Not such an obvious decision- Prince Edward County loses out on a new Radio Service
The citizens of Prince Edward County were denied a radio licence on Friday. Most will not even note the loss having never really considered the impact of having a dedicated broadcasting outlet in the area while some will not consider the loss their own. It is just some outside company who wanted to profit from the area that has been shut out. There is even a small minority who will see it as a victory having spoken for years of their intent to form their own community radio service that they can control. The reality is that if you think beyond the headline the County, the system and even those who aspire to have their own station lost in this ruling.
The decision itself is rather short and hardly seems worthy in terms of its explanation when compared to the months of work and tens of thousands of dollars that must have went into the bid. I remember it being pretty hot during the weeks when those people were going door to door and standing on street corners asking for support. To arrive at its conclusions, the CRTC had to completely ignore its own policy and the precedent set in other decisions and dismiss without mention the widespread support this station had from every area in the County and from businesses, listeners and local organizations alike. Instead, the text seems to suggest that the petty and insufficiently informed intervention by Gary Mooney and the Concern Citizens Group reflects the input of the market. It also seems to confirm that the unsubstantiated claims by Belleville and even Napanee broadcasters are not self serving but rather objective views of what is best for Prince Edward County. A closer review makes one wonder at just what goes into these decisions and just how soundly based they really are.
Ignoring Precedent
In recent decisions, the CRTC has chosen to grant licences where a proposed new radio signal’s contours overlaps that of an existing radio station and where the advantage is that an underserved market gets its own voice in the broadcast system. In Commission speak, first service markets are given priority. Such was the case in 2006 when My Broadcasting headquartered in the Ottawa Valley was granted a license to operate in Napanee. The signal they proposed covered the Belleville market and part of Kingston. But as My Broadcast engineers explained when the Belleville broadcasters intervened, there was no choice. Industry Canada strongly encourages that existing tower facilities be used and the one best suited to transmit a service to the Napanee area meant the signal spilled out into neighbouring areas. With a commitment to provide local service including news coverage to Napanee, the applicants argued their service would not be of interest to people in larger centers like Kingston and Belleville. The Commission agreed and the licence for Napanee was granted.
This same argument was presented for Prince Edward County because the situation is similar. There is only one tower that can be used and only one configuration on the available frequency. My Broadcasting however, having made the successful argument four years earlier, now claimed in its intervention that it was not credible. What is truly ironic, is that My Broadcasting was granted a licence in 2010 to serve St. Thomas which is part of the London CMA using once again this very approach – serving part of a market does not constitute serving the whole market. Clearly to My Broadcasting, the argument is one of convenience and not conviction.
The Commission has a policy that either the contour of the 3 mV or the BBM area is the considered to be the market of a station, whichever is smaller. The 3 mV contour of the proposed station was smaller than the BBM definition so by its own policy, the CRTC cannot define the new service as being part of Belleville and therefore cannot compete with existing stations. The 3 mV of the proposed service is not on an equal competitive footing as the existing stations and would not be able to affect a significant impact in the home market of the Belleville stations.
The Commission has licensed services in Airdrie, Alberta which if you look at Statistics Canada, is part of the Calgary CMA. The aforementioned St. Thomas decision is another example and the list goes on. Interestingly, although the Commission rightly cites Prince Edward County as being part of the BBM Central Area (the audience measurement service for radio in Canada), the County is not associated with Belleville in any other governmental or organizational manner. Statistics Canada lists it as a separate entity unlike Trenton which is tied by population flow and industrial ties to Belleville.
To understand how Prince Edward County became annexed to Belleville in the BBM definitions you would have to understand something of the history of that organization. With very little digging I was able to find out how illegitimate the alignment of these two markets is. There was time in the late 70’s and early 80’s when BBM, a not for profit organization owned and operated by members largely broadcasters themselves, was trying to attract members. Although espousing strict adherence to StatsCan definition of markets for the purposes of audience measurement, BBM was open to having members apply to redefine their markets. The obvious incentive in broadening geographical borders was to increase the reported market size and therefore, make it onto advertising campaigns that used market size as criteria (which for the uninitiated represent the majority of advertising campaigns). Given the relatively few number of radio services, it actually seemed to make sense at that time. Neighbouring residents would most likely listen to the closest service and therefore, these stations should be given credit for audience.
