ARCHIVED - Broadcasting Decision CRTC 2015-227
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Reference: Part 1 application posted on 12 December 2014
Ottawa, 28 May 2015
Groupe V Média inc.
Follow-up to conditions of approval relating to the transaction involving the services MusiquePlus and MusiMax
In MusiquePlus and MusiMax - Change in effective control and licence amendments, Broadcasting Decision CRTC 2014-465, 11 September 2014, the Commission imposed conditions of approval relating to the transaction involving the services MusiquePlus and MusiMax. Groupe V Média inc. (Groupe V) has met the conditions of approval by submitting a share purchase agreement and a new tangible benefits proposal.
In its new tangible benefits proposal, Groupe V wishes to allocate all tangible benefits stemming from this transaction to the Remstar Fund instead of allocating a portion to the Canada Media Fund.
The Commission considers that Groupe V has not presented convincing arguments that the proposal would better serve the public interest. Consequently, the Commission denies Groupe V’s new tangible benefits proposal, and Groupe V must therefore comply with the allocation formula set out in the tangible benefits policy.
- In Broadcasting Decision 2014-465, the Commission approved, subject to certain modifications and conditions, an application filed by Groupe V Média inc. (Groupe V), on behalf of MusiquePlus inc., to obtain authority to change the ownership and effective control of MusiquePlus inc., licensee of the French-language specialty Category A services MusiquePlus and MusiMax.
In that decision, the Commission directed MusiquePlus inc., as a condition of approval, to file:
- an executed share purchase agreement, the provisions of which had to be essentially and substantially the same as those contained in the prospective investors’ letters of offer placed on the public record.
- a new tangible benefits proposal amounting to at least 10% of the value of the transaction as revised by the Commission. The Commission urged MusiquePlus inc. to develop its new proposal in keeping with Broadcasting Regulatory Policy 2014-459 (the tangible benefits policy).
- The share purchase agreement as submitted does not raise any issues. In this decision, the Commission will examine the new tangible benefits proposal submitted by Groupe V.
- Groupe V, on behalf of MusiquePlus inc., submitted a new proposal regarding $2,287,200 in tangible benefits (i.e., 10% of the value of the transaction as revised by the Commission). Specifically, Groupe V proposed to make an annual contribution of $326,743 over a seven-year period to a new independent production fund, the Remstar Fund, which is dedicated to funding music videos and other music programs. Groupe V also filed an application for this fund to be added to the list of certified independent production funds (CIPFs). The Commission approved the addition of the Remstar Fund in an administrative letter dated 13 May 2015.
- Groupe V requested an exception to the allocation formula set out in the tangible benefits policy, so that it may allocate all of the tangible benefits stemming from the transaction to the Remstar Fund. Thus, the contributions that would normally be allocated to the Canada Media Fund (CMF) under the tangible benefits policy would be redirected to the Remstar Fund. Groupe V argued that these contributions would support the Canadian music industry and provide a major showcase for Canadian music artists.
- Groupe V added that the tangible benefits flowing to the CMF would help fund a very wide range of television productions that have nothing to do with music. Groupe V argued that, under the circumstances, its proposal would best serve the public interest.
- The Commission received an intervention offering comments from the Association québécoise de l’industrie du disque, du spectacle et de la vidéo (ADISQ). ADISQ was of the view that, if the public interest is to be served well, the tangible benefits stemming from the transaction must benefit the music sector.
- ADISQ stated that the categories defined by the CMF do not allow for isolating purely musical programs included in the “Variety and Performing Arts” category. It stated that, according to the CMF 2013-2014 annual report, this category accounted for less than 6% of the performance envelopes allocated to the funding of programming production in the French-language market. It feared that, as things currently stand, if the tangible benefits accruing from the transaction involving MusiquePlus and MusiMax were allocated to the CMF, there would not be a greater number of music programs on television overall.
- More generally, ADISQ welcomed the establishment of a CIPF dedicated to the funding of music-related programs, since no other CIPF is fully dedicated to such programs. However, it pointed out that it cannot comment on the proposal to direct all the tangible benefits to the Remstar Fund, since the terms of that fund are unknown and its creation is being studied by the Commission by way of administrative process.
- In its reply, Groupe V pointed out that the CMF did not intervene in this process to oppose its proposal. Further, it agreed with the statement made by ADISQ that the “Variety and Performing Arts” category receives a small share of funding from the CMF each year.
- In response to certain concerns expressed by the ADISQ regarding the creation of the Remstar Fund, Groupe V reiterated that it is committed to complying with all of the eligibility criteria set out in Broadcasting Regulatory Policy 2010-833, that the fund will be operated at arm’s length from its contributors, and that only one of the five members of the board of directors will be a Groupe V representative.
Commission’s analysis and decision
- In the tangible benefits policy, the Commission established a new approach to ensure that, in future, tangible benefits relating to television transactions are standardized and flow primarily to the production of Canadian programming.
- These changes were put in place because the Commission was concerned that, over time, the flexibility of its case-by-case approach may have resulted in a situation where the contributions to certain projects may have sometimes benefited the purchaser, but not necessarily the broadcasting system as a whole. Generally, tangible benefits must not serve as a regulatory tool for broadcasters to invest in their own products and services or in programs that could have been produced in the absence of the transaction.
