ARCHIVED - Transcript / Transcription - 5 November / novembre 2004 - Gatineau, Quebec
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TRANSCRIPT OF PROCEEDINGS BEFORE
THE CANADIAN RADIO-TELEVISION AND
TRANSCRIPTION DES AUDIENCES AVANT
CONSEIL DE LA RADIODIFFUSION
ET DES TÉLÉCOMMUNICATIONS CANADIENNES
APPLICATION BY NEWCAP INC. IN ORDER TO OBTAIN THE
AUTHORITY TO ACQUIRE THE ASSETS OF THE RADIO
PROGRAMMING UNDERTAKING CJUK-FM THUNDER BAY. /
DEMANDE PRÉSENTÉE PAR NEWCAP INC. AFIN D'OBTENIR
L'AUTORISATION D'ACQUÉRIR L'ACTIF DE L'ENTREPRISE DE
PROGRAMMATION DE RADIO CJUK-FM THUNDER BAY.
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
Portage IV Portage IV
140 Promenade du Portage 140, promenade du Portage
Gatineau, Quebec Gatineau (Québec)
November 5, 2004 Le 5 novembre 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
APPLICATION BY NEWCAP INC. IN ORDER TO OBTAIN THE
AUTHORITY TO ACQUIRE THE ASSETS OF THE RADIO
PROGRAMMING UNDERTAKING CJUK-FM THUNDER BAY. /
DEMANDE PRÉSENTÉE PAR NEWCAP INC. AFIN D'OBTENIR
L'AUTORISATION D'ACQUÉRIR L'ACTIF DE L'ENTREPRISE DE
PROGRAMMATION DE RADIO CJUK-FM THUNDER BAY.
BEFORE / DEVANT:
Andrée Wylie Vice-chairperson,
Vice-présidente de la
Joan Pennefather Commissioner / Conseillère
Stuart Langford Commissioner / Conseillier
ALSO PRESENT / AUSSI PRÉSENTS:
Pierre Lebel Secretary / Secrétaire
James Wilson Legal Counsel /
Lynn Renaud Hearing Manager /
Gérante de l'audience
HELD AT: TENUE À:
Conference Centre Centre de conférences
Outaouais Room Salle Outaouais
Portage IV Portage IV
140 Promenade du Portage 140, promenade du Portage
Gatineau, Quebec Gatineau (Québec)
November 5, 2004 Le 5 novembre 2004
TABLE DES MATIÈRES / TABLE OF CONTENTS
PAGE / PARA
PRESENTATION BY / PRÉSENTATION PAR:
Newcap Inc. 3 / 17
INTERVENTION BY / INTERVENTION PAR:
CKPR and CJSD-FM 86 / 488
REPLY BY / RÉPLIQUE PAR:
Newcap Inc. 99 / 558
Gatineau, Quebec / Gatineau (Québec)
--- Upon commencing on Friday, November 5, 2004
at 0930 / L'audience débute le vendredi 5 novembre
2004 à 0930
1 LA PRÉSIDENTE: Bonjour mesdames et messieurs, bienvenue à notre audience publique.
2 Good morning ladies and gentlemen and welcome to the public hearing.
3 My name is Andrée Wylie and I am Vice-chairperson, Broadcasting, at the CRTC. I will be chairing this hearing with my colleagues, to my right, Commissioner Joan Pennefather and, to my left, Commissioner Stuart Langford.
4 The Commission team assisting us includes Hearing Manager Lyne Renaud, Acquisition and Ownership manager; Legal Counsel, James Wilson; and Hearing Secretary, Pierre Lebel.
5 Please see Mr. Lebel if you have any questions about procedure.
6 Today we will hear one application presented by Newcap Inc. for Commission approval to acquire the assets of the low power radio programming undertaking CJUK-FM in Thunder Bay.
7 The value of the transaction is $2.3 million and Newcap has proposed $138,000 as tangible benefits.
8 The applicant is also requesting a licence to continue the operation of CJUK-FM upon surrender of the current licence issued to Big Pond Communications 2000 Inc.
9 While you are in the hearing room, please turn off your cell phones and beepers, as they are disruptive for both participants and Panel Members. We must have your cooperation in this regard throughout the hearing.
10 I will now invite the Hearing Secretary, Mr. Pierre LeBel, to explain the hearing procedures that we will be following.
11 Monsieur LeBel, please.
12 THE SECRETARY: Thank you, Madam Chair.
13 As you have indicated, there is only one appearing item on the agenda of this public hearing. We will deal with the application, then we will hear the appearing intervention, then we will ask the applicant to respond to all of the interventions that were filed on their application.
14 The application is by Newcap Inc. in order to obtain the authority to acquire the assets of the radio programming undertaking CJUK-FM Thunder Bay.
15 Mr. Mark Maheu will be introducing the panel. You have 20 minutes to make your presentation.
16 THE CHAIRPERSON: Good morning, Gentlemen. Proceed when you are ready.
17 MR. MAHEU: Thank you. Good morning, Madam Chair, Members of the Commission and Commission staff. I am Mark Maheu, Executive Vice-President and Chief Operating Officer of Newcap Radio.
18 With me today, to my right, is Michael Prudhomme, Operations Manager of CJLB-FM, our radio station in Thunder Bay. Beside him is Robert Steele, President and Chief Executive Officer of Newcap. To my left is Dennis Landriault, President of Big Pond Communications, the licensee of CJUK-FM in Thunder Bay. Dave Murray, Vice-President of Operations for Newcap is in the second row.
19 We are here today, this morning, to present our application for the transfer of the assets of Big Pond to Newcap and the issuance of a new licence for CJUK-FM to us.
20 We are confident that the approval of this application will ensure that CJUK-FM will continue to be able to make its unique contribution to the people of Thunder Bay.
21 Approval of this application will also ensure sustainable radio competition in the marketplace.
22 Additionally, approval will provide $138,000 in benefits to Canadian Talent Development.
23 I would like to ask Mr. Landriault to give you some background and context that led to this transaction.
25 MR. LANDRIAULT: Thank you, Mark.
26 Madam Chair, Members of the Commission, Commission staff, Big Pond Communications is the licensee of CJUK-FM in Thunder Bay, more commonly known to our listeners as Magic 99.9.
27 The radio station is a result of a lifelong goal of Thunder Bay resident Bill Baziuk. Since the early '80s Mr. Baziuk had a dream of starting a radio station that would truly serve the listeners of Thunder Bay, a radio station that would cater to the musical tastes of the unserved and provide an additional voice for the community groups in the Thunder Bay region.
28 After several failed application attempts, Big Pond Communications was granted an FM licence in 2000. As the Commission may recall, the application by Big Pond was modest by any measure. First year programming expenses were forecast to be only $203,000, with a total operating budget of the business to be $400,000.
29 I was hired in the summer of 2000 to bring experienced professional management to the station as the principal had no previous broadcast history or experience. I quickly discovered upon my arrival that in order to provide a quality, locally-oriented service in Thunder Bay, the budgets for programming and other areas needed to be raised significantly.
30 In preparing the application, Mr. Baziuk had not used professional assistance or broadcast expertise. In reviewing the business plan and strategy, I realized he did not understand what would be required for the station to meet its mandate in Thunder Bay.
31 In the fall of 2001, the Thunder Bay radio market was comprised of three commercial radio stations, CKPR and CJSD-FM, owned by Dougall Media, and CJLB-FM owned by Newcap. The three stations were operated together by Dougall Media as part of a local management agreement. Previous to that point, the three radio stations enjoyed a competition-free environment.
32 Adding to their dominance was the fact that Dougall Media also owned the cities only two local television stations, CKPR and CHFD, which are CBC and CTV affiliates; a weekly newspaper and a city Internet portal site called Thunder Bay's Source. In fact, the only media alternative to Dougall Media for the editorial voice and for advertisers was the Thunder Bay daily newspaper, the Chronicle Journal.
33 It was clear that for CJUK-FM to have any chance to meet its mandate, it had to provide an attractive, informative and community-oriented programming service and do a very good job of marketing and promotion. We need to put more resources into each of these areas. Absent the revenues, we could not provide the alternative service that we were mandated to do.
34 However, this brought increased risk to the business -- that the licensee was prepared to take. The risk included a hotly contested defence of market share and revenues from the LMA partners in the market, along with increased expense budget that would involve borrowing.
35 Magic 99 was launched on September 10, 2001. We all know what happened the very next day: The events of September 11, 2001 in New York, Washington DC and Pennsylvania cast a long shadow over North America and Thunder Bay, Ontario. The citizens of our city were not interested in a new radio station.
36 Advertisers retrenched into reaction to consumer opting to hold off on purchases. Indeed, the entire U.S. and Canadian economy slowed immediately and stayed that way for many months. Although the deck seemed stacked against us, our staff continued to struggle to build a base of listeners and advertisers for CJUK-FM. Slowly, steadily we began to get some traction in the market.
37 Over the first 18 months on-air, the station had achieved a respectable market share of 19.4 per cent on the 12-plus and our revenues grew accordingly.
38 However, these revenues were not enough to cover the month-to-month operating expenses of the business. Big Pond had to arrange financing, which was extremely time-consuming and difficult. Because of our low power status, the business was unable to secure financing from traditional lenders at competitive rates. Private equity had to be sourced to allow the business to remain current with its obligations, albeit with a high rate of interest.
39 The station lost money in 2002.
40 Although we had difficulty sourcing financing, the radio station started to achieve some success. Audience and community reaction was encouraging and tuning reflected this acceptance. Market share was steadily climbing and sales began to increase as a result of growing market share.
41 In early 2003, the other low-power licensee, CFQK-FM Thunder Bay, which had been licensed at the same time as CJUK-FM, entered into a local sales agreement with Dougall Media and operated from their building that housed the LMA partnership, the two television stations and the weekly newspaper.
42 From that point on, the competition for listeners increased and so did the battle for revenues. The LMA stations, with their partner CFQK-FM, began an aggressive campaign of multi-station offerings, sales promotions, free commercial bonusing for four radio stations selling together. This put extreme pressure on rates, terms and CJUK's ability to compete for advertising revenue. Clearly, they wanted to retain the market dominance and exclusivity that they enjoyed for many years in Thunder Bay.
43 For the past 12 months our revenues have been falling off previous years' achievements. The LMA partnership, combined with multi-media offerings of television and newspaper from Dougall Media has taken their toll on CJUK. Our ownership has grown weary of the day-in/day-out media war, along with growing debt and interest charges to remain competitive.
44 I was instructed by the licensee in early 2004 to begin looking for a potential buyer for CJUK, a buyer that would have the resources, the will and the experience to build on what we have started in Thunder Bay. We began negotiating with Newcap in April 2004 and signed a purchase and sale agreement in June.
45 MR. MAHEU: As the Commission is aware, until recently CJLB-FM was part of the local management agreement with Dougall Media. We have since moved out and are operating independently with short-term assistance from CJUK. CJLB-FM is actively building a new team of salespeople, on-air hosts and administration staff. We are also close to leasing and improving a new location we expect to be operating from by late February.
46 Newcap Radio has a long history in Thunder Bay, Ontario. We have owned the radio station since 1989. It is our intention, through the purchase of CJUK, to remain active and competitive in Thunder Bay for many years to come.
47 With a market as small and as consolidated as Thunder Bay, the best way for a radio station to be competitive is by having some critical mass. We came to this conclusion and entered into a local management agreement with Dougall Media in 1995, which the Commission subsequently approved.
48 A new age of regulation allowing multiple licence ownership now makes our purchase of CJUK-FM possible and goes a long way to levelling the playing field and offering real choice to radio listeners and advertisers in Thunder Bay.
49 Listeners will be well-served by the approval of this transaction. Newcap's purchase of CJUK will bring much needed stability and a professional approach to the management of the radio station. This means the resources necessary to maintain and grow distinct news and editorial voices, as well as the diverse music choice resulting in improved diversity.
50 It will still be challenging competing against a consolidated owner like Dougall Media. The power and influence of those two full-power radio stations, combined with the only two local television stations and the weekly newspaper and a proposed purchase of the low-power station CFQK will constitute a formidable concentration of ownership to compete with.
