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ARCHIVED -  Decision CRTC 2000-141

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Decision CRTC 2000-141
Ottawa, 4 May 2000
3610306 Canada Inc.
St. John’s, Clarenville, Grand Falls, Baie Verte, Carbonear (Spaniard’s Bay), Marystown and Gander, Newfoundland
– 199907333 – 199907341 – 199907359 – 199907375 – 199907367 – 199907383
– 199907391
6 December 1999 Public Hearing in the
National Capital Region
Transfer of the ownership and control of VOCM and VOCM-FM St. John’s, and of five other radio stations in Newfoundland
Summary
Newcap is the licensee of CJYQ and CKIX-FM St. John's, and of four other radio stations in Newfoundland. Approval of these applications gives Newcap ownership and control of the radio stations in Newfoundland owned by VOCM Radio, including two of the three other commercial radio stations in St. John's. Approval thus represents an exception to the Commission’s policy on the common ownership of radio stations within a given market (Public Notice CRTC 1998-41; Commercial Radio Policy 1998).

1.

The Commission has considered applications filed by Newcap Inc., on behalf of the above-named numbered company, for authority to acquire the assets of the various radio programming undertakings in Newfoundland owned by VOCM Radio Newfoundland Limited (VOCM Radio), and for broadcasting licences to continue the stations’ operation. These applications also propose a transfer of effective control of the undertakings through the transfer of all of the numbered company’s voting shares to Newcap. The Commission, by majority vote, approves these applications as filed.

2.

The undertakings affected by this transfer are: VOCM-FM St. John’s and VOCM-FM-1 Clarenville; VOCM St. John’s; CKVO Clarenville; CKCM Grand Falls and CKIM Baie Verte; CHVO Carbonear (Spaniard’s Bay); CHCM Marystown; and CKGA Gander.

3.

The Commission will issue licences to 3610306 Canada Inc. upon surrender of the current licences. The new licences will expire 31 August 2002, which is the expiry date of the current licences. The licences will be subject to the conditions specified therein.

4.

The overall purchase price of this transaction is $17,750,000. Based on the evidence filed with the applications, the Commission has no concerns with respect to the availability or the adequacy of the required financing.

5.

The Commission notes that the numbered company will be subject to the Employment Equity Act that came into effect on 24 October 1996, and therefore will file reports concerning employment equity with Human Resources Development Canada.
Ownership of commercial radio stations in Newfoundland

6.

Joseph L. Butler founded VOCM St. John’s in the mid-1930s. It was, at the time, Newfoundland’s first independent AM radio station. Ownership of VOCM, and of the chain of other stations that developed from it over the ensuing years, currently resides with Joseph L.’s son, Joseph V. Butler. Today, VOCM Radio’s AM and FM stations in St. John's compete for radio advertising revenues against private commercial stations operated by two other companies, which are also controlled by native Newfoundlanders. These other companies are Newcap, controlled indirectly by Harry R. Steele, and Newfoundland Broadcasting Company Limited (NBCL), which is owned by Geoffrey W. Stirling.

7.

Newcap is the licensee of CJYQ and CKIX-FM St. John's, and of four other radio stations in Newfoundland. It also holds a 33.3% interest in Humber Valley Broadcasting Company Limited, which is licensee of originating stations and retransmitters serving some ten additional communities across the island and in Labrador. Newcap’s parent company is the publisher of a number of weekly community newspapers in Newfoundland, including one in St. John's.

8.

NBCL is licensee of CHOZ-FM St. John's and its eight retransmitters located in eastern, north-central and western Newfoundland. NBCL is also licensee of CJON-TV St. John's and its 15 rebroadcasting stations. CJON-TV is an affiliate of the CTV network and is the only source of private television service available over the air in Newfoundland.

9.

Other English-language radio services in St. John's are all non-commercial operations, and include CHMR-FM St. John's (Memorial University of Newfoundland), VOWR St. John's (Wesley United Church Radio Board), VOAR Mount Pearl (Seventh-Day Adventist Church in Newfoundland and Labrador) and the radio services of the CBC.
Benefits

10.

The Commission notes that the applicant has proposed a tangible benefits package totalling expenditures of $1,066,250 over seven years. These benefits have been offered despite the fact that the average profit before interest and taxes (PBIT) of the radio stations owned by Radio VOCM, in aggregate, and over the three years before the filing of the applications, was negative. The Commission notes that, under its policy for commercial radio (Public Notice CRTC 1998-41), the applicant would not have been expected or required to propose benefits in the case of this transaction. Nevertheless, the applicant has elected to offer the benefits and, consistent with past practice in such circumstances, the Commission has accepted them.

