Broadcasting Decision CRTC 2016-353

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Reference: 2016-191

Ottawa, 31 August 2016

Canadian Broadcasting Corporation

Across Canada

Application 2016-0257-4, received 3 March 2016

Radio 2 and ICI Musique - Licence amendments

The Commission denies an application by the Canadian Broadcasting Corporation to amend the broadcasting licences for the Radio 2 and ICI Musique radio networks and stations to allow those services to continue to broadcast paid national advertising until 31 August 2018. The authority to broadcast such advertising on those services will therefore expire 31 August 2016, the current expiry date.

Background

In Broadcasting Decision 2013-263 In that decision, the Commission determined that authorizing the CBC to broadcast a limited amount of paid national advertising on Radio 2 and Espace Musique would assist the broadcaster in maintaining the services’ distinct nature and the high quality of their programming, particularly in light of reductions in parliamentary appropriations. Accordingly, the Commission imposed a condition of licence authorizing the services to broadcast a limited amount of paid national advertising, with a maximum number of interruptions for advertising per clock hour. This condition of licence, the most recent version of which is set out in Broadcasting Decision 2014-135 reads as follows: 11. The licensee shall not broadcast any advertising (category 5) except: paid national advertising; during programs that are available only on a sponsored basis; or as required to fulfill the requirements of the legislation of the Parliament of Canada pertaining to elections.

For the purposes of this condition, the licensee may not broadcast more than four minutes of paid national advertising in any clock hour.

Music programming may not be interrupted more than twice during any clock hour for paid national advertising. For the purposes of this condition, the mention of a sponsor’s name or the inclusion of a promotion that includes the name of a sponsor shall not qualify as an interruption of the music programming.

Given the considerable opposition from listeners and broadcasting industry representatives and given that the introduction of paid national advertising on the services would mark a significant change, the effects of which would be difficult to anticipate, the Commission authorized the broadcast of paid national advertising only until 31 August 2016, a period of three years. Following that date, they would only be authorized to broadcast advertising as identified in conditions of licence 11.b) and c) above. In Broadcasting Decision 2013-263

Application

The CBC filed an application to amend the broadcasting licences for the Radio 2 and ICI Musique radio networks and stations in order to extend until 31 August 2018 the period during which they are authorized to broadcast paid national advertising. In its application, the licensee provided evidence to demonstrate that each of the Commission’s four criteria had been satisfied: Impact on advertising markets - Advertising revenues for Radio 2 and ICI Musique were far below projections, representing less than 1% of total advertising revenues for commercial radio in 2014 and 2015. Growth in revenues from paid national advertising for the services was less than 5% in 2014 and was expected to be flat in 2015. In the CBC’s view, the level of advertising revenues for the services cannot be construed as having an undue negative effect on the advertising markets for commercial radio.

Advertising not disruptive to listeners - Some listener complaints were received when advertising was introduced, but were addressed by the CBC’s internal procedures; no listeners have complained to the Commission. Further, both Radio 2 and ICI Musique continue to receive very high approval ratings in the licensee’s surveys, and the introduction of advertising on the services has not had a negative impact on audience share. As such, the three ways in which listeners might indicate dissatisfaction - complaints, quality of service surveys and ratings - provided nothing to suggest that the introduction of advertising on the services has been unduly disruptive to listeners.

Investment in radio maintained - Due to reductions in parliamentary appropriations, it was not possible to maintain funding for Radio 2 and ICI Musique at previous levels. This resulted in decreases for both programming and production costs for the services, which were in line with cuts for other services. However, in the context of the CBC’s overall activities, funding for Radio 2 and ICI Musique has remained strong.

Variety and diversity of service - Programming schedules provided for the two services show that they continue to be unique in their respective languages, offering a variety of music not available on any other conventional radio service. Both services have significantly exceeded the imposed thresholds for the broadcast of distinct musical selections, namely 2,800 per broadcast month for Radio 2 and 3,000 per broadcast month for ICI Musique. The CBC stated that while the revenues it received from the broadcast of paid national advertising were below its projections, it needs the incremental revenues that the broadcast of such advertising provides given that its new parliamentary appropriations ($75 million for the 2016-2017 fiscal year and $150 million for each of the 2017-2018 through 2020-2021 fiscal years) will only cover about two thirds of its annual budget. The CBC added that the inclusion of advertising on the two radio services has helped it to win national advertising contracts and stated that it wished to continue being able to offer advertisers a complete suite of platforms for advertising, including radio. In the licensee’s view, losing the ability to sell advertising on the radio platform would mean that the attractiveness of its advertising offer would decrease on all platforms and would have a detrimental effect on its overall ability to generate advertising revenues.

