Archive

Author Archive

Canada’s Wireless Wars: Bell Media Exec’s Memo to News Directors

Since reports in mid-June that Verizon might be poised to enter the Canadian wireless and mobile phone market, Bell, Rogers and Telus have fought tooth-and-nail against that happening. That opposition, as this post shows, not only includes the full-on public relations assault, but a series of emails from Bell Media President Kevin Crull calling on the telecom and media giant’s news directors to cover a report favourable to the incumbents’ main arguments as well. 

Key elements of this summer’s wireless wars are well-known: Telus has launched a lawsuit against elements of the Government’s wireless policy that prevent the incumbents from acquiring Wind, Mobilicity and Public. Rogers, Bell and Telus have held private meetings with Industry Minister James Moore to plead their case that the Conservative Government’s wireless policy is chock-a-block full of loopholes that give unfair advantages to foreign telecom giants such as Verizon at the expense of Bell, Rogers and Telus — and Canadians. Full page adverts taken out by the incumbents are appearing daily in newspapers across the country in a bid to convince Canadians of the same points. 

BCE CEO George Cope penned an open “Letter to Canadians“; BCE Director Anthony Fell excoriated the Harper Government for its supposedly unfair wireless policy; the Globe and Mail and Toronto Star have editorialized in support of the big three telcos’ position as well; the Canadian Council of Chief Executives took the unusual step to write the Prime Minister in order to do the same. The Communications Energy and Paperworkers Union, the largest union representing telecommunications workers in the country, is also singing from the same page as the big three on this issue. The Canadian Wireless Telecommunications Association (CWTA) — the industry association that represents the collective interests of Bell, Rogers and Telus — has been selectively plucking evidence about cheaper wireless rates in Canada relative to the U.S. while distracting attention from the fact that, relative to the rest of the worldprices for nearly all cell phone service plans in Canada and the U.S. are high. 

So far, however, these tactics appear to have backfired. Prime Minister Stephen Harper and Industry Minister James Moore have lambasted the companies’ campaign as dishonest, while pledging to stay the course. The Conservative Party has launched a website to counter the incumbents’ public relations campaign and trumpet the Government’s position. Views opposing the incumbents’ position have also been getting some play as well (see here and here). Canadians also appear open to the idea of a new player such as Verizon entering the market (here). 

While there is certainly room for debate, by and large, Harper, Moore and the incumbents’ critics are correct, and Canadians’ sentiment in the right place. The rules the incumbents are grousing about are neither new, novel, nor filled with loopholes. For well-over a decade the consensus in international circles has been that the more competition in wireless, the merrier. The policy at home has taken some time to catch up with this reality, but the rules now being cast as unfair have been the cornerstones of the Conservative government’s wireless policy since 2007.

The only real differences are that Canada embraced these ideas late in the game relative to others, no doubt due to the incumbent’s intransigence, while foreign ownership rules continue to be far more restrictive in Canada despite last year’s decision by the Government to relax them “for companies that have less than a 10 percent share of the telecommunications market”.  The basic ingredients of the international consensus are straight-forward, although everywhere their introduction has been fiercely contested by incumbents bent on maintaining their dominant market positions:  spectrum set-asides for new entrants, reduced foreign ownership restrictions, network tower sharing agreements and open interconnection rules.

To get a glimpse of the vintage of these basic principles and rules, take a look, for example, at the OECD’s Communication Outlook from 1999 (p. 28), and every volume since then, or the authoritative collection of chapters in William Melody’s edited Telecoms Reform from 1997. I will write more about the finer points of wireless policy in the near future. The point that I want to stress for now, however, is that the big three’s scorched earth approach on this issue is leading to other interests and important principles being thrown under the bus.

Some employees at Rogers and Bell, for instance, report being brow-beaten by managers to email a form letter in support of the companies to the government. More troubling, and a point that has not yet seen the light of day, is a chain of emails originating from Kevin Crull, the President of Bell Media — the largest media enterprise and one of the largest news organizations in the country — calling on news execs and journalists across CTV, CTV2 and local TV channels and radio stations across the country to cover a study that suggests that the state of wireless in Canada is not as bad as its critics claim. A copy of the emails, with the names of non-executives removed, can be found here.

The emails begin by setting out a couple of definitional issues and then distill the two key talking points to be covered: (1) that cellphone rates in Canada have fallen in recent years and (2) that they are generally cheaper than in the US. By the end, the message is clear: “Kevin Crull our President wants us to give this report some coverage….” and “Kevin is asking if this report can get some coverage today on Talk Radio. National news is covering for TV”.

By the time the chain of emails is done, a veritable whose who of BCE’s executive suite have been brought into the loop:  Wendy Freeman, President CTV NEWS; Richard Gray (Head of News, CTV2); Ian Lurie (COO Astral Radio); Kevin Bell (General Manager/Sales Manager CTV Vancouver Island/C-Fax and KOOL FM); Eric Proksch, (VP and GM for Bell Media Radio); Charles Benoit (Astral); Chris Gordon, (President of Radio and Local TV news); Mirko Bibic (Executive VP and Chief  Legal and Regulatory Officer).

