Pattison deserves a chance: Ray del Val

On August 2, the CRTC released Public Notice 2006-97 announcing its decision to licence five new radio stations in the Calgary area, from a pool of 13 applicants. Commissioner Helen Ray del Val was at odds with her colleagues over how many stations the market could support. An excerpted version of her dissenting opinion appears below. Assuming 2007 to be year one of the new stations’ operations, the impact that adding the four successful applicants (CHUM, Harvard, Rawlco and Newcap) will likely have on the average PBIT margin of Calgary stations can be estimated based on the projected revenues for the Calgary market beginning in 2007, and the portion of those total revenues expected to be generated by the said four successful applicants. …The average PBIT margin of all Calgary stations (including the four newly licensed stations) would exceed a healthy 29% in year one and 28% in year three if we were to assume cautiously that: revenue growth will only be 6.5% (well below the actual 8.3% rate); up to 60% of the advertising revenues of the new stations could be derived from the incumbent stations (despite the applicants’ projections of a negative impact on incumbents ranging between 15% and 35%); and radio station expenses will grow at the 2005 Canada CPI rate of 3.3%. If we assumed less pessimistically that up to 40% of the advertising revenues of the new stations could be derived from the incumbent stations rather than 60%, then the average PBIT margin of all Calgary stations including the four newly licensed ones would be approximately 31% for both year one and year three. Even if Pattison were also licensed for Calgary, the average PBIT margin of all stations would not have been significantly eroded. Pattison…projects that in year one only 20% of its advertising revenues would be from incumbent stations. This is a supportable projection given that the Fall 2005 BBM radio audience surveys of the incumbent Calgary radio stations show that there is generally less reliance by these stations on the 45+ audience group. If, despite the BBM findings and Pattison’s projections, we assume that the new stations would derive 40% of their advertising revenues from the incumbent stations and we further assume that expenses grew at 5% per annum (rather than the 2005 CPI rate of 3.3%), the average PBIT margin would still remain slightly above 30% in year one and in year three. Therefore, had Pattison also been licensed, the Calgary stations’ average PBIT margin would likely remain about 30%, still well above the 22.9% average PBIT margin of all English radio stations across the country. ….In terms of impact on the incumbents’ revenues, licensing both Rawlco and Pattison to serve the 45 + age group is unlikely to have an unduly negative impact on existing stations. Rawlco estimated that $285,000, being 15% of its year one total revenue, would be derived from existing stations. Pattison projected that, of its total advertising revenue of just under $1.4 million in year one, 20% or just under $275,000 would be advertising from existing stations. Together, Pattison and Rawlco would have had a combined negative impact of $560,000 on the existing stations’ advertising revenues in year one. If Calgary’s annual radio advertising revenues were to stagnate at the 2005 figure of $77 million, the combined impact of $560,000 would constitute less than 0.75% of such total. ....In summary, licensing five new stations being those proposed by Harvard, CHUM, Rawlco, Pattison and Newcap would still have left the Calgary radio stations with a very healthy PBIT margin on average. Therefore, a decision to introduce even more competition into a radio market as robust as Calgary’s would have been defensible.

Pattison deserves a chance: Ray del Val

News | 08/15/2006 4:00 am EDT

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