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Broadcasting Decision CRTC 2003-205
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Ottawa, 2 July 2003
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Astral Media inc., on behalf of 9122-8106 Québec inc., a corporation composed of TVA Group Inc. and Radio Nord Communications inc.
Montréal, Québec, Sherbrooke, Trois-Rivières, Shawinigan, Saguenay and Gatineau, Quebec
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Applications 2002-0767-2, 2002-0768-0, 2002-0769-8, 2002-0770-6, 2002-0771-3, 2002-0772-1, 2002-0773-9, 2002-0774-7, 2002-0775-5, 2002-0776-3, 2002-0777-1, 2002-0778-9
Public Hearing at Montréal, Quebec
3 February 2003
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Acquisition of radio assets in Quebec
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The Commission denies the applications by Astral Media inc. (Astral Media), on behalf of 9122-8106 Québec inc., for authority to acquire the assets of Quebec radio undertakings held indirectly by Astral Media, including eight AM stations, two digital stations and three radio networks, and the assets of radio station CFOM-FM Lévis held by Entreprises Radio Etchemin inc. A list of the radio undertakings involved in these applications is set out in the appendix.
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The applications raised various concerns relating in particular to concentration of ownership and to media cross-ownership. The applicant has not satisfied the Commission that the applications, as filed, are the best possible proposal under the circumstances. The Commission is not convinced that the recovery strategy for AM radio in Quebec proposed by the applicant and its eventual benefits would significantly outweigh the concerns about concentration of ownership and media cross-ownership.
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Parties to the transaction
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1.
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The proposed licensee of the broadcasting undertakings involved in the transaction would be the corporation established as 9122-8106 Québec inc. (TVA/RNC). The shareholders of TVA/RNC would be TVA Group Inc. (TVA), with 60% of the voting shares, and Radio Nord Communications inc. (RNC), with 40% of the voting shares. TVA would control TVA/RNC.
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2.
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TVA is an integrated communications company that is an important player in Quebec television. TVA is the largest private broadcasting company involved in the French-language conventional television sector in Quebec. Six of the ten stations in the TVA network serve Montréal, Québec, Sherbrooke, Trois-Rivières, Rimouski and Saguenay.
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3.
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TVA is also active in the television specialty services sector. It is the licensee of Le Canal Nouvelles (LCN), an all-news service, in addition to holding interests in other programming and pay-per-view television specialty services, including Canal Indigo, as well as in Category 1 and 2 French- and English-language digital specialty services recently or about to be launched, including LCN Affaires.
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4.
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The majority shareholder of TVA, Quebecor Media Inc. (QMI), is a major player in Quebec's newspaper and magazine sector, with such daily newspapers as Le Journal de Montréal and Le Journal de Québec, and magazines such as Le Lundi, 7 Jours and Dernière Heure. In addition to its various activities involving publishing houses and an Internet portal, QMI controls the largest cable undertaking in Quebec, Vidéotron ltée (Vidéotron), as well as Distribution Select and Archambault Group Inc.
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5.
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RNC is controlled by the Gourd family. It operates five French-language conventional television stations affiliated with the TVA, TQS and Canadian Broadcasting Corporation networks, and six FM radio stations serving mainly the Abitibi-Témiscamingue and Outaouais markets. RNC also controls a production company in the Gatineau-Ottawa region.
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Background
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6.
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These applications were filed following the publication of Transfer of control of 3903206 Canada Inc., of Telemedia Radio Atlantic Inc. and of 50% of Radiomedia inc. to Astral Radio inc., Broadcasting Decision CRTC 2002-90, 19 April 2002 (Decision 2002-90). In that decision, the Commission approved applications for authority to transfer effective control of the broadcasting undertakings held by Telemedia Radio Inc. (Telemedia) in Quebec, New Brunswick and Nova Scotia to Astral Radio inc., a subsidiary of Astral Media inc. (Astral Media).
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7.
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Decision 2002-90 was subject to two conditions precedent, one of which concerned the transfer of ownership of station CFOM-FM Lévis to a third party not associated with Astral Media. The latter undertook to divest itself of CFOM-FM to comply with the Commission's policy on common ownership of radio stations in the same market, set out in Commercial Radio Policy 1998, Public Notice Crtc 1998-41, 30 April 1998 (the Commercial Radio Policy).
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8.