Accordingly, to ensure that tangible benefits are streamlined, incremental, non-self-serving and directed mainly to the production of Canadian programming, the Commission now requires the following:
at least 80% of all tangible benefits relating to changes in the effective control of licensed television undertakings shall be allocated to the funds;
- of this amount, at least 60% shall be allocated to the CMF and no more than 40% to the CIPFs;
- no more than 20% of all tangible benefits relating to changes in the effective control of licensed television undertakings shall be allocated to discretionary initiatives.
- at least 80% of all tangible benefits relating to changes in the effective control of licensed television undertakings shall be allocated to the funds;
Pursuant to the tangible benefits policy, the Commission may, on an exceptional basis, approve another allocation formula. However, to obtain an exception, the onus is on the party requesting the exception to prove that its proposal best serves the public interest by meeting the following requirements:
- applicants must clearly show why and how the public interest would be served by what would otherwise be considered self-serving; this evidence must be fully presented to the Commission and placed on the public record at the time of filing the application so that interveners may comment on whether the proposal meets the public interest;
applicants must ensure that the proposed initiative:
- yields a clear benefit to the broadcasting system as a whole, the community served by the undertaking to be acquired, or both;
- is clearly an incremental benefit-that is, is demonstrably not a normal cost of doing business; and
- is related to the context of the transaction.
- In light of the criteria set out above, the Commission must determine whether Groupe V has demonstrated that the public interest would be better served by its proposal to contribute to the Remstar Fund the amount that would otherwise be allocated to CMF.
Is the public interest better served by Groupe V’s proposal?
- As set out in the tangible benefits policy, a self-serving initiative is, among other things, “an initiative in which monies are retained in-house, that is, one that does not involve payments of any kind to an independent party.” In the policy, the Commission determined that financial contributions linked to television should prioritize third-party funds, including the CMF and the various CIPFs.
- At first glance, it appears that the Remstar Fund would unduly benefit the only two French-language specialty services devoted to music, i.e. MusiquePlus and Musimax, since their nature of service is aimed primarily at music and music-related programs. However, the objectives of the Remstar Fund are such that all Canadian French- and English-language television services broadcasting eligible music-related programs will be able to benefit from the contributions.
- Since the objective of Remstar Fund is to promote music through television programs, the music sector and music lovers served by MusiquePlus and MusiMax would also benefit from that fund.
- Moreover, the Commission finds that the Remstar Fund is an appropriate vehicle for the use of tangible benefits, and that the creation of that fund is related, given that the tangible benefits stem from a transaction involving the only two television services devoted to music in the French-language market. Also, the Remstar Fund is an incremental benefit for the broadcasting system given that the payment of tangible benefits into a CIPF is not part of an undertaking’s normal cost of business, since the undertaking loses control of the amounts paid to the fund.
- However, to avail itself of the requested exception, the onus is on Groupe V to demonstrate why and how the public interest would be best served by its proposal to allocate to the Remstar Fund the amounts that would normally be allocated to the CMF.
- The Commission considers that Groupe V did not present compelling evidence of a pressing need by the music industry when it filed this application in order that the interveners might determine whether the proposal would better serve the public. The licencee stated that “[translation] it would be in the public interest for all of the contributions paid as tangible benefits to be directed to the music industry,” but did not present evidence to that effect. Groupe V argued that it demonstrated in its application to acquire MusiquePlus and MusiMax that “[translation] the music industry was in great need of support, particularly in light of the many upheavals it has experienced over the past few years,” but did not provide that evidence again on the public record for this application.
- Since Groupe V has not made a convincing case to support its proposal, the Commission considers that Groupe V has not met the criteria set out in the tangible benefits policy to avail itself of the requested exception. In the absence of compelling evidence submitted in the context of this application, the Commission finds that Groupe V has not demonstrated that the public interest would be better served by its proposal to direct to the Remstar Fund the amount that would otherwise be allocated to CMF.
- In light of all the above, the Commission considers that Groupe V has met the conditions of approval relating to the transaction involving MusiquePlus and MusiMax set out in Broadcasting Decision 2014-465. However, the Commission denies the application filed by Groupe V Média inc., on behalf of Musique Plus inc., to be exempted from the allocation formula set out in the tangible benefits policy, in order to direct to the Remstar Fund all the tangible benefits stemming from the transaction. Consequently, Groupe V must comply with the allocation formula set out in the tangible benefits policy.
- The Commission notes that, under this policy, Groupe V may allocate just over 50% of the tangible benefits to the Remstar Fund without requiring an exception to the policy, an amount sufficient to ensure the fund’s viability.
- MusiquePlus and MusiMax - Change in effective control and licence amendments, Broadcasting Decision CRTC 2014-465, 11 September 2014
- Simplified approach to tangible benefits and determining the value of the transaction, Broadcasting Regulatory Policy CRTC 2014-459, 5 September 2014
- Contributions to Canadian programming by broadcasting distribution undertakings, Broadcasting Regulatory Policy CRTC 2010-833, 9 November 2010
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