New rules to compete with the U.S.

by Debbie Lawes

      After years of crippling financial losses, the Canadian radio industry is preparing for what could be the beginning of a boom cycle. The good news has been building for the last 12 months, starting with new regulations that allow companies to own more than one AM and one FM station in the same market. A buoyant North American economy is also having an effect. Last month the industry reported 1998 revenue increases of 7.8 percent, to $936 million Canadian.
      ''Radio was a relatively sick industry,'' says Peter Fleming, a former senior official with the Canadian Radio-television Telecommunications Commission (CRTC) who now works as a private consultant for the radio industry. ''That doesn't mean there aren't stations that aren't very profitable, but as an overall industry it has gone through years of net losses. Even with last year's increases in revenues, those profit margins still aren't huge.''
      Revenues are expected to rebound even more as the industry begins to reap the benefits of consolidation, stemming from an April 1998 decision by the CRTC that cleared the way for multiple station ownership. In markets with eight commercial stations or more, broadcasters can now own as many as two AM and two FM stations. In markets with less than eight stations, broadcasters can own up to three stations, with no more than two stations in any one frequency band.
      An April 1999 report by Scotia Economics forecasts that radio advertising will increase a solid 3 percent to 4 percent in 1999. The report says consolidation is likely to boost ad spending as more radio stations in larger markets adopt niche programming formats such as jazz.
      ''An increased number of stations owned by a single company in a particular location should be accompanied by greater market segmentation, allowing advertisers to target audiences more effectively,'' says economist Jon Manger at Scotiabank.
      The most positive trend is for AM radio, which continues to improve its financial performance after years of dismal totals. AM radio stations as a whole saw revenue jump 2.2 percent, the first increase a several years. Last year was a solid one for FM, which saw revenue increase 11 percent, to $606 million. But Fleming cautions that the recovery is just beginning for radio in Canada, adding that he numbers will have to improve before investment confidence returns
      ''While the 1998 results were good for radio, they did not signal a return to a complete bill of health,'' he notes. ''The level of profits before taxes is still not good enough to entice people to take money out of their [retirement funds] and invest in radio.''
      Canadian radio stations are more strictly regulated than their US counterparts, which is one reason why the CRTC decided to ease the rules and allow multiple ownership. Radio stations in border areas -- where 80 percent of Canada's population lives -- have complained for years that they were losing listeners and advertisers to U.S. border stations.
      West coast radio stations in British Columbia have been particularly vulnerable to competition from border cities in Washington. In Canada's most populated region, southern Ontario, stations have been engaged in a constant battle to compete with the varied formats offered by U.S. stations on the southern shore of Lake Ontario and Lake Erie. Some of the fiercest competition over the years has been between the cities of Windsor and Detroit.
      ''American radio is a problem in some markets, like Victoria, Vancouver and in Windsor ,'' says Fleming. ''Earlier this month we just had applications that were heard in Victoria for flips of existing AMs to the FM band, which they hope will repatriate listening from the Seattle and Spokane stations.''
      Canadian radio does have its crosses to bear, the biggest of which is a rule that says they must carry 35 percent Canadian musical content. But there are concessions as well. Canadian law, for example, allows companies to deduct what they spend on advertising if it's placed on a Canadian radio station, resulting in an attractive tax break.

Total Canadian Radio Revenues
(CDN$ millions)

	1998	1997	percent change
AM only	329.3	322.1	2.2
FM only	606.4	546.2	11.0
AM & FM	935.8	868.2	7.8

Note: Columns may not add to totals show due to rounding.
Source: Private Radio Statistical and Financial Summaries, 1994-1998, CRTC