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In addition, the Commission noted in Decision 2002-90 that, on 21 December 2001, pursuant to section 92 of the Competition Act, the Commissioner of Competition filed an application with the Competition Tribunal opposing the proposed acquisition of Telemedia's eight French-language radio stations in Quebec and of Telemedia's 50% ownership interest in Radiomedia. Astral Media submitted these applications to divest itself of the Quebec radio undertakings listed in the appendix to this decision according to the terms of a consenting agreement in September 2002 between the Commissioner of Competition, Astral Media and Telemedia, which was registered with the Competition Tribunal. This agreement terminated the application by the Commissioner of Competition to the Competition Tribunal.
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Interventions
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9.
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The Commission announced the reception of these applications in Broadcasting Notice of Public Hearing CRTC 2002-13, 27 November 2002 (Notice of Public Hearing 2002-13). The Commission indicated in the notice that it wished to discuss certain questions with the applicant, including concentration of ownership and cross-ownership, the proposed contribution to the attainment of the objectives of the Broadcasting Act, particularly to local and regional programming production, and the value of the transaction and of the proposed tangible benefits. The Commission also invited interested parties to submit their comments on the applications.
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10.
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The Commission received 64 interventions in response to Notice of Public Hearing 2002-13. While 54 interventions supported approval of the applications, 5 were opposed and 5 provided various comments.
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11.
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Certain interveners expressed concerns about the cross-ownership situation that would result from the proposed transaction. In their view, the addition of radio stations under TVA/RNC, and under QMI at the same time, would have the effect of intensifying the situation of media cross-ownership in Quebec in the hands of a single group. They argued that this privileged position could lead to a reduction in the diversity of editorial voices offered by the various media and that the safeguards proposed in this regard by TVA/RNC would be inadequate to ensure the true separation of the newsrooms of the media concerned.
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12.
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Concerning the plan to revitalize AM radio in Quebec, some interveners argued that the TVA/RNC proposal would not result in a true revitalization of French-language AM stations in Quebec, and that the proposed investments would not be sufficient and would not be used effectively. Some interveners also questioned the estimated value of the radio stations involved in the transaction and, consequently, the amount of the tangible benefits proposed by TVA/RNC.
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Cross-ownership
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Interveners' concerns
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13.
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The Fédération professionnelle des journalistes du Québec (FPJQ), the Fédération nationale des communications, the Conseil provincial du secteur des communications and the Syndicat des employés(ées) de TVA opposed the transaction because of the increase in the levels of concentration and media cross-ownership that would result. In the view of these interveners, the synergies that would flow from the proposed transaction would heighten their concerns about the already existing cross-ownership situation. They argued that the expected synergies would lead to a certain amount of information standardization and a decline in news quality caused by a reduction in the diversity of voices. The interveners also expressed their dissatisfaction with the commitments by TVA/RNC regarding the independence of the radio newsrooms relative to the television newsrooms. In their opinion, moreover, the AM network would be doomed to become a promotional vehicle for QMI's other media windows, including television, records (through Archambault Group Inc.) and newspapers.
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TVA/RNC's reply
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14.
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In its reply to the interventions, TVA/RNC stated that it does not deny that the proposed transaction would involve some increase in concentration of ownership and in cross-ownership. However, it pointed out that this increase would be small, given the size of the transaction, and that it would not significantly alter the existing overall balance among the many media groups competing in Quebec and, to an even greater degree, in Canada.
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15.
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Regarding concerns about the diversity of voices and editorial independence, TVA/RNC stated that the proposed safeguards were at least equivalent to and generally far better than those imposed on any other Canadian broadcasting group in a cross-ownership situation. It proposed that radio be subject to the same conditions as those contained in the code of professional conduct that currently governs the television activities of TVA, LCN, LCN Affaires and QMI's newspapers following the publication of Transfer of effective control of TVA to Quebecor Média inc., Decision CRTC 2001-384, 5 July 2001. However, TVA/RNC specified that, with respect to the application of the code of professional conduct, its proposal was limited to interactions between radio and QMI's newspapers, just as the current code is limited to interactions between television and QMI's newspapers, but that it should not be broadened to include interactions between radio and television. In this regard, TVA/RNC proposed as another safeguard that each radio station have its own newsroom, a separate news director and its own journalists to ensure the independence of the newsrooms and editorial choices. TVA/RNC was also willing to have monitoring of the application of its commitments entrusted to an independent monitoring committee that would report to the Commission annually.
