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ARCHIVED -  Decision CRTC 88-294

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Decision

Ottawa, 25 April 1988
Decision CRTC 88-294
Key Radio Limited Toronto, Ontario - 872909700
The CKO Radio Partnership Toronto, Ontario - 972910500
Following a Public Hearing in Toronto on 1 February 1988, the Commission denies the application by Key Radio Limited (Key) for a new licence to carry on an English-language musical Group IV (68% Pop and Rock-Softer; 25% Pop and Rock-Harder and 7% Jazz-oriented) FM radio broadcasting transmitting undertaking at Toronto. The Commission also denies the related application by The CKO Radio Partnership (CKO) for a new licence to carry on an AM radio broadcasting transmitting undertaking at Toronto, as part of the CKO News Network.
Key and CKO are the licensees of CKEY and CKO-FM-2 Toronto, respectively. These applicants requested Commission approval of a transaction whereby ownership of some physical assets that comprise these broadcasting undertakings, in particular the transmitters, would be transferred from CKO to Key and from Key to CKO, with the result that Key would have become an FM operator and licensee, operating on CKO's existing FM frequency of 99.1 MHz, and CKO would have become an AM operator and licensee, operating on Key's present AM frequency of 590 KHz.
As recognized by the applicants, since the transaction involves proposed changes in the ownership of the two broadcasting undertakings, and as in other cases involving applications for transfers of ownership or effective control, the Commission had to examine the applications in order to determine, as a first test, whether their approval would yield significant and unequivocal benefits to the Toronto community, and to the Canadian broadcasting system as a whole, and whether such approval would be in the public interest. Moreover, because the Commission does not solicit such applications, it had to be convinced that the applications, as presented, were the best possible applications in the circumstances.
Proposed Benefits
As part of the consideration involved in this transaction, Key would have paid CKO the sum of $4 million. In turn, and in accordance with an agreement between the two licensees, CKO proposed to use portions of this money to construct various radio stations for which it was originally authorized in 1976 (Decision CRTC 76-416), but which to date it has failed to put into operation.
Specifically, CKO stated at the hearing that $1,450,000 of the $4,000,000 which it would receive from Key under the transaction would be used to meet the capital costs associated with constructing new radio stations at Winnipeg, Manitoba and Regina, Saskatchewan within 12 months, and at St. John's, Newfoundland and Saint John, New Brunswick within 24 months of approval. According to CKO, "... the total operating costs that those new stations will add to our circumstances is $1,813,755 and that would leave us out of the $4 million, some $736,000 to contribute to either CKO's current situation or to any unforeseen errors in our forecasting of the new stations' success".
CKO also indicated that, should the $4 million prove not to be sufficient to construct the stations, Agra Industries Limited, the indirect owner of 99.2% of the partnership, "would undertake to inject sufficient capital to fulfill these commitments".
CKO argued that the completion of the remaining four CKO News Network stations would add diversity to the radio services available in the communities concerned, provide for a more balanced flow of news and information across the country, result in additional opportunities for national advertisers, and help CKO achieve financial success.
CKO also described as a benefit the fact that its proposed use of the AM frequency 590 MHz would extend its service to a potential audience 13% greater than the audience it is currently able to reach on its FM frequency. CKO added that its potential audience among those listening to car radios would be 20% greater on AM than on FM.
From a technical standpoint, both applicants noted that, whereas AM reception is adequate for the type of news and other spoken word programming which CKO provides, the enhanced fidelity of FM radio reception is better suited to Key's music-based format, and that the transaction would thus result in a more appropriate use of the frequency spectrum.
In support of its application, Key emphasized that its wish to switch from an AM to an FM frequency is based on its conclusion that the long-term potential for music-based formats is greater on FM. The applicant estimated that, within a three- to four-year period, its proposed FM station would attract an audience share substantially larger than that currently captured by CKEY: "It [is] not unrealistic to think that, perhaps, a three to four share could become a five to a six share of the marketplace."
