CHUM purchase approved CITY stations must be sold

GRANT ROBERTSON

 

Globe and Mail Update

 

June 8, 2007 at 12:27 PM EDT

 

Canada's broadcast regulator approved the $1.4-billion takeover of CHUM Ltd. by the owners of CTV Inc. Friday, but attached a key condition to the ruling — requiring that the network sell off five CITY-TV stations.

 

The Canadian Radio-television and Telecommunications Commission (CRTC) said it was concerned CTV would gain too much of the local TV market in several cities, and approved the deal, only on condition that the CITY-TV stations in Vancouver, Calgary, Edmonton, Winnipeg and Toronto are sold.

 

The decision will also lead to the collapse of a deal CTV struck in April to sell CHUM's other conventional network, A Channel, to Rogers Communications Inc. [RCI.B-T] That sale, worth $137.5-million, was based on the CHUM deal being approved with no major changes.

 

CTVglobemedia, the parent company of the CTV network and The Globe and Mail, bought CHUM last summer, acquiring 33 radio stations, 21 specialty cable channels — including MuchMusic and Bravo — and two conventional TV networks under the CITY-TV and A Channel banners.

 

The CHUM - City TV building in downtown Calgary will be one of the assets CTV will have to sell to comply with the conditions set out by the CRTC in its ruling Friday. (The Globe and Mail)

 

CTV will be allowed to keep the A Channel stations, which include one in Victoria and six in Ontario – in London, Ottawa, Barrie, Wingham, Wheatley and Pembroke.

 

The 21 specialty channels, which include some of the most profitable cable channels in Canada, were the plum of the deal, which CTV will add to its stable of 15 specialty networks, such as TSN, BNN, CTV Newsnet and Discovery Channel. Rising growth in digital cable subscribers in Canada has made specialty networks, which are allowed to charge per subscriber, sought-after assets in the industry.

 

However, CTV's other strategy in the CHUM deal was to build a second national network targeted at younger viewers, using the CITY-TV networks across the country.

 

Under CRTC rules, no network is allowed to own more than one station in any given market, unless a station is under financial duress and needs a bigger owner to survive.

 

“The purpose of this policy is to maintain diversity of voices within the Canadian broadcasting system,” said Konrad von Finckenstein, chairman of the CRTC.

 

“Some exceptions to the policy were granted in the past for failing stations in secondary markets. CTVgm asked for the exception using arguments based upon competitive equality and the impact of new media. However, the Commission was not convinced by CTVgm's arguments.”

 

CTV is allowed to acquire the seven A Channel stations in smaller markets, because the regulator considers them to be stations that would benefit from a stronger owner. The A Channel stations in Barrie and Victoria are carried in Toronto and Vancouver respectively, still giving CTV a second entry into those big markets along with two stations now in Ottawa, but they are smaller and less established than the CITY-TV stations.

 

In arguments to the CRTC, the network argued its main rival, CanWest Global Communications Corp.,  [CGS-T]has been granted concessions in the Vancouver and Toronto markets. CanWest's secondary network CH has stations in Victoria and Hamilton that are carried in those cities, where its Global stations already operate. CanWest was given that concession several years ago after it argued those stations were on the brink of shutting down.

 

Knowing that the regulator had concerns about CTV owning two stations in five markets, the network proposed last month to sell off CITY-TV stations in Winnipeg, Calgary and Edmonton, to ease the concerns about dominating local television markets.

 

However, CTV executives attached one key decision to their proposal, which was rejected. CTV wanted the CRTC to also halt the expansion of CanWest's CH network in Red Deer into Calgary and Edmonton. The station is currently carried as a distant signal — meaning it is further down the digital dial and can't solicit local advertisers in the bigger cities — however CanWest has applied for better placement in the channels.

 

CTV has argued that effectively gives its rivals two stations — known within the industry as “twin sticks” — in Alberta's two biggest cities, which are among the best advertising markets. The CRTC rejected CTV's proposal because it was made after hearings into the CHUM deal were held in late April.

 

In a separate decision issued Friday, the CRTC allowed the expansion of CH to put transmitters in Calgary and Edmonton for its Red Deer station. Adding transmitters in the two nearby markets is different than owning a local station in each city, the regulator said. CH Red Deer is struggling financially and allowing it a higher profile on the TV dial in Calgary and Edmonton would keep it from being threatened as a local broadcaster, the CRTC believes. However, CH won't be allowed to solicit advertisers in the bigger cities.

 

“Given the strong health of the Calgary and Edmonton television markets, the Commission considers that these markets could sustain further competition from the addition of new transmitters of the signal of [CH Red Deer] without undue negative impact on incumbent services,” the CRTC said.

 

For the past year, the CHUM assets have been held by a trustee awaiting the CRTC decision. The trustee, lawyer John McKellar, will now be in charge of finding a buyer for the CITY-TV stations.

 

The trustee must submit a plan for the sale of the CITY-TV stations in the next 30 days.

 

While executives at Rogers have told The Globe and Mail they have no deal to buy the CITY-TV stations instead of the A Channels, Rogers is considered the favoured buyer for those assets, given that a deal must be done in the next few weeks.

 

Other names have been mentioned as potential buyers, including The Jim Pattison Group and Quebecor Inc.,  [QBR.A-T]however sources have said Rogers has already entertained the idea of buying the CITY-TV stations.