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Decision CRTC 2001-647

Ottawa, 15 October 2001
CHUM Limited
Vancouver, British Columbia 2001-0587-6
Application processed by
Public Notice CRTC 2001-86
dated 26 July 2001

Transfer of control of CKVU-TV Vancouver

The Commission, by majority vote, approves the application by CHUM Limited for authority to acquire effective control of CKVU Sub Inc., licensee of CKVU-TV Vancouver, through the purchase of all of the licensee's issued and outstanding shares. These shares are beneficially owned by CanWest Television Inc., but are currently held in trust by Mr. L.R. Sherman.
Background

1.

In Decision CRTC 2000-221 issued on 6 July 2000, the Commission approved applications by CW Shareholdings Inc., a subsidiary of CanWest Global Communications Corporation, for authority to acquire effective control of both CHAN-TV Vancouver and CHEK-TV Victoria from WIC Western International Communications Ltd. The Commission made its approval of these CanWest applications conditional upon submission of an application for the divestiture by a second CanWest subsidiary, CanWest Television Inc., of Vancouver television station CKVU-TV.

2.

In its decision, the Commission acknowledged that approval of CanWest's ownership of both CHAN-TV and CHEK-TV would permit continuation of an exception, albeit one of many years standing, to the Commission's general policy not to permit the common ownership of two television stations in the same market. The policy is intended to address two principal Commission preoccupations, these being the preservation, in any given broadcasting market, of editorial diversity and fair competition. Nevertheless, the Commission determined the continuation of an exception to be warranted for a variety of reasons. These included the availability in the market of a large number of alternative editorial voices in broadcasting. The Commission's decision also emphasized the many strong benefits of the transaction, including CanWest's commitments to increase substantially the amount of local programming aired on both stations, and to take other measures designed to ensure that the services of CHAN-TV and CHEK-TV remain distinctive and clearly distinguishable from each other.

3.

The Commission's reasons included the potential market implications of two matters in particular. One was its determination to require CanWest to divest itself of ownership of CKVU-TV Vancouver. The second matter was its decision, issued on the same date of 6 July 2000, and following a competitive licensing process, to approve an application by CHUM Limited for a licence to carry on a new, general interest, independent, English-language television station in Victoria (Decision CRTC 2000-219). The new Victoria station, CIVI-TV, has just recently commenced operations.

4.

The current application by CHUM to acquire control of CKVU-TV was filed in May 2001 and is in response to the divestiture requirement set out in Decision 2000-221. As noted above, approval of the application would constitute a second exception in the Vancouver-Victoria area to the Commission's general policy not to permit the common ownership of two television stations in the same market.

5.

The Commission notes that, in addition to the stations operated by CHUM and CanWest, the Vancouver-Victoria television market is also served by CIVT-TV Vancouver, owned by CTV Television Inc., and the French- and English-language television services of the CBC.

CHUM's arguments for a policy exception

6.

In its application, CHUM acknowledged the policy considerations raised by the proposed transaction, but argued that a number of factors justify a second exception to the common ownership policy in the Vancouver-Victoria area. It also proposed various safeguards to alleviate policy concerns. According to the applicant, these safeguards would have substantially the same effect in preserving program diversity as the commitments given by CanWest for this purpose, and accepted by the Commission in Decision 2000-221. Specifically, CHUM committed to ensure the following:
· no more than 10% of the weekly program schedules of CIVI-TV and CKVU-TV will overlap;
· a minimum of eight hours per week of priority programming aired on CKVU-TV will be totally separate and distinct from the eight hours of such programming aired on CIVI-TV.
· the management of news and of other programming on the two stations will be kept separate from each other;
· the creation and broadcast of news and information programming on one station will be kept editorially and physically separate from that of the other;
· there will be no material duplication between the news programming of the two stations; and,
· CHUM will file annual reports on its performance in applying the above safeguards.

7.

CHUM added that it will adopt a format and pursue a programming strategy for CKVU-TV Vancouver that will be totally different from those of CIVI-TV Victoria. The applicant stated in this regard that it wished to build on the core fundamentals underlying the operation of its local Toronto station CITY-TV:

We want to return [CKVU-TV] to its roots as a fiercely local, alternative television service that reflects the views, interests and diversity of the residents of the Greater Vancouver Area. We intend to revitalize the station with a modern television approach to reflecting the new reality of a multicultural, multilingual and multiracial Vancouver.