51 Still, Newcap is confident that, if approved, the combination of CJLB-FM and CJUK-FM will carve out a niche of listenership and advertising revenue substantial enough to be successful in Thunder Bay.
52 The approval of this application will also mean the infusion of $138,000 to the development of Canadian talent. Of that, $23,000 will be spent in Thunder Bay to promote local Canadian talent through the establishment of an annual event called the Magic Music Awards. Your approval of this application will ensure that two standalone broadcasters will be strengthened, allowing the emergence of real competition to be established in the broadcast market.
53 With the approval of this purchase, the message to the residents of Thunder Bay is clear: They are important and deserve the same variety of choices afforded citizens in other cities across Canada. New, stable ownership, funding and expertise provided by Newcap will confirm this to the people of Thunder Bay. The result will be a vibrant programming and editorial alternative for many years to come in Thunder Bay.
54 In light of these facts, we respectfully request the Commission's approval of this application and we would be very pleased to answer any questions you may have.
55 THE CHAIRPERSON: Thank you, gentlemen.
56 Commissioner Pennefather, please.
57 COMMISSIONER PENNEFATHER: Thank you, Madam Wylie. Good morning, gentlemen. I hope I say your name correctly this time, Mr. Maheu.
58 MR. MAHEU: Perfect.
59 COMMISSIONER PENNEFATHER: Good. I wrote it down, "Mayhew".
60 I am going to have some questions for you and I would like to start with questioning Mr. Landriault on Big Pond and then question you, Mr. Maheu, for the Newcap, looking at both vendor and purchaser side. There may be some overlap in responses, so please feel free to add to the record as you sit fit, but I am going to try to keep a certain degree of specificity to Big Pond and your rationale and some of your numbers and then, to Newcap, your rationale for purchase and a few other issues dealing with diversity.
61 MR. MAHEU: Okay. Sure.
62 COMMISSIONER PENNEFATHER: Mr. Landriault, you yourself said that starting in 2002 the radio station was starting to achieve some success. We can see that in the numbers.
"Audience and community reaction was encouraging and tuning reflected this acceptance." (As read)
63 I am quoting from this presentation:
"Market shares were climbing and sales began to increase." (As read)
64 In fact, in financial statements we do see a positive bottom line in 2003.
65 The success that we see, it is a relative success I think. You are talking about a low-power station, a lot of hard work.
66 What caused that success, in your view?
67 MR. LANDRIAULT: Our belief is that there was a pent up demand in Thunder Bay for an alternative, and even with 37 watts CJUK came in and that pent up demand was a tidal wave. We really believe that.
68 COMMISSIONER PENNEFATHER: So even within the low power spectrum that you have with this license, and which you still have I take for granted because you were refused the increase --
69 MR. LANDRIAULT: Yes.
70 COMMISSIONER PENNEFATHER: -- you still managed to achieve that success.
71 MR. LANDRIAULT: I think a lot of the first success was a honeymoon and that honeymoon is coming to an end. As you see in later results, our market share has dropped. The reason we feel it has dropped is because of the non-penetration of buildings or offices, so our hours tuned are very low because people are listening to us only in their cars. They can't listen to us in their homes or their workplace.
72 COMMISSIONER PENNEFATHER: So you are saying that, in your view, going forward, that you have reached as far as you can?
73 MR. LANDRIAULT: No question.
74 COMMISSIONER PENNEFATHER: Even though you fill a niche and there was a pent-up demand?
75 MR. LANDRIAULT: Yes. The honeymoon has come to an end. I mean, they will put up with it for a long time. We have a great format at Magic, but sometimes the static does get to you and they will move on.
76 COMMISSIONER PENNEFATHER: If I then asked you to discuss where you are now and going forward, and considering what you said about pent-up demand and the excellent response you got and the diversity which the Magic 99.9 brought to the community, can you tell us more about your motivation for selling?
77 MR. LANDRIAULT: The number one motivation that we have, and as much as I hate to say that, is Big Pond is in financial difficulty. It cost us a lot of money to get that market share. Unfortunately, with the competition in the market, the high interest rates that we had because we were not able to get traditional financing, from day one this radio station has been underfinanced. We have been walking on a tightrope for a long time. The motivation is that we are about to fall off that high wire and we need to make this transaction.
78 MR. LANDRIAULT: On what do you base concretely your opinion that you are about to fall off the high wire, as you say?
79 MR. LANDRIAULT: We are substantially in debt, and that debt, we can't maintain it.
80 COMMISSIONER PENNEFATHER: The financial statements, though, for 2003, do not indicate that you are in that kind of debt. Perhaps what I will do, then, is go back over some of the numbers and we will just have a look at that.
81 One of the reasons for the questions is the Commission, as you know, is generally concerned when a broadcast undertaking is sold within a term of license of its first licence--
82 MR. LANDRIAULT: Yes.
83 COMMISSIONER PENNEFATHER: --within a relatively short time, after a previous transfer of ownership or effective control. And in this circumstance--and I think that's the circumstance we have today--we wish to evaluate, among other things, the extent to which the vendor may profit from the sale.
84 From your nodding, I think you are saying, yes, you were expecting to go through this.
85 MR. LANDRIAULT: No question.
86 COMMISSIONER PENNEFATHER: Good. So you understand the point of the discussion?
87 MR. LANDRIAULT: Yes.
88 COMMISSIONER PENNEFATHER: So let's review what constitutes an acceptable start-up cost. This should not be a surprise since, in fact, we asked you questions on this matter--
89 MR. LANDRIAULT: Yes.
90 COMMISSIONER PENNEFATHER: --in two deficiency letters, I think.
91 First, what normally constitute acceptable start-up costs, I think we could agree that those costs would normally represent expenses incurred prior to commencing the operations?
92 MR. LANDRIAULT: Yes.
93 COMMISSIONER PENNEFATHER: And expenses incurred that are essential to start, to commence?
94 MR. LANDRIAULT: Yes.
95 COMMISSIONER PENNEFATHER: Okay. We agree on that.
96 Can you tell us, for the record, what would be the start-up period, in your view?
97 MR. LANDRIAULT: In my view, being involved--I mean, I started in February, long before--but our start-up, we actually had employees in the office from May, before our launch in September.
98 COMMISSIONER PENNEFATHER: So can you give me just quickly the months that--
99 MR. LANDRIAULT: May, June, July, August, and we actually launched in September.
100 COMMISSIONER PENNEFATHER: Now, if we turn to the specifics of what constitutes start-up costs, for example, from your financial statements, which are on the public file--
101 MR. LANDRIAULT: Yes.
102 COMMISSIONER PENNEFATHER: --year ending August 31st, 2003, we note that in Note 4--
103 MR. LANDRIAULT: Yes.
104 COMMISSIONER PENNEFATHER: --there are elements that we could consider as start-up costs, and these could be--do you have that page? I think it's page 9 of your financial statements, note to statements for capital assets. If we go down the list, let's assume that start-up costs could be broadcasting equipment, computer and computer software, the music library, office furniture and fixtures, signage and web site.
105 MR. LANDRIAULT: Yes.
106 COMMISSIONER PENNEFATHER: This brings us to a total of $369,767.
107 To this, I think it would be fair to add the costs of $50,000, which is indicated in your reply letter of July 30th--and I will just get that so we are together.
108 MR. LANDRIAULT: I don't think we are on the same page.
109 COMMISSIONER PENNEFATHER: Okay. I'm probably moving too quickly for you.
110 If you go to your financial statements, Note 4, on page, I think I said 9, right? Are you on that page?
111 MR. LANDRIAULT: It doesn't mention what you were just mentioning.
112 COMMISSIONER PENNEFATHER: Okay, look at Note 4, capital assets list. This is the financial statements submitted with your application.
113 MR. LANDRIAULT: August 31st, 2003?
114 COMMISSIONER PENNEFATHER: Exactly. And I am in the listing of capital assets at Notes 4.
115 MR. LANDRIAULT: Okay, I have that, page 7 on mine.
116 COMMISSIONER PENNEFATHER: We are there.
117 MR. LANDRIAULT: Okay.
118 COMMISSIONER PENNEFATHER: Now, did I say the wrong page? You have page 7, I have page 9. Oh, dear. I guess it's the way my book is put together. My apologies.
119 All right, if we go down that list, looking at 2003 numbers: broadcasting equipment, computer, computer software, music library, office furniture and fixtures, signage and web site, what we have done is added start-up costs, and those come to $369,767. What I'm doing is putting a scenario together--
120 MR. LANDRIAULT: Sure.
121 COMMISSIONER PENNEFATHER: --for what could be, for the sake of discussion, start-up costs.
122 Now, to that list, which comes to $369,767, we could also legitimately add a number of $50,000, and there I flipped to the July 30th response to deficiencies. There you have what's called application costs.
123 MR. LANDRIAULT: Yes.
124 COMMISSIONER PENNEFATHER: It would seem to me that would be a fair start-up cost, $50,000. So this brings us to $419,767.
125 Would you comment for us why you do not think that $419,767 would be an appropriate calculation of start-up costs?
126 MR. LANDRIAULT: I would think that we have our building, which we needed to start the process, marketing and promotion of the radio station to launch the radio station, travel, we had a number o engineers that were flying in to do work for us and labour costs for employees that started from May on.
127 COMMISSIONER PENNEFATHER: Let's go through it another way, and then we can come back.
128 The one piece of that list, which I would say we might want to question, is building, because it continues as an operational cost, as well.
129 To make this exercise, perhaps take it in a slightly different way. And we have asked this question in two deficiencies, so if we use those deficiencies and look at July 26th and July 30th responses, you included the following, and I think you just touched on some: advertising, line-of-credit security, deferred interest on shareholder loans, opportunity costs and a line called start-up. Okay, we will go through each one of those and talk about each of those elements. Okay?
130 MR. LANDRIAULT: Yes.
131 COMMISSIONER PENNEFATHER: First of all, on advertising, if we look at the July 26th deficiency letter, we have an amount of advertising of $190,000.
132 MR. LANDRIAULT: Yes.
133 COMMISSIONER PENNEFATHER: Over what period did those expenses occur?
134 MR. LANDRIAULT: The $190,000 occurred probably over a six-month period.
135 COMMISSIONER PENNEFATHER: Can you provide us--perhaps you want to get back to me on this--with a detailed breakdown of those costs?
136 MR. LANDRIAULT: Yes, I can.
137 COMMISSIONER PENNEFATHER: It should illustrate the following three elements: the amount paid, the time period covered, which you just answered, and to whom the amounts were paid. Okay?
138 MR. LANDRIAULT: Yes.
139 COMMISSIONER PENNEFATHER: Now, that $190,000, what year are we talking about, then?
140 MR. LANDRIAULT: It should be 2001.
141 COMMISSIONER PENNEFATHER: 2001?
142 MR. LANDRIAULT: 2001.
143 COMMISSIONER PENNEFATHER: One of the reasons I'm asking that is, if you look at the financial statements again, where we just were, in fact, in 2002 there's an amount of $194,905 listed as advertising costs or expenses.
144 So my question was going to be that it would appear that in 2002 you have $384,905 in advertising costs.
145 MR. LANDRIAULT: Okay.
146 COMMISSIONER PENNEFATHER: So, again, if you could...?
147 MR. LANDRIAULT: Over a three-year period, CJUK has had close to half-a-million dollars in advertising and promotion costs, which we needed to do in order to create a market share.
148 COMMISSIONER PENNEFATHER: But if you could, in looking at the financial statements, page--I won't say the page any more. If you could look at the financial statements, where we have $194,905 in expenses for advertising in 2002, if you give us a breakdown, then what we will be able to see advertising as start-up and advertising as operational costs--
149 MR. LANDRIAULT: Okay.
150 COMMISSIONER PENNEFATHER: --to get a clearer picture there. Is that agreeable? Is that clear?
151 MR. LANDRIAULT: Yes.
152 COMMISSIONER PENNEFATHER: Stop me if I'm not clear on any of these.
153 MR. LANDRIAULT: Thank you.
154 COMMISSIONER PENNEFATHER: One of the other elements listed in the July 26th response to this question--and one of the reasons for these questions is obvious--the total that you came up with in both deficiency letters was much higher than $419,000, so I think it's important we understand from whence came your calculations for the start-up costs.
