Harmonization of Transit Shelter Agreements

The Works Committee recommends:

(A) the adoption of the report dated November 29, 1999, from the Commissioner of Works and Emergency Services, subject to amending the Recommendations to read as follows:

"It is recommended that:

(1) it be the goal of the City over time to have a single agreement for advertising on transit shelters commencing in 2006, if possible;

(2) staff be directed to negotiate with Mediacom Inc. one harmonized agreement that would provide for revenue sharing or direct payment and installation of new shelters, that may expire later than December 31, 2005, but not beyond 2009; and

(3) staff report back on the results of the negotiations"; and

(B) that the Commissioner of Works and Emergency Services be requested to:

(i) revisit the option of harmonization of all of the agreements by the end of 2005 if possible;

(ii) consider the results of the Request for Proposals process in the City of Mississauga as part of the negotiations;

(iii) consult with the Toronto Transit Commission on the contract recently awarded by the TTC;

(iv) submit to the Committee the report from an independent consultant with respect to marketplace conditions; and

(v) report to the Committee on:

(a) the costs of buying out the contracts compared to the potential revenue estimated by the independent consultant;

(b) the requirements for new bus shelters, and how lower service bus routes will obtain shelters; and

(c) service levels, maintenance levels and length of time for the installation of a new shelter.

The Works Committee reports, for the information of Council, having requested the Chief Administrative Officer to report directly to Council for its meeting on February 1, 2000, commenting on the recommendations with respect to the harmonization of transit shelter agreements in the context of corporate policy.

The Works Committee submits the following communication (December 1, 1999) from the City Clerk:

The Works Committee on December 1, 1999, had before it a report (November 29, 1999) from the Commissioner of Works and Emergency Services recommending that:

(1) it be the goal of the City over time to have a single agreement for advertising on transit shelters;

(2) in order to move towards a single agreement and open the process to public tendering within a reasonable time frame, staff be directed to negotiate with Mediacom Inc. to extend the existing Metro and North York agreements to 2005 (the year the Toronto agreement expires) in return for additional benefits to the City including but not limited to elimination of existing District 3 costs; and

(3) staff report back on the results of the negotiations.

The Committee also had before it a communication (November 30, 1999) from Mr. John Jory, President, Eller Canada, requesting a deferral of the recommendations contained in the report (November 29, 1999) from the Commissioner of Works and Emergency Services, and further, requesting a recommendation for an RFP or tender for such agreements.

The following persons appeared before the Committee in connection with the foregoing matter:

- Mr. John Jory, President, Eller Canada;

- Mr. Ron Barr, Executive Director of Community/Government Relations, Pattison Outdoor; and

- Mr. Blair Murdoch, Vice-President, Real Estate, Mediacom Inc.

The Committee deferred consideration of the aforementioned report and the following motion until its next meeting, scheduled to be held on January 12, 2000, as a deputation item:

Moved by Councillor Fotinos:

"That the report be adopted, and further that the Commissioner of Works and Emergency Services be requested to:

(1) consider the results of the Request for Proposals process in Mississauga as part of the negotiations;

(2) consult with the Toronto Transit Commission on the contract recently awarded by the TTC;

(3) also revisit the option of harmonization of all of the agreements; and

(4) report back to the Committee in three months' time on the results of these negotiations".

(Report dated November 29, 1999, from the

Commissioner of Works and Emergency Services)

Purpose:

To seek the direction of Council with respect to the approach to be employed in the harmonization of the current agreements authorizing advertising on transit shelters, in order to maximize the City's revenue potential now and in the future.

Financial Implications and Impact Statement:

Any action taken to deal with the current agreements which generates direct revenues and/or services to the City will have a bearing on the City's revenues. The extent and time frame will depend on the course of action selected as set out in this report and subsequent negotiations with the supplier.