Key described its proposed move to FM as being "commercially invisible" in the sense that its FM format would remain largely unchanged from the present "gold" AM format of CKEY: "It would be basically the AM format with the enrichment content in it, restructured for the FM policy and, of course, with a lot of extras added to it, moved on to the FM". According to the applicant, 87% of its present listeners would follow CKEY over to the FM band. It also considered that much of the projected increase in audience share would result from "the natural growth curve we have seen in overall FM tuning". These factors, the applicant claimed, would minimize any economic impact on existing FM broadcasters.
Apart from the economic advantages that Key expects would accrue to it as a result of the transaction, the applicant submitted that its proposal would contribute additional musical diversity to that now available within the Toronto FM market:
The introduction of a substantial amount of specialty subcategory 55 jazz-oriented, new age music will add variety and distinctiveness to our sound while providing the public with a service presently not available. In effect, the Group IV format is the most diverse of all the formats that could be offered... CKEY-FM would not only be distinctive in its spoken-word programming and Canadian talent proposals, but its music format would stand alone as a unique service to the Toronto community.
Key made a commitment to allocate more than $900,000 during the next five years to the support of Canadian talent, over and above the amount it now directs to such support through CKEY. The applicant outlined a five-point program whereby these funds would be used to seek out promising talent in Toronto, provide career counselling and professional advice to these people through in-house seminars, showcase and promote their talents to club owners and to record companies, provide them with live exposure on the proposed FM station through weekly hour-long concerts, and further promote their talents on a national basis by delivering concert performances via satellite for replay on stations elsewhere across Canada.
The Commission's Assessment of the Proposed Transaction
In assessing applications for the transfer of ownership or effective control, the Commission must be satisfied that the benefits, both those that can be quantified in monetary terms and others which may not easily be measurable in terms of their dollar value, are commensurate with the size of the transaction and that they take into account the responsibilities to be assumed, the characteristics and viability of the broadcasting undertakings in question, and the scale of the programming, management, financial and technical resources available to the purchaser. When applying the benefits test, the Commission takes into account only those benefits which would not be realized without the proposed transfer.
The Commission has assessed the benefits that Key and CKO stated would flow from approval of their applications, taking into account the size of the Toronto market and the significance of the proposed transaction to radio listeners in that community and elsewhere in Canada.
In this regard, the Commission agrees with the applicants that, at this time, the FM band allows for greater fidelity in the broadcast of music-based programming such as that provided by Key; on the other hand, the AM band is certainly adequate for the type of news and spoken word programming provided by CKO. The Commission also considers as another non-quantifiable benefit the larger audiences that both applicants would eventually stand to gain as a result of the transaction.
It was presented as a major benefit by both applicants that the funds CKO would receive from Key would finally enable CKO to construct and operate radio stations in Winnipeg, Regina, St. John's and Saint John. According to CKO, approximately $3.3 million of the total of $4 million would be allocated for this purpose. In the Commission's view, however, from the time authority for these stations was first granted in 1976, it has been the responsibility of the licensee of the CKO News Network, and its responsibility alone, to construct and put these stations into operation. The matters surrounding the licensee's failure to implement its authorities for the four stations, despite its repeated commitments to do so, were dealt with at length in Decision CRTC 86-634 renewing the 12 CKO radio licences across Canada.
In that decision, the Commission acknowledged the unique character of the CKO service and the longstanding financial difficulties encountered by the applicant in operating that service. Although the Commission noted the applicant's renewed commitment to "build Winnipeg in 1988, Regina in 1989, Saint John and St. John's in 1991", it decided to grant CKO a short-term renewal only, with the provision expressed in earlier decisions, that:
Should the concept of this national news service result in insufficient revenues to maintain the financial health of the operation, it expects the licensee to surrender the licences.
In the Commission's view, implementation of authorities for the four stations remains an existing responsibility and commitment of CKO. Accordingly, the $3.3 million which CKO would allocate for the stations' construction and operation cannot be considered as being a benefit resulting from the proposed transaction.
As for the remainder of the $4 million that CKO would receive from Key, CKO stated that the funds might be used either to offset losses related to its existing stations or losses incurred in the operation of the new stations. Again, in the Commission's view, for the reasons mentioned earlier, funds allocated by CKO to offset losses in excess of those forecast in connection with the operation of the new stations and the consequent uncertainty as to the exact amount that would be allocated to offset the applicant's existing losses, do not allow the Commission to consider any of this amount as constituting a clear and unequivocal benefit resulting from this transaction.