11.

The benefits include allocations over seven years of $533,250 and $355,500, respectively, to the Canadian Music Marketing and Promotion Fund and to FACTOR. Newcap will direct the further sum of $177,750 over seven years to the Music Industry Association of Newfoundland and Labrador (MIA), a not-for-profit organization devoted to the promotion and encouragement of music from Newfoundland and Labrador. MIA will also become the recipient of contributions totalling $15,200 annually, as made by Newcap and Radio VOCM under their existing commitments offered in accordance with the Canadian Association of Broadcasters’ plan for Canadian talent development.

12.

As intangible benefits of this transaction, Newcap made a commitment to ensure that its own station, the financially-struggling CJYQ, remains on air and is brought over time to a position of improved economic performance (although it doubted that the station could ever be made profitable). Newcap also assured the Commission that the amount of local programming now aired on VOCM, VOCM-FM, and on each of the other stations it is acquiring, would not be reduced.

13.

As a further intangible benefit of this transaction, Newcap made a commitment to relaunch CJYQ as a Newfoundland-oriented music station. The station will offer a mix of Celtic Rock, Irish, pop, rock and adult contemporary, traditional and country music – performed in large part by Newfoundland artists. It will complement this music with other, compatible selections featuring the music of artists from elsewhere in Atlantic Canada and around the world.

14.

Newcap made four other specific commitments related to its plans for CJYQ. These include an undertaking to broadcast a minimum of 40% Canadian content in Category 2 music on the station in each broadcast week, and between the hours of 6:00 a.m. and 6:00 p.m. throughout the broadcast week. It also confirmed that at least half of this Canadian content, or a minimum of 20% of all Category 2 musical selections aired on the station during these periods, would be by Newfoundland artists. Newcap stated that, in identifying a Newfoundland musical selection, it would use the same definitions as those used by MIA. Under these definitions, a "Newfoundland musical selection" is one either produced in Newfoundland or produced by someone from that province, while a "Newfoundland artist" is one born in Newfoundland or who has been residing in the province for more than 12 months.

15.

Newcap also described plans to use CJYQ’s resources to produce and deliver eight hours per week of Newfoundland-oriented programming to each of the VOCM Radio stations it is acquiring, both inside and outside of St. John's. The programming will consist of the mix of Newfoundland-based music described above, together with comedy, artist interviews and plays. According to the applicant, each station would be permitted to fine tune the content and scheduling of this programming to suit the circumstances of the market served.

16.

At the hearing, the applicant confirmed that it would spend a further $100,000 over seven years to fund the production of compact discs and demonstration tapes featuring traditional Newfoundland music as performed by musicians from the province. Newcap put this commitment forward as part of its makeover plans for CJYQ. The applicant confirmed that this amount would be over and above the expenditures it will incur in developing a web site featuring Real Audio, designed for the purpose of bringing the station’s new format to a wider audience of Newfoundlanders and other interested listeners around the world.
Commercial radio policy

17.

In its 1998 policy for commercial radio, the Commission stated that one of its major objectives was to "…ensure a strong, well-financed radio industry that is better poised to achieve its obligations under the Act and to meet the challenges of the 21st century". In the Commission's view, "…increased consolidation of ownership will enable the radio industry to strengthen its overall performance, attract new investment, and compete more effectively with other forms of media". Accordingly, the Commission relaxed the rules that, until then, had generally limited the common ownership of radio stations within a given market to no more than one AM and one FM station operating in a given language.

18.

Specifically, the Commission stated that, in markets served by fewer than eight commercial stations operating in a given language, a person may be permitted to own or control as many as three stations operating in that language, with a maximum of two stations in any one frequency band. In markets with eight commercial stations or more operating in a given language, a person may be permitted to own or control as many as two AM and two FM stations in that language. The Commission stated that it was satisfied the revised policy would allow for a consolidation of ownership within the industry, "…while responding to longstanding concerns regarding diversity of news voices, media cross-ownership and fair competition".

19.