Perhaps this is not all that surprising. The stakes are high, given estimated wireless revenues of over $20 billion in 2012. Moreover, with the combined market capitalization of Bell, Rogers and Telus tumbling by roughly $8.4 billion (from $85 billion to $76.6 billion) between June 17 when Steven Chase and Rita Trichur at the Globe and Mail first broached the possibility of Verizon entering the Canadian wireless industry and yesterday, August 26th, the companies are doing whatever it takes to preserve their entrenched dominance of the Canadian wireless market and the bloated market capitalization levels that go along with a cozy oligopoly.

While it is understandable, perhaps, that BCE would deploy its journalistic resources to protect its place within the wireless oligopoly, this is not good for journalism or Canadians. It casts a cloud over the independence of CTV national news as well as news programs across the CTV2 network and Bell Media’s local tv and radio stations across the country. While we know of this particular instance, how many other directives from on high have been sent over not just this issue, but other ones in which Bell sees its interests at stake?

Ultimately, the problem is this: with revenues from wireless, wiredline, Internet, IPTV, cable/satellite services at BCE in 2012 of $17.4 billion, nearly eight times its $2.4 billion in revenues from TV and radio, news is a minor cog in BCE’s corporate machinery. Journalism, in other words, is subservient to the company’s attempts to prop up the value of the ‘transmission’ and technology side of its business.

Perhaps the fact that journalists and the news divisions of such TMI conglomerates will be deployed to protect dominant market positions and capitalization might not be all that surprising, but it should still be concerning to journalists and the rest of us who need them to offer views of the world unvarnished by their corporate overlords. That the execs at BCE and Bell Media news divisions went so cheerily along with Crull’s memo serves neither journalism nor the public well.

Jeff Bezos Buys the Washington Post: The New Philanthropy, or Power and the Press in the New Gilded Age?

Jeff Bezos, the CEO and controlling share-holder of internet giant Amazon bought the newspaper last weekend that broke the Watergate story, published the Pentagon Papers (along with the New York Times) and, in June of this year, helped to break the story on the NSA’s mass surveillance practices: the Washington Post. He paid $250 million for it, 1/100th of his net worth ($25.2 billion) in 2012.

Most commentators appear hopeful that Bezos will use his enormous personal wealth — he is the 12th richest person in America and 19th in the world — and business acumen to turn the floundering Washington Post around and chart a renaissance for the beleagured press in the United States more generally. Most seem to think that he will operate the paper in a way that is consistent with the traditions and requirements of a free press.

Indeed, in the press release announcing the deal on Monday he said that is exactly what he will do:

“I understand the critical role the Post plays in Washington, DC and our nation, and the Post’s values will not change . . . . Our duty to readers will continue to be the heart of the Post, and I am very optimistic about the future.

Donald Graham, the CEO and Chair of the Board at the Washington Post Company, summed up the mood in the press release announcing the deal:

”Jeff Bezos’ proven technology and business genius, his long-term approach and his personal decency make him a uniquely good new owner for the Post”.

Bezos also undoubtedly won favour in the executive suite by agreeing to bring several senior executives at the Post with him to the new company he will set up independently of Amazon: Katharine Weymouth, the current CEO and Publisher of The Washington Post (and heir to the Graham family that currently holds the dominant stake in the paper’s parent company, and niece to family patrician Donald Graham); Stephen Hills, President and General Manager; Martin Baron, Executive Editor; and Fred Hiatt, Editor of the Editorial Page, will all retain their jobs. For how long, however, he did not say. His pledge to the newspaper’s 650 journalists that there would be no lay-offs for a year also no doubt helped to allay whatever concerns might have arisen among journalists.

The journalistic rank-and-file in general seem to be on board with Bezos’ acquisition of the PostCarl Bernstein praises him as “exactly the kind of inventive and innovative choice needed to bring about a recommitment to great journalism on the scale many of us have been hoping for.”

Fred Hiatt, the editorial-page editor who will stay with the Post under its new ownership arrangements, put matters thus: “We’ve all been looking for a way to marry quality journalism with commercial success in the digital era, and it’s hard to think of anyone better positioned to figure that out than Jeff Bezos”. Columnist and editor of Wonkblog, Ezra Klein: “For now, I’m hopeful.”

Bob Woodward distinguishes good moguls like Bezos from bad ones: “This isn’t Rupert Murdoch buying the Wall Street Journal, this is somebody who believes in the values that the Post has been prominent in practicing, and so I don’t see any downside.” James Fallows goes a step further, hoping that Bezos acquisition of the Washington Post “signifies the beginning of a phase in which this Gilded Age’s major beneficiaries re-invest in the infrastructure of our public intelligence.”

This is Bezos as the 21st century version of the Carnegies, Rockefellers and Fords. Whereas they built libraries, foundations and schools, he is revitalizing a landmark press institution in the U.S., the Washington Post, and, if all goes well, lighting at least part of the path to recovery for the rest of the newspaper business.

Economic Woes at the Post, Malaise Across the U.S. Press

The Washington Post is in financial trouble. Revenues for the newspaper segment at it’s parent company, the Washington Post Company, peaked at $961.9 million in 2006. By last year, they had plunged to $581.7 million. The division has not turned a profit since 2008, either (Washington Post Company’s Annual Reports).