8.

According to the applicant, approval would remove the uncertainty currently affecting the Vancouver-Victoria television market. It noted the drop in CKVU-TV's revenues projected to result from the loss of CanWest programming. CHUM claimed that, in light of this projected decline, its proposed benefits package takes on added significance and substance. It stated, however, that implementation of these benefits only becomes possible through realization of the potential programming, sales and other synergies created by its common ownership of CKVU-TV Vancouver, CIVI-TV Victoria and other CHUM television stations elsewhere in Canada. The applicant suggested that, in contrast, denial would prolong the existing market uncertainty and ensure, at the very least, that any other potential purchaser would inherit a station having a vastly different financial outlook.

9.

CHUM further claimed that, in an industry where ownership has become increasingly consolidated, approval would strengthen its capacity, as a medium-sized player, to compete, and thereby ensure that diversity of voices is sustained. CHUM noted that the combined market share (hours tuned) of CIVI-TV and CKVU-TV is expected to amount to less than 15% of the total conventional television market in Vancouver-Victoria. By contrast, CanWest's CHAN-TV and CHEK-TV have a combined market share of approximately 23%. CHUM suggested that CanWest might thus be seen as dominating local news and information programming in the Vancouver-Victoria area. It argued that placing ownership of CKVU-TV in the hands of a player smaller than CHUM would serve to increase this dominance by obliging CKVU-TV and CIVI-TV to compete with, rather than complement, each other.

10.

The applicant noted further in this regard that it is a purchaser of national programming rights, as are CTV and CanWest. It is from these three larger broadcasters that smaller, regional players generally sublicense their programming. According to the applicant, if ownership of CKVU-TV were to pass to one of these smaller broadcasters, the station would likely be dependent on CTV or CanWest, its local competitors, as sources of programming. CHUM concluded that its ownership of CKVU-TV is best guarantee that the station will be programmed autonomously of CTV, CanWest and, with the above-noted safeguards in place, of CIVI-TV Victoria.

11.

Finally, CHUM noted that, if there was any concern on the part of incumbent broadcasters, or local residents and organizations about its application, none intervened to express opposition to its approval.

Benefits package

12.

In its application, CHUM assigned a value of $125 million to this transaction, before adjustment for working capital and assumed liabilities at the time of closing. In later correspondence with the Commission, however, CHUM confirmed that it would not be assuming any debt at closing. The applicant advised further that the value of the transaction might be adjusted upward at closing to approximately $130 million, to take into account an estimated $5 million for the working capital of CKVU Sub Inc. Based on the available evidence, the Commission considers the applicant's valuation to be reasonable, and has no concern about the financial arrangements underlying the transaction.

13.

The tangible benefits associated with this transaction, as described by CHUM in its application, represent proposed financial expenditures totalling $15.35 million over seven years. This amount represents 11.8% of the transaction's value of approximately $130 million, as revised by the applicant. It thus exceeds the minimum level of 10% that would generally be expected of applicants in transactions of this nature under the Commission's policy framework for Canadian television (Public Notice CRTC 1999-97). Based again on the available evidence, a majority of the Commission's members is satisfied that the benefits are reasonable.

14.

The application includes CHUM's commitment to increase the weekly amount of original local news aired on CKVU-TV from 10 hours 57 minutes to 15 hours 30 minutes. With respect to this increase in local news, CHUM made a commitment, as a tangible benefit, to an incremental expenditure of a minimum of $2.2 million over seven years.

15.

CHUM will also broadcast a minimum of twelve hours per week of local non-news programming on CKVU-TV. Six of these hours will be devoted to local multicultural/multilingual and Aboriginal programming. In response to written questions from the Commission, CHUM advised that the twelve hour minimum includes a base level commitment on its part, as licensee of a local station, to eight weekly hours of local non-news programming, plus an additional four hours of such programming per week. This additional programming will consist of a weekly entertainment magazine, local analysis and interpretation, human interest and local music specials. CHUM indicated that it would finance production of the additional four hours of programming through incremental expenditures of $3.6 million over seven years, and claimed this amount as a tangible benefit. As stated by CHUM:

.this additional expenditure would allow us to produce as much as four hours of additional local non-news programming that we would be unable to do otherwise.

