the 1990s when this whole downward spiral started to come into it.
1915 The other thing that I think is different is that the business has evolved into people and owners who are not in it to trade away for short-term profits and things like that. Rogers has been in the radio business, and we have all heard the story from Ted and it is really quite true, Harry Steele has been in the radio business for a considerable period of time committed to making more purchases and acquisitions. Alan Waters pioneered radio. These people are committed to it.
1916 It is not as if this is a land grab, let's take the money and rush off as fast as we can. This is about making sure that we continue to invest back into our product, that we continue to bring in people who are going to help our clients grow their business.
1917 We have invested a quarter of a million dollars in Sudbury into a program called "180 Degree Solutions" that has nothing to do with Rogers radio. It has to do with the clients coming in and learning how to do their business better.
1918 This is the kind of reinvestment. So that is what we need to be doing and that is what I believe is the actual benefit to the broadcasting system and to the radio industry of being able to get in and figure out how to make sure that we present this united front to the clients.
1919 That was a bit of my soap box and I apologize for that, but I feel very strongly about it.
1920 As to terms of what market it is to be permitted in and things like that, I guess it is the age-old problem that if we set up a bunch of criteria on the thing then everybody has to meet it then we stand in danger of doing two things: ruling by exclusion or putting too many people into an inclusive thing and figuring out how to make the agreement sort of twist around a bit so that this market looks better than another one.
1921 Hence our reason for saying that we felt that the notification filed with the agreement to the Commission -- so notification filed with the agreement -- that made sure it did not effectively control all of the elements that we think are essential to the broadcasting system, leaving aside -- and I know that you are saying, "You can't leave it aside" -- this element about the radio revenue.
1922 You can't deal just with radio revenue on an isolated case in today's fast-changing world and environment. It is great to be competitive out on the street. In the perfect world our salespeople would make sure they just sold the car dealer that kind of campaign on CHNO that appealed to the 18-34 thing. But we have paid by commission and sometimes that blurs the line of the responsibility about whether we are doing a service for the client or whether we are figuring out how to get a sale in the door and make some money for the radio station.
1923 We think we have actually achieved the best of both worlds in that, which is economic viability, sustainability, and ability to service the client.
1924 COMMISSIONER COLVILLE: I will let Newcap answer that same question, but when you say -- I would presume that a general rule could be within the framework of the ownership rules, depending on the size of market, there shouldn't be any sales agreement where radio stations who we would have expected would be competing against each other for sales should be permitted unless a case can be made that it should.
1925 MR. MILES: Or the second part of that one is, if you assume that we licensed a radio station in the top 40 -- I keep coming back and picking on them, but it is probably not a bad example because radio station was licensed to service that -- would that radio station be out competing for my country music radio audience in terms of a 35-64?
1926 Why would they be over there competing against it? I guess only for one reason, to figure out how to lower the rate in the marketplace, how to provide less service, how to do all these kinds of things that got us into the trouble in the first place.
1927 COMMISSIONER COLVILLE: I guess that is what competition is all about.
1928 MR. MILES: Sure. Yes.
1929 COMMISSIONER COLVILLE: Do you folks want to --
1930 MR. MAHEU: Yes, please.
1931 Mr. Colville, certainly noting that the concern is that there is competition, as you have characterized it, competition on the street, that that is really the issue at hand, advertisers today, say as oppose to even 10 years ago, have many more choices than have ever been available before from all sorts of different avenues from the Internet to radio. The Commission itself has licensed numerous radio stations, additional stations, in Canada over the past number of years. So there is lots and lots choice out there.
1932 Radio has languished in and around that 9.9-10 per cent percentage of total advertising expenditures for years and years and years and in spite of the efforts of some very committed and passionate people, through the Radio Marketing Bureau and other ways, radio itself still finds itself competing on the street, in some cases as a third-class advertising player beating up on itself and, as Mr. Miles characterized it, commoditizing what we believe is a very powerful and very effective medium.
1933 Newspapers in many markets have the benefit of being a monopoly or near monopoly with decades and decades and decades of heritage and head start. Television is changing rapidly, expanding, which puts radio, right now as a percentage of total retail sales, or total advertising sales, right about where billboards are.
1934 In terms of what radio brings to a community, and the costs that radio incurs to bring what it does to a community compared to a billboard company, is beyond compare. But, we operate within a licensed framework. These licences are the property of the people of Canada, and we understand that, and they are the property of the people in the communities in which they serve and we have made promises that we have to keep.
1935 We make these promises with the idea that we are going to find a way, a business solution in every market, in every case, to make this a profitable endeavour, because it is a business, knowing full well there may be times when the profits are better than other times. But there are certainly circumstances and market situations, and we believe Sudbury is one of them, where even though there seems to be -- or there is less competition between radio stations on the street, that in no way, shape or form diminishes, and actually I think a case could be made that it enhances the service that is provided to the marketplace.
1936 Sudbury is not a big market. If we take the discussion beyond Sudbury, you have a discussion about competition on the street between radio stations, which has always been part of the business, but increasingly it is becoming more and more difficult. More stations are being licensed, there is more competition on the street, while at the same time radio does not operate in the advertising world in isolation. The options sprouting up around radio are doing so at an exponential rate. There are things coming like potentially satellite radio and other things that are going to impact on radio's ability to generate an audience, but that is a separate issue.
1937 Right now radio operators are doing their very best -- I believe they are doing their very best and I listen to a lot of radio from coast to coast -- of doing a good job for their marketplaces and, in cases like ours, finding ourselves competing for revenue in a market that was a down market, a stagnant market, billing just over $6 million before we got going here. We have seen an increase in the market because of the collaborative effort. That money came from somewhere. That new revenue came from other media. Radio as a medium became more competitive.
1938 Does that in itself, by limiting the actual head-to-head competition between radio stations on the street, have a negative impact on it's ability to do its job for the community and the listeners-at-large? That is a decision the Commission will obviously have to make.
1939 We believe at Newcap it does not, that they are very separate and distinct. It allows us in some ways to keep providing or enhance the service that we are already bringing. Whether or not is should be allowed in some markets and not others, we believe, at least from a Newcap point of view, that each market is different, there are different sets of circumstances, but overall the market will decide.
1940 It was said a little earlier and we totally agree that we really don't decide how people buy radio. They decide. The market sets the rates. The advertisers decide how they want to be sold, how they want to be dealt with. Do they want to deal with four reps knocking on their door? Would they rather deal with one?
1941 Those are competitive issues that we deal with as an industry when we compete with a single-source newspaper or television operation where there is one point of contact and so on. We got into that with the collection of money and everything else.
1942 From a sales point of a view and competition on the street point of view, 20-25 years ago when they were far fewer radio stations; far fewer advertising choices; far more audience; time spent listening to radio, where it was compared to where it is now.
1943 Was there a case to be made for competition on the street and battling it out? Absolutely. Is there still a case for it today? Absolutely. But where you can make a case for radio against a consolidated radio offering against a single-source advertiser I don't think in any way diminishes the service radio brings to a community. Competition on the street does not have an impact on that.
1944 COMMISSIONER COLVILLE: Your view is we should just sit back and let the market decide that?
1945 MR. MAHEU: I wouldn't want to ever second-guess the Commission.
1946 COMMISSIONER COLVILLE: Sorry, but it seems to me -- I hate to be confrontational about this, but what I have been hearing the last couple of days and the sense I have is that the industry in fact is doing just that.
1947 We took a look at the policy issue a number of years ago and came up with the new ownership policy. We took a look, from a policy point of view, at the LMA situation and said generally speaking the Commission doesn't like the LMA situation because of impact on the marketplace. One of the fundamental aspects of our framework for radio, and indeed television, is the ownership licensing criteria that stations would be competitive in the marketplace.
1948 Now what we understand is, operators get together in the marketplace and decide, for what you consider to be legitimate reasons. There is no question that if you get together to sell in a given market you can be more powerful than competing against each other. That may well be the case, but it is not the case that is founded on the basis for the Commission's licensing framework and our ownership framework.
1949 The licensing and ownership framework was based on the understanding you would be competing against each other. That is the current policy.
1950 There may be a valid reason to say, from your point of view, "In certain markets we should be allowed to not do that. We should be allowed to work together because we have a struggle to compete against newsprint or television, or whatever." But that is not the principle, as I understand it, that underpins our ownership licensing framework.
1951 You just mentioned that in certain markets, I guess if we were going to take a look at this from the point of view of: Well, perhaps the Commission should allow it because overall there is a net benefit here in some markets.
1952 You keep using this term "single-source". I don't know how we would ever measure what a single-source market is. Does that mean there is only one newspaper in the market and maybe one TV station? I don't know.
1953 But I think the Commission comes at this from the point of view, generally speaking, given our licensing framework we expect you to compete against each other in the market. If there were to be markets where we would see that that would not happen, what would the criteria be that you would suggest we use to say "You should allow us to not compete against each other in certain markets"?
1954 MR. MILES: The other answer that we may want to think about, you would say "So what happens if we said no local sales agreement in Sudbury?" It is entirely possible that may happen. It would be my view, given my experience in the other marketplaces, and I just gave you one example of it, that the revenue would diminish by 20 per cent and the expenses would go up in the radio station and we would be back into sort of the same kind of cycle that we were before an operator came.
1955 Something else that is coming down the train track for all of us in the radio business, I think that we have to take a whole look at how we are sort of funding Canadian talent. I know this is off topic, but it really is to do with the viability of the radio business.
1956 I think FACTOR has sort of some time clocks ticking along the line in terms of funding from Heritage and the rest of the commitments being made and running out in terms of time clocks.
1957 Alain Strati and people from our team were just at a tariff hearing. The impact of the proposed new tariffs on Rogers Broadcasting between 2004 and 2005 is $7 million. That is what they are proposing now. I know they won't get it -- at least I hope they won't get it -- but these are the kinds of issues that I think are playing out over and above all the rest of us taking a look at what is happening in the Sudbury market or the rest of the markets going here.
1958 So that I believe it behooves radio operators to make sure that we actually can get out there and compete against what we consider to be the real competition, which is the other radio stations.
1959 I thoroughly understand and accept what you just said about what you think the competitive nature of the business is. All of these things are changing around us more rapidly than they ever have been before.
1960 The Commission was great, it delayed the radio review until we have the impact of satellite radio, whether it comes on or not. Again, I commend the Commission for that kind of thing, but these are the things that are happening out of context of just us sitting here and discussing about the Sudbury radio revenue report.
1961 It is in that context of saying as radio operators it behooves us to figure out how to get our sort of share up better so that we can have a better, more viable radio market, more stations can get licensed. It is sort of the upward spiral as compared with the downward spiral.
1962 I probably am off topic on the thing, but I felt it important to say that.
1963 COMMISSIONER COLVILLE: In this particular case we are just talking about Sudbury, but of course in this whole proceeding we are talking about this issue about LMA/LSA and it may well be that in Sudbury you collectively can make a case that this sort of arrangement should be permitted.
1964 But as a general principle I think it is fair to say it is not what the Commission's intention was in terms of its ownership licensing framework. I think our view has been that radio stations would be competing against each other in the marketplace.
1965 Commissioner Pennefather asked the question: How do you deal with that kind of situation now if we have all of the stations in a market joining forces to sell, and the market perhaps is healthy enough to sustain a new player and now you have a new player with three or four or five stations selling against perhaps one. So it disrupts the competitive balance in the marketplace.
1966 Again, I guess I challenge you to help us better understand.
1967 Because what I hear you saying is the whole framework of radio should be reviewed, keeping in mind the competitive landscape that you face out there and changes coming down the road. That may well be the case, but in the meantime we have the existing framework in place and it seems to me that this sales situation runs against the Commission's framework, and if it does it may well be that it should be allowed to exist, as I said before, in some cases where -- what would use as the test as to where we would allow it?
1968 MR. MILES: I think that sales agreements are based on about four different criteria that actually make them work in some markets and not in the other ones.
1969 The first is the diversity of programming that is in the marketplace. It would be difficult to have a sales agreement if my friend at Newcap were running an adult contemporary female-based radio station 25-54 against us. I just don't know how you would ever figure out how to do that.
1970 But with the distinct programming that is in the Sudbury market there is great opportunity for each one of them to continue to serve their constituency, continue to provide great programming for that particular demographic, and the ability for advertisers to move back and forth.
1971 The second one is the compatibility of the people within the operation, because there is give and take. There also has to be absolute criterion definition and walls based upon what is effective competition in the marketplace.
1972 Rick can answer this for himself, but I can tell you, he has no idea what goes on over at Newcap on a Monday-to-Friday basis and Newcap has no idea what we do either, none whatsoever. None whatsoever. It is the true competitive force that are out there in the marketplace.
1973 The third one is, what kind of outside competitiveness is there? If there was a marketplace with a lot of spill it wouldn't matter what kind of an arrangement you had. It probably wouldn't be very effective in terms of raising the level of the marketplace, although I don't know. That could be one of the reasons.
1974 Then the fourth one would actually be whether it satisfied what we believe were criteria that talked about effective control or disciplines and things like that. That is why we had suggested that the arrangements would be sent, notification, along with the contract and things like that to the Commission when areas of concern could be addressed and taken a look at.
1975 I don't know whether that was helpful or useful or not, but it was short notice and were my thoughts.
1976 COMMISSIONER COLVILLE: Would size of market be factor at all?
1977 MR. MILES: Probably. Would there be a local sales agreement in major markets? No.
1978 COMMISSIONER COLVILLE: Mr. Steele or Mr. Maheu, do you have any comments?
1979 MR. R. STEELE: You know, you raise a very important, very interesting point about working within the policy framework that you have with respect to competitiveness and all that stuff. There is a disconnect between the concern that we perceive that you have versus what the real concern it.
1980 We don't think that this thing should be -- regulation is not the right term, but there should be transparency. I don't think it should be like the wild west where these things get organized willy-nilly all over the country without the Commission knowing about it. We think there should be some kind of transparency.
1981 I think that the business is changing. It is evolving. Mark talked a little bit about that. I think that it really takes communication between the radio operations, the industry and the Commission, to sort of, I guess, look at the changes that are occurring in the industry and how to develop policy around that.
1982 So you could make an argument with LSAs, why not have LSAs in Toronto. It is just for the purposes of discussion, at some other time of course, I don't mean right now. But why not? Is there anything --
1983 COMMISSIONER COLVILLE: Maybe after you get a licence there you mean.
--- Laughter / Rires
1984 MR. R. STEELE: Does it somehow negatively impact the community? It is worth the discussion.
1985 So I know we tend to look at size of markets. Size of markets is probably where LSAs should be versus large markets, but I don't think -- obviously our case has been that we feel that we don't diminish our quality of programming and diversity and all those things that we talked about earlier.
1986 The competitiveness issue I guess gets back to: What is the objective of having competition in the marketplace versus having a sales collaboration and what effect does that have on competitiveness within the policy framework? How does that vary under an LSA, sales collaboration versus operators being totally independent with a separate sales force?
1987 I think that is something that is worthy of a discussion later.
1988 COMMISSIONER COLVILLE: As I hear you both, I guess what I hear you saying is: Notwithstanding what the Commission's position may have been or may be today, regardless of the size of the market we shouldn't have a concern about the competitiveness of radio stations insofar as the sales aspect is concerned. In fact, you would argue that the more we can agree to cooperate on sales, the stronger we can made radio vis-à-vis other advertising media and that is a good thing, even if that runs against the Commission's historical view of the competitiveness of radio, at least one aspect of it.
1989 MR. MILES: An awful lot of thoughts for me to say yes to, so I certainly wouldn't say that.
1990 After listening to the Commission for the last couple of days I understand the issue about the competitiveness. I believe that we do provide competitiveness in the spirit of programming, news, all those other areas. I believe there is also an economic fact that as the landscape continues to change around us that the better we are able to build the radio industry the more viable this industry is going to be in order to compete, in order to return back to the system that which it seems to be developing an ever-consuming appetite for in terms of responsibility to people, hiring of talent improving the product.
1991 We do believe, like Newcap said, this is not the wild west and a big land grab any more, that we would send and notify, with the agreement in place covering many of those safeguards that we implemented in our agreement, and probably with some refinements based on some of the areas of concern that came up here, and say to the Commission: This is what we want to do here and here is why, on a case-by-case basis I guess is the rest of that answer.
1992 COMMISSIONER COLVILLE: But you accept that that may well, in our view, fall within the definition of LMA and, depending on our view, we may deny such an arrangement even if it is limited to sales?
1993 MR. MILES: There is no questions that the regulations and the Commission has control over all of these aspects. Correct.
1994 COMMISSIONER COLVILLE: Okay. Thank you very much, gentlemen. Thank you, Madam Chair.
1995 THE CHAIRPERSON: Commissioner Demers.
1996 COMMISSIONER DEMERS: Just two or three very short questions and then I want to go into the same questions that Mr. Colville raised.
1997 This is to Newcap.
1998 Did you change the format when you took over the station?
1999 MR. MURRAY: No, we did not.
2000 COMMISSIONER DEMERS: Thank you.
2001 Is there any outside listening in the Sudbury area of any sort or power signals from out of town reaching the city, or the area you serve?
2002 MR. MAHEU: Historically the tuning in Sudbury to stations other than those originating in the market has been extremely low. The geography and the topography of the area, the high nickel concentration, the ability of AM signals, distant and otherwise, to get into the market is very, very limited.
2003 So the answer would be no.
2004 COMMISSIONER DEMERS: You have no station in North Bay?
2005 MR. MAHEU: No.
2006 COMMISSIONER DEMERS: Is Rogers or an organization owned by Rogers representing CHNO at the national level for national sales?
2007 MR. MAHEU: Yes, Canadian Broadcast Sales.
2008 COMMISSIONER DEMERS: The answer is yes?
2009 MR. MAHEU: CBS, yes.
2010 COMMISSIONER DEMERS: You are represented nationally.
2011 MR. MAHEU: We are represented nationally by CBS.
2012 COMMISSIONER DEMERS: By Rogers? My question is simple: Is it a Rogers organization that represents CHNO at the national sales level?
2013 MR. MAHEU: A separate representation firm handles our national sales, CBS, through Rogers.
2014 MR. MILES: Commissioner, I would just like to correct that.
2015 CBS is owned 50 per cent by Corus and 50 per cent by Rogers and represents, besides those two companies, 117 other independent radio stations across the country. So when you say it is controlled by Roger, we are on the Board. Its chairship goes back and forth.
2016 COMMISSIONER DEMERS: It is the same company that represents the Rogers stations at the national level?
2017 MR. MILES: In that market, yes, that is correct.
2018 COMMISSIONER DEMERS: Why did you answer "in that market"?
2019 MR. MILES: "In that market", because there are only two radio companies in that market. In another market it would represent some Rogers stations. It is in markets where we have no stations. It represents Newcap, Corus, it represents independent operators in Saskatchewan, yes.
2020 COMMISSIONER DEMERS: Thank you.
2021 Now, if we agree with you, in a sense, with your representations on the sales agreement, in what way are we not closing the Sudbury market to other stations or to other owners?
2022 MR. MAHEU: If I understand your question, Mr. Commissioner, if you are willing to consider the sales agreement going forward in what manner are we not closing off the market to other entrants?
2023 COMMISSIONER DEMERS: Yes, or even to another station by you?
2024 MR. MAHEU: There was some discussion a little earlier in the morning about maybe at some point this sales agreement could create a situation that the market is doing well enough that the Commission could look at licensing another applicant or another service in the market, whether it be we -- we would have room to apply and it doesn't necessarily mean we would get it. There may be competition that is more worthy.
2025 But in terms of even creating a situation for that to happen, chances are it is the sales agreement and the collaboration between Rogers and Newcap that would be creating enough revenue in the market so that would even be a consideration.
2026 Previous to that the market was billing just over $6 million. The radio station we purchased was losing money. I couldn't, in all good conscience, think that there would be room for another application in markets where stations were losing money so, in effect, there is an opportunity going forward that the market may continue to grow -- at what rate we are not sure -- creating an environment where at least it is a consideration or a possibility to add services, as the Commission would decide to add services to the market. I guess at the time of a hearing and an application that would be something that would come under consideration.
2027 I think, as we talked about earlier, I wouldn't rule out -- and I certainly can't speak for Mr. Miles and Roger, but I certainly would not rule out the idea, or at least entertaining the idea that another station could be part of a collaborative sales agreement. Because the whole idea here is to present a consolidated one-stop radio proposition to advertisers in the marketplace and we are competing against television and newspaper. That is one option that would be a potential.
2028 COMMISSIONER DEMERS: If that sales agreement were not to go forward, you have indicated -- at least I understood from the discussion that the price would probably fall, the radio price, and then is it realistic to think that a third person or a third company would come forward and want to enter the market?
2029 MR. MAHEU: Mr. Commissioner, if I understand what you are saying, you were saying if the LSA or the sales collaboration ended that the price or the rates would fall. Is that --
2030 COMMISSIONER DEMERS: Yes.
2031 MR. MAHEU: You are asking what impact that might have on a future entrant?
2032 COMMISSIONER DEMERS: Yes.
2033 MR. MAHEU: If there was no sales collaboration between Newcap and Rogers in the marketplace because that would be the way the Commission wanted it, if that were the case, you would end up having that competition on the street, as Commissioner Colville characterized it, and each station would be trying to gain its fair share of what is available for radio.
2034 The hypothesis would be you would see in other markets that there would be battle on rate, costs would go up, probably creating an environment where it would be very difficult -- I would speculate, very difficult for another entrant to be successful.
2035 We will have a difficult enough time on our own as a standalone FM being financially successful in the market. There is no question we have great people and a good plan, but in the immediate short term we will lose money in the market. There is no question about that.
2036 When we get to a point where we can make a small profit again, likely some years down the road, for a new entrant with no infrastructure coming in cold, not being part of an agreement, in a competition on the street as it has been characterized, I would say it would be difficult.
2037 COMMISSIONER DEMERS: I know the Sudbury market a little bit, at least I know the area. You have the Sudbury Star which comes out every day and has a few pages. It probably caters to young people. It has cartoons, crossword puzzles, news, sports. In a sense they are closer I suppose to Rogers with three outlets, but really catering to part of the Sudbury Star if you want it that way. Then with the sales agreement it seems to be that your newspaper adds a little, it caters to another part of the residents, of the tastes of the people. There is only one newspaper and it is only one owner I understand.
2038 In what sense, in my imagination here, is close to reality or takes us farther from reality from what you have described as what the market is?
2039 Can you comment on that?
2040 If you were a newspaper, the four of you would have four sections. There is a newspaper there and it has probably seven or ten sections. Are there some common elements here or is there none?
2041 MR. MAHEU: Mr. Commissioner, if we were to use the newspaper analogy, CHNO-FM, Z-103 would probably be the arts and entertainment section of that newspaper for the most part, if that answers your question. That would be the piece that we bring to the offering to the marketplace. It would not be a very complete paper, but it would certainly satisfy those people who are interested in music and movies and television and things like that.
2042 That would be kind of a characterization I would make of our station.
2043 MR. MILES: We would be the other three parts, no.
--- Laughter / Rires
2044 MR. MILES: I think that newspapers are doing this. we certainly see those kinds of segmentation and things like that. The problem that the newspaper is having is that they don't ever attract an audience with the age demo that CHNO is doing for the advertiser, and hence again you get into this one where you are trying to force people into newspaper buys and things like that that aren't delivering results for them. They find the newspaper and I have got the sole control over it.
2045 What we want to do is, we want to continue to line up the product to suit the client so that they can stay in business in Sudbury.
2046 You know, it is a tough market. I have operated in markets that size and this is a bit of a struggle up here from time to time. So it is imperative that we make sure that the lifeblood of the community, the local businesses, continue to survive and continue to do well in terms of what the real issue is, client sales. We believe that the arrangement that we have got with four diverse programming elements, all separate, all controlled by different functions, compete on the street to build up that audience for that person. It is a deliverability to the client that provides the results for them.
2047 COMMISSIONER DEMERS: I'm sure you saw where I was trying to get at. In other words, you want to have that sales agreement so I was trying to find out, in a sense the Sudbury Star has it, because it caters to the four sections, so you want to do the same, at least in four of its sections, and I was wondering if that goes against or is in accordance with the public interest in a sense.
2048 MR. MILES: If I recall my days from being associated with a newspaper publisher, it was the Siftons at that time and I was running a radio station in Regina, they published those distinct sections so that they have readership ability on that one.
2049 I think the issue is that clearly the people who read the sports and entertainment section may not read the lifestyle section and vice versa.
2050 By the same token, as good a job -- and they do a great job in terms of programming that Rick does over with CHNO to appeal to a top 40 radio station -- those people are not going to listen to the country music radio station. That is a whole different segment. Selling trucks, heavy-duty trucks, on the top 40 radio station is going to do no good for the client, nor is trying to sell a youth-oriented product on the 35-64 country music radio station going to do any good for the client.
2051 It may satisfy an immediate sales result, it may put some money on the books, but I suspect it will only do it once.
2052 I found by being on the street that the real test and the real job of being a salesperson was not selling the campaign the week before, it was going back on Monday and saying "So how did things really go?" to the furniture dealer in Sudbury?
2053 I will tell you, if things don't go very well you don't get to come back very often whether you are representing one station, two stations or four stations. You just don't get to come back. That client says "Radio does not work. I am going into Outdoor, I am going to go to flyers, I am going to do massive mailings, I am going to stand out in the street with funny suits on". That is the reality of the marketplace.
2054 COMMISSIONER DEMERS: Thank you.
2055 In the case of other industries or services that we regulate, there are differences. You have touched on that. Some we regulate more than others, some we have deregulated.
2056 You didn't react very warmly to Vice-Chairman Colville's idea that maybe there could be a variety or at least a difference or nuances in our approach to small or large cities. I was surprised.
2057 Do you have anything to say on that?
2058 MR. MAHEU: Mr. Commissioner, certainly if I or anyone from Newcap gave the impression we were not supportive or surprised or, as was eluded to before, we certainly don't want to create any confrontation here. I think we are here to learn as much as we can too and we are getting a better idea of the concerns the Commission has.
2059 There is a symbiotic relationship here and a partnership between the Commission and the operators. You have a job to do and it is a tough one sometimes. We have a difficult job to do everyday as well because we serve so many constituencies.
2060 I think at the end of the day we all want the same thing. We want a vibrant, healthy broadcast -- and I am just speaking about radio now. We both want the same thing. We want a healthy, vibrant broadcasting industry where citizens and listeners are well served and well provided for.
2061 What seems to be a question here is, on the business of radio, on the financial side, where the line is. I think we have always known as operators where the line is on the programming, editorial, distinct news voice, control side.
2062 Speaking for Newcap only, I think that has always kind of been the area where broadcasters have really focused on in terms of interpreting 11.1. We have always, at least at Newcap, felt that the spirit of 11.1 was really in the programming and the news and the editorial voice and you control your enterprise and, you know, those things that are really in the public trust.
2063 The sales end of things, we at least haven't interpreted it that way. That is certainly the prerogative of the Commission. Those are the rules and you interpret them as you will and we abide by those.
2064 But things like national sales representation, you know, which has been common practice in the radio industry forever, has basically been a contracting out situation and it has never been raised at a renewal or a hearing. So as things go by, and maybe we just forget about it or whatever, but more recent events bring it under more scrutiny, we understand. It was certainly not anything that was intentional.
2065 The same thing with the engineering. We kind of touched on that a little bit too, that contracting out has been pretty commonplace, but we are really talking about where the line seems to be.
2066 I think we have come here with no preconceived notion. We obviously want a licence renewal for CHNO-FM. We believe we have done a good job in the market for the short period of time we have owned it. We would very much like the full opportunity to continue to do that and we will listen with great interest to what the Commission decides. I think you have a good sense from a Newcap point of view where we stand on things, but we will abide by the rules and make our case as strenuously as we can in a non-confrontational way but, you know, that is where we are.
2067 MR. MILES: Commissioner Demers, I would echo those things.
2068 I guess if I appeared to be hesitant at all, I was reflecting more upon everything that has gone on and reflective about the statement and wondering how I was going to come to grips to provide some advice.
2069 We have actually been thrilled to be here, and I mean that very sincerely. First of all, we have three great radio stations and they are doing a fabulous job in the community.
2070 But more importantly that, I touch back on that, we need some dialogue on this one and we have welcomed that opportunity. We have felt we had a great agreement in place and we felt we did many, if not all of the issues that we interpreted. Again, I am on a different side of the table than you.
2071 So it has been great being able to have this sort of ongoing dialogue. I am assuming that we will be able to continue it in terms of responses and things like that.
2072 So that was the reason that I didn't immediately leap up and want to sit beside everybody up in the chair, it was I was reflecting more upon the process that you had raised and the issues and how were we going to, as an industry working in conjunction with the Commission, come to grips with this thing. Because certainly over the last couple of days I understand exactly what it is that you are concerned with. We think we presented good cases and we are quite proud of the work that we have done, to be quite frank about it.
2073 COMMISSIONER DEMERS: My last question would be a question of fact maybe, if you know it. I am still on the sales agreement.
2074 Is it an agreement that is more common in smaller cities across Canada? Maybe Mr. Maheu has some information as to other countries on that point.
2075 MR. MAHEU: I think it occurs in markets of all different shapes and sizes depending on circumstances.
2076 We are here for the renewal in Thunder Bay, Charlottetown, we just talked about Sudbury and I am sure Halifax is coming. Those are markets of different sizes and different circumstances.
2077 We don't have stations in all of the markets across -- in major markets across the country like some others, like Rogers and so on, so I am not aware.
2078 MR. MILES: I think I would respond to say yes, more in non-metro markets I think is the way to describe it considering there is probably only about four or five big major markets where there is a convergence of spill, there is -- not only just the television, there is the specialty television channels which are an impact and things like that. So it gets more complex in different kinds of circumstances as you grow in size of market.
2079 COMMISSIONER DEMERS: Thank you, Madam. Thank you, gentlemen. Thank you, Madam Chair.
2080 THE CHAIRPERSON: Commissioner Williams.
2081 COMMISSIONER WILLIAMS: Good afternoon. Mr. Steele, historically and prior to entering into the LSA, what percentage of revenue do you estimate was allocated to sales expense?
2082 MR. R. STEELE: Specifically to Sudbury?
2083 COMMISSIONER WILLIAMS: Specifically to the Sudbury station.
2084 MR. R. STEELE: For Sudbury, I will let Dave Murray --
2085 MR. MURRAY: Twenty-five per cent.
2086 COMMISSIONER WILLIAMS: Twenty-five per cent.
2087 Mr. Miles, what percentage of sales revenue does Rogers take in the form of a commission or fee from the Newcap Sudbury station?
2088 MR. MILES: It would be approximately 30 per cent, just slightly above that because of the additional management services and things like that. I think that traditionally you take a look at sales expense and that is the commission you would pay. We would pay in the neighbourhood of 20 to 25 per cent sales expense per commissions, and then there is the administrative for sales management duties on top of that.
2089 COMMISSIONER WILLIAMS: Those would be the activities such as credit sales, invoicing, collection --
2090 MR. MILES: All the back office stuff.
2091 COMMISSIONER WILLIAMS: -- the back office functions that you perform as part of this LSA.
2092 MR. MILES: We will supply you with those exact numbers.
2093 COMMISSIONER WILLIAMS: Okay, that's good. I was saying an estimate just because I recognize you probably didn't have them with you.
2094 MR. MILES: Yes.
2095 COMMISSIONER WILLIAMS: So from a Newcap perspective, it you historically payed 25 and you now pay 25 to 30, where is the advantage?
2096 MR. MAHEU: Commissioner Williams, the advantage, even though the cost of sale is relatively the same or slightly higher, we have an opportunity to get a bigger slice of an ever-increasing revenue pool so that in and of itself makes it worthwhile.
2097 COMMISSIONER WILLIAMS: Because of the cooperation within the marketplace.
2098 MR. MAHEU: Yes, is allowed to grow the revenue pool.
2099 COMMISSIONER WILLIAMS: The revenue is growing.
2100 MR. MAHEU: Yes.
2101 MR. MURRAY: I should comment, too, that the 25 and the 30 are apples and oranges. When I answered the question on sales cost I didn't include traffic and production, because we put production into programming and we put traffic into administration. So our costs would be 30 or 35 probably if I counted all the things that are covered in the sales agreement.
2102 COMMISSIONER WILLIAMS: So would you also undertake to provide accurate numbers, as did Mr. Miles, so we can compare it equally?
2103 MR. MURRAY: Certainly.
2104 COMMISSIONER WILLIAMS: Thank you.
2105 Mr. Miles, how many other LSA agreements does Rogers have in the country.
2106 MR. MILES: We have three others.
2107 COMMISSIONER WILLIAMS: How important is this revenue opportunity through the LSA process to Rogers radio business and specifically to support of its sales force?
2108 MR. MILES: If I understood the question, how important is this element, being the LSA --
2109 COMMISSIONER WILLIAMS: Do you see this as a growth business? Becoming a sales force for radio operators in, say, smaller markets across the country?
2110 MR. MILES: No, I think that that would say that we would be sort of in the outsourcing of the sales business.
2111 It's interesting because we continue to take a look, as all other businesses do, what would you outsource. You know what, it just doesn't work unless you are actually operating within the marketplace, where you go in, you have to know the market, you would have to set up a whole bunch of different criteria.
2112 What we do believe this has been helpful for, however, is to ensure that we are able to pay good quality sales people who respond well to training. We are bringing on more and more younger people.
2113 Our sales force are roughly about 50 per cent female, 50 per cent male. We provide them, in this particular case, with a good income, provide outstanding training, in our belief, and allow them opportunities for growth. So that is where there is some advantage to us in this market and somebody else in another market.
2114 MR. R. STEELE: Could I just add to that. There are other forces at work there too in terms of whether or not two companies can work together to form a collaborative sales effort. A lot depends on whether or not there is a -- the relationship that the companies have and who is in that marketplace. Because, like anything, if there is a partnership arrangement, it has to be --
2115 COMMISSIONER WILLIAMS: It has to work for both.
2116 MR. R. STEELE: They have to get along.
2117 From what I have observed in the broadcast industry in Canada, I mean there is a lot of pride and ego at work and different cultures of various companies and not everybody can work together. So that is a factor. It's not sort of a certain that you know that you go into a marketplace that you could ever form an LSA, depending on who was there.
2118 COMMISSIONER WILLIAMS: Okay. Thank you. I will ask you both the same question, perhaps Mr. Miles and then yourself, Mr. Steele.
2119 What specific criteria should be in place to allow us to permit LSAs. You talked about diversity of format, you have talked a bit about relationships.
2120 If the Commission was to consider LSAs in certain markets, what should the criteria be before they be allowed?
2121 MR. MILES: I would recommend adding to that the size of the marketplace, the historical growth of advertising revenue within that -- for radio, because that is sort of what we are talking about. Did we talk about the competitive environment within it so that places where there were clearly defined single-source competition in a smaller place market with no outside influences on it would clearly be a criteria that would be very important.
2122 The importance of -- and this is so nebulous I don't even know how we get into it -- but in terms of satisfaction for the clients I think it may be important just to note at this particular time, we have had no complaints from any of the clients. Nobody has objected to this thing.
2123 You can go on and say "Well, they may be able to get radio a little cheaper if you were out there competing." The converse of that is that you can't decide all of a sudden because you have the four different formats selling that you can raise the price beyond it. People just don't accept that any more. There is a barrier and they just bail out and they go some place else.
2124 So it is the issues we talked about when we talked about ownership agreements and consolidation. It's not as if this ends up being -- I hate to use that ugly word like a monopoly or anything like that -- it doesn't work that way. You have to provide good quality results based on what your radio station can deliver for the client to see the sales result and not get into this commodity basis.
2125 I think I added a couple more to your list, I hope.
2126 COMMISSIONER WILLIAMS: That's good.
2127 MR. MILES: Yes. Thank you.
2128 COMMISSIONER WILLIAMS: Thank you.
2129 MR. R. STEELE: I think I would obviously echo what Gary has said. I think the primary driver or reason, rationale to form an LSA would be looking at the historical performance of the companies in the marketplace, i.e., Charlottetown with CHTN. Clearly that was a money losing proposition for us pre-LMA. So I think that should be the main driver.
2130 Mark, do you have anything else to add to that?
2131 MR. MAHEU: I think the overall vitality of the radio marketplace is a big factor. There was some discussion earlier today about, you know, what would it be like going forward, what would it look like? It is hard to say sometimes, but you can look back in a market a little bit and take a look at how things were prior to a collaborative effort and what it is like after a collaborative effort.
2132 I think, as Mr. Miles speculated, there are so many factors that could be taken into consideration that you could get so bogged down.
2133 One issue is, how good are the actual operators in the market and how do you quantify that?
2134 There are examples in certain situations across the country. Because we are in so many markets, we see it.
2135 There are some operators, and I am certainly not going to name them, but they are excellent, excellent programmers. They do an excellent job. They know how to generate rating and share. Couldn't sell their way out of a wet paper bag. And vice versa, there are some companies that are excellent sales organizations that don't program very well.
2136 So you know all these things come into consideration when you take a look at: Does this market deserve or is it worthy of special consideration for some sort of agreement, and it is difficult. It is very difficult.
2137 We are not perfect in any stretch of the imagination either. We have work to do in markets, but there are just so many components and some companies are good at some things and not quite as good as others. It changes the dynamic in a market and each market is a little bit unique and different and there is a certain set of circumstances.
2138 So an all-encompassing overall group of criteria would be difficult, but it certainly, I would hope, would include a historical look of what the radio marketplace has done.
2139 COMMISSIONER WILLIAMS: Okay. Thank you all very much. Those are my questions, Madam Chair.
2140 THE CHAIRPERSON: Commissioner Pennefather.
2141 COMMISSIONER PENNEFATHER: Just a quick clarification.
2142 In your reply to the interventions you -- and I think I raised this before -- you give us the figure of 61 million for the advertising market in Sudbury. Just in terms of the Sudbury market and its specifics and your analysis of that market, what is the source for that number?
2143 MR. DOUGHTY: That is based on the retail sales factor where on average, based on retail sales, "X" number of dollars per retail sales spent on advertising. So we have taken the Canadian average and worked it out from there.
