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Decision CRTC 2000-5

See also: 2000-5-1

Ottawa, 12 January 2000

Radiomutuel inc.
Montréal, Gatineau, Shawinigan, Magog, Rouyn-Noranda, Val-d’Or, Trois-Rivières, Jonquière, Québec and Chicoutimi, Quebec
– 199909735

 

Application processed by Public Notice CRTC 1999-145 dated 3 September 1999
Summary
The Commission approves, by majority vote, the application by Radiomutuel inc. (Radiomutuel) for authority to transfer the effective control and ownership of broadcasting undertakings from Radiomutuel to Astral Communications inc. (Astral).

The proposed transaction raised some concerns, particularly with respect to the level of concentration of ownership of French-language specialty services, the possibility of undue financial benefits to Radiomutuel in the change of ownership of Canal Vie and Canal Z, and maintaining healthy competition in the Quebec radio market.

Having examined the proposal, the Commission considers that the benefits resulting from this transaction outweigh the concerns that it raises.

The parties

 

1.

Radiomutuel operates in three main sectors in Canada: radio, specialty television services, and outside advertising. It serves most regions of Quebec through its networks and the radio stations that it operates. Radiomutuel is also the licensee or a co-owner of four French-language specialty television services: Canal Vie (100%), Canal Z (100%), MusiquePlus (50%) and Musimax (50%).

2.

Astral operates in a number of sectors of French-language broadcasting. Through a subsidiary, it holds licences for the French-language pay and specialty television services Super Écran, Canal Famille and Canal D(arts and entertainment). In addition, through its 50% interest in Viewer’s Choice, it has an interest in CanalIndigo (pay per view, direct to home (DTH) and video on demand (VOD) undertakings). The Commission notes that Viewer's Choice also has a pay per view, a DTH and a VOD undertaking in eastern Canada. Astral also holds a 50% interest in Séries + (formerly Canal Fiction) and Canal Historia (formerly Canal Histoire), as well as a minority interest in Télétoon. It currently holds no interests in conventional television and no radio station licences.

The application

3.

The Commission approves, by majority vote, the following transaction consisting of:

1) transferring the effective control and ownership of the following undertakings, wholly owned by Radiomutuel, to Astral:

  • eight French-language FM radio stations and three French-language AM radio stations in Quebec;
  • the FM radio network Radio Énergie, consisting of the eight Radiomutuel FM stations;
  • two French-language specialty services, Canal Vie and Canal Z.
2) transferring to Astral the 50% interest now held by Radiomutuel in the following undertakings:

  • MusiquePlus inc., licensee of the specialty services MusiquePlus and Musimax (50% held by CHUM Limited);
  • Les Entreprises Radiomédia inc., licensee of the radio station CKAC Montréal and the AM radio network Radiomédia (50% held by Télémédia Radio inc.); and
  • Radiomédia inc., licensee of the radio station CHRC Québec (50% held by Télémédia Radio inc.).

4.

The value of the transaction is $224,100,000. Based on the evidence filed with the application, the Commission has no concerns with respect to the availability or adequacy of the required financing.

5.

Of this amount, the radio and specialty television assets account for $139,800,000 and the non-broadcasting assets account for $84,300,000. The latter assets consist of a 72% interest in Société en commandite d’affichage Omni (outdoor advertising); a 50% interest in TVPlus Média (national advertising sales agency for specialty services – the other 50% is held by Astral); a 50% interest in Services ventes Radio Plus (a national advertising sales agency for radio stations – the other 50% is held by Télémédia Radio inc.); and sole ownership of Télé-Annonces (an exempt service distributed on Vidéotron’s basic service).

6.

In accordance with the requirements of the benefits test outlined in Public Notice CRTC 1998-41 entitled Commercial Radio Policy 1998, the benefits proposed with respect to the radio sector represent the required minimum direct financial contribution to Canadian talent development of $4,795,000, or just over 6% of the $79,500,000 value of the transaction relating to radio stations. Astral will pay just over 3% of the value of the transaction to the new Canadian Music Marketing and Promotion Fund ($360,000 annually for seven years), 2.6% of the value of the transaction to MusicAction ($360,000 per year for seven years), and $175,000 to the École nationale de l’humour ($25,000 per year for seven years).

7.

The contribution to the Canadian Music Marketing and Promotion Fund must be remitted to the Canadian Association of Broadcasters, which will hold all contributions in trust pending the creation of the fund.

8.