155 The line of credit, listed here, line-of-credit security of $110,000, this is the July 26 response to deficiencies.
156 MR. LANDRIAULT: Yes.
157 COMMISSIONER PENNEFATHER: I need to know a little bit more about that. Can you define the term and explain why it should be considered as at start-up cost?
158 MR. LANDRIAULT: That was actual cash that we had to set aside at the Bank of Montreal, and it still sits there today, to secure that particular line of credit. Because of our start-up situation, the banks weren't willing to offer us an unsecured line of credit.
159 COMMISSIONER PENNEFATHER: I think you have probably given me the detail, in terms of amount paid, time period covered and to whom the costs were direct, but perhaps you could get back and just restate that for us and make sure that's as clear as can be.
160 Let's go to another element, deferred interest on shareholder loans, $375,000.
161 MR. LANDRIAULT: That, actually, is not deferred interest on shareholders' loans. That is due--I will just find that.
162 MR. LANDRIAULT: That's not shareholders' loans. That should read "loans to shareholders". This is what I was talking about about the--
163 COMMISSIONER PENNEFATHER: This is the $550,000 in the financial statements?
164 MR. LANDRIAULT: Yes. This is the interest that's to be paid on that. The shareholders have to pay that. The business does not owe that. It's the shareholders that owe that money.
165 COMMISSIONER PENNEFATHER: And explain how this amount relates to start-up costs, when it's not recognized as a liability in 2002.
166 MR. LANDRIAULT: I didn't--I'm not an accountant, as you can imagine.
167 COMMISSIONER PENNEFATHER: Neither am I.
168 MR. LANDRIAULT: I will have to defer back to our--
169 COMMISSIONER PENNEFATHER: Do you want to get back to me on it?
170 MR. LANDRIAULT: --accounting firm.
171 COMMISSIONER PENNEFATHER: When you are doing that, you could perhaps--and perhaps you can right now--explain how this due to 1526042 Ontario Inc., which represents an amount $550,000, for 2003, can accrue deferred interest charges when it's indicated in your financial statements, at Note 7, that the amount is "non-interest bearing, unsecured and due on demand". That's Note 7. That's in your financial statements.
172 MR. LANDRIAULT: The $375,000 is a bonus for the lender.
173 COMMISSIONER PENNEFATHER: I'm sorry, I didn't hear you?
174 MR. LANDRIAULT: The $375,000 is a bonus to the lender for providing a very high-risk loan to our company.
175 COMMISSIONER PENNEFATHER: Again, could you explain why that would be a start-up cost?
176 MR. LANDRIAULT: I will, again, get back and refer to.
177 COMMISSIONER PENNEFATHER: This amount, can it be justified when, again, in your financial statements for 2002, due to shareholders amount is $334,197 only? There seems to be a disconnect there.
178 MR. LANDRIAULT: Can you go through that, again?
179 COMMISSIONER PENNEFATHER: Financial statements for 2002, there's an amount due to shareholders, "liabilities and shareholders' deficit", due to shareholders, $340,197, in 2002. That's only that amount. Can you clarify--
180 MR. LANDRIAULT: Yes.
181 COMMISSIONER PENNEFATHER: --how this amount of $550,000 can be justified because of that, with that?
182 MR. LANDRIAULT: I'm just going to the 2002 financial statements.
183 COMMISSIONER PENNEFATHER: Well, it's recognized in--if you look at the August 31, 2003 financial statement, which is on the public record, that amount is listed in the 2002 column.
184 MR. LANDRIAULT: I can't answer. Again, I'm not an accountant and our accounting firm put this together.
185 COMMISSIONER PENNEFATHER: Okay. So having listed it in the deficiency response as a start-up cost, I think it's important we understand what it is and how it can be defined as a "start-up cost".
186 MR. LANDRIAULT: What I can offer is an estimated distribution of the proceeds of the sale, and I have a copy of that for you.
187 COMMISSIONER PENNEFATHER: Anything like that, again, we will ask legal to deal with what you wish to table with us. My point here, too, is to look at--on the record, you have listed elements of start-up costs. In one instance, those start-up costs, in July 26th, came to $1,381,000 and, in July 30th, they came to $2,286,000, which, if we take our starting point, where we agreed on what start-up costs are, we came to $400,000-plus.
188 There's a discrepancy. It relates to our definitions of what "start-up costs" are and that why these questions: to try to get some further explanation from you on those points.
189 In the July 30th list, there's another element called "opportunity costs", for $480,000. You explain that in the July 30th letter as representing the difference between reasonable competitive salaries for the president and general manager and the amount actually drawn from the company.
190 MR. LANDRIAULT: Yes.
191 COMMISSIONER PENNEFATHER: Can you give us some more detail on that, namely the identities of the president and general manager that are being referred to and their roles and duties regarding CJUK-FM?
192 MR. LANDRIAULT: There's two gentlemen there, myself and Bill Baziuk. My role was the general day-to-day operation of the radio station.
193 COMMISSIONER PENNEFATHER: You are the general manager referred to here?
194 MR. LANDRIAULT: Yes. Bill Baziuk is a life-long resident of Thunder Bay, who developed many relationships throughout the community and worked with a lot of our advertisers and clients to develop relationships.
195 We, for the first three years, three-and-a-half-years, basically, because we started a long time before, took very little money out of the company because we couldn't afford to. So they are what we call "opportunity costs".
196 If you look at what we could have been earning or I should have been earning in a regular--
197 COMMISSIONER PENNEFATHER: Oh, I see.
198 MR. LANDRIAULT: --routine, I would have earned maybe $120,000 a year, times 3.6, where I only took out $114,000 over three-and-a-half years of the company. So that's the difference between what we should have earned and what we actually took from the company.
199 COMMISSIONER PENNEFATHER: That was my understanding of what the term meant. Thank you for that detail.
200 You analysis, could you also provide us some comment on the analysis which determined what the competitive salaries should be, the time period covered and the amounts actually withdrawn from the company?
201 MR. LANDRIAULT: Maybe Mark can talk on that on other markets.
202 MR. MAHEU: Commissioner Pennefather, are you asking Mr. Landriault to file that with the information that you have requested?
203 COMMISSIONER PENNEFATHER: Indeed, but do you have any comment at this point?
204 MR. MAHEU: Well, if Mr. Landriault will allow, I think the amounts he's speaking about, in terms of compensation for somebody in that position in a market that size, it's certainly commensurate with other markets that we operate in now.
205 I would say for a successful operation, it might be a touch on the low side, but it's certainly within the band of average that you would expect to have to pay a general manager in a market that size.
206 COMMISSIONER PENNEFATHER: I guess the next question is, obvious: why would you include this expense as an appropriate one in establishing the gain made by the sale of Pig Pond? Why would you include opportunity costs in your July 30th as part of the explanation?
207 This was in the response to the question of the Commission why we should not consider this gain as being unreasonable, considering the station has only been in operation since 2001. Your response was: "There will be little or no gain for shareholders" and, again, you run through the total costs of establishing the business and include this.
208 Why would this be included in that list?
209 MR. MAHEU: If I may, I think, in the response to the deficiency from the Commission, I think what the Commission was asking at the time was to explain, knowing the Commission's policy on a sale in the first term of licence, where there could be concern about a huge or large windfall profit for a licensee.
210 In talking with Mr. Landriault, I think the feeling was that the amount of, I think it was $480,000 in deferred or lost opportunity costs or opportunity costs, however you want to characterize it, was fair. In other words, the business would have assumed a larger amount of debt had the principals that were identified earlier been paid what, we all agree, would be a fair or average remunerations in that marketplace. They deferred that. They did not take the money out of the business.
211 I don't think it should be characterized, necessarily, on the other side of a transaction, when it's sold, as a windfall. That was money that they could have earned. They could have borrowed additional funds, I guess, if they were able to source, them to pay themselves more money and then paid the loan back out of the proceeds and the net effect would be the same.
212 The fact that Mr. Landriault and Mr. Baziuk chose to take less money than maybe their real market value was is part of the start-up of a small business, hoping to gain it back at some future point.
213 I won't speak for Mr. Landriault or Mr. Baziuk on this, but just from the outside looking in, it would certainly seem that they approached this to have some sort of long-term success and they were building equity in a business that, at some point in time, they would be able to tap into.
214 Unfortunately, the business has run into the type of financial difficulty where getting that equity back over the long term is not possible and I think to characterize it as a windfall or profiting from the licence early is not accurate in this case.
215 I think it's just a matter of money that could have legitimately been paid to people who were earning their money, who were paid much less than the going rate, getting their money on the backside on the way out.
216 COMMISSIONER PENNEFATHER: Okay, thank you for that.
217 Mr. Landriault, there's another element--one more--on the list, July 26th, and it is start-up, as an element. Now, it's here at $415,000. Can you give me a breakdown of that?
218 MR. LANDRIAULT: Yes. We calculated, and I can do again this in writing, but we calculated our expenses for over May, June, July, August, before we started up, of salaries of $80,000, times the five months. That's what we started.
219 We also have in there a large amount of money for leasehold improvements to the building.
220 COMMISSIONER PENNEFATHER: You can give us a breakdown of that?
221 MR. LANDRIAULT: Yes, I can. Yes.
222 COMMISSIONER PENNEFATHER: Because you might want to comment then, just from what you have just said to me, on why we would not accept $415,000 as the total start-up, instead of $1,381,000. Because, as you just said, they were expenses related to start-up--
223 MR. LANDRIAULT: Yes, a small portion of them.
224 COMMISSIONER PENNEFATHER: --so one would have assumed they were a complete--they are not the full list, in your view?
225 MR. LANDRIAULT: That's not the full list, definitely not the full list.
226 COMMISSIONER PENNEFATHER: Well, I think it's important to see the detail of the four hundred--
227 MR. LANDRIAULT: Sure.
228 COMMISSIONER PENNEFATHER: --because, as I said, we agreed at the beginning on what really is included in start-up costs, so we have to see what that total is.
229 For example, if I can pursue, then, having done that exercise and looked at your explanations, and you have given us different reviews, but we agreed at the beginning of the discussion on what can be start-up costs, and in the event that the Commission would determine that, overall, the start-up costs for CJUK-FM are more in the range of $600,000, this would leave us to say that Big Pond stands to make a significant profit from the sale of the radio station.
230 Can you elaborate as to why the Commission should not consider this gain as unreasonable? In other words, if you had invested $600,000 in start-up costs, what would be a reasonable rate of return on such an investment?
231 MR. LANDRIAULT: I hadn't looked it because we invested a heck of a lot more than that. Again, a reasonable amount on that amount, I would have to go back and sit with our accountants and talk to them and talk to Mr. Baziuk and go through our real expenses, what your are considering and, then, what we are considering.
232 COMMISSIONER PENNEFATHER: See that's the premise.
233 MR. LANDRIAULT: Exactly.
234 COMMISSIONER PENNEFATHER: And we went through a couple of deficiencies on that to try to get that clear because, from one analysis, could certainly say that, if I'm investing and I invest $600,000, that would be a reasonable rate of return on my investment, and I could use this same rate in looking at the transaction.
235 The starting point of this discussion, too, is, as I said earlier, the Commission's concern about unreasonable gain. This is something that's very important for us--
236 MR. LANDRIAULT: Yes.
237 COMMISSIONER PENNEFATHER: --to review. And in looking at the numbers, we can certainly, perhaps, question that what you have included as your start-up investment is less than what you have brought to our attention as legitimate start-up investment. Hence, what we will put on the record with your response is your rationale for that kind of investment number.
238 In effect, though, if we were to determine that those start-up costs, that investment, was less than what you have calculated it to be, can you elaborate why the Commission should not redirect the gain as a result of the transaction to an independent third party?