2144 COMMISSIONER PENNEFATHER: Thank you very much.
2145 THE CHAIRPERSON: Before I ask counsel to ask her questions to you, we have talked about whether we were talking at cross purposes and the need to communicate and to know and to get guidelines and so on. Maybe we should go back to basics.
2146 I was looking at the radio policy, at the introduction, the very first paragraphs six, seven and eight, where the Commission said what it was doing to help diversity of voices, media cross-ownership, fair competition and to make the radio industry more capable of competing more effectively with other forms of media, some of the things that Mr. Miles and Newcap referred to.
2147 Then it says: Well, up to now we have only allowed ownership of two in the market. We are going to reduce the level of competition and we will allow more -- that is paragraph seven.
2148 Then in paragraph eight it says that in assessing the diversity of news voices and the competition in the market, it will take certain matters into consideration. Then it addresses LMAs as obviously agreements that reduce the level of competition. The presumption is that, I suppose, this will reduce the level of diversity of news voices and editorial voices, and possibly even of format although our hope was that it wasn't. So that is the framework.
2149 So we will allow a reduction in the level of competition, we still want news voices and LMAs we think may lead to further reduction in competition.
2150 So when markets where people reach their top level, presumably they could argue that an LMA, and maybe an LSA, could be a means of expanding beyond the ownership required.
2151 But there seems to be, to me, a little argument that an LSA reduces competition. That is what Commissioner Colville was talking about.
2152 Presumably the next question is: Does it reduce competition to the extent that it will also reduce diversity?
2153 What we have before us now is whether we should look at LSAs and see -- there is no doubt that they reduce competition, but see whether they don't reduce diversity even if they reduce competition, whereas an LMA, as we know it, with full integration definitely reduces competition. But the definition of an LMA, which is very broad, is the result of this policy.
2154 The question is: Do we have agreements that reduce competition? There is no doubt about it. It does.
2155 Does it reduce diversity, therefore is it against the policy, becomes the question.
2156 To go back to our Billy, a 13-year-old, maybe she would say this is date, it is an LMA, but it should be allowed because we won't drink, we won't smoke, we will be back in by my curfew and, moreover, Billy's older sister is coming as a chaperon.
2157 Isn't that the question at the end of the day? Is it an agreement that reduces competition. Is it a problem with regard to the policy, depending on the market, depending on the number of things, and depending on what the LSA says it will not do. Because once you have an LSA I could easily argue that it can lead to other arrangements, formal or otherwise, or indirect, that reduce diversity.
2158 So it is a question of what is it that is not going to happen. We seem to be going around whether an LSA is an LMA in the sense that it reduces competition. Well, it does.
2159 So it leads to the question of -- I have just heard Mr. Miles say they have four others -- should we be asking Newcap how many others they have? Should we look at them all and decide, à la Billy, whether what is precluded by them is enough to satisfy us that the reduction in competition through joint sales does not reduce diversity?
2160 Hopefully we will get more illumination before the end of this hearing. But to say there isn't a question is not being even as mature as our 13-year-old daughter. An arrangement that reduced competition reduces competition and therefore it is not what is allowed by the policy, but it is not perhaps the end of the exercise.
2161 The question, as I say, remains: Does the Commission have to look at this?
2162 Suppose you were at the other end, or the victim in a market where there are seven or eight stations selling together and you are the odd man out, would you wax poetic about the value and the beauty of an LSA? That is part of the question too, isn't it.
2163 So for us as the regulator at the end of the day it will become a question of whether we find out how many of these there have been since the policy was released and the Commission certainly said it had its doubts as to whether LMAs should continue in light of the increased concentration of ownership.
2164 For example, we know that Rogers has four others besides Sudbury.
2165 MR. MILES: Three.
2166 THE CHAIRPERSON: Three others, four in all.
2167 You said there were not complaints, but there were from the Friends of Broadcasting, whatever you think.
2168 Isn't that a Sudbury complaint?
2169 MS JONES: Yes.
2170 MR. MILES: Yes, it was.
2171 THE CHAIRPERSON: Saying exactly that, there is not enough competition and therefore there is not enough diversity. Now, they are not before us, but that has been a complaint from presumably some of the listening public.
2172 I know there have been replies to it, it may have been misunderstood, but nevertheless that is what we are supposed to be looking at, is whether arrangements between parties beyond the ownership that we have authorized has the effect of reducing diversity without any balancing benefits to it and what are the safeguards in how broad these LSAs can be remains a question.
2173 So I don't know, how many others does Newcap have besides the one? We had four when we came, one in Thunder Bay is no longer applied for. How many LSAs does Newcap have, for example, in its markets?
2174 MR. R. STEELE: In Newcap right now we have -- well, Charlottetown is an LMA, we have Halifax and we have Sudbury, and currently -- no, it's an LMA in Thunder Bay.
2175 THE CHAIRPERSON: There may be many others. I think we have to go back down the pyramid to what is it we were trying to accomplish if you see the peak of it as a definition of an LMA which is indeed very broad and of course it would be a bit difficult to say that an arrangement that allows you to share a tower for your antennas reduces competition or affects diversity.
2176 You have to look at how did we get to the point of the regulation; what is the base of it; why do we have that, and whether these new agreements actually should be monitored by us to see whether, on the basis that they do reduce competition, is it to the point where they also risk reducing diversity. That is where your safeguards have to be placed in, either inside the LSA or perhaps by other requirements of the Commission of what you cannot do.
2177 Back to our Billy, calling something a date or not a date is not as effective as saying, yes it is a date by any measurement, but this is why there is nothing wrong with it.
2179 MS JONES: Thank you. Just a question for Newcap on news.
2180 Are there other newscasts outside of the morning news, for example weekends or during the day?
2181 MR. TOMPKINS: No. On our station the only newscasts we have are in the morning show. There are six of them in there and that's it.
2182 MS JONES: Okay, thanks.
2183 Just to confirm that the information that you were both asked to file will be filed by the end of the this week, the financial information and further clarifications for Newcap? Is that okay with both of you?
2184 MR. MAHEU: Did you give an express time to have that filed?
2185 MS JONES: By Friday, June 11th.
2186 MR. MAHEU: Yes.
2187 MS JONES: Okay.
2188 For Newcap, could you file your financial statements for the year starting August 31, 2003 to now? Can you do that?
2189 MR. MILES: For CHNO?
2190 MS JONES: Yes. For the same date, the end of this week.
2191 MR. MAHEU: Can we do a filing for year 2003-2004 up until -- September 1 to June 1. Is that what you are looking for?
2192 MS JONES: Okay, yes.
2193 MR. MAHEU: No, not by Friday. We could go to May by Friday.
2194 MS JONES: Okay.
2195 MR. MAHEU: June is not complete yet.
2196 MS JONES: That's okay.
2197 MR. MAHEU: Do you want May or do you want to wait another week?
2198 MS JONES: May is okay.
2199 MR. MAHEU: May, okay.
2200 MS JONES: This is a question for both of you.
2201 In the event that the Commission was to deny the LSA, there is a termination clause in the LSA which provides for payment. How would that work? How would you work with that?
2202 MR. MILES: The agreement is very clear-cut. That is why we have agreements. We were quite proud of the agreement, that it allows for all sorts of contingencies. It would then I guess be for the two sides to sit down and -- but it is contained in the agreement, there is an out in it.
2203 MS JONES: Can you comment, both of you, on a possibility for the Commission to renew the licence but to impose a condition of licence on the revenue sharing mechanism, for example separate billing and accounting processes?
2204 MR. MAHEU: Go ahead, Gary. I will go second.
2205 MR. MILES: We are currently looking after that function. It is a function. It is purely -- I hate to say a mechanical thing but it is and if it resides in that building or this building, that would be fine.
2206 MS JONES: Just to clarify, it is not the accounting functions, it is the invoicing and collection, which is not the actual accounting of the books. Just to clarify, it is purely invoicing and collection.
2207 MR. MURRAY: Newcap as well has an awful lot of centralized services that it provides for Sudbury, which is accounts payable, payroll, accounting and human resources from Halifax.
2208 MS JONES: Thank you.
2209 Mr. Miles, would you be in a position to file the three other LSAs that you have?
2210 MR. MILES: Yes, we would be -- absolutely.
2211 MS JONES: Thank you. By the end of this week as well?
2212 MR. MILES: Yes.
2213 MS JONES: Thank you. These are all my questions.
2214 THE CHAIRPERSON: We will break for lunch, but some of you will be back before us so let's try to think through if we decided that it is a date whether it is easier to have LSAs that have exclusions and are quite express about what the exclusions are or whether it would be more effective to arrive at your LSAs and then the Commission impose conditions as to what you cannot do which may come up as a concern as a result of having the LSA.
2215 Anyway, we have to go back to what the basic principles are and how we ensure that we don't suddenly get a different type of agreement that has the potential -- left unauthorized or unexamined have some of the same effects as some of the arrangements that the Commission said it would no longer allow after it countenanced or permitted greater ownership concentration.
2216 We have talked a lot about what it doesn't do in this situation and that. It is difficult for the regulator to make rules on that basis so we have to go back to the basic policy and see what is an effective way of satisfying ourselves that it is not busting at the seams by simply having other types of arrangements as well as concentration of ownership.
2217 We will break for lunch. We will be back at 2:00.
2218 THE CHAIRPERSON: There were some interventions. Newcap and Rogers, will you be exercising your right of reply after lunch or are you just going to come back and tell us that you don't need a right of reply?
2219 MR. MILES: We are going to come back and tell you we are not going to reply.
2220 THE CHAIRPERSON: Yes. What about Mr. Maheu?
2221 MR. MAHEU: We feel we have already replied in our opening comments so we won't be replying.
2222 THE CHAIRPERSON: So we can consider this item adjourned.
2223 MR. MAHEU: Thank you.
--- Upon recessing at 1240 / Suspension à 1240
--- Upon resuming at 1402 / Reprise à 1402
2224 THE CHAIRPERSON: Welcome back to our hearing.
2225 Mr. Secretary, please.
PRESENTATION / PRÉSENTATION
2226 MR. LEBEL: Thank you, Madam Chair.
2227 We will now hear Items 7, 8 and 9 on the agenda, which are applications by Sun Radio Limited to renew the licence of the commercial radio programming undertaking CIEZ-FM Halifax, expiring 31 August 2004;
2228 and by Newcap Incorporated to renew the licences of the commercial radio programming undertakings CFRQ-FM and CFDR Dartmouth, expiring 31 August 2004;
2229 and an application by CHUM Limited to renew the licences of the commercial radio programming undertakings CIOO-FM and CJCH Halifax, expiring 31 August 2004.
2230 Mr. Rob Steele is appearing on behalf of Sun Radio and Newcap and he will introduce his colleagues.
2231 Mr. Paul Ski, is appearing on behalf of CHUM and he will introduce his colleagues.
2232 You have 20 minutes each to make your presentations.
2233 MR. R. STEELE: Thank you. Before I start the presentation, for the record, Madam Chair, you had asked about the number of LSAs we had and my colleagues corrected me over lunch.
2234 We have two LMAs currently and three LSAs.
2235 THE CHAIRPERSON: Thank you.
2236 MR. R. STEELE: Thank you.
2237 Good afternoon, Madam Chair, Members of the Commission and Commission staff. For the record once again, I am Rob Steele, the President and Chief Executive Officer of Newcap.
2238 To my right is Mark Maheu, Executive Vice-President and Chief Operating Officer. Next to him is David Murray, Vice-President of Operations for Newcap; and to my left is Tom Manton, Vice-President of Sales. Next to Tom is J.C. Douglas, our Operations Manager of CFDR, CFRQ-FM and CIEZ-FM in Halifax.
2239 In the second row, sitting behind me is Peter Steele, Vice-President of Industry Affairs with Newfoundland Capital.
2240 We are here today to ask for a seven-year renewal of licences of CFDR and Q-104, Newcap's wholly owned stations in Halifax, and CIEZ-FM which we operate on behalf of Sun Radio.
2241 Our presentation today will demonstrate that our strong record of service and our compliance with all of the Commission's regulations and policies merit a seven-year renewal.
2242 I would now like to ask Mark Maheu to begin our presentation.
2243 MR. MAHEU: We are pleased to be able to report to you on the great contributions that CFDR-AM, CFRQ-FM and CIEZ-FM have made to the Halifax market. These stations provide a rich diversity of musical programming, full news and information services, substantial support for the local community, charitable and other initiatives and a strong commitment to Maritime and other Canadian musical talent.
2244 Over the past seven years, our strong approach to increasing radio's share of the advertising pie has helped bring the Halifax market to such a state of profitability that the Commission can now consider licensing additional radio stations, to add even more to the musical and programming diversity enjoyed by Halifax radio listeners.
2245 I would like now to ask J.C. Douglas to speak about the stations' programming contributions.
2246 MR. DOUGLAS: Newcap manages three radio stations in this market, two that it wholly owns and one that it manages for Sun Radio.
2247 Each of the stations has its own personality, with separate programming orientations serving different audiences and each with its own news voice and newscasts.
2248 CFDR-AM is known as KIXX Country and provides a classic country format, attracting an older audience skewing male. It provides newscasts in all drive periods, along with other surveillance and community information.
2249 CFRQ-FM, known as Q-104, is a Maritime rock institution that plays an important role supporting and breaking rock acts from our region. Its audience is predominantly men aged 25-to-44, although women and men of other ages also find the station attractive.
2250 At the recent Halifax hearing we told you about our award winning program Route 104, which features the hottest up-and-coming rock artists from Atlantic Canada. Many of these artists have expressed to us the important role that we have played in providing a platform for them in the region.
2251 CIEZ-FM, marketed as Classic Hits FM 96.5, provides the best music of the '60s, '70s and '80s and attracts an audience that is slightly more female and is aged 35-to-54.
2252 All three stations are involved in support of community and charitable organizations in Halifax. In the last two years alone we have raised over $90,000 for the Children's Trust Fund. Each year, Q-104 supports the Parade of Lights in conjunction with the Metro Food Bank that launches our annual food drive, which last year resulted in over $15,000 and over 13,000 pounds of food.
2253 Q-104 also supports the annual Multiple Scleroses Bike Tour to raise money for research on this terrible disease. Classic Hits FM 96.5 does an annual fundraiser to provide hats and mitts to local kids. In the wake of Hurricane Juan last year, we undertook a campaign we called Milk for Moms, raising over 2000 litres of milk and 100 cases of Similac for mothers whose children had not seen fresh milk for five days.
2254 When Halifax faces challenges our stations are always there providing information, fundraising and wall-to-wall coverage for our listeners. Our activities have gained the recognition of others. The RTNDA recognized Q-104 for its continuing coverage of Hurricane Juan and the most recent Crystal Awards provided us a craft award for a promotion that showed how we kept the city informed. The Halifax Regional Municipality also recently passed a resolution recognizing us for the Milk for Moms campaign.
2255 These are only a small sampling of our activities. We provide PSAs, coverage and support to hundreds of local charities and community activities every year.
2256 The Commission has looked at the performance of all three stations over the last term of license and we are happy to report that we met and exceeded our Canadian content requirements for each of them.
2257 MR. MAHEU: In the Notice of Public Hearing the Commission indicated in the Preamble to the applications involving commercial radio arrangements between broadcasters that it wished to examine the appropriateness of the arrangements in Halifax:
"...taking into account the objective of fostering diversity of programming, independence of news voices in each of these markets".
2258 J.C. has just outlined the diversity of programming that our three radio stations provide; three formats that are distinctively different from what the other stations in the market provide. And we provide a separate news voice, with our own distinct newsroom undertaking newsgathering for the three radio stations.
2259 We have operated these stations in full compliance with the Broadcasting Act, the Radio Regulations, the Commission's policies and our conditions of licence.
2260 In the 1990s we worked hard with Sun Radio and CHUM to return Halifax to profitability and in the year 2001 we wound up our local management agreement with them.
2261 Presently we have a collaborative sales effort between Sun Radio, Newcap Radio and CHUM. But the stations are still distinct and the sales effort has resulted in significant increases in radio revenues in the marketplace.
2262 Competition in radio does not mean that everyone profits equally, rather it means that we all have an opportunity to succeed.
2263 Newcap has succeeded in radio by a simple and sustained approach: Investment in good people, in the best technology, research and relations with our clients. Our investment pays off in increased revenues and profits for our group. Our success is not built upon a joint sales effort, but rather success in offering a product that listeners want and acting as consultants to our clients to help them meet their advertising needs.
2264 I would now like to ask Tom Manton to describe what our sales efforts are.
2265 MR. MANTON: The Metro Radio Group is a collaborative sales effort between the three ownership groups of Sun Radio Limited, CHUM and Newcap Broadcasting.
2266 Our sales team is comprised of 13 account managers and a retail sales manager. All account managers are able to sell one or more stations to meet the needs of our clients and generate a strong return on their advertising investment.
2267 The retail sales manager reports to me as Newcap's Vice-President of Sales on any issues of concern pertaining to Q-104, 96.5 and CFDR, and to CHUM's general manager for C100 and CJCH. Each company has full discretion on any airtime sales, promotional requests and creative.
2268 This arrangement has resulted in a dramatic increase in radio revenue in the Halifax marketplace, to the point additional stations are being considered. This growth has been a result of our sales philosophy, stable staff, investment in sales training and sales resources and commensurate with our ratings performance. This growth has come from our strategic plan to build radio's share by focusing on newspaper and local television advertisers.
2269 Despite having the theoretical ability to buy all five stations, a recent analysis indicates 83 per cent of our local clients buy two stations or less, with a full 59 per cent purchasing one station only. As intervenors from the advertising community indicated, Halifax advertisers are pleased with our customer-focused approach and ability to buy the station or stations that best meet their needs.
2270 We are honourable and operate with the strictest of business ethics, all within the Radio Regulations, guidelines and the law.
2271 MR. MAHEU: You have heard from J.C. about the contribution we have made to our community through our programming, while Tom has explained how our sales efforts have generated additional revenues. I would now like to ask Mr. Dave Murray to provide some history of our collaborative efforts in the marketplace.
2272 MR. MURRAY: In 1993, radio was at a very low point across Canada with all Canadian radio posting a negative 7 per cent margin at the pre-tax profit -- or should I say loss -- level.
2273 In Nova Scotia, the loss was even greater than the national average at minus 10 per cent and Nova Scotia AM stations posted a negative 21 per cent pre-tax profit margin.
2274 Radio seemed to be spending all of its time beating up on the other radio stations and ignoring that the lion's share of revenues were going to print and television.
2275 In 1994, MBS approached us to join forces in Charlottetown, as we discussed in our earlier appearance. That same year they asked us to consider a similar arrangement in Halifax, but we were unable to come to an agreement.
2276 Meanwhile Art Hustin's company, Sun Radio, was struggling, unable to generate sufficient audience in the demographic groups that advertisers want.
2277 The station changed format to a soft AC along the way, but the fact that it was a standalone station in a poor radio market made it more and more difficult to maintain viability.
2278 So in 1995 we approached Mr. Hustin to consider combining sales forces with Sun Radio and finding some cost savings through an LMA. We based our Agreement on the one that we had used in Charlottetown and that had been presented to the Commission staff and rewritten to meet your concerns. We managed the arrangement and the market showed some improvement, but by 1997 the pre-tax margin in Halifax radio was still unacceptable at 4 per cent.
2279 Just to be clear, in 1997 Maritime Broadcasting approached Newcap with a proposition to join forces in Halifax. We were receptive and discussions went on for a significant period of time, but both sides felt frustrated and were unable to reach an agreement.
2280 We discovered that MBS had begun negotiations with CHUM with a similar proposition. Eventually, CHUM and Newcap talked, found that our approaches were better aligned than either of us had been with MBS, and after a relatively easy negotiation reached an agreement. This was the origin of the LMA, not a sinister conspiracy to deprive MBS of its share of revenues in the market, but rather a solution to a difficult economic situation.
2281 We developed an agreement and provided it, once again, to the Commission staff to make sure that we stayed onside with the Commission's policies and concerns.
2282 The LMA provided savings in administration, technical services, management and sales, but both companies kept strict control of the programming choices and their own newsrooms. This met the Commission's criteria and we were onside with all of the rules. This worked well for the bottom line of Halifax radio with pre-tax margins lifting to 37 per cent by 2001.
2283 In 1998, the Commission introduced its new Commercial Radio Policy and indicated that it wished to regulate LMAs to ensure that broadcasters were keeping editorial control and that no undue financial damage was done to competitors.
2284 We applied to wind up the LMA in 2001 and implemented the change on December 31st. Around the same time, Mr. Hustin indicated that he no longer wished to stay in the radio business. Our solution was to jointly apply with CHUM to purchase the station on a 50/50 basis.
2285 The Commission approved the application and Newcap was contracted to operate the station under a management agreement.
2286 We separated our operations from CHUM, devoting significant resources to physically separating the studios and other activities in our building, developing independent telephone, computer, master control and other facilities. At present, Newcap is responsible for all functions for Sun Radio and our two stations, and CHUM is responsible for their stations' operations.
2287 MR. MAHEU: Madam Chair, we are proud of our accomplishments in Halifax. From a weakened state we have transformed the market to the point where you can contemplate the licensing of one or more new stations in the market, a goal that we support.
2288 Our stations provide diverse programming, a strong and distinct news voice, support for Canadian talent, and we are deeply involved in the community's life.
2289 We believe that we have earned a full seven-year renewal for each of the three radio stations we are appearing for here today, CFDR, CFRQ-FM and CIEZ-FM.
2290 Newcap Radio's cooperation with other broadcasters in this market dates back some 10 years. Since that time we have not received one complaint from a listener, an advertiser, a civic leader or community group.
2291 The first and only complaint has originated from a competitor, Maritime Broadcasting, and a licence applicant, JAMZ-FM Inc.
2292 The timing of the MBS complaint is curious. The sales collaboration between Newcap Radio, Sun Radio Inc. and CHUM Ltd. has been in place for a number of years. Only now that MBS is an applicant for a new FM undertaking in Halifax are the concerns they cited important enough to warrant an intervention.
2293 We clearly view this approach as nothing more than a thinly veiled attempt by Maritime to avail themselves of another bite of the "Halifax application apple".
2294 Newcap Radio respectfully submits that the facts speak for themselves in Halifax. CFDR, CFRQ-FM and CIEZ-FM have a long and rich history serving the citizens of the Greater Halifax Area. We have consistently done so within the best practises of Canadian radio and in full compliance with our responsibilities to our licence and the CRTC.
2295 We request respectfully that the licence for all three radio stations be renewed for the full seven-year term so we may continue to serve our listeners and make a significant contributions to the city.
2296 We would be pleased to answer any questions that you may wish to ask.
2297 MR. SKI: Good afternoon, Madam Chair, Mr. Vice-Chair, Members of the Commission.
2298 I am Paul Ski, Executive Vice-President Radio at CHUM Limited.
2299 Before beginning our presentation I would like to take this opportunity to briefly introduce our panel.
2300 Seated to my left, your right, is Scott Bodnarchuk, General Manager of CHUMs Halifax radio stations; to my right, your left, is Peter Miller, Vice-President, Planning and Regulatory Affairs CHUM Limited.
2301 Directly behind Peter is Duff Roman, Vice-President Industry Affairs, CHUM Limited; and to Duff's left is Kerry French, Director of Research for CHUM Radio.
2302 We will now begin our presentation.
2303 We are pleased to be here today to present the licence renewal applications for CHUM's two Halifax radio stations, CIOO-FM and CJCH.
2304 Over the last seven years, CIOO-FM, known to Haligonians as C One Hundred, and CJCH have either met or exceeded all conditions of licence and expectations. Therefore, we respectfully request that the stations' licences be renewed for a full seven-year term.
2306 MR. BODNARCHUK: The seven commercial radio stations in Halifax offer listeners a diverse array of music choices. In this extremely competitive environment, C100 is the market leader. C100 is best known for playing "Today's Best Music", including adult hits from the likes of Nelly Furtado, Alanis Morrisette, Beyonce, Avril Lavigne and Outkast.
2307 With its focus on the contemporary music scene, C100 supports numerous Canadian acts, especially artists from Nova Scotia like Great Big Sea, Crush, Shaye and, most recently, Gary Beals, Halifax's own Canadian Idol.
2308 C100 routinely provides exposure to new, unsigned and up-and-coming acts, such as the band Rudy whose management submitted an intervention in support of our applications.
2309 In contrast to C100's focus on contemporary hits, its sister AM station, CJCH, provides a healthy dose of "yesterday's favourites", with selections from the '40s, '50s and standards from the '60s from such classic artists as Anne Murray, Frank Sinatra and Tony Bennett.
2310 In addition to music-based programming, CJCH offers listeners a variety of spoken word programming, including a news-oriented weekday morning show and a midday open-line show known as "The Hotline".
2311 For decades Haligonians have relied on The Hotline as a forum to connect with community leaders, political leaders and, most importantly, each other. This has been no more evident than during the current federal election campaign, where The Hotline has facilitated interaction between local candidates and the Halifax community.
2312 CHUM is especially proud of what C100 and CJCH have been able to accomplish over the last seven years in the area of charitable works.
2313 For the last three years, C100 has broadcast the IWK Children's Hospital Radiothon, an annual event that raises money for the purchase of state-of-the-art medical equipment for the children's hospital. This year alone, the radiothon raised almost half a million dollars and almost a million dollars since its inception. For this achievement, C100 was recognized on the floor of the Nova Scotia legislature, received two awards from International Foresters, The Children's Miracle Network "Celebration" and, in 2002, the Atlantic Region Philanthropy Award.
2314 C100 and CJCH were also instrumental in the success of "Halifax On-Board", an annual fundraiser for Bryony House, a shelter for battered women and children in the Halifax area.
2315 The stations have also supported numerous other worthwhile causes, ranging from the Metro Food Bank to the Canadian Red Cross and the Canadian Cancer Society.
2316 Truly a fixture in the Halifax community, local listeners have come to rely on C100 and CJCH, especially in times of crisis. When Hurricane Juan hit Halifax earlier this year, CJCH and C100 were there with live reports, updates and crucial information for residents.
2317 C100 and CJCH are looking to build on all of these accomplishments over the next seven years, as these two stations continue to provide high quality, local relevant radio to Halifax listeners.
2318 In the Notice of Public Hearing the Commission indicated that it wished to examine the appropriateness of the mutual arrangements in Halifax involving CHUM and Newcap relating to their joint ownership of Sun Radio, licensee of CIEZ-FM.
2319 Accordingly, we would like to provide a brief overview, from CHUM's point of view, of the history and benefits of this arrangement.
2320 In 1998, CHUM's two stations joined a pre-existing LMA that involved Newcap's stations and CIEZ-FM, at the time owned independently. The LMA allowed the five stations to reduce their operating costs and increase their revenues.
2321 Also in 1998, the Commission revised its radio common ownership policy, increasing the number of stations any one group could own. This led to a period of rapid consolidation in the Canadian radio industry.
2322 In 2001, CIEZ-FM's owner decided to sell the station. CHUM agreed to jointly purchase CIEZ-FM with Newcap and it was agreed that Newcap should operate the station pursuant to a management agreement between the parties.
2323 In light of the Commission's new approach to LMA's, CHUM and Newcap also agreed to disband the LMA on December 31, 2001.
2324 With the termination of the LMA, CHUM completely restructured C100 and CJCH to operate as a standalone business. CHUM undertook changes to the physical infrastructure of the stations and personnel, including: the hiring of a new general manager to be responsible for CHUM related business; constructing separate newsrooms; constructing new broadcast studios separating the office of the program director for CHUM's stations from the program directors of the other stations; and creating a separate entrance and brand identity for CHUM stations.
2325 The one-time costs incurred by CHUM to effect these changes amounted to approximately $125,000.
2326 From the time these changes were implemented until today, C100 and CJCH have operated separately and distinctly from Newcap's two stations and CIEZ-FM. Moreover, while the stations do coordinate their sales, the proverbial "buck stops here" with me, my program director, Terry Williams, and my news director, Rick Howe, with respect to all other areas of management, administration and operation including, in particular, programming and editorial control.
2327 MR. SKI: Halifax is a medium-sized market with just under 400,000 residents. Despite its modest size, Halifax is an extremely competitive media market; three over-the-air television stations, a satellite-delivered local programming service, two major daily newspapers, local magazines, Outdoor and seven commercial radio stations are all fighting for their share of the advertising pie.
2328 Given this environment, the combined local sales approach that Newcap and CHUM have employed, which began in the days of the LMA, has been essential to maintaining and growing radio advertising revenues in Halifax.
2329 For example, Halifax radio revenues have grown by almost 33 per cent over the last five years, from $12.7 million in 1999 to almost $16.9 million in 2003.
2330 No other comparable market has seen growth of this magnitude. The next closest market is Kitchener, with revenue growth over the same period of 28 per cent in a market with fewer local media outlets. In fact, the coordinated sales approach that Newcap and CHUM have adopted has resulted in market conditions in Halifax that have allowed the Commission to consider licensing new stations.
2331 LSAs and other sales arrangements are a way in which a number of radio stations in a market work together to reach the critical mass necessary to compete for advertising dollars with television and print media. Sales arrangements allow the sales team representing a group of stations the flexibility to offer local advertisers customized radio marketing strategies on one or more stations to help them more effectively reach their potential customers. However, stations that participate in a sales arrangement are still controlled and operated by their respective management.
2332 LSAs and other arrangements whereby stations owned by different broadcast groups are sold together are not new to the radio business in Canada. National rep houses have long represented stations across the country with respect to national sales. It is not uncommon for such organizations to coordinate a buy involving competing stations in the same market.
2333 In CHUM's view, sales arrangements are a common and useful tool, both nationally and locally, in small, medium and large markets. They allow radio stations to compete effectively with other media, while at the same time providing a high quality, locally relevant service to their listeners.
2334 The radio landscape is more competitive than ever. To succeed, radio stations must invest heavily in research to identify trends and market opportunities. Radio stations must be prepared to make the necessary changes that will enable them to use this research to their advantage. Stations must also be ready to devote significant resources to produce attractive programming and to retain top talent. They must also find innovative ways to meet the needs of their customers.
2335 Over the last 50 years, CHUM has pioneered sales and marketing techniques that have not only helped us grow our business, but the business of our advertisers as well. Many of these advertisers have filed supporting interventions in this proceeding highlighting the successful advertising and marketing solutions we have developed for them.
2336 The sales arrangement CHUM has with Newcap in Halifax has helped grow radio advertising revenues for all players in the market, has helped local advertisers better achieve their goals, has resulted in the Halifax market being healthy enough for the Commission to consider licensing new stations and, most importantly, has ensured that C100 and CJCH can make the valuable contributions to the local community that we highlighted at the beginning of this presentation.
2338 MR. MILLER: In addition to issues of appropriateness, the Commission has asked licensees, both in the public notice and at the beginning this hearing, to address the issue of the potential imposition of specific mechanisms or safeguards that would ensure licensees continue to meet their regulatory obligations.
2339 From CHUMs perspective, the "regulatory obligations" at issue here, the basic principles if you will -- to use Madam Chairs's comments before the break -- should continue to relate to the need for effective control of a licensee's operations, particularly programming and editorial.
2340 While we accept that the LMA definition in section 11.1(1) of the Radio Regulations is drafted in a broad manner that could be interpreted to include such matters as sales agreements, engineering and maintenance agreements, transmission tower agreements, even real estate rental and cleaning agreements, it is equally clear that the intent of, and the context for this provision is one of:
2341 One, Ensuring the Broadcasting Act objectives of varied and comprehensive programming that is of high standard and a diversity of editorial and programming choices are met.
2342 Two, Ensuring a licensee retains effective control pursuant to section 11 of the Regulations.
2343 We note also that in respect of legitimate sales arrangements, the Commission has never attempted to regulate this area of a broadcasters, business, and indeed has specifically recognized in the "Competition Bureau and CRTC Interface" document of November 1999, that issues relating to advertising such as "price fixing" or practices that "unduly lessen competition" are the exclusive authority of the Competition Bureau. As noted in that document, the Commission's "consideration of advertising issues" relates to the broadcasters' ability to fulfil the objectives of the Broadcasting Act.
2344 It is in fulfilling that role that we accept the public interest in transparency and agree that reporting of sales arrangements, pursuant to section 11.1(1), is not an unreasonable request for the Commission to make of licensees.
2345 For its part, CHUM has attempted to keep the Commission fully apprised of its evolving arrangements in Halifax. We hope that in our appearance today we can provide further information and clarification on the scope and details of the sales arrangement that currently exists, and satisfy the Commission that this is indeed a legitimate sales arrangement and not anything inappropriate. If after this appearance the Commission requires additional detail in writing, we would be of course pleased to provide any such additional information.
2346 MR. SKI: For all of these reasons we respectfully request that the Commission renew C100 and CJCH's licences for full seven-year terms with the same terms and conditions.
2347 That concludes our opening remarks. We would be pleased to respond to any questions you may have.
2348 Thank you very much.
2349 THE CHAIRPERSON: Thank you.
2350 Commissioner Colville.
2351 COMMISSIONER COLVILLE: Oh, we have to go through the routine.
2352 Thank you very much gentlemen. Oh, well there I go.
--- Laughter / Rires
2353 COMMISSIONER COLVILLE: I think I want to start questioning this afternoon by trying to get a better --
2354 First of all let me say in terms of the earlier part of both of the presentations in terms of the job that the stations do in serving the market, I think we can agree. I certainly, from my experience living in Halifax, acknowledge that all the stations, including the other two stations that aren't sitting at the table here, all do a good job of serving the market and all did a terrific job during Hurricane Juan and subsequently White Juan.
2355 So I think you are all to be commended at that and we acknowledge that. I think we all know the reason why we are here today. These probably would have been non-appearing licence renewals but for the LMA/LSA issue that we have to deal with.
2356 Perhaps it shows my bias a little bit, but I tend to be regular listener of CIEZ. I wasn't aware that that made me slightly more female.
--- Laughter / Rires
2357 COMMISSIONER COLVILLE: We will set that aside.
2358 I guess I would like to start by getting a better sense of what the Metro Radio Group is and what it does; who works there, who they report to and so on. I don't know whether that is Mr. Manton or Mr. Maheu or whoever. I don't know who can best speak to that.
2359 MR. R. STEELE: I think maybe Mark can lead and then Tom can certainly fill in the details.
2360 MR. MURRAY: Mr. Commissioner, MRG, or the Metro Radio Group, is basically an acronym that is used to describe the collaborative sales efforts between Newcap Radio, Sun Radio and CHUM Radio, representing four retail sale the five radio stations operating in Halifax.
2361 As has been heard in previous discussions about other markets about how sales agreements work, the specifics in Halifax Mr. Manton, who is well versed and has been through all the machinations of it is in the best position to give you the specific details about the MRG and how it works.
2362 MR. MANTON: Thank you.
2363 As Mark mentioned, it is really our marketing name, if you will, to the advertising community. One of the things that we try to do is build up our professional image and it was difficult if you were using two or three or four or five call letters. So it was something when we do our marketing, whether it be Atlantic Progress or the Chamber of Commerce or anything else, it is merely a marketing umbrella.
2364 As such, the configuration, as I am the VP of Sales with a sales manager reporting through to me, 13 sales representatives, sales secretary, administration and a research analyst.
2365 COMMISSIONER COLVILLE: Who do you report to?
2366 MR. MANTON: I report to, as my role of Vice-President of Sales, to Mark Maheu as it would relate to stations matter specifically for Q-104 FM 96 or CFDR, J.D. Douglas.
2367 COMMISSIONER COLVILLE: So you report to Mr. Maheu.
2368 MR. MANTON: Maheu.
2369 COMMISSIONER COLVILLE: Metro Radio Group, is it an incorporated entity?
2370 MR. MANTON: I do not believe so. I would ask Dave Murray. I don't believe so. I think it was a name we made up several years ago.
2371 MR. MURRAY: No, it's not. It's a marketing name. It's just a trade name.
2372 COMMISSIONER COLVILLE: It's a name you made up.
2373 I noticed going through the correspondence of various letters that are exchanged that often people like Gary Greer, for example, CIEZ, has an e-mail address "email@example.com". I assume "MRG" is Metro Radio Group?
2374 MR. MANTON: That's correct.
2375 COMMISSIONER COLVILLE: Gary Greer, is he still program director at CIEZ?
2376 MR. DOUGLAS: That's correct, yes.
2377 COMMISSIONER COLVILLE: Are there other staff at any or all of the five stations that would share that same e-mail address?
2378 MR. MANTON: Yes, there is. I believe the majority of the staff would have the "MRG" e-mail address.
2379 COMMISSIONER COLVILLE: So that is more than just a marketing tag then, I guess, is it?
2380 MR. MANTON: Not from my perspective. That is the only way that I use it. I can't speak for the technical staff and all the workings of e-mail, but I believe that is the way the accounts were set up originally many years ago.
2381 COMMISSIONER COLVILLE: So all of the staff at the stations, then, if I was wanting to send an e-mail to one of the staff in any of the five stations, would the address be "mrg.ca"?
2382 MR. MANTON: I believe in a majority of cases, I'm not sure of the individual control rooms, whether it would be C100 Breakfast Club.
2383 MR. MAHEU: Mr. Commissioner, if I may, I believe also that most of the staff have other e-mail addresses that pertain to the radio station they work at or the name of the radio station like C100 or Q-104, that the "mrg" e-mail really was a convenience.
2384 We want to make it as easy as possible for people to communicate with us and at the risk of creating confusion with different sets of call letters, different nicknames and so on, many of the staff -- and we found this over time -- found it a lot more convenient to use the "mrg" e-mail address, so that was implemented. But that in itself shouldn't denote anything other than a convenience.
2385 It would be the same thing as having an e-mail address that said firstname.lastname@example.org. It doesn't mean that we are connected with Bell, it means that is where we get our Internet service and it is really more an ease of contact and trying to lower the confusion level to make it easy for customers or listeners to communicate with us.
2386 COMMISSIONER COLVILLE: That's fine. I noticed also that in replying to a request for logger tapes, I guess this was a letter sent to Suzanne Dufour by Gary Greer on June 19th, here was an attachment to that. This was sending in the logger tapes that were requested and there was a confirmation attached to that verifying that the logger tapes were accurate, under the letterhead of Metro Radio Group, signed by a Violet King, Accounting Traffic Manager for the Metro Radio Group, certifying that the program logs were accurate.