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The Commission's analysis
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16.
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The issue of media cross-ownership is addressed in the Commercial Radio Policy, in which the Commission notes the concerns raised by cross-ownership regarding the impact on competition and on the diversity of news voices in a market. In particular, the Commission notes that ownership or control by one person of undertakings in a number of media outlets including radio, television, print and distribution undertakings in a given market might give that person an undue influence in a market and affect the level of competition. This situation could also give rise to concerns regarding the potential for gate-keeping with respect to information, and the concentration of the advertising market in the hands of a single group. The Commission stated that it would assess these concerns when examining applications for licences or for authority to transfer the ownership or control of broadcasting undertakings.
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17.
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The Commission notes that, because of TVA/RNC's association with the QMI corporate group, the TVA/RNC partnership would benefit following the proposed transaction. The Commission also notes however that TVA accounts for more than 47% of television viewing hours among Francophones (conventional television and analog specialty and pay services) and that, following the transaction, the TVA/RNC partnership would acquire more than 25% of viewing/listening hours for all private sector broadcasting in Francophone Quebec (including conventional television, specialty services and radio). In addition, QMI holds more than a 38% share of the sales of Quebec daily newspapers, while Archambault Group Inc. is the leader in record distribution and Vidéotron is Quebec's main cable distributor. For all the markets affected by the transaction, the QMI group would now be a participant in the radio market as well. Even though its participation would not be large, the QMI group would be in an unprecedented privileged position in which it would be the only corporate group, in three specific markets, namely Montréal, Québec and Saguenay, that would hold an ownership interest in radio, television, local newspapers, pay and specialty television services, and magazines, in addition to having a presence through community-based television (Vidéotron's Canal VOX).
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18.
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The Commission considers that the concerns about cross-ownership raised by these applications must be balanced against the main objective at the heart of the TVA/RNC proposal, which is the revitalization of AM radio in Quebec, in order to determine whether the possible benefits of approving these applications outweigh the concerns they raise.
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The AM radio revitalization plan
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19.
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TVA/RNC stated that its AM radio revitalization strategy would hinge on four main aspects:
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- the effective creation of a network;
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- a local and regional presence;
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- the repositioning and enhancement of content; and
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- the establishment of a strong identity.
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20.
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The applicant stated that its ultimate goal is to develop a true French-language, talk-format radio network that is dynamic, people-oriented and indispensable, and that can regain its popularity, bring back advertisers, compete more effectively with other media and renew itself with the profitability that is essential for its survival.
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21.
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With regard to CFOM-FM, the applicant stated that its development plan is intended to consolidate its position in the Québec market and to enhance its programming while maintaining its current format. The applicant added that the expected synergies between CFOM-FM and CHRC in Québec are a very important component of the transaction, since CHRC is by far the most unprofitable of the group of AM stations involved in the transaction. In this context, it stated that the acquisition of CFOM-FM was inseparable from the rest of the transaction.
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Interveners' concerns
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22.
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In the view of FPJQ, the strength of AM radio is its news service, and yet, in its opinion, news is the most seriously neglected and most underfunded sector. FPJQ argued that the minimum commitments related to the revitalization plan proposed by TVA/RNC should consist of providing all the radio newsrooms with larger budgets than they have now. FPJQ added, at the hearing, [TRANSLATION] "The status quo is what you are being offered, and in our view that is insufficient."
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23.
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The Syndicat des employé(e)s CKRS-CJAB stated the following: [TRANSLATION] "We believe, like the applicant, that radio with content, wherever it no longer exists, should again become an indispensable service. Aside from such pious wishes, however, the applicant is strangely silent about how it intends to achieve this objective." The Conseil provincial du secteur des communications, referring to the restructuring of AM radio in Quebec in 1994 and 1995, stated: [TRANSLATION] "The promises were not fulfilled after 1994 and substantially the same players are again promising us the revitalization of radio." A number of interveners, including the Fédération nationale des communications, also questioned whether TVA/RNC's business plan was realistic.
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24.
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TVA/RNC did not offer any specific comments in reply to these interventions, other than to maintain its programming commitments.
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The Commission's analysis
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25.
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In order to assess the scope and soundness of the AM radio revitalization plan in Quebec, the Commission examined the proposal by TVA/RNC from two main perspectives:
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- the proposed programming, to consider whether there would, in fact, be an increase in service, an improvement in quality and a diversity of editorial voices; and
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- the business plan, to consider whether the financial projections are realistic and support a revitalization of AM radio.