239 MR. LANDRIAULT: The undertaking that the shareholders of Big Pond took was an enormous undertaking in Thunder Bay. We provided an excellent voice for the community. We took an enormous risk, at a large personal cost to both of us, more to Mr. Baziuk because he has more to gain.
240 We feel that it was a very good risk or a risk that we took and, based on our numbers, the gains aren't significant, at all. Then, once we pay all these people back, there won't be a lot of money left. There will not be a lot of money left.
241 COMMISSIONER PENNEFATHER: Okay. So in your view, there isn't the gain, as you said in your July 30th deficiency?
242 MR. LANDRIAULT: The only people that are going to gain from this transaction are the listeners in Thunder Bay, the 17 full-time employees that we have and the advertisers and the fact that I take pride. We are very proud of what we have done in Thunder Bay. It has been an awesome experienced.
243 Unfortunately, we are going to get out of there with our skin, basically. So there's not an enormous gain.
244 COMMISSIONER PENNEFATHER: Okay. Thank you for answering those questions--
245 MR. LANDRIAULT: Thank you.
246 COMMISSIONER PENNEFATHER: --and we will move on to other areas. Indeed, since you have been working in that market now, you may want to chime in, as well, with Mr. Maheu, on discussing the station and where it's going in the future.
247 I will turn to you, Mr. Maheu, but, again, Mr. Landriault, if you wish to jump in. I'm sure you will want to perhaps respond to some of my questions.
248 Mr. Maheu, can you tell us what your plans are for CJUK-FM, in terms of staff and programming?
249 MR. MAHEU: Our plan for CJUK-FM is to operate it in conjunction with our FM station CJLB-FM. Our plan is to have them both operate from a location together.
250 As it stands right now, Mr. Landriault and his team have done a very good job of assembling and putting together an excellent group of talented people, who have worked extremely hard to help make that radio station successful in the market. Our intention at this point is to not change the formula at all, in terms of the people who are working there and the roles they play.
251 We have no thoughts and no plans on reducing or changing the formula that's there. We do have some thoughts on potentially adding a few more people, beefing up some of the resources. That's going to take a few more people. But until we can totally--until this is approved and we can close on the transaction and be in there and get a look at, on a day-to-basis, what we are working with, it's hard to say.
252 But I can tell you were are not planning any cuts or any reductions in staff with CJUK, at all. We feel that the combination of CJUK with CJLB will bring the kind of diversity to the marketplace and an alternative choice for advertisers and listeners. It's just going to help assist us be a little more competitive in that market than we are now.
253 COMMISSIONER PENNEFATHER: One of the main themes of the presentation this morning and our discussion, in terms of the reasons for the sale, the reason that Mr. Landriault laid out was: we had reached a plateau and we can't go any further. We related to the low power.
254 Is it your intention to continue to operate at the same technical parameters? Again, in the response to deficiencies in July 26, you say:
"However, as a stand-alone, lower power FM, with the infrastructure of a full-power station, we realize it will be very difficult, if not impossible, to achieve long-term viability." (As read)
255 Can you tell us what your plans are with the technical parameters?
256 MR. MAHEU: We are prepared to, and our application is based upon, applying for the transfer of the control of the station as it is. We have no plans at this time to ask for any technical change or upgrades to CJUK, in terms of power.
257 I don't want to necessarily disagree with Mr. Landriault, because he has certainly his own opinions and his own experience in the market and he's there every day, but we did our due diligence on the radio station.
258 Obviously, before we entered into a purchase and sale agreement, we talked to a number listeners and a number of advertisers in the marketplace to find out their opinions and perceptions and their usage of the radio station.
259 The reception of the radio station, for a 37-watt station, because of the terrain and the geography of Thunder Bay, the coverage, the signal coverage, is actually surprisingly good for a low-power station. The topography and the geography of the area certainly helps there.
260 There is some diminished reception capability in some buildings where there's structural steel or buildings that are erected in a way that will cause some interference. It is certainly not competitive with a full-power signal. But because of Thunder Bay's geography, that it's basically an isolated city in the north and there is not a lot in the outlying area, the metro central market is the market, we feel that, combined with CJLB-FM, as a proposition to listeners and advertisers, we can be quite successful as it is.
261 If we find that, over time, there are barriers to CJUK, we would evaluate it then. But as it stands right now, we are prepared to operate it as a 37-watt, low-power commercial radio station in the city.
262 COMMISSIONER PENNEFATHER: It doesn't sound like the low power has had quite a diminishing effect on revenues as perhaps Mr. Landriault's thinking.
263 MR. MAHEU: I can't dispute Mr. Landriault's experience or perception of the reasons that the radio station wasn't as successful as they had hoped it would be in the market. But we are also talking about, with Newcap going forward, having the benefit of an additional full-power FM to combine with CJUK. I could certainly see CJUK on its own having its unique set of difficulties, as any station standing alone might in a market like that.
264 I think some of those difficulties are mitigated somewhat when you combine them with another FM radio station, in terms of its ability to sell in combination with and provide a complementary service to listeners.
265 I guess what I'm saying, long story short, we might be in a better position to be able to mitigate some of the problems that Mr. Landriault mentioned.
266 COMMISSIONER PENNEFATHER: So you do plan to have some synergies with CJLB-FM?
267 MR. MAHEU: There's no question. I think that's one of the benefits of multiple licence ownership, where certain economies of scale can be achieved. But our reasons for wanting to purchase this radio station are certainly not rooted in trying to be more economical or save money. We are doing it so that we can be more competitive and have some critical mass in a marketplace that seems to be dominated by one owner.
268 If we are successful in gaining the Commission's approval to purchase and transfer of ownership of CJUK to Newcap, we feel blessed that we at least are starting with a full and complete radio station staff, which we do not enjoy right now and are in the process of trying to ramp back up after exiting the LMA.
269 We have a good base of people and experience and know-how to start with and we would want to add and continue to add as quickly to that as we possibly could. But in terms of our people power in the marketplace, it is certainly our intent to have as much labour and expertise that is going to be necessary to provide two distinctive services in the market.
270 That's important to us, where we have distinct and separate news people for each radio station and it has its own news voice. We are not trying to cut corners in areas like that.
271 Can their be some synergies created in the back-office area? Can one person handle traffic for two radio stations? Sure.
272 COMMISSIONER PENNEFATHER: Well, let me just stop you there--
273 MR. MAHEU: Okay.
274 COMMISSIONER PENNEFATHER: --and ask you to, and rather than questions, tell me exactly, if you can, specifically, how many employees at CJLB right now?
275 MR. MAHEU: Michael Prudhomme is our--
276 COMMISSIONER PENNEFATHER: Twenty-four about?
277 MR. MAHEU: At CJLB?
278 COMMISSIONER PENNEFATHER: Twenty-two? Twenty-four?
279 MR. MAHEU: Not now, no.
280 COMMISSIONER PENNEFATHER: No?
281 MR. MAHEU: No. At CJLB, presently, I believe, Michael, we have four?
282 MR. PRUDHOMME: Right.
283 MR. MAHEU: Yes.
284 COMMISSIONER PENNEFATHER: Four?
285 MR. MAHEU: Four.
286 COMMISSIONER PENNEFATHER: And CJUK-FM, right now?
287 MR. MAHEU: Seventeen, I believe.
288 COMMISSIONER PENNEFATHER: Seventeen? I think you mentioned--
289 MR. LANDRIAULT: Seventeen full-time and three part-time, yes.
290 COMMISSIONER PENNEFATHER: Seventeen full-time, three part-time.
291 The financial statements seem to indicate a few more than that. Perhaps you would want to get--
292 MR. MURRAY: Are you referring to UK or LB?
293 COMMISSIONER PENNEFATHER: Oh, we can shorten it to UK, then. Thank you. UK.
294 In any case, my point, really, here is to talk about synergies. Do you expect to maintain those same levels or do you expect to increase in both stations the employees?
295 MR. MAHEU: For CJUK, at 17 people right now, I could see us adding at least one or two more--I'm speaking for Newcap now, if this were approved--probably in the area of news and programming. We are also going to have to add additional staff to CJLB, which we are in the process of doing now. So staff levels on both sides are going to go up. There's going to be more people working at these radio stations in Thunder Bay in the future.
296 COMMISSIONER PENNEFATHER: You see, one of the points, too, for the enthusiasm, which Mr. Landriault was expressing, the success of UK, up to this stage, was its distinctive, this new voice, its distinctive presence of the community, its response to the community.
297 What will happen under the synergies with Newcap, in terms of that distinctiveness?
298 MR. MAHEU: Well, Commissioner, we would certainly have to do everything within our power to maintain that because that's part of what we consider the good will that we are purchasing with this radio station. It has gone out in a relatively short period of time and positioned itself with the people and the advertisers of Thunder Bay, and the listeners, extremely well.
299 It would certainly be the furthest thing from our mind to go in and to do anything that would damage the good will that has already been built. We would want to enhance that and build upon it. It's a very competitive marketplace and those types of things go a long way.
300 Secondly, the formats are quite different. Magic 99.9, as it's referred to, is an adult contemporary, gold-based AC; CJLB is a youth-oriented, top-40, rock, CHR, dance radio station. They target two very different constituencies of listeners.
301 The expectations of these listeners are quite different when it comes to the types of community events that they would be interested in hearing about or be involved with. They are very different, in terms of the types of news and information that they would care to hear about on a radio station. So it would be necessary to have people in the news in programming departments that specialized and had some expertise in serving listeners that come from two different groups.
302 I guess the long and the short of it is, we are not going to have some back-office news operation, that you are hearing the same thing on two radio stations, because that would be defeating the purpose.
303 COMMISSIONER PENNEFATHER: Will you have, then, two separate newsrooms in each?
304 MR. MAHEU: I don't know if you would want to characterize it as "two separate newsrooms", with a wall and a door between each two of them, but we would certainly have staff on each radio station that were charged with different responsibilities, in terms of news gathering and making editorial decisions on what type of news the radio station would cover and broadcast.
305 Again, the demographics and the needs and wants of each radio station are different. So where on one radio station you might be leading with a tax hike story on city hall, at city hall from the night before, the other radio station may carry that story deeper down in a newscast, where there may have been an incident--if we are talking about CJLB, for instance, there may be something quite newsworthy happening that has a big impact or an effect on younger people.
306 We need to have news people, and will have news people, in those capacities and positions that use their best judgment to create news programming for the audience that we are targeting. They are going to share some resources, but they are going to be distinct and separate.
307 COMMISSIONER PENNEFATHER: Just moving to another point, can you please file with us your financial projections, including financial assumptions, for UK for the next five years?
308 MR. MAHEU: Certainly.
309 COMMISSIONER PENNEFATHER: Moving back to our discussion, we talked about diversity in choice and diversity of voices, and I focused on news and you discussed with me that. I understand you are all in the same building. Are you in the same building at the moment?
310 MR. MAHEU: Yes, we are renting space now from CJUK.
311 COMMISSIONER PENNEFATHER: Let's talk about the impact of this on competition in the Thunder Bay market. Can you comment and explain how competitiveness will be enhanced in the Thunder Bay market when there will be only two players now, instead of three?
312 MR. MAHEU: Well, the most obvious one, from our point of view is, if this transaction is not approved, this radio station is going to go out of business. So a voice is going to be lost because, from what Mr. Landriault has said, the radio station is not going to survive as it is now.
313 When we talk about maintaining competition in the marketplace and providing an alternative or alternative news voice, it is keeping what is there now viable and building on it and enhancing it and we see that as adding to the diversity of the marketplace. Because it is to the point now, from what we understand, that this radio station is on the verge of being insolvent and not being able to continue and not being able fulfil its obligations.
314 COMMISSIONER PENNEFATHER: Hence my discussion about diversity of voices because, in effect, we now have two players as you will... You discussed with us just previously the potential for yet maintaining the diversity of voice that UK offered to the community. Could we be a little more specific about that in terms of that just the employees, currently 17 and 4, if my memory serves. If in the financial statements you could clarify that and how and when changes will occur if you intend to increase the number of employees.