2387 So that is a function that Ms King performs at the Metro Radio Group? Would that be on behalf of all the stations, confirming accuracy of logger tapes?
2388 MR. MURRAY: Yes. Violet King is the Traffic Manager. The stations have individual traffic logs and they are invoiced independently et cetera, but you know, it is related to sales.
2389 In 2001 when we terminated the LMA, we went back to individual station letterheads except for the sales-related functions, so I assume she grabbed one of those letterheads. She happens to be a CHUM employee, but we have Newcap traffic people and we have CHUM traffic people and I wouldn't read too much into that letterhead.
2390 COMMISSIONER COLVILLE: This was after the discontinuance of the LMA?
2391 MR. MURRAY: The MRG still exists as a sales marketing arm, so there are still letterhead in there that Violet could pick up and use.
2392 COMMISSIONER COLVILLE: So this Ms King, if we were to ask for logger tapes for any of the five stations, would she be the one to confirm that the logger tapes were indeed accurate -- or not as the case may be?
2393 MR. MURRAY: Yes, she would. As the traffic manager she would, yes.
2394 COMMISSIONER COLVILLE: For the Metro Radio Group. So if we were to ask to confirm -- well, to repeat the question, if we were asked to confirm the accuracy of the logger tape for any of the five stations, Ms King would do that?
2395 MR. MURRAY: You should probably get J.C. to answer that, because actually I am not there and I'm not sure what she confirms and what she doesn't in terms of logger tapes. So I'm out of my area here.
2396 MR. DOUGLAS: She would confirm that the traffic logs were correct and complete and the program directors would confirm that the music logs contained therein would be complete.
2397 COMMISSIONER COLVILLE: Well, let me just read the sentence.
"I the undersigned have reviewed the program logs for you at CIEZ-FM Halifax and find them to be an accurate reflection of the programming for the week of June 2nd to 8th of June 2002." (As read)
2398 That is programming I would -- she is confirming that the programming, that the music selections -- which is why we asked for the program logs, right, to confirm the Canadian content. Otherwise we don't ask for those logs. That's why we use them.
2399 So she is confirming that and she would do that for any of the five stations I take it.
2400 MR. DOUGLAS: You have confirmation from Gary Greer as well?
2401 COMMISSIONER COLVILLE: This is an attachment to the letter from Gary Greer.
2402 MR. DOUGLAS: Okay.
2403 COMMISSIONER COLVILLE: She is confirming that the logger tape is accurate.
2404 MR. DOUGLAS: I'm not sure. I'm not sure how to respond to that.
2405 MR. MAHEU: I think there may be -- Mr. Commissioner if I may, I'm wondering if there is some confusion as to the difference between the program log and the actual commercial log as it relates to -- the Commission was requesting -- I guess this was part of a wrap or whatever, I don't have it in front of me, but requesting the music log and the programming log and the logger tape for certain dates?
2406 COMMISSIONER COLVILLE: Right.
2407 MR. MAHEU: And the traffic manager has signed off on the fact that this is the program log or what we call the commercial log for such and such a date which matches the music logs that we were requested to send in?
2408 COMMISSIONER COLVILLE: The program director, Gary Greer, is responding for a request from the Commission to provide the program logs and Ms King is certifying that the log is an accurate reflection of the programming for the week of June 2nd to the 8th.
2409 So my question is simple: If we were to send that request, then Ms King, I presume, would do a similar certification of the accuracy of the program log for each of the five stations?
2410 MR. DOUGLAS: My understanding is that program directors would have confirmed the music log and the traffic manager would have confirmed the traffic log.
2411 She may have used the word program in error. I'm not sure.
2412 COMMISSIONER COLVILLE: Well, I can read it to you again.
"I ... have reviewed the program logs for you at CIEZ-FM Halifax and find them to be an accurate reflection of the programming for the week of June 2nd to 8th..." (As read)
2413 MR. DOUGLAS: I would think she means traffic log because she would not have anything to do with the programming.
2414 COMMISSIONER COLVILLE: All I can go by is the words we see in front of us.
2415 MR. DOUGLAS: Yes.
2416 COMMISSIONER COLVILLE: So she would do a similar thing. I take it your answer is yes to my question, she would do a similar thing. What she is doing here for CIEZ she would do for the other four stations as well?
2417 MR. DOUGLAS: I'm not sure about that. I probably attached a similar note for Q-104 and for CFDR, which I would have sent myself as program director.
2418 COMMISSIONER COLVILLE: Okay. Is there an agreement among or between the two owner operators as to the activities that the Metro Radio Group undertakes on their behalf?
2419 MR. MAHEU: Mr. Commissioner, there are actually two agreements. One is a formal and official agreement and the second is more of an understanding.
2420 The official agreement is a signed agreement which is filed with the Commission on how CIEZ will be managed and run. We are in 50 per cent ownership between CHUM and Newcap on CIEZ and Newcap is the managing partner. The affairs of that radio station and how it is to be managed and run is spelled out very specifically in an agreement which is on file with the Commission.
2421 The Metro Radio Group sales collaboration and representation of sales is an agreement and an approach to selling radio in the marketplace which really came about after the local management agreement wound up, where at that time we separated our operations, things were done to the building to create separate and distinct work areas and work spaces and the only element left over was the sales function of representing for sale all five radio stations in the market.
2422 COMMISSIONER COLVILLE: So when we talked for the past day and a half about LSA, local sales agreement or arrangement, is this informal agreement that you refer to that creates and presumably defines the activities of the Metro Radio Group? Does that constitute the LSA for Halifax?
2423 MR. MAHEU: I will let Mr. Murray talk about some of the specifics of that in a moment, but essentially what we would like the Commission to know is that the sales collaboration or agreement in Halifax to sell collaboratively is an agreement that largely is based on our past experience of working together as broadcasters and is for the explicit reason to create critical mass in terms of delivering an advertising solution to customers.
2424 So it is an agreement that when I say it is informal, what I mean by that is that there is no signed written agreement on how it will work, but there is an understanding between Newcap and CHUM of what it is all about and how it should work and to date it has been quite successful.
2425 There are some elements of the -- obviously there are ways that, you know, the revenues need to be shared and the responsibilities of each party, and the kind of going to what was spoken about in earlier sessions about what is not included or what is excluded in agreements of this type.
2426 I just wanted to make sure we understood that, that informal means there is no signed agreement between the parties.
2427 Do you have anything to add on that, Dave?
2428 MR. MURRAY: Sure. I think if you are looking for some of the things that we did when we terminated the LMA, therefore some of the differences or some of the exclusions between a collaborative sales arrangement that we have in Halifax and an LMA, for an LMA we had a written binding agreement. For our sales arrangement there is no agreement and either party can change that as we see fit.
2429 CHUM has 100 per cent control of all of the things that go on in its two stations, including all of the sales and all of the commercials.
2430 Under the LMA there was one general manager. Under the collaborative sales arrangement there are two distinct independent general managers, one for the three stations that Newcap is responsible for and two for the CHUM stations.
2431 Under the LMA we had one facility very integrated and under the collaborative sales arrangement we spent a great deal of money to separate that facility into two distinct separate facilities. My understanding is CHUM has all of its studios, newsroom and production studios, et cetera, completely separated from Newcap's and Sun's facilities.
2432 Under the LMA Sun was managed by the LMA. Under the collaborative sales arrangement Newcap is 100 per cent responsible for their management of Sun.
2433 Under the LMA we had integrated phone systems. Under the sales collaboration we have independent phone systems, independent staff entrances.
2434 The LMA had an integrated traffic and billing system. When we undertook to separate that and terminate the LMA, we both purchased very expensive independent traffic systems that while they could accommodate some joint sales functions were billed independently and kept independent.
2435 A lot of the things that were unchanged for the LMA and the sales effort were, we have always had separate program directors, separate news directors, separate editorial voices, separate research and program consultation. No crossover of on-air voices between ownership groups and no crossover of promotions between ownership groups.
2436 Does that answer your question in some regards?
2437 COMMISSIONER COLVILLE: Well, I guess it says what isn't there. It doesn't tell me what is there.
2438 I guess, to be candid, I find it a bit surprising that two professional business groups would enter into this arrangement to jointly sell product and have no formal written agreement as to how that would be undertaken and how the revenues from that would be portioned as between the two ownership groups.
2439 There is no written agreement whatsoever with respect to this Metro Radio Group's operations, how it goes about doing its business, what the responsibilities of each party are, what the responsibilities of Mr. Manton are, how they revenues will be shared?
2440 That is all just on a handshake and informal understanding?
2441 MR. R. STEELE: Just from a big picture point of view, I think if you look the original partnership came together under a formal LMA arrangement. Of course during that tenure you get a chance to get to know your partner, and of course when we dismantled the LMA there is obviously a level of comfort and familiarity with each other. Plus, we co-owned a station together. I think there is a comfortable feeling with each other, enough so that you can proceed without a written arrangement.
2442 Had we done the LSA right from the beginning, no doubt we would have had a formal arrangement.
2443 We are certainly willing to formalize that, but I'm just saying it from a practical or -- why that might appear odd to you today I think is because of that comfort level that exists there between the two organizations.
2444 COMMISSIONER COLVILLE: Mr. Steele, I know you are part of a medium-sized family, I grew up with two brothers and a sister who I got to know very well as we grew up. It doesn't mean we didn't have some disputes among us over the years. I know you can get a level of comfort working together as two business groups, but it seems unusual to me that you would not have some sort of written agreement, at least as to what Mr. Manton's responsibilities are and how you are going to share the successes of his work.
2445 MR. R. STEELE: Well, there certainly is an understanding between the two groups, albeit it's not written. But again, look, I will confess to you, I spat with my brother from time to time too but we don't have a written agreement between each other how to resolve these matters.
2446 I am just merely pointing out why that would be, why that is there today, why that situation is there today as opposed to had we started the LSA and the LMA never came to fruition.
2447 In other words, if we started in '94 or '95, whenever that LMA came to be, no doubt we would have had a formal arrangement.
2448 COMMISSIONER COLVILLE: What is the nature of the informal arrangement then? Perhaps you can tell us that, in terms of the responsibilities of each party, the responsibilities of Mr. Manton and how the successes of Mr. Manton's activities are shared as among the parties.
2449 MR. R. STEELE: We would be happy to do that and of course then CHUM can give you their perspective as well.
2451 MR. MURRAY: Yes. You have stated your surprise that we don't have an agreement that outlines what CHUM is responsible for, what Newcap is responsible for, what Sun is responsible for. Well, the responsibilities of the licence holders are very clear and we take those very seriously. Newcap is responsible for 100 per cent of all management and business decisions for Q-104 and CFDR; Sun is --
2452 COMMISSIONER COLVILLE: Sorry. When I asked the question -- I don't mean to interrupt you, but what I mean by that is the responsibilities of each party vis-à-vis Metro Radio Group.
2453 MR. MURRAY: No. I assumed that but that's not what you said so I just thought I would preamble there for a second.
2454 In terms of the revenue distribution, we agreed that the value of revenue that would fall and be aired on the CHUM stations would go to CHUM; the value of the airtime that would go on Sun station would go to Sun; the value of the airtime of Newcap would go to Newcap.
2455 We fully recognized that that revenue would fluctuate from time to time as ratings fluctuated. For example, at the time, in 2001 when we terminated the LMA, C100 was the dominant station and Newcap said C100, CHUM is going to get more revenue then Newcap. We didn't say "Well, we can't do it then. They deserve that. They spend more money on their programming then we do and they deserved higher ratings."
2456 The most recent ratings, Q-104 in one of the prime demo -- you know, you could look at the ratings every way from Sunday, but one of the prime demographics, 25-54 breakfast day drive, Q-104 just got one percentage point ahead of C100. So Newcap's revenue will go up.
2457 That is the way it ebbs and flows in the market.
2458 We independently have provided Halifax with very diverse programming and we are prepared to let the revenues fall where they fall.
2459 COMMISSIONER COLVILLE: So are you saying the revenues get assigned largely by rating point?
2460 MR. MURRAY: That's kind of what I said, but of course that really speaks to national --
2461 COMMISSIONER COLVILLE: Is that not exactly what you said?
2462 MR. MURRAY: That is exactly what I said yes, but I will explain it further.
2463 That pertains primarily to national revenue. Local revenue doesn't follow the ratings anywhere near as much. I'm not really qualified to talk about that. Tom could talk about how that revenue locally comes about better than I.
2464 COMMISSIONER COLVILLE: Generally speaking we sort of have the 80-20 or perhaps about 70-30 rule, the larger figure in favour of local. So largely what we are talking about here is local revenue, so how is that shared?
2465 MR. MANTON: That is determined and dictated by the marketplace.
2466 One of the things that we have done and the reason that Halifax has done so well, it has been able to super-serve our customers and deliver results. I know over the last two days you are probably tired of hearing about competing against single-source, and so on and so forth, but if I had to narrow down one thing about the Halifax market it is that we were able to deliver what the clients needed.
2467 In the past, and eluded to -- I mean, I spent eight years in Sudbury and put Q-92 on the air and CIGM was -- you know, I would wake up thinking of ways that I could combat CHNO, which was back then Boss Hogg.
2468 We are able to serve our customers and that is why revenue has increased. So we put it where the clients need it.
2469 In the past, and even before the LMA when I was at Q-104 and 780 KIXX, we would all be chasing adult 25-54 business and I am quite confident there were times that we would be out knocking on doors that frankly we didn't have any business to be in. This way we can super-serve the customer, get results for them and build, in essence, value for the medium.
2470 COMMISSIONER COLVILLE: So why would you all be chasing 25 to 54?
2471 I guess just as a bit of background to that question, I heard Mr. Miles talking about this whole notion of selling as opposed to selling as a commodity, and I think I understand that. But as I listened to that I just kind of conclude: Well, that's marketing, that you could do trying to target a particular advertiser for the particular station or demographic that I am trying to serve. Given your slightly female skew you are not trying to advertise to me, notwithstanding the fact that I might listen to CIEZ.
2472 And then I ask myself, you don't have to be all banded together to smart advertising or smart sales.
2473 MR. MANTON: I think in essence it leads to one of the Commission's concerns about diversity of programming.
2474 Prior to the LMA, when I say we were all chasing I go back to the days C100 or Sun FM or Q-104, 38 per cent of the revenue is spent against that one demographic. That is what I mean by everybody was chasing the adults 25-54.
2475 COMMISSIONER COLVILLE: So what you are telling me, or us, is that as a result of this sales agreement we are not all chasing 25-to-54.
2476 MR. MANTON: No, I am going back a number of years.
2477 COMMISSIONER COLVILLE: Okay. So help me out, then, with what is going on now.
2478 MR. MANTON: We sell the airtime, the appropriate station managers decide whether they will accept the conditions of the business or the parameters attached to it and make there decision.
2479 COMMISSIONER COLVILLE: But I thought you were telling us a few minutes ago that as a result of this arrangement you were able to sell better now because you are not all chasing after 25-to-54. I thought that's what you were saying.
2480 MR. MANTON: The sales agreement allows us the flexibility to match the product with the clients' needs or wants or desires based upon the objectives they are trying to do.
2481 COMMISSIONER COLVILLE: But couldn't you do that for three stations anyway? The three Steele stations? The Newcap stations?
2482 MR. MANTON: Not and be able to have the same impact, I believe, in serving the client.
2483 COMMISSIONER COLVILLE: Why not?
2484 MR. MANTON: In that particular case, if there was a strong female demo that that client was after we wouldn't be able to offer that.
2485 COMMISSIONER COLVILLE: That's right but you don't offer it anyway. You just offer it on the other guy's station.
2486 MR. MANTON: That's correct.
2487 COMMISSIONER COLVILLE: So what does that do for Steele, for Newcap?
2488 MR. MANTON: That would fall back to the sales arrangement.
2489 MR. MAHEU: Also if I may, Tom, just to jump in for a second, I think -- not I think, I know in the Halifax situation the opportunity to have all five radio stations represented by one group does a couple of things. It brings critical mass to bear which we would not have just having three radio stations, talking about Sun Radio, Q-104 and KIXX Country. So by having all five we have a little more critical mass and weight to bring to the marketplace to be able to compete a little more effectively.
2490 Tom, I don't want to step on your words, but I think where you were trying to go is the fact that when you have a collaborative sales effort in the marketplace -- and this speaks, Mr. Colville, to your concerns earlier about competition and the competition on the street, and so on. That is another discussion.
2491 But when you have a collaborative sales approach between a number of stations, in this case five, what you end up getting is a more long-term view which is more in the best interest of the customer, the advertiser, than you may find in other competitive radio situations, where you are less concerned about beating up the other guy on the street, the competition for radio dollars, and there is more thought -- this has a lot to do with the training that Tom referred to earlier in our statement and what we would like to talk a little bit more about -- to the kind marketing oriented approach we bring to the marketplace in selling radio.
2492 So there is less of a short-term focus to bring in the bucks wherever you can get them and whether or not this particular client can sell trucks on your radio station.
2493 We have moved away from that as an industry, at least in Halifax, and it has been great for the customers and it has been excellent for the advertisers, where we have the time, the wherewithal and the will to really sit down and find out what customers need and what they want.
2494 COMMISSIONER COLVILLE: But, Mr. Maheu, isn't that something you would want to do, makes business sense, whether or not you are in an arrangement with other radio stations?
2495 You just said it yourself about in the short term.
2496 MR. MAHEU: That's right.
2497 COMMISSIONER COLVILLE: In the short term you might get out and get the sale, but if, as Mr. Miles said this morning, you go to the furniture store owner on Monday morning and he didn't get any increased sales from that quick sale that you made for the ad that he had last Saturday, then he isn't going to come back. So the smart thing to do is to try to fit that client into a proper spot that is going to be attractive for him and bring him back, or her back, for future arrangements regardless of the arrangement you might have with other stations.
2498 Wouldn't that be the case?
2499 MR. MAHEU: It absolutely should be the case. Unfortunately, human nature being the way it is and the urgency sometimes with different media competing against each other, I would love to be able to sit here as a guy who has been in the radio business 25 years, it's my life, I owe everything to this industry and I love it dearly, but there are certain aspects of the industry that continue to disappoint me and one of them has always been a short-term focus of bring it in today and we will worry about it tomorrow.
2500 That is our fault as an industry and that is certainly not a concern of the Commission, but it is a reality that exists.
2501 At least in this particular case, with the sales representation of five diverse offerings in a marketplace to compete against newspaper and television, it has created an environment that, along with training and coaching and more resources put towards sales, professional management and other things, has resulted in the kind of increases we have seen in the Halifax marketplace.
2502 Have we as an industry in Halifax and in other markets been guilty in the past of not taking that market-oriented approach that you suggested a moment ago, I'm sorry to say that is probably true in many markets. But I know in Halifax since we have this collaborative sales effort, there is a lot less of that going on and there is good business being done, business that really matches up needs and wants of customers.
2503 And they are getting great value and they are getting great results. That is part of the reason why some of them were kind enough to intervene on our behalf and support what is going on. I also believe to a great degree it is why no customers or advertisers in the Halifax marketplace intervened against what is going on.
2504 There are some good things happening there and advertisers feel they have more choice than the newspaper in the morning or the TV offerings in the marketplace, that radio as a medium provides a one-stop in some cases, and sometimes it is two stops, because as big as we may seem the Metro Radio Group five stations sales offering, there are certain situations where we cannot deliver a part of the target audience. I know for a fact we have on a number of occasions recommended one of the other commercial radio stations in the market as part of a buy.
2505 I know, Tom, you have some examples of that as well.
2506 Mr. Commissioner, I know that is a longwinded response, but I wanted to give it some context.
2507 COMMISSIONER COLVILLE: If I can just pick up on that point, would you say that your competitor, that being Maritime then, is not able to market itself on a smart basis as you are able to because they are not a party to such an arrangement?
2508 MR. MAHEU: I don't believe that is correct.
2509 First, Mr. Commissioner, we, at Newcap anyhow, do not view Maritime Broadcasting as a competitor per se. They are certainly a competitor for listeners and share of listening and time spent listening and we all compete vigorously in that area. In terms of as a competitor for revenue, we don't really see it that way.
2510 Part of the reason we are in this collaborative sales arrangement is to go after where the real revenue growth opportunities are, and that is daily newspaper and television first and foremost.
2511 The radio market in Halifax from the late '90s until today has grown by millions of dollars. If we were simply taking revenue away from a radio competitor, the market would remain stagnant and just the money would move around and some people would have less and some folks would have more, but in this particular case the market has grown more than any other market as a percentage of its size anywhere in the country. We believe that is due largely because we have been effective enough as a consolidated radio offering to compete effectively with newspaper and television and as such revenues for radio have grown.
2512 We don't consider Maritime Broadcasting a main competitor in any way, shape or form as it relates to retain radio. We look at newspapers and TV for that.
2513 The increased amount of money in the radio market we believe also gives stations like those owned by Maritime an opportunity at more money, more sales that are going into radio. In other words, they can get a share of an ever-increasing larger pie.
2514 By not being party to this type of agreement we don't believe excludes them. Obviously, way back when when this all first came about, which began as an LMA in the marketplace back in the early mid-90s, the idea of cooperating as a consolidating offering did not originate with Newcap. This was an idea that was spawned and born by MBS. So this is something that they certainly thought was a good idea way back when and it turned out to work out a little bit differently.
2515 Be that as it may, they have done a pretty good job in the marketplace for a long number of years, including years where CHUM and Newcap were involved and engaged in an LMA and they have also continued to do a good job and to provide diversity and service to the marketplace while the Metro Radio Group has offered a consolidated radio offering in the market.
2516 So I would say no, they are not our competition. They are obviously disadvantaged to some degree because they are not able to offer five stations, but I also understand they own a billboard company.
2517 So there are all sorts of different ways that different groups can compete.
2518 COMMISSIONER COLVILLE: I was struck by the figures that you presented in your opening presentation today at page 6 near the top of the page when you said:
"Despite having the theoretical ability to buy all five stations, a recent analysis indicates 83% of our local clients buy two stations or less, with a full 59% purchasing one station only."
2519 So you manage three stations, your two and your half -- well, you manage all of the station due to your half interest in CIEZ. I guess the 59 per cent must be spread across the five station.
2520 Is that correct?
2521 MR. MANTON: That is correct.
2522 COMMISSIONER COLVILLE: And the 83 per cent would be a mix of any two of the five?
2523 MR. MANTON: That's correct.
2524 COMMISSIONER COLVILLE: I guess given the C100 dominance, although you have indicated that Q-104 has picked up, they would be the two stations that are the most prominent sales of all of those?
2525 MR. MANTON: Certainly from a billing perspective, but I did not analyze it from this perspective.
2526 COMMISSIONER COLVILLE: Okay. But when you look at that, is the real advantage here, given the demographics that the various stations serve, your ability to sell those particular demos to the advertisers in the market?
2527 Is that how we are to best understand how this works.
2528 MR. MANTON: I would agree with that.
2529 MR. MAHEU: Mr. Commissioner, I think it's that. When you say "demos" I think that is part of it, the different demographic groups. But inside of that, enough critical mass inside of those demographic groups to be effective.
2530 Over and above that, ratings on their own, ratings or average quarter hour, on their own never brought anybody to a furniture showroom or made somebody pick up the phone and make a reservation at a restaurant or switch dry cleaners. It really boils down to the combination of having enough critical mass audience to reach.
2531 But to position it or characterize it only as a big reach opportunity is only telling half the story. The other half is the kind of approach that the salespeople take in really developing a relationship with clients, really understanding their business, really becoming almost unpaid members of their marketing staff. That is really the goal with all of the salespeople. So it is much more of a marketing orientation: Let's uncover, nurture, satisfy needs and wants rather than selling. I have a problem. I have inventory to move and I want to make it your problem.
2532 We have kind of moved away from that old radio model and moved to a more marketing-oriented model.
2533 COMMISSIONER COLVILLE: Sorry to interrupt you here, but none of what you have said -- I understand exactly what you are saying, but none of what you are saying suggests to me that couldn't be done outside of this agreement, understanding the client.
2534 I used to work for a company before I started working for the government that was involved in sales and they sent us on sales courses and we learned to understand the client, get to know them, almost the unpaid employee, find out what their needs and wants are and all of that sort of thing. You can do that without being part of this sort of arrangement.
2535 When you talk critical mass, though, that starts talking about this. For example, when we look at 83 per cent buying two stations, would the two stations most predominantly sold here together given critical mass be Q-104 and C100?
2536 MR. MAHEU: Tom, you might be in a better position to answer that, but the analysis indicates 83 per cent of our clients buy two stations or less.
2537 That also means that -- it doesn't necessarily mean that they don't buy all five over the course of a year, but when they book, you know, they are booking one or -- 83 per cent, when they book a campaign, they are booking one or two at a time. That campaign may go for five weeks and we may find the same client -- Tom, you are better position on this, but we may find that when they do another campaign two months from now they are buying one of the same stations plus an additional station they didn't buy the last time.
2538 MR. MANTON: I didn't analyze it on that basis. I think on a second look logically that would be the case, but that is not how I looked at it.
2539 COMMISSIONER COLVILLE: Okay. Now, if we look at this issue of having five different stations that serve generally different demographics and being able to satisfy the advertisers, in particular serve their needs recognizing that, does part of the informal agreement include an informal understanding that you won't change your format to go right after C100 or CJCH?
2540 MR. MAHEU: No, absolutely not.
2541 COMMISSIONER COLVILLE: Would you be likely to do it?
2542 MR. MAHEU: No, and this is probably -- the reason I'm laughing, Mr. Commissioner, not at your question, but it brings up an anecdotal story that will take 20 seconds to tell that kind of puts a very sharp point on this.
2543 Newcap is the managing partner of Sun Radio and as such we control the day-to-day operation of the station, even though we are 50 per cent owners with CHUM, but we are the managing partner.
2544 Not long ago we changed the format -- "we" meaning Newcap -- changed the format of Sun Radio's station. We did a lot of research, figured out the hole, what the opportunity was in the market that we could best serve and go things ready to go and informed CHUM that we are changing the format.
2545 CHUM thought that was the wrong format. They had a totally different idea. They thought we should do something else. They wanted to conduct their own research. We said "Fine, go ahead, but we are going to put it into this format. We are the managing partner and this is the way it is going to be regardless of what you think."
2546 CHUM did their own research and found a different format, but we decided to go our own way.
2547 So there is no cooperation there. We both have very different ideas and different processes to go about deciding how we are going to program our radio stations. There is no crossover there.
2548 COMMISSIONER COLVILLE: But you just picked the station that you both own and you both agreed that you will manage. Would you be likely, if Q-104 wasn't doing well, to change the format to go right after C100? I don't imagine you would.
2549 MR. MAHEU: We do ongoing programming research -- I can't speak for CHUM obviously on this but I can for Newcap stations. We do ongoing research in the Halifax marketplace on our radio stations, including Classic Hits 96.5 because we are responsible for it, and we take great care and great pride in figuring out what we need to do to maintain and build an audience.
2550 If we saw that the fortunes of Q-104 were starting to flag, people were getting tired of rock music, whatever it happened to be, it is great franchise to have built and we are proud of it, but if we ever got into the situation whereby we needed to move the format of that radio station, we would go where the biggest opportunity was and we would do that the same way we would in any competitive situation. We would do it through perceptual research, we would analyze it very carefully and put the radio station into a format where the biggest opportunity for it to succeed would be, regardless of whether or not we have a sales agreement.
2551 Because at the end of the day it is our radio station. We are responsible for it. It is our licence. We have obligations and commitments. It's a separate issue. Whether CHUM would object to it or not, tough.
2552 COMMISSIONER COLVILLE: Mr. Ski, I didn't mean to exclude you from all of these questions, by the way. You are free to comment on any of the issues or questions.
2553 It just occurred to me the discussions have been going this way the whole time. I don't know whether you want to comment in general on anything we have discussed so far.
2554 THE CHAIRPERSON: Especially since he is becoming rude.
---Laughter / Rires
2555 MR. SKI: Well, I wouldn't say that. Thank you very much.
2556 I wasn't jumping in because I knew that I would probably have the opportunity to say a number of things.
2557 Just if I could touch on a few issues that have come up over the last few minutes.
2558 First of all, I am certainly pleased that we have been able to help you get in touch with your feminine side with Sun FM.
---Laughter / Rires
2559 MR. SKI: But I think that goes to the way radio stations are programmed too. We have talked a little bit about demos, but radio stations tend to be programmed or researched based on life groups more than demos. So we are looking for people who fit into a particular life group, which is one of the reasons that you would fall into the life group for Sun which is a classic hits radio station.
2560 It doesn't really matter what your age is, that may be the type of music that you grew up with, it is the type of music that you like. So it has more to do with the life group that you are in than it has to do with the age.
2561 With regards to the unwritten agreement, having been with CHUM for quite some time, and certainly the Waters family, we have a culture of hopefully being able to do things with a handshake.
2562 I know that our legal people don't always think that that is the best way to go but, quite frankly, coming through CHUM in the many years that I have, if we couldn't do an arrangement with just a handshake with somebody, chances are we probably wouldn't do it. That really speaks to the integrity of whoever it is that we are making any kind of a business arrangement.
2563 With regards to the 25-to-54 demo, I think we have to remember, you talked about possibly everybody targeting that particular demo. It is where the majority of buys are today. They go towards that demo. But let's not forget that that particular demographic is a 30-year span. So at either end of that and in the middle of that you have radio stations targeting various life groups with various formats. It happens to be the largest group.
2564 If you talk about 18-to-24, somebody targeting that particular group, that is relatively fewer years than the 30-year 25-to-54 year old demo.
2565 So there is overlap in that with various formats that fall into 25-to-54. Not everybody is necessarily targeting that demo, but their radio station formats fall into those.
2566 The sales arrangement with regards to radio being sold, radio I think historically -- and Gary Miles touched on this earlier -- has been sold at a bit of a discount. It's unfortunate. Mark touched on that earlier today, but that is sort of the way it has been.
2567 As more and more radio stations need to reach particular revenue goals, if they sell at a further discount chances are the radio revenue in the market goes down. If we can keep the radio revenue high or higher, the radio revenue per spot higher, then obviously revenue goes up.
2568 But the other thing that this allows us to do is to provide the critical mass, as has already been mentioned, to sell radio as a reach medium again as opposed to just selling quarter hour averages.
2569 In the olden days, I guess when I started in radio, radio was more of a reach medium because there were fewer competitors. So you could sell radio as a reach medium. You could sell it against television, against print, because you reached just as many people as they did. Now that is not the case with any individual radio station, so that is somewhat more desirable for advertisers.
2570 If we look at an advertiser like a car dealer --
2571 COMMISSIONER COLVILLE: That one?
2572 MR. SKI: Not necessarily. Maybe that is not a good example.
--- Laughter / Rires
2573 MR. SKI: But if we think of someone who sells automobiles in the Halifax market, if they have seven salespeople calling on them, if they have three television reps calling on them, somebody from Outdoor, or two, if they have somebody from print calling on them, by the time they are finished they may have 10 or 12 different salespeople all trying to selling them advertising.
2574 Where that becomes a predicament for radio is that we tend to have the most number of salespeople because there are more radio stations than any other media in a market, just because of fragmentation, additional licensing, et cetera.
2575 So what we have found is that in many markets advertisers will decide not to buy radio. They just don't want the hassle. They just find it too darn difficult to buy and they have to see this salesperson after that salesperson, et cetera. As they keep seeing these additional salespeople, it gets pretty frustrating for them because everybody is trying to get their particular share.
2576 So the critical mass that we talk about has been extremely beneficial to the advertiser because it makes his job easier.
2577 If there is one thing that we hear from advertisers, it "Make it easier to buy radio. Make it easier for us to buy the medium." We are trying to do that with a sales agreement.
2578 COMMISSIONER COLVILLE: If we accept the theory of all of this, it would seem to me that regardless of the size of the market the Commission should encourage all the radio stations in every market to do this.
2579 MR. SKI: I wouldn't necessarily disagree with that.
2580 COMMISSIONER COLVILLE: I would like to switch the focus a little bit here.
2581 You talked about what happened when the local management agreement changed and how the activities of the business changed. You mentioned Mr. Ski -- I don't know if it was you, I think it was you when you were reading your comment on page three:
"...CHUM completely restructured C100 and CJCH to operate as a standalone business. ...the hiring of a new general manager ... constructing separate newsrooms ... constructing new broadcast studios ..."
2582 And so on:
"The one-time costs ... approximately $125,000."
2583 Mr. Murray was going through a number of these issues as well on an earlier question that I asked.
2584 The situation, as I understand it, is that we have five radio stations operating out of a building on Agricola Street in Halifax that was purpose-built by CHUM a number of years ago to house two radio stations.
2585 Is that correct?
2586 MR. SKI: It was built I believe at that time to house radio stations plus a part of our television properties.
2587 COMMISSIONER COLVILLE: Well how much of TV was in that building then?
2588 MR. SKI: I believe at that time it was the -- I'm trying to recall. I believe it was sales at that time. The sales function for television was in that building.
2589 COMMISSIONER COLVILLE: All right. So now we have five stations operating out of this building, but we are to understand that they are operating totally separately.
2590 I mean, I have to tell you honestly I am totally confused by the situation as it goes on as among the different markets that we have talked about, because as we talked about yesterday, when asked the question what would happen if we had to disassemble the LMA in Thunder Bay, I think it was, the answer was "We would have to go out and find a separate building".
2591 In a discussion I think earlier today there was a comment about Sudbury in terms of, "Well, witness to the fact that we are totally independent is that we are in a separate building from Rogers."
2592 When I look at what the situation is here, we are all operating out of one building, "Oh, well we have separate staff entrances", but I'm sure if staff go in the wrong entrance they can find their way to their office somehow or other without having to tear down the wall inside the building.
2593 You know, I don't know how one can look at this and come to the conclusion that this really is not one big operation of five radio stations.
2594 MR. MILLER: Perhaps I can start, Mr. Vice-Chair.
2595 I think the first thing that we would suggest is that every market is different. The Commission has to look at each market in each case differently.
2596 This is a unique case for a number of reasons that you have identified. CHUM is the landlord of the building. Again, it is not uncommon across the country for a landlord to house a number of different broadcasters. I have seen examples myself in Calgary, I know Roger Charest in Edmonton for example wants to build a broadcast centre for the new Edmonton radio licences. So that is not uncommon.
2597 That happens to be the situation here. An LMA has been disbanded. Again a unique situation to this market. The Commission has been informed as to what steps were taken and we are happy to go through, in any level of detail that would be appropriate, what has been done to separate the operations and what remains in terms of common resources or the sales arrangement.
2598 Thirdly, of course, what is unique about this situation is the common ownership of CIEZ. I mean, you know that over the years the amount of space that radio stations occupy has vastly reduced, so what would have only occupied one or two radio stations 20 years ago can occupy five radio stations today. I think if you were to go in -- and you know the market better than I do -- you would see the separate band identities of the stations with respect to their different owners. So that is what we have done.
2599 You did ask, and I don't know that anybody fully answered, what is it that remains common after all of this? So what is common? Again, we can get into the sales and sales-related functions that are common and titled in the marketplace MRG.
2600 Again, in addition to that, the only thing that is common is the fact that they happen to share a building which CHUM owns. So, for example, there is a receptionist that can direct people, the public, if necessary, to each of the different stations if that is appropriate.
2601 COMMISSIONER COLVILLE: So there is a common receptionist?
2602 MR. MILLER: Scott can describe it to you better than I can, but I believe that is the case.
2603 MR. BODNARCHUK: Yes, Commissioner there is common receptionist. When you enter into the building on Agricola it is clearly identified and branded that there are two separate businesses operating within the building.
2604 COMMISSIONER COLVILLE: Before the agreement -- before the Newcap stations moved into the building, were CJCH and C100 separately identified?
2605 MR. BODNARCHUK: Could you repeat the question?
2606 COMMISSIONER COLVILLE: Before Newcap moved into your building, the CHUM stations CJCH and C100, were they separately identified? I would imagine they were.
2607 MR. BODNARCHUK: Yes. Yes, they were separately identified.
2608 COMMISSIONER COLVILLE: So we now have five stations that are separately identified.
2609 MR. BODNARCHUK: That's correct.
2610 COMMISSIONER COLVILLE: Which likely would be done if they were all owned by the same -- I mean in Newcap's case, when you operated out of Dartmouth, I presume CFDR and Q-104 would be separately identified if I went into your building?
2611 MR. MILLER: That's correct. Yes.
2612 COMMISSIONER COLVILLE: What about payroll? Is there a separate payroll system for the two operations?
2613 MR. MILLER: Yes.
2614 COMMISSIONER COLVILLE: Totally separate.
2615 MR. BODNARCHUK: Yes, there is separate payroll.
2616 COMMISSIONER COLVILLE: So there is a common building, common receptionist, common sales, and that's it? Nothing else is common as among the --
2617 MR. MILLER: I did a list of what is separate if that helps. I mean, you have various -- we are trying to help you here and what I put on my list is things like research, music programming, news, on-air talent, including development, human resources, general admin, that's accounting, finance, legal regulatory, engineering. And even though the sales function is shared, the setting of ad rates and the ultimate control over accepting or rejecting an ad rests with each general manager and their team.
2618 COMMISSIONER COLVILLE: Now, if the Commission were to conclude that a common sales arrangement, whether formal or informal, is inappropriate in a market the size of Halifax, what would be the impact on each group from a financial point of view?
2619 Mr. Ski, do you want to start?
2620 MR. SKI: I don't think we have gone down that road. I'm not exactly sure what the impact would be.
2621 I know that if we weren't able to have this particular collaborative sales approach, I'm sure that our revenues would go down. They would go down for a couple of reasons, one of which is that I think that salespeople, as was touched on by Mark earlier, being what they are, I think the revenues in the market would go down.
2622 We are concerned that people will continue -- that advertisers will continue to move out of the radio medium and not stay with it. Technology itself has meant there are many more opportunities for advertisers to purchase, whether it is airtime or print or whatever. So I think it could hurt us substantially from a revenue standpoint.
2623 COMMISSIONER COLVILLE: Can we get some idea of what "substantial" means?
2624 Let me draw your attention to your comments this afternoon in your presentations to us at page 4 where you talked about the:
"...Halifax radio revenues have grown by almost 33% over the last five years..."