16.

CHUM will spend the greatest portion of the tangible benefits package, or more than $7.8 million of the $15.35 million, on prelicensing drama and documentary programs from independent producers in British Columbia. According to the applicant, these expenditures will result in the creation of an annual minimum of three feature-length movies or long form documentaries over seven years, and an additional total of ten short dramas by Aboriginal or ethnic filmmakers.

17.

CHUM will also direct a minimum of $230,000 over seven years to incremental expenditures by CKVU-TV on script and concept development. This will increase to $100,000, from the current annual level of approximately $67,500, the amount spent by the station on financing program development by British Columbia talent. A minimum of 25% of these incremental expenditures will be earmarked for Aboriginal and ethnic writers and producers.

18.

The remaining expenditures proposed as benefits ($1.52 million) are allocated to various local initiatives with an emphasis on multicultural and Aboriginal reflection, media education, social policy development and local talent support. A summary of thetangible benefits is presented in the appendix to this decision.

Interventions

19.

As noted by CHUM in its correspondence with the Commission, no opposing intervention was filed to this application by any incumbent broadcaster, local resident or organization. The Commission notes, in fact, that numerous Vancouverites and British Columbians intervened to express support for CHUM's application to purchase CKVU-TV. Several Vancouver independent production companies, including Infinity Films, Femme Film Productions Inc. and Holiday Pictures Ltd., specifically noted the investment that CHUM will make towards production in the province, as did the Vancouver International Film Festival. The applicant's proposed training, scholarship and media awareness plans were supported by Praxis Centre for Screenwriters (Simon Fraser University) and Broadcast and Media Communications (British Columbia Institute of Technology). The Asian Canadian Writers' Workshop, S.U.C.C.E.S.S. (United Chinese Community Enrichment Services Society), the Victoria Native Friendship Centre and l'Eco d'Italia (a community newspaper) each applauded CHUM's commitments to multicultural and Aboriginal diversity.

20.

A written comment filed by the Directors Guild of Canada did note, however, that the broadcast of local news is a profitable endeavour for Vancouver television stations. The intervener expressed the view that the Commission should thus reject expenditures by CHUM on the production of such programming as a tangible benefit of the transaction.

21.

In its supporting intervention, the Canadian Film and Television Production Association (CFTPA) noted CHUM's importance in both the conventional and specialty television industries, and the fact that approval of this application would expand the number of windows CHUM has to exhibit programming. The intervener suggested that, given CHUM's growing influence in program licensing, it would be appropriate for the company now to make a commitment to acquire a minimum of 75% of its priority programming from non-affiliated independent producers, and to enter into negotiations with the intervener with a view to developing a Terms of Trade agreement that would apply in its negotiations of licence fee agreements.

22.

Craig Broadcast Systems Inc. also filed an intervention to this application. Craig raised the fact that past exceptions to the Commission's common ownership policy have often related to the continued financial viability of a television station in the absence of the financial rescue promised by the purchaser. It noted, however, CHUM's own acknowledgement that CKVU-TV is not in need of financial rescue. Craig also noted that CHUM had applied for a licence to operate a stand-alone, independent television station in Victoria, and that its commitments for the operation of that station are not at risk. Craig therefore argued that CHUM's application should be denied on the basis of its conflict with the common ownership policy, or should only be approved subject to the condition precedent that CHUM divest itself of ownership of CIVI-TV Victoria. Alternatively, Craig suggested that any decision be deferred pending completion of a public process held to consider the issue of common ownership.

Commission's determination

23.

The Commission has considered the arguments of both CHUM and Craig on the question of whether a second exception to the common ownership policy is justified in the case of the Vancouver-Victoria television market. In the Commission's view, the objectives of maintaining editorial diversity and fair competition remain strong and valid reasons for retention of a general policy prohibition against the ownership of more than one television station in any given market. In this case, however, the Commission finds that the current degree of concentration of voices in the hands of CanWest is very high in both broadcasting and newspapers. Placing CIVI-TV Victoria and CKVU-TV Vancouver under the single ownership of a strengthened CHUM organization should provide a more effective counter-balance to this high degree of concentration of editorial voices.