315 MR. MAHEU: I am sorry, Commissioner, did you want us file that or are you just asking me...?
316 COMMISSIONER PENNEFATHER: If you can tell us now what that would be, fine.
317 MR. MAHEU: Sure.
318 COMMISSIONER PENNEFATHER: But, in essence, I asked you to table financial statements going forward, I would assume that the number of employees would be--
319 MR. MAHEU: Yes, we will put it all in there as well.
320 COMMISSIONER PENNEFATHER: --determined there.
321 MR. MAHEU: Certainly. Our intention with CJUK is to maintain or grow the staff level that exists there today. On the CJLB side we are in the process right now of having to re-staff most of the radio station. So, we are actively recruiting right now, sales people, on-air hosts, news people, back office administration people. As you can appreciate, Thunder Bay is an isolated location and in order to identify, recruit and try to hire people to a location like that, it doesn't happen as easy or as quickly as it might in Eastern Ontario... we are, you know, in the Ottawa area or Southern Ontario. It is going to take a little bit of time.
322 We are also facing the difficulty a little bit right now, because we are in that never never land of waiting for an approval on something that will have an impact. While we have a responsibility as the licensee of CJLB to provide service to the community, we need people to do that and we are out there right now hiring more folks. But at the same time, we want to be careful that we don't send the wrong signal to the group of people that are sitting at Magic 99.9 who know that we have purchased the radio station subject to the approval of the Commission. And all of a sudden they see us hiring all these other people and they might be wondering what is going to happen to me?
323 So, I guess maybe for those people who are listening on the internet right now or may read the transcript later we would like to say that part of the reason we bought Magic 99.9 is because of the goodwill that the staff has built-up. These are great people and they are going to stay. We may need to add several more to Magic's staff and we are going to continue to build-up the CJLB staff. To what levels and how quickly we can build-up the CJLB staff is going to be dependant somewhat I guess on how long an approval or a denial of this application will take. Because obviously, if it is denied, we are going to need to hire more people than we have now.
324 COMMISSIONER PENNEFATHER: Well, let us stay with this application--
325 MR. MAHEU: Sure.
326 COMMISSIONER PENNEFATHER: --for the moment and go back to the question of competitiveness in the market. I think this morning it was said that the respectable market share of 19.4, and I think in the last year that has been quite a remarkable success for a low power commercial station, if we combine that with where Newcap is in the market I think we would come up with something close to a 58 percent share of the local advertising dollars and a 36 percent share in terms of audience share. Can you comment then on the impact on the market back to two players, back to the increasing share which you will occupy in terms of revenues and audience share and why that would be in the public interest?
327 MR. MAHEU: I will, Commissioner. I think you are taking Newcap's revenues based on its share from the local management agreement with Dougall Media from... Are you taking it from the CRTC returns of...?
328 COMMISSIONER PENNEFATHER: Yes.
329 MR. MAHEU: Okay. Well obviously, those numbers... that was then and this is now. We are out of the LMA. Our revenues are no where near what they were when we were a partner of a three station local management agreement and will not return to those levels for quite sometime. So, taking it at 58 percent would not be an accurate accounting of where things probably stand today, where I know they stand today, at least speaking on our side.
330 I think when the dust settles you will find that the percentage of revenue that CJLB is generating in the market, combined... and I don't know what Mr. Landriault's station is billing at this point off the top of my head, but I would certainly hazard to guess that if you combined both of them together it would be much less than 50 percent of the radio market and probably will be that way for sometime.
331 COMMISSIONER PENNEFATHER: Yes, we have had some discussion at previous hearings on this matter and I am going to now ask you about the local sales agreement that you now have with UK. Certainly, it does make analysis of the market, the players, the impact, competition difficult in terms of a LMA. I am sure you recall the Commission's discussion at length with you at the previous June hearing--
332 MR. MAHEU: Yes.
333 COMMISSIONER PENNEFATHER: --in that regard. But nevertheless, it remains that looking at numbers that we have, looking at financial returns we have, your impact in the market in terms of now being two players and your market share, thanks to the success of UK up to this point, will increase. And looking at the fact that, as well, when you imposed the increase in frequency power for Big Pond in the round in 2002 you were concerned about the impact of another full commercial station in the market, hence some fragility there you reflected on at that time.
334 And while you remain lower power, there is no doubt that this station has been successful commercially, relatively. And, going forward, you are looking to that financial viability and you say it is doable, even at low power, but you did yourself say that it is a challenging market and you opposed that power increase for that reason. So, hence my question, why is it in the public interest that now you would have that share which would in a way increase the financial impact of Newcap in the market, which you said at that time was difficult in a fragile situation? Do you care to comment any further?
335 MR. MAHEU: Sure, thanks for the opportunity. The market is a consolidated marketplace. One owner has two radio stations and two full power local television stations. There is a limited amount of advertising revenue in the marketplace. The owner of two radio stations and two television stations also runs a weekly newspaper. Our competition, going forward for advertising revenue in the market, is going to be against the daily newspaper, the Chronicle Journal, and the owner of two television and two radio stations selling together and enjoying the economies of scale and the synergies that exist there and that is certainly their business and their right and more power to them. But, it creates a difficult situation for smaller players and smaller operators to try to carve out their niche in the advertising market.
336 And I must stress, Commissioner, that to use the CRTC return numbers to characterize this combo as doing 58 percent of the radio market is--
337 COMMISSIONER PENNEFATHER: That is also the BBM results.
338 MR. MAHEU: Yes, and the BBM results have--
339 COMMISSIONER PENNEFATHER: We are also using those.
340 MR. MAHEU: Pardon me?
341 COMMISSION PENNEFATHER: We are also using those when we calculate that.
342 MR. MAHEU: Yes. But there is a difference between, and Mr. Landriault I think could bear witness to this quite easily, that there is a big difference between being able to generate market share in BBM and being able to monetize it in a media consolidated market and there is a huge chasm there that needs to be crossed. Market share does not always translate into revenue as I think is evidenced by Magic's financial difficulties. But having said that, it is a competitive marketplace and it has long been dominated by one player. We own an FM radio station there now and we have made a commitment to you in June and we make the commitment again here today that regardless of the Commission's ruling on this application we are going to stay in Thunder Bay and we are going to fight the good fight and we are going to go it alone.
343 We honestly believe that we would provide a much better service to the community and to the advertisers of Thunder Bay if we were able to do so with two licenses. Albeit, it is going to create an opportunity to level that playing field for revenue. Even with two FM radio stations, we would still be disadvantaged, one is low power and we don't own TV interests in the market or print interests. But we are prepared to carve out a niche, we are not necessarily having to be number one there and own it all. We think that we can work hard and make enough there to be successful and provide the kind of service we are talking about.
344 COMMISSIONER PENNEFATHER: Well, speaking of going it alone, let us talk about your local sales agreement which you entered into with UK. In a letter of October 19th to Mr. Marc O'Sullivan, CRTC, you describe this local sales agreement as a temporary measure. Can you describe in detail the role of Big Pond in this business arrangement and detail for us the services that are provided under the LSA?
345 MR. MAHEU: Certainly.
346 COMMISSIONER PENNEFATHER: Is this the October 6th letter?
347 MR. MAHEU: Yes.
348 COMMISSIONER PENNEFATHER: Not that I don't have it in front of me, but I think it is important to get from you and clarify that those are specifically the services and what they entail.
349 MR. MAHEU: Yes, Commissioner, in the letter of October 6th and it was written this way so that there was no misunderstanding and it could be as specific as possible. We also understand from Mr. O'Sullivan's office that this is now part of the public record. We requested confidentiality for it, we were not granted that, so it is on the public record and it is out there and it is fine.
350 Our representation agreement with CJUK-FM is, as we explained in the letter, temporary. It is our intention for this to end on or before the end of February. The representation agreement is very specific in the letter and it is an agreement that has Magic 99.9 providing retail sales services for CJLB in Thunder Bay, where they are our authorized agent to sell the airtime locally. We retain the right to sell it nationally. We have a separate and distinct national representation firm than CJUK, so in effect we are still competitors for national dollars, although CJUK is representing us locally for the retail sale of advertising to customers.
351 We are also contracting CJUK-FM to provide back office services including creative copyrighting and production of commercials for clients on our behalf. We make it very clear in the letter and we have our manager, Mr. Prudhomme, on site to make sure that the non-sales and non-administration side of each business is separate and distinct. We are responsible for our own content. We have our own editorial control, we maintain our opportunity and right as the licensee to have the final say on what is broadcast on our radio station, regardless of whether it is sold by Magic or not, we still maintain the right and the ability to refuse to run any advertisements that don't meet our standards or our terms. We will continue, as we have done in the marketplace, to do our own programming research, which is proprietary and we do not share it with the folks at Magic 99.9.
352 So completely and as specifically as I can say for the record, that the agreement we have with CJUK is short-term until we are staffed-up on our own. We are going to be out of their premises by the end of February on our own in a new location which we are very close to closing a deal on and beginning leasehold improvements on. And even if this issue is not settled, approved or denied by the Commission before that, we are moving anyhow, so we will be on our own. And it is strictly a sales representation agreement and an agreement to rent space from them.
353 COMMISSIONER PENNEFATHER: You say moving, but if... move and on our own, but if the Commission's decision regarding the transfer of ownership is to deny, would the agreement be maintained? And the agreement covers more than the building, it is a sales... as I see it here, sales, and as you have described it to us. So, assuming that, what is your plan regarding this sales agreement? Would you continue it or would you--
354 MR. MAHEU: No, it is over.
355 COMMISSIONER PENNEFATHER: Are there any termination fees involved in this?
356 MR. MAHEU: No.
357 COMMISSIONER PENNEFATHER: No? Thank you for answering my questions. Those are my questions, Madam Chair.
358 THE CHAIRPERSON: Commissioner Langford.
359 COMMISSIONER LANGFORD: Thank you, Madam Chair. I just have a couple of questions which won't be as orderly as Commissioner Pennefather's because I am just kind of patching up a few holes in my own understanding here.
360 I want to return to the questions of not quite what you would call this kind of forborne opportunity with regard to salaries or kind of lost opportunity. And I want to introduce this question, and one following-up regarding interest rates, by saying that I am not trying to in any way deprive anyone here of what to do to them and I am not trying to be well nasty, to use the colloquial in a sense, and to sort of make someone feel they have been cheated. But at the same time I am balancing that with not wanting set a bad precedent in my mind.
361 So what I would like to know about the $480,000 of sort of deferred opportunity, lost costs, lost advantages that Mr. Landriault and Mr. Baziuk's employment situation has caused them, is do you have any kind of an employment agreement, an employment contract, because I couldn't find one on the record, which would layout the fact that you were supposed to get a certain sum but you have forborne or you have... not forborne, but you have... I can't find my words today... you sort of deferred, thank you. Thank you, Commissioner Pennefather. You deferred taking that for perhaps some other opportunities down the road.
362 MR. LANDRIAULT: We do have employment contracts that we have written ourselves. They are not on the record, but I could provide them to you. It does not state a specific cost, it defines our roles in the corporation is what they do. I mean, we were taking funds on an as need basis from this company.
363 COMMISSIONER LANGFORD: Well, let me just get really basic here. When it comes time to sort of file your taxes at the end of the year, how do you work that? Do you just put down whatever you took out and say that was your salary?
364 MR. LANDRIAULT: Well, we basically are issued a T4A from the money that we are taking out and we pay income tax on what we have taken.
365 COMMISSIONER LANGFORD: And now you are saying that it really should have been a lot higher but you don't have an agreement specifying what that was?
366 MR. LANDRIAULT: We do not have an agreement on specifying a specific amount. We do have an agreement now, as of the last year, specifying exactly what it should be. But when we first started the company, no.
367 COMMISSIONER LANGFORD: See, because everybody who goes into a new venture goes in with big dreams. You know, whether it is a mom and pop grocery store or a pizzeria or people who were here earlier in the week wanting to start satellite radio, they go in with big dreams and sometimes it is quite normal for proprietors of these businesses, in my experience, to defer the realization of immediate benefits on the grounds that they will get something big at the end if they live on less, if they eat a lot of cornmeal mush and very few steaks, and not only will they have cleaner arteries, but at the end there will be perhaps some greater value in their stocks or the opportunity to take some sort of bonuses farther down the line.