Declining advertising revenue has led the way; paid weekday circulation has declined sharply from 768,000 copies in 2002 to around 450,000 today (Steve LadurantayeAnnual Report 2012, p. 21). Online revenues have grown greatly, but from a low base and are nowhere near covering the losses.

The paper’s role within the overall Washington Post Company has shrivelled as well. Whereas it accounted for a quarter of total revenues in 2006, by last year it accounted for just 14%. The education division (55%), cable television (20%) and other activities (10%) accounted for the rest. 

The company as a whole continues to be profitable, however, and even during the financial crisis years of 2008 and 2009, it turned profits between 5-6%. Profit levels have been in the 10-15% range for most of the years before and after that, but last year they fell to under 4% — half the rate of the year before (Annual Report 2012, p. 1). They are down further yet this year, with newspapers and broadcast television the biggest drags on the company’s balance sheet (Ladurantaye). 

Of course, the woes of the Washington Post reflect the woes of the US newspaper industry in general. The U.S. and UK press have suffered the most amidst the ‘crisis of journalism’ afflicting much of the Euro-American world. A 2010 study by the OECD indicated that the woes of the press set in earlier in the US and UK than in most countries, 2005-2006, and have been unrelenting since. The growth of internet advertising relative to other media also started earlier and tends to account for a bigger share of all advertising spending in both countries as well (see Ofcom, International Communication Market Report, p. 187).

U.S. newspaper industry revenues peaked in 2005 at $61.2 billion. Last year they were $32.8 billion — a fall of almost half (46%), according to the Pew Research Centre’s Project for Excellence in Journalism.

Figure One below shows the trend.

US Newspaper Revenues (1979-2012)

The toll on the number of working journalists has also been grim. Figure 2 shows the trends.

PEJ Total Newspaper Workforce

While there is no doubt, then, that both the Washington Post and the U.S. press in general are in dire straights, the idea that Amazon CEO is the white knight he is being made out to be is questionable for at least three reasons.

1. The Return of the Mogul and the Quest for Political Influence and Power

Bezos purchase of the Washington Post puts him amidst the swelling ranks of uber-rich individuals who have stepped in to scoop up newspapers that have fallen on hard times. Just days earlier, hedge fund operator and owner of the Boston Red Sox, John H. Henry, acquired the Boston Globe from the New York Times.  

This revival of the new breed of billionaire newspaper owners also includes real estate tycoon Sam Zell, who scooped up the LA Times and Chicago Tribune in 2007, only to drive them further into the ground (see here). It also includes partisan zealots like the Koch brothers, David and Charles (tied for sixth on the Forbes’ list of billionaires worldwide with a network of $34 billion each), who are circling newspapers in distress in the hope of taking them over and harnessing them to their right wing conservative causes.  

The hopeful, however, appear to divide the new breed of press mogul into “bad” and “good” capitalists, with Bezos apparently firmly in the latter camp. Like Warren Buffet, the folksy investment guru of Omaha, who acquired Media General’s 63 dailies and weeklies (except for The Tampa Tribune and its weeklies) and several other papers last year, Bezos occupies such a place because he says he values the role of daily newspapers in the communities they serve and because he has supported some progressive causes, notably gay marriage, and operated Amazon as an open bazaar when it comes to books and literature, while refusing to buckle to censorious moralists.  

According to Eli Noam, in Media Ownership and Concentration in Americathe number of owner-controlled media firms fell from 35 percent to just 20 percent between 1984 and 2005 (p. 6). The revival of the press baron in the past few years reverses this trend of the last half of the 20th century when media moguls were steadily being replaced by share-holder owned, managerially-controlled corporate media.

The problem with moguls, however, is that the drive for profits are often tempered by the personal quest of newspaper owners for political influence and power. This clouds the independence of the press and turns journalism into the plaything of the rich and powerful. Like other internet giants, Amazon’s annual lobbying budget has risen steeply in the past few years. In 2008, for instance, its lobbying budget was $1.8 million; in 2012, it was $2.5 million. It also doubled the number of lobbyists from 12 to 25 over the same period.

While still modest compared to Google ($16.5 million in 2012) or Microsoft ($8.1 million), the fact that Amazon’s lobbying budget is high relative to other companies, and that it has risen steeply in recent years, suggests that its appetite for influence over politics, policy and public opinion is growing. Bezos acquisition of the Washington Post could add to that mission.

2. The Content Industries are Being Subsumed by the Tech and Internet Industries

There is a fundamental difference between the press barons of the 21st century and those of the past, however. Unlike the Pulitzers, Hearst, Browns, McCormicks and so forth who made their fortunes in the newspaper business, Bezos, Buffett, Zell and Henry have made their’s from the internet, finance and real estate, as Dean Starkman and Ryan Chittum have observed.

The press is being sucked into the orbit of far larger enterprises as a result. The Washington Post case exemplifies the point given that not only is Bezos’ net worth a hundred times greater than the price he paid for the paperAmazon’s revenues in 2012 — $61.1 billion — were nearly double those of the entire U.S. newspaper industry ($32.8 billion). 

