COMMISSION REPORT MACRO

RECOMMENDATION

It is recommended that the Commission approve the award of a contract to Viacom Outdoor Canada for the right to sell and display advertising on Commission owned or occupied property based on a minimum total guaranteed cash revenue return to the Commission of $93,200,000 over a period of seven years from January 1, 2005 to December 31, 2011.

FUNDING

The 2005 TTC Operating Budget will reflect the year-one minimum guarantee fee of $12.7M to be provided under this contract by Viacom Outdoor Canada. This is approximately $5.5 million lower than the revenue included in the 2004 TTC Operating Budget.

BACKGROUND

The Commission requires the services of a firm to sell advertising space on TTC owned or occupied property. The objective of the successful advertising firm is to generate maximum advertising revenues for the available advertising space.

There are various types of advertising which the Commission allows such as outdoor advertising in the form of signs, billboards and displays in, on and at TTC properties such as subway stations, garages, carhouses, yards and office buildings. There is also printed advertising space sold for the subway stations and revenue vehicles such as buses, streetcars and subway trains. The Commission also makes available a specified number of buses, streetcars and subway trains for vehicle wrap advertising which is a vinyl material affixed to the exterior of the vehicles promoting a unified advertising theme as well as subway stations for “Station Domination” themed advertising.

The current five-year advertising contract with Viacom Outdoor Canada expires on December 31, 2004.

DISCUSSION

Fifteen companies were invited to submit proposals in addition to the public advertisement on the Commission’s Web Site on May 3, 2004, out of which four companies submitted proposals as summarized on the attached Appendix ‘A’.

The Commission’s intent for this requirement was to award a contract to a single advertising firm who will be responsible for sales relating to all types of advertising space available including any new initiatives, which may be approved by the Commission. The proponents were also required to identify any new initiatives which may generate additional revenue for the TTC and provide details from a commercial and technical perspective for consideration by the Commission in the evaluation.

The Request for Proposal (RFP) was issued on the basis of a five-year contract term (base bid) with an optional seven-year contract term which was open for acceptance at the Commission’s sole discretion. All four proponents submitted bids for the 5-year and 7-year terms.

The financial return to the Commission for the base and optional bid would be the greater of: a minimum guaranteed fee or a percentage of the previous year’s annual fee or a percentage of the annual billings by the Contractor. The Commission will receive no less than the minimum guaranteed fee.

The proposal submissions were evaluated on a quantitative and qualitative basis. They were also evaluated for commercial compliance and for any exceptions/qualifications taken to the Commission’s standard terms and conditions.

Titan Outdoor LLC Group (Titan) offered the highest guaranteed fee in the amount of $65,250,000 over a 5-year term and $98,750,000 over a 7-year term. However, their proposal submission is considered commercially non-compliant, as they did not submit the required proposal security in the amount of $500,000 CDN with their proposal submission.

In addition, Titan failed to submit an acceptable form of contract security. Titan offered an irrevocable Letter of Credit provided by a U.S. Investment firm (Catterton Partners), contrary to the Commission’s requirements for the Letter of Credit to be drawn from a financial institution with representation in Toronto.

Viacom Outdoor Canada, a division of Viacom Canada Inc. (Viacom) submitted the second highest minimum guarantee fee to the TTC. Their bid amount was $63,500,000 for a 5-year term and $93,200,000 for a 7-year term.

Viacom’s proposal submission from a qualitative perspective was ranked No. 1. Their submission was considered the best in the areas of corporate qualifications and relevant corporate experience and project staff qualifications.

Viacom did not state any exceptions or qualifications and their submission is considered commercially acceptable. Viacom is the current contractor performing this work for the TTC and their performance over the last 5-year term has been very good.

Viacom’s submission also included an added value component consisting of making available limited media space for either the 5- or 7-year term on any of Viacom’s other media formats such as superboards, transit shelters etc. available in Toronto, for the exclusive use of TTC for the TTC to promote itself and its services. The total added value amounts offered by Viacom is to be split evenly over the selected term of the contract i.e. for 5 years at $250,000/year of media space and $25,000/year for production credit; and for 7 years $500,000/yr. of media space and $50,000/year for production credit.

Viacom also identified two new initiatives: the first is a digital information, entertainment and public service network identified as “OneSTOP” (supplied by Fourth Wall Media). OneSTOP is a series of networked LCD screens placed in the subway cars and on subway platforms. The OneSTOP network will deliver TTC messaging, safety information, news and entertainment to TTC commuters.

Viacom has indicated that they will provide the guaranteed commitment of the greater of 10% of OneSTOP revenues or $375,000 for 5 years, or $775,000 for 7 years, however, no minimum guarantee will be available in the first two years of the contract due to the recovery of the significant initial investment (capital costs) associated with the supply and installation of the system.

The other new initiative proposed by Viacom is for a tunnel advertising system (supplied by SideTrack Technologies Inc.). The system is designed to present an animated advertisement viewed from the passenger window of a moving train, delivering a motion picture advertising lasting approximately 15 seconds. The effect is created by exposing the moving train audience to a series of static images placed on the tunnel walls as the train travels past.

The minimal annual guarantee to the TTC per installation is the greater of $60,000 or 20% of SideTrack’s net revenues in years 1 through 5 and increasing the revenue share portion to 40% in years 6 and 7.

The two new initiatives proposed by Viacom are considered acceptable and pilot installations are recommended by the evaluation team to determine their feasibility.

Staff from the evaluation committee met with the Advertising sub-committee on July 19, 2004 and it was agreed to proceed with the recommendation to award Viacom Outdoor Canada the new contract commencing January 1, 2005. The evaluation committee including the Advertising sub-committee also agreed to testing the two new initiatives proposed by Viacom’s sub-contractors on a pilot basis and if successful, implement the initiatives during the new contract term and to awarding the contract on the basis of the optional 7-year term.

Pattison Outdoor (Pattison) submitted the third highest minimum guarantee fee to the TTC. Their bid for a 5-year term was $39,000,000 and $65,000,000 for a 7-year term as detailed on the attached Appendix ‘A’.

Pattison’s proposal submission is considered commercially non-compliant as the Letter of Credit in the amount of $500,000 submitted for the proposal security has a validity date to November 15, 2004, whereas the Commission requires a validity of 160 calendar days from the date of proposal closing or December 1, 2004. Further, the agreement to provide an Irrevocable Letter of Credit (for contract security) has a validity to September 30, 2004 which is not acceptable, as the RFP requirements stipulate 160 calendar days from proposal closing or December 1, 2004.

Clear Channel Outdoor Company Canada II (Clear Channel) submitted the lowest minimum guaranteed fee. Their bid amount for a 5-year term was $35,250,000 and $52,750,000 for a 7-year term as detailed on the attached Appendix ‘A’. Their proposal submission did not include the required agreement to provide contract security and is considered commercially non-compliant.

Therefore, on the basis of the only commercially compliant submission, the evaluation team recommends the award of the Commission’s advertising contract to Viacom Outdoor Canada for a 7-year term, which would result in an additional $29,700,000 guaranteed revenue to the TTC over the 5-year term.

JUSTIFICATION

Award of this contract will ensure the continued payment of advertising revenue to the Commission over the next 7-year period.

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September 10, 2004

9-118-52

Attachment – Appendix ‘A’

SUMMARY OF PROPOSALS

Evaluation Criteria