In accordance with the requirements of the benefits policy outlined in Public Notice CRTC 1999-97 entitled Building on Success – A Policy Framework for Canadian Television, Astral will spend $6,055,000 in tangible benefits in the television sector, or just over 10% of the value of the transaction relating to television services, which amounts to a total of $60,300,000.

9.

These commitments are over and above the services’ existing conditions of licence and commitments and the Commission expects Astral to fulfil all of them.

Concerns raised by proposed transaction

10.

The proposed transaction raised a number of concerns, particularly with respect to the level of concentration of ownership of French-language specialty services, the possibility of undue preference in the change of ownership of the Canal Vie and Canal Z licences during their first term, and maintaining healthy competition in the Quebec radio market. The Commission therefore issued a call for comments on these matters (Public Notice CRTC 1999-145). In response to this notice, the Commission received 23 interventions, most of which were in favour of the transaction, while some, without expressing disagreement, contained comments that the interveners wanted the Commission to consider when examining the application.

11.

Two of the interveners, Société des auteurs, recherchistes, documentalistes et compositeurs (SARDeC) and Collectif régional d’éducation sur les médias d’information (CRÉMI), expressed concern about the possible negative impact of the concentration of ownership which would result from this transaction. Tout Écran and TVA feared that there would be less independent production. These concerns are discussed below.

Concentration of ownership and programming diversity

12.

As a result of the proposed transfer, Astral would have direct and indirect interests in nine of the 15 French-language specialty services, as well as in pay-per-view, DTH and VOD television programming undertakings, and a pay television service. Consequently, there were grounds for considering whether the number of French-language services held by Astral might have a negative impact on competition in television services and on programming diversity and consumer choice.

13.

According to the 1998 financial data provided by the Commission, the proposed transaction would put Astral in a dominant position in French-language pay and specialty services in terms of audience share. In rough terms, its audience share would increase from 38% to 45%. In terms of audience share for all French-language television services in Quebec (conventional television and pay/specialty services), Astral would have nearly 6% of the total viewership, compared with 48% for TVA, 29% for SRC and 11% for TQS.

14.

Based on the same financial data, the Commission estimates that, as a result of the proposed transaction, Astral would receive nearly 27% of the total revenues derived from French-language specialty services. This would strengthen Astral’s position in relation to competitors such as RDS (22%), RDI (16%) and Météomédia (14%). It is estimated that Astral’s market share in terms of total revenues from all French-language television (conventional and specialty services) would be about 7%, compared with 34% for TVA, 22% for SRC and 7% for TQS.

15.

The French-language television market is a small one dominated by two large conventional television networks, TVA and SRC. To foster competition, it is important to ensure that the players in both conventional television and specialty services have the resources and means to compete.

16.

Astral’s new position of dominance in French-language pay and specialty services should therefore contribute to a better balance of competition in terms of the overall division of audience shares in the television market. The Commission considers that the proposed transaction will have the effect of consolidating Astral’s position in specialty services, thereby enabling it to better financially support the programming and broadcast of quality Canadian productions and to compete with conventional television undertakings and other specialty services.

17.

In view of Astral’s resultant level of concentration of ownership, the Commission must ensure that this approval will not adversely affect the diversity of programming choices and the use of independent producers. In this regard, Astral offers an alternative to conventional broadcasters in terms of sources of financing for quality Canadian programming, exhibition windows, and access to the broadcasting system for Canadian productions.

18.

Astral indicated that it has no internal production capability and no production or distribution subsidiaries. Further, Astral is firmly committed to maintaining its policy of acquiring all its Canadian programming from independent Canadian producers and distributors and to meeting all commitments and conditions of licence regarding the use of independent producers and the equitable and non-discriminatory treatment of all Canadian distributors, as set out in the decisions issuing or renewing the licences of all specialty, pay TV and pay-per-view services to be controlled by it.

19.

Although in the past Astral has always honoured its commitments relating to independent production, the Commission intends to raise the possibility of attaching a condition of licence at the licence renewal of Canal Vie and Canal Z, as it did for Canal Historia and Séries +, to require that independent producers be given an equitable opportunity to supply programming to these services.

20.

Appended to this decision is a list of the commitments made by Astral for the purposes of this transaction. The Commission expects Astral to meet all of them and it intends to confirm that it has done so when the licences for the services involved in the transaction are due for renewal.

Transfer of ownership of Canal Vie and Canal Z licences – first licence term

21.