Newspapers, in other words, are no longer stand-alone operations. They are minor appendages in much larger business empires. The possibility that the component parts of these entities may not always be aligned raises the question as to how journalists will be treated when conflicts of interest arise. 

The Washington Post could benefit mightily from such arrangements if it is able to use Amazon’s hyper-efficient distribution infrastructure as a way to cut the enormous cost of delivering the paper to readers down to size.  However, this could also be another case where “content” is sublimated to technology and distribution, a mere tool used to promote the acquisition and use of technology, similar to how ‘free radio programs’ served such a purpose for the manufacturers of radio transmission and receiving equipment in the early days of radio history. As John Cassidy asks, is the Washington Post‘s new role primarily to prime the pump for the sale of more Amazon Kindle e-readers? 

Amazon’s clout in online book retailing illustrate the point even better. In this domain, Amazon’s ability to effectively set prices and rule the book publishing industry with an iron fist has put it at war with publishers. 

This is not hyperbole, but  the conclusion recently reached by Judge Denise Cote in a decision that found Apple guilty of colluding with the ‘big five’ book publishing giants in the U.S. — Harper Collins (NewsCorp), Simon & Schuster (Viacom), Hachette, MacMillan and Penguin — to form a scheme intended to break Amazon’s stranglehold in online book retailing. Indeed, the book publishers’ “abhorence of Amazon’s pricing” drove them to join forces (collude) with Apple to devise a plan that would “eliminate retail price competition”, raise prices, hold back books for online distribution, and establish a whole new business model. All of this was to be accomplished in an astonishingly short period of time — 4 months — to coincide with when Apple “launched the iPad on January 27, 2010″ (p. 10).

Apple wanted a secure line of content from top publishers to help drive uptake of its new devise, the publishers wanted to regain control over their industry from Amazon (pp. 10-13). A win-win for them, but a loss for Amazon and consumers / readers because of higher book prices and the triumph of collusive behaviour over competitive market forces. Underneath it all, however, lays the idea that technology and capital are in charge, not content or even Bezos for that matter. 

Those who hold out Bezos as a saviour ignore all of this. 

3. Amazon’s Treatment of Wikileaks in 2010 does not bode well for the Network Free Press in the Days Ahead

Lastly, while many commentators point to Bezos’ liberal stance when it comes to gay marriage and his track-record of standing down pressure to censor books as a good sign for the values of the free press, it is essential to remember the entirely different stance Amazon took towards the whistle-blowing site Wikileaks.  In this case, Amazon’s web hosting service, AWS, far from standing up for the free press, banished Wikileaks’ content that had been stored on its servers. It did so the same day (December 1, 2010) it received a letter from Senator and Senate Committee on Homeland Security and Governmental Affairs Chair, Joe Lieberman (2010) calling on any “company or organization that is hosting Wikileaks to immediately terminate its relationship with them”.  That Amazon so dutifully and quickly did so raises questions about Bezos’ self-professed commitment to free press values (Benkler, 2011).

Given that dubious track record, we can also wonder about how supportive Bezos would have been in relation to the Washington Post’s ground-breaking coverage of NSA contractor Edward Snowden’s leaking of documents detailing the agency’s secret program of mass surveillance and metadata collection, worldwide and in the United States, over the past few months? (see here, here and here, for example). In the face of intense pressure from the U.S. government, would Bezos have stood firmly behind Washington Post journalists or buckled as in the past to protect the vastly larger interests of the company he created, leads and still controls? 

KeyWords: Bell and Astral Discover the Public Interest

In March, media, telecom and internet policy wonks across Canada busily poured over Bell and Astral’s revised application asking the CRTC to approve Bell’s renewed bid to acquire Astral Media.

Along with a few graduate students at the School of Journalism and Communication, Carleton University, I pored through the voluminous application by Bell and Astral — about 75 documents in all that you can find here. And in painstaking detail, we assembled evidence on the state of competition and concentration in broadcast tv, pay and specialty tv, radio and across the network media in English- and French-speaking areas of the country as a whole. Working right to the wire, our evidence was filed with the CRTC moments before the deadline on April 5 (see here).

I won’t repeat our findings and evidence here, but instead will point to something else that I found very interesting as we read through the cornerstone of Bell and Astral’s application: a 74 page Supplementary Brief that crystallizes their main arguments for why their proposed combination ought to be approved by the CRTC.

As those among you who have been paying attention, the proposed transaction is different than the one put forward last year. Gone, for instance, is some of the high-flying rhetoric.

Now in the foreground is Bell and Astral’s claim that the sale of several of Astral’s marquee Pay and Specialty TV channels to Shaw (Corus) (e.g. the bilingual Teletoon/Télétoon, Teletoon Retro and Cartoon Network (Canada), Télétoon Rétro, Historia and Séries+), and the divestiture of several others (e.g. Family Channel, Disney XD, Disney Jr. (English)) as well as ten radio stations in a handful of cities across Canada (Vancouver, Calgary, Winnipeg, Toronto, Ottawa), ought to alleviate any worries that the CRTC might have about this deal. Indeed, the dispersal of these assets, they argue, should mitigate worries about excess media concentration or the possibility that acquiring Astral will confer undue advantages to Bell for its own integrated sweep of services that stretch from broadcasting to telecoms and the internet.