2625 Which I guess one can say is witness to the improvement of the market in general.
2626 I don't mean to discount the value of Metro Radio Group in terms of sales, but I guess when you contrast that to Kitchener for example, you have said the revenue growth has been 28 per cent in that market. There are different factors obviously in the two markets.
2627 But I take it the point you are trying to draw here that I assume in Kitchener there is no sales arrangement at all with any of the stations. Maybe that's not the case, I don't know. But I took from that that Halifax grew by five percentage points better than Kitchener did.
2628 So are we looking at probably a 5 to 10 per cent discount, if you will, in terms of your revenues.
2629 MR. MILLER: I have tried to grapple with this question as well in talking to the team and I think it is very hard to take a guess, but I think it is fair to say that the revenue impact could be a loss of 5 to 15 per cent in terms of loss of revenue. And remember there will be a cost impact as well, again because the functions that are common in sales get separated.
2630 So in a sense the way I look at it in my simple approach is that the common sales approach allows you to service the client rather than the station. When you break it up, you get back to servicing the stations so to service as many clients you need more people. You have more people knocking on the doors. So you are going to end up having to invest more in sales personnel as well.
2631 So there is a cost impact. The costs would go up on the sales function I would argue, perhaps only 5 per cent, and then a revenue drop which may be 5 to 15 per cent.
2632 I do hope, Commissioner Colville, you allow us to also talk to the premise of the question, because given that the Commission is contemplating licensing in that market, has in fact held a hearing and in fact is presumably basing its decision based on the health of the market as reported to it, which we submit has a lot to do with the sales arrangements in place, we think it would be highly inappropriate to license new entry and at the same time require the disbanding of the very thing that has developed the market.
2633 So it is a very unique situation here in Halifax as we address all these issues.
2634 COMMISSIONER COLVILLE: So you would argue that financial figures inappropriately distort the reality of the marketplace as to what it would be if we had these three ownership groups competing against each other?
2635 MR. MILLER: I wouldn't use the word "inappropriately", but I would use the word that yes, by virtue of the sales arrangement the performance of the market, both in terms of revenue and the operational expenses of those stations, is different then it would otherwise be if the sales arrangement didn't exist.
2636 COMMISSIONER COLVILLE: Looking at that same issue another way, could it not be argued that disbanding the sales arrangement would more equitably level the playing field vis-à-vis the existing player and any new entrants that may come into the market?
2637 MR. MILLER: That argument could be made. We would disagree with that argument.
2638 We believe that the sales arrangement benefits all players in the marketplace, that it raises, in a sense, the ability of the radio medium to be sold in that market.
2639 The undercurrent of some of your questions is the intervention from MBS, which we did reply to and we addressed a lot of those allegations in that reply if you would like us to speak to that, but the bottom line is, we believe sales arrangements help anyone. Let me give you an example.
2640 COMMISSIONER COLVILLE: Obviously, Mr. Miller, the undercurrent of my question is our own concern.
2641 MR. MILLER: Fair comment. But you are submitting to me an allegation that has been made by the other players in the marketplace who have --
2642 COMMISSIONER COLVILLE: But I mean this in the general sense, in whether there -- you have five stations agreeing to compete in a market vis-à-vis, another player in the market -- it could be MBS, it could be somebody else -- in a market where there may be one or more new players entering the market and now having to compete against a five-station group.
2643 I wasn't asking the question necessarily particularity of MBS, it could be any.
2644 MR. MILLER: Okay. To generalize it, again we would still have the same answer, which is we don't believe a sales arrangement hurts those that are outside.
2645 Let's give an example of a different kind of sales arrangement, the national sales arrangement that CBS has in terms of representing Rogers and Corus, and stations like OK Radio Group and Newcap, et cetera.
2646 We, from a CHUM perspective, don't see that as a negative thing for our national sales. It is something that has helped bring integrity to the marketplace. So in the same way we believe the sales arrangements at a local level are not necessarily bad for those that are not within the sales arrangement because, as has been alluded to, the target of a sales arrangement, certainly the target of our sales arrangement in Halifax, is not the player that isn't within it, but the other media in that marketplace.
2647 COMMISSIONER COLVILLE: Well, let's suppose the Commission understands your position but disagrees with it.
2648 MR. MILLER: In terms of are we going back to the issue of impact?
2649 COMMISSIONER COLVILLE: What will you do on a going-forward basis?
2650 MR. MILLER: First of all, I guess again there is an interesting issue as to whether the Commission has the jurisdiction to require the disbanding of a legitimate sales arrangement. I mean, again with respect, what is the difference between licensees cooperating together or sub-licensing to a rep house?
2651 I think before we go down the path of asking what the result is we have to look at what the Commission's objectives are in terms of looking at areas like sales.
2652 This is one hearing dealing with certain licensees in certain markets. If the Commission is looking at such a major change in policy, effectively a reversal of the decision the Commission made in respect of the Milestone licence that was issued in which the Commission distinctly said a local sales arrangement is not an LMA, then there are implications that goes beyond --
2653 THE CHAIRPERSON: Mr. Miller, that arrangement was not an LMA. That is all the decision said.
2654 MR. MILLER: Precisely. So the issue becomes: Is a sales arrangement a legitimate sales arrangement? I think your questioning about what is the nature of the arrangement and is it a sales arrangement is all understandable, but if it is a sales arrangement --
2655 COMMISSIONER COLVILLE: Mr. Miller, you know I am not a lawyer. I don't want to get into a discussion with you about jurisdiction. I want to know, we are talking about these two ownership groups in this market, being Halifax.
2656 I want to know that if the Commission were to conclude that this sales arrangement is not appropriate and requires that the stations operate without this arrangement, because we would conclude that it fits within the definition of LMA as you have heard us discuss for the last two days, what would be the impact on CHUM in Halifax going forward.
2657 MR. MILLER: Again, I think I have answered that question from my knowledge and based on our discussions from our perspective.
2658 MR. SKI: I think if I could make one comment.
2659 I think there is an assumption here, and I'm sure you will correct me if I'm wrong, that if there is not a sales agreement that suddenly other radio stations in the market will suddenly become more competitive. I don't necessarily subscribe to that.
2660 COMMISSIONER COLVILLE: That's not necessarily the premise of my question.
2661 Actually, the premise would be that the Metro Radio Group would be broken up and that you would each have separate sales forces competing against each other and against others in the marketplace, other radio stations and other media.
2662 MR. MILLER: To turn it around, is there not a fundamental issue of fairness and due process at some point, given that it is imposable to predict with any certainty what the impact would be.
2663 I have given you percentage ranges as we see it having looked at it, but given that there is no absolute way of knowing for sure -- and I think those comments have been made by others in respect of different circumstances -- at some point, given that you are facing and considering whether or not you should license new entry, and you are presumably basing part of that decision on the economic health of the market, is it not unfortunate, to say the least, to make a decision about a sales arrangement which heretofore has never been a concern of the Commission.
2664 You can imagine that if the order had been changed and these renewals had come before the new licensing hearing and then you had said to us, you know, "We think you need to disband the sales arrangement", then we might have approached a new licensing hearing differently. We might have even applied.
2665 That is why this particular circumstance is, I think, unique for all the reasons that we have talked about, and particularity because of the sequence of this hearing versus the other hearing in terms of licensing possible new entrants.
2666 COMMISSIONER COLVILLE: Mr. Miller, even if I accept the premise of your position on that, who would be at greater risk, the existing stations who are members of the agreement or the other stations in the market and possible new entrants?
2667 MR. MILLER: And again it goes back to one's view of the sales arrangement. Again, we need to get into that but we certainly have a situation which Paul can elude to where we are one standalone station against another of other media and because we are the ratings leader in our target demographic we are doing well.
2668 What we would like to return to, because of what we believe fundamentally, is your competitiveness in the market stems from your strength as a programmer and how cleverly you pick the genre, if you will, and the target demographic that you serve.
2669 Once you have that foundation, then sales arrangements on top of that can tweak it by a matter of 10 to 15 per cent say, but it is not -- you have to start with something strong to begin with.
2670 COMMISSIONER COLVILLE: Mr. Ski, did you have anything you wanted to add?
2671 MR. SKI: It was just the point, if you care to hear it, about the fact that -- and Peter eluded to it -- in the London market for example we have a standalone FM radio station. We weren't doing very well. As a matter of fact, the station was losing money and has lost money since it went on the air.
2672 That station this year will not lose money. It will do quite well. The reason for that is because we again looked at the London market, tried to find a format opportunity that wasn't served within the market, changed the format. That station is now the number one revenue producer in the market.
2673 I guess what we are trying to say is it is a function -- and not to talk about the intervention -- but really, how well you do in sales is a function first and foremost of what your position is in the market, what your share is in the market. If you are the number one or two radio station, you will do much better than the number four or five radio station.
2674 The format that your in will also have an effect on that, because some formats in fact are better perceived, better accepted by advertisers, than are other formats.
2675 COMMISSIONER COLVILLE: Okay. Thank you.
2676 MR. MILLER: Can I also, Mr. Commissioner, if I may, return just to Madam Wiley's intervention, just to read the part of the decision in Milestone. Because this is where there may be confusion.
2677 It says very specifically -- and I am quoting from paragraph 10 of that decision:
"While the licensee has indicated its intention to group sales with Standard, no other operational component will be grouped, and group sales alone does not indicate the existence of an LMA." (As read)
2678 So that decision was very general:
"...group sales alone does not indicate the existence of an LMA." (As read)
2679 That is why there is an issue here, because I think many in the broadcasting industry took that at face value. When the Commission says something -- it didn't say "this agreement" because no agreement had been filed, it said "group sales alone".
2680 So we have taken, if you will, our notice from that. Across the industry we have acted accordingly.
2681 We don't know the extent of sales arrangements across the country. We do know this is the only local sales arrangement we have.
2682 COMMISSIONER COLVILLE: Neither do we.
2683 MR. MILLER: But this is why again there is a broader policy issue. You know, if I could respectfully suggest, I think the suggestion in the CAB brief is that the Commission wants to inquire further into sales arrangements, then the radio review coming up may well provide the best opportunity to do that, but right now the Commission has sent a clear signal that sales arrangements are not LMAs.
2684 So that is our dilemma here as we have conducted ourselves and tried to make sure that we are in compliance with your regulations in respect of our operations everywhere, and particularity in Halifax.
2685 COMMISSIONER COLVILLE: Mr. Steele or Mr. Maheu, assuming the Commission concludes that the particular arrangement involving the Metro Radio Group is not appropriate, how would that affect your operation on a going-forward basis?
2686 MR. MAHEU: It, Mr. Vice-Chair, would be a significant. We haven't given it a lot of thought to that, you might appreciate, but to be able to quantify it here today, I think CHUM's assessment in that 5 to 15 per cent range is reasonable. It might even go a little deeper than that.
2687 But it also creates the impact on us. It would create a couple of other ripples and it would be a little difficult to untangle it.
2688 It was mentioned by, I believe, Mr. Miller, had we been aware that there was concern at the Commission level about sales agreements of this type to the point where there was a possibility that we would be able to continue our collaborative sales effort, we, from a Newcap point of view, would have certainly approached the Halifax hearing in a much different manner.
2689 We also call on a radio station on a 50:50 basis with CHUM in the marketplace. If the Commission were to rule that collaborative selling between licensees in a market is out of bounds or not allowed, or whatever, or put restrictions on it to the point where it didn't make sense for us, that is certainly going to trigger, on our part, a discussion with CHUM about one or the other taking the majority interest in this radio station.
2690 Because in Halifax it would create a very untenable situation for us to co-own a radio station and then be competing as you envision it on the street for revenue against each other and everything else. So it would create a situation that would have to be resolved as well.
2691 All those things are going to cost money, time and energy. Obviously it sounds like in some areas we may have to agree to disagree, but in the end we understand that you have the final word.
2692 We are hoping that what we have to say here today will have some influence on how you go about thinking about arrangements in the future because we honestly believe that there are a lot of benefits, not only to the broadcasters that are party to an agreement like this, but certainly specific measurable significant benefits to the people who enjoy the radio stations we own in the marketplace, the listeners and the advertisers.
2693 But the impact on us would be significant in a number of ways, financially and otherwise.
2694 COMMISSIONER COLVILLE: Just to comment on the Halifax hearing, this whole issue is not new to this proceeding. It was clearly raised at the Halifax hearing by Maritime in the written intervention prior to the hearing, it was raised at the hearing, questions were asked at the hearing. As I recall, I think it was Mr. Steele who was drawing the distinction between LMA and LSA, and so on.
2695 So I don't know, I think the issue was certainly canvassed at the hearing. I don't know what you mean in terms of your position may well have been different, but --
2696 MR. MAHEU: I'm sorry if I --
2697 COMMISSIONER COLVILLE: -- I hope there is no suggestion that the issue wasn't an issue as part of that proceeding.
2698 MR. MAHEU: That was my baptism by fire at that hearing and I certainly appreciate the extent of the issue at the hearing.
2699 I'm sorry if I wasn't specific, Mr. Vice-Chair. What I was referring to was the fact leading up to the call for applications in the marketplace.
2700 Had we at Newcap been aware at that point that our going forward with this type of arrangement with CHUM and Sun Radio, if that was in some jeopardy, it certainly would have had a bearing on how we approached the future of the Halifax market. Because we have made a significant investment there, our home base is there, we have been doing business there for a long time and want to continue to do business there.
2701 So even back to the point where there was a call for applications in the marketplace, had we known that what you mentioned that could be contemplated by the Commission in the future would become a reality back then, it would have had a different bearing on how we approached Halifax and we likely would have started to make plans, as I'm sure other broadcasters would too, to position themselves to be as competitive as possible going forward under a new situation.
2702 COMMISSIONER COLVILLE: Let me just finish off this area. I just have one other small area I want to question, but just let me ask a question on this area just in the sort of general sense.
2703 We have had a lot of discussion now over a couple of days about this whole LMA/LSA questions in terms of a number of different markets. It is conceivable, it seems to me, that one could probably make a case -- and we did talk about that a little bit, about some of the smaller markets, perhaps more fragile markets, two stations against one, one being an AM, perhaps wouldn't survive on a standalone basis, that perhaps one could make a case for an LMA or an LSA in order to help continued diversity of programming and news, and so on, in a smaller market.
2704 But that in a market while, as Mr. Ski I think perhaps indicated, it is a medium-sized market -- it is certainly the largest market in Atlantic Canada I suppose relative to Toronto or Ottawa or Montreal or Vancouver it would seem quite small -- whether this sort of arrangement is necessary or appropriate in a market the size of Halifax.
2705 I will give you both an opportunity to comment on that, Mr. Steele or Mr. Maheu.
2706 MR. MAHEU: Thanks, Mr. Vice-Chair.
2707 I think very briefly, whether or not an arrangement like this is appropriate in a market the size of Halifax, your question, we believe it is. The reason we believe that is, if you take a look at the history of the marketplace going back to the early and mid-90s, up until a time when the original LMA between the stations was put together, the marketplace was stagnant. Year after year after year the marketplace in Halifax radio revenues did not grow, or grew at a minuscule rate.
2708 Broadcast returns in the market, I know for us, were meagre. The market was struck. There was growth going on in other places, but this market just was not growing. It was a function partly because of just continued cutthroat competition, kind of going back to what I was alluding to earlier about live for today and worry about it tomorrow.
2709 The radio market did not grow. Other media certainly took advantage of a disjointed, ununified radio effort in the marketplace. I know because at that time I worked for CHUM and at that time CHUM owned ATV in Halifax and ASN. Those folks did very, very well and they did it on the backs of some of radio in that marketplace because we, as a medium, as an industry, just could not compete.
2710 So the past in this particular case sends a pretty good message to us that that coordinated radio effort has allowed the market to grow. Without that we are looking at the possibility, I think, of the largest market in the Maritimes, in Atlantic Canada, kind of reverting back to the way it used to be, a stagnant market that is not growing, that is not providing any growth or an opportunity for things to get better for all broadcasters.
2711 COMMISSIONER COLVILLE: Mr. Ski?
2712 MR. SKI: I think just a couple of points.
2713 We believe that the long term growth and viability of radio is going to depend on us improving our revenue. It is not going to be a cost-cutting issue. We can't cost-cut our way to prosperity.
2714 What we need to do is to grow radio's share of the advertising pie. I think that has been touched on.
2715 The radio industry is responsible for, I believe, 40 per cent of the consumption of media and we, I think, get about 10 per cent of the revenue.
2716 We have to find ways. This is one of the ways we have used to try to increase our share of that revenue and I think we have done it fairly successfully, but it is going to be very important for radio in the future to increase revenue. We can't look at cost-cutting because then that obviously affects the service we are able to provide. With more fragmentation it costs a little bit more to operate. We need to look at the market more frequently to determine what is happening.
2717 So increasing revenues is, certainly for CHUM, at the top of the list of our priorities.
2719 MR. MILLER: Commissioner, I think the only thing I would add to that is, with respect, you may not have enough information in front of you to answer that question. If you are not convinced of our arguments that sales arrangements are appropriate in any size market it sounds like you will have to investigate further.
2720 We know for a fact that in Toronto Standard, which has two AMs and two FMs, has an LSA with Milestone. We don't know what other LSAs exist. We don't know all the national sales arrangements that exist. If this is a concern of the Commission's, and it clearly is now, there will have to be quite a bit of investigation.
2721 I think the litmus test, however -- and this is, with all respect, where we might have another disagreement -- is that the issue of competitiveness is not one in and of itself that is a part of the Broadcasting Act. The issue of competitiveness is something that emerges out of the radio policy as to what is the most effective way of meeting the objectives of the Act in terms of diversity and whatnot.
2722 So on the one hand LMAs were allowed. On the other hand, the Commission indicated they would have a more open licensing process, which has unfolded over the last many years.
2723 So it does require, I think, some thought to go back to the principal objectives and again to really figure out are sales arrangements a bad thing for those that are not inside them or are they not a bad thing.
2724 If I can make one specific reference to this market, having looked at the annual returns for 2002 and 2003, our sense would be that Maritime's revenues have been about the same or maybe even gone slightly up although their share went down. So that would say to me that a sales arrangement may have helped them maintain a higher, if you will, price per point even though they lost ratings due to the inability of their formats to compete in the market.
2725 So that is the kind of thing that would have, I suppose, to investigate before one could draw a conclusion as to whether sales arrangements are a negative thing or a positive thing in terms of a marketplace.
2726 COMMISSIONER COLVILLE: Switching subjects, this more I suppose just a technical issue. I don't mean "technical" in the engineering sense.
2727 Just looking at staffing figures, I was curious to notice, say, for 2003 the figures show -- and we have percentages of people here of course -- C100 at 40.8; CJCH at 1; CFDR Q-104 at 18.6 -- CFRQ, sorry, Q-104 at 18.6; CFDR at 2.2; CIEZ at 6.1.
2728 Mr. Ski, how do you run a radio station with one person? Is that why CJCH is not doing so well?
2729 MR. MILLER: Mr. Vice-Chair, we looked at these numbers too and, yes, we are a little surprised. Scott can tell you how he does actually run the stations. I think the reason why it was recorded as one is that in fact there is only one person who is fully dedicated only to the station. Other people also support the --
2730 COMMISSIONER COLVILLE: Do they have their own separate entrance to that building, that one person?
--- Laughter / Rires
2731 MR. MILLER: No. I can assure you our AM and FM operations are fully integrated on the CHUM side and there is that need to crossover.
2732 Scott can tell you from a management perspective it actually happens and it may be that these are numbers we need to correct in the future.
2733 MR. BODNARCHUK: Yes, Mr. Vice-Chair. As general manager of CJCH and C100, I see CJCH having four employees that work there. It is just that in the marketplace that we live in many people multi-task. CJCH does have one full time person that dedicates 100 per cent of their time to that radio station, however the other employees do have day-to-day duties and tasks with the FM stations.
2734 COMMISSIONER COLVILLE: But none of that multitasking is multitasking for Q-104 or CFDR or CIEZ?
2735 MR. BODNARCHUK: No, Mr. Vice-Chair, absolutely there is no crossover.
2736 COMMISSIONER COLVILLE: If I add up all the people for all of these stations, it comes to 68.7 for the three stations managed by Newcap and the two by CHUM. I take it that Metro Radio Group people would not be in those figures, are they, or are they and, if so, where are they?
2737 MR. MURRAY: I can answer that. The Metro Radio Group people that are the 13 sales reps that Tom talked about, and the sales manager, they are all in there and they are allocated to the stations based on revenue.
2738 COMMISSIONER COLVILLE: They are allocated to the stations based on revenue.
2739 MR. MURRAY: Yes. Some of those employees are CHUM employees, some of those employees are Newcap employees, but the numbers are allocated to the stations based on the revenue that they are generating.
2740 Correctly or incorrectly, that is how we did it.
2741 MR. MILLER: In other words, Mr. Vice-Chair, from a CHUM perspective we take our allocation, if you will, of the Metro Radio Group, they are reported in these numbers, and then on top of that we have our own employees that service simply those stations and those are added to, if you will, the allocation from the Metro Radio Group, i.e., the sales function.
2742 COMMISSIONER COLVILLE: It wouldn't appear to be much of a problem to unwind this.
2743 What about the 2.2 for CFDR?
2744 MR. MURRAY: On CFDR we primarily have one on-air person, one newsperson and then some people -- the breakdown I have is 1.1 in programming, 0.1 in technical, 0.8 in sales and promotion, 0.2 in admin, for 2.2.
2745 The small percentages split between CFRQ and CFDR come about by allocating them by revenue, because most of the people, the traffic people, the production people, the copy, et cetera, multi-task for the three stations in effect, for CIEZ as well, and that was how we chose to allocate them.
2746 COMMISSIONER COLVILLE: I confess I have never run a radio station, you all know that. It's interesting I find that Newcap has 20.8, 21 people running three stations; CHUM has 42 people running two stations, 41 assigned to one station, C100. I take your point about multitasking.
2747 Why would it be that CHUM has so many more people running C100? That is certainly a lot more then Maritime have running their two stations as well.
2748 MR. MURRAY: I can't speak for CHUM's programming news, et cetera, but part of that answer would go to the fact that CHUM's two stations have a much larger proportion of revenue, then the sales and promotions people were allocated by revenue. So then from there CHUM will tell you, I guess, they have more people in programming.
2749 COMMISSIONER COLVILLE: So there were 13 people. How many are assigned to Newcap?
2750 MR. MURRAY: There is not only 13 people in sales. We are talking about 13 sales reps.
2751 COMMISSIONER COLVILLE: Oh, sorry. How many Metro Radio Group people are there?
2752 MR. MURRAY: I don't have CHUM's numbers.
2753 Allocated to the three stations here, we have six, seven, eight, 9.3. I don't know how many CHUM have allocated to sales and promotions.
2754 MR. MILLER: Again, what we show is -- and again it takes the whole sales and sales-related function. We have agreed to allocate it on a revenue basis just for the purposes of reporting. So based on that we have -- actually it says 14.3, so we have a 0.3 of a person somewhere.
2755 COMMISSIONER COLVILLE: So you only have five more people than Newcap have doing this.
2756 MR. MILLER: Because we have two stations and they show the numbers on their three stations that they manage for the rest of those stations and the revenue, if you look at our two stations versus their three, you will see that the revenue percentage is slightly over 50 per cent that ours represents a lot of the five.
2757 COMMISSIONER COLVILLE: Just let me try and get the numbers clear though.
2758 MR. MILLER: Sure. Sure.
2759 COMMISSIONER COLVILLE: Of the 20.8 people assigned to Newcap, 9.3 are Metro Radio Group. Is that the way I would read those numbers?
2760 And of the 42 people for CHUM, 14 would be Metro Radio Group. Is that a correct way to --
2761 MR. MURRAY: In other words, I would just phrase it slightly differently.
2762 If you take we have roughly 26 employees and then we add to that our allocation -- actually it would be 27. We would add to that our allocation of the Metro Radio Group, which is another 14.3.
2763 COMMISSIONER COLVILLE: Okay. All right. I think those are all my questions, Madam Chair.
2764 THE CHAIRPERSON: We will take a break because it has been over two hours.
2765 My colleagues have some questions, but I have a couple of comments to make so you can mull over them during the break.
2766 This issue of a sales representative representing more than one station in a market has been raised many times.
2767 What is the difference, in your view, or the advantage, of doing it between licensees as opposed to giving the responsibility to a broadcast sales company or unit?
2768 Otherwise my question will be: Well, why all this hassle if it all comes to the same thing and there is no advantage and it is the same result, then use a broadcast sales and we won't have these difficulties.
2769 What is the difference between the two?
2770 Because it has been raised. It happens all the time, we hire the same broadcast sales company to represent more than one station. What is the difference between that or the advantage of having the licensees selling themselves together with their own employees instead of a third party?
2771 MR. MILLER: If I could perhaps start, Madam Chair, as it has been explained to me and Scott can fill in, certainly from a CHUM perspective everything we do in our sales effort starts from our selling approach and selling system. So by having more control over it, we make sure the selling approach meets our needs.
2772 Theoretically, one could do that with an outside third party company, if you will, and there are certain broadcasters that do it that way. They get a rep house to do it.
2773 We have found it better to do it with a combination of our employees and, if you will, others.
2774 Do you want to add to that Scott?
2775 THE CHAIRPERSON: If it gives you more control over the sales approach there is an advantage, which your advantage may become our concern that it is a different approach that may carry with it some aspects that are maybe of concern to the regulator given its policy basis.
2776 Because if it were all the same to you -- and that is what we are trying to address, is what are these advantages and are they contrary to the regulatory objectives that we have set ourselves.
2777 MR. MILLER: We understand the question.
2778 Certainly from a CHUM perspective. yes, the advantage is by dealing with at least some of your employees you are able to make sure they have a better awareness of what your goals are, what your approach is, what your philosophies are. It goes without saying, you feel more comfortable dealing with at least some of your own people and your own employees than hiring someone to do it for you.
2779 Then there is also, just to add to that, that would be, in a sense, the approach and the philosophy which can, if you are able to -- certainly from our perspective, our selling system and approach is very successful. So we think that helps on the revenue side. It also of course saves you money, because it you are able to reduce your infrastructure costs and not pay, if you will, someone else plus another part.
2780 THE CHAIRPERSON: I understand that part.
2781 MR. MILLER: So it would be the two part.
2782 So you are concerned more about the advantages, not the cost side.
2783 THE CHAIRPERSON: Well, we have been here for almost two days now talking about whether the advantages carry negatives with them and whether there is sufficient reason for us to be concerned and whether there is a need to put some fencing around sales agreements, especially when they are informal. You are all in the same building.
2784 If you say you have more control, you are saying each party feels more comfortable for having more control and yet you are doing it together. So there is a certain amount of trust that is brought in here that can have a flip side of having some spill-over into other areas is what we are talking about.
2785 With regards to the Milestone decision, you know, all the decision says is: Group sales alone do not constitute an LMA, do not indicate the existence of an LMA. It didn't say "that constitute an LMA" and it said "alone".
2786 I was part of that Panel. Presumably you look at a sales agreement and you don't just say "This is a sales agreement, it is called that. It is not an LMA. It said "alone" specifically the Commission looks at how many stations are regrouped, the combined clout of the regrouped stations in a particular market by reference to the whole of the market; Halifax is not Toronto, Sudbury is not Toronto; Milestone is not in the same position vis-à-vis Standard as CHUM and Newcap or Rogers and Newcap.
2787 So it is not a terribly productive way of looking at it to say we have said that sales arrangements are not -- we said "alone group sales don't".
2788 One would have to look at the circumstances of this case, which can be quite different.
2789 Now, to get back to our 13-year-old girl and her boyfriend Billy, she probably would have gotten to the movies much faster is she had explained to her father that there was nothing wrong with this date, rather than to insist that he had no jurisdiction to prevent her.
2790 By the way, advertising, most stations have a condition of licence that they can't solicit or sell local advertising unless they do 42 hours of local programming.
2791 Isn't that correct, Mr. Miller?
2792 MR. MILLER: Yes. And to be clear --
2793 THE CHAIRPERSON: And the Commission -- is it? Is it correct? Yes.
2794 MR. MILLER: Of course the Commission can regulate advertising limits.
2795 THE CHAIRPERSON: And also we in have many cases, to the delight of some broadcasters, said you can't solicit in that market because it is not your market and you are going to harm the other person. You can't accept advertising or you can't solicit advertising.
2796 So we have exercised jurisdiction over advertising, rightly or wrongly. This is not new.
2797 MR. MILLER: To be clear, of course that is true. The issue is sales arrangements.
2798 To your point on the Milestone decision, I of course accept that. What we have said, to be clear, and you being the parent and us being the potential naughty children, that we are absolutely prepared to tell you more as to --
2799 THE CHAIRPERSON: No, you said we were naughty parents, not minding our own business.
---Laughter / Rires
2800 MR. MILLER: No, I said, as a perspective naughty child, that maybe you don't want to regulate what I do with my friends and question whether that is a fair thing to do, because the analogy will take us to funny directions.
2801 But more relevant to this particular circumstance, I think what we are trying to say is the industry looks at the precedents the Commission makes, and the precedent you made in the Milestone decision was the first time you dealt with this in light of the new language of 11.1(1).
2802 Certainly what we are saying in this circumstance, if you are concerned that the arrangement goes beyond sales, that is absolutely a legitimate concern and we need to satisfy you that it is a legitimate sales arrangement.
2803 If from a CHUM perspective we can echo a comment that has been made earlier, if you think it would be appropriate for us to formalize this agreement so you can see what it is rather than just hear us tell you at a hearing, that would be an appropriate and reasonable thing for you to require of us. Then you could satisfy yourself whether this is a sales agreement alone, not something inappropriate; and (b) look at the market circumstance, as of course you are entitled to do.
2804 THE CHAIRPERSON: We will take a 15-minute break.
2805 Have a good break and don't call Children's Aid.
--- Laughter / Rires
--- Upon recessing at 1625 / Suspension à 1625
--- Upon resuming at 1645 / Reprise à 1645
2806 THE CHAIRPERSON: Commissioner Demers.
2807 COMMISSIONER DEMERS: Thank you, Madam Chair.
2808 Just to have an idea of the advertising landscape in Halifax, you have two newspapers. Do they sell together or do they sell independently, from your knowledge?
2809 MR. R. STEELE: The two newspapers in the Halifax market would sell independently. We used to own one of them actually. We sold it. We lost a ton of money with it.
2810 COMMISSIONER DEMERS: They are not of the same ownership?
2811 MR. R. STEELE: No. One is owned by TransContinental, the other is owned by a local Halifax family.
2812 COMMISSIONER DEMERS: Thank you.
2813 Television, how many heads of sales are there in television? How many? CBC I suppose.
2814 MR. MANTON: Would you be referring to how many sales representatives there are?
2815 COMMISSIONER DEMERS: No, undertakings that do compete with you.
2816 MR. MANTON: Four. Three, sorry. ATV, Global and CBC. ASN I don't believe is allowed to solicit in the Halifax market.
2817 COMMISSIONER DEMERS: In radio you have your group and MBS. Is that it in radio?
2818 MR. MAHEU: That is correct.
2819 COMMISSIONER DEMERS: Thank you.
2820 In Outdoor is there competition, that you know of?
2821 MR. R. STEELE: Outdoor?
2822 COMMISSIONER DEMERS: Outdoor advertising.
2823 MR. R. STEELE: The ones I know of, there is Mediacom, MBS has some boards, or Green, or whatever their company is called, and Creative Outdoor, and ViaCom. There are four, four billboard companies.
2824 COMMISSIONER DEMERS: From your knowledge, none of the others, apart from your group, are grouped together in selling advertising?
2825 MR. R. STEELE: I believe the billboard companies, there is an arrangement between two of them that they sell together, two of the billboard companies.
2826 COMMISSIONER DEMERS: These are the only ones?
2827 MR. R. STEELE: That I am aware of I'm not absolutely certain on that.
2828 Is that your understanding, Tom?
2829 MR. MANTON: That is my understanding, yes.
2830 COMMISSIONER DEMERS: Television is independent? Each one is independent? Newspapers are independent?
2831 MR. R. STEELE: Two groups.
2832 COMMISSIONER DEMERS: And two groups of radio. Thank you.
2833 COMMISSIONER DEMERS: The only question I would have is to come back to programming.
2834 As a general statement, in your view, does this agreement prevent or hinder the quality of programming on your stations?
2835 MR. MAHEU: From a Newcap and Sun Radio point of view, Mr. Commissioner, the sales agreement, the collaborative sales approach in Halifax does not in any way, shape or form impede or hinder the programming service provided by our radio stations, our three CFDR, Q-104 and Classic Hits 96.5, not at all.
2836 MR. SKI: I think we feel the same way.
2837 I think it is important to note that CHUM in particular spends a great deal of time and money researching the market to make sure that whatever needs need to be satisfied in whatever format we are in, we are constantly evolving that format or making sure that we are meeting whatever the listener needs are.
2838 COMMISSIONER DEMERS: Thank you.
2839 At the time the Commission was more in the regulation business than, I suppose, the new Act has provided that competition, in a sense, is also something that regulates the market. Competition is something that the Commission has to take into consideration I imagine more than in the past, maybe not in the recent past but certainly in the past.
2840 Where can we sit on that aspect when competition should exist? Does it exist in the sense that it could help withdraw, should we have to, from the marketplace in some points or other?
2841 In other words, when regulation was the meal of everybody every day there was competition. The Commission would decide some time ago when there would be competition how it would be. Now that the Commission is to regulate more efficiently, less if possible if it is in the public interest, does this agreement hinder the possibility that the Commission could be less aggressively regulating your undertakings?
2842 MR. MILLER: Commissioner, from a CHUM perspective I think that is a useful way to look at it.
2843 Certainly in this market the Commission has the opportunity to license new players in the market if it feels that is a way of building a competitive balance and by allowing the marketplace to determine what arrangements, if any, come from that in terms of cooperations that may develop. That is a way of, in a sense, leaving it for the marketplace to decide.
2844 I think you have commented about the Commission tending to move towards a model of less regulation is apt. Certainly our sense is that there isn't, by virtue of either this sales arrangement or sales arrangements generally, a competitive imbalance of something that needs to be corrected by altering or limiting those arrangements.
2845 I think it is fair and, to be clear, it is absolutely appropriate for the Commission to satisfy itself that those arrangements are indeed sales arrangements and not more than that. So that we respect and the transparency there we support.
2846 But certainly we think that given the level of competition in the marketplaces in which we operate, in this marketplace in particular, tends to be getting more fierce with different media and different choices that you do have the opportunity, particularly in this market to not require the change of legitimate sales arrangements.
2847 Obviously through the other process you have the opportunity to license, if you want to add diversity of choice and diversity of programming to the market, which after all is your principal objective.
2848 Presumably those applicants that filed in that hearing are prepared to compete in that market or they wouldn't have filed.
2849 The notion that the Commission no longer guarantees success but allows success to emerge from strong operators who provide diversity I think is a new philosophy at the Commission, if you will, and one that we support and we think is appropriate.
2850 COMMISSIONER DEMERS: Thank you. Do you have anything to add, Mr. Maheu?
2851 MR. MAHEU: Mr. Commissioner, just to follow up on Mr. Miller's statements, in your preamble you spoke of the Commission moving from regulating many aspects of the industry to where the competition, in some cases, regulates the market, which is, in effect, true.
2852 That marketplace is getting more crowded all the time with more choices for advertisers if we go back to the business of radio, which is being able to sell advertising to generate enough revenue to make it a viable business enterprise so that the licensee can do what it needs to do and live up to its obligations or exceed them in the market.
2853 Having said that, with competition on the sales side for radio in the Halifax marketplace being reduced because of a collaborative between licensees in this case, should not be interpreted as a reduction in competition between all broadcasters in the market for share of audience.
2854 There is still vigorous competition for listeners and vigorous competition between stations for hours tuned. Regardless of a collaborative sales effort there is still the kind of competition I'm sure that the Commission and the regulations engendered when those were put together, that there was as much diversity in terms of what people hear on the radio, and as much choice as a market could possibly support.
2855 It is interesting to note in the applications for the Halifax -- new applicants for the Halifax licence opportunities, virtually all of those licensees that were applying for new service in Halifax were bringing forth formats and format ideas that were currently not on the air in the city. So they recognize as well that the best way to go about carving your niche in a competitive marketplace is to compete with a unique and different proposition.
2856 So we would submit from a Newcap point of view that although competition does in fact regulate the marketplace to a certain degree, sales agreements on their own do not decrease the competitiveness that radio station licensees have against each other to generate audience shares and bigger listenership.
2857 COMMISSIONER DEMERS: Thank you. Thank you, Madam Chair.
2858 THE CHAIRPERSON: When radio stations hire third parties to represent them with regard to sales, a representative may well represent other radio stations in a market, is it ever done on an informal basis or is there some type of formulaic or specific agreements, written agreements between the parties?
2859 Like a broadcast sales company, do they just make informal agreements with radio stations to represent them?
2860 MR. MAHEU: Madam Chair, speaking for Newcap, our national sales agreement in Halifax with CBS is verbal.
2861 THE CHAIRPERSON: It's verbal.
2862 MR. MAHEU: It's verbal. We have a verbal understanding of what the commission rates are and we meet with them and talk from time to time about what our objectives are and to keep on top of the work they are doing on our behalf, but there is no written --
2863 THE CHAIRPERSON: It's common for it to be an informal agreement?
2864 MR. MAHEU: It is not uncommon.
2865 THE CHAIRPERSON: Considering the discussions we have been having for two days, have you thought of what it is you would offer to be bound by to remove any semblance or expressed issues of concerns with this arrangement?
2866 We don't know what it is really. We know it is a sales agreement but it is not reduced to paper. There are other issues that have been brought forward. Unlike the situation that has been referred to in Toronto as a precedent, these parties have had a relationship before. It is currently -- I may have the numbers slightly skewed, but something like five stations out of seven in a market as opposed to one new, vulnerable player have a group sales agreement with a four-station owner and 20 or more stations in Toronto.
2867 We haven't had anything terribly constructive up to date to say "Here is how we will alleviate your concerns. This is the agreement we have and, moreover, this is what we are prepared not to do so that your policy issues are met and we don't go into this type of question."