24.

The Commission notes the safeguards proposed by CHUM for ensuring that the programming aired on one station, in particular news programming, will be kept separate and distinct from that broadcast on the other. It also notes the benefits proposed by the applicant in respect of the increased amounts of local news and non-news programming to be aired on CKVU-TV. Further, the Commission has taken into account the fact that approval of this transaction brings an end to the present uncertainty affecting the market.

25.

With specific reference to the comment filed by the Directors Guild of Canada, the Commission is satisfied that the additional 4 hours 30 minutes of local news are incremental to the amount currently offered by CKVU-TV, and that its acceptance as a benefit is consistent with the Commission's policy.

Safeguards and commitments

26.

The Commission views CHUM's safeguards and commitments as offering important and effective guarantees of programming diversity and local reflection, and expects the applicant to implement each of them in full upon assuming control of the station. It notes that the licence for CKVU-TV expires on 31 August 2002. Its renewal, and the renewal of most of CHUM's other conventional television licences, will be considered at a hearing in the spring of next year. The Commission therefore expects CHUM, in preparing its renewal application for CKVU-TV, to ensure that the application fully reflects an ongoing commitment to these safeguards and benefits. The Commission further reminds the applicant that its adherence to these commitments may be made subject to conditions of licence at the time of licence renewal.

27.

Among the safeguards proposed by CHUM is its willingness to file annual reports on its performance in the safeguards' application. These reports will enable the Commission to verify the effectiveness of the safeguards on an ongoing basis. The Commission also wishes to ensure its ability to verify that the financial contributions CHUM makes to the various initiatives proposed as benefits of this transaction are clearly incremental to the expenditures that would have otherwise been made by CKVU-TV over the next seven years. The Commission therefore expects the applicant to include details in its annual reports of the expenditures it makes in fulfilling its commitments with respect to benefits. It further expects CHUM to ensure that these annual reports are audited, and to meet soon with Commission staff to make certain that the format and the accounting methodology to be used in their preparation is acceptable, appropriate and clearly understood.

28.

As indicated earlier, the Commission accepts CHUM's proposed tangible benefits package of $15.35 million over seven years, and is satisfied that it represents a substantial financial contribution to viewers, to the independent production industry, and to the system as a whole. This applies equally to the financial benefit of $7.8 million proposed by the applicant in respect of its commitments to prelicence drama and other priority programming from independent producers in British Columbia, and to all of the other tangible benefits. With respect to CHUM's proposed support of British Columbia's independent production industry, however, the Commission notes that the applicant has offered no specific commitment to broadcast on CKVU-TV, or on CHUM's other television stations, the programming that is to be ultimately created as a consequence of this financial support.

29.

Accordingly, at the time of licence renewal, the Commission will address the appropriateness of having CHUM present specific commitments to the exhibition of priority programming produced by independent producers in British Columbia with financial support provided under the benefit initiative noted above. At that time, the Commission will also wish to discuss with CHUM the proposals advanced by the CFPTA with respect to the licensing of a minimum amount of its priority programming from non-affiliated independent producers, and to the development of a Terms of Trade agreement for application in negotiating licence fee agreements
Secretary General
This decision is to be appended to the licence. It is available in alternative format upon request, and may also be examined at the following Internet site: http://www.crtc.gc.ca
 

Appendix to Decision CTRC 2001-647

 

Summary of tangible benefits proposed by CHUM in its application for authority to acquire effective control of CKVU-TV Vancouver

Initiative Expenditure Description
B.C. independent production $8.03 million  
B.C. feature film $7,000,000 Prelicensing of a minimum of 3 major independently produced B.C. movies or long form documentaries per year
Vancouver's other stories $800,000 Prelicensing of a minimum of 10 independently produced short dramas from aboriginal/ethnic filmmakers over 4 years
Script and concept development $230,000 Increased program development financing from $67,531 to more than $100,000 per year for B.C. talent; minimum of 25% to aboriginal/ethnic writers/producers

Initiative Expenditure Description
Local news and information programming $5.95 million  
Local news $2,200,000 Minimum incremental cost to increase local news from just under 11 hrs to at least 15.5 hrs/week
Local non-news $3,600,000 Contribution to 12 hrs/week of new local non-news programming in areas such as: a new local weekly entertainment magazine, local analysis & interpretation, local human interest weekly, local music specials/series); at least 6 hrs will be dedicated to ethnic/multicultural/Aboriginal programming
Aboriginal People's Television Network $150,000 Investment towards production of programming featuring B.C. Aboriginal music and culture

Initiative Expenditure Description
Local culture, social policy, and talent development $1.37 million  
Scanning the media $200,000 Production of curriculum-based teaching material, TV program, web site and study guide with Vancouver independent producer
Media literacy teacher training $150,000 Teacher training in media education with the British Columbia Summer Institute in Media Education
BCIT cultural diversity scholarship $175,000 Full tuition for 5 students annually from ethnic or Aboriginal communities
Communications and diversity network of the Pearson-Shoyama Institute $140,000 Research project on multicultural and multiracial participation in the broadcasting/media field
Praxis cultural diversity talent development program $130,000 New program developed to support development of young Aboriginal and ethnic screenwriting and story editing talent
Media awareness network $25,000 Development of B.C. based media education/literacy outreach program
Historical "local heroes" teen video project $25,000 Student mentorship program & production of interstitials about local historical figures
Descriptive video $350,000 Description of approximately 100 hours of Canadian feature films
Vancouver Film Festival $175,000 $25,000 annual award supporting excellence in Canadian film making

 

Dissenting opinion of Commissioners Cindy Grauer and Barbara Cram

  We disagree with the decision by the majority of Commissioners (the majority) to approve this application without an oral public hearing. We don't know whether or not we would have approved this transaction because, as we discuss below, the record of this proceeding is not sufficient to make a decision. Approval is premature for two reasons. First, the Commission has long had a policy against dual ownership and no policy or guidelines on what constitutes appropriate real and tangible public benefits when an exception is requested where financial rescue is not an issue. There are clearly financial advantages to the applicant in this case, but we do not know the extent of them and cannot, without taking a much closer look, assess the appropriateness of the overall proposal by the applicant and determine whether in fact an exception is in the public interest.
  Second, there are a number of unanswered questions relating to benefits and programming.
 

Policy Issue

  The Commission has a one station per market policy, reaffirmed in 1999. "This policy ensures the diversity of voices in a given market, and helps to maintain competition in each market." Historically, exceptions to the policy have been generally, if not exclusively where a station required financial rescue, as was the case when approval was originally granted over thirty years ago in the Vancouver market for one broadcaster to own both CHAN and CHEK.
  Since 1999 the Commission has granted every one of the three applications it has received, all involving stations where financial rescue was not an issue. Two exceptions exist in Vancouver and one in Toronto. These two television markets are the two most profitable in the country. In July of 2000 the Commission approved Canwest's acquisition of the television assets of WIC Western International Communications. In that decision the Commission approved a continuation of the dual ownership of CHAN and CHEK in the Vancouver market as well as dual ownership of CHCH and CIII in the Toronto market. The third application is the one being approved today.
  There is a case to be made for the continuation of an historical arrangement as exists with CHAN and CHEK, particularly when one considers both the benefits and the additional programming commitments on both stations undertaken by CanWest.
  The very reasons given by the Commission for granting the exception in this case are the very reasons articulated for maintaining the policy against dual ownership - to maintain competition and ensure diversity.
  The majority wishes to counterbalance the concentration that exists with CanWest's ownership of two stations and create another strong player. If the Commission is so concerned about the concentration in this market, why did it pass up two opportunities - in April of 2000 and April of 2001 - to order CanWest to divest itself of one of the two stations?
  In creating another strong player, we do not believe the Commission has fully considered the effect this approval will have on other broadcasters in this market, particularly when the Commission is hearing applications this month to license an ethnic station. We question whether what this decision creates in this market is any better than what existed before, and argue, in fact, that it may be worse.
  During the intervention phase of every one of the three applications discussed here interveners have made calls - unheeded - for a review of the policy. We agree and believe the Commission should initiate a public process to review its dual ownership policy and consider abolishing it or setting the terms and conditions for exceptions. Those terms and conditions should then be applied to the broadcasters currently owning two stations in a market.
 

Are the benefits and programming offered commensurate with the value of owning two stations?

