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ARCHIVED - Broadcasting Decision CRTC 2004-402

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Broadcasting Decision CRTC 2004-402

  Ottawa, 3 September 2004
  CHUM Limited
 Victoria, British Columbia
  Application 2004-0097-9
Public Hearing in the National Capital Region
7 June 2004
 

CFAX and CHBE-FM Victoria - Acquisition of assets

  The Commission approves, subject to two conditions precedent, the application by CHUM Limited for authority to acquire from Seacoast Communications Group Inc. the assets of CFAX and CHBE-FM Victoria, and for licences to continue the operation of these two stations. The new licences will be subject to the same terms and conditions as those in effect under the existing licences and will expire on 31 August 2006, the current licence expiry date.
 

The application

1.

The Commission received an application by CHUM Limited (CHUM) for authority to acquire from Seacoast Communications Group Inc. (Seacoast) the assets of CFAX and CHBE-FM Victoria, and for broadcasting licences to continue the operation of these two stations. There was one intervention filed with respect to this application, and it expressed support for the application's approval.
 

Benefits

2.

The proposed value of the transaction is $7.5 million. Of this amount, $5,694,003 is in respect of the purchase of CFAX, while CHBE-FM has been assigned a value of $1,806,360. Under the provisions set out in Commercial Radio Policy 1998, Public Notice CRTC 1998-41, 30 April 1998 (the Radio Policy), applicants seeking to acquire ownership of radio stations are generally required to make commitments to clear and unequivocal tangible benefits representing a financial contribution of 6% of the value of the transaction, as accepted by the Commission. The Radio Policy stipulates that the Commission will be prepared to forgo benefits requirements in the case of transactions involving the sale of unprofitable undertakings. However, the Commission stated in its Radio Policy that it would not "systematically apply this exemption to stations in the first five years of operation."

3.

In its application, CHUM did not propose any tangible benefits. CHUM claimed that this was consistent with the Radio Policy, since CFAX and CHBE-FM are both currently unprofitable.

4.

The Commission acknowledges that both stations operate at a loss. However, CHBE-FM only commenced operations in 2000, less than five years ago. In the Commission's view, CHBE-FM's operating losses are not unusual, given the fact that the station is still in its first licence term. While it has yet to reach its full potential, this potential should be attained under CHUM's ownership and control. In its deliberations regarding whether a tangible benefits package should be required of CHUM, the Commission has taken account of the fact that, in addition to its existing Vancouver radio stations, CHUM owns CIVI-TV Victoria and CKVU-TV Vancouver. Given CHUM's strengths and experience in radio broadcasting, the Commission believes that, as an intangible benefit of the transaction, CHUM's purchase of CFAX and CHBE-FM should provide stability to those stations. At the same time, CHUM would gain entry into the Victoria radio market, acquire a larger presence in the community, and further strengthen its position as a major player in the Canadian broadcasting industry.

5.

In light of the above, the Commission considers that, while no benefits are required under the Radio Policy in respect of CHUM's purchase of CFAX Victoria, CHUM should be required to file tangible benefits initiatives amounting to a minimum of $108,381, which is 6% of the value assigned to CHBE-FM. Accordingly, as a condition precedent to the approval of this application, CHUM will only acquire ownership of CHBE-FM Victoria, provided it submits, within 60 days of the date of this decision, a proposed package of tangible benefits acceptable to the Commission and having a minimum value of $108,381.
 

Sale of a broadcasting undertaking within its first licence term

6.

Generally, the Commission is concerned when a broadcasting undertaking is put up for sale within its first licence term. When a person is granted a licence to operate a broadcasting undertaking, but puts the undertaking up for sale in its first few years of operation, the circumstances surrounding the sale are examined by the Commission to ensure that the integrity of the licensing process is maintained.

7.

In the present case, the Commission notes that the proposed sale of CHBE-FM is part of a larger transaction. The Commission also notes that the vendor, Seacoast, does not stand to realize an unreasonable financial gain from the sale of the station. Further, the Commission is satisfied that CHBE-FM, CFAX, and the audiences they serve, would benefit from CHUM's broadcasting expertise and abilities to ensure that both stations attain financial viability. On balance, the Commission is satisfied that the transaction is in the public interest and that the integrity of its licensing process would not be compromised by its approval.
 

Canadian talent development

8.

CFAX is currently required to contribute $5,000 per year to third parties associated with Canadian talent development (CTD), in accordance with the CTD funding plan instituted by the Canadian Association of Broadcasters (CAB). Information provided for this undertaking in its annual returns indicates that CFAX has met its CTD requirements. The same, however, cannot be said for CHBE-FM.