2868 Vice-Chair Colville, who lives in Halifax, has raised a number of issues that are quite different from the precedent that is put before us.
2869 That is why I was pointing out that that has the word "alone" in it. What we want to know is whether any of our policy concerns are -- we want to know whether our policy concerns as expressed in our radio policy with regard to LMAs is met rather than being left to new, clever arrangements that have a similar result.
2870 MR. MILLER: Madam Chair, if I can start from a CHUM perspective, certainly, yes, this is appropriate to figure out whether we either formalize what we are doing or make commitments in terms of what we are not doing, or a combination of both.
2871 We have, through the whole course of disbanding the LMA through forming the LSA, advised the Commission previously and we have tried to advise you today as to what we have done.
2872 I think we have signalled that we are prepared to formalize the sales arrangement so it is committed to paper and so you know exactly what it is and what it isn't. That would be something that I think from a CHUM perspective we would be prepared to do and negotiate and reflect in writing. It is hopefully not a difficult exercise to just reflect the informal arrangement we have in writing.
2873 It seems to me in terms of the commitment as to what we are not doing, the most important thing is the commitment to separate programming and editorial control. I know various circumstances where the Commission has required licensees to make that commitment. It seems to me that would be the most important thing.
2874 The exchange about e-mail addresses and traffic, it causes us to realize that we have to be careful of the public image we present and the image we present to the Commission reflects the reality. Certainly from a CHUM perspective we are going to make sure that indeed the reality, which is the program director signs off on the program logs, is in fact reflected in our correspondence with the Commission, because that is in fact the reality.
2875 So I think you have made us realize that we have to be a bit more careful about making sure that that reality is reflected.
2876 But I would submit that perhaps the most useful thing and the most appropriate thing for you to do in terms of what we shouldn't do, is get that at a station -- or commitment that we are fully prepared to make, and we alluded to in our opening statement, that the general management, the program direction, the news editorial is controlled by CHUM and by the people we have in those positions.
2877 THE CHAIRPERSON: Thank you. Counsel.
2878 MS JONES: I only have one question for Mr. Steele.
2879 Earlier when you started this afternoon you mentioned that you wanted to clarify something you said before lunch about the number of LMAs and LSAs. You said two LMAs, three LSAs?
2880 MR. R. STEELE: That's correct.
2881 MS JONES: Can you file, as I asked the same for Mr. Miles earlier, the one that we don't think we have?
2882 MR. R. STEELE: Certainly.
2883 MS JONES: Thank you. Before the end of the week?
2884 MR. R. STEELE: Yes.
2885 MS JONES: Thanks.
2886 THE CHAIRPERSON: Thank you very much. We thank you for your cooperation.
2887 I hope our little Billy is having a good time.
2888 MR. MURRAY: Not too.
--- Laughter / Rires
2889 THE CHAIRPERSON: Thank you. We may see you back at reply.
2890 We will take a five-minute break to allow a change. We have an intervenor.
--- Upon recessing at 1700 / Suspension à 1700
--- Upon resuming at 1705 / Reprise à 1705
2891 THE CHAIRPERSON: Mr. Secretary.
2892 MR. LEBEL: Thank you, Madam Chair.
2893 The appearing intervention will be presented by Halifax JAMZ 95.7 Incorporated.
2894 Mr. Manuel Canales, you have 10 minutes to make your presentation.
2895 MR. CANALES: Thank you.
2896 Good afternoon, Commissioners, CRTC staff, Madam Chair, fellow broadcasters, interested public at large. I want to thank you for the opportunity to share with you the powerful utilization of combo agreements or LSAs.
2897 Giving you details of factual evidence to denote and highlight the importance of controls for these LSAs I will relay the history.
2898 This evidence comes naturally to me, as I have experienced them in my 30 years of broadcasting background in Canada and the U.S.A. and are prior to all of the importance and premeditation given to LSAs in the succeeding years to date.
2899 While in my tenure with CING from 1995 to 1997, I had the opportunity to preside over one of the famous combos of all times. I'm talking about the CIDC-CING LSA in Toronto. These two fringe broadcasters, Orangeville and Burlington, spill their signal all over Toronto.
2900 Without success, CING had, for over 20 years, tried to succeed or at least be noted by the advertisers, retail, regional, national, and the media-buying community, in the competitive Hamilton, without success, and Toronto markets.
2901 CIDC was literally a newcomer, since the station had recently been sold, and remained as a large an unsuccessful, unknown, Orangeville radio station. To those familiar with the Toronto marketplace and radio at large, this radio station had little chance to survive, given its local origination and marketplace -- Orangeville.
2902 It was so small and unnoticed that in a prior public hearing in Halifax, while the Evanov Group, owners of the station, presented their application for the Halifax market, the CRTC paused to explain to the audience at large where and what is Orangeville.
2903 The story goes that the CIDC station was sold to the Evanov Group while they were also shareholders and managers of CING. In the succeeding years, this precipitated the legal battle of the century among CIDC and CING, with lawsuits into the millions of dollars.
2904 The Evanov Group, Bill Evanov and John Dukelow at the time, had been managing CING for several years and trying several formats without much success for over 20 years, until finally finding a programming niche which Toronto broadcasters had ignored at large. This was the dance club type of music that found some unknown popularity among the bar/nightclub retail trade, whom largely buy airtime without regard to the BBM ratings and solely based its purchasing decisions on recognizable response from the marketplace, or simply putting bodies into the club.
2905 CING had just found a niche into the programming, which later led it to become the number one dance station in the country, with over 40 per cent of its revenues originating from bar/club entertainment retail business looking at placing it mostly after 7:00 p.m. at night. This is the equivalent of a sales or general manager entering heaven, since most of the demand for the general airtime inventory is placed by media buyers and advertisers between 6:00 a.m. and 7:00 p.m.
2906 CING was largely unprofitable at the time. It had radio inexperienced owners that had, for the most part, invested in a concept of CING being a community-based radio for Burlington and immediate surroundings. Little did they suspect the notoriety and success that followed.
2907 The Evanov Group, an experienced and street-smart marketing selling group that had grown to mainstream from ethnic radio with the background of CHIN/CIAO radio, where most of the sales are conducted without ratings, and based on opportunity selling cycles, knew how to recognize a winner.
2908 When it became obvious that the overly researched/formatted broadcasting philosophy of larger broadcasters had totally overtaken the Toronto marketplace back then, CFNY was sold from an independent ownership to Maclean-Hunter that changed the format and its station management style resulting in an exodus of the independent programming souls/announcers that found refuge at the upcoming CING, then called Energy 108.
2909 They decided that Energy 108, CING, was to become the new format of dance to be marketed all over southern Ontario, as the stations reach signal want from Buffalo to past Oshawa, effectively covering the Toronto GTA.
2910 Once this was obvious, the Evanov Group realized they had minority position, 35 per cent. Evanov had 17.5 and Dukelow 17.5 of the equity in CING, Burlington Broadcasting company, which had negotiated, as an incentive for them to continue helping the station with sales representation and management, and had little possibility -- as they tried several times over the years -- to purchase the rest of the equity, or 65 per cent, at bargain prices.
2911 When CING clearly demonstrated its new found billing success/popularity trend, the Evanov Group decided to purchase little known Orangeville CIDC-FM" and merchandising it parallel to CING, which they also managed.
2912 This was the early beginning of the combo, namely LSA agreement, which CING reluctantly accepted, allowing the creation and development of what today is largely Z-103.5, a station that has largely helped the Evanov Group to grow to what they are today; still an independent group, but no longer a sales company, rather broadcasters with assets in to the tens of millions of dollars.
2913 Attached for your perusal I have included the full original memo from Bill Evanov to sales staff that details the makings of the LSA deal.
2914 Here today I want to comment into a few of these points for the benefit of the next generation of LSAs and agreements of the like and give the Commission an inside view into these practices.
2915 For example, I bring the attention to B1, where it calls specifically for:
"All advertising contracts for `spots', originating in the GTA, Oshawa to Oakville must be sold as Superspots and written up on `Combo' Contracts."
2916 Point B3:
"In the GTA, each station may sell (singularly) contracts for `spots' only when the other station is Sold Out in a particular category or particular days."
2917 These clearly demonstrates the powerful impact of the combo or LSA agreements that empower the restriction of access to trade; a practice that comes short of the Competition Office to check into it.
2918 With this base of retail captive and restricted trade, the two stations, CING and CIDC, moved on to capture the national sales, appointing Telemedia as their national sales rep house.
2919 At the time CING -- that is in 1995 -- had reached its peak audience share in the Toronto GTA of a 3.1 share, while still largely unnoticed by the national media buyers and had national sales of approximately $150,000 for the fiscal years ending August 1995.
2920 Also at the time, the remaining shareholders -- excluding Evanov Group -- in CING had enough of these arrangements regardless of the Evanov Group shareholder status of 35 per cent.
2921 At this point, September of 1995, I was retained by CING to enter the battle. It had already become one and was on its way to several lawsuits, et cetera. I had to land on the beach running as the firepower among the stations had already begun, which included every dirty trick in the book.
2922 The week prior to my commencement as the general manager at CING, CIDC staff had sort of repossessed CING's only station cruiser via an overnight towing from CING parking lot. Lawsuits were flying back and forth.
2923 Also at the time, Telemedia Radio Sales merged with Standard Radio Sales and Paul Mulvihill sales, creating integrated Media Sales, who wanted to still represent CING, but also cautioned us that the returns of a solo representation would be minimum.
2924 Although we had a mountain of trouble with CIDC, it was my decision to maintain the combo sales nationally with CIDC. Imagine the stress that was. In front of the public we were fierce competitors, while nationally we comboed together.
2925 This is the part that clearly demonstrates the empowerment of such arrangement. The sales of CING alone went from $150,000 in 1995, as stated earlier, to $1.2 million in the 1998 fiscal year. A whopping over 700 per cent increase, even though CING's share of the audience diluted to 2.7 per cent from 3.1.
2926 We saw more accounts that we never ever thought of. Often we will get calls from IMS to custom rate proposals so as to match the GRP needed by the advertisers/media buyer to get the sale. This decision to maintain the national combo, although the retail combo had ended at the time for obvious reasons, was the single ingredient that springboarded CING and CICD to a national demand and notoriety, which translated into huge sales into the highly competitive GTA Toronto marketplace.
2927 The stations joined the Toronto BBM surveys and they were commonly marketed as GTA stations.
2928 If you consider the humble experiences of these two fringe stations within the 27 stations at that time of the Toronto GTA market, the largest radio market in Canada, and transport them into a proportionate basis to the smaller 7-station market In Halifax, we will have the following competitive imbalances:
2929 Toronto combo or LSA, retail and national otherwise measuring the impact of two fringe smaller stations within a 27 station universe versus a Halifax combo LSA, retail and national otherwise measuring the impact of five large well-researched, run and financed stations within a seven-station market, you will see complete market domination of media buys, retail, local and national; blacklisting and group pressure selling to the smaller advertisers, particularly if they don't go along with it.
2930 Hefty audience and selling package customizing, discounts to the larger advertiser in order to get bigger share of the budget, hence preempting budget to other independent stations.
2931 Our intentions in this intervention is not to help either side, Maritime and/or CHUM/Newcap, to seek better arrangements to decide who is going to get better sales and market domination, but rather to focus on the incestuous relationship that already exists in the Halifax marketplace as it welcomes new broadcasters both independent and groups.
2932 Here and now there is an opportunity for the Commission to help implement positive change, and influence a fair and competitive improvement of this particular smaller market of Halifax.
2933 This market has grown in sales and is about to join the big leagues of broadcasting as the CRTC may license several other stations.
2934 Let us correct at this time this empowerment and imbalance before it becomes a Competition Office case.
2935 Having spent over 18 years in the Halifax market, I know and recognize that most businesses feel that the market is unique and these type of issues happen because of that. Personally, I am one not to foster over-regulation but rather a level, balanced playing field. Let's learn from the past experiences and focus in the future.
2936 The affected broadcasters, CHUM and Newcap, have led in this market with even a greater PBIT, so they are in absolute agreement and great shape to continue to operate for the next year in a more competitive environment.
2937 A solution to this impasse, in my view, would be to restrict retail local sales combos or LSAs and order the sale to a third party of CIEZ-FM, thus disallowing the 50:50 ownership by two market existing broadcasters.
2938 At the end, we ask the Commission to ensure a balanced competitive field where we all, independent, groups affiliated, new and existing broadcasters, can continue to develop the growth of the Halifax market to new heights.
2939 This intervention is being submItted by Halifax JAMZ 95.7, whose application for a new FM station to serve the Halifax regional municipality was heard by the Commission at the public hearing in Halifax that commenced on March 1, 2004.
2940 Halifax JAMZ 95.7 is very much looking forward to the privilege of receiving an FM licence to operate in Halifax and is confident of its ability to successfully compete in the marketplace if not unusual impediments exist such us the management agreement between Newcap Inc. and Sun Radio Limited for the operation of CIEZ-FM.
2941 Thank you very much.
2942 THE CHAIRPERSON: Thank you, Mr. Canales.
2943 Commissioner Williams.
2944 COMMISSIONER WILLIAMS: Good afternoon, Mr. Canales.
2945 MR. CANALES: How are you?
2946 COMMISSIONER WILLIAMS: Before you begin answering some of the questions that I have prepared for you, I would like you to please not get into the specific details of your pending application for a licence in a Halifax market, if you speak only to the issues surrounding the licence renewals of Sun Radio, Newcap and CHUM radio stations in the Halifax market and the effect of the collaborative sales effort described early in the same marketplace by five of the incumbent stations.
2947 Mr. Canales, could you provide a brief, say one to two-minute maximum, statement of your experience in radio sales and marketing so we can qualify your level of experience?
2948 MR. CANALES: Well, it has been 30 years, mostly in marketing and sales from Halifax to Toronto to Los Angeles to Houston to Caribbean. So I have a wide variety.
2949 COMMISSIONER WILLIAMS: So you have worked for some of the larger broadcasters in Canada?
2950 MR. CANALES: Not necessarily. I work for mostly independent people who are in need of trying to maintain their share or increase their share. I did not work for any large broadcasters, mostly independents.
2951 COMMISSIONER WILLIAMS: Okay. I am interested in your views of the collaborative sales effort in the Halifax market as we have been discussing for most of the afternoon, and your comments specifically as they relate to the five Halifax stations sharing that marketplace.
2952 It has been presented that this type of arrangement provides a longer-term view and allows a marketing-oriented approach to the radio industry. We have heard many of the benefits throughout the afternoon.
2953 I guess if we were to accept that premise, maybe the solution that occurs to me is a central selling agency paid for by all licensees in a marketplace. The competitive marketplace would have more of a marketing and programming rather than competitive sales focus. I guess it has worked in other organizations that until recent times this type of arrangement has benefited organizations like DeBeers, and I guess to some extent OPEC. In fact, I believe the focus of DeBeers is in marketing and control of the diamond industry.
2954 In Sudbury all licences are part of the LSA, but in Halifax two stations owned by Maritime Broadcasting systems are excluded from that group.
2955 Why, in your view, is MBS not involved in this sales group? Do you envision new entrants being invited to join? Because it seems it is beneficial to the industry. The effort and positive result experienced by all the radio players, should that be something that would be enjoyed by all the players in the marketplace?
2956 MR. CANALES: I will start answering your question by saying that the players, besides Maritimes, Newcap and CHUM, are large companies that have a tendency to be vertically integrated, so they will move on from operating the franchise to actually owning the actual sales representative company. In most instances that is the case. That way they can control the destiny of their sales.
2957 I think that really you would not be able to -- if you created a situation similar to what you are eluding to like DeBeers in terms of the controlling of the diamond market, it would extremely difficult, even if you, say, regulated for them hand the sales to a third party. Because how that goes down is, when there is a budget -- it is sort of like you customize the glove to your hand type of thing. They will try to tweak the sales and the ratings and the GRPs to make the sale or to attract the sales. Where the empowerment comes is where you have larger critical mass to deal with you can really twist it in 10 different ways, versus a person that has the smaller one, he only has the certain limitations whether it be on demographics or it be on whatever the case may be.
2958 So if you did switch that to a third party, you know, as I say arms' length, it would be like an ad agency or a rep house that would be easily manipulated because they are revenue generating and they will be seeking a 10 per cent commission or 15 per cent commission. Ultimately the object is to make the sale.
2959 So nobody wants to stop in front of the sale, try to stop the sale, so they will bend whatever they have to bend up to the point if you would have to split a GRP to make it happen they will in order to get the sale, because that is how they are driven by the revenue.
2960 So I don't think you have an easy solution. I think that that is commonly done on the national market. I don't see a great problem being done in the national market, but in the local market where about 80 per cent of the revenues from the radio station come from retail, it allows for a lot of imbalances.
2961 For example, just for example, if you want to talk into the print market in Halifax. For the longest time I was in Halifax the Halifax Herald had a total domination in that market until one little paper came in on weekends, which is the Daily News.
2962 I happened to be at the time involved in some print investments and you can hear the stories from the smaller advertisers saying "I am blackballed by the Halifax Herald". What did that mean? They did something, they are not allowed to go back into it again for whatever reason. They commanded -- and newspaper is a non-regulated industry.
2963 I'm not suggesting by any means that that is the ethics of what the current stations do, but it lends itself to a potential abuse whether you want it to or you don't want to.
2964 You know, if one broadcaster had a problem with one radio station, all five radio stations will be aware of it and it will be precluding them from trying to find a competitive solution to that problem, whether it was a disagreement or some kind of business situation. That is the essence of the problem.
2965 I think really the competitive spirit of the sales when they put all of those radio stations in one room, or in one building for that matter, it is very difficult to get the mind-set of that empowerment from the people that work for the station. It may not be the spirit of the companies to certainly do so and vigilantly make sure they don't do it, but when it gets right down to the salesperson that is actually making the call, he may be the one making the decision that may trip over the line into that abuse because it didn't happen that way.
2966 It is something that you couldn't control because they can do it any way they want, from two stations to five stations, up and down. It is just it boils down to whether the sales manager will accept that base on what the return on the airtime is. That is normally something that is waiting to meet a quota so they are waiting to make another sale and as long as they don't have another competitive offer it will be accepted.
2967 I mean, I haven't seem too many cases where a sale would be turned down unless it is ridiculously low prices.
2968 COMMISSIONER WILLIAMS: If a new entrant was invited admission to this group, do you think it would be a welcoming gesture and something that a new entrant might be willing to participate in?
2969 MR. CANALES: Oh, I am sure that if a new entrant -- if the Commission was going to license a new radio station and they were going to join the Metro Radio Group, I'm sure that it would be easy enough for the new entrant to participate because of the fact that they already have a wheel in motion and it is just join the wheel and depending on their audience or depending on whatever criteria they will get a piece of that budget. But that was just encourage to make it even a stronger problem, in my view.
2970 I think that what you need to do is create a competitive environment and there is no way you can create a competitive from all these people working from the same position, because certainly what you see in -- what you don't see is what worries you because you don't hear.
2971 You don't hear of any advertiser complaining. It was said today that nobody intervened against them. Well, I never hear of too many advertisers intervening anyways. They certainly don't really want to rock the boat one way or another or don't want to get mixed up. But I'm sure that you find cases where some of the situations might of happened.
2972 I think that where the situation grew into these two large groups owning this third radio station is where I foresee that the deterioration of this to its worst. Because at that point there wasn't any alertness about this. I mean, there certainly were some problems with the LMAs, and so on, they were trying to undo it. I think was presented in a way as a solution to undo those problems: Let's go into this way. So if we don't have it this way, let me position it this other way.
2973 If you see it on the surface, there wasn't anything that they would contravene anything, why the Commission wouldn't accept them to own those radio stations, right. But in essence that is really where the big problem resides, in my view. I think that is really, if you wanted to put a finger on it, I think it is on that ownership.
2974 COMMISSIONER WILLIAMS: If the Commission was to agree to leave things as they are and new entrants were licensed, would the new entrants see an advantage in banding together to form their own collaborative sales effort, say with other new entrants and with non-members such as MBS, and would the competitive opportunity be served in that manner?
2975 MR. CANALES: Yes, I think so. I think that -- well, let me just clarify that.
2976 Let's just assume for a moment that the Commission was going to license two other FM stations. Let's say, well, Maritimes get two, let's say it was three, that it was like a five and five --
2977 COMMISSIONER WILLIAMS: Yes. Without the specific stations, just in general terms. Two stations, say they were --
2978 MR. CANALES: Yes. I think you would be -- it's a little too close for comfort. I think you would be creating another situation with Maritime that necessarily will imitate the same problem that you have here.
2979 I think that the competitive spirit of the radio -- no, I don't think it would be helped by adding new entrants into any combo relationship, either to add to the Metro Radio Group or to create another Metro Radio Group with Maritime.
2980 Certainly a newcomer, like if we would have got a licence, we would have benefitted tremendously because you already have an existing powerful situation where you just don't have to rebuild it again.
2981 But that is the essence of competition. That is the reason we go and apply and we try to -- you know, that is the real reason what you are trying to do and trying to succeed. If you kill that spirit, well what else is there to apply for? You might as well predict what's going to happen. I can probably tell you how much money you are going to make before you even make the sales call because it would be already figured out on a percentage of what basically would be coming in. Later on it will be shifted into an audience, kind of a share agreement in terms of points or something of that nature.
2982 COMMISSIONER WILLIAMS: From your experience, if our goal was to have a healthy, dynamic, competitive radio industry, what should we do in a case like the Halifax market?
2983 MR. CANALES: Well, like I said, I think I suggest that you should probably regulate the local sales agreement. That is a very difficult thing to do, so the only possible solution that I can suggest to you is that you will have to disallow it in the local sales. They will still have it on a national sales perspective, but that is done on a commonly basis, but in the local sales is where the most of these abuses will possibly occur.
2984 I think I will go for kind of dismantling the little boys network by selling the CIEZ to a third party or make it available for anyone of them to buy it. Obviously that creates a lot of problems, like they said today, because shouldn't they have been aware of this before they went into the Halifax hearing. Probably some of those groups would have also applied for another radio station. It becomes a disadvantage.
2985 So we are in a little bit of a tight squeeze here in terms of what we could do, because you know, it is unfair in a sense to disallow the thing while they didn't have a chance to apply for the radio station, but I think you need to increase the competitive spirit by allowing new entrants and by disallowing the LSAs at the local retail level.
2986 COMMISSIONER WILLIAMS: If we were to that, how do you envision -- what would the Halifax market be performing like, say a year afterwards? What would be in the public interest? Who would benefit from this? Who would suffer?
2987 MR. CANALES: I think, Commissioner, if you put CHUM and Newcap to compete against each other nothing but good can come from it, because we will be competing along, Maritime will be competing along and it would just only expand the market, because everybody need to eat, everybody needs to make something, and it will develop a competitive spirit that it was once into that market once I was there.
2988 It used to be that you don't know what the rates of the other person are. You are on a competitive thing. You don't know if they are going to buy you because you are bidding against each other as opposed to ganging up and trying to put it in any way that it will make the sale.
2989 I don't think it will take away from the radio sales like is suggested. I think what it will hurt the most is where they have cushioned everything together and to the overhead and they have got everything under control. If you dismantle that, certainly it will have some cost repercussions in terms of how they are going to host it in a separate building, or so on. But once upon a time that is how it was and I think you will force radio to work harder and it can only increment the revenues towards radio versus other media like newspaper or television.
2990 COMMISSIONER WILLIAMS: Okay. The proponents of the collaborative sales effort have argued that as a result of this they have been able to grow the market. They have baked a larger pie I think what they have said throughout the day.
2991 So I guess the converse of that is perhaps it would shrink in the absence of that. In effect the water hole will get a little smaller and it would be a little more competitive as everybody would be trying to eat, as you say.
2992 MR. CANALES: I think that there is a period and time and place for everything and I think that, yes, at one point sales in the Halifax-Dartmouth in radio were very low and a lot had to do with the market dominance that print had over the period of time.
2993 I think that we have come out of the nest into that market to a point where it is ready to join into the big leagues. It will be now that you may license one other radio station that Halifax will have the eighth to become in the new leagues of the larger markets.
2994 Certainly like I said in my intervention, I don't want to look back and say how bad or why this happened or didn't happen. I think it brought it up to a point where now we have all grown up, we have put our long pants on, we have taken the short pants off and now we can kind of go out in our own ways and make it even larger.
2995 Because at one time we needed the nurturing and we needed that kind of help and hindering and now when the PBIT responds, they have -- the percentages of growth is healthy enough for those groups of stations to go on their own and to have a more competitive approach. You can only do better as opposed to do worse.
2996 At one time it might have hurt it or it might have been too delicate to the point that the revenue wouldn't grow, but now those people are spending money on radio and if they are going to spend money on radio up to the point of spending now they are going to continue spending money on radio.
2997 The only reason that they wouldn't spend any more money on radio is if the offers that they had been having through the grouping of the stations, they are not matching the fairness of being presented on a separate basis. I think that is the essence of the intervention, the anti-competitive or imbalance that exists in the marketplace.
2998 COMMISSIONER WILLIAMS: So in this, if I can characterize it, highly competitive market that you envision, what should our approach be when stations get into some form of financial difficulty and maybe quality of programming starts suffering? How should we deal with that? Would we reintroduce some form of measure or do we let them fall by the wayside?
2999 MR. CANALES: I think you are referring to other markets such as Sudbury and so on.
3000 Specifically to Halifax I think it has grown to the point, like I say, where it can sustain this competitive approach and it will only increment the radio sales.
3001 In a smaller market, you know Thunder Bay or Sudbury or so on, every situation is different. You have to look at it and see that maybe there is a little nurturing that you have to do there to help them to survive. They may have an AM, an FM or whatever.
3002 But I think we are done with that in Halifax. I think you have come to the conclusion that Halifax can support more radio stations, otherwise we wouldn't have a call and we wouldn't be looking at --
3003 I think that is the bell ringing, saying it is time for this thing to go onto the next level and perhaps before you needed all of that. But I mean, the returns on this company -- they are public companies -- is huge in comparison to most areas of the market. And yes, helping the combo or LSA going together at one point with Maritime, without Maritime, it helped move the medium higher into the revenue scale of what you get per capita from advertisers.
3004 But you know, we have got to go up and have more of an independent view, more of a creative sales approach where -- those stations once you put apart, they are going to want to maintain those levels of revenues that they had before and that in essence is going to create the competitive approach in terms of dealing with other advertisers. It won't preclude --
3005 I remember distinctly working for CFDR -- and I'm talking 1974-75 -- and not having an agreement with anybody. On a regular basis I used to confer with my colleagues in CJCH at the time -- it wasn't even C100 -- and we would compare notes and we would try to help each other out, but it is still not sharing the essence of what we are trying to do with the same advertisers.
3006 Somebody will come to me and I would say: Well, look, if you were going to recommend two stations, which station? We used to try to work those scenarios without having an agreement -- it is still being a competitor -- otherwise I know they are going to take a piece of the budget. But they are going to take it anyways so we just share some information into it and I think that still will go on.
3007 There is the Press Club that people get together. It is not that you are precluding them from actually totally sharing the information that would be beneficial to the betterment of their sales, it's just that the empowerment of having those to be offered any way you want it, it gets you into a position that creates the imbalance for the third party, in this case Maritime or any new entrant, or so on. It just will make it increasingly difficult for somebody to succeed.
3008 I think that is basically my point, not just to look at my own particular application but in general. When you look at it, obviously you see the Maritime drop, they say they dropped their PBIT and they blamed the programming or whatever. It is a function of sales.
3009 I think I have told you now here, we sell without numbers, we sell with numbers, at the end of the day we incremented the sales 700 per cent but our ratings went down. How do you explain that? It is all just a question of really the exercise of the offering, being able to have the ability to have the offering.
3010 It's like if you go to a small grocery store and they have only 10 items and you go to a large grocery store, a Sobey's per se, and they will have like 10,000 items. So obviously if you have a choice and you want to have a variety you may want to go there because you will be able to get more of a combination versus just a limited choice than somebody else may be able to offer. That's it.
3011 COMMISSIONER WILLIAMS: Okay. So in this competitive environment that you envision in the Halifax market specifically, you don't think that stations could get into financial difficulty and need some form of intervention from us?
3012 MR. CANALES: Particularly CHUM and Newcap and Maritime, I don't see them, on the size they are, the number of stations they own and whatever, getting into any type of financial difficulty whatsoever.
3013 COMMISSIONER WILLIAMS: How about some of the players who don't enjoy that size advantage?
3014 MR. CANALES: You mean some of the newcomers?
3015 COMMISSIONER WILLIAMS: The potential newcomers, future stations, yes.
3016 MR. CANALES: I think it allows them a better chance to compete.
3017 COMMISSIONER WILLIAMS: In the absence of this agreement?
3018 MR. CANALES: Yes. I think that is all that is required for them to go. They ask to go into businesses, they ask to go for the challenge, they just wanted to have a level playing field where they could have a chance.
3019 It is increasingly difficult to go and see any type of advertiser when somebody else already owns three-quarters of the marbles and you are trying to talk about it. It's just not -- the advertisers knows that, and the salesperson knows that, so they are going to use that.
3020 You cannot go under the table to eat the leftovers in a sense as opposed to being invited to the main banquet. It creates in their minds an imbalanced situation.
3021 We have been through it in a smaller way in that market when the AMs joined the FMs. I remember having one radio station, CFDR, competing against CHFX and CHNS as a combo, which was their own station, and CJCH and C100 as a combo. I used to go out and sell somebody and they would say, well, obviously on a per capita basis, whatever way you look at it, it is better for us to have.
3022 So the day when CFDR got Q-104, it was the greatest day of the life of the Pattersons who used to own that station, because then they would have another leg to stand, so they could walk with two legs as opposed to everybody else and have a better competitive situation.
3023 From there on, the rest is history. I think that is kind of the analogy.
3024 If you have a newcomer it will start with an FM. If he has a niche programming or something that he would be able to do that is not being currently served in the market -- and partially these things haven't been served because this whole thing has worked, although they may say that it doesn't relate to programming and programming is -- it is all part of a strategy.
3025 At the end of the day, the programming -- there is two ways to run a radio station, via sales or via programming, but eventually the objective of running the radio station is to acquire the most dollars no matter what you do. Even if you are run by a programmer, you will be looking for more revenue. So the business plan, we have a funny way of finding a way to see how is it that we can make more money.
3026 In the States the stations are using software to eliminate greeting in the announcers so they can make up an extra minute so they can sell 14 minutes an hour instead of selling 13 minutes an hour of commercial time.
3027 So it is all driven from that point of view, because particularly if you have a large company they are looking at the bottom line. They are looking at their return. They don't care about what the thing is, they wanted to make it work to the point of where there is going to be more return for the investment. That is what they are really looking for.
3028 When you look at an independent such as Maritime -- although Maritime is not a small independent. I think it is a fair sized company -- but just standalone -- gets into this, he will get eaten alive in between the two of them.
3029 COMMISSIONER WILLIAMS: Okay. My final question I think.
3030 I want to go back to that issue of fairness you talked about 10 or 15 minutes ago, and that CHUM and Newcap may have taken a different approach to the Halifax hearing if they envisioned changes to the current situation that they are enjoying now.
3031 What are thoughts on that, the issue of fairness?
3032 MR. CANALES: First of all, I think that they were well aware that this was already a problem because it has been on and off the CRTC since they had the LMA, and Maritime, there has been an ongoing concern to say so.
3033 I think that it has been as much there reluctance to approach the CRTC at the time of the call as much perhaps as the Commission making them aware at the time that this is going to be a heavy-duty concern as it comes down into the renewals of their licences.
3034 But I don't think it would be a situation like it was put today here that they should have been advised. Because they are well under advisement that this is a concern and the Commission had kept an eye onto this. It just hadn't really got down to examine that until this point.
3035 So if they did have that concern, which it was obviously there over years, in my view they should have come forward to the Commission and sought clarification prior to the hearing so as to whether they would have applied or wouldn't apply.
3036 They are large companies. They are aware. They have people who totally just deal with the Commission, they don't do anything else but dealing with the Commission. So they can see the writing on the wall. It is buyer beware. They should have foreseen that kind of a situation happening.
3037 Whether they thought that was going to be something that was just going to be dusted under the carpet or the Commission was really going to get into it because of this age of deregulation and the Commission had gone on increasingly trying to less regulation.
3038 I think that is also a point in the point of view of their agreements and the ways they do things and how they do things. I know a lot of them had not to do with current management into that and a lot had to do with some past management that they had, particularly in Newcap, and the way they sort of went around into this agreement.
3039 The gentleman that used to run that before, it was very adamant to try to make these things work his way. I remember when they had the first, I think it was the CRTC that had sort of symposium about LMAs when that was just a new word that nobody know anything about it. He was first in line trying to make the mark.
3040 So it was a bit of an attitude in terms of how this whole thing came about that we have now and the people that you have now have to deal with it.
3041 But in terms of fairness ,I think that there has been enough of a smoking gun and a warning shot from the situation, and the complaints and so on, and I don't think it would be naive to think that CHUM or Newcap thought that was just going to go away on its own, like it was not going to be an issue. I think sooner or later it was going to become an issue.
3042 Just let me be certain here, if we did we would be grateful to have in the licence ourselves, we would make it an issue and we would take it all the way down to the Competition Bureau, if the CRTC wasn't able to cope with it, which I think you are.
3043 But that is my personal view and I am happy to share it with you.
3044 COMMISSIONER WILLIAMS: Okay. Thank you. Do you believe you have had a full and fair opportunity to present your intervention today?
3045 MR. CANALES: Yes.
3046 COMMISSIONER WILLIAMS: Okay. I have no further questions, Madam Chair.
3047 MR. CANALES: Thank you.
3048 THE CHAIRPERSON: Thank you, Commissioner Williams. Thank you, Mr. Canales, for your participation.
3049 MR. CANALES: Thank you.
3050 THE CHAIRPERSON: Mr. Secretary, please.
3051 MR. LEBEL: Thank you, Madam Chair.
3052 We will now ask the applicants to respond to the intervention.
3053 THE CHAIRPERSON: Mr. Canales, you may step down.
3054 THE CHAIRPERSON: Welcome back.
REPLY / RÉPLIQUE
3055 MR. SKI: Thank you.
3056 Madam Chair, Members of the Commission, CHUM appreciates the opportunity to reply to the oral intervention by Halifax JAMZ 95.7 Inc.
3057 As we have already said, we strongly believe that our sales arrangement with Newcap has helped radio achieve the critical mass necessary to compete effectively with print, television and other media for advertising revenues in Halifax.
3058 As a point, TV and print each realize revenues more than double that of all seven stations. Furthermore this arrangement has helped radio grow advertising revenues in the Halifax market, benefitting all operators and creating a situation where the Commission can consider licensing new stations.
3059 We would also like to clarify a misconception raised by the intervenor. CHUM and Newcap stations are not sold as a five-station combo or block, as we mentioned earlier. The stations are sold in a way that best meets the needs of the particular client. They are not bundled. In fact, as we mentioned earlier, almost 85 per cent of all local advertisers buy time on two stations or less.
3060 As JAMZ has noted, they were an applicant at the recent hearing to consider the licensing of new stations to serve the Halifax market. JAMZ is suggesting that if licensed it will be impossible for their new station to compete.
3061 A group sales approach is not the key to a station's success. We touched on this earlier. A radio station's success is determined, we believe, first and foremost by its ability to attract an audience that advertisers want to reach. Without that audience, it doesn't matter how many stations are sold together.
3062 In the converse, we would like to note that CHUM does operate standalone stations in certain markets which compete against other groups with many more stations.
3063 We mentioned earlier the London market. CHUM operates one station, Corus operates three, however the CHUM station is the top ranked station and is very successful.
3064 What a sales arrangement can do is ensure that radio stations receive the appropriate value for the commercials they sell, provide advertisers flexibility and choice, allow radio stations the critical mass to compete effectively with other media as opposed to other radio stations, increase investment in sales training, increase our ability to compete in an increasingly competitive multi-media environment, help ensure radio's long-term growth which depends on our ability to grow radio share of the advertising pie.
3065 CHUM would also like to note that we feel the Commission cannot ignore the fact that at the hearing in Halifax in March, JAMZ highlighted the profitability of the market as part of its rationale for why the Commission should approve its application for a new station, yet in this proceeding they are questioning the appropriateness of the arrangement that has resulted in this profitability. They can't have it both ways.
3066 MR. MILLER: Commissioners, we would like to address a number of the specific allegations that were also made in the oral intervention, in particular the essential suggestion that based on the intervenor's experience in Toronto the Commission should disband the LSA in Halifax and the notion that because they were two stations in the Toronto situation versus 25, the 5 versus 7 means that prima facie there would be a problem in Halifax.
3067 The intervenor mentioned things such as combo clauses, restriction of access to trade, complete domination of market buys, blacklisting as practices that he experienced in Toronto.
3068 To be absolutely clear, none of these practises are practises that we engage in. They are not our focus, they are not good for radio as a medium, and no one has suggested that in Halifax we engage in any such practises.
3069 Moreover, many of those practices would absolutely contravene the Competition Act and, as we noted a little earlier, under the interface document between the Commission and the Competition Act it is recognized that those kinds of things are the exclusive jurisdiction of the Competition Bureau.
3070 While the applicant acknowledged at one point in his intervention that it would be unfair to disallow LSAs and then license new players, he then went on to suggest a number of other things.
3071 First of all, he suggested "we should have known that these practices were a problem".
3072 Well, how should we have known? At the time of the call for the Halifax hearing of new licences, there was absolutely no complaint filed, nothing in any previous hearings or decisions of the Commission that suggested there was a problem with sales arrangements. In fact, in respect of these arrangements, we had fully apprised the Commission staff on what we had done to break up the LMA, and at no time were we told that there was any difficulty with that.
3073 So the fact remains that at the time of that call we had no reason to believe there was anything in the practises that we developed that was in any way offside and therefore we acted accordingly, and acting accordingly in CHUM's sense was making a decision not to apply, a decision that obviously would not have been the case had we known there was even a scintilla of possibility that the Commission would disband -- or require us to disband our LSA.
3074 The intervenor also suggested things such as the Commission should "correct this before it becomes a competitive issue, order the sale of CIEZ, regulate or disallow LSAs".
