Public benefits linked to valuation of stations

Under the Canadian Radio-television and Telecommuni ­cations Commission's policy, CTVglobemedia Inc. is required to provide public "benefits" in return for its proposed $1.7-billion takeover of CHUM's 33 radio stations, 12 television stations, and 21 specialty TV channels. However, those benefits won't be quite so high if CTVgm persuades the CRTC not to include the value of CHUM's $270-million debt in the purchase price.

CRTC spokesperson Denis Carmel told the Straight that these benefits should equal six percent of the value of radio-station purchases and 10 percent of the value of television-asset purchases, and should be paid out over the term of the licence. Carmel said that in the past, benefits have included endowments to postsecondary institutions, opening foreign news bureaus, funding aboriginal programming, and developing and broadcasting more Canadian programs in prime time. CTVgm has claimed that the $230-million benefits package in 2000 that followed BCE Inc.'s purchase of CTV led to the creation of the hit series Corner Gas.

As part of the regulatory process, CTVgm hired Merrill Lynch Canada to calculate the value of the assets. CHUM's radio stations were deemed to be worth $450 million, which resulted in CTVgm's proposal for $27 million in "radio benefits".

Half of this would be transferred to the Radio Starmaker Fund; another $8.9 million of the radio benefits would go to the nonprofit organization FACTOR, which assists the Canadian recording industry; and $1 million would be put toward Aboriginal Voices Radio.

Merrill Lynch assessed the five Citytv stations and specialty services at $765 million, which resulted in CTVgm proposing another $76.5 million in "television benefits". As part of this, CTVgm has promised $65 million in new development and production funding, and $11.5 million in "social benefits".

Included within that package, $30.75 million would go to scripted drama and limited series, which would appeal to audiences of Citytv, MuchMusic, Bravo!, and Space; $10 million would go into dramatic feature films and documentaries about music; $6 million would be allocated to fund high-end performing-arts and visual-arts documentaries; and $2.5 million would finance drama development at the Aboriginal Peoples Television Network.

CTVgm has retained TD Securities to sell smaller-market television stations, an education station, Canadian Learning Television, and SexTV, which were collectively valued at $150 million. CTVgm has claimed that it doesn't need to pay any benefits related to these assets because the assets will be divested. If the CRTC allows this, CTVgm will not be required to pay an extra $15 million in benefits.

In addition–in a January 29 document responding to CRTC questions–CTVgm cited a 1999 CRTC decision to justify not including CHUM's $270 million in debt in its calculation of benefits. However, CTVgm acknowledged that recent CRTC decisions have stated that "long-term debt will generally be included in the value of the transaction." If the CRTC accepts CTVgm's proposal, the corporation will save more than $20 million, because most of this debt arose out of the purchase of CKVU-TV in 2001, and Craig Media in 2004.

"If the Craig/CKVU acquisition debt is included in the value of the CTV-CHUM transaction, it would serve as a disincentive to future Canadian broadcasting transactions, as the inclusion of this debt would be viewed by the investment community and potential buyers as akin to a form of double taxation," CTVgm claimed in the same document.

CTVgm has so far refused to provide individualized valuations for each TV station, even though the CRTC typically requires this. Merrill Lynch also didn't provide any value for digital radio, CHUM's two yet-to-be-launched specialty channels, and the unlaunched CHUM/Astral terrestrial subscription radio broadcasting service, which meant no benefits have been proposed for these purchases.

In addition, Merrill Lynch used a lower "multiple" for assessing the value of Citytv stations than in appraising other conventional stations. CTVgm justified this by claiming that Citytv stations have generated lower earnings.

Peter Murdoch, vice president of media for the Communications, Energy & Paperworkers Union of Canada, told the Straight that he's not satisfied with the level of detail provided. "There is very, very slim information in CTV's application other than to simply say 'Trust us,'" he claimed.

Two intervenors in the CHUM takeover, Toronto resident Mark Surman and Montreal resident Christine Prefontaine, have claimed that CTVgm's application does nothing for "young basement filmmakers, budding DJs, and web mashup artists who are the future of Canadian media".

They recommended that at least 25 percent of CTVgm's public-benefits package go to an "independent Canadian Media Foundation", which would "provide micro-grants, mentoring and distribution support to young Canadians producing socially engaged media".

"Created in 1998 as an outcome of the SBC/PacTel merger, the California Community Technology Foundation provides a successful example of this model," they wrote.