368 But usually there is something that would set that out on paper, some sort of agreement in case they are audited or they sale or they want to make some sort of a claim farther down the line. And you are telling me that basically you had a handshake agreement on this?
369 MR. LANDRIAULT: Yes. As entrepreneurs and sales people, you do what you have to do to make it successful and that is what we have done. Our goal was to make this product successful. We weren't looking to sell this radio station. We didn't want to sell this radio station. The only reason we are selling this radio station is because of the financial difficulty that we are in. Our hopes, our dreams are all still there, but unfortunately the financing isn't.
370 COMMISSIONER LANGFORD: No, you said you were going to get out with your skins, I hope you kept a parka too because winter is coming. But you can see the predicament it puts us in in a way, because if the word gets out that the CRTC is kind of willing to accept this sort of narrative understanding in the sense of trying to make clear evaluations in the case of a sale, it becomes pretty adhoc out there. We are going to have difficulty down the line trying to control this thing. And, as I said earlier, I am not trying to deprive you of the benefits you may or may not or, you know, that you feel you have rightfully earned here, I don't want to question what used to be called sweat equity some years ago and the value of that. But it is very very difficult without some paper, for me at least, to determine that that is a legitimate claim. It may be a heartbreak if it isn't, I can understand that, but to set a precedent that people can come before us and say, you know, trust me, this is what we are going to do, is difficult.
371 MR. LANDRIAULT: I mean, we can set a precedent by showing you T4s from before we started the business and what we were earning, you know, before we went into this venture and that is how we set the guidelines for what we would eventually hopefully get back to.
372 COMMISSION LANGFORD: Well, there will be some clean-up questions later from legal staff and whether that would comfort them, I am not quite sure.
373 Let me move onto the second piece of the puzzle that troubled me. The $375,000 in interest charges over two years. Is there paper of any sort on that?
374 MR. LANDRIAULT: Yes there is, yes.
375 COMMISSIONER LANGFORD: That hasn't been filed though to my knowledge, has it?
376 MR. LANDRIAULT: No, I can file that.
377 COMMISSIONER LANGFORD: Could that be filed?
378 MR. LANDRIAULT: Yes, no problem.
379 COMMISSIONER LANGFORD: I am not doing that well on my RRSP, I have to tell you.
380 MR. LANDRIAULT: I can tell you, had you had this investor who took his money and put it in a very risky operation, had he taken the same amount of money and put it into TSX which closed at $6,0000 on October 15th, 2000, and taken his money out today, he would have received a 47 percent return on his funds.
381 COMMISSIONER LANGFORD: Yes, if he had gotten out at the right time. Just ask any Nortel shareholder. I don't dispute that different situations call for different collateral and different terms and loans, but neither do I think the average person on the street would dispute the notion that that kind of a return on a two year investment of that size is not bad at all.
382 MR. LANDRIAULT: That is a very good return.
383 COMMISSIONER LANGFORD: But you are going to provide us with paper that will deal with that
384 MR. LANDRIAULT: Yes, I will.
385 COMMISSIONER LANGFORD: So, I would be very grateful for that.
386 Now just on another matter, as I said, these are a bit disjointed because I am just trying to pick-up in areas where I wasn't clear. In terms of your future plans, and I guess this question goes to Newcap obviously since you folks are stepping aside, I was troubled by the notion, and of course there is history on the file which gives credence to this, but that people can't hear this signal anywhere else but in their cars or trucks or whatever and when they go home it is iffy, they might get it or they might not get it, but they are not guaranteed. So, I wonder how long it will be before you are back asking for something more on this if we are to grant this application. So I would be interested to have your long-term plans on the sense of going to higher power and higher antennas and what not. And in discussing that with me or with us and filling us in, perhaps you could tell me why you wouldn't have made that part of this application if that is a long-term plan so that we would have had the whole package in front of us.
387 MR. MAHEU: It is a great question.
388 COMMISSIONER LANGFORD: They almost always are.
389 MR. MAHEU: And I figured you were going to ask. Commissioner Pennefather touched on it earlier about, you know, Newcap intervened against the power increase for Magic 99.9 a couple of years back and I think it is a case of, you know, hindsight is 20/20 and it looks like we are being hoisted by our own petard here. It would be very difficult for us to intervene on one hand and come up with all the reasons why it wasn't in the best interest of the public to increase the power and you agreed and denied it. And then to come back with the other hand, I think it would be a little disingenuous on our part to come up with all sorts of new reasons why it is a good idea, and it is not our intention to do that. It certainly crossed our minds, it would have to. We are investing a significant amount of money in a low power radio station.
390 I do have to, Commissioner Langford, kind of repeat something I mentioned earlier because I think it is important. Mr. Landriault has his opinions on how listenable the signal is. I have been up to the market several times to do my own due diligence and, you know, listening in a hotel room on a small cheap clock radio and things like that, you know, how good is it, and drove the signal myself in a rental car and things like that. And we are satisfied that, you know, they couldn't have achieved the type of success in BBM, as was mentioned earlier, if they were not listenable. I don't want to overstate it but, you know, I think it is reasonable at this point in terms of its listenability.
391 Would we, you know, would we love to have a little more power on the radio station so that the difference between listening in an office building at 37 watts and maybe 250 watts, sure. But, you know, does it need to be a 50,000 watt radio station? No. So, long story short, you know, at some point in the future if it made sense, if the environment was right, if we had the rationale, if the market could support it we might come back and we would certainly, if we did come back, come back with a much more modest request. But that is not in the cards in the immediate or near future. We know what we are buying and we are prepared to do it.
392 COMMISSIONER LANGFORD: If the note Mr. Murray sent you a few minutes ago told you to a little easy on absolutes, he earned his Christmas bonus. These statements on the record have a way of coming back and biting people.
393 MR. MAHEU: Yes.
394 COMMISSIONER LANGFORD: So, it is not an immediate, it is not no plans. What you are really saying is we don't have immediate plans of coming back?
395 MR. MAHEU: I would say, putting it to you as specifically as I can, we are a company that really believes in radio and we want to grow, we want to do it by the rules, we want to do it in an honourable way. To sit here and tell you that we won't do something and then come back and do it, is not in the long-term best interests of our listeners, of our advertisers, of our shareholders and that is not the business we are in.
396 We know what we are buying, we are prepared to live with it. One of the reasons we are asking you to approve this application is because if there are some bumps in the road and things don't go as well as we think they are going to go we have deep enough pockets and enough resources and enough expertise to ride it out. We are not going to be borrowing money at insane rates of interest and things like that. We have the ability to fund some shortfalls. And, if after a number of years of hard luck and hardship and we can't make this thing work and we have a compelling case, would we come back to you? Possibly. But you are not going to see us back here in a few years asking for a power increase on this. You know, we just... we won't do it.
397 COMMISSIONER LANGFORD: And again, you know why, because you set out the reasons in your eloquent intervention sometime ago, we were concerned about the notion of backdoor entry into, you know, something different than was approved.
398 MR. MAHEU: That was before my time, but we have to live with it as a company and so we will live with it.
399 COMMISSIONER LANGFORD: A lot of CRTC decisions that are before my time and I am living with them everyday. Thank you, those are my questions, Madam Chair.
400 THE CHAIRPERSON: Thank you. Mr. Landriault, you spoke of flow of money out and that you would be lucky to get out with your skin. I am not as familiar with this file as Commissioner Pennefather is, but is there any document there that would detail what the flow of money out of the $2.3 million will be?
401 MR. LANDRIAULT: Yes, I have a document here that I can provide for--
402 THE CHAIRPERSON: Is that filed at the moment?
403 MR. LANDRIAULT: No, we can file it now.
404 THE CHAIRPERSON: You will file it. And is that going to be on the public record?
405 MR. LANDRIAULT: It can be, yes.
406 THE CHAIRPERSON: Yes. So, what is it that you will be left with besides your skin?
407 MR. LANDRIAULT: $167,000 is the gain.
408 THE CHAIRPERSON: Okay, and that is detailed as to once, putting it simplistically, Newcap gives the owners of Big Pond--
409 MR. LANDRIAULT: Yes.
410 THE CHAIRPERSON: --$2.3 million, you are outlining where this money flows and what is left in a way that would detail or explain to us how this works in the context of Commissioner Pennefather's question about whether there is unreasonable gain. So, would it be sufficiently detailed to show us that?
411 MR. LANDRIAULT: I won't file this one. I will detail it. This one gives it in point form.
412 THE CHAIRPERSON: Yes. With that goal in mind, that you can identify that there is not an unreasonable gain in a very short period, because we are a licensing body and we certainly do not want to encourage or accept people getting licenses and turning them around after exploiting them for a very short time. So you will do that. Legal counsel would discuss with you at the end timeframes and what it is you will file and when. And since you will be detailing this more, you may or may not want to ask for confidentiality of any of the numbers. You can discuss that with him.
413 I now gather from the discussion we have had that, Mr. Maheu, you were operating CJLB-FM with four employees under the LMA agreement? Is that what I can...? What is this four employees?
414 MR. MAHEU: Now, presently yes, we have four employees.
415 THE CHAIRERPSON: Presently?
416 MR. MAHEU: Yes.
417 THE CHAIRPERSON: Well, are they not people who were with CJLB before?
418 MR. MAHEU: One of them was.
419 THE CHAIRPERSON: How many employees did you have before you interrupted your relationship with CJSD under the LMA? How many were actually your employees?
420 MR. MURRAY: I can answer that.
421 MR. MAHEU: I will ask Mr. Murray, he has the file.
422 MR. MURRAY: The CRTC return for 2003, as an example... I am just going to turn to it, showed 22 people. And what that is though is the proportionate share of employees in the LMA in each of the departments. Because under the LMA, of course, we received 40 percent of the profit, which meant 40 percent of the revenue, 40 percent of the expenses and the proportionate number of employees that were associated with those 40 percent of salary costs, etc. etc. are what shows on the CRTC return.
423 THE CHAIRPERSON: Can I conclude from that that under the LMA that portion of the operations that were strictly CJLB-FM operations were conducted by four people and the rest were shared with CJSD under the LMA? Is that what one can conclude, that you... can we--
424 MR. MURRAY: I don't think that--
425 THE CHAIRPERSON: --think that you left with four people because they were only working for CJLB-FM?
426 MR. MURRAY: They are not the same four people. The four people we have now are the four people that we have been able to find and hire to run in the emergency situation we are in now. Under the LMA there were several people working for Newcap and several people voice tracking on any one of the two or three stations. We had our own program director, we had our own news director and we controlled our programming 100 percent.
427 THE CHAIRPERSON: And where are these people now, your own program director...?
428 MR. MURRAY: Our previous program director has accepted employment with Dougall Media I believe.
429 THE CHAIRPERSON: What I am trying to look at is, it is... well we can ask Mr. Dougall when he appears, but it certainly raises questions about Newcap's exploitation or, that may not be the proper word, but operation of CJLB-FM unless Mr. Dougall is going to reduce his staff. Because it doesn't seem there were that many were only working for you. You know, when you look at the numbers, 17 for the low power station and now you have four, it raises questions as to, you know, what effort Newcap was putting into CJLB-FM under the LMA.
430 You are obviously not here for renewal of CJLB-FM, but you are here to talk to us about working together of the two stations if we were to approve the transfer. And our interest is, of course, just to make sure that the listeners in Thunder Bay get a better deal out of this than they would have had and that is what they were telling us. And it would be great to think that it will also mean that Newcap will have a larger compendium of people to operate CJLB-FM rather than do it under CJSD, which you like to say that they have two TV stations, two radio stations and a newspaper. They also seem to have had yours as well under their...
431 MR. MAHEU: That is correct and we took steps to--
432 THE CHAIRPERSON: And we certainly want to hear, Commissioner Pennefather did get into that, that as a result of all this if we were to approve this and the termination of the LMA for which we had great discussions with a number of stations with LMAs in June, that a listener will end up with a better service.