3075 All of those things, quite frankly, are, in our view, unfair in the extreme, given the circumstances, given the fact that we have in no way breached our license conditions and have acted in good faith.
3076 We have to say that JAMZ' plea, and I quote, "for a level playing field" seems to be really asking the Commission for a guarantee of success.
3077 If I can make an analogy of the joke that we all know of the pot of lobsters, the Canadian pot of lobsters and the U.S. pot of lobsters, and the Canadian pot of lobsters is uncovered and the U.S. pot of lobsters is covered. If you remember the joke, someone is asked "Why is the Canadian pot of lobsters uncovered?" and the answer is "Because the other lobsters pull down anyone that reaches the top and tries to escape."
3078 I thought and we believe that we are past that in the radio industry. CHUM and Newcap, Rogers, Corus, other players, OK Radio, Milestone are looking to grow radio as a medium, to grow us as an industry, not to compete with each other and pull other players down.
3079 So with respect, to conclude, we continue to believe the sales arrangements are appropriate because they grow advertising to radio and benefit all radio stations in a market. We believe those arrangements are consistent with, and by no means contrary to the Broadcasting Act, but we stand fully prepared to provide any information and make any conditions that we discussed earlier to satisfy the Commission that they are indeed appropriate and consistent with the Broadcasting Act.
3080 That concludes our remarks. Thank you.
3081 THE CHAIRPERSON: Thank you.
3082 Does Newcap have any reply?
3083 MR. MAHEU: We will make them brief Madam Chair.
3084 Madam Chair, Commissioners, thank you for the opportunity to respond to the written and verbal intervention from Halifax JAMZ 95.7 Inc.
3085 At this time I would also like to thank and acknowledge the support of interventions received on behalf of the renewal of the licences for Newcap for CFDR, CFRQ and CIEZ-FM.
3086 I promised I would keep my remarks brief, a few things we would like to get on the record here as we respond.
3087 There has been a lot of, or some hyperbole back and forth on this issue beginning with the Halifax hearings and so forth. So at the risk of adding gasoline to a fire, that is not our intention, but we do want to address a couple of areas that we believe are important.
3088 Our activities and our collaborative sales effort in Halifax have been described JAMZ and others as anti-competitive and impeding their ability to compete. We categorically deny this. There is plenty of evidence to the contrary.
3089 At the Halifax hearing for instance, there were terms thrown around like cartel, price fixing, other characterizations, and from a corporate point of view, from a business point of view, those kinds of characterizations, Newcap takes those extremely personally.
3090 We invest countless millions of dollars in time, in money, in efforts of over 500 people working from coast-to-coast to build what we believe is a great radio company that operates honourably, ethically and we take exception to characterizations like that.
3091 We believe that in the presentation we made today to the CRTC about our activities in Halifax that our actions there and how we go about doing our business speaks for itself.
3092 We do not target other radio stations in the marketplace, nor would we target new entrants to the marketplace should they be licensed by the Commission.
3093 As is been duly noted in our discussion, our focus in the Halifax situation is to go after new radio dollars and increase the market by targeting specific areas like print and television and our efforts have resulted in a marketplace that has grown at a very, very good pace, some 33 per cent over the past five years.
3094 Competitive advantage is often a question that depends on your point of view. For instance, where we are being portrayed as uncompetitive or anti-competitive in Halifax because of the collaborative sales effort, it should be noted that if you take a close look at the Maritime Broadcasting Website they speak very eloquently about their competitive advantage in the Maritime region and in Halifax, that they deliver 1.8 million consumers in the Maritime provinces. They go on to state that they have a similar reach, a reach very similar to regional television systems in the area. That is a unique competitive advantage that they bring to their operation in Halifax that Newcap does not have.
3095 So we all have different competitive advantages and we employ them to the best of our ability to make sure that our listeners and advertisers are well served.
3096 We know our experience in rural Alberta and rural Newfoundland and Labrador tells us that we can work hard with smaller stations or in other situations and serve a community well and sell smartly and be successful.
3097 We believe, as has been noted by others, that the situation that MBS finds itself in in Halifax and so forth has less to do with the sales collaborative effort, it has more to do with how you approach generating an audience that is large enough to sell that brings a unique proposition to the table.
3098 We have gone to great lengths to spend money, invest in research, good people, technology, training, et cetera, and we believe a large part of our success is born out in that area.
3099 I think we will leave it at that. Thank you.
3100 THE CHAIRPERSON: Thank you.
3102 MS JONES: Thank you, Madam Chair.
3103 THE CHAIRPERSON: No, Vice-Chairman Colville first.
3104 COMMISSIONER COLVILLE: Madam Chair, I hope this is not inappropriate, but Mr. Miller I must say I take exception to the accusation that following the demise of the LMA somehow it was inappropriate for the Commission staff or the Commission not to make you aware of a concern about an arrangement that we have learned today doesn't even exist in any written form.
3105 So how can we be accused of not expressing our concern about something that doesn't even exist other than an informal arrangement between the two companies?
3106 MR. MILLER: I think I must have misspoken.
3107 My suggestion was simply -- and again to repeat, as to the form of the LSA and its scope we completely understand your need to satisfy yourself that the form of it is appropriate.
3108 As to the existence of any form of LSA, that is my issue. The Commission has never suggested that any form of LSA is an issue.
3109 Is that clearer?
3110 COMMISSIONER COLVILLE: It doesn't satisfy my concern.
3111 THE CHAIRPERSON: Mr. Miller, we do have on file, even following the Milestone decision, concerns expressed as a result of complaints to the Commission, not necessarily in your case, but our records are not free of having express concern about LSAs.
3112 One certainly is the Sudbury situation. Whether or not you are supposed to know that is another -- but it certainly didn't seem to us to be odd to express concern and to want to look at LSAs even following the Milestone decision.
3113 MR. MILLER: Again, Madam Chair, if I can just be clear, we were aware that parties had raised concerns. We were not aware of any ruling by the Commission that would suggest that LSAs were inappropriate. That was the only --
3114 THE CHAIRPERSON: We haven't made one yet.
3115 MR. MILLER: Of course it is entirely appropriate for the Commission in licence renewals to make those determinations. It is just this particular unique circumstance in Halifax is you are making that determination at the same time as you are considering new licences.
3116 That is the only point I'm trying to make.
3117 THE CHAIRPERSON: Counsel, please.
3118 MS JONES: Short of having a formal written agreement, could you file with us what you proposed earlier, maybe a list of things that are covered in the scope of your sales agreement and things are not covered and the scope of that?
3119 MR. MILLER: Yes, absolutely.
3120 MS JONES: This week. By the end of this week if possible.
3121 MR. MILLER: Again, because it hasn't been committed to writing before we would respectfully request that we have until the end of the month and we will look at whether or not it is easier to file, in a sense, an itemization and whether, quite frankly, given the discussion of the last two days whether it is more appropriate for us to file, in a sense, an agreement.
3122 We will look at that, but what we would respectfully request is the opportunity to get back to you by the end of the month, as I think a number of others have.
3123 MS JONES: Would it be unreasonable to ask that you try to file it earlier, maybe in two weeks?
3124 MR. MILLER: We will certainly use best efforts. I can imagine our colleagues at Newcap have a lot to do as well, but yes, we will certainly --
3125 MR. MAHEU: We would certainly be happy to make a best efforts case to get it done in two weeks or less.
3126 The other question I would have on behalf of Newcap, do you need a separate filing from each company of the same thing?
3127 MS JONES: A joint filing.
3128 MR. MAHEU: Joint filing, okay.
3129 MS JONES: Thank you.
3130 THE CHAIRPERSON: I would assume that it won't be very difficult to put on paper the relationship you actually have. You are not negotiating because you are already dealing with each other under an informal agreement.
3131 MR. MAHEU: That's right.
3132 MR. MILLER: That's correct.
3133 THE CHAIRPERSON: You will have the benefit of perhaps meeting some of our concerns as well.
3134 MR. MAHEU: On the exclusions, yes.
3135 THE CHAIRPERSON: We will adjourn, then, the hearing of these five renewal applications.
3136 We will hear CJRN and complete that tonight because the parties concerned have a problem with staying or being available tomorrow. At nine o'clock tomorrow morning we will resume with the hearing of the two competing radio applications.
3137 So we will now take a 10-minute to allow for the change of parties.
--- Upon recessing at 1807 / Suspension à 1807
--- Upon resuming at 1817 / Reprise à 1817
3138 THE CHAIRPERSON: Mr. Secretary, please.
3139 MR. LEBEL: Thank you, Madam Chair.
3140 We will now hear item 10 on the agenda, which is an application by CJRN 710 Inc. to renew the licence of the commercial radio programming undertaking CKEY-FM Fort Erie and its transmitter CKEY-FM-1 St. Catharines, expiring 31 August 2004.
3141 The Commission identified a number of issues that would be raised at this public hearing.
3142 Appearing for the applicant, Mr. David Dancy, and he will introduce his colleagues.
3143 You have 20 minutes to make your presentation.
PRESENTATION / PRÉSENTATION
3144 MR. DANCY: Before I begin I just want to thank you, Madam Chair and the Commissioners and the Commission staff for allowing us to be heard tonight. We really do appreciate that accommodation. Thank you very much.
3145 Madam Chair, Commissioners, ladies and gentlemen of the Commission, my name is David Dancy, President of CJRN 710 Inc., licensee of CKEY-FM.
3146 With me today on my right is Robert Whitehead our program director; and on my left is Andrew Ferri, a principal investor in CKEY whose important role in our future will be more fully explained later on in our presentation.
3147 Behind me are Corey Mottley, who produces our local programming, and Joel Fortune of Johnston and Buchan.
3148 It had been my hope that Elizabeth Lewis, our long-time general manager would also have been with us, but as luck would have it today also marks the opening of the Niagara Casino, the biggest event to happen in the Niagara region over the past decade. We are a small operation and an event of this magnitude requires virtually our entire staff, other than those of us who sit before you of course.
3149 Madam Chair, Commissioners, this is the first time that I have appeared before the CRTC and I am pleased to have the opportunity to share with you some of the challenges that we have faced and our accomplishments in serving our community and growing our audience during the last license period.
3150 After several demanding years of trying, we have finally secured our future and we look forward to sharing these plans with you.
3151 CKEY-FM is licensed to serve Fort Erie and, with our rebroadcast transmitter located in St. Catharines, our market area is the Niagara Peninsula. The vast majority of our retail and national advertising is based on our coverage of Fort Erie and Niagara Falls.
3152 Like other Canadian border stations, we are situated across the water from a large American city. In our case, we compete with over 25 stations within the Buffalo EMA for the loyalty of Canadian listeners within our own market.
3153 As the Commission is aware, CJRN 710 Inc., the licensee of CKEY-FM, was purchased in 1978 by my late father, Keith Dancy.
3154 While things during the first 20 years of ownership were never buoyant, shortly after receiving our license renewal in 1997 it became clear to my father that the company would need to bring in additional capital or be sold outright.
3155 In the period between 1998 and 2001, four separate agreements for the sale of our company were painstakingly negotiated, but not completed for one reason or another. In one case, the Commission approved the proposed transfer of ownership in an astounding 17 days, which we were very grateful for, only to have the agreement fall apart because the purchaser was not able to come to terms with our principal creditor, a financial institution.
3156 In 2001, my father passed away and I took over responsibility for the full-time operation of the station. The untimely loss of my father was compounded by what seemed to be insurmountable challenges. It appeared that our principal creditor would attempt to foreclose and liquidate the company.
3157 In addition to the day-to-day operating hurdles of paying the bills, making the payroll, and addressing the demands of our principal creditor, our other reality was not having the resources to make capital improvements to our facilities as quickly as they needed to be made.
3158 We developed a three-phase capital spending plan to bring our production studios up to what we would consider state-of-the-art. We are pleased to tell the Commission that while there is still work to be done, the new CKEY-FM broadcast studios are now complete and in September 2003 we installed a new transmitter for CKEY-FM.
3159 Not being able to do these improvements all at once, however, necessitated our becoming very creative in the ways in which we kept CKEY-FM on the air.
3160 One such example involved Citadel Broadcasting, our U.S. sales representative. Citadel is a major U.S. broadcasting company which owns stations in Buffalo with excellent production facilities and, as luck would have it for us, excess production capacity. This gave us the opportunity to use their state-of-the-art production facilities to produce some of our programming. This arrangement allowed us to rebuild our production studios within a time frame that we could finance while continuing to broadcast in a seamless manner.
3161 While we are now back to producing all of our programming within our newly renovated studios. I would like to take this opportunity first to thank Citadel for its support; and, second, to say to the Commission directly and unequivocally that at no time did CJRN 710 Inc. ever not have control of all aspects of our operations, including the programming that was produced -- by us -- at Citadel's facility.
3162 Robert Whitehead, our program director, travelled to the Buffalo studios to supervise and direct the programming and to create the playlists and other programming components. This programming, once it was produced, was sent back to our own production studio through an ISDN line and then to our transmitter for broadcast.
3163 In point of fact, what we did was no different from any station that airs syndicated programming originating in the United States, except that in our case the content was our own programming, produced exclusively by CKEY-FM, directly under our control at all times.
3164 In September 2002 we re-launched CKEY-FM as "WILD 101" using a rhythmic contemporary hit format targeted to the teen and 18-to-24 audiences.
3165 This format is a mixture of dance, hip hop, reggae and R&B targeted to the teen and young adult market. Surprisingly, this format appeals across all segments of the target age audience. It is a successful format because it includes the affluent youth segment that advertisers active in areas of youth culture wish to reach.
3166 I am delighted to advise the Commission that despite the onslaught of Buffalo stations, many of which are owned by powerful broadcasting companies with multiple stations across the United States, our audience numbers have increased slowly but surely. According to Fall 2003 BBM ratings, WILD 101 is now the dominant station amongst Canadian listeners in the 12-to-24 and 12-to-34 demographic, slightly ahead of WKSE-FM, the Buffalo station that competes directly with us for Canadian listeners.
3167 The BBM numbers support the fact that our Canadian audience increase has been at the expense of American stations. We are repatriating Canadian tuning. We consider this to be an important accomplishment in the David and Goliath world of Fort Erie versus Buffalo/
3168 At the same time, our new format has attracted a Buffalo-based audience, which has helped increase our advertising revenue from south of the border.
3169 We are also very proud of the fact that during this license term we have remained committed to serving our local community. We have continued to offer significant amounts of local programming and we are deeply engaged in a number of important community initiatives and the development of local talent.
3170 We would like to address specifically the issue identified by the Commission in its Notice of Public Hearing with respect to our local programming.
3171 The Commission's definition of "local programming" in part states that:
"...licensees must include spoken word material of direct and particular relevance to the community served, such as local news, weather and sports, and the promotion of local events and activities".
3172 In its January 23, 2004 letter the Commission noted that a review of specific logs and logger tapes, and I quote in part "failed to find any news or sports content..." close quote, and questioned how we then conformed to our Condition of Licence No. 9, which states in part that:
"...The licensee refrain from soliciting or accepting local advertising for broadcast during any broadcast week when less than one-third of the programming aired is local."
3173 As outlined in our February 12th response to the Commission, our format, which is directed to the 12-to-24 demographic, does not rely on traditional news, sports, weather and traffic spoken word content, but rather relies on spoken word content that is relevant to our target demographic and is an intrinsic part of our format. Our non-traditional spoken word content differentiates us from our competition from Buffalo and, we believe, contributes directly to the success we have had repatriating Canadian listeners.
3174 An updated, non-traditional presentation for the spoken word elements of our programming is also an important consideration for us in reaching our demographic. For this reason, our spoken word content consists of a free-form style. Key components of this content are "Hip Hop Headlines", which provides information on all the entertainment in our area of interest to our listeners, and WILD 411 updates.
3175 The WILD 411 updates run nine times a day and provide information on community events and essentially anything happening in our community of interest to our audience.
3176 In addition, we often do live remotes, which offer listeners an opportunity to call in to be part of an event. As an example, on Saturday November 22nd, one of the days that the Commission examined in our logger tape, WILD 101 was live on location at the "Moose and Goose", which is a local venue, to promote two Canadian hip hop bands. Our coverage of this event included interviews with the artists and the audience and provided listeners with the chance to call in with their questions, which they did.
3177 While our audience does not seem to relate to a traditional news format, we have added a local weather segment to our programming mix.
3178 Also, I would just like to point out that every hour the station runs ID announcements in accordance with Industry Canada requirements. Our listeners know that they are listening to a Canadian station originating from Fort Erie and Niagara.
3179 We have also made a substantial commitment to our local community. Most important perhaps, we have worked closely with the Emergency Preparedness teams in our region to ensure that in times of need CKEY-FM will provide timely and relevant information to our audience.
3180 We are involved directly in community-based initiatives. In 2003 alone we supported over 65 non-profit groups, giving away over 3,000 commercial spots on CKEY-FM. To give you an idea of how our community involvement and programming mandate interact, we would like to share with you three specific projects.
3181 Throughout November and December last year, CKEY-FM, working in conjunction with the Niagara Falls Sunrise Rotary Club, presented the 2003 Christmas Share Campaign. This campaign was designed to promote the "Project Share" Food Bank. We raised cash, food and toys for those less fortunate in our community.
3182 The project was so successful that we are making it an annual event and planning for Christmas Share 2004 is well under way with a view to making the event even larger, with more community partners and additional media sponsors.
3183 The Mayor's Youth Advisory Council is comprised of students from various high schools. The Council's mission is to create fun and exciting projects for the teen population. CKEY-FM was instrumental in providing staff volunteers and airtime to promote and execute a local battle of the bands competition. CKEY-FM included remote, on-air cut-ins, all from the competition.
3184 Working in conjunction with local school boards, CKEY-FM was instrumental in promoting and coordinating the 2003 and 2004 "Ultimate Mix Challenge". This was a local competition between high schools in the Niagara region to create a nonalcoholic beverage and win bragging rights for school spirit. The primary objective for the program was to educate students regarding drinking and driving in a way that resonates with them. One of our staff members sits on the advisory council, others acted as judges and mc's.
3185 While we made progress, Madam Chair, it had been, until recently, the old story of one foot forward and two steps back. The reality is that both CKEY-FM and its sister station CJRN-710-AM continue to lose money. This situation is caused in part by the challenge we faced in resolving our outstanding debt obligations and establishing a firm financial foundation.
3186 Only by resolving these issues could we put ourselves in the position to focus on building the business over the longer term, rather than putting out fires on a day-to-day basis
3187 The search for a new financial foundation has taken several years, but today I am very pleased to share with the Commission that on this past June 1st, a week ago today, we have settled our long-standing dispute in relation to our principal debt.
3188 Guardian Inter-Funding, a company operated by Andrew Ferri, who I introduced to you earlier, has acquired this debt. Andrew has been involved with our company in one role or another since 2001. Until the recently completed acquisition of our outstanding debt, Guardian Inter-Funding has financed our monthly cash flow deficits.
3189 It is now intended to restructure the financial operations of CJRN 710 Inc. Through this process, Andrew would acquire a controlling interest in the stations owned by CJRN, subject of course to the Commission's approval.
3190 We expect that an application relating to this transaction will be filed soon. i am very pleased that I will continue as president of the stations and, for the first time since taking over operations, have a chance to focus entirely on doing good radio.
3192 MR. FERRI: Madam Chair, Commissioners, I am very pleased to have the chance to be here today. I look forward to becoming a part of the canadian broadcasting system as an owner rather than a banker. I grew up in Niagara and my family and business roots are firmly entrenched in that region. I have strong reasons for wanting to ensure that our local radio stations remain locally owned.
3193 I am also fully aware of the level of operating funding and the capital spending which is required to make these stations competitive, and if our application for transfer of control is approved this is exactly what I will ensure is done.
3194 I know that the Commission will wish to consider our application when it is filed on its own merits, so I will refrain from listing those merits here.
3195 Let me just say that I wish to work with the Commission and its staff to ensure that these stations have a viable and prosperous future.
3196 MR. DANCY: Madam Chair, Commissioners, we have certainly faced our challenges during this past license term but we look forward to brighter days ahead.
3197 As I said in the beginning, this is my first time before the CRTC and I would like to end my remarks, if I may, by thanking the Commission staff, who I have always found to be helpful, empathetic and supportive as we have worked our way through a lot of turmoil as an independent broadcaster to the point that we are at today. Thank you.
3198 Commissioners, thank you for your time today and we now look forward to your questions.
3199 THE CHAIRPERSON: Thank you, Mr. Dancy and Mr. Ferri.
3200 It is good that both of you are here for this exercise; you, Mr. Dancy, if you plan to continue, even if a transfer was allowed with the stations and you, Mr. Ferri, so that you understand what the regulative world is all about and what the expectations are of Canadian radio licensees, all of them, whether they are close to the border or not.
3201 In our Notice of Hearing 2004-3 we indicated our intention to discuss with you, Mr. Dancy on behalf of CJRN 710 Inc., whether at any time during the last term of license, all of it, CKEY-FM was not under the control CJRN, the licensee.
3202 I will discuss this first issue with you in two parts.
3203 First, by examining the local sales of CKEY-FM pursuant to a joint sales agreement with Citadel Broadcasting, an American Company.
3204 Secondly, the programming activities of CKEY-FM carried under any arrangement with Citadel Broadcasting at any time during the last licence term.
3205 Then, as noted in the Notice of Hearing 2004-3, I will discuss with you whether CKEY-FM was being operated at all times during the last term of its licence in compliance with condition No. 9 of its licence.
3206 Thirdly, also as noted in the Notice of Public Hearing 2004-3, I will discuss with you CKEY-FM's compliance with section 8(1) and 4 and 9(3)(b) of the Radio Regulations 1986 during the entire last term of license.
3207 So if we look at the issue of control, let me say as a backdrop that, as you know, or certainly your lawyer does, a direction to the CRTC was issued by the government which makes eligibility to hold a broadcasting licence by corporations not owned and controlled by Canadians -- makes ineligible for holding a licence corporations not owned or controlled by Canadians.
3208 We have on file ownership and board constitution material that was filed on 29 January 2004 by CJRN which indicates compliance with those requirements that are set out in the direction, that is equity, the ownership of the equity and the constitution of the board are in compliance with the direction. But the direction also states, at section (3), that the Commission may determine that a licensee is non-Canadian on the basis of personal, financial, contractual or business relations, or any other consideration relevant to determining control.
3209 So over and above beneficial ownership and control of the voting shares of the corporation and the constitution of its board, there are also overarching requirements that the licensee not be under the control of a non-Canadian. "Control" is defined in that direction in part as controlled in fact through an agreement or an arrangement.
3210 I would like to examine with you, as I stated earlier, two areas which I consider to be key elements or essential activities of a radio station to help determine whether control of CKEY-FM resided at any time during its last term of license with someone other than CJRN 710 Inc. and whether that may explain why Citadel broadcasting, a very large American broadcasting company, lists, and still lists, CKEY as one of its Buffalo stations on its Website, in effect giving CKEY's address as a Buffalo one. So we would have to examine what makes it possible.
3211 I checked the Website a few days ago and it was still listed there. I printed it out. I'm sure you have seen it.
3212 Of course when I look at Website you are there too, but as of last week Citadel Broadcasting still felt able to list CKEY-FM as one of its Buffalo stations.
3213 So let's look at this joint sales agreement and its effect during the last license term as to whether the licensee was indeed under the control of CJRN 710 Inc.
3214 Is this joint sales agreement between CJRN and Citadel still in effect and still in the form filed with us on 12 December 2003, albeit with some changes to some sections of the agreement from when it was signed earlier in 1995?
3215 Is it still in effect?
3216 MR. DANCY: We have given notice to Citadel and their CEO Farid Seulman, has agreed that it will be renegotiated as part of a larger -- in the totality of the restructuring of the company CJRN 710 Inc. with regards to Mr. Ferri when we make applications to the Commission.
3217 So is it still in effect? Yes, but we have agreed that it will be renegotiated, and that it will be renegotiated inside the totality of everything that we are doing in restructuring the company.
3218 THE CHAIRPERSON: Yes. We are looking at your past license term, because before Mr. Ferri can get a transfer of this undertaking it has to be renewed and we are looking at the past term, as we do for everybody.
3219 So if last week or this week or today you are still operating under this joint sales agreement --
3220 MR. DANCY: Yes.
3221 THE CHAIRPERSON: -- as drafted in 1995 with some amendments to clause 5.
3222 MR. DANCY: Yes, as it was filed.
3223 THE CHAIRPERSON: So they still have exclusive rights to U.S. rights sales?
3224 MR. DANCY: Only in the U.S. though. They only have sales rights in the --
3225 THE CHAIRPERSON: Oh, yes. I said U.S. right sales, yes.
3226 MR. DANCY: Okay. Sorry.
3227 THE CHAIRPERSON: They still provide advertising copy to you --
3228 MR. DANCY: Only with respect --
3229 THE CHAIRPERSON: -- according to clause 3 with respect to U.S. sales?
3230 MR. DANCY: Yes.
3231 THE CHAIRPERSON: And under clause 5 you still share 50:50 of the revenues from those local sales. Up to now you have stated that they were all local sales, U.S. local sales.
3232 MR. DANCY: We book kept them all as local sales from Citadel.
3233 THE CHAIRPERSON: Yes.
3234 MR. DANCY: All the orders that came from Citadel, whether they came from their national rep house, they all came through that office and we booked kept them --
3235 THE CHAIRPERSON: Considered to be local under the definition of the agreement.
3236 MR. DANCY: Yes.
3237 THE CHAIRPERSON: I noticed that. You mentioned that in one of your deficiency responses.
3238 You still share 50:50 of the revenues generated by those sales, minus commission --
3239 MR. DANCY: Yes.
3240 THE CHAIRPERSON: -- and any other mutually agreed upon expenses?
3241 MR. DANCY: Well, actually the commissions are deducted first, then we split 50:50, but between when the commissions are deducted and we split, any other expenses that are mutually agreed upon, yes, they are deducted.
3242 THE CHAIRPERSON: So the gross sales you deduct the commission?
3243 MR. DANCY: Yes.
3244 THE CHAIRPERSON: You each get 50:50 and then you pay back the expenses?
3245 MR. DANCY: No. What happens is that the gross sale, let's say it's $100, we deduct the commission, then we deduct any mutually agreed expenses --
3246 THE CHAIRPERSON: Yes, okay, I understand.
3247 MR. DANCY: I'm sorry.
3248 THE CHAIRPERSON: As the agreement provides.
3249 I thought you said you share the revenues and then pay them for the mutually agreed upon expenses.
3250 Now, Citadel is responsible as well, according to clause 6, for the collection of the U.S. sales.
3251 MR. DANCY: That was true effective May 1st period, June 1st billing. We have taken over collection of all the outstanding receipts.
3252 THE CHAIRPERSON: Now, in a letter dated February 4, 2004, in response to some of our clarification questions or deficiencies from our staff, you have filed in confidence gross sales. We are talking here of the sales generated as a result of the joint sales agreement between 1999 and 2003.
3253 Then you have filed, also in response, the commissions for the local sales.
3254 I have some questions as to what these numbers really mean and obviously the extent or the importance of them.
3255 Number one, let me ask you: These amounts that were provided from 1991 to 2003 is gross sales.
3256 Do they cover a calendar year, January 1st to December 31st, or do they cover a broadcast year.
3257 MR. DANCY: No, we report everything according to the Commission's August 31st year, fiscal year.
3258 THE CHAIRPERSON: Those numbers you provided in that letter are reported in the same manner as our broadcast year --
3259 MR. DANCY: Yes.
3260 THE CHAIRPERSON: -- September to August.
3261 For the current year you have provided for 2003 the gross sales but not the commission.
3262 Can you provide, in confidence, the commission for 2003, which is well finished obviously.
3263 MR. DANCY: Yes.
3264 THE CHAIRPERSON: There is a zero sum there.
3265 MR. DANCY: And that was the commission.
3266 THE CHAIRPERSON: Zero commission for that year?
3267 MR. DANCY: Yes.
3268 THE CHAIRPERSON: For that broadcast year?
3269 MR. DANCY: Yes.
3270 THE CHAIRPERSON: Can you explain why that is?
3271 MR. DANCY: Yes. Because of the calculation, the sales first -- you deduct the commissions then the expenses, and when that was done that was the remaining amount that was owed to be split.
3272 THE CHAIRPERSON: Explain that to me again.
3273 You have a number in confidence --
3274 MR. DANCY: Yes.
3275 THE CHAIRPERSON: -- as gross sales.
3276 MR. DANCY: Yes.
3277 THE CHAIRPERSON: Yes. Explain again how there was no commission.
3278 MR. DANCY: Because we charged everything. Because of the clause 5 that dictates how we are supposed to split the revenues, there was nothing remaining after expenses, so there were no commissions paid that year to Citadel.
3279 THE CHAIRPERSON: Those amounts that were given in response to Question 3, do they represent net amounts in any event, not gross amounts?
3280 MR. DANCY: No, no. They represent the gross sales, but in the commission -- in the way that the accounting was done at the corporation everything was charged to the one account which was called "commissions relating to Citadel". All expenses, all -- in 1999 you will notice that the gross sales figure is actually less than the commission figure.
3281 THE CHAIRPERSON: Yes, I was going to ask you.
3282 MR. DANCY: If you would allow me, that was because in 1998 there were some excessive expenses that we had to charge and it was decided at that time that everything would get charged into the one category. When I took over the company we maintained that same accounting.
3283 THE CHAIRPERSON: "Expenses". You mean expenses owed by CJRN to Citadel?
3284 MR. DANCY: Yes.
3285 THE CHAIRPERSON: So to ask you again, these numbers, the gross sales, is all the revenues generated by the joint sales agreement?
3286 MR. DANCY: Yes.
3287 THE CHAIRPERSON: So I should not be then adding on what his stated -- as a response to Question 4, it should not be added on to the other number to know how much was generated?
3288 MR. DANCY: No. That's correct.
3289 THE CHAIRPERSON: So the difference for 2003 would be that -- or if I take 2002 and I take what you put there as commission --
3290 MR. DANCY: Yes. Right.
3291 THE CHAIRPERSON: -- the difference between that and the gross are expenses?
3292 MR. DANCY: No. That is the actual sales revenue.
3293 If you take the gross sales, deduct the number that is in the commission, that is to the revenue that we received.
3294 THE CHAIRPERSON: Except that in that sum there would be also expenses, other expenses.
3295 MR. DANCY: Yes. It's not just commissions. It is the commissions and expenses.
3296 The number that is listed as "commissions", because of the way it was accounted for, it was all charged to that account.
3297 THE CHAIRPERSON: There is some detail which we will go into after about the expenses, other expenses that were deducted, but for us to have a better picture we would have to ask you to file what other -- the amount of the expenses other than the commission.
3298 MR. DANCY: Okay.
3299 THE CHAIRPERSON: Isn't that how I would get a picture of the financial relationship with Citadel?
3300 THE CHAIRPERSON: Let me say that when I calculate this commission it gives me something in the range of 40 per cent commission.
3301 MR. DANCY: Yes.
3302 THE CHAIRPERSON: The reason for that is that that is not only commission. It is other expenses?
3303 MR. DANCY: Yes.
3304 THE CHAIRPERSON: How would I split expenses and commission?
3305 What is the commission? In your agreement it of 20 per cent unless you agree to something else.
3306 Are you using 20 per cent?
3307 MR. DANCY: Yes.
3308 THE CHAIRPERSON: So if I take 20 per cent, then I could backtrack and know what the other expenses are, the level of the other expenses.
3309 MR. DANCY: Yes. Unless there is an agency commission involved. An agency commission would be separate, which is traditionally -- most of the time it is 15 per cent.
3310 THE CHAIRPERSON: But all of that will be included in those numbers that you gave me.
3311 MR. DANCY: Yes. Yes, they are.
3312 THE CHAIRPERSON: In your annual returns -- let's take 2003.
3313 In your annual returns is the revenue line net of commission? In your total revenues I would also have the revenues garnered from Citadel --
3314 MR. DANCY: Yes.
3315 THE CHAIRPERSON: -- during 2003?
3316 MR. DANCY: Yes, you would.
3317 THE CHAIRPERSON: They would be there free of commission and added to that would be sales with Target --
3318 MR. DANCY: Yes.
3319 THE CHAIRPERSON: Those would also be free of commission?
3320 MR. DANCY: Yes, net sales.
3321 THE CHAIRPERSON: So I would have to recalculate --I was trying to figure out what is the importance of this joint sales agreement to figure out what the percentage of sales that are generated by this joint sales agreement compare to the total. Now that I understand that it is gross sales I will have think through whether we need other numbers to figure this out, what is the percentage of the revenues that show up in your returns for local sales.
3322 But you say there is also some national sales in there.
3323 MR. DANCY: Yes.
3324 THE CHAIRPERSON: So I would have to take your total revenue and figure out what was the percentage of your total revenue for 2003 net of commission, not of the other expenses.
3325 MR. DANCY: Yes. Although I'm not an accountant, the CRTC return doesn't have a separate "national" line.
3326 THE CHAIRPERSON: Yes, it does.
3327 MR. DANCY: So then the nationals will be reported in that line.
3328 THE CHAIRPERSON: What we will probably ask you to do is -- what I am trying to find out is not a big secret, it is to see what was going on during those years and were you making most of your money from American sales combined with the other things that were going on so that we can say "Hey, this company may have been in trouble, but becoming an American radio station is not in the cards."
3329 So you will have to speak to your accountant or lawyer so that we can figure out what is the percentage of your revenues net of Commission only that came during those years from U.S. sales, national and local. To do that, you will have to separate the commission from the other expenses that you incurred because of the services that were rendered by Citadel.
3330 Is that clear?
3331 MR. DANCY: Yes.
3332 THE CHAIRPERSON: Thank you.
3333 So you will speak to counsel after we --
3334 MR. DANCY: Madam Chair, would you like me to give you an estimate?
3335 THE CHAIRPERSON: Yes. Because if I took the gross sales I end up with something like 62 per cent one year of the local sales, and national you are saying now originated in the U.S.
3336 MR. DANCY: Over the years it has been about anywhere around 60 to 70 per cent Canadian revenue. However, it has become more even.
3337 In the format that we are after, which is teen and young adult, in the last year we didn't foresee that the advertisers in this market have been focusing mainly on major Canadian centres, i.e., Toronto in this area, and that a lot of the budgets that were in the outside areas for, let's say they young adult, the 18-to-24s, Molson Breweries, for example, has cut the budgets back in what they consider to be secondary markets.
3338 We are anticipating that it is going to return. We have a number of orders through Target in the last month that it appears that it is returning. But it has been in the neighbourhood of 70 per cent-plus, and in the last year it evened out a bit to maybe 50 to 60 per cent Canadian, but we are anticipating the trend to reverse again. I think it was a normal business slide.
3339 I don't know if that helps you or not.
3340 THE CHAIRPERSON: Let's be clear, in confidence, 1999 to 2003 broadcast years, and also for 2004, which will be to May let's say, added to these numbers, gross sales as you have given them, add the portion of 2004 up to May, and the commission, and separate the commission and the expenses and then calculate the percentage of revenues that came from U.S. sales in all those years.
3341 MR. DANCY: Right.
3342 THE CHAIRPERSON: During that time, and still until now, the exchange of money, how does that work?
3343 I heard you say that everything is taken out that you owe them, commission as well as sales rep, if that is the case --
3344 MR. DANCY: Yes.
3345 THE CHAIRPERSON: -- and any other expenses for other services which we will discuss later, and then it is 50:50. So you get a sum.
3346 MR. DANCY: Yes, we receive a cheque.
3347 THE CHAIRPERSON: Then you don't have to pay back anything. It is all covered?
3348 MR. DANCY: No. They collected the money, they deducted the commission and expenses, and remitted us our half of the balance.
3349 THE CHAIRPERSON: For these sales, who actually does the traffic? Who decides where these ads go?
3350 MR. DANCY: We do. Irene Bradnam, who is the traffic manager in Niagara Falls at our studios, has the CBSI system and all the contracts are then put into our system, we produce the log and we run the commercials.
3351 THE CHAIRPERSON: Has that been the case all through the last years?
3352 MR. DANCY: With the exception of about eight months, yes. For an eight-month period when we were redoing all of our internal networking and everything else --
3353 THE CHAIRPERSON: When was that?
3354 MR. DANCY: That was between September of 2002 and we corrected it in 2003. We changed it.
3355 THE CHAIRPERSON: So for the 2002-2003 broadcast year, how did it work then?
3356 MR. DANCY: What happened was that we would take all the orders in, and Citadel would also take all the orders in, and we ran two parallel systems of CBSI, one at the Buffalo studio, one at the Niagara studio, so that both studios had the same information in their computers and information systems and we ran parallel systems for that time.
3357 THE CHAIRPERSON: According to clause 3 of the agreement, they provided copy to you. What control did you have over the type of advertising, and so on?
3358 I know that in the agreement it says: Well, you will be responsible to check that all Canadian regulations are followed, et cetera, et cetera, but how did that actually work?
3359 MR. DANCY: All the creative was sent to our studio. Carson Monette, our production manager would receive it on computer by a data system. It would them upload it into our system and it was all monitored before it was uploaded.
3360 THE CHAIRPERSON: Did you ever --
3362 MR. DANCY: Sorry, no. My program director is right here.
3363 THE CHAIRPERSON: Did you ever reject copy?
3364 MR. DANCY: Yes.
3365 THE CHAIRPERSON: How would that work?
3366 MR. DANCY: It was rejected on either what you would consider the content of the copy or what we felt was not appropriate for our radio station, which I guess would be content as well.
3367 For example, all Citadel stations ran a Buffalo Pride campaign that we did not feel was appropriate for our radio station. So the advertisers and the copy that was related to that was turned down.
3368 Also, for personal, moral and ethnical reasons, the adult entertainment community advertising that might have been accepted by Citadel was not acceptable by myself or my program director, Rob White.
3369 THE CHAIRPERSON: How often did that happen?
3370 MR. WHITE: I would say probably maybe once a month, if that.
3371 THE CHAIRPERSON: Then what would happen with that copy that was for sales already made?
3372 MR. DANCY: No. If we didn't accept the copy then the order was not run. So it was either cancel it if it had already been put in the system, or it wasn't put in the system.