The public record is chok-a-blok full of what parties across the country thought about that issue, and Bell’s claims, but for here I want to highlight something else that struck me as particularly interesting about the revived bid: the extent to which it is peppered with references to the keywords of the public interest, citizens, consumers, culture and even democracy.

Strategically, this makes sense because last October when the CRTC denied Bell Astral 1.0 (news releasefull decision), it did so not just on the grounds of excess media concentration and concerns about vertical integration that had not been satisfactorily addressed, but because it failed to meet the Commission’s standards of the public interest. Moreover, the CRTC’s announcement of its hearings into the revived proposal in May made it clear that similar concerns would once again be front and centre in the Commission’s deliberations.

Obviously, if the public interest was a big concern then, it would have to be given emphasis in the Bell Astral 2.0 application, and it is.

To look into this question further, using key word/phrase searches, I looked for evidence of how these ideas fare in Bell and Astral’s new application compared with last year’s application as well as their most recent annual reports (see here and here).

Table 1, below, shows what I found.

Key Word Search
Word/Phrase Bell Astral 2.0 Supp. Brief Bell 1.0 Supp. Brief BCE AnnRpt 2012 Astral Ann Rpt 2012
Public Interest 21 (on 15pp) 1 3 (2pp) 0
Consumers 80  (35 pp) 4 30 (2OPP) 2 (2pp)
Citizen 19 (17 pp.) 0 0 0
Cultur* 17 (12 pp) 0 0 1
Democra* 3 (3pp) 0 0 0

Sources: See below.

As the table shows, Bell’s first application referred to the public interest just once and to consumers four times and to citizens, culture and democracy not at all.  In the new and improved version of Bell Astral 2.0, we find references to:

  • the public interest 21 times on 15 pages,
  • to consumers 80 times on 35 pages,
  • citizens 19 times on 17 pages,
  • culture 17 times on 12 pages,
  • and to democracy 3 times on 3 pages.

Bell and Astral’s embrace of the public interest and similar terms in their new application is clear, but whether or not this embodies a genuine corporate cultural conversion or just an opportunistic gambit designed to win CRTC approval and the more general battle for hearts and minds surrounding Bell Astral 2.0 remains to be seen. We can be sure of one thing, however, and that is that the CRTC’s forthcoming decision will turn a great deal on this difficult concept. Whether or not the Commission will have found BCE and Astral’s invocations of the public interest convincing or not, we’ll have to wait and see.

Sources:

BCE & Astral (2013). Supplementary Brief. Filed for Notice of hearing, Broadcasting Notice of Consultation CRTC 2013-106 <https://docs.google.com/file/d/0B3WCF51KmyImME5hVEpfak9EekU/edit&gt;; BCE Inc. (1 May 2012). Bell Application 2012-0516-2, Appendix 1, Supplemental brief. Filed for Notice of hearing, Broadcasting Notice of Consultation CRTC 2012-370.  <https://docs.google.com/document/d/1TVgld3nyT4IWoI5LElzE_yP1ILzokJMQKXgLFXo8eu0/edit?usp=sharing&gt;; BCE (2013), Annual Report 2012. <http://www.bce.ca/assets/investors/AR-2012/BCE_2012_AnnualReport_accessible.pdf&gt;; Astral (2012). Annual Information Form. http://www.astral.com/assets/094b7718a2994611a5667677b91f3321_AIF-YE-2012—2012-11-29—FINAL.pdf

Methodenstreit: A Reply to a Question from Greg O’Brien @ Cartt.ca about Media Concentration Research Methods

I have changed this post since putting it up last Wednesday (May 23, 2013). I have not done so substantively. Indeed, I have left all the data and main claims as they were.

What I have done, however, is remove some of the snark at the top and the bottom that I directed at Greg O’Brien at the outset. It’s unnecessary, and as a few colleagues, friends and others with my interests close to heart have kindly suggested, we need more civility in the internets, not less (see Blayne Haggard’s thoughts here).

Btw, the picture in Blayne’s post of a guy pounding away at a keyboard struck a chord; Kristina, my wife, will nod disapprovingly for sure; and its effect would be even greater still if you put five more words at the end of the word bubble: “about telecom, media, internet concentration”. I’ll think about that.

The revised version follows. A link to the original is here.

Last Friday afternoon, just as I was settling in for the first long holiday weekend, Greg O’Brien, sent me an email asking about media concentration research methods. Greg is the founding publisher and lead writer over at Cartt.ca — an industry trade paper that serves the telecom, media and internet industries here in Canada. The question is an important one and so I began to sketch out a reply.

I was advised, however, that it would be best to wait. The final replies to the Bell Astral hearings had yet to be submitted and, thus, addressing questions of methodology directly bearing on the hearings in public was out of bounds until the proceedings closed. No need to tip your hat to others about what you’re thinking. It was another in a long string of moments when my ‘academic’ persona tugged hard to break free of the short leash imposed on experts appearing before the CRTC.