Recommendations:

It is recommended that:

(1) it be the goal of the City over time to have a single agreement for advertising on transit shelters;

(2) in order to move towards a single agreement and open the process to public tendering within a reasonable time frame, staff be directed to negotiate with Mediacom Inc. to extend the existing Metro and North York agreements to 2005 (the year the Toronto agreement expires) in return for additional benefits to the City including but not limited to elimination of existing District 3 costs; and

(3) staff report back on the results of the negotiations.

Comments:

At the present time, seven separate agreements are in effect authorizing advertising in transit shelters in the City of Toronto. These contracts were negotiated individually by the former municipalities and contain a variety of terms and conditions with varying expiry dates. All of these contracts happen to be with the same supplier, Mediacom Inc.

The attached table provides a summary of the key terms of the existing agreements. As can be seen, the expiry dates extend between December 31, 2000 (former Metro roads within former City of Toronto), 2001 (North York), 2005 (Toronto), 2006 (East York), 2007 (Scarborough), 2010 (York) and 2012 (Etobicoke).

Each agreement could continue to its expiry (generally this is an option available to the contractor and the City) and be dealt with individually at that time. However, given the current circumstances, there does not seem to be much sense in continuing with this number of separate agreements under these particular geographic bounds. It would not be desirable from an administrative perspective, nor from a revenue perspective as some of the smaller contracts may not achieve optimum value in terms of the ability to attract media buyers.

Staff have had preliminary discussions with Mediacom and explored potential options for extending and harmonizing current agreements to achieve added value to the City, as well as rationalizing the expiry dates. As well, discussions have been held with other potential suppliers who have expressed strong interest in an opportunity to bid on the transit shelter contracts sooner rather than later. These activities have led to a scoping of various approaches for proceeding with the harmonization of the current agreements. It should be noted that each of the directions are dependent in varying degrees on negotiation with the current supplier.

Staff have also sought input on the market that this advertising medium serves and the optimal approach in harmonizing the agreements from this perspective. From an advertiser's perspective, Toronto is seen as one market. The transit shelters tend to attract national retailers or products with multi-outlets. It must be recognized that this medium is in competition with other outdoor advertising options. If the City's contract is ultimately split, we are concerned that the overall asset would be devalued. Some of the areas of the City would be less attractive than the others. Media buyers would have to deal with more than one contact and may be less inclined to do so. Small retail outlets, real estate agencies and the like tend to use more local, less expensive advertising media such as the new multi-bin waste receptacles or benches (where permitted). Finally, there would be concerns about different levels of service in upkeep of the shelters and service to advertisers. Therefore, from an asset value perspective, it appears that the transit shelter agreement has more value to the City as a single, consolidated package, and efforts should be made to ultimately achieve one contract with a supplier capable of managing a programme on this scale.

Option One - Buy out all current agreements and retender in 2000:

At one end of the spectrum, would be the winding down of all current agreements. Some of the agreements have provisions for early termination, others do not. Therefore, this option would require considerable negotiation with the current supplier and may entail substantial costs to the City. We, therefore, do not feel this is a viable approach.

Option Two - Extending agreements to a limited time frame:

In 1994, the former City of Toronto Council agreed to extend its existing agreement with Mediacom for a five-year period to the year 2005. Based on detailed net present value and rate of return assessments, substantial financial consideration was achieved for this extension (a $1 million up front payment and stepped annual increases to 20 percent in the City's share of gross advertising revenue). The underlying agreement was a tri-party contract that also included the former Metropolitan Toronto. Metro, however, elected not to sign on to the extension, and as a result, the agreement pertaining to transit shelters on former Metro roads within the former City of Toronto only extends to the end of the year 2000. (About 63 percent of the shelters are on local streets while 37 percent are on former Metro arterials.) It would be difficult to administer, and confusing to buyers if two separate agreements are in effect in the same geographic area. Accordingly, it is recommended that as a minimum, staff negotiate with Mediacom to extend the Metro agreement to coincide with expiry of the Toronto portion.

