Montreal: Two of the most contentious issues raised at last week’s CRTC hearings into Quebecor’s acquisition of Groupe Videotron and subsidiary Groupe TVA were the real cost of Quebecor’s purchase of TVA and the associated benefits package, along with the ongoing delay in selling off the Television Quatre Saisons network.

The benefits package is tied directly to the acquisition price, a hot and complex issue the CRTC is obliged to sort out, while Quebecor has been ordered by the Competition Bureau to sell off TQS. The hearings were also called to examine the renewal of TVA’s broadcast licence.

After extending a lighthearted welcome to Quebecor president and CEO Pierre Karl Peladeau, making his first appearance in front of the commission, CRTC vice-chair Andree Wylie, who chaired the proceedings, got right down to business. She pointedly asked Peladeau, ‘What is the acceptable acquisition price [of TVA] for the purposes of the CRTC?’

Wylie cited significant differences in technical studies commissioned by the CRTC and Quebecor in evaluating the price of TVA’s regulated assets, and asked how Quebecor might respond if the commission decides Quebecor’s $30-million benefits package is ‘not proportional’ to the broadcaster’s perceived market value.

Wylie also expressed real concern about, if not outright opposition to, Quebecor’s proposal to place TQS under trusteeship if a satisfactory sales price is not forthcoming. The vice-chair told Peladeau that trustee status is ‘not an ideal solution for the CRTC,’ hinting only minutes later the commission could withhold approbation of Quebecor’s acquisition of TVA until the TQS sale is settled.

Trusteeship may have different implications for different players, but producers in Quebec recently complained TQS is not open for business or interested in any significant new program acquisitions while the future of the network’s ownership remains in limbo.

Certainly, Quebecor doesn’t want its attempt to take over TVA tied to a forced sale of TQS. ‘It would be most unfortunate if it were to come to this,’ says Luc Lavoie, executive VP, corporate affairs, Quebecor.

Fair market value

An Ernst & Young report, prepared for Quebecor, says ‘the fair market value of the regulated activities of TVA’ is $660 million, which, discounted against Quebecor’s acquisition of 36.1% of TVA’s equity, produces a value of $238 million. Another report, prepared for the CRTC by Universite de Laval professor Jean-Marc Suret, says the fair market value for Quebecor’s share in TVA is $270 million.

The more significant difference, per Suret, is the cost of the ‘premium’ paid by Quebecor for control of almost 100% of TVA’s voting shares. This, according to the professor, increases the value of the transaction to $613.7 million, which translates into a tangible benefits package of $62 million, more than double the $30 million offered by Quebecor.

Both reports say the total value of TVA is just over $1 billion.

Production issues

In its submission to the CRTC, the APFTQ asked whether the proposed production benefits ($20.5 million for indie production and $3 million for development over a seven-year licence term, or an average of $3.4 million a year) would be invested in the form of licence fees and/or equity investments over and above established funding minimums.

The producers propose all the benefits go to independent production since the same benefits will be used to top up TVA licences and increase its share of public funding from Telefilm Canada and the Canadian Television Fund.

TVA spent $16.1 million on indie production in ’99 and $19.7 in 2000, but projects spending was only $16 million this year. The producers and others, including Union des Artistes and the Directors Guild of Canada, point out the cumulative seven-year reduction in indie program commitments by TVA effectively exceeds Quebecor’s proposed benefits package.

To ensure the benefit is in fact incremental, and measurable, both APFTQ and UDA want the benefits calculated over and above an annual $20-million independent production quota.

Potential negotiations

Quebecor’s Lavoie says it’s premature to comment on any possible modifications to the benefits package.

‘We are proposing a benefits package and we think it’s a good one. I haven’t heard so far really fundamental differences on the way the package is put together. Any criticism has had to do with the amount of money. It’s obviously a contentious issue. We’ll deal with it and it is something that has to be solved,’ he says.

Lavoie says it’s also too early to discuss any form of negotiated settlement, or the possibility of presenting the CRTC with a new package with broader industry (producers, actors, etc.) agreement. ‘I wouldn’t do it in public,’ he says.

APFTQ is also worried an important part of TVA’s Canadian program expenditures could be used to facilitate the growing exchange of programs produced by Canadian broadcast affiliates, in other words, buying programs commissioned primarily by English TV networks, specifically TVA’s new specialty channel partners.

A case in point, the producers point to three TVA series produced by Fireworks Entertainment, a production affiliate of CanWest Global Communications. The ties that bind include shared Global and TVA ownership of CKMI-TV, the Global Quebec station.

The APFTQ also expressed the hope TVA would start to commission children’s and youth programs, and that any production investment minimums imposed on TVA not be transferable to affiliated specialty channels.

Selling TQS

On the issue of TQS, Lavoie says there’s been ‘some strange behavior on the part of some of the bidders’ (reported to be BCE in tandem with Cogeco, which holds a first right of refusal) effectively delaying the sale of the network.

Lavoie says placing TQS in trusteeship is the legal equivalent of a sale.

‘We hope this issue will be resolved in a friendly way and at the end of the day there will be a buyer as soon as possible. We’ve got an order to sell [by Dec. 31, 2001, as ordered by the Competition Bureau] and the desire to sell as well. Mister Peladeau made it quite clear he would have preferred to sell prior to the hearings.’

At the hearing, TVA VP programming Philippe Lapointe stated the benefits would be over and above the eight hours of weekly priority programming required by multi-station groups, and that the funds would be spent on variety, drama and youth programming.

TVA licence renewal

Appearing at the hearing, the 5,600-member Union des Artistes said there’s been a steady decline in drama program budgets, with lower-budget teleromans increasingly substituted for higher-quality video and film-originated series.

UDA says high-quality drama cannot be left to Radio-Canada alone and TVA must continue be a major player in licensing Quebec drama.

The Canadian Independent Film Caucus – Quebec, mainly representing smaller independent doc producers and filmmakers, describes the $30-million benefits package as ‘completely inadequate and undervalued.’

CIFC is opposed to TVA’s licence application proposal to spend ‘zero dollars’ on indie documentaries over the next seven years.

The caucus told the CRTC, ‘We want $2.5 million per year to go into independent documentary production. This is about 10 times the annual $250,000 TVA now spends on documentary out of its $80-million Canadian programming budget.’

CIFC says it’s ironic that while ‘the public benefit is valued at $30 million, Rogers got $240 million as a private benefit and consolation prize for failing to make the purchase.’

Conflicting studies

According to the Ernst & Young study commissioned by Quebecor Media, the Suret/CRTC study is inappropriately based on the BCE/CTV deal model.

Quebecor told the CRTC the higher multiples associated with CTV’s selling price reflect the larger CTV service area and its more important group of specialty channels. The selling price for CTV, $2.32 billion, reflects a 23X multiple of EBITDA, which falls under 20X if the debt portion of the deal is excluded, while the EBITDA multiple used by Ernst & Young to calculate the value of TVA is much closer to 10.

According to the DGC, the proposed benefit ‘sounds inadequate,’ especially in view of the $55 million in benefits, including a new $30-million fund offered by Videotron in its 1987 takeover of Tele-Metropole (now TVA) and BCE’s $240-million benefits package for control of CTV.

In its takeover bid dated Sept. 27, 2000, Quebecor paid $5.4 billion, or $45 cash per share, for Videotron and subsidiary Groupe TVA.

A decision on the takeover and TVA’s licence renewal is expected in May or June. *

www.quebecor.com/crtc

www.crtc.gc.ca/archive/Hearings/2001/N2001-2.htm