Licences were issued for the Canal Vie and Canal Z services on 4 September 1996 and 21 May 1999, respectively. The transfer of ownership of these services during the first licence term could cause the value of the licences to be unduly inflated. The Commission examined this issue and concluded that the proposed transaction does not give rise to undue financial benefits to Radiomutuel. The Commission considers that the values assigned to Canal Vie and Canal Z are reasonable and acceptable, and that Radiomutuel will not derive a significant financial gain from the sale of these services. Moreover, the transaction involves the transfer of all the radio and broadcasting undertakings of Radiomutuel which Astral intends to operate and develop.

Maintaining healthy competition in the Quebec radio industry

22.

The Commission also wanted to study how Astral’s entry into the radio industry might affect the competitive dynamics that currently exist in this sector. With regard to ownership, Astral’s arrival raises no concerns because it holds no radio station licences. Radiomutuel, under Astral's control, will remain an important player in Quebec radio. Therefore, the number of competitors and the diversity of news sources in this market will be maintained. As a result, the Commission is satisfied that approval of the proposed transaction will have no negative impact in this respect.

Conclusion

23.

In light of the above, the Commission considers that the benefits stemming from this transaction outweigh the concerns about the resulting concentration of ownership. The audience share breakdown and the diversity of ownership will not be unduly affected, the vitality of the market will be preserved and even enhanced, and a better balance of forces will be achieved in the French-language television market in Quebec.

Secretary General


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

 

APPENDIX 1

Commitments by Astral Communications inc. relating to the transfer of control and ownership of broadcasting undertakings that are the property of Radiomutuel inc.

Astral committed to :

  • honour all commitments made by Radiomutuel or by itself before the Commission, as a licensee or co-owner of any undertaking that is a holder of a broadcasting licence, and in particular all conditions of licence relating to Canadian content and Canadian programming expenditures;
  • make no changes to the programming formats of the radio stations or the specialty services;
  • not divest itself of the elements of the assets acquired nor carry out rationalizations involving a reduction in staff or activities, or the termination or surrender of licences for services it already owns or for which it is acquiring ownership or control;
  • fulfil all commitments and conditions of licence relating to the use of independent production and the equitable and non-discriminatory treatment of all Canadian distributors, as specified in decisions issuing or renewing licences for all specialty, pay television and pay-per-view services that it will control by right;
  • fulfil all commitments relating to contributions to VidéoFACT and MaxFACT, two organizations involved in the financing of videos produced by independent undertakings, as specified in decisions issuing or renewing licences for the specialty services acquired;
  • continue to award an annual scholarship in communications and to support MusicAction through the commitments associated with the conditions of licence for the radio stations acquired;
  • continue the partnership that Radiomutuel has developed with Télémédia;
  • fully comply with the policy on program content, guidelines and control mechanisms adopted by Radiomédia on 21 December 1994 and to extend application thereof to all the stations acquired;
  • develop not merely an Internet site associated with Canal Z, but a truly specialized gateway that will have its own search engine and that will provide access to all major high-quality French-language sites dealing with science, informatics and new technologies;
  • keep to a minimum any form of cross-programming, so as to define a unique and distinct personality for each service;
  • ensure that no original Canadian program ordered for broadcast on any of the specialty services operated by Astral (except MusiquePlus and Musimax) will be broadcast on any other specialty service operated by Astral during its first cycle of commercial operations.

 

Dissenting opinion of Commissioner Stuart Langford

I disagree with the decision of the majority in this matter in so far as it deals with the change of ownership of the French-language specialty services, Canal Vie (Vie) and Canal Z (Z). In my view, the approval of these transfers by the majority represents a significant and imprudent departure from established policies on concentration of ownership and diversity of voices. The majority decision sends an unfortunate message to industry representatives and sets a precedent that will be difficult to distinguish in the future when, as it almost certainly will, it is cited as an authority for the proposition that the rules of the game, to employ the vernacular, have changed forever.

Process

Before turning to matters of substance, it is necessary to say something about process. This matter was conducted as a "paper" application, meaning that an application was made, a public notice issued, interventions received and, finally, a decision rendered. Though there is nothing extraordinary about such an approach – indeed, more and more often that is the way this Commission proceeds – one element of this application raises so many questions that, in order to ensure that no doubts linger after the fact, it would have been far better, in my opinion, if this application had been processed by way of an oral public hearing. The whole issue of timing cries out for the sort of painstaking scrutiny that only the thorough examination of witnesses can provide.