Except for its implications within the St. John's market, the present transaction raises no concerns under the commercial radio policy. As acknowledged by the purchaser, however, approval of the VOCM and VOCM-FM St. John's proposals would represent an exception to the policy in that it would leave Newcap with ownership of four radio stations (two AM and two FM) in a market served by fewer than eight commercial stations. Newcap and VOCM Radio therefore requested that the Commission grant a policy exception, and presented arguments in support of the applications. These arguments, and the views of interveners, are outlined in the following sections.
Positions of the parties
Radio VOCM

20.

At the hearing, Mr. Butler explained that the costs of providing quality radio programming had obliged VOCM Radio to investigate expanding its radio holdings in the St. John's market. The company determined that this could be accomplished either by acquiring an existing FM station or by seeking a licence to establish a new one. Mr. Butler noted that "…standing still with our existing holdings was not an option". Upon failing to find a willing vendor, VOCM Radio started planning for an additional St. John's FM station. Before it had an opportunity to file its application, VOCM Radio received an unsolicited offer from Newcap to purchase all of its Newfoundland radio properties. Mr. Butler indicated that he and his family subsequently decided that the sale of these broadcasting interests to Newcap – a Newfoundland company having radio as its primary focus – would be in the best interests of all parties.
Newcap

21.

Newcap stated that the transaction follows from its conclusion that "…there is not room for three [radio] competitors in St. John's or across the province and that to continue the level of service that Newfoundlanders have come to deserve and expect, we need to join the stations together". Newcap argued that the Newfoundland radio market represents a special case, and that the circumstances warrant an exception to the commercial radio policy.

22.

It claimed that the ability of the three industry competitors to deliver diverse, high quality radio programming to the many smaller Newfoundland communities they serve, in each case, has been and will remain dependent on revenues derived from the St. John's market. Both AM stations, CJYQ and VOCM St. John's, have incurred a negative profit before interest and taxes (negative PBIT) in each of the past five years. Even CKIX-FM experienced a loss in 1995, and again in 1999. Newcap noted that the radio industry as a whole in Newfoundland has been unprofitable since the early 1990s.

23.

At the hearing, Newcap added that it has absorbed capital and operating losses totalling almost $12.6 million since entering the Newfoundland radio market. The assets of CJYQ and CKIX-FM St. John's, and of radio stations in various other Newfoundland communities, were purchased by Newcap from CHUM Limited in 1989. Decision CRTC 89-490 approving that earlier transaction noted CHUM’s claim that, during the five years it had owned the stations, they had also faced financial losses, despite CHUM’s investment of more than $7.6 million.

24.

Although Newcap acknowledged recent evidence of improvement in Newfoundland’s economy, it argued that this evidence should be examined in context. Among other things, it noted that the economic recovery is, to a great extent, a jobless, capital recovery:

The oil industry creates a relatively small number of high-end jobs…. It does not generate the larger number of middle income jobs that were lost with the collapse of the fishery. This explains the Conference Board’s predictions of continuing high levels of unemployment.

25.

Newcap also emphasized that any recovery of the Newfoundland economy would be starting from very far behind the rest of the country. As an example of this, Newcap pointed to the fact that, "…while retail sales, an important indicator of radio revenues, increased some 30% in Canada from 1993 to 1999, in Newfoundland they increased a meagre 2.2%" over the same period. It also emphasized that the radio industry in Newfoundland draws only half the Canadian average in national advertising as a percentage of total advertising revenues. Newcap suggested that this situation is unlikely to change so long as two operators in the province (Newcap and Radio VOCM) are obliged to compete for revenues, not only against each other, but against a third operator, NBCL. Newcap noted that, in this competition for advertising revenues, NBCL has the singular advantage of being able to market its broadly distributed radio and television services as a combined sell to advertisers.

26.

According to Newcap, the exception that it has requested to the commercial radio policy would create a grouping of four stations in St. John's that would present a much more attractive buy to national advertisers and the stronger backbone necessary to provide radio services elsewhere across the province. As for the possible divestiture of one of the St. John's stations, Newcap stated:

We purchased these stations to repair the radio market in Newfoundland, not to weaken it. It was clear to us that if we were required to divest of a station, it would be CJYQ. Without the VOCM newsroom that comes with the AM station, we could not maintain the news in the smaller markets, never mind improve on it…. In our opinion, selling CJYQ was also not a viable option. We have already learned that three radio companies in the market is one too many. We cannot imagine how another broadcaster could run CJYQ as a successful stand-alone station.

27.