Prince Edward County with no originating broadcaster and no voice in the process was an easy add on for the Belleville broadcasters. With zero impact on the residents by being included, even if the County had been consulted, there would have been no meaningful reason to oppose being lumped in as part of Belleville in those days. That is why the realignment of markets that started to take place in the late 80’s at BBM did not pick up the fact that this contiguous but distinct geography should not have been included in the Belleville Central Area definition. Had it been caught, the decision on Friday might have been significantly different.
The fact that the Belleville stations have been allowed to benefit from advertising dollars flowing out of Prince Edward County is not an argument for allowing the practice to continue. Especially when you consider their continued good fortunes come at the expense of a dedicated and local service that would be investing back into the community.
Health of the Market
In the late nineties or early in the second millenium, under pressure from existing broadcasters to provide some predictability to CRTC decisions, the Commission laid out the criteria by which it would judge the merits of an application. One of these was the health of the current radio advertising market. Health by CRTC terms has traditionally been expressed as PBIT or profits before interest, depreciation and taxes. This easily manipulated number became the standard by which a market’s ability to absorb a new service is determined. What is interesting about PBITs is they speak to the effectiveness of the broadcasting operations and accounting practices more than any overall economic health. That is why the lead economists in the country deal with facts such as population growth, retail sales, housing starts, gross domestic product and other less easy to manipulate numbers when speaking of a market health. This is not to say they ignore profitability of industrial sectors but rather recognize it as a number that can be easily altered using perfectly acceptable and GAAP authorized accounting adjustments.
In providing the criteria for approval, the CRTC wittingly or unwittingly, also provided the means by which broadcasters could effectively block new competition. If stations in a market were not wildly profitable, the CRTC could not introduce a new licence according to their own policies. A new era of accounting practices were born - enter the era of “pre- profit, profit taking” in the radio industry. If one looks at the financial summaries provided to the CRTC by broadcasters (summarizing the financial aspects of their operations in pre-prescribed categories) you can see that there has been a gradual increase in expenses as a percent of revenues in areas where in other industries you seen declines. For example, in the category of Administrative and General where technologies and systems have vastly improved functions like office management, accounting, supplies and even reduced rent through reducing the space needed there has generally be a reduction in costs. However, in radio, this expense category has stayed flat nationally or even gone up in some smaller and mid-sized markets as a percent of overall expenses. If one drills down into the line items (something the Commission is not inclined to do accepting audited statements as verifications of business practices) you actually see substantial payments on building leases (often owned by the owner of the station but separately held), payments to promotional companies that are owned by the owners (again separately held) and a whole variety of means by which owners take profits in GAAP approved ways. While what a private company does within legal limits should not be a matter of public debate, when the profitability of a company or industrial sector determines whether more competition can be tolerated or as in this case, if an underserved market will be allowed radio service, this should raise the scrutiny of these practices to a whole other level.
Interestingly, many radio industry insiders have tried to bring these creative profit taking practices to the CRTC’s attention in public forums such as hearings on new licenses and policy issues. The CRTC has steadily hid behind the fact that the financial summaries they receive are audited and they should not be put in a position of untangling complex financial statements. The late Charles Dalfen went so far as to state in a hearing in Edmonton in 2003 that the Commission should not even attempt to know if this is so giving a uniquely Canadian take on the phrase, “don’t ask, don’t tell”.
Through its policy, the CRTC has made what is for the most part, private financial statements part of a decision process and reasonably, one could expect that the staff who have access would undertake a more thorough examination of these. If they lack the skill set, perhaps instead of staffing up on legal advisors as they have since the appointment of the most recent Chair Person, they should add people with a background in accounting and economics who could actually inform their decisions. At the very least, they could examine economic factors that are not tied to operational expertise or easily manipulated when making their decision.
The fact is that the Belleville retail market has increased substantially in value in past four years. In 2006, the retail sales were $1.45 billion and in 2010, it had grown to $1.62, an increase of over 3 percent per annum almost twice the cost of living per year. In 2006, the per retail capita spend was 31% above the national average and in 2010, it was 33% above. This is particularly notable in light of the economic slowdown of 2007 and 2008. There has been an improvement in personal income from approximately $23,600 per capita to $27,551. The population has grown by almost 5000 people, an increase of 2.25%.