The record in this matter reveals a chronology that is worrisome. On May 21, 1999, the Commission in Decision CRTC 99-110 (Decision 99-110) approved Radiomutuel's new specialty service, Z. Only 18 days later, Astral executed a Trust Agreement designed to hold Radiomutuel's assets at arms length pending CRTC approval of the purchase and sale underlying this matter. But even before that, Astral and Radiomutuel had clearly come to an agreement on the purchase and sale, for the Trust document shows that on June 3, 1999 (a mere 13 days after Decision 99-110) Astral's lawyers had incorporated a new subsidiary for the express purpose of facilitating the transaction between Radiomutuel and Astral.

When Astral instructed its lawyers to incorporate this subsidiary is a matter of speculation but the Trust Agreement clearly demonstrates that a sophisticated arrangement of share transfers and asset management had been established in preparation for closing this transaction. Such planning is rarely accomplished overnight. And then there is the question of negotiations. How long did they go on between Astral and Radiomutuel? Was this deal, again to borrow from the vernacular, in the works before May 21 when the Commission released its decisions granting licences to four of the 18 applicants who had sought specialty licences in this round of applications? If so, should not Astral and Radiomutuel have notified the Commission?

Of the four licences granted on May 21, one, Z, went to Radiomutuel and two went to a 50/50 partnership of Alliance/Atlantic and Astral. Astral now ends up with a controlling interest in 75% of the licences granted on May 21. One wonders if the Commission would have made the same decisions had it known that this would be the end result.

Value for money

Another issue that would have benefited from the examination of witnesses is the question of money paid and value received. In this transaction, the values assigned to Vie and Z respectively are $60,146,000 and $0. Such numbers, particularly the second, appear, at first glance, to sweep away any objection to this near-instantaneous flip of the Z service on the grounds of trafficking in licences. If Z has no value, if the purchaser is paying nothing for it, how can one reasonably argue that the vendor will unduly benefit from the transaction? The Commission employs an "undue benefit" test in weighing the possibilities of licence trafficking, something it has long had a policy against.

But are the values agreed upon by vendor and purchaser realistic? Should they be accepted? Is one of only four licences approved out of 18 applications made at a time when analog capacity is limited, truly worth nothing? One wonders what Z would have fetched at auction and what impact a zero evaluation of Z had on the value of Vie and the other assets being transferred here. And then, there is the further question of whether Z and Vie should be transferred to Astral at any price.

Concentration and Diversity

By acquiring Vie and Z, Astral strengthens its already dominant position in the French-language pay and specialty television market. Before this transaction was approved, Astral held a 36% audience share of French-language pay and specialty services. The addition of Vie and Z to its stable of services pushes that number to around 45%. When one measures dominance in terms of the focus of the services Astral now controls, pure entertainment as opposed to information and sports, its position of dominance becomes that much more exaggerated. The influence and control it will now be able to exert over viewer choice, independent production and programming generally, are alarming.

References to Astral's holdings as a percentage of the television market as a whole –- conventional, public sector and specialty and pay combined – are, in my view irrelevant. In Building on Success, A policy framework for Canadian television, Public Notice CRTC 1999-97, released by the Commission on June 11, 1999, the Commission went to great pains to define conventional, public and pay and specialty television as separate sectors. Old clichés about apples and oranges come to mind in sounding a word of caution about downplaying the effect of this transaction. Astral will be the undisputed dominant player in the French-language pay and specialty sector. Concentration and diversity concerns are raised.

The Commission, in a number of earlier decisions, has clearly voiced its position on concentration of ownership and diversity of voices. This passage from Decision CRTC 90-1069, is both representative of the approach the Commission has typically taken and instructive as to why:

"Because the Commission does not solicit applications for authority to transfer ownership or effective control of broadcasting undertakings, and because there is thus only one proposal presented to the Commission, the onus is on the applicant in such cases to demonstrate to the Commission that the application is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature.

Concentration of ownership and diversity of voices are two such concerns¼ "

In the spirit of the quotation above and in light of the facts of this case, I would have approved the proposed transaction only on the condition that Astral divest itself of both Vie and Z in order to address the issues of concentration of ownership and diversity of voices. To do otherwise, as the majority has done, is in the short term to run the enormous risk of allowing Astral to attain so dominant a position in the French-language pay and specialty market as to upset completely the competitive balance in that market and in the long term to set a precedent that may have a devastating impact on the balance of competition in the larger English-language market.