9.

In Introductory statement - Licensing new radio stations, Decision CRTC 99-480, 28 October 1999 (Decision 99-480), following a competitive process, the Commission granted Seacoast its licence for CHBE-FM. Seacoast was required by condition of licence to allocate $5,000 per year to expenditures on third parties directly connected to the development of Canadian musical and other artistic talent, in accordance with the CAB funding plan. In addition, the licensee was required by condition of licence to spend $14,000 per year on a New Music Festival and $3,000 per year on a Songwriters' Seminar, for total annual CTD expenditures of $22,000.

10.

The Commission's records indicate that, in 2000/2001, CHBE-FM made no CTD expenditures. This represents a shortfall of $22,000 for that year. In 2001/2002, CHBE-FM spent $12,458 on CTD contributions to third parties and $5,000 on the production of a music CD. Although the 2001/2002 expenditures thus included payments to third parties that exceeded the required annual contribution, Seacoast failed to meet its obligations with respect to the organization of either a New Music Festival or a Songwriters' Seminar. The Commission accepts the $5,000 spent on production of a music CD as discharging a portion of the licensee's responsibilities to the funding of a New Music Festival, since that initiative, as originally proposed, was to include the production of a CD. Nonetheless, the 2001/2002 expenditures fell $12,000 short of the condition of licence requirements for expenditures on initiatives in respect of a New Musical Festival and a Songwriters' Seminar.

11.

In 2002/2003, CHBE-FM spent $9,599 on third party contributions. Once again, however, it failed to meet the requirements for expenditures of $14,000 on a New Music Festival and of $3,000 on a Songwriters' Seminar, thus creating a further shortfall of $17,000 in CTD expenditures in that year. Given that the Music Festival and Songwriters' Seminar initiatives are specifically mentioned in its condition of licence, the overpayments that Seacoast made to third parties cannot be considered as discharging any portion of the licensee's financial responsibilities to these initiatives. Thus, the Commission finds that CHBE-FM has been operating in non-compliance with its requirements for CTD expenditures in each of its first three years of operation. CHBE-FM's arrears for CTD expenditures total $51,000 over that three-year period.

12.

Under the terms of the Asset Purchase Agreement between CHUM and Seacoast filed with the application, Seacoast is required, on or before closing, to make up for any CTD expenditure shortfall that has accumulated up to that date, including a pro rata assessment for any CTD expenditures for 2003/2004 that remain outstanding at closing. The Commission notes that, although CHUM did not specifically commit in its application to implement the New Music Festival and the Songwriters' Seminar initiatives, it did agree to continue to operate CHBE-FM under the same terms and conditions that currently apply to that station. The Commission reminds CHUM that, as noted above, these conditions include the obligation, in each year of CHBE-FM's licence term, to fund a New Music Festival and a Songwriters' Seminar, representing minimum annual expenditures of $14,000 and $3,000, respectively, and to make a further minimum annual contribution of $5,000 to third parties involved in CTD.

13.

Concerning the matter of Seacoast's CTD arrears of $51,000, the Commission considers that to forgive these arrears would undermine the integrity of the competitive process that led to the licensing of CHBE-FM Victoria. Accordingly, as a condition precedent to the approval of this application, CHUM will only acquire ownership of CHBE-FM Victoria provided it submits, within 60 days of the date of this decision, confirmation that Seacoast's total arrears for its CTD expenditures totalling $51,000 for the years 2000/2001 ($22,000), 2001/2002 ($12,000) and 2002/2003 ($17,000), plus any arrears in CTD expenditures for which Seacoast is responsible in 2003/2004 under the terms of the Asset Purchase Agreement, have been expensed or are being re-directed to initiatives acceptable to the Commission.
 

Conclusion

14.

The Commission, for the reasons set out above, is satisfied that the proposed transfer to CHUM of the assets of CFAX and CHBE-FM Victoria is in the public interest and approves the application, subject to CHUM satisfying the two conditions precedent set out earlier in this decision. Once these conditions precedent have been met, and upon surrender of the current licences, the Commission will issue new broadcasting licences to CHUM to continue the operation of CFAX and CHBE-FM Victoria. The two licences will expire 31 August 2006, the current licence expiry date, and will be subject to the same terms and conditions as those in effect under the existing licences.
Secretary General
This decision is to be appended to each licence. It is available in alternative format upon request and may also be examined at the following Internet site: www.crtc.gc.ca

Date Modified: 2004-09-03

Date modified: