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Broadcasting
Decision CRTC 2006-562
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Ottawa, 28
September 2006 |
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Kesitah Inc.
Winnipeg, Manitoba |
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Application 2006-0469-6
Broadcasting Public Notice CRTC 2006-63
19 May 2006 |
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CFEQ-FM Winnipeg –
Licence amendment
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Kesitah Inc. filed an application
requesting that the Commission delete a condition of its licence which
requires that a minimum of 95% of all musical selections broadcast
during each broadcast week be devoted to selections drawn from
subcategory 35 - non-classic religious music. As an alternative to this
preferred option, the applicant stated that it would be prepared to
adhere to an amended condition of licence that would require it to
ensure that a minimum level of 31% of all musical selections broadcast
during the broadcast week be from subcategory 35. |
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The Commission denies the
application by Kesitah Inc. for a licence amendment, both that presented
by the licensee as its preference and that it advanced as an alternative
to that option. |
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Background
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1. |
In Application for a youth-oriented
Christian FM station to serve Winnipeg, Broadcasting Decision
CRTC 2002-226, 8 August 2002
(Decision 2002-226), the Commission
awarded HIS Broadcasting Inc., subsequently renamed Kesitah Inc. (Kesitah),
a specialty FM licence1
to operate a Christian music station targeted to Winnipeg area youth
between the ages of 12 and 24 years. The application was one of five
proposals for new Winnipeg FM stations approved by the Commission
that day, following a competitive radio hearing held in Winnipeg on
4 February 2002. |
2. |
In its other decisions, the Commission
approved an application by Global Communications Limited (Global) for a
specialty FM licence to operate a commercial station offering a smooth
jazz format. It also approved, in part, an application by Rogers
Broadcasting Limited (Rogers) to convert its existing Winnipeg AM
station CKY to an FM station that would offer a classic rock hits
format.2 Further, the
Commission approved an application by CKVN Radiolink Systems Inc. (Radiolink)
for a specialty FM licence to operate a station offering a nostalgia
format featuring adult standards and easy listening music from the 1920s
to the 1970s. The Commission’s fifth approval was of an application by
Red River College Radio, on behalf of an organization to be incorporated
(Red River), to operate a new instructional campus FM station in
Winnipeg.
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3. |
These decisions were accompanied by
Introductory statement to Decisions CRTC 2002-224
to 2002-228; Applications for
new radio stations to serve Winnipeg, Broadcasting Public Notice
CRTC 2002-41, 8 August
2002 (Public Notice 2002-41).
In Public Notice 2002-41,
the Commission stated its determination that the Winnipeg market was
able to sustain the operation of additional radio services. At the
same time, the Commission noted that the advertising revenue growth
and the average profitability of Winnipeg’s eleven existing commercial
radio stations were then below the national averages for the commercial
radio industry. Specifically, the Commission noted that average radio
advertising revenues for Winnipeg radio stations had grown by only
4% in 2001, and by 2% in 2002. It added that, while the average profit
before interest and taxes (PBIT) margin for Winnipeg radio stations
had grown consistently since 1996, the level of 12% obtained in 2001
was below the Canadian average PBIT margin of 16%. |
4. |
The Commission emphasized that, taking
these factors into account, the approach it had chosen to take in its
decisions was to license new stations that were "not likely to compete
directly with existing commercial stations owned by other licensees."
The Commission noted, for example, that the smooth jazz format in which
Global’s specialty FM station was to operate would not compete directly
with the format used by any existing commercial Winnipeg station. The
Commission observed that the same was true of the nostalgia format
proposed by Radiolink for its specialty FM station. In discussing
Rogers’ conversion of CKY to the FM band, the Commission considered that
the classic rock hits format proposed for the station (now CKY-FM)
"would likely have the greatest impact on Rogers’ other FM station CITI-FM,
which offers a classic rock format." In the case of Red River’s new
instructional campus FM station, the Commission cited the station’s
not-for-profit status, the fact that it would operate with an effective
radiated power (ERP) of only 201 watts, and the applicant’s very low
advertising revenue projections, as factors that would minimize any
impact the station might have on Winnipeg’s existing commercial
stations.