With respect to the diversity of news voices and, in particular, the fact that effective ownership and control of these stations and of a St. John's weekly community newspaper would reside with Newcap’s parent company, Newcap claimed that this was not a substantive issue, given the presence of The Telegram, the very successful daily newspaper published in St. John's by Hollinger. Newcap also emphasized that the radio stations and its weekly newspaper are and will continue to be operated as distinct organizations, without any interface of management with respect to editorial matters or advertising sales.

28.

As for any concern about fair competition, Newcap stated that NBCL, with its combination of radio and television stations across Newfoundland, is by far "the dominant advertiser in the marketplace". It argued that the transaction would, in fact, place the two remaining competitors (itself and NBCL) on even ground. The Commission notes below the support of Newcap’s applications expressed in an intervention filed by NBCL
Supporting interventions

29.

Interventions to these applications were submitted by several individuals, community groups and elected municipal and provincial representatives from across Newfoundland. All of these supported the applicant’s proposal and its request that the Commission allow a policy exception. Many emphasized the applicant’s commitments to operate the existing Newcap AM station in St. John's, CJYQ, in a format devoted to the broadcast and promotion of Newfoundland-oriented music programming. This support was echoed at the hearing by MIA.

30.

Further support was expressed in a written intervention filed by NBCL. This intervener, a competitor of both the vendor and the purchaser, acknowledged the essential role played by the St. John's advertising market in enabling that city’s radio stations to subsidize radio operations serving several other Newfoundland communities, which are broadly dispersed and difficult to serve.
Opposing intervention

31.

The sole intervention opposed to any of the present applications was submitted by Maritime Broadcasting System Limited, and its opposition was restricted to the applications concerning ownership of VOCM and VOCM-FM St. John's. Maritime owns a number of radio stations in Nova Scotia, New Brunswick and Prince Edward Island, but none in Newfoundland.

32.

The intervener argued that it would not be in the public interest for the Commission to grant the policy exception requested by Newcap. According to Maritime, the argument that common ownership of the four St. John's stations is necessary to ensure their viability fails in the face of clear indications that Newfoundland’s economy is improving and will continue to do so. The intervener also stated that the transaction, as proposed, would have a negative impact on the level of competition in the St. John's market, and would result in a significant reduction in the diversity of news voices in St. John's. At one point during the hearing, it suggested that ownership by Newcap’s parent company of various Newfoundland weekly newspapers exacerbated this latter concern. When questioned, however, it indicated that it accepted Newcap’s assurances that the editorial voices of the radio stations and newspapers would be kept separate, and that its concerns on this score would only arise if Mr. Steele were to sell his newspaper and broadcasting interests to a third party.

33.

Maritime rejected the claim that Newcap could only bring itself into compliance with the commercial radio policy by either divesting itself of CJYQ or closing the station down. It noted that compliance could also be achieved if Newcap’s acquisitions in St. John's were limited to either VOCM or VOCM-FM. Maritime suggested that, if this were to occur, it would be prepared to enter negotiations for the acquisition of one or other of these two stations. The intervener confirmed, however, that it had never approached VOCM Radio regarding its interest in purchasing VOCM or VOCM-FM. It also acknowledged that it would not be interested in negotiating with Newcap for the purchase of CJYQ.
Commission’s determination

34.

At issue in this proceeding is whether approval of this transaction, and the exception to the commercial radio policy it entails, are justified, given the consequent reduction in the diversity of news voices and the Commission’s concerns regarding media cross-ownership and the level of competition in a market.

35.

Based on its consideration of the evidence available to it, the Commission, by majority vote, has decided to permit an exception to its commercial radio policy. Accordingly, it has approved the applications as filed.

36.

The Commission has been persuaded by Newcap’s arguments that the Newfoundland radio market, and the province’s economy as a whole, present a special set of circumstances, and that these circumstances justify the policy exception. The Commission notes in this regard the weak financial performance of several of the province’s radio stations, particularly those owned by Newcap. These have struggled financially for many years, despite the considerable financial investments made by Newcap and by the stations’ previous owner, CHUM. The Commission also notes the statements contained in the supporting intervention filed by Newcap’s competitor, NBCL, underscoring the important relationship between the revenues earned by St. John's radio stations and the ability of the station’s owners to extend radio services to many of the smaller communities throughout the province. The Commission considers that acquisition by Newcap of the stations now owned by VOCM Radio will assist Newcap in restoring its Newfoundland radio operations to economic viability. It is satisfied that approval will thus assist in achieving the Commission’s policy objective, namely the creation of "a strong, well-financed radio industry that is better poised to achieve its obligations under the Act".