The advice I got was superb. My advisors were dead right and I was wrong. While my inclination is always to just reply immediately and as fulsomely as I can, that is not always the smartest thing to do. Ask any journalists who knows me, or anybody for that matter, and they will tell you that I always freely share my ideas and don’t play coy.[1]

The advice I received was right. Bell was poking around in the same spot that O’Brien was and raised the same question that O’Brien does about the HHI thresholds used by “consumer groups” (they don’t refer to me or the consumer groups by name, nor do they speak of public interest groups) (See Bell Final Reply, page 2).

The core of his original email is below. My reply follows.

Date:       Fri, 17 May 2013 12:11:23 -0400

From:    “Greg O’Brien” <greg.obrien@cartt.ca>   Block Address

To:          “Dwayne Winseck'” <dwayne_winseck@carleton.ca>

Subject:   Research question

Hi Dwayne,

I just wanted to point out an issue I came across about the research on media concentration that is part of PIAC’s presentation to the Commission on Bell/Astral and a big part of the CMCRP, too. I did a little digging into Herfindahl-Hirschman Index (HHI), to figure out what it was and came across some info below that it looks like, from the links, the HHI index itself was changed or updated back in 2010 by the Federal Trade Commission and US Department of Justice.

Your research paper says the HHI and the thresholds of media concentration fall into three levels:

HHI < 1000 = Un-concentrated

HHI > 1000 but < 1,800 = Moderately Concentrated

HHI > 1,800 = Highly Concentrated

However, these links here, here and here seem to show that back in 2010, those HHI thresholds were altered so that:

HHI < 1500 = Unconcentrated

HHI > 1500 but < 2,500 = Moderately Concentrated

HHI > 2,500 = Highly Concentrated

That puts the HHI scores for many of the media mentioned in your report in the moderate or low range, I think.

To be honest with you, this is a bit too deep in the regulatory research weeds for a story in Cartt.ca. But I was wondering if you could explain the difference to me? Am I missing something? If not, does the research need to be altered/updated? Please let me know if I am wrong, or if we use different numbers for Canada.

Thanks,

Greg

My Response

Hi Greg,

Thanks for your inquiry.

Before I begin, please let me ask you to address specific questions about methodology or data to me since it was me that was hired to prepare evidence and write a brief in support of the public interest and consumer advocacy groups’ intervention opposing Bell’s revised bid to take-over Astral. My response is done solely in my capacity as a scholar and director of the Canadian Media Concentration Research (CMCR) project.

I wanted to send you my response earlier but was advised that it best to wait until the Bell Astral proceedings closed. Turns out, Bell was poking around in the same spot you were (see Bell Final Reply, page 2).

Let me also say, though, too, I was a bit hesitant about replying to you on account of the fact that the only other time you’ve spoken about my data, method or research at all was when you tweeted one of Bell’s allegations about my CBC revenue data at the very end of the reply phase for Bell Astral 1.0. That you tweeted about it then without asking me first about my views, and that your question now falls again at the very end of the reply phase, feels funny to me and I don’t quite like it. 

However, let me put that aside and try to answer your question because it is a good question.

I am aware of the new U.S. Department of Justice and Federal Trade Commission’s guidelines. David Ellis, who you also know, sent them to me earlier in the year. Please ask him about that.

Guidelines do change from time to time. While the U.S. replaced the revised 1997 version guidelines in 2010, there are a couple of reasons why they have not seeped into the scholarly literature and my research methodology specifically.

For one, when guidelines change academics will always take time to decide if the changes adopted are suitable to the field we’ve been working in. There has been a long-standing argument amongst scholars that the DOJ’s existing guidelines were already inappropriate for communication and that a ‘weightier’ test was required because of the freight communications media carry with respect to free speech, the free press, privacy, democracy, their role as public spaces vital to citizenship, many non-market attributes and other such concerns. I share such concerns (also see Eli Noam and C. Edwin Baker on this point; or Compaine and Goldstein for opposing points of view).

Second, the International Media Concentration Research (IMCR), of which I am a part, and which is, as you know, led by one of the world’s foremost experts in this area, Professor of Finance and Economics, Eli Noam at Columbia University (New York), set sail in 2008. Changing course midstream and with the larger debates just referred to still hanging in the air would have been unwise. The fact that the project has forty or so scholars studying long-term media concentration trends in as many countries around the world also suggests that you don’t change things just because things in the U.S. change. 

Of course, we must take heed of what the U.S. does, but it does not determine things everywhere else. Historical and international comparative references, amongst other things, are crucial too. You might also ask Professor Noam as well why the project stuck with the existing standards rather than change to the new ones midstream?

In short, one doesn’t jump from a set of standards over which there is already a lot of debate to looser ones without a great deal of thought. That said, one should not cling to outmoded ways of thinking either, and so I have been looking carefully at the new guidelines with an open mind.

Indeed, I brought the new DOJ/FTC guidelines with me to Montreal two weeks ago and was reading them in the run-up to and during Bell Astral 2.0.  As you will see on page 19, the guidelines not only set the thresholds at the higher levels you recite, but tell us what constitutes significant consolidation by pointing to the degree of change, i.e. transactions that move the dial 100 or more points in markets that are already modestly to highly concentrated.