As for Key, one of the benefits it claimed would result from approval of the FM application was that the proposed station would add variety to the radio programming choices currently available in the Toronto FM market. At the hearing, Key spoke of four "dimensions of diversity", these being format group, music mix, percentage of vocal selections and the age of the music.
In terms of format, Key noted that its proposed station would be only the second Group IV station in the market; in comparison, there are now three Group I stations serving Toronto. In terms of music mix, however, the Commission notes that the amount of music from subcategory 51 (Pop and Rock-Softer) proposed by Key (68%) is only 2% less than the minimum of 70% that the three existing Group I stations broadcast from this subcategory. The proposed music mix thus implies only a minimal degree of diversity between the Group I format and the applicant's proposed Group IV format.
With respect to the percentage of vocal selections, Key proposed a level of 98.5%. Although this is a higher level than that broadcast by most Toronto FM stations, there are three stations broadcasting a level of vocal selections that is within 3% of that proposed by Key. A difference of 3% could represent as few as 7 plays a day. As for the fourth discriminator, the age of the music selections, Key proposed to program 75% of its music from "past" repertoire. There are, however, two Toronto FM stations currently broadcasting music of this type, at levels within 5% and 15%, respectively, of the level proposed by Key. Again, a difference of 5% could represent as few as 11 plays per day.
Based on the above, the Commission finds that Key has proposed a new FM station whose format would not be substantially different from what is already available on existing FM stations in the Toronto market. This result is likely due to Key's desire to transfer its existing AM format to the FM band with as few changes as possible. In the Commission's view, the following comments made by Key at the hearing tend to support this conclusion:
It wasn't our intention to try to look totally different from everybody else on the FM band. We did this on the basis of trying to be transparent. Of trying not to introduce a new radio station into Toronto ...
We looked at that number (68% of music from subcategory 51) ... You know, it looked like we were almost a Group 1, and the answer to that is very simple. That is precisely what we are and that is the most transparent move we can make.
The Commission notes that Key has proposed a level of only 20% for Canadian content music; this is the minimum allowable for most FM stations, and is 10% less than the level currently broadcast on CKEY by regulation. Furthermore, as proposed by the applicant in its Promise of Performance, the number of selections per day to be broadcast on the FM station would be lower than the number played on its existing AM station. Taking into account the proposed reduction in Canadian content from 30% to 20%, this would result in at least 10,000 fewer Canadian selections being broadcast per year on the proposed FM station than are currently broadcast on CKEY.
Although Key argued that its plans to provide monetary support for Canadian talent adequately compensated for the proposed reduction in Canadian content, the Commission concurs fully with the following views expressed in the intervention by the Canadian Independent Record Production Association (CIRPA):
There is no substitute for regular on-air exposure as the best way to promote Canadian talent. Making demos, support of FACTOR, occasional concerts all can be laudable activities, but they are no substitute for what is really needed - regular air-play.
In assessing Key's plans for the financial support of Canadian talent, the Commission has also taken into consideration the buoyancy of the Toronto market and the strong financial performance of most existing FM stations in that market. Taking these factors into account, and particularly given the applicant's projections that its audience share would increase by as much as two points over a three- to four-year period, the Commission considers that Key may have underestimated the strength of its ability as a prospective FM licensee to contribute to the promotion and development of Canadian talent.
Moreover, in its examination of the applicant's financial projections, and after allowing for certain reconciliations made by the applicant and for inflation, the Commission has only been able to identify sums totalling approximately $700,000 that would be allocated by Key over five years for such support of Canadian talent, in excess of the levels now being spent on programming by the applicant.
Based upon all of the evidence before it, although the Commission considers that certain benefits would have resulted from approval of these applications, it is not satisfied that the benefits, taken as a whole, are sufficiently significant and unequivocal to warrant approval, or that such approval would be in the public interest. Moreover, the Commission is not satisfied that the applications are the best possible ones under the circumstances, and has therefore denied both applications.
The Commission acknowledges the interventions by five area broadcasters opposing approval of these applications, and the views expressed in the 54 interventions submitted in support of the applications.
Fernand Bélisle
Secretary General