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5. |
As for Kesitah’s specialty FM station, the
Commission acknowledged in Public Notice 2002-41
that Winnipeg listeners already had access to a Christian music station
in the form of CHVN-FM, but pointed to the fact that the programming
of the new station would target a much younger audience than that
of CHVN-FM. The Commission indicated that it had also taken into consideration
that the licensee of CHVN-FM, based on Kesitah’s plans to direct its
programming to a younger audience and to operate at an ERP of less
than 1,000 watts, had submitted a letter expressing full support for
the proposal. |
6. |
In Decision 2002-226,
the Commission noted Kesitah’s modest audience and revenue projections,
and the statement by the applicant’s controlling shareholder, Mr.
Tom Hiebert, that he and his wife would cover any financial shortfalls
in the station’s operations. It therefore expressed itself as satisfied
that the station proposed by Kesitah: |
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…would not have a negative impact on Winnipeg radio stations that
program mainstream pop rock and dance music. The Commission further
notes that the format proposed… will target a younger audience than
Winnipeg’s existing Christian station CHVN-FM. In light of this
fact, and the letter of support for the… application submitted by
the president of CHVN-FM, the Commission is satisfied that the
station… would not have a significant negative financial impact on
CHVN-FM.
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7. |
In the circumstances, consistent with the
Commission’s determination not to permit the introduction of new
stations that were likely to compete directly with existing commercial
stations, the Commission concluded that it was appropriate to impose, as
conditions of licence, the applicant’s commitments: |
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… to operate the proposed
station in the specialty format, ensure that at least 95% of the
musical selections played each broadcast week are drawn from
subcategory 35 - non-classic religious, and to broadcast no more
than 35% hit material in any broadcast week.
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The present
application and the applicant’s rationale
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8. |
In its present application, Kesitah has
requested that the Commission amend the broadcasting licence for CFEQ-FM
Winnipeg by deleting the existing condition of licence requiring that a
minimum of 95% of all musical selections broadcast during each broadcast
week be devoted to selections drawn from subcategory 35 - non-classic
religious music. As an alternative to this preferred option, the
applicant stated that it would be prepared to adhere to an amended
condition of licence that would require it to ensure that a minimum
level of 31% of all musical selections broadcast during the broadcast
week be from subcategory 35. |
9. |
In its application, Kesitah argued that an
increase in CFEQ-FM’s local advertising revenues was essential to the
station’s viability. It stated that its ability to generate local
advertising revenue had consistently fallen short of the projections
contained in its 2002 application. According to Kesitah, its problems
stem from the reluctance of mainstream Winnipeg advertisers to buy CFEQ-FM
because of its label as a "religious" or "Christian" station. It noted a
similar reluctance on the part of traditional Christian advertisers to
buy CFEQ-FM, and attributed this to CFEQ-FM’s non-traditional
programming style and the station’s "liberal-ness". The licensee
suggested that its inability to attract Christian advertisers has been
exacerbated by the ready access such advertisers have to airtime
purchased on Winnipeg’s other Christian station, the adult-oriented CHVN-FM.
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10. |
According to the licensee, the Christian
label attached to CFEQ-FM has left it unable to attract either bank
financing or equity financing to help relieve its financial
difficulties. As well, Kesitah claimed that its label as a "Christian
station" has limited its ability to attract a larger, more broadly-based
audience among Winnipeg’s youth. The licensee attributed this to
"misconceptions of what a Christian station can be," and suggested that
the small size of its audience, particularly among what it termed the
"secular" youth demographic, was a major factor in CFEQ-FM’s inability
to attract local mainstream advertisers to the station. |
11. |
The elimination of its subcategory 35 music
condition of licence or, in the alternative, a reduction in the current
weekly level of subcategory 35 music it must program as a Specialty FM
licensee would, in Kesitah’s words, "...take away the ‘Christian
station’ stereotype problem." The licensee suggested that approval of
either of these proposed amendments would allow CFEQ-FM the flexibility
to transform its music format into one that would sound more like that
of a mainstream "secular" youth-oriented modern/alternative rock
station, attract a larger and more broadly-based audience among youth,
and garner sufficient local revenues to make it competitive in the
market. |
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Interventions
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12. |
Approximately 380 interventions were filed
in relation to Kesitah’s application, and almost 98% of them were in
support of its approval. With few exceptions, these supporting
interventions were form letters expressing dissatisfaction with the fact
that the Winnipeg market has no modern/alternative rock radio station.
The text of these form letters suggested that, while Kesatah was
attempting to fill that void, it should be relieved of its condition of
licence so that it might respond fully to meeting the need for a
conventional FM station in the modern/alternative rock format.
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13. |
One intervener expressed a willingness to
support a reduction, to a minimum required level of 31%, in the amount
of weekly musical selections from subcategory 35, provided there could
be a guarantee that Kesatah would actually air that amount of Christian
music. The intervener suggested that CFEQ-FM does not currently
broadcast even that minimum amount of category 35 music, and expressed
concern that, if the deletion of the current condition of licence
pertaining to category 35 music was approved, the station would likely
cease to broadcast any Christian music. |
14. |
There were six opposing interventions
filed. Four were submitted by individuals whose general position was
that CFEQ-FM should be required to maintain its original commitment to
broadcast Christian music. Each of these individuals expressed the
opinion that, in recent years, CFEQ-FM has substantially decreased the
amount of Christian music it broadcasts in favour of mainstream modern
rock music.
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15. |
The two other opposing interventions
included one by CHUM Limited (CHUM) and a joint submission by Rogers
Broadcasting Limited and Standard Radio Inc. (Rogers/Standard). The
joint Rogers/Standard intervention focussed on three principal concerns,
namely the impact of approval on the increasingly competitive state of
the Winnipeg radio market, Kesitah’s alleged non-compliance with its
existing condition of licence, and the implications of the application’s
approval on the integrity of the Commission’s licensing process.
According to Rogers/Standard, such approval would "establish an
inappropriate precedent" for Specialty FM licensees wishing to amend
their licences in order to improve their competitive performance against
conventional FM stations in a market. CHUM, in its intervention, also
expressed concern about the effect that approval of Kesitah’s
application could have on existing commercial radio stations, given the
tight and increasingly competitive Winnipeg radio market, and addressed
the importance of maintaining the integrity of the Commission’s
competitive licensing process in the light of Kesitah’s alleged
non-compliance. |
16. |
Rogers/Standard noted that, just as at the
time CFEQ-FM was licensed in 2002, the average PBIT margin of Winnipeg’s
commercial radio stations in 2005 continued to rest well below the
national average (13.5% as compared to the national figure of 20.9% for
that year). Rogers/Standard also claimed that the Winnipeg market had
become more competitive as a consequence of the Commission’s approval
last year of an application by Newcap Inc. to acquire effective control
of Radiolink, licensee of the Specialty FM station CHNR-FM.3
According to Rogers/Standard, shortly following that decision,
the station abandoned its nostalgia format for one that offers 60%
category 2 Triple A (Adult Album Alternative) music and 40% category 2
Blues music. |
17. |
Both Rogers/Standard and CHUM argued that
CHNR-FM’s format changes have lent the station a much more mainstream
sound than it had when operating in the nostalgia format, and that the
changes have essentially introduced a new entity to the Winnipeg radio
market and an element of competition among its commercial stations of a
magnitude not contemplated by the Commission at the time its licensed
the six new Winnipeg FM stations in 2002.
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Licensee’s
response
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18. |
In responding to the allegations presented
in the opposing interventions that Kesitah was broadcasting less than
the required weekly level of subcategory 35 musical selections, the
applicant argued that the definition of subcategory 35 - non-classic
religious music was open to a much broader interpretation than had been
suggested by the interveners. According to the licensee, its
interpretation of the definition is the correct interpretation, and that
CFEQ-FM has therefore operated, and continues to operate, in compliance
with its condition of licence. In addressing the views of those
individuals whose interventions called for retention of the existing
condition of licence, Kesitah reiterated that its experience has
demonstrated that the potential audience among Winnipeg radio listeners
for category 35 - non-classic religious music, particularly if that
category was to be defined as tightly as the interveners appeared to
wish, was too limited to sustain or justify a radio station dedicated to
its broadcast, and that approval of the present application to delete or
amend the existing condition of licence is essential if CFEQ-FM is to
remain in operation as a viable entity. |
19. |
Regarding the concerns expressed by
Rogers/Standard and CHUM about the competitiveness of the Winnipeg radio
market, Kesitah’s response was that its original licensing decision does
not preclude it from competing with, or from being given the opportunity
to compete with, existing Winnipeg commercial stations. It suggested
that the "biggest competitive concern the Commission had" when
considering the licensing of Kesitah’s proposed station was to ensure
that the proposed station "did not impact CKVN-FM."