Here’s what the new guidelines say with respect to transactions in:

Moderately Concentrated Markets: Mergers resulting in moderately concentrated markets that involve an increase in the HHI of more than 100 points potentially raise significant competitive concerns and often warrant scrutiny.

Highly Concentrated Markets: Mergers resulting in highly concentrated markets that involve an increase in the HHI of between 100 points and 200 points potentially raise significant competitive concerns and often warrant scrutiny. Mergers resulting in highly concentrated markets that involve an increase in the HHI of more than 200 points will be presumed to be likely to enhance market power (emphasis added, p. 19).

The chart below created on the basis of 2012 revenue data shows that, contrary to what you say in your email, none of the sectors implicated by the Bell Astral deal are at the low end of the new guidelines, except radio – as I never fail to mention.

More importantly, the Bell Astral transaction will move several sectors from moderately to highly concentrated status even by the looser standards of the new guidelines, i.e. an HHI score above 2,500, as the chart below illustrates. These sectors are:

  • English-language Specialty and Pay TV (2525.2);
  • French-language Specialty and Pay TV (4085.1);
  • total Specialty and Pay TV (2512);
  • the total French TV sector is already above 2,500 but would be pushed further to 2801.7.

It is also important to point out that the Competition Bureau in Canada does not use the HHI to set fixed benchmarks but rather to help it “to observe the relative change in concentration before and after a merger” (emphasis added, p. 19, fn 31). The Bureau does, however, state that when the four-firm concentration ratio (CR4) passes 65% it may step in to examine whether a merger “would likely . . . enhance market power, and thereby . . . lessen competition substantially” (p. 19, fn 31). You can look at the data in the chart below and reach your own conclusions on this point.

In addition, in terms of relative change, as the DOJ guidelines quoted above state, a transaction that moves the dial in moderately or highly concentrated markets by more than 100 – 200 points will “potentially raise significant competitive concerns and . . . be presumed to be likely to enhance market power” (emphasis added, p. 19). Based on the 2012 data shown in the chart that follows immediately below, here is a list of sectors implicated by Bell’s proposed take-over of Astral that would move the dial between 200 and 1200 points (change in HHI noted in parentheses):

  • English-language Specialty and Pay TV (+416 points);
  • French-language Specialty and Pay TV (+1215.1 points);
  • total Specialty and Pay TV (+608.5 points);
  • English-language Total TV (+236 points);
  • French-language TV (+207.5 points);
  • Total TV (+298 points);
  • French language vertical integration between BDUs and broadcasters (+361 points).

Changes in Concentration Levels: Before and After Bell Astral, 2012 Revenues 

2012 Revenues

Bell Mrkt Share Before

After

CR4 Before

CR4 After

HHI Before

HHI After

CR4 2008

HHI 2008

Conv TV        
ENG

30.7

30.9

90.7

90.9

2337.2

2347.2

96.1

2724.9

FR

0

0

95.1

95.1

4403.4

4403.4

94.5

4005.7

ENG + FR

22.6

22.8

82.9

83

2287.9

2293.5

86

2367.4

Spec & Pay TV

 

 

 

ENG

28

33.8

83.1

84.5

2109.2

2525.2

73.2

1543

FR

27.1

59.2

97.9

97.7

2870

4085.1

87

2755.1

ENG + FR

27.9

38

81.5

83.8

1925.7

2534.2

71.9

1451.7

Total TV

 

 

 

 

ENG

29.2

32.5

81.9

86.2

1891.2

2127.2

77

1762.2

FR

11.1

24.4

91.7

92.9

2594.2

2801.7

85.2

2389

ENG + FR

25.4

30.8

76.8

83.3

1691.5

1989.5

70.9

1486.7

Radio

 

 

 

 

ENG

9.8

21.9

51.6

59.6

822.6

1014.4

56.5

970.8

FR

0

27

84.1

84.1

2406.6

2406.6

90.1

2704.9

ENG + FR

7.9

23.2

53.4

62

825.3

1127.3

60

1047.2

VI & Network Media (2011)

 

 

 

 

ENG

31.3

31.8

83.2

84.2

1984.4

2014.9

N/A

N/A

FR

35.2

40.1

71.8

76.7

1872.1

2233.1

N/A

N/A

Also take note of the big changes not just by the standards of regulatory authorities but those of the recent historical past as well, i.e. since 2008, and notably for pay and specialty tv, total tv and radio.

As you can see, Greg, if this was purely an issue of methods and numbers, the CRTC should be very busy. And it is. This is why the Bell Astral 2.0 deal has received the critical attention it deserves, by the Commission and by people such as myself.

Finally, as I am sure you will have noted, I have updated and made the CMCR’s analysis of the 2012 data available on our website. I have the French- and English-language market 2012 data that corresponds to each of the sectors that we released the other day (radio, broadcast TV, specialty and pay TV, total TV), and for vertical integration between BDUs and broadcasting in both English- and French-language markets as well as for Canada

I really would be delighted to share all of our data sets with you under appropriate circumstances once the CRTC completes its deliberations on the current transaction. Doing this kind of research is not easy. There is much judgment involved and reams of data to be managed. I would like to trust that your question comes from a good place but I’m also acutely sensitive to the fact that there are many who toss barbs at researchers and, especially, critical ones, all the time. It really needs to stop, and if a full prof with tenure and a good salary can’t stand up to such attacks, who will? 