Interventions

The Commission received interventions from other broadcasters, industry associations, advertising agencies and individuals. The public record for this application can be found on the Commission’s website at www.crtc.gc.ca or by using the application number provided above. Certain interveners that opposed the application submitted that given the federal government’s new funding commitments to the CBC, the original premise and rationale for authorizing the broadcast of advertising on Radio 2 and ICI Musique is no longer valid. They argued that both services will benefit sufficiently from the new funding to adequately fulfill their mandate without having to broadcast advertising. Some considered that the CBC, as a public broadcaster, should not compete with commercial interests. Durham Radio Inc., for example, submitted that approval of the application would result in further revenue reductions for Canadian private radio. Others, including Quebecor Media Inc., suggested that changes to the character of the services brought on by the introduction of advertising would make the services more competitive with private radio stations. The National Campus and Community Radio Association stated that national advertising is an important source of revenue for many community and campus stations. Other interveners opposing the application claimed that the broadcast of advertising on Radio 2 and ICI Musique is disruptive to the listening experience. Advertising agencies supported the CBC’s request, noting that listeners to the two services perfectly fit their niche market. Certain individuals considered the broadcast of advertising to be acceptable if the revenues generated ensure the survival of CBC radio and prevent programming cutbacks.

Licensee’s reply

The CBC submitted that it must maximize all revenue sources, including radio advertising, given that the new parliamentary appropriations will only cover about two thirds of its total annual budget for the 2016-2017 and 2017-2018 broadcast years. The licensee stated that due to the continued revenue decline for the television advertising market caused by money being shifted to the Internet and other media, it cannot count on maintained revenues from that market. It submitted that the radio advertising market, on the other hand, which has been and is predicted to continue to be relatively stable, may provide a means to maintain or possibly increase its advertising revenues. The CBC added that approval of additional government funding was subject to the use of funds “to counter existing financial pressures as well as strengthen the [CBC’s] transformation into the digital public space by reinvesting in new content and programming and allowing for enhanced services.” The CBC rejected any suggestion that the character of the services has changed to make them more commercial and, as a result, more competitive with private radio stations. It noted that Radio 2 and ICI Musique are subject to conditions of licence that ensure their programming is different from that of other radio stations. The licensee added that advertising revenues generated by its two services have not had, nor will have, a material impact on the commercial radio sector, which it stated is doing reasonably well.

Commission’s analysis

The Commission has examined the application in light of applicable regulations and policies. It also considered the evidence provided by the CBC in relation to the criteria set out in Broadcasting Decision 2013-263 Given the positive growth of national advertising revenues for Canadian commercial radio from 2014 to 2015, along with the small percentage of the national advertising revenues garnered by Radio 2 and ICI Musique for those years, the Commission does not find that the broadcast of paid national advertising on the services has had an undue negative impact on the advertising markets. Further, given the very limited number of complaints regarding the broadcast of paid national advertising on the services (only one of which came before the Commission and was dismissed), an improved perception of programming quality for the services, an increase in the services’ share of listeners since the introduction of paid national advertising and the licensee’s compliance with requirements relating to the frequency and length of broadcast of such advertisements, the Commission is satisfied that the broadcast of paid national advertising on the services has not been unduly disruptive to listeners. Moreover, based on an examination of the March 2014, 2015 and 2016 music lists provided by the licensee for the services and of their programming schedules for 2012 and 2015, the Commission finds that the licensee has complied with the condition of licence requiring that each service broadcast a minimum number of distinct musical selections. It considers that Radio 2 and ICI Musique continue to offer a wide range of music and diverse programming not available on any other conventional radio services. As such, the Commission is satisfied that the variety and diversity of service provided by each service have not been diminished. However, based on its examination of the evidence filed by the CBC, the Commission has concerns over whether the licensee has maintained its level of investment in radio in light of revenues received from paid national advertising on Radio 2 and ICI Musique and whether continued authorization to broadcast such advertising is therefore warranted. Following the authorization to carry paid national advertising on the services, the CBC’s investments in radio have continued to decline, with total operating expenses decreasing from $283 million in the 2012-2013 broadcast year to $261 million in the 2014-2015 broadcast year. When it first requested authorization to broadcast paid national advertising on Radio 2 and ICI Musique, the CBC stated that the revenues garnered through the broadcast of paid national advertising were needed to offset decreases in parliamentary appropriations and the effects such decreases would have on the quality of service offered and on the contributions the services make to fulfilling the mandate of the CBC. It added that it would not shut down the services should its application be denied. However, the services’ 2014 and 2015 revenues from the broadcast of such advertising were significantly below what the licensee had projected. The burden of proof was on the CBC to justify that it had maintained its investment in radio following the Commission’s decision to authorize the broadcast of paid national advertising on Radio 2 and ICI Musique until 31 August 2016. However, the Commission finds that based on the evidence provided, the CBC has not satisfied the criterion set out above with regard to maintaining its investment in radio. The flexibility to broadcast paid national advertising was granted to help the CBC mitigate the effects of reductions in its parliamentary appropriations and to help it sustain investments in radio. Given the declines in operating expenses relating to production and programming, the Commission cannot conclude that the CBC has maintained its investment in radio. Further, given the federal government’s commitment to increase funding over the next five years, the Commission finds that the distinct nature and high quality of the services’ programming can be preserved and their respective mandates fulfilled without the need for revenues from the broadcast of paid national advertising.

Conclusion

In light of the above, the Commission denies the application by the Canadian Broadcasting Corporation to amend the broadcasting licences for the Radio 2 and ICI Musique radio networks and stations to authorize them to broadcast paid national advertising until 31 August 2018. The authority to broadcast such advertising on those services will therefore expire 31 August 2016.

Secretary General

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