3373 Anything that is in the adult entertainment sector has to be approved by myself and Rob White before it can be input into the system. If it was an order such as the Buffalo Pride order that was put in the system and we didn't like the copy, then that order was cancelled.
3374 THE CHAIRPERSON: We have already discussed the fact that there were expenses other than commission that would be deducted from the money generated --
3375 MR. DANCY: Yes.
3376 THE CHAIRPERSON: -- the revenues generated by U.S. sales.
3377 Now I am looking at your February 4, 2004 letter which is in response to questions. In the very first page, response to Question 1, you talk about:
"For the year 2003 the total costs associated with the provision of personnel by Citadel was $90,000..." (As read)
3378 MR. DANCY: Yes.
3379 THE CHAIRPERSON: And:
"...which represents, for that year, 50 per cent of CKEY-FM's programming production costs." (As read)
3380 Do I take it from your comment earlier that this was the first year? When you do file the numbers this will be the first year where there will be something other than commission in the commission deduction from the gross revenue?
3381 MR. DANCY: Related to programming production, yes. But if there were costs associated with the sale for talent fees, from our staff, if we had actual production costs, that was deducted as well.
3382 THE CHAIRPERSON: Production of the advertising?
3383 MR. DANCY: Yes. No, no. Production of fulfilling the terms of the sales contracts.
3384 There are many times when there are some what you would call added value, if you want to use an agency term, in which you will do something in excess of just running 30 and 60-second commercials. You will have your talent appear at a function. You will drive across your vehicle and you will give away product, that sort of thing.
3385 THE CHAIRPERSON: This would be all things that would be occurring in Buffalo --
3386 MR. DANCY: Yes.
3387 THE CHAIRPERSON: -- that would represent those costs?
3388 MR. DANCY: Yes, as far as --
3389 THE CHAIRPERSON: What you just described would be activities occurring in Buffalo?
3390 MR. DANCY: Yes.
3391 THE CHAIRPERSON: In another response, in a letter of December 12, 2003, you say that:
"Citadel provided personnel to CKEY-FM in connection with the production of programming. More recently..." (As read)
3392 You tell us that in December "more recently". That was that broadcast year where more expenses were incurred because of services rendered by Citadel, the 2002-2003.
3393 Is that what "more recently" means?
3394 MR. DANCY: It is in the February 4th --
3395 THE CHAIRPERSON: I'm looking at you have a preamble and then on page 3 to Question 1 in response.
3396 Do you have that with you? It is a letter dated December 12, 2003 and at page 3, the last paragraph -- I'm reading from it:
3397 Let me know when you have it.
3398 MR. DANCY: I'm sorry.
3399 THE CHAIRPERSON: It is very difficult to go through all this and figure out what is happened when.
3400 MR. DANCY: Yes. No, I -- okay.
3401 THE CHAIRPERSON: Page 3, last paragraph. Do you have it now?
3402 MR. DANCY: Yes.
3403 THE CHAIRPERSON: I am reading:
"More recently, Citadel has provided personnel to CKEY-FM in connection with the production of CKEY-FM programming in Buffalo." (As read)
3404 Then you explain how you recover the cost of these expenditures.
3405 What is the "more recently"? Was this occurring before the broadcast year?
3406 MR. DANCY: No, it started September 4, 2002 and it was part of this whole using of the Citadel production facilities.
3407 Could I give you a time line of maybe how this --
3408 THE CHAIRPERSON: I understand it to be the broadcast year 2002-2003 you were actually using Citadel personnel to produce your programming.
3409 MR. DANCY: Yes, but would you like a time line of how that came about?
3410 THE CHAIRPERSON: I think it is in the document.
3411 My question is more was it occurring before, has it occurred since August 2003?
3412 MR. DANCY: No. It was September -- August, no, it has not.
3413 What happened was, there was the joint sales agreement and we were under a little bit of financial challenges. In December of 2001 I approached Citadel Communications because they were moving to a new building with four production studios. They only had three stations in the market. They had excess capacity.
3414 Between December of that year and August of that year I spoke to them about the need for us to use state-of-the-art equipment. We needed three 60-voice editors, we needed Denon CD players, we needed all the sorts of things that make a station sound great.
3415 What happened was that I went to them and over those months I asked them if I could make an arrangement with them to use their studio, because I not only had to get the radio station to sound better and be better in the market, but I had to have kind of a creative, if you will, way of managing it while I could arrange the financing. Because there was a litigation dispute over our debenture it was very difficult to get financing in what you would consider to be the normal ways.
3416 So what I did was, I went to them and approached them and asked them if I could use their studios to produce my programming.
3417 By August of that year they agreed to do it. When they agreed to do it, that is when I began using their studios to produce it and I began redoing, in a three phase program that I have outlined in some letters, to give me the time frame to get the financing to get the job done.
3418 We were talking about $300,000 worth of technical improvements that an independent broadcaster had to come up with that was not appearing to be financially viable at the time, so it was a very difficult task to get done.
3419 So maybe I was creative in getting it done, but I did all the time retain control of the programming through myself and my program director and at no time --
3420 THE CHAIRPERSON: We can speak about the programming as well after. I'm just trying to sort out now the financial aspects of it.
3421 So 2002-2003, not only were they selling ads for you and giving you that revenue net of commission, but they were also performing other services for you.
3422 MR. DANCY: Yes.
3423 THE CHAIRPERSON: Now, in the letter of 4 February -- and you are saying none of that occurred in other broadcast years during your license term, other than the broadcast year 2002-2003 with regard to services rendered for money other than related to the sale of advertising?
3424 MR. DANCY: No. I took over in May of 2001 and I can assure you that it hasn't happened.
3425 THE CHAIRPERSON: And it hasn't happened since?
3426 MR. DANCY: No.
3427 THE CHAIRPERSON: February 4, 2004 now, where we speak of the $90,000 at the bottom of the page --
3428 MR. DANCY: Yes.
3429 THE CHAIRPERSON: -- and then at the top of the page:
"Other technical costs associated with the remote production of programming were incurred, which were recovered by Citadel from the remainder of the U.S. sales in 2003." (As read)
3430 Is the remainder $135,000?
3431 MR. DANCY: Yes.
3432 THE CHAIRPERSON: That was wiped out?
3433 MR. DANCY: Yes, it was costing me --
3434 THE CHAIRPERSON: That is why there is zero?
3435 MR. DANCY: Yes. It was costing me approximately $20,000 a month to have the --
3436 THE CHAIRPERSON: So you were paying $135,000, plus $90,000 that year, for services rendered other than related to the joint sales agreement?
3437 If you turn the page there is another $135,000.
3438 MR. DANCY: No, no, I realize that, but they were all under the joint sales agreement. What I did was I --
3439 THE CHAIRPERSON: Yes, but I'm talking about not related to the selling of ads.
3440 MR. DANCY: No. That's correct, yes.
3441 THE CHAIRPERSON: So $13,000 plus $90,000.
3442 MR. DANCY: Yes.
3443 THE CHAIRPERSON: Where would these amounts show up in your annual returns? Under what line would these expenses show up, the $90,000 and the $135,000?
3444 MR. DANCY: I don't have my annual return here, but I would think that they would turn up in programming.
3445 I would have to speak to my accountant about that.
3446 THE CHAIRPERSON: But they are in your annual returns?
3447 MR. DANCY: To the best of my knowledge.
3448 THE CHAIRPERSON: As expenses. And they would be mostly under programming?
3449 MR. DANCY: I don't have my annual return right here, I'm sorry.
3450 THE CHAIRPERSON: Well, I can't give you the numbers, but if I look at expenses under programming for that year, 2002-2003, and I add $135,000 and $90,000, I see that most of your programming expenses have been spent with Citadel Broadcasting.
3451 MR. DANCY: Yes. I was using their facility to create my own programming.
3452 The other expenses would be Rob White's costs, that I sent him there every day to oversee the programming and give direction and make sure that it was appropriate for our radio station.
3453 THE CHAIRPERSON: What is your comment about the amount of revenues that come from sale in the United States when you also during that year were having your programming produced in the United States? We will discuss about how much control.
3454 On the face of it, how do you explain that this station was a Canadian station under Canadian control when you said, I think earlier, that the balance of revenues between the Canadian operations and the American operations were -- what were they at its worst or its best, depending on one's perspective?
3455 You said that at one time the --
3456 MR. DANCY: At its best it was 70-80 per cent Canadian; at its worst it was 50-60 per cent Canadian.
3457 THE CHAIRPERSON: So 40 per cent of the revenues and a large part of your programming expenses would flow to Citadel, and all of that would come from --
3458 What is your comment about what we should take from that as to whether that station was a Canadian station remaining under Canadian control?
3459 MR. DANCY: I made all the decisions. If you would like I will let Rob White, my program director, address how he maintained control on a regular basis. But we maintained control of the radio station.
3460 We were under very trying circumstances, we had some significant challenges, we had a senior debenture holder in litigation with us and for almost two and a half years we struggled with that issue.
3461 At the time when my father became ill and passed away, there was a deal on the table that the Commission I believe was aware of -- at least staff I think was aware of -- that there were a couple of conditions, one of them that the CRTC approved to make the sale possible. Unfortunately, the sale didn't go through and I was --
3462 THE CHAIRPERSON: Those are explanations, but I don't know what would become of the Canadian broadcasting system, seeing that a large proportion of our population is along the border, that every time a Canadian broadcaster had a problem they would go and broadcast from the States and become --
3463 MR. DANCY: I think, Madam Chairman, I really would like to say that I read the rules and the policies of the CRTC and we can go through specifically. This was our programming. I chose to do it at another location. I think it is being clouded by the fact that it may have been in Buffalo.
3464 Regardless where it was, it could have been in Sri Lanka or Toronto, we were controlling our programming and I chose to do it at a very good technical site. I tried to be creative to keep the radio station sounding good and to keep it competitive in the market.
3465 If the Commission feels that maybe in the future I shouldn't take that tact, I can appreciate that, but we are looking at history and I did seek counsel and I did seek guidance to ensure that I was always within the CRTC regulations, Madam Chair.
3466 THE CHAIRPERSON: We will of course look at what the programming output was and I guess one can come to one's own conclusion as to whether this manner of operating led to other problems.
3467 I don't know how long you have been here, but one of the issues that we have discussed this week, and which have proved to be thorny issues, is the fact that the Radio Regulations:
"...prohibit arrangements, contracts, understandings, agreements between two or more Canadian 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 without Commission approval." (As read)
3468 We have been discussing this with panels and the possibility that some agreements, even sales agreements, could have an influence on the programming and on the provision of diversity and quality programming, editorial voices, et cetera.
3469 Any comment on what concerns may be raised when in fact we are not talking about arrangements between two Canadian licensees but between a Canadian and an American company -- especially when the American company is a huge company with immense clout -- as to what the influence could be?
3470 I suppose the sales agreement is even more worrisome than the production of programming, if you can convince us you were in control of that.
3471 What influence can there be when they are selling up to 50 per cent of the advertising in the American market and you are paying them the largest proportion of your programming expenses to produce the programming on their premises? That is the programming they sell to advertisers.
3472 MR. DANCY: First of all, it was an interim arrangement that had a start date and had a planned end date. It was not meant to be an ongoing situation. It was not meant to be "We are moving our studios".
3473 So I want to make sure that we all understand that it had a very specific date that it started and that it had a planned end, so that it was not something that was going to go on forever. It wasn't even something that was going to go on for a year, year and a half.
3474 I wrote to the Commission more than a year and a half ago and said that within 12 to 18 months it would all be back in Niagara Falls. It is back in Niagara Falls exactly as we had planned, exactly as we had reported to you.
3475 But I think one thing that is important -- this is the old cliche that good fences make good neighbours, and I think good agreements make good business partners. I think one of the things that I think that the Commission -- although some of the largest broadcasters in Canada don't have sales agreements, they are on a handshake or a word, I think that we may be a small company, Madam Chair, but I think that we have done our homework. My father ensured that there was a definitive agreement.
3476 You may not agree with all the terms in the definitive agreement, but I can give you the definitive agreement and you can make your comments on it. It even says in there, if we look at Item No. 10 of the Joint Sales Agreement, it specifically states that:
"The right to decide whether to accept or reject any advertising and the right to preempt any advertising in order to broadcast..." (As read)
3477 And it goes on:
"...a matter deemed by the licensee to be of greater national, regional or local interest, the right to take any actions necessary to compliance with the laws of Canada, requirements of the Commission, the laws and regulations and requirements of other Canadian..." (As read)
3478 It goes on and on. This --
3479 THE CHAIRPERSON: Yes.
3480 MR. DANCY: No, but this is what --
3481 THE CHAIRPERSON: This is what we have been discussing this week, is yes, there are agreements where one party says "You have the right to say no, you have the right to decide", but that party is generating 50 per cent of your revenues when you are in a difficult situation. I think it is legitimate to ask just how often you will exercise these rights by virtue of the actual facts.
3482 I have read the agreement. Of course it's perfectly drafting in saying you have control. The question becomes: Do the facts belie the agreement.
3483 Let's look into that. This started by an intervention that CKEY-FM's programming was originating from a studio in Buffalo owned by Citadel Broadcasting. As early as the 24th of December 2002 you responded that yes, you were assembling your programming in Buffalo and backhauling it to Niagara Falls, and that Mr. Becker -- who I guess is the general manager or --
3484 MR. DANCY: No, no.
3485 THE CHAIRPERSON: He works for Citadel. He is a Citadel person.
3486 MR. DANCY: He doesn't work there any longer, but he worked there at the time, yes.
3487 THE CHAIRPERSON: -- was under contract to CJRN.
3488 MR. DANCY: No, no. Mr. Becker was not under contract to CJRN.
3489 THE CHAIRPERSON: Well, that is what you have in your letter.
3490 MR. DANCY: Can I just --
3491 THE CHAIRPERSON: Let me see. Letter December 24, 2002:
"Mr. Phil Becker provides services under contract to CJRN 710 Inc." (As read)
3492 MR. DANCY: Through Citadel, I'm sorry. He was under contract through Citadel.
3493 THE CHAIRPERSON: Through Citadel. I believe that when I look at the --
3494 MR. DANCY: He is a music consultant, a format consultant.
3495 THE CHAIRPERSON: He is not employed by Citadel?
3496 MR. DANCY: Not any more, no.
3497 THE CHAIRPERSON: But he was?
3498 MR. DANCY: Yes.
3499 THE CHAIRPERSON: He was working on contract to you through Citadel?
3500 MR. DANCY: Yes. What happened was, Rob White was the program director. It is not uncommon for people to have music consultants in the radio industry. I think most broadcasters have that. As a matter of fact, a station right here in Ottawa was using a consultant that we used to use as well, a guy by the name of Michael Newman out of Dallas, Texas.
3501 These people help you pick your music. They help you do music testing so that you can know what the newest trends are, especially in a youth-oriented --
3502 THE CHAIRPERSON: I understand.
3503 MR. DANCY: Okay.
3504 THE CHAIRPERSON: But that wasn't the only -- it says in this letter that he was providing help --
3505 MR. DANCY: There are many unsubstantiated claims.
3506 THE CHAIRPERSON: In this Website he is identified as the contact person for -- is he not?
3507 MR. DANCY: Yes. Can we please remember that the person who wrote the letter was the morning show host of the --
3508 THE CHAIRPERSON: Yes, I know. I know.
3509 MR. DANCY: Okay. I just want to put it in context.
3510 THE CHAIRPERSON: When we get complaints and there seems to be evidence or indices of something we go through it. We don't ask whether the complainant has curly hair.
3511 COMMISSIONER DEMERS: No, but they have a --
3512 THE CHAIRPERSON: I know. I know in both cases, but it doesn't mean the complaint is not legitimate. It is often competitors who complain. It is the first time you appear before the Commission. We are used to that.
3513 Competitors look around and say "Hey, hey, he is not abiding by the rule, maybe, and it is not helping me so I will write the CRTC so they can look into it."
3514 MR. DANCY: But is it possible -- I'm just suggesting -- that the competitor can take their competitive advantage by having me sidetracked on issues. Do you think that --
3515 THE CHAIRPERSON: Absolutely.
3516 MR. DANCY: Okay. Thank you.
3517 THE CHAIRPERSON: So even in June when I pulled up -- even recently it shows that the contact is Phil Becker for WILD 101 with an address in Buffalo.
3518 So Mr. Becker is still there?
3519 MR. DANCY: No, he's not. But that was the same address that if you had called you would have spoken to Rob White at.
3520 THE CHAIRPERSON: If you had called 716-881-4555?
3521 MR. DANCY: Yes. That is the Citadel switchboard in Buffalo.
3522 THE CHAIRPERSON: And Mr. Whitehead would have been there?
3523 MR. DANCY: Yes.
3524 THE CHAIRPERSON: The provisions of these additional services, what I call programming assembly services, that is what you call them, for which we saw -- at least for the broadcast year 2002-2003 we saw costs for, they are referred to indirectly in the joint sales agreement by saying that they can be deducted from the revenues from U.S. sales.
3525 But was there any contract at all or any written arrangement with Citadel with regard to the provision of personnel and the services of Mr. Becker?
3526 MR. DANCY: No. They didn't specifically relate to any individual, no.
3527 THE CHAIRPERSON: So they just told you what the costs were? There was no prior contract or arrangement between you as to what those services would cost?
3528 MR. DANCY: No. The costs had to be mutually agreed to, so that they did have to speak to me before they could just -- no, they didn't get a carte blanche to charge anything to the account that they wanted to. I had to agree to them before they were charged to the account.
3529 THE CHAIRPERSON: If I look at your letter in June which is in response to the complaints -- if you recall we started this renewal as a very formulaic renewal until we had complaints and asked for logs and looked into things.
3530 In your letter of 10 June 2003 you say that you have no agreements other than a straightforward ad sales representation agreement.
3531 This is on page 2. So indeed you had some.
3532 At the top of page 2 of that letter you say:
"There are no agreements between CJRN and Citadel other than a straightforward advertising sales representation agreement. Citadel acts as a sales representative for CKEY-FM in the U.S." (As read)
3533 This is June 2003. This is the year when they were providing a lot of other services.
3534 MR. DANCY: But there was no other agreement. There is only the JSA. There is no --
3535 THE CHAIRPERSON: But you say there were agreements as to what the costs would be. You had informal agreements.
3536 MR. DANCY: No. Even if a sales contract came in and somebody wanted $1,000 for an appearance fee, if I didn't agree to it they didn't get paid it. I had to agree to any expenses that were charged under that contract.
3537 When I was saying to you there were agreements, if they were going to use anything or expend any money that I was responsible for paying for, then I had to be notified of that and agree to it.
3538 It was inside the agreement. If I gave the impression that there were all these agreements lying around, there aren't. There was only one agreement and that's it. We govern our relationship in a business manner according to that agreement.
3539 THE CHAIRPERSON: Since August 31, 2003, do I take it there were no monies paid to Citadel for programming assembly?
3540 MR. DANCY: I'm sorry, you were saying?
3541 THE CHAIRPERSON: Since August 31, 2003, the end of the 2003 broadcast year.
3542 MR. DANCY: No, no, because I informed the Commission -- I'm sorry, maybe I didn't inform you but I thought I had -- that we only got our studios up and running in January of this year and that --
3543 THE CHAIRPERSON: So that arrangement continued?
3544 MR. DANCY: Yes.
3545 THE CHAIRPERSON: So when you give us more numbers add for that year as well, for 2004 for the --
3546 MR. DANCY: Yes, it will have some production -- yes, it will.
3547 THE CHAIRPERSON: -- up to May the amounts not only for commission but also separate the amounts that you were paying for other services.
3548 MR. DANCY: Yes.
3549 THE CHAIRPERSON: Now let's get to the studios.
3550 CJRN 710 Inc. is also the licensee of two Niagara Falls stations.
3551 MR. DANCY: No, it is only a licensee for CJRN 710 AM, which is a Niagara Falls station, a tourist information station; and CKEY-FM.
3552 THE CHAIRPERSON: What about CFLZ-FM?
3553 MR. DANCY: That is licensed to 78813 Ontario Inc.
3554 THE CHAIRPERSON: But that is controlled by this --
3555 MR. DANCY: No, it's not. No. It is clear on the CRTC records there was an error back in 2001 which was corrected by the CRTC.
3556 There is a letter of authority that says that we can amalgamate the corporations.
3557 We plan to amalgamate the corporations, and we have for almost two years now, but until there was a resolution to the debt issue of CJRN we couldn't do that. They are owned by two separate sets of shareholders with separate interests.
3558 THE CHAIRPERSON: CFLZ-FM is?
3559 MR. DANCY: Yes, it is.
3560 THE CHAIRPERSON: So who controls CFLZ-FM?
3561 MR. DANCY: My wife and I own 100 per cent of the shares. Audrey Dancy and David Dancy.
3562 THE CHAIRPERSON: So David Dancy controls CFLZ-FM as well as CJRN?
3563 MR. DANCY: Yes.
3564 THE CHAIRPERSON: And CKEY-FM?
3565 MR. DANCY: Yes.
3566 THE CHAIRPERSON: So there are two stations in Niagara Falls other than CKEY-FM in the Niagara area that are controlled by you?
3567 MR. DANCY: Yes, but not under CJRN 710 Inc.
3568 THE CHAIRPERSON: No, no, no.
3569 MR. DANCY: Okay, I'm sorry. Yes.
3570 THE CHAIRPERSON: But essentially controlled by the same -- by the Dancy family.
3571 MR. DANCY: Yes.
3572 THE CHAIRPERSON: Do you have studios for CJRN? It is a full AM station.
3573 MR. DANCY: Yes.
3574 THE CHAIRPERSON: Which one is the tourist station?
3575 MR. DANCY: CJRN 710 AM.
3576 THE CHAIRPERSON: Is the tourist station.
3577 MR. DANCY: Yes, it is.
3578 THE CHAIRPERSON: The other, the CFLZ-FM is a full FM?
3579 MR. DANCY: Yes, it is.
3580 THE CHAIRPERSON: Does it have studios in Niagara Falls?
3581 MR. DANCY: Yes, it does.
3582 THE CHAIRPERSON: Why was it necessary to use Citadel in the --
3583 MR. DANCY: 78813 Ontario Inc., the licensee for CFLZ, is a debt-free company that my wife and I started in 1990 and was not part of the structure of CJRN 710 Inc. The only reason I took over CJRN 710 Inc. -- I am a minority shareholder in that company, less than 8 per cent -- my father passed away, my step-mother was the largest shareholder, there were 12 other shareholders, somebody had to run the company.
3584 I had been contracted in the previous years to do the sales and marketing for CJRN 710 Inc. My wife and I had developed the radio station separately and when my father passed away none of the other shareholders would stand as a director and who else -- there was nobody else to run the company so I stepped in.
3585 But please remember that at that time there was a deal already signed and on the table to sell the radio stations. That was already done. I was almost like in a caretaker mode. I was an eligible Canadian, I was a broadcaster and I was a director with my father. So when my father passed away I ended up being the sole director of the company.
3586 I had full intentions of amalgamating the companies but, as I said, because of the litigation with the debenture I couldn't do that because I would have lost my radio station, I would have lost everything else if the debenture holder had of foreclosed.
3587 THE CHAIRPERSON: So you are saying that that prevented you from using the CJRN facilities to operate CKEY-FM?
3588 MR. DANCY: I believed it did and my legal advice was that it did, yes.
3589 THE CHAIRPERSON: So nothing related to CKEY-FM was occurring at the same address, studio or office or otherwise, of CJRN?
3590 MR. DANCY: No. Actually, 78813 Ontario Inc. now leases space and all of the new equipment were put in a building --
3591 THE CHAIRPERSON: Since when?
3592 MR. DANCY: It would be since --
3593 THE CHAIRPERSON: You mean the upgrade has been done in the studios of CJRN in the same premise?
3594 MR. DANCY: Yes.
3595 THE CHAIRPERSON: While you were operating, in part with the help of Citadel, whatever work was done in Niagara Falls, where was it done from, the same or not the same address as CJRN?
3596 MR. DANCY: The address for 4668 St. Clair Avenue where the studios are is leased to ALD Holdings, which is 78813 Ontario Inc. That is that company. That company has the ability to borrow money and do what it has to do, although it is debt-free. It pays its own bills.
3597 THE CHAIRPERSON: I'm talking here about premises and studios.
3598 MR. DANCY: For my simplicity I have all the studios in one building now.
3599 THE CHAIRPERSON: I'm talking about the past.
3600 During the 2002-2003 year, whatever it is that was conducted in Canada --
3601 MR. DANCY: Yes. Everything was at that address.
3602 THE CHAIRPERSON: -- for CKEY-FM, where was it conducted?
3603 MR. DANCY: All at 4668 St. Clair Avenue, Niagara Falls.
3604 THE CHAIRPERSON: Where CJRN is as well?
3605 MR. DANCY: Yes.
3606 THE CHAIRPERSON: Because obviously that program had to be backhauled and transmitted and so on. There had to be somebody in there.
3607 MR. DANCY: Oh, no.
3608 THE CHAIRPERSON: Mr. Whitehead, how much time you spent in Buffalo as opposed to on St. Clair in Niagara Falls?
3609 MR. WHITE: I would spend, Madam Chair, about 40 hours a week in Buffalo.
3610 THE CHAIRPERSON: Forty hours a week.
3611 MR. WHITE: Monday through Friday, 9:00 to 5:00.
3612 THE CHAIRPERSON: Who was a representative of CKEY-FM in Niagara Falls?
3613 MR. DANCY: Well, there was myself, the general manager, Elizabeth Lewis, the traffic department, the sales department.
3614 THE CHAIRPERSON: With regard to the studios, in June you said you were in the process of upgrading the studios, they would be fully finished in the next 12 months, which would be June 2004 or November 2004 --
3615 MR. DANCY: I think I said the next 12 to 18 months, but that letter was dated January 31st.
3616 THE CHAIRPERSON: You said 12 to 18 months in June and again January 31st. I guess there were delays.
3617 The upgrade has finished now, since January 2004 you say?
3618 MR. DANCY: Yes, January 19th.
3619 THE CHAIRPERSON: Is any assembly of programming done in Buffalo?
3620 MR. DANCY: No. We have a transitional agreement until the end of this month with one voice in Buffalo, one person who supplies us some voicing.
3621 All the components of programming, the commercials, the promos, all the sound effects, everything is done out of the Niagara Falls studio, absolutely everything.
3622 THE CHAIRPERSON: Yes. Now, in June, in that 10 June letter, you say that you were in control of the programming on a day-to-day basis from our studio in Niagara Falls. I had imagined Mr. Whitehead in Niagara Falls, not in Buffalo.
3623 MR. DANCY: Mr. Whitehead did work -- I kind of asked Mr. Whitehead to put in maybe some more hours than maybe someone else would do and he was required to go there and supervise all the production, to make sure that logs were merged, that the music was there.
3624 I had some good counsel who gave me the advise to make sure that there was an oversight in Buffalo of everything going on and then Mr. White also had an office in Niagara Falls that he used on evenings and weekends. At the time it was necessary to get him to do that.
3625 THE CHAIRPERSON: Do you have the June 10, 2003 letter there?
3626 MR. DANCY: Yes.
3627 THE CHAIRPERSON: Page 2 of it, second paragraph, and I quote:
"With respect to the production of CKEY's FM programming the reality, as we outlined in our letter to the CRTC in December 2002, and further detailed in our letter dated January 31, 2003..." (As read)
3628 And I quote:
"...is that CKEY-FM is programmed and controlled directly on a day-to-day, indeed on a moment-to-moment basis, by our program director, Mr. Robert Whitehead, from our studio located in Niagara Falls, Ontario." (As read)
3629 So we should say "from Citadel's studio in Buffalo, New York"?
3630 MR. DANCY: No, because the operator that sat at the board, which we had somebody sitting there in the Niagara Falls studio all the time, reported directed to Mr. Robert Whitehead and if anything was in question or whatever, he had a direct line, as all program director's do, to their staff, that they can call him on the cell phone at any time of the day or night regardless of where he is or what he is doing.
3631 So even when Mr. Whitehead was in Buffalo the staff had direct access to him whenever they needed him and I had somebody sitting there who was directly being supervised by Rob White.
3632 Maybe, Rob, you could comment on that.
3633 MR. WHITE: Yes, that is the reason I'm this skinny I guess. I spent a good deal of time obviously driving back and forth to Buffalo and taking care of the assembly of the programming to leave the Buffalo studio and come, I guess through the backhaul as it has been described.
3634 At the same time I had a staff in the Niagara Falls building who was charged, in effect, to monitor the program in my absence, being driving around in my car or whatever the case may be, and if something was in question obviously I would jump to it.
3635 THE CHAIRPERSON: From Niagara?
3636 MR. WHITE: In the Niagara Falls studio, yes.
3637 THE CHAIRPERSON: Yes. Now, this control of the production was before production?
3638 MR. WHITE: Preproduction --
3639 THE CHAIRPERSON: Preproduction.
3640 MR. WHITE: -- as in assembly of the logs. I sat in front of the selector system every morning and did the music in consultation with the aforementioned Phil Becker.
3641 THE CHAIRPERSON: This is when you were in Buffalo?
3642 MR. WHITE: Yes, that is correct.
3643 THE CHAIRPERSON: When you were not in Buffalo and there is somebody in Niagara Falls, you say in your January 31, 2003 letter that:
"The programming would be received at the Niagara Falls studio and monitored for technical quality and other production elements and immediately sent to our transmitter sites to be broadcast on air. There is no delay since the programming in question is produced in the first instance under our direct control and supervision." (As read)
3644 So what you are saying is, you were in Buffalo ensuring that the production was what you wanted and up to scratch in CKEY-FM and it would be shipped to Niagara Falls.
3645 If you weren't there, there was no time left there to do anything from Niagara Falls.
3646 MR. WHITE: I guess the charges that worked under me in the studio -- if you put the automation system together you have the traffic and you have the programming and you count on your staff to do their job correctly and do their --
3647 THE CHAIRPERSON: Prior to it being backhauled to your transmitter.
3648 MR. WHITE: Back to the Niagara Falls studio, then to the transmitter. If something did go wrong that was in question, then the staff in Niagara Falls would get hold of me to fix that.
3649 THE CHAIRPERSON: In this same letter and in other places in your application, you mentioned that the programming was produced for CKEY exclusively. I'm curious about whether you think this exclusivity is an element helpful in determining control.
3650 MR. DANCY: I think it is an element in determining local programming. I think in the CRTC's local programming, I believe it is --
3651 THE CHAIRPERSON: Just because it is produced for you, couldn't Citadel produce programming that is appealing to the audience that it sells 50 per cent of the advertising to and it is exclusive to that transmitter but it is not an element, an index of control.
3652 MR. DANCY: I guess theoretically anything. The licence that I control and that Robert Whitehead is the program director for, no, they couldn't.
3653 THE CHAIRPERSON: The staff. Staff, three on-air personnel in the U.S. Those were employees or contractors of Citadel, you say in your letter of December 12, 2003, in response to Question 4, the staff that was provided in Buffalo to put this programming together that Mr. White controlled:
"On air personnel in the U.S., of which there are three such persons, are employees or contracted of Citadel, although at all times under the direct supervision of Mr. Whitehead." (As read)
3654 So these were American employees of Citadel doing -- I think 50 per cent of their time was spent on CKEY and the rest on Citadels' Buffalo stations?
3655 MR. DANCY: Yes. That wasn't a CRTC issue, that was an Immigration Canada and Immigration U.S. issue, that we couldn't have people crossing the borders to do jobs in each other's countries. So the way we got it was that we had their announcers, under Rob White's direction, do the voicing for us.
3656 THE CHAIRPERSON: Mr. Whitehead, there was no problem with you going to work in Buffalo every morning?
3657 MR. WHITE: No, I have a B1 Visa that allows me access into the United States on a daily basis.
3658 THE CHAIRPERSON: Those employees who were producing the programming under your supervision, were they on Citadel's payroll?
3659 MR. WHITE: That would be correct.
3660 THE CHAIRPERSON: Being on Citadel's payroll, to who were they responsible?
3661 MR. DANCY: For programming they were responsible to Rob White. For CKEY they were responsible to Rob White. That was made very clear to them on numerous occasions.
3662 THE CHAIRPERSON: Did you have a formal arrangement to that effect?
3663 MR. DANCY: No, there was no written arrangement to that effect.
3664 THE CHAIRPERSON: So they would spend part of their day producing programming for Citadel's Buffalo stations --
3665 MR. DANCY: Yes, they would --
3666 THE CHAIRPERSON: -- and part for CKEY?
3667 MR. DANCY: Yes.
3668 THE CHAIRPERSON: That was the programming output that was sold 50 per cent by Citadel in Buffalo?
3669 MR. DANCY: Yes. And Citadel charged us for that as you have noted earlier in the cost structure. So we paid for that, to have them report to Rob White.
3670 MR. DANCY: Mr. Whitehead, you can't have been supervising, producing and doing all of that and also spending some time in Niagara Falls. Did you ever make changes to the programming that those employees of Citadel produced for you?
3671 MR. WHITE: Make changes after the fact, after the log was merged, no. I never had a an instance --
3672 THE CHAIRPERSON: Well, before. Presumably before it was aired.
3673 MR. WHITE: As program director I guess I would have my weekly meetings and my sessions with these individuals with respect to programming, creative and promotions. Once the log was set to the automation system there was never an instance where we ever had to make an adjustment for anything to conform to any Canadian broadcast standards rules or anything like that.
3674 THE CHAIRPERSON: These three American employees understood the Canadian rules better than some of our Canadian employees?
3675 MR. WHITE: Well -- one moment, please.
3676 MR. WHITE: I'm sorry about that.
3677 THE CHAIRPERSON: No, no. No, we have whatever time it takes.
3678 MR. WHITE: I think it's best to explain my role is that as a program director, as any other program director at a Canadian radio stations. The charges that are underneath me have a specific role. Yes, they were American individuals, but they were voice talent. A lot of Canadian stations have imported, as an example, an American voice talent to do a voice track.
3679 In this situation we had a live body, if you will, on the air, and they were under my direct control to do their show, whatever the case may be. So prior to them going on to do the 10:00 to 2:00 shift, or whatever the case may be, I would have my jock meeting and the jock would go forth and do the show and I would do the air checks and I would do the music log and do the traffic log. I just happened to be in a different location for a good part of my day.
3680 THE CHAIRPERSON: So we have in 2003 your programming output produced in a Buffalo station by American employees of a very large broadcasting corporation. My understanding is Citadel owns and controls close to 200 radio stations in the States. Correct? So it is not a small player.
3681 MR. DANCY: Yes, I think they are the fifth or sixth largest U.S. broadcaster.
3682 THE CHAIRPERSON: So that there you are having financial problems and a very small independent broadcaster, one can ask questions as to who was controlling what was going on. In fact, when we asked for logs to see what was coming off CKEY-FM and whether your output was following the regulations, particularly condition No. 9, not surprisingly perhaps, although you have other explanations and you can give them to us, it became questionable whether that condition was followed.
3683 That condition, as you know, requires that at least a third of your programming be local programming for you to be able to solicit or accept local advertising. Correct?
3684 MR. DANCY: Yes.
3685 THE CHAIRPERSON: The definition of "local programming" includes the following, which you cited in your presentation:
"...must include spoken word material of direct and particular relevance to the community served..."
3686 Which I will call the Niagara Peninsula:
"...such as local news, weather and sports, and the promotion of local events and activities".
3687 So we asked you to provide us logs for the week of 17 to 22 November 2003 and the staff proceeded to make an analysis and to send it to you.
3688 Basically what we found was little spoken word, except for announcer chatter, which the Americans can do as well as Canadians; no news, sports, weather; two events promoted for Niagara, one of which was a concert sponsored by CKEY. All other promotions were for U.S. events reflecting the Buffalo area exclusively.
3689 All ads for local businesses were American, except for one ad for a Toronto hotel.
3690 If we look at the Website we also see that CKEY would have on-air contests that would seem to be available for American citizens only.
3691 MR. DANCY: First of all I will start with your last one and move back with it.
3692 The Website, you can appreciate that if I am having financial difficulty the radio programming is my paramount concern. A Website to me is a luxury. I get into today's world that it may become a requirement, but when you are talking about being under significant stress and significant challenges, doing the Website, first of all -- I may be wrong, but I didn't think the CRTC regulated the Website --
3693 THE CHAIRPERSON: No, no.
3694 MR. DANCY: -- so I didn't worry about that.
3695 THE CHAIRPERSON: I'm just looking at indices of whether you were actually serving the Niagara Peninsula and whether that was your concern, whether you were serving the Niagara Peninsula as you are supposed to.
3696 It would be kind of difficult for us to feel that we are enhancing the achievement of the objectives of the Broadcasting Act if any broadcaster who had financial difficulties went to the States to program.
3697 MR. DANCY: Okay. But we didn't go to the States to program.
3698 THE CHAIRPERSON: And sold half of its inventory under a joint sales agreement in the States.
3699 MR. DANCY: But that was only one -- Madam Chairman, I said that it was 70 to 80 per cent --
3700 THE CHAIRPERSON: Or even 30-40 is quite a lot.
3701 MR. DANCY: Okay, 70 -- 20 or 30. And that it went because of some market conditions and it is going back the other way.
3702 But the Website, in my opinion, wasn't something that I was terribly worried about, although Rob White, myself, we looked at it from time to time, the WILD 101 Website and we ensured that there were Canadian components on it; we ensured that Niagara Broadcasting was listed on it; that the Niagara Falls studio was ahead. If you look at directions to the studios, the Niagara Falls studio is the paramount. It lists Canadian people on the Website.
3703 But when I look at local programming, one of the things that is interesting is that our announcers are on live starting at 11:00 in the morning. I understand that a traditional 25-54 -- the golden grail that every radio broadcaster wants to go after, a 25-54 market is what we want.
3704 At the CAB last November, as a matter of fact, the Commission even identified the fact there is a decrease in radio tuning for teens and young adults. They are not finding radio relevant any more. We are predisposing ourselves to built-in obsolescence.
3705 What I wanted to say was that we have taken a youth teen-oriented market and we have gone after a format that before we got on the scene was totally dominated by a U.S. huge corporation, bigger than Citadel, Entercom, and we went after this market because we really believed -- even Canadian broadcasters, large Canadian broadcasters like Corus and Rogers, have abandoned that youth market because they want to go after the 18-24s with JACKs, BOBs -- pretty soon we will have TED and ALAN's in there.