37.

The Commission, in reaching this determination, has been mindful of the concerns raised by Maritime regarding the consequent reduction in the diversity of editorial voices and in the level of competition in St. John's. These consequences will also be felt in at least two other communities where both Newcap and VOCM Radio currently operate stations.

38.

As noted above, Maritime’s remedy is that Newcap be permitted to purchase VOCM or VOCM-FM, but not both. The Commission considered this suggestion, but has rejected it because partial approval of the transaction would seriously threaten delivery of the tangible and intangible benefits described above, including the creation of a stronger, more stable radio industry in Newfoundland.

39.

If the Commission’s decision was to approve the applications in part by requiring removal of one or other of VOCM and VOCM-FM from the transaction, it is uncertain whether and how the parties would restructure their agreement to meet such a requirement. Even if the Commission, as a condition of approval, required Newcap to divest itself of one of the two stations, it is equally unclear whether Newcap would wish to proceed with the transfer.

40.

The Commission notes in this regard that, of these two stations, only VOCM-FM has enjoyed a consistent, positive PBIT margin in recent years, making it an unlikely choice as the one that Newcap would sell. On the other hand, if Newcap were to sell VOCM to a third party, it would almost certainly be obliged to sell all or most of the other, smaller stations in VOCM Radio’s chain to the same purchaser. All of these smaller stations produce local programming for the communities they serve. Most, however, rely on VOCM for more than half of their news and other programming. The Commission notes that this reliance of VOCM Radio's smaller stations upon the operations of the St. John's AM station is characteristic of the commercial radio industry throughout the province. It is a characteristic not present to the same content in any other province. In the circumstances, it is very unlikely that the smaller stations would be able to survive independent of the operations of the St. John's AM station.

41.

As to which of its two existing St. John's stations Newcap might sell to bring itself within the commercial radio policy concerning ownership, the applicant made clear that its choice would be the financially-struggling CJYQ. At the same time, Newcap was clearly sceptical of finding an acceptable and willing buyer for the station. In such circumstances, instead of relaunching CJYQ as proposed, Newcap noted that it would likely be obliged to close this station down.

42.

The Commission notes that the closure of CJYQ would not only jeopardize a significant portion of the benefits attached to this transaction, but would deprive listeners of a radio service. Newcap’s concerns about the difficulty of finding an acceptable and willing purchaser for CJYQ appear to find corroboration in Maritime’s confirmation at the hearing of its own lack of interest in purchasing that undertaking.

43.

In light of the particular circumstances of this case, the Commission considers that approval of the applications, as filed, is in the best interest of radio listeners in Newfoundland. In this regard, the Commission notes again the interventions filed by many of these listeners in support of the applications. As for the concerns relating to reduced diversity and competition, the Commission is satisfied that these are mitigated by the benefits of a healthier Newfoundland radio industry that should emerge from the transaction, and are diminished further by the absence of any opposition to these applications by Newcap’s competitor, NBCL.

43.

The Commission intends to require, by condition of licence, the licensee’s adherence to each of the four commitments described earlier in this decision with respect to the operation of CJYQ. Accordingly, it is a condition of approval that Newcap submit an application, within 90 days of the date of this decision, formally requesting the addition of conditions to CJYQ’s licence requiring it to:
  • broadcast, as an exception to the percentage of Canadian content required under the Radio Regulations, 1986, a minimum of 40% Canadian content in Category 2 musical selections during the broadcast week and during the period between the hours of 6:00 a.m. and 6:00 p.m. throughout the broadcast week;
  • broadcast Newfoundland musical selections, as defined above, representing a minimum of 20% of all Category 2 musical selections aired during the broadcast week and during the period between the hours of 6:00 a.m. and 6:00 p.m. throughout the broadcast week;
  • produce and distribute eight hours per week of Newfoundland-based programming for broadcast on each of the stations being acquired from Radio VOCM; and
  • expend a minimum of $100,000 over seven years on the production of compact discs and demonstration recordings to assist artists specializing in the performance of traditional Newfoundland music.

 

Secretary General
This decision is to be appended to the licence. It is available in alternative format upon request, and may also be viewed at the following Internet site: www.crtc.gc.ca