  It appears to have been accepted that a 2% premium on the 10% benefit requirement is an appropriate premium for securing an exception to the policy. There has never been a public discussion about whether a 2% premium is appropriate or commensurate. CanWest established the 12% benchmark when it offered, for its two exceptions to the policy (Vancouver and Toronto), 12% of a $692 million transaction - - which involved a number of assets, not just the two television stations involved. CHUM has offered 11.8% on the acquisition price of $130 million for one station.
  It is difficult to comprehend how these compare equitably, but then we don't know whether 2% is commensurate or whether the calculation in the first instance or the present application or neither is appropriate.
  There has also never been a discussion about what appropriate programming commitments in the market in question might be. CanWest offered, in addition to the benefits premium, significant additional programming commitments for both stations in the Vancouver market. CHUM has offered none and the Commission has not asked for any.
  With respect to local news programming, CanWest's Vancouver station (CHAN) airs 42 hours and 30 minutes per week of news. CTV's Vancouver station (CIVT) (currently the only stand-alone private station in the market) airs 16 hours and 30 minutes of local news per week. CHUM is proposing that CKVU air 15 hours and 30 minutes per week of local newsprogramming. This is the lowest level of local news programming of any private station in Vancouver. CHUM argued that even 15 and a half hours could only be achieved if it is permitted to use benefit money to subsidize it. Neither of the other two stations is using benefit money to subsidize their higher levels of local news.
  Both of the Victoria stations also air more local news than CHUM has proposed for Vancouver. CanWest's station (CHEK) airs 17 hours of local news and CHUM's new station (CIVI) airs 19 hours and thirty minutes of local news.
  The bottom line is that CanWest paid $14 million for its exception to the policy (albeit in two markets) and CHUM is paying $3 million for its exception to the policy. In the absence of any examination of what the appropriate commensurate premium might be, it is impossible to determine whether either amount is commensurate with the financial advantages enjoyed. In addition, a considerable difference exists between the two amounts and there is no explanation for it. There are also significant differences in programming commitments which are not sufficiently explained. Exploring these issues at an oral public hearing would have allowed for a more satisfactory resolution of these issues.
 

Questions

  Here are some of the questions we would have asked at a public hearing:
  In your benefits package you have allocated $7 million to pre-license expenditures to BC independent producers? What exactly are pre-license expenditures? How will you spend the money? What will be the criteria for eligibility? What commitments to broadcast will you make to the recipients of this money? How will you measure the success of this initiative?
  In your supplementary brief, you made references to feature films by BC producers but you don't make any specific commitments with respect to actually licensing and broadcasting those feature films. What are your plans in this regard and what specific commitments are you prepared to make?
  The level of Vancouver produced programming (either in-house or commissioned independently) you are proposing (including that subsidized by benefits) is the lowest of any private station in the Vancouver market. Why should the Commission accept, as a benefit, expenditures on local programming, which could arguably be expected of an applicant that claims local programming as its defining and differentiating characteristic?
  Why should the Commission accept this level of local programming when you are asking to be exempted from the dual ownership policy and stand to enjoy significant financial advantages through the synergies achieved in owning two stations?
  A considerable amount of your Canadian programming originates from your station CITY-TV in Toronto or from independent producers based in Toronto. Do you have any plans to air programming produced either in house or commissioned by you independently from Vancouver producers on CITY-TV in Toronto?
  You made a passing reference in your supplementary brief to a local development office, but we didn't see any specific plans or commitments with respect to it. Are you establishing a development office in Vancouver?
  If yes, How will it be set up? Will it have authority over the development budget for the station? How do you envision it working? Can you tell us about any discussions you have had with independent producers in Vancouver?
  As you know the Commission is presently considering applications for an ethnic station in Vancouver. If the Commission awards a licence, it will expect the licensee to broadcast ethnic programming to many language groups, small and large. The revenues generated from broadcasting to the larger groups helps offset the costs of producing programming for the smaller language groups which attract much smaller audiences and consequently less revenues.
  You have proposed to direct some of your benefit money to the production of third language programming. If you were to decide to produce six hours of programming per week directed to the Chinese or South Asian community this could have a harmful effect on the revenues of a new ethnic station. Why should the commission permit benefit money to be used to subsidize such programming?

Date Modified: 2001-10-15