3706 But I really want to make the point that we went after this market because we saw that it was viable in Niagara. The fact that we did some things that may have been creative doesn't deter from the fact that I believe we service Niagara.
3707 Broadly defined, 90 per cent-plus of our programming is defined as local. It is made exclusively for us at facilities that we control. It is now back in our building, but even when it wasn't in our building we controlled it.
3708 I'm going to ask Corey Mottley to speak about a couple of issues, WILD 411 and Hip Hop Headlines. The reason I am going to ask him to speak of it is because it is research done by our staff that does it. We are talking about something that is aired 12 times a day.
3709 So if you will allow me, I will ask Corey Mottley to speak directly to the local programming issue and these specific items.
3710 MR. MOTTLEY: Both Hip Hop Headlines and the WILD 411 are a big part of my day when I go into work. It is a lot of researching and a lot of -- it takes a lot of my time during the day simply because I have to understand what my listener wants to know about. They may not want to know about the conventional things going on, so what I will do is I will research MuchMusic, I will research our local venue and I will research all the things that are going on in our area, especially if we are involved.
3711 I go to our promotions department, I find out where we are going to be in the area and all that stuff will go onto the 411.
3712 The Hip Hop Headlines, which is our entertainment newscast which airs three times daily, it is my job to research it, get all the relevant information. For example, Shrek 2 is in theatres. Shrek 2, one of the stars is a Canadian that has done very well for himself. It is something that our audience is going to possibly go to the theatres to see.
3713 Keshia Chanté is an artist that is Canadian. She is 15 years old and she is a huge artist for us. Her first CD is being released June 22nd and that is a story that is very important to my Hip Hop Headlines.
3714 Detailed Canadian Idol reports, stuff like that that is very important to my Hip Hop Headlines. That is something that is exclusive to my show, where the 411 and the events that we are going to be at and the things that we list, all the announcers take part in that, where I feel I put a great deal into that feature.
3715 MR. DANCY: Could I just add?
3716 THE CHAIRPERSON: Yes.
3717 MR. DANCY: If you are looking at the 25-54, and I even heard the Commission talk about it earlier, that everybody wants to go after that Holy Grail. Yes, you stop everything at 6:00-6:30 a.m., it is the way you do it. It is what people think is supposed to happen, you give information at certain times. You stop the world and say "Here is the information."
3718 That is not the way the youth market takes it in. We integrate it into our programming. It is more of a free-style. The information is integrated throughout. We don't stop the programming at a certain time and say "Oh, we are going to stop and give all the news right now." We continually give it to people during the times of day they want.
3719 When the CRTC monitored, they monitored the traditional. The CRTC has identified the traditional 6:00 a.m. to 10:00 a.m. period. I don't know how many of you have children. Other than at school times let's look at what is happening, and if they are in university or whatever they take courses in the afternoon and evenings. They have a whole different work schedule than what I guess the rest of us have become evolved in.
3720 You mentioned a 13-year-old daughter. My daughter is 16-years-old. I get it. They don't take the information the same way as the rest of us do.
3721 THE CHAIRPERSON: Mr. Dancy, you have said in your application and in your presentation today that your audience is 12 to 34. I would have expected 34-year-olds to be interested in news.
3722 MR. DANCY: What I said was that we had reached the dominance 12-to-24 and 12-to-34 but that our audience is teens and 18-to-24. That's where we focus.
3723 THE CHAIRPERSON: Yes, because they like jukeboxes.
3724 MR. DANCY: But, Madam Chair --
3725 THE CHAIRPERSON: But that is not in the Broadcasting Act.
3726 MR. DANCY: -- we are not a jukebox at all. We give the information, but the information and how we do it -- if you would like us to stop at 6:00 a.m. and if the CRTC said as part of the local programming initiative and state it right in there --
3727 THE CHAIRPERSON: You can do it at various times of day.
3728 The WILD 411 for example, in your letter of --
3729 MR. DANCY: February 12th?
3730 THE CHAIRPERSON: -- 12 February 2004, it is situated at quarter to. How long does it last? There are examples of the following time segments. How long does it last?
3731 MR. DANCY: It varies in length from 60 seconds to three minutes depending on how much information we need to put in.
3732 THE CHAIRPERSON: Three minutes at most?
3733 MR. DANCY: Yes.
3734 THE CHAIRPERSON: So there is one, two, three, four, five, six, seven, eight, nine -- so about 30 minutes of spoken word daily.
3735 MR. DANCY: No. That is only recorded produced. That is not when the announcer speaks and when the announcer goes into it.
3736 I remember when there was one radio station in Toronto that bragged they had 68-second newscasts. I mean, this is --
3737 THE CHAIRPERSON: No. Just tell me what weekly is your spoken word content, or was it let's say six months ago. During that time even in November 2003, what was the amount of spoken word?
3738 MR. DANCY: So the talk breaks are going to be like any talk breaks. Stations like JACK in Toronto, or the Ottawa stations, so they are going to have their talk breaks. We do about 10 talk breaks an hour, so let's say 30 seconds when they are doing their talk break, that is three minutes an hour. The rest is very music-intensive.
3739 Our format is very music-intensive. But part of being that music-intensive is breaking new artists, breaking people like Keshia Chanté who are Canadian artists who need -- we have support of companies like BMG music. Ours is a very music-generated format. It is not a talk format. We are not 680 News.
3740 THE CHAIRPERSON: But how do you explain that you have a condition of license that you are supposed to serve the community more than just by providing wall-to-wall music.
3741 MR. DANCY: No, but we do serve the community by telling them when and where. But I think if you listen, an average radio station would have maybe 10 or 11, 12 songs an hour; we would have 15 or 16.
3742 It's not like we are doing less than 5 per cent. We may be doing half, 60 per cent of what a normal 25-54 radio station does in spoken word content, but we don't ignore it and we do it in a form that a teen and 18-to-24 year olds will accept, because that is our core market.
3743 It's great that everybody else goes after mom's and dad's, but we really need to go after this market because the radio tuning habits are changing and we have to give them that information.
3744 We want them to listen to Canadian music. As a matter of fact, the Commission should note that regardless of anything else, look at how much Canadian music we have exported and helped. One of the FACTOR grants, things like that, we are always trying to get Canadian artists, new Canadian artists and production of Canadian music, and we do it in a teen and youth market. We are the contemporary hit radio station of today.
3745 THE CHAIRPERSON: You may not be aware but probably your counsel is, until 1993 the Commission required all FM stations to broadcast at least 15 per cent spoken word programming and at least three hours weekly of news. The principle was that they were not to be jukeboxes, they were going to serve the public in a wider way.
3746 Now, you have given us many reasons why you feel that the 411 segments, the lack of news, the lack of --
3747 MR. DANCY: No, not lack of, just giving it in a different format.
3748 THE CHAIRPERSON: But less spoken word content --
3749 MR. DANCY: Yes.
3750 THE CHAIRPERSON: -- is still meeting the condition of your licence.
3751 Do you think that, in 1993 and with regard to the other stations that you are competing with in the market, the Commission that thought they would reduce the amount of spoken word to the level that you have that we would have that we would have --
--- Background noise / Bruit de fond
3752 THE CHAIRPERSON: We will take a five minute break, or until that siren --
3753 MR. DANCY: If the Commission feels that they would like more -- I did read the 1993 release, I read the Appendix A that specifically qualified what was local programming. If the Commission does not like -- just tell me what you want to do and tell me what rules I have to follow, because I did read the rules and I did feel that I was following them.
3754 THE CHAIRPERSON: For example, youth or young people as well -- I don't know exactly where your listeners are in the 12-to-34 demographic, but would your listeners know that there is a federal election on, for example, if they only listen to your station?
3755 MR. DANCY: Absolutely. As a matter of fact, Rob White is working on something called "Rock the Vote" which is taken, yes, from an idea that happened in the States. But it is a Canadian election, we took the idea. I will let Rob White speak to that.
3756 MR. WHITE: Obviously, one of the important things is to get the youth involved in politics. It is not a mystery that the youth are not involved in Canadian politics at all, from a vast majority.
3757 One of the things that I thought would be important for our radio station to do would be to get involved to encourage people to not only get out and vote on the 28th, but also to be a part of the voice of their party, whatever they might want to do.
3758 So the campaign that we are running is take up a charge. Is it the environment, is it taxes, is it something like that? Call your local MPP or whatever. Be involved, and also make sure you vote.
3759 MR. DANCY: Can I also just say that just as a point, when our national rep Target approached the advertising agency for Elections Canada -- and it is important that this is on the record -- do you know what they said about a youth-oriented radio station? They were looking at 25-plus, Madam Chairman. Our market is 12-to-24. That is what we focus on. 18-to-24 year old's vote. Elections Canada's advertising agency told our rep house they were interested in 25-plus radio stations.
3760 I got an unrated radio station on the buy and I couldn't get CKEY-FM on the buy because it was focused at teens and 18-to-24.
3761 So I appreciate what you are saying, but there are some realities in Canada right now and we are doing everything we can to try and get it motivated, but I will tell you right now that the 25-54 crowd is why most radio stations go after -- in Halifax why they are all going after 25-54 is because the bulk of the dollars are there, and my competition in Canada comes out of Toronto. It is The Flow and CIDC Hot 103.5. That is my competition.
3762 Corus abandoned Energy, Rogers abandoned KISS. The only competition where people tune, where the youth tuned in my market for the past 15 years was WKSE, KISS 98.5 out of Buffalo.
3763 We went after this market. We went after them where they were, we went after them in Canada, in the Niagara Peninsula.
3764 I just don't think I should be beaten up for going after a market that is not the golden grail.
3765 THE CHAIRPERSON: It is not a question of beating up, it is a question of: We are the regulators, we have an Act that we have to put in place that requires local service, and we demand that of other stations. It is very difficult, subject to exceptions being made upon request, to close our eyes to one radio station making its own rules.
3766 MR. DANCY: I would never ask you to close your eyes, but I would ask you to maybe understand that the audience that we are going after, we are reaching. The BBM is proof that we are reaching Canadians in Canada in the Niagara market in the demographic that we after.
3767 THE CHAIRPERSON: You did read 1993, what would you think if the Commission has concerns about performance, and presumably if your colleague pursues his plans he is going to be appearing before us with CKEY-FM, which by our rules didn't exactly -- I know it is always easy to say not traditional, et cetera, but could you live if we said that you had to have 15 per cent of your programming -- 15 per cent spoken word and three hours of news.
3768 You can do them whenever you want and you can say whatever you want to attract your own audience, but you are supposed to offer more than just music.
3769 When we used to say three hours of news, nobody ever said it was at six o'clock in the morning or whether they were in five-minute or 60-second bursts. It was just a question of using the airwaves not simply to broadcast music, but to have a proper balance of information, programming, spoken word programming.
3770 These are frequencies that are public property and we give you the trust of and we expect something to come out of it.
3771 Would you be able to live with that, with three hours of news and 15 per cent spoken word programming?
3772 MR. DANCY: You are the regulators. We will live with whatever -- I mean, to be in this game we will accept whatever regulations you put on us.
3773 So the answer is yes.
3774 Would we stay in the same format? I don't know. I would have to do some research.
3775 THE CHAIRPERSON: That's what I'm asking. Is it possible?
3776 You say that you serve that public well, you do it differently, not in a traditional way. So of course we are always delighted when that occurs.
3777 Could it be done?
3778 MR. DANCY: Yes. I think if you count in the Hip Hop Headlines, the WILD 411 and our comment, we have three hours of news in a day. It's not news talking about the fact that --
3779 THE CHAIRPERSON: News in the sense of spoken word information --
3780 MR. DANCY: I believe that --
3781 THE CHAIRPERSON: -- not just announcer chatter prior to playing records.
3782 MR. DANCY: I think there is a misimpression that there is this disc jockey chatter and they are not giving any information going on.
3783 I really believe that we are giving information that is relevant to our constituency, the listener that we are going --
3784 THE CHAIRPERSON: Yes, general information, not just information about artists.
3785 MR. DANCY: No, I disagree. The information that this group wants is about their entertainment. They are a very much "I" generation. They are very much entertainment involved. They spend a lot of money on personal products.
3786 I mean, when did you see people going to tanning booths all the time? When did you hear about males who wore make-up and everything. This is a new phenomenon and this generation is driving it.
3787 So I disagree with you that we are just doing idle chatter. We are using the music, we are using the environment --
3788 THE CHAIRPERSON: I didn't say you were doing idle chatter. that is what we found on the tapes that we looked at.
3789 MR. DANCY: No, but --
3790 THE CHAIRPERSON: I understand that information can directed at a different demographic, but whether there isn't any or there is not very much and the rest is just wall-to-wall music is just another story.
3791 MR. WHITE: Madam Chair, I would just like to add that for this demographic it is a culture and a lifestyle thing and if there is a news item -- I'm going to use this one as a point of reference.
3792 This demographic is obviously crazy about basketball with respect to the scores, and what have you, but also Kobe Bryant's story is obviously very important. I am using that as an example because that is a story in fact that we have discussed in Hip Hop Headlines, using it from the basketball point of view from the score and also from him as a person. It is something that our audience would be interested in.
3793 Would we talk about the election in this Hip Hop Headlines? Absolutely we would talk about that.
3794 I don't know if we would talk about the car accident at the corner of two intersections in the traditional sense of news. That is the design of Hip Hop Headlines and the news and the spoken word content, that is how we design that program.
3795 THE CHAIRPERSON: What is the listenership of your station if you break it down in those two groups, 12-to-24 and 12-to-34?
3796 MR. DANCY: The 12-to-24 would probably be -- I would say probably 25,000-28,000 of our 35,000 cume.
3797 THE CHAIRPERSON: So it is highly 12-to-24.
3798 MR. DANCY: Absolutely. Yes, it is.
3799 THE CHAIRPERSON: Because once you to get into the 34, you are talking about working people with children who are interested in more than whether Kobe Bryant is guilty of rape or not.
3800 MR. WHITE: Yes.
3801 MR. DANCY: I would say that a high-end listener would be 26 or 28. So when I talk about the 25-to-34 group, I think that the reason we did so well in that age group was because of the younger end of that. That was the top end of the 12-to-24. We are number one teens, we are number one 12-to-24.
3802 The fact that we are number one 18-to-34 may be because of our dominance of 18-to-24.
3803 I'm sorry, I didn't break out the 25-34 numbers, but it very well could be that our dominance in 18-to-34 is directly related to how well we do 18-to-24, or by the fact that the BBM even says to get 18-to-34's to fill out ballets is almost impossible.
3804 THE CHAIRPERSON: I only have a few more questions related to your logs and your music lists.
3805 We can take it, then, that you now have a full-scale studio for CKEY-FM and the programming is no longer being produced out of Citadel's studio.
3806 MR. DANCY: Yes. Absolutely.
3807 THE CHAIRPERSON: The joint sales agreement is going to be terminated when?
3808 MR. DANCY: We have given them notice and they have agreed that we are going to be renegotiating it this month, in the month of June.
3809 THE CHAIRPERSON: Renegotiating. What are you looking at in a change? I have it. It is on the public file. I have read it.
3810 What are you looking to change for the next term of licence?
3811 MR. DANCY: If it would be okay with the Commission, I have asked Mr. Andrew Ferri to help me negotiate the business details of it. I will obviously be responsible for it as a licensee, but if you don't mind I would like Mr. Ferri to answer that question.
3813 MR. FERRI: I have spoken directly to the Chairman and CEO of Citadel and expressed my concern over the agreement. He stopped short of accepting a termination last week. That was my desired goal.
3814 I said I would be attending this hearing and I sought our legal advice. It would be my preference to terminate it.
3815 I don't know if you have read the agreement --
3816 THE CHAIRPERSON: I have.
3817 MR. FERRI: I have read it several times and read it again several times last night looking for my out.
3818 If I could, along with legal counsel, present something to the Commission staff that they would find palatable, that would be my desire. If I had, on behalf of CJRN 710 Inc., the right to terminate it today, it would be my preference to terminate it today.
3819 THE CHAIRPERSON: If I recall, it is 10-years plus five renewal from 1995.
3820 Of course, the effect of the agreement, whether it is a serious effect or not, depends on how much more money you can generate out of the U.S. market than out of the Canadian market.
3821 Our concern is obviously who are you programming to, considering that a lot of your revenues will come from Buffalo and no doubt the Buffalo 16-year-old is not interested in the Canadian election nor in anything Canadian. They would be more interested of course in knowing how guilty Kobe Bryant may be.
3822 It is all linked together. If your revenues come from Buffalo to the extent that they have, it is not surprising that that is the -- it's not only the demographic, it is also whether it is the Buffalo demographic as opposed to the Niagara Peninsula demographic, which is a different story.
3823 We are talking about Buffalo, about almost a million in population, St. Catharines and Niagara Falls, because you have a rebroad in St. Catharines, 341,000 population.
3824 MR. DANCY: Yes.
3825 THE CHAIRPERSON: So it is a question of who are you programming to when your revenues come from the States.
3826 Well, there are only seven radio stations in Niagara. But we are competing with the U.S. signals for Canadian listeners.
3827 THE CHAIRPERSON: I understand.
3828 MR. DANCY: But there are only seven radio stations in Canada compete for the revenue in Niagara. There are 27 to 30 radio stations that compete --
3829 THE CHAIRPERSON: You listen to these stations? They are your competitors in Canada.
3830 MR. DANCY: Yes. We monitor the Flow, Hot 103.
3831 THE CHAIRPERSON: Yes. And what is your view about whether the Flow has news and spoken word content that is of particular relevance to Canadians?
3832 MR. WHITE: Madam Chair, I think that in this instance in this question here, obviously I monitor The Flow and I monitor Z-103, and I think first of all I used a bad example with the Kobe Bryant. That was not my intent where Kobe Bryant was, that is bringing that story up, but --
3833 THE CHAIRPERSON: I happened to be in the States the weekend that Kobe Bryant was, I guess, charged and that is all there was on the TV screen. So I would not listen to CKEY-FM to learn more about Kobe Bryant.
--- Laughter / Rires
3834 MR. WHITE: But I guess my point was that at the time too we would talk about the Canadian election over any American election. I should just state that on the record as well.
3835 Yes, I have listened to Flow, yes I have listened to Z-103 and the Buffalo competition as well, and the way that we have designed the spoken word content on the radio station is different than that of Flow's and Z-103's and is different than our American competitors.
3836 THE CHAIRPERSON: Is it of any interest to 20-year-olds in Buffalo? Your spoken word?
3837 MR. WHITE: Absolutely it is. Absolutely.
3838 THE CHAIRPERSON: So how can it be, then, of particular relevance to Canadians who are 20?
3839 MR. WHITE: The venues that we go to in --
3840 THE CHAIRPERSON: Well, which is what the condition of licence reads.
3841 MR. WHITE: Absolutely.
3842 MR. DANCY: But where these artists --
3843 THE CHAIRPERSON: "Must be of direct and particular relevance".
3844 MR. DANCY: But where these artists, where the music is being done, where their entertainment is being done, what is going on in the community is in Niagara.
3845 When we talk about the "Moose and Goose" and when we talk about Canadian artists, when we talk about NoDo show number four, which we are incredibly happy to be doing, we are promoting Canadian talent over and above what our licence requires us to do, the development of Canadian talent.
3846 We don't even put that in our figures, but we pay for them to come down. Our listeners go for free. Yes, they can only win the tickets if they listen to our radio station. That is how we get them to do it, because they want to be there, they want to be part of it.
3847 BMG music is supporting it as well. They wouldn't support it, with the first concert -- Keshia Chanté is an Ottawa native. They are bringing her down. Why are they doing it? Why are they doing it for us? Because we are relevant. Because we are in that market and we are promoting the Canadian talent. And yes, it is of very direct relevance to our Canadian listeners.
3848 If you are going to ask me, is a 20-year-old in Buffalo going to want to come down? Yes, they are going to want to try to win tickets. Of course they are.
3849 Does somebody in Niagara try to win on CHFI? Of course they do. Did somebody win the trip to Jamaica? Yes. CHUM. There was a Niagara listener that won one of those trips. Does that mean that CHUM is going after Niagara or that Niagara is going after Toronto? No.
3850 It is just something that -- radio doesn't have bounds like the newspapers. They aren't only delivered in certain areas.
3851 THE CHAIRPERSON: But we are looking here at very particular circumstances, you have to agree.
3852 MR. DANCY: I agree we are, but I don't think --
3853 THE CHAIRPERSON: -- where you are programming out of Buffalo.
3854 MR. DANCY: No, we are not programming out of Buffalo.
3855 THE CHAIRPERSON: You were.
3856 MR. DANCY: No, we only used --
3857 THE CHAIRPERSON: We are looking at your past.
3858 MR. DANCY: Our programming was Canadian done by CKEY. Yes, we used a Buffalo studio, but I think that for some reason there is this idea that because we used it, even though Rob White was there and we had total control of it, that we were sort of abdicating. We never, ever did.
3859 We controlled it. Rob White went down there. Do you know how much it cost to send somebody down there every day, to cross the border, to pay bridge tolls, to pay somebody --
3860 THE CHAIRPERSON: You said it is only five minutes away and that is why you program --
3861 MR. DANCY: No. It is five minutes away from Fort Eerie. Our offices, as the Commission knows, are in Niagara Falls. Rob White lives in Niagara Falls. I have to pay and give him a vehicle so that he can go to Buffalo every day. I paid that money.
3862 Why did I pay that money? You know what? It would have been cheaper for me not to do it. I probably would have been in the exact same situation as I am in now, but I chose to have the supervision, I chose to do all the things that I felt was responsible as a broadcaster, as a Canadian broadcaster.
3863 I guess you would be right if I had not sent Rob White down there. You would be correct if I had just said "Okay, Citadel, run the programming, do 35 per cent Cancon and I'm a happy guy". I didn't do that.
3864 And it was for a very specific period of time.
3865 For some reason I get the impression the Commission -- and maybe I am wrong, but I get the impression you seem to think it was going on forever. There was a definitive start date and as soon as I could afford to get the financing to put the studios back in, I got it and it was done.
3866 I'm sorry that I didn't have the money to write the cheque right away. That would have stopped all of this problem. But I didn't. And maybe me being creative, you feel that maybe, although I didn't break the letter of the law maybe you are feeling that spirit was bent. I didn't mean to do that. I will say that right now in front of the Commission.
3867 I meant to adhere to the letter of the rules, I read them, and the spirit of them as well. That is why we went to this extent to try and control the programming. And we didn't just try to do it, Madam Chairman, we actually did it.
3868 THE CHAIRPERSON: Now, the last area.
3869 in November of 2003 we asked CJRN to file, for the week that mentioned earlier, 16 to 22 of November 2003, the material and records that every station is required to maintain by sections 8(1), 8(4), and 9(3) of the radio regs. We forwarded to you the result of our analysis on the 23rd of January 2004.
3870 At page 2 of that letter of 23 January 2004 there is a count of the number of hours of broadcast for which there were no logs at all, and for the remaining hours how much of the information that is required by the regs was missing.
3871 Who was responsible for keeping the logs for that week? It was November 2003.
3872 MR. WHITE: That would have been my responsibility.
3873 THE CHAIRPERSON: Was the relationship with Citadel and the fact that the programming was produced from there making it more difficult for CKEY-FM to fulfil its responsibilities under those sections of the regs?
3874 MR. WHITE: No, not at all. There was no interference on their behalf.
3875 THE CHAIRPERSON: In your response that you say that the deficiencies occurred during automation.
3876 MR. DANCY: Can I --
3877 THE CHAIRPERSON: Who is responsible for keeping the logs and the information required?
3878 MR. DANCY: We are, meaning Rob White and myself.
3879 THE CHAIRPERSON: Why was it so deficient?
3880 MR. DANCY: One of the syndicated periods was a syndicated program for three hours on a Saturday night. It's called the Baka Boys and it is a mixed show that does come from the States. 90 per cent-plus of our programming is local as defined by that circular. We do three hours on Saturday night that is a mixed show.
3881 It was an oversight on our part, Madam Chairman, and when it was pointed out to us we rectified it immediately, as you will notice in the correspond that comes a little later in February, that the Commission did say that we were compliant with that.
3882 But we apologize, it was human error.
3883 THE CHAIRPERSON: This was Canadian content.
3884 MR. DANCY: Oh, I'm sorry. I thought we were talking about the logs.
3885 THE CHAIRPERSON: I'm not raising Canadian content because I have seen this information and it puts you -- it was very marginal any way in the deficiency and I wasn't going to raise it because I don't see it as a problem.
3886 MR. DANCY: I was talking about --
3887 THE CHAIRPERSON: The problem is that the logs were either nonexistent, four hours of programming, or all the information that you are required to put on the logs just was not there.
3888 MR. WHITE: Madam Chair --
3889 Do you have the letter that we sent you on 23 January 2004?
3890 MR. WHITE: Are we speaking of the music log or the traffic log at this --
3891 THE CHAIRPERSON: Well, the traffic log and I will ask the same question about the music lists.
3892 MR. WHITE: I will handle the music lists.
3893 THE CHAIRPERSON: Well, lets deal with the logs first.
3894 Under section 8 of the regulations there are a number of things that you have to log which were missing.
3895 MR. DANCY: Yes. As I said, when we submitted the logs, we got everything together, Rob White and myself and i will take responsibility for that.
3896 There were a couple of things that -- it wasn't that we didn't have them, that we didn't put them in the package. I believe there was a letter back from the CRTC a little later on saying that yes, they found that the logs were compliant and that we did supply all the information.
3897 Irene Bradnam, when I got the traffic log, I didn't realize she didn't write the call letter on the top of every page, she wrote it on the first page and then it wasn't -- we have now corrected that with CBSI, we have corrected it with Selector Systems that denotes -- not with just asterisks, which is how we denoted certain selections.
3898 We fixed those problems. All it was was that when we ordered the print-up of the logs we didn't have the proper information put on them. I made a mistake, I will take responsibility for it, Madam Chairman.
3899 We resubmitted them immediately when we got the letter, I think within a day or two, with all the proper information on them. We just reprinted the logs and we pressed different buttons and we got that information from the Selector Systems in CBSI and I will take responsibility for that. That was our mistake.
3900 THE CHAIRPERSON: What is the date of the staff letter saying that they now have the complete information required by section 8?
3901 MR. DANCY: Let me just find it.
3902 THE CHAIRPERSON: So it would be your response of 12 February 2004?
3903 MR. DANCY: No. It is a letter dated on here -- it is from Suzanne Dufour.
3904 THE CHAIRPERSON: What date?
3905 MR. DANCY: It says:
"An examination of the resubmitted logs..."
3906 I can give you a copy of the letter. It was faxed to us on March 16, 2004 at 1:42 p.m. in the afternoon, and the one, two, three, fourth paragraph starting at the bottom of page one says:
"An examination of the resubmitted logs and music lists reveal that the information they contain now meets the requirements of the Radio Regulations 1986. We have noted your comments concerning local programming." (As read)
3907 It was from Suzanne Dufour. I could give you a copy if you would like.
3908 THE CHAIRPERSON: What steps have you taken with regard to the music list to continue in the future to meet the requirements?
3909 MR. WHITE: Madam Chair, I was in error in indicating what songs were Canadian on the music logs. I had used an asterisk to indicate the Canadian song and not done all the information as far as outlining the records as MAPL.
3910 That was remedied in December of 2003 and our logs are compliant at this time.
3911 THE CHAIRPERSON: If we were to ask for last weeks' logs and music lists, what would they look like?
3912 MR. WHITE: They would be to the letter of the law and they would be here tomorrow morning if you wanted them.
3913 THE CHAIRPERSON: These are my questions.
3914 You are a very lively man, Mr. Dancy. You can dance around quite quickly.
--- Laughter / Rires
3915 THE CHAIRPERSON: But do you see what we are driving at?
3916 MR. DANCY: Yes. Yes, I do.
3917 THE CHAIRPERSON: You know that you are in competition with other services. It is a regulated industry. They are public frequencies and we cannot allow people to make their own rules because they are in financial trouble or because they have a different view of what the rules ought to be.
3918 We like to of course be as open as possible. We certainly are very interested in broadcasters who use the airwaves to reach the younger demographic, but it is not at all cost. We hear other stories as well of what it is we are supposed to bear as a regulator so that that demographic is reached.
3919 You say you did things with imagination and creativity, but your creativity has to be at least somewhat within the rules.
3920 MR. DANCY: Yes.
3921 THE CHAIRPERSON: That is also going to be necessary for Mr. Ferri. I don't know if he will dance as quickly as you.
3922 MR. DANCY: I don't mean to seem like I'm dancing.
3923 I think that all of this, I may have made an error in judgment using a production facility outside of Canada. I really thought that I wasn't making a mistake. I really thought that I was within the rules.
3924 If the Commission doesn't think that I should -- I don't anticipate ever having to do it again. It was an interim thing. If I made an error, I apologize, I do, but there was no intent to do anything wrong.
3925 Necessity is the mother of invention. I had to do something and I felt that I was doing it the best way I could, but I really always felt that I was within the guidelines of the CRTC, their policies, the Broadcast Act. I did read them, I did look through them.
3926 If you feel that maybe I have stretched it or that there is a view that -- I didn't mean to, Madam Chairman, I really didn't.
3927 THE CHAIRPERSON: At this point it is more a question of whether you can agree or not with our rules and with our guidelines, but it is the question of whether you understand them and whether you have the intention of keeping within them.
3928 MR. DANCY: Yes. Yes, I do.
3929 THE CHAIRPERSON: Do you think that for me to test how you progress with your dancing that we need to give a short-term renewal so that we can check whether the log and the spoken word content and the service to the community and the Canadianness of your station is up to scratch?
3930 MR. DANCY: I think that in effect I am in a short-term renewal. I have been going through this process for more than two years, Madam Chairman. I have spent a lot of money to try to give the Commission all the answers and to give them answers to whatever questions. I have never obfuscated.
3931 I think it is on the Commission record, and you can ask the staff, that I don't wait until the last day to respond to something. If they give me something, sometimes I turn it around in 24 hours.
3932 THE CHAIRPERSON: We have acknowledged that you dance quickly.
--- Laughter / Rires
3933 MR. DANCY: It's not dancing.
3934 THE CHAIRPERSON: I meant short-time renewal on a forward-looking basis so that we also discharge our responsibilities of seeing just how satisfactory your performance as a Canadian broadcaster is.
3935 MR. DANCY: As I said, I already think I have. I have held a licence for CFLZ for 15 years and never once have had a complaint.
3936 The only two complaints -- there was only one in the other notice. There were not interventions period. There was only one intervention by Nicholas Picholas, the morning man on WKSE, and there was only one intervention in the other one, which is a former employee of --
3937 THE CHAIRPERSON: No, I also read a complaint that was on the complaint file -- I wasn't going to raise it, but you are raising it -- directly related to the fact of the programming because it came from Buffalo --
3938 MR. DANCY: It was Rob Vernon.
3939 THE CHAIRPERSON: -- was unacceptable.
3940 MR. DANCY: It was the same guy, Robert Vernon.
3941 That's what I'm saying, there was only those two people.
3942 THE CHAIRPERSON: No, no. There was also a complaint, wasn't there, from a lady before about the content, about obscene content.
3943 MR. DANCY: Oh, no. I spoke to the Commission about that, but please raise it because I would like to really answer any questions that you have right now.
3944 I am not trying to dance around. I'm not trying to be a carnival barker here. I take the licence very seriously.
3945 Mr. Ferri has put a lot of trust in me as a broadcaster and I want him to understand that whatever rules that we have to abide by we are going to abide by and I never had any intention of not abiding by them. I think I have abided by them.
3946 We can debate that if you would like, but you are the regulatory body, whatever rules you put in are the rules. I think that I am already -- I am going to be under a short-term licence because the market is ahead.
3947 We are also applying for CJRN 710. It's licence is up on the end of August 2005. CFLZ's licence is up at the end of that time as well. There are no interventions, no complaints, no anything about them.
3948 As I say, the only interventions that have ever been against me that I have been involved in, that I have been a licensee for 15 years -- I was the styrofoam ear in 1973 for CFTR when it was number one for years. I mean, I have been around a long time and I have never had any complaints and I find it a little bit suspicious that these two people who are intervening in the license renewal process here seem to have other agendas.
3949 I'm just putting that out because I think it is a very realistic -- when you put out the notices, how many other people intervened? Nobody intervened. Nobody. Not one other person than Robert Vernon and Nicholas Picholas. It would be like somebody saying something about you and you don't get the chance -- they can say anything they want about me and they don't have to provide any proof.
3950 THE CHAIRPERSON: I think you would be surprise.
3951 COMMISSIONER COLVILLE: We are used to that.
--- Laughter / Rires
3952 THE CHAIRPERSON: I hope, Mr. Ferri, that you have been properly introduced to our processes.
3953 MR. FERRI: I must say, it was a little tense and I'm looking forward to working with the Commission.
3954 I had a lot of things planned to say at the end. I was going to remark how I was impressed with David's passion for the radio, and I think that has come out. What we intend to do -- or I do, is provide the financial resources so he won't have to go through this again.
3955 THE CHAIRPERSON: Make sure you polish his dancing shoes.
--- Laughter / Rires
3956 MR. FERRI: Okay.
3957 THE CHAIRPERSON: -- to a Canadian shine.
3958 MR. FERRI: But thank you very much for your time.
3959 THE CHAIRPERSON: Counsel.
3960 MS JONES: Thank you, Madam Chair. I just three short questions.
3961 It is possible that after the hearing today the Panel might conclude that CKEY was in breach of the condition of licence No. 9 during that week in November due to an almost total absence of spoken word content of direct and particular relevance to the St. Catharines/Niagara area. It might be possible that we find a breach of that condition.
3962 In order to reach that conclusion, the Panel would have to consider how much of such content would be necessary for a station to fulfil the condition.
3963 Do you have anything to say about how much you think would be enough to be able to fulfil that condition?
3964 MR. DANCY: Well, as I said, according to the regulations I figure we are 90 per cent over local programming, according to the rules.
3965 The Chairman had said back in 1993 that it was 30 per cent or three hours of news or something like that.
3966 THE CHAIRPERSON: And 15 per cent spoken word content.
3967 I know that you could say your programming is local because you put in all the music as well, all the programming that is music-related as well. The idea of that condition was more what is it your doing to serve the community with information, and so on, since you are using the airwaves. It is something to show that you are not a jukebox basically.
3968 So it would be how much do you think -- and I went back to 1993, you told me you had read that policy, and if we had a concern would it be a problem for you if we reverted back, in your case, to requiring a very specific amount of spoken word content?
3969 MR. DANCY: My program director tells me that no, we would have to hire somebody to do it, so we would like some time to find somebody --
3970 THE CHAIRPERSON: And whether you think that for your demographic, 15 per cent -- if we were to go that route, to say we will tie you down to a certain amount of spoken word content, which presumably will be information of value to your demographic, all of it, which goes up to 34, what would be the percentage or number of hours that would make sense and would be doable if we chose to not just leave it to your judgment but to impose something.
3971 MR. DANCY: Are you talking on a daily basis, 6:00 a.m. to midnight?
3972 MS JONES: Weekly. Weekly.
3973 MR. DANCY: A weekly basis?
3974 MS JONES: Yes. The three hours and 15 per cent were on a weekly basis.
3975 MR. DANCY: Three hours and...?
3976 MS JONES: And the 15 per cent we were talking about of local spoken word.
3977 MR. DANCY: 15 per cent of?
3978 MS JONES: Spoken word and three hours of news of relevance to the community you serve on a weekly basis.
3979 MR. DANCY: Well, yes. That is 180 minutes divided by 7. You are looking at 20 minutes a day, 2 minutes an hour. I think we do it anyway, so yes, we could do it.
3980 MR. WHITE: We could do it.
3981 MS JONES: The next question --
3982 MR. DANCY: I'm not dancing.
---Laughter / Rires
3983 MS JONES: The next question is: Can you comment on the possibility that the Commission impose you a condition of licence to require the termination of the joint sales agreement?
3984 Can you comment on that?
3985 MR. FERRI: Could you repeat that?
3986 MS JONES: Could you comment on the possibility that the Commission might, after this hearing, require you to terminate the joint sales agreement.
3987 MR. DANCY: Yes.
3988 MS JONES: Thank you.
3989 MR. FERRI: Yes, I would agree with that wholeheartedly.
3990 THE CHAIRPERSON: No further questions.
3991 It is late, but at least you are free today. We apologize. We try to accommodate you, but we can't control just how long our days last. That is why we had to hear you this evening.
3992 MR. DANCY: We appreciate, I can't tell you how much, not only Madam Chair and the Commissioners, but I think it is important to say that regardless of what you decide, I said at the beginning and I would like to say again, the Commission staff have been incredibly helpful and professional and have always helped me whenever I would asked questions or they asked me questions and I needed further information. I just wanted to say that working with the Commission staff, they have made a difficult situation as bearable as it could be and I just wanted to put it on that I do appreciate sincerely all the work that the Commission staff has done.
3993 THE CHAIRPERSON: Thank you for your cooperation during this process.
3994 I believe, Mr. Secretary, that we don't have the appearing intervenor.
3995 MR. LEBEL: One intervention was filed by Mr. Robert Vernon. He was requesting an appearance. He was invited to appear and obviously he is not here so the intervention will remain on the record as non-appearing.
3996 Thank you, Madam Chair.
3997 THE CHAIRPERSON: You are normally given a reply possibility.
3998 Do you feel the need to use it?
3999 MR. DANCY: No, it is on the record.
4000 The only thing that I would like say is that Mr. Vernon I believe said that he could come here, he could supply proof. He is not here, he has not supplied proof and I would like it on the record that his allegations are totally unsubstantiated.
4001 THE CHAIRPERSON: Thank you very much and have a good trip back.
4002 MR. DANCY: Thank you, Madam Chair.
4003 THE CHAIRPERSON: We will now adjourn for the evening and reconvene at nine o'clock tomorrow morning to hear the two competing FM applications.
--- Whereupon the hearing adjourned at 2040, to resume
on Wednesday, June 9, 2004 at 0900 / L'audience
est ajournée à 2040, pour reprendre le mercredi
9 juin 2004 à 0900
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