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Commission’s analysis
and determinations
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20. |
The licensee suggested in its reply to
interventions that the Commission’s greatest concern in considering
Kesitah’s 2002 application for a Specialty FM licence was to ensure
the proposed station would not have a negative impact on the incumbent
Christian station CKVN-FM. In fact, as the Commission made abundantly
clear in Decision 2002-226, in
each of its other licensing decisions of 8 August 2002, and in Public
Notice 2002-42 accompanying
those decisions, its preoccupation at the time was to make certain
that neither Kesitah’s proposed station, nor any of the other four
new Winnipeg FM stations approved on that date, were likely to compete
directly with existing commercial radio stations serving that community.
Underlying the approach taken by the Commission in those licensing
decisions were its concerns for the underperformance of the Winnipeg
radio market relative to the revenue earnings and profitability of
radio stations on a national basis. |
21. |
In the Commission’s view, based on its 2005
Winnipeg radio market analysis, that market continues to underperform
and the Commission’s concerns continue to be justified. In this regard,
the Commission is not unmindful of the competitive influence on the
market brought about by changes to the format of CHNR-FM introduced by
the new owners of that station earlier this year, and the much more
conventional, mainstream sound these changes have given that station.
The fact remains, however, that CHNR-FM continues to operate in
compliance with its conditions of licence, one of which requires that it
operate within the Specialty format, and another requiring it to ensure
that no more than 60% of all musical selections broadcast during each
broadcast week are selections drawn from category 2 – popular music. |
22. |
The Commission notes that Kesitah’s
application requesting deletion of the condition of licence requiring
that it provide a minimum amount of subcategory 35 - non-classic
religious music was filed in CFEQ-FM’s first licence term, during only
its third year of operation, and following a very competitive public
hearing process. With approval of that application, CFEQ-FM would cease
to operate in the Specialty format and, instead, would have the same
format flexibility as that now available to the seven commercial FM
stations in Winnipeg now licensed to broadcast 70% or more of all
musical selections from category 2.
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23. |
Even were the Commission to approve the
alternative proposed by the licensee, i.e., that its condition of
licence be amended to require that a minimum level of 31% of all musical
selections broadcast during the broadcast week be from subcategory 35
(instead of the 95% minimum level currently required), the Commission
has little doubt that CFEQ-FM would program Category 2 music to a weekly
maximum of 69%, providing Kesitah with almost the same programming
flexibility it would have under its preferred option to transform CFEQ-FM’s
overall sound into that of a mainstream popular music station, away from
the niche Christian music service originally proposed by Kesitah and
approved by the Commission in 2002. |
24. |
Although aware that this Specialty FM
licensee’s financial performance has fallen short of the projections set
out in its 2002 business plan, the Commission does not consider this to
be sufficient grounds for approval of the application to change CFEQ-FM’s
status from that of a Specialty to a conventional FM station. In the
Commission’s view, to approve that request, or to approve Kesitah’s
alternative proposal for an amendment to its existing condition of
licence, would be to award the licensee entry to Winnipeg’s mainstream
commercial radio market through the back door. Such approval would
constitute an inappropriate precedent and undermine the integrity of the
Commission’s competitive licensing process. In the circumstances, the
Commission considers that, should Kesitah wish to be licensed to compete
as a conventional FM radio licensee in the Winnipeg market, it should
submit an application for the Commission’s consideration under a
competitive licensing process, and file for revocation of its current
Specialty FM licence.
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25. |
In the light of all of the above, the
Commission denies the application by Kesitah Inc. for a licence
amendment, both that presented as its preference and that advanced as an
alternative to that option. |
26. |
With respect to the statements by
interveners and the licensee as to CFEQ-FM’s ongoing compliance with its
condition of licence requiring that 95% of all musical selections
broadcast during each broadcast week be devoted to selections drawn from
subcategory 35 - non-classic religious music, the Commission notes that
it has advised Kesitah that this matter would be examined by the
Commission at the time it considers the application for renewal of the
CFEQ-FM licence, which expires 31 August 2009. |
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Secretary General |
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This decision is available in alternative
format upon request, and may also be examined in PDF
format or in HTML at the following Internet site: http://www.crtc.gc.ca
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Footnotes:
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