Ad sales are commonly known to be the principle determinant of retails sales. This relationship has been discussed at possibly every hearing for a new radio license in the past 15 years. Retail sales are dependent on population size, consumer confidence, and consumer earnings. As the data show, all of these continue to be very favourable in the market. How can one explain a less than successful performance by any or all of the Belleville stations? Perhaps the CRTC’s own definition of what constitutes market health is the problem. If an owner wishes to pay him or herself for services they provide a station through payments to secondary companies, salaries or pre tax bonuses there is nothing wrong with that. However, if it means that the profits of a market are artificially depressed by these actions, the Commission should either take a more rigorous approach to understanding the resulting financial statements or use more economically sound indicators for the assessment of the health of an area.
Specifically, the conditions in Prince Edward County have to be understood. As the applicant demonstrated there is a sufficient level of retails sales to support the moderate service they proposed. Importantly, the retail sales are growing and the market, in the words of its own organizations, is ready and eager to support a new station. When this is considered in combination with the health of the market in which the Belleville stations are allowed to operate, the concern over the impact on the existing services is not understandable. A typical radio stations has forty active clients at any point in time. There was interest expressed by over 140 local businesses. Who needs Belleville advertising dollars?
So why the denial?
On the surface it is hard to answer that question. One can only reasonably assume that the applicants did their homework and when you look at the success in business of the people involved, you would have to conclude they know their stuff. Debra McLaughlin has successfully run her own consulting practice in the broadcast sector for the past 15 plus years. She has helped expand the broadcast holdings of her clients, and has developed and launched new radio formats. As the former Director of Operations for an advertising sales operation and a former radio sales rep, you have to conclude she knows about revenue generation. Carmela Laurignano is an accomplished broadcaster who has overseen the expansion of the Evanov Radio Group from one to eleven stations in the past decade. She has helped develop new formats and new markets and has recently been announced as this year’s recipient of the Trailblazer of the Year award by the Canadian Women in Communication. Ellen Malcolmson ran the Customer Service Division of Bell Canada overseeing a 1.5 billion dollar enterprise. She clearly understands business and how to build successful operations. In combination, could they manage a single FM in Prince Edward County? I think so. If the Commission could have made a comment about the quality of the business plan, it seems likely they would have, given that they actually mentioned the fringe ramblings of Gary Mooney in their decision. Surely, if the concept was poorly conceived or poorly planned the CRTC would have trumpeted that.
So was it just that the Commission really didn’t do their homework and went the easiest route? What recourse does this applicant have in the system, but the already existing broadcasters could have raised a stink. Was it because as was discussed openly and feared by many in the County, the CRTC would never license women to run a station? In the Orillia hearing where this same ownership group applied, I heard from one of the applicants that other current radio operators and applicants in that process openly mocked the Triple A format put forward by this group as Menopause Radio and Music for Dykes. The mere thought that people who hold a broadcast license in Canada can publicly speak like this suggests that the need for more balanced representation in the system has never been more pressing.
It has long been the case that the CRTC has favoured large or existing broadcasters giving them the best frequencies or multiple licenses in markets where public sentiment is that they would like more variety in voices and diversity of ownership. So, was the Commission just staying its course of many years and keeping out new entrants? We will never know. The CRTC, an arms’ length government organization representing the public’s interest, does not have to offer any more fulsome explanation than the scant few paragraphs it issued last week to us, the real stakeholders in the system.
Without regard for the impact it has on Prince Edward County, what it means in terms of a possible future community service (there is only a few frequencies and the same tower issues will apply to the next applicant) or any investigation into the veracity of the claims that the market is served by the Belleville stations, the County’s opportunity to have a well run station, inclusive of all of the markets opinions and representing real investment in the area has been shut down. Whether this outside group was your choice or not, the impact of the Commission’s findings cannot be ignored. Existing broadcasters could just as easily block an attempt by local owners which despite the crowing of the Concerned Citizens at their apparent success, matters not in these decisions. My Broadcast’s acquisition march across Ontario where they neither have residences nor intend to move attests to this. It is professional management and not merely local that counts and this outside group at least offered that much.
The decision can hardly be seen as being in accordance with the tenets of the Broadcast Act and hardly in the public’s best interest. Konrad’s (Von Finckenstein – current Chair of the Commission) lack of interest in radio has long been openly discussed by those in the know in the broadcast industry and it is decisions like this that shows the lack of a hand at the wheel in Ottawa. Shameful decision, shameful abuse of the process by existing broadcasters. Best of luck to those women who tried to give this County its own voice. Sorry the system let you down.