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Proposed programming
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26.
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With regard to the number of hours per week of local programming, TVA/RNC committed at first to maintain the current minimum levels, or an average of 36 hours 25 minutes. It added that its objective was to harmonize the hours of local programming and to reach a level of 41 hours of local programming per week by the end of the current licence terms for the Trois-Rivières, Sherbrooke, Gatineau and Saguenay stations. However, the applicant stated that it did not wish to have this local programming objective imposed as a condition of licence.
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27.
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With regard to news services, TVA/RNC has committed to maintain the total weekly production levels, or an average of 13 hours 41 minutes, and, at a minimum, 2 hours 32 minutes of local news per week at each station. It also stated that the collection, processing and dissemination of news would be done by the existing staff and resources.
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28.
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In addition, further to a review of historical data relating to programming expenditures for the stations involved in this transaction, the Commission notes that TVA/RNC's business plan proposes essentially to maintain programming expenditures at the current level, taking into account an annual growth rate of 2% for inflation. There is no evidence that new funds would be invested. The applicant's financial projections seem to indicate that TVA/RNC would reinvest into programming any savings from the synergies achieved in the programming sector, while those from the synergies attained in the other sectors would be primarily allocated to improving profitability. However, since TVA/RNC did not submit a breakdown of forecast programming expenditures for each station, the Commission was not able to assess the allocation of expenditures, particularly for CHRC, in which the applicant stated it would have to invest more, but without specifying any amount.
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29.
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The Commission also notes that TVA/RNC's plans provide no indication that AM radio would be distinct and would not eventually become an additional promotional vehicle for QMI's other assets. The applicant stated that it was counting to a great extent on the synergies with its other media to ensure the success of its proposal, and this could result in a degree of standardization of programming, particularly in public affairs and general interest programming. TVA/RNC stated that certain television programming formats could even be adapted for radio broadcasting. This is a situation of particular concern in Québec, but the applicant did not submit a detailed revitalization plan for CHRC. Instead TVA/RNC is relying on projected synergies between CHRC and CFOM-FM to re-establish the AM station, increasing the risk of integration of the services provided by these two stations.
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Business plan
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30.
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On the whole, the AM radio stations involved in this transaction were unprofitable in the 1997-2002 period, except for CKAC, whose financial position is relatively sound. CHRC suffered substantial losses during this period.
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31.
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For the 2003-2007 period, TVA/RNC is forecasting revenue growth of $3.4 million for the AM stations, at annual growth rates between 2.3% and 6.2%. The growth would come mainly from local sales and the remainder from an increase in national sales. To achieve its forecast levels, the applicant is counting on cross-promotion with the other media under QMI's control.
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32.
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The Commission considers that the AM stations could benefit from cross-promotion to generate additional national advertising sales. The Commission is not convinced that the growth in advertising revenues will be sufficient to support the projections submitted by TVA/RNC, given the current trends related to the growth in advertising revenues for stations in Quebec and across Canada. The Commission notes in this regard that radio has become a medium that is oriented primarily to the local community, and that 80% of its revenues come from local sales, with this percentage reaching 90% for stations operating outside the major centres. This trend was confirmed at the public hearing by the representative of Carat Canada, who stated that this phenomenon is borne out not only in the regions, but also in Montréal. He added that the more television becomes fragmented with specialty channels, the more radio will become a local medium.
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33.
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The Commission also notes that the AM radio revitalization plan will require considerable investment and that such investment is not reflected in the business plan submitted by TVA/RNC. This is especially true for the Québec market, which, according to the applicant, is the real challenge and one of the keys to the success of its revitalization plan. While CHRC's revenues fell by nearly 80% between 1997 and 2002, the applicant did not provide any details concerning its plans to revitalize that station, wishing to retain [TRANSLATION] "maximum flexibility" for itself.
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Conclusion
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34.
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As stated in Elements assessed by the Commission in considering applications for the transfer of ownership or control of broadcasting undertakings, Public Notice CRTC 1989-109, 28 September 1989, since the Commission does not solicit such applications and because there is, thus, only one proposal presented to the Commission, the onus is on the applicant to demonstrate to the Commission that the application filed is the best possible proposal under the circumstances, taking into account the Commission's general concerns with respect to transactions of this nature.