433 MR. MAHEU: No question. The end result of approval of this application will mean, for Newcap, more people working for Newcap in radio in Thunder Bay. It is going to be better service on CJLB... Now that we have the enterprise back 100 percent where we control all aspects of it, including sales and so on, you know, we are going to ensure that we win in this marketplace and we are tough competitors too and we have a pretty good sense of what the marketplace wants from us and we are prepared to invest the resources to give it to them.
434 By the same token, we bring a certain amount of expertise and some resources to CJUK-FM that it is lacking right now. The net result is going to be more service for listeners, more diversity, editorial voice and a marketplace that is a little more balanced in terms of its ability to compete head to head for advertising revenue, especially radio revenue in the marketplace.
435 THE CHAIRPERSON: I understand your reluctance to be too specific about the staff that you have, given an approval to operate the two companies. But can you tell us if we were to deny this and CJLB-FM has to go on its own what your efforts will be in the marketplace and the extent to which they will be driven by the fact that rather than cooperating with CJSD you will be truly competing or not do very well, I suppose?
436 MR. MAHEU: Well, we consider ourselves good competitors and tough competitors and we will be competing against CJSD and CKPR, there is no question about that. And, we will also be competing with CJUK-FM for the amount of time that they are able to survive. And, you know, I guess all is fair in the war for market share, unfortunately. You know, I think the first casualty of that is going to be CJUK-FM unless they are able to miraculously source some other ways of financing their endeavour. But regardless, in the meantime, we are going to continue our efforts to ramp-up in the marketplace and to hire more people and be ready.
437 We need to be ready for the prospect one way or another of going forward, so we are trying to do it in a managed way though, because the last thing we want to do is to hire a full compliment of staff for CJLB, then receive an approval and find out that, you know, there is duplication of people and then have to either lay people off or find things for them to do that really don't exist. So, you know, we are going to be adding a couple of more people, as I mentioned, to the Magic 99.9 staff. If we were fortunate enough to receive approval from the Commission, we are definitely going to be adding a lot more people to the CJLB staff. We need to put together a larger programming department, a larger promotions department, creative and production capability that we do not have now, sales management capability and so on.
438 THE CHAIRPERSON: You have spoken today in your presentation, in answering to questions of Commissioner Pennefather and also in correspondence that we have about the temporary aspect of the LSA. You are also aware, as Commissioner Pennefather reminded you, that... and I suspect you may have been here, that at the June 7th hearing we had discussions with all the participants about the possibility that the Commission would consider an LSA to be an LMA and to require approval. Can I take it that you are asking our approval to continue this arrangement until...? Well, in the October 6th letter or the October 19th letter perhaps, if you calculated it it would be January 19, in your presentation you talked about late February. To Commissioner Pennefather you answered end of February. Are those the timeframes for which you want approval of this LSA should the Commission consider that it is indeed an LMA under our regulations?
439 MR. MAHEU: I will try to answer your question as specifically as I can. It is reminding of the is this a date, really a date discussion we had back in June. In terms--
440 THE CHAIRPERSON: The dates we had back in June didn't map out.
441 MR. MAHEU: Are we going to the movies together or is this really a date? I think our impression and our opinion, Newcap's opinion, at this point in time is that until the Commission rules otherwise, until we are informed where we stand in terms of sales agreements and LMAs and so forth, that the old practices do apply. We made the Commission aware of what we were going to do in advance, not seeking approval necessarily, but just to make sure that the Commission knew that in this emergency situation what we were going to do and not knowing if a formal approval was necessary, given the rules as they are today. We are operating a little bit here without knowing all--
442 THE CHAIRPERSON: Mr. Maheu, you know that even if we were to decide that LSAs such as the one in the October 6th letter is an LMA, there is room there to give approval. I am just trying to formalize this. In other words, when our decision comes out, since you say it is temporary, it is not going to continue regardless of whether it is a denial or an approval?
443 MR. MAHEU: Right.
444 THE CHAIRPERSON: That is clear?
445 MR. MAHEU: That is clear.
446 THE CHAIRPERSON: If it is an approval, then it is not relevant. If it is a denial, how long would it take to get out of the LSA because that would be the length of approval that would be required to have you behave, you know, comply with the regulations should we decide that this LSA is indeed an LMA requiring approval. It is as simple as that.
447 MR. MAHEU: We will--
448 THE CHAIRPERSON: And, you know, it may well be that January or the end of February is not good enough for you to reorganize. So what length of approval is it that you would want should there be a denial? Because obviously, if there is an approval it is not relevant.
449 MR. MAHEU: I am going to keep this as short as I can. We are going to be out of our representation agreement with CJUK-FM no later than February regardless of an approval, a denial or still waiting for an answer.
450 THE CHAIRPERSON: The end of February?
451 MR. MAHEU: End of February.
452 THE CHAIRPERSON: So you are positing then that even with an approval you wouldn't stay in that building?
453 MR. MAHEU: We are not staying in that building.
454 THE CHAIRPERSON: I see. Is the October 6th letter the total agreement between the two parties?
455 MR. MAHEU: The entire agreement.
456 THE CHAIRPERSON: And you are still programming CJLB-FM yourselves and the other station as well?
457 MR. MAHEU: Yes, that is correct.
458 THE CHAIRPERSON: I think that these are my questions. Did you have something else? No. Counsel.
459 MR. WILSON: Thank you, Madam Chairman. I just had a couple of questions. If I can go back to the $190,000 in advertising expenses that was discussed with Commissioner Pennefather in discussing the start-up costs for CJUK, I believe there was an answer that that $190,000 was expended over six months and there was an undertaking to sort of file further details with respect to the breakdown of that. I was just wondering if you can either give the answer now or you could include it in the filing, sort of which six months period that we're talking about?
460 MR. LANDRIAULT: We're talking about, it's not in our Annual Return because the first three months of that was before the year-end of... before we even launched. So, it was pre-operating expenses. So, our first filing was September 01 to August 02.
461 MR. MURRAY: Can I make a comment? I am an accountant, maybe not a good one, but I think the start-up costs and the deficiency questions are a bit of a red herring.
462 Whether or not the shareholders of this business make a profit or not will be clear in the balance sheet and the statement that Mr. Landriault has promised to file, which is an estimate of the distribution of the proceeds will have all the answers and I don't think, you know, what made up the $109,000.00 what made up the $415,000.00 has got anything to do with that, in my opinion.
463 MR. WILSON: Obviously, we will see what is filed in the level of detail and the Commission will have to determine whether it considers it's relevant or not to the ultimate decision.
464 And then, just to touch on the issue of the number of undertakings that have been made and in the time frames for filing that obviously, would you be able to file that material with the Commission by a week from today, by next Friday?
465 MR. LANDRIAULT: I'm not back in the office until next Tuesday, so I would ask for a little bit more time than that, if possible.
466 MR. WILSON: So, let's say then, how about instead of next Friday, it would be Wednesday following that?
467 MR. LANDRIAULT: That's fine.
468 MR. WILSON: That would be acceptable?
469 MR. LANDRIAULT: That's fine.
470 MR. WILSON: I might suggest, madam Chair, subject to the panel's approval, that the Commission consider establishing then a process of allowing interveners to comment on any further material filed, perhaps a week... give the interveners a week to file any comments following that?
471 THE CHAIRPERSON: It's acceptable to us.
472 MR. WILSON: And then, a further... so that would sort of be a week from the Wednesday on which Mr. Landriault or any of the undertakings are filed and then, if there are any reply comments, to have those filed by the following Friday, if that was acceptable to the panel?
473 THE CHAIRPERSON: Yes, and we will hear from the intervener if there is a problem with this time frame. Thank you.
474 MR. WILSON: Those are my questions, madam Chair.
475 THE CHAIRPERSON: Thank you. Mr. Maheu, before we take a break and then hear the intervener, are there any questions we didn't ask that you want to answer?
476 MR. MAHEU: I think your questioning was completely comprehensive. Thank you. Thanks for the opportunity.
477 THE CHAIRPERSON: We will then hear the intervener and then, I will expect you to let me know if you want a break before reply and if you do, we will take a break for you to prepare for the reply.
478 MR. LANDRIAULT: So I understand what I am filing, is it just the one with all the detail or am I going to file all the back-up?
479 THE CHAIRPERSON: I thought that you told me you could file something more comprehensive, that would explain, keeping in mind our concern where the proceeds of the sale are going.
480 MR. LANDRIAULT: Okay.
481 THE CHAIRPERSON: In a manner that will meet the concern that we have expressed.
482 MR. LANDRIAULT: Thank you.
483 THE CHAIRPERSON: Thank you. We will now take a 15 minute break and so we will be back at 1135.
484 I would fully expect that we'll be able to adjourn this hearing before breaking for lunch.
--- Recess at 1120
--- Upon resuming at 1135
485 THE CHAIRPERSON: Mr. Secretary, please.
486 THE SECRETARY: Thank you, madam Chair. We will now hear the appealing intervention from CKPR and CJSD-FM. You have ten minutes to make your presentation.
487 THE CHAIRPERSON: Welcome, gentlemen, and proceed when you're ready.
488 MR. DOUGALL: Thank you, madam Chair. Good morning, madam Chair and members of the Commission.
489 I wish to thank you for the opportunity to appear and intervene in this application by Newcap Inc. to buy and purchase Big Pond. I hope we can be of some value to the Commission this morning.
490 With me today are my colleagues, Kevin Klein on my right, vice president and general manager of CJSD Inc., Donald Caron, chief financial officer of CJSD Inc. on my left and Bill Malcolm to my far right, a resource person.
491 While the topic is still hot about things in Thunder Bay, I would sincerely like to command Mr. Landriault on the fine job that he did in setting up CJUK in the first place and in marketing it to the public.
492 I would also like to just mention as a bit of an aside, I happen to live 20 miles from their transmitter and, yes, I get them clear as a bell on fact, a lot stronger than my own AM station, which is not even receivable in the middle of town after dark.
493 THE CHAIRPERSON: They may have you in for a new frequency.
494 MR. DOUGALL: Well, it has been tempting over the years to do something about it because when dark hits, we have to reduce power.
495 And yet, having said that, we've had for the last 45-50 years since I have been involved, the number one morning show in town always, number noon shows and so forth, our poor coverage hurts, but it's not critical to good programming. It doesn't stand in the way.
496 And two more asides. One, CJUK has no fear of going out of business, there are some various business options there that are available to them and the owner and I have been discussing some of those, going back to six months after they were in business.
497 Furthermore, for the public record, we have here the question of how many employees Newcap has in the LMA with CJSD Inc. It's interesting to note they filed for 22. I would be happy to supply Mr. Murray and any others with Newcap, their own records here, which I have and that they indicate they have two and they have never had any more than two, to our recollection, but those are asides.
498 I do not have much to add to my... most of my written intervention, although I repeat one of my questions and that is, what are the overriding benefits of this application, if it is approved?
499 I will come back to this as I comment on that aspect of intervention dealing with the LMA and I wish to make it clear, please, that we do not wish the Commission to intervene in our LMC process at all, even though I will be making some references to it.
500 I would like to leave a few quotes with you and put them before you for consideration. Quoting from a letter from Bob Templeton to president of Newcap, to me. He says with reference to our LMA and I quote:
"It's been a a great association that I predict will become even stronger in the future. "
501 I further quote David Murray, vice president Operations for Newcap in a letter to the Commission dated February 12, 2004, and I quote:
"Termination of the LMA would place Newcap into a significant last position going forward. There is no other business model that provides the benefits of the LMA in Thunder Bay. Entering into the LMA was a good business decision. We do not see other radio stations as our competition. We strongly believe the LMA is the best model for all stake-holders."
502 And I have to say that we have lived up, always lived up, to our terms of the LMA and have never ever received a complaint from Newcap for the whole ten years of our LMA.
503 Now, we flash forward to June 4th 2004 this year and we are served notice of termination of the LMA. This came as a complete surprise to us as there had been a close and profitable relationship up to that point.