Under the current North York agreement, the City does not receive any revenues from advertising and Mediacom is responsible for maintaining only the ad caissons. The agreement also has the shortest expiry next to the Metro agreement, namely November 2001. The City, therefore, has the option of tendering the contract for this area at that time or extending the agreement for some limited time to coincide with the expiry date of the other agreements.

There are many possible combinations under this approach. By setting a date of 2005, the Metro, North York and Toronto agreements would expire and could form a viable package, leaving Scarborough, York, East York and Etobicoke to run. By 2007, Scarborough and East York would be available, and so on. One variation of this approach is extending some of the agreements and bringing others back to a common expiry.

Option Three - Extend the agreements to the latest expiry date (2012):

This approach is not recommended. Extending all of the agreements to the latest expiry date (Etobicoke in 2012) would not permit a competitive process for an extended period.

Assessment:

The key concern about extending one or more of the existing agreements is that it would prolong the time until other suppliers are given an opportunity to bid on the contract. However, through years of experience, staff have a clear understanding of all costs and revenues associated with the transit shelter program. If, on the other hand, existing contracts were tendered as they expire, the market would be fragmented and the City would not achieve the best value from this asset. The extension of any one or a number of the existing agreements would be accompanied by additional benefits to the City. We feel the best balance at this time is to extend the Metro component of the Toronto agreement, and the North York agreement to 2005, to coincide with the expiry of the Toronto agreement. At this point, a new tender would be developed and bids sought from the marketplace. A supplementary option could be that the successful bidder would pick up the other agreements as they become due. That contract may have a five-year term.

In the event Council wishes to immediately harmonize all of the agreements (i.e., extend the near term expiries and bring back the longer expiries), Mediacom in initial discussions indicated that it may be willing to shorten the term of the later agreements (York in 2010 and Etobicoke in 2012), however, it would seek a longer extension, to the area of 2009. While this would certainly simplify the process in the short term and we are satisfied that appropriate value in favour of the City could be captured, we are concerned that other suppliers would not be entitled to bid on the contract for an extended period.

Conclusions:

Agreements authorizing advertising on transit shelters are currently in effect with Mediacom Inc. covering the seven former municipal jurisdictions now comprising the City of Toronto. These agreements operate under a variety of terms and conditions with expiry dates ranging from the year 2000 to 2012.

There is merit, from administrative and revenue generating viewpoints, to ultimately rationalize and harmonize the current diverse arrangements. The rate and extent to which this is accomplished will depend on a number of factors discussed in this report and negotiations with Mediacom.

This report sets out a number of options for consideration. It is recommended that the former Metro agreement, which covers the area only within the former City of Toronto and expires in 2000, be extended until 2005, consistent with the Toronto agreement. The North York agreement which expires in 2001 should also be extended to this date to create a viable package.

Contact:

Andrew Koropeski,

Director, Transportation Services, District 1

Phone: 416-392-7711; Fax:416-392-1920

Insert Table

Summary of Transit Shelter Agreements

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The Works Committee reports, for the information of Council, having also had before it during consideration of the foregoing matter a communication (January 10, 2000) from Mr. David P. Smith, Q.C., Solicitor and Chairman of the Board, Fraser Milner, Barristers and Solicitors, urging the Committee not to adopt the staff recommendation and to authorize staff to proceed with a tender call for the reasons outlined therein.

The following persons appeared before the Works Committee in connection with the foregoing matter:

- Mr. John Jory, President, Eller Canada, and submitted material with respect thereto;

- Mr. David P. Smith, Q.C., Solicitor and Chairman of the Board, Fraser Milner, representing Pattison Outdoor, and submitted material with respect thereto;

- Mr. Blair Murdoch, Vice President, Real Estate, Mediacom Inc.;

- Mr. Danny Starnino, Vice President - Operations, Urban Outdoor TransAd Ltd.; and

- Councillor Frances Nunziata, York Humber.