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35.
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Moreover, when a transaction such as this one raises particular concerns about concentration of ownership and cross-ownership, the onus is on the applicant to demonstrate to the Commission that the benefits of its proposal outweigh the concerns that it raises and that its approval would be in the public interest and would benefit the broadcasting system as a whole.
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36.
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Following its examination of TVA/RNC's programming proposals and of the various elements of its business plan, the Commission finds that the revitalization plan proposed by the applicant is not sufficiently detailed, concrete or tangible to demonstrate that it would bring about a true revitalization of AM radio in Quebec. The Commission notes that the revitalization plan is very conservative in terms of expenditures and very optimistic when it comes to forecast revenues. Furthermore, it contains no details on the individual stations involved, particularly for the revitalization of CHRC, which is the weak link in the group of AM stations involved in this transaction.
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37.
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With regard to CFOM-FM, the Commission notes that this station offers a musical programming format that is essentially different from the talk format of the AM stations. The Commission considers that the acquisition of CFOM-FM, which is not in a precarious financial situation, is not necessary for the revitalization plan for the AM stations involved in the proposed transaction. Furthermore, the Commission is not convinced that the acquisition of CFOM-FM is inseparable from that of CHRC, since the synergies to be derived from the common ownership of these two stations, as proposed by TVA/RNC, could very well be achieved through ownership of CFCM-TV, TVA's local station. Moreover, the Commission notes that ownership in the same market of CFOM-FM and CHRC, combined with television station CFCM-TV, the daily Le Journal de Québec and the weekly Le Peuple Tribune, would result in a very high level of ownership concentration in Québec.
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38.
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In light of all of the foregoing, the Commission denies the applications by Astral Media, on behalf of TVA/RNC, for authority to acquire the assets of the broadcasting undertakings listed in the appendix to this decision. The applicant has not satisfied the Commission that the applications, as filed, are the best possible proposal in the circumstances. The Commission is not convinced that the recovery strategy for AM radio in Quebec proposed by the applicant and its eventual benefits would significantly outweigh the concerns about concentration of ownership and media cross-ownership.
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39.
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As a result of this decision, the assets of the AM stations and of CFOM-FM will continue to be held by a trustee. The Commission expects that Astral Media will take all necessary measures to find a permanent solution as quickly as possible regarding the ownership of these radio stations. With respect to CFOM-FM specifically, Astral Media must immediately forward a notice of sale to the trustee so that the trustee may submit to the Commission, within 90 days of the date of this decision, a new application for the transfer of the assets of CFOM-FM to a third party not associated with Astral Media.
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Other matters
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40.
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As indicated in Notice of Public Hearing 2002-13, the Commission also discussed, at the public hearing, additional measures that should be set in place to reduce concerns about ownership, the value of the transaction put forward by the applicant, and the acceptability of the value and nature of the proposed tangible benefits. In its intervention, the Association québécoise de l'industrie du disque, du spectacle et de la vidéo (ADISQ) raised concerns about these issues, regarding in particular unlimited access to the airwaves for all artists, the fair market value of the assets sold and the base for determining the tangible benefits proposed by TVA/RNC. As the applications have been denied, the Commission does not consider it necessary to address these issues further.
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41.
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The Commission has noted the opposing intervention submitted by the Société pour la promotion de la relève musicale de l'espace francophone (SOPREF). SOPREF's opposition was based essentially on procedural issues. The Commission notes that the examination of these applications has been carried out in accordance with the CRTC Rules of Procedure (C.R.C., c. 375) currently in effect.
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Secretary General
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This decision is available in alternative format upon request, and may also be examined at the following Internet site: http://www.crtc.gc.ca
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Appendix to Broadcasting Decision CRTC 2003-205
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List of Quebec radio undertakings involved in this transaction
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Stations owned by Astral Media inc.
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- 5 Digital radio station CJRC Gatineau
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Stations owned by Telemedia Radio Inc. and for which control was transferred to Astral Media inc. under Decision CRTC 2002-90
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- 6 Digital radio station CKAC Montréal
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- 7 Radiomedia news network
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- 8 Réseau de hockey des Canadiens de Montréal
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- 9 Réseau de baseball des Expos de Montréal
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* Stations involved in the Consent Agreement between Astral Media inc., Telemedia Radio Inc. and the Commissioner of Competition.
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Date Modified: 2003-07-02
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