504 On July 30th, 2004, I quote from Mr. Maheu's letter to the Commission:
"If this application is approved Newcap intends to move CJLB-FM to 995 Memorial Avenue, which is the existing location of CJUK-FM."
505 Well, it appears as though Mr. Maheu feels that the application has already been approved since he has already made the move of CJLB-FM in with CJUK and now we learn they have also signed an L.S.A. before he even left the LMA with no reason given to us.
506 On October 13th, 2004, Maheu says:
"It is imperative that you stop transmitting from our primary site at Mount Baldy at 1200 noon today."
507 No reason given.
508 In CRTC Decision 2000-4-26, I quote:
"The commission authorizes the licensee, Newcap Inc., by condition of licence underlined condition of licence to operated station under a local manager document agreement for a period of time not exceeding 31 August 2004, the licence expiry date."
509 On July 23rd, 2004, the Commission renewed the licence for CJLB-FM to December 31st, 2004:
"Subject to the terms and conditions in effect under the current licences."
510 Since that time Newcap has aborted the Commission approved licence. So, has Newcap breached its condition of licence?
511 They have already moved in with and are cohabiting with Big Pond of the benefit of clergy, I might add. And here I am the one who has to answer questions from the public about why Newcap withdrew its service from thousands of people. Perhaps at some point Newcap should apologize to those listeners that it has abandoned.
512 Having said all that, it's just something I don't get. I really don't get it. Here they are one minute making a convincing argument in favour of the LMA and then, the next minute, they kill the LMA. No reason given to us.
513 Are they operating outside of their conditions of licence? And to top it all off, yes, they are trying to blame me in the media back in Thunder Bay for their problems. We don't understand why we are being blamed here because we have done absolutely nothing to trigger this behaviour and they've removed us.
514 It is my very strong view that there could be some serious breeches of conditions of licence here and to blame us is unfair and untrue. I can honestly say that CJSD has always operated within the rules and that Newcap never breached its conditions of licence while we operated the LMA in conjunction with Mr. Steel Senior.
515 I have had a management agreement with CJLB, believe it or not, dating back to 1944. That's 60 years. There was never a problem, there was never a complaint, they were never out of compliance or been yanked off the air on my watch.
516 I honestly feel I'm being kicked in the head here by the biggest guy in the business and now he is trying to blame me for a sore foot, and frankly, I don't get it. I still don't get it.
517 How can someone just get up and changed their power, change their coverage. Is this the wave of the future? Are they in serious breach of some of their conditions of licence?
518 So, I feel we need some direction here, somewhere along the line. What are the ground rules now if this is allowed to stand? Is this acceptable conduct?
519 By leaving the LMA, which they admit was the only profitable business model for them, they are saying they want the right to lose more money.
520 And then, Mr. Maheu, on September 30th tells us that he wants to enter into an off-the-record LSA once they get their hands on Big Pond, so I still don't get it. I just don't get it.
521 This is not a legitimate course of action to improve their situation in the market. We think it is unlawful or could be and certainly inappropriate.
522 So, I am asking myself, are they fighting for the right to lose more money or do they have a grander strategy at work here? I have to worry about things and my suspicious mind has to come into play here because I am about the smallest guy in the business here and I worry about these things.
523 Does a grander strategy... could it possibly involve one in which they are trying to undermine the value of my licences in order to make a low ball offer for them later on, being mindful of their application to get into the television business in the Lloyd Minister?
524 Or could they be trying to undermine me, to the point where they might ask for another LMA, this time to be controlled with them with a 70 per cent split of profits in their favour?
525 I may be wrong here, but if I'm right, then they may well have a deeper strategy to undercut the market at first in order to dominate and eventually control up later.
526 In summary, I feel that a decision has to be made, whether Newcap is in breech of its conditions of licence. If it is, then they should be ordered back into compliance before the Commission deals with any application involving Newcap.
527 There is also a broader exit strategy for the Commission to consider along with some precedence, I might add, that could be of some value.
528 If they are not in breech of their conditions of licence then it would be a fairer game for all broadcasters to move their transmitter sites, change their power, change their contours, service areas as they please, as Newcap has done here for no reason and otherwise, ignore any condition of licence that the Commission may impose on any licensee or any proposed licensee.
529 In closing, I have one question to ask and that is with respect to this application about Big Pond. So, who owns Big Pond?
530 Mr. Maheu refers to the president as a shareholder. Mr. Landriault signs himself of as the president. Mr. Maheu refers to the general manager as another shareholder and he refers to even more people who are brought in as new shareholders.
531 We have looked, but we feel that none of these people are in the Commission's records as being shareholders. Only a Mr. Basuk who owns 99 per cent and the Solicitor with 1 per cent.
532 And on that point, I'll refer again to the fact that Mr. Basuk has had continuous discussions with me almost from the beginning of his licence period, with respect to selling to me, which I discouraged him on, and he discussed LSAs, LMAs and there is certainly opportunity going forward for that to happen in the event that Newcap goes on their own and does anything and spends anything as they say, to be successful.
533 We know that Big Pond has been successful and I think they're going to continue to be, either on their own or in conjunction with an LSA if that's where they want to go.
534 So, madam Chair and members of the Commission, my colleagues here have the documents and the information to further strengthen and support my comments here and we would be willing to share such with you, if requested.
535 So, I thank you for the opportunity to intervene and express my views. Thank you.
536 THE CHAIRPERSON: Thank you, Mr. Dougall.
537 You stated at the beginning that you didn't expect the Commission to get involved in this LMA situation. I gather from that that you recognize that the question of termination as to when or interruption is the contractual relationship with you and that at the June hearing, it was understood that the LMA would be terminated by June of 05.
538 So, I assume that what you're saying is these are contractual matters, the interruption of the LMA or whatever I want to call it.
539 Mr. DOUGALL: Yes, madam Chair, I do, because we have the remedies available within the LMA itself to do, to...
540 THE CHAIRPERSON: Exactly.
541 MR. DOUGALL: ... address any of the commercial concerns.
542 THE CHAIRPERSON: Yes, and you are aware that the Commission has growing concerns about the effect of LMAs on the market and that was a discussion we had at the June hearing, that it would expect some very serious... addressing very meticulously the reason why LMAs should continue and you have one in the market, if I understand, a remaining one.
543 MR. DOUGALL: Yes, we still have an LMA.
544 THE CHAIRPERSON: With the other, with Northwest.
545 MR. DOUGALL: Yes, yes, we do.
546 THE CHAIRPERSON: Yes, or LSAs and, in fact, LSAs in many cases may well be LMAs as well.
547 With regard to the other question such whether conditions of licence have been breached, I expect in reply that we'll hear from Newcap as to what power, what frequency, what coordinates, what service area they now have for their operations.
548 There is not much else I can say. We are obviously going to look at the application before us and try to see whether it's in the public interest to approve it and our first concern, of course, is for the listeners and, also important, we have discussed a licensing process and the extent to which the applicant can show us that the licensing process and its integrity have been met.
549 The other matters are contractual difficulties that you have encountered with your partner; that you will have to decide how to resolve yourself.
550 I don't have further questions. Counsel? We thank you very much and we'll hear from the applicant in reply.
551 Before you leave, you have heard us ask for further information from the applicant. Are you satisfied that the time frame we have established will be sufficient for you to file a reply?
552 MR. DOUGALL: Without knowing the nature or the extent of the information, we will nonetheless undertake to try our very best to comment and intervene on that.
553 THE CHAIRPERSON: Yes. And, of course, parties are always free to ask for more time if they can... if they can't satisfy us that it was just meant to give more.
554 MR. DOUGALL: Thank you once again for the opportunity to intervene and for listening to us.
555 THE CHAIRPERSON: We thank you. Thank you. Can we hear from the applicant as to whether they are prepared to reply now or they want some time? You're ready? Mr. Secretary, please.
556 THE SECRETARY: Thank you, madam Chair. In that case, I will ask the applicant to respond to all the interventions submitted on this application.
557 THE CHAIRPERSON: Mr. Maheu.
558 MR. MAHEU: May I proceed? Thank you, madame Chair, members of the Commission. Our response to the intervention by Dougall Media will only take a couple of moments.
559 First of, we would like to thank the many dozens of, not hundreds, of listeners and advertisers by way of a petition filed in supporting our application to purchase Big Pond and transfer control of that to Newcap.
560 Those people who intervene on our behalf understand the competitive situation of the marketplace and reflect some of the pent up demand that Mr. Landriault referred to in our presentation earlier today.
561 A couple of quick points that Newcap would like to make in response to CJSD Inc. intervention against our application, to be clear and for the record.
562 Newcap Radio in Thunder Bay is in compliance with all conditions of licence with one exception. We are currently not broadcasting at 100,000 watts which we are licensed for. We are operating at a reduced power now, of approximately 100 watts from a new transmitter location approved by Industry Canada.
563 We will be back to broadcasting at 100,000 watts from that location as soon as we can effectively get possession of our transmitter back from CJSD Inc., which we have asked for several times and have had no success in receiving.
564 There are other remedies for that situation which we are pursuing, but we are doing it as quickly as we possibly can.
565 Secondly, Newcap Radio is not interested in any way, shape or form, nor or in the future, in being in any type of business arrangement with CJSD Inc. On the record, off the record, side of the record, we are not interested. We have no intention, never have and never will be doing business with this gentleman or his company again.
566 We have our own strategy and our own plan for Thunder Bay and we are prepared to implement it to the best of our ability, our expertise and our financial resources.
567 As we mentioned earlier, the people of Thunder Bay deserve an opportunity for diversity of editorial voice. We, in our opinion, are making a significant investment towards doing that. The amount of money we are paying albeit for a low power radio station is a lot of money, with no guarantees in the future of any profitability beyond what we think we might do, but we are prepared to do it.
568 We have a long history in Thunder Bay, a long tradition in heritage, we're happy to be back as an independent operator in the marketplace again, controlling our own destiny in every way, shape or form and we certainly look forward to the approval of the Commission to turn the page and write the next chapter of radio competition at Thunder Bay with the approval of our application to purchase CJUK-FM.
569 I thank you very much for the opportunity to speak with you this morning and answer the questions to you before.
570 THE CHAIRPERSON: Mr. Maheu, what frequency are you transmitting on at the moment?
571 MR. MAHEU: At 105.3.
572 THE CHAIRPERSON: That was the frequency you were transmitting on before?
573 MR. MAHEU: Yes, madam.
574 THE CHAIRPERSON: You're just at lower power?
575 MR. MAHEU: That's correct.
576 THE CHAIRPERSON: So, you're using a transmitter that is other than the one you were using before?
577 MR. MAHEU: That is correct.
578 THE CHAIRPERSON: Counsel.
579 MR. WILSON: Just one just quick procedural point with respect to the further information that will be filed and then the sort of the subsequent process. I just wanted to confirm that at the time that material was filed with the Commission and the accompanying correspondence, that the intervener will be copied at the same... at the same time that material is filed with the Commission?
580 MR. MAHEU: That would be our understanding. And it would also be our understanding, I think it was mentioned earlier, that if confidentiality and certain parts were ever requested, the Commission would consider that.
581 MR. WILSON: Subject to any claims you may wish to make with respect to confidentiality, which we'll deal with at that time?
582 MR. MAHEU: Sure, we understand. Thank you.
583 THE CHAIRPERSON: Thank you, Mr. Maheu.
584 MR. MAHEU: Thank you very much.
585 THE CHAIRPERSON: Mr. Secretary.
586 THE SECRETARY: Thank you, madam Chair. I would like to indicate that there are four non appearing items on the agenda of this public hearing. One intervention was received on one of those applications and all those items will be considered by the panel and decisions will be rendered at a later date.
587 This completes the agenda of this public hearing. Thank you, madam Chair.
588 THE CHAIRPERSON: Thank you, monsieur Lebel. This, then, completes this part of the process.
589 I wish to thank the participants for their cooperation, my colleagues, of course, for their support and the staff for their invaluable help and, of course, the stenographer for keeping our words on the page and the interpreters for keeping them in both languages.
590 This hearing is now adjourned.
--- Whereupon the hearing concluded at 1200 /
L'audience se termine à 1200
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