Ultimately, I always aim to improve my work and what I put out under the auspices of the CMCR. If you ever see anything in need of improvement, correction, qualification, etc., please let me know and I will, as is our standard practice, fix things while publicly acknowledging any errors we have made and your role in setting things aright.

Best wishes,

Dwayne

[1] To put a more scholarly spin on it, questions about research methods are difficult and often boring, but they can be really helpful when they clarify how we know what we know. They tend to be open ended (and wordy, too) which leads in many unforseen directions. German philosophers originally called such activities “methodenstreit”, or “methods dispute”, hence the title to this post. The notion of methods disputes is now common across philosophy and the social sciences and yes, that includes economics (see here and here).

CMCR Project 2012 Data Release: Concentration Trends in the Telecom-Media-Internet Industries in Canada, Part 1

Highlights (original posted to Canadian Media Concentration Research Project website)

The CMCR analyzed the financial results for Canada’s biggest TV providersradio broadcastersspecialty, pay and video-on-demand services as well as cable, satellite TV and IPTV providers released by the CRTC in early April. Our analysis shows that concentration levels in 2012 remained high in all areas, except radio.

Using two standard research tools to assess media concentration – concentration ratios and the Herfindahl-Hirschman Index (HHI) — our analysis shows that:

  1. Concentration levels for all of the industry segments for which the CRTC released data, except radio, remained high in 2012;
  2. However, such levels eased slightly in all segments addressed relative to 2011, except for specialty and pay TV services.

You can access all of our raw data not just for 2012, but from 1984 onwards here.

Discussion

Coupled with the annual reports of publicly-traded companies, the CRTC’s 2012 data allows us to construct a fairly comprehensive portrait of the current state of telecom, media and internet concentration in Canada.[1]

While concentration levels remain at the high end of the spectrum according to both the CR and HHI measures, and by international standards, there was a slight uptick in competition in four out of the five areas covered by the CRTC’s data for 2012:

  • In the $3.5 billion conventional TV sector, the CR4 declined from 87% to 83%, while the HHI score dipped slightly from 1966 to 1943. The decline is likely due to the fact that Bell and Shaw saw small declines in their revenues and market share, while two mid-size TV stations that were formerly a part of Canwest have continued to carve out a spot for themselves: the employee-owned CHEK TV in Victoria and Channel Zero’s CHCH in Hamilton.
  • A small dip could also be seen in the $7.5 billion total TV segment (an amalgam of conventional TV with specialty and pay TV), where the market share held by the big four — Bell, Shaw (Corus), Rogers and Quebecor — declined from 79% to 77%, with a corresponding decline in the HHI score as well.
  • Trends for the $8.7 billion cable, DTH and IPTV pointed in a similar direction, with the big four’s share declining modestly from 83 percent to 81 percent, largely due to the growth of Telus, MTS and Sasktel’s IPTV services in western Canada and Bell’s IPTV offering in Ontario and Atlantic provinces.
  • Finally, the $2 billion radio industry continued its long-term downward drift, with the CR4 sliding from 55.5% to 53.4%.

Concentration levels in the $4 billion Pay and Specialty TV services – the fastest growing and most lucrative segment of the TV industry – stayed steady at the high end of the CR4 (81.6%) and HHI (1905) scales. This is likely due to the fact that the growth of newcomers such as Blue Ant and Channel Zero was offset by a rise in Bell’s share of pay and specialty TV services, largely because of the substantial increase in revenue at its English and French-language sports channels, TSN and RDS, respectively.

The preliminary analysis offered thus far is important because the CRTC released the 2012 data in early April, just days after its deadline for submissions regarding BCE’s renewed bid to acquire Astral Media. As a result, none of the interveners was able to include it in their formal, written submissions to the public hearings that took place last week, except for Bell.

Bell filed an updated analysis based on the 2012 data with the CRTC in its Reply to interveners on April 16. In doing so, it used the new data to repeat and buttress its rejection of critics’ claims that the deal gives Bell too much market power:

. . . close review and analysis of the post-divestiture Bell-Astral in each of the English and French television markets – regardless of the metric employed – proves otherwise (Bell Reply, para 46).

Consequently, Bell asserted, there are no barriers from the standpoint of media concentration that should stand in the way of the CRTC approving the deal (Bell Reply, 2013, pp. 4, 11 – 20; also see the report Bell submitted from its consultant, CMI here, Appendix 3, or here). With today’s release of the CMCR data, readers can examine the evidence for themselves and draw their own conclusions.

Regardless of whether you agree with Bell’s view of the world or not, the fact that Bell and nobody else could update the public record for the Bell-Astral hearings using 2012 evidence is deeply troubling. I will have more to say about these issues in a series of upcoming posts. However, as the Commission settles in to make its decision on the Bell-Astral transaction, the public should have as much access as possible to the evidence upon which key elements of the decision will turn.

The CMCR project does not just present the relevant data company by company, or on the basis of ‘before’ and ‘after’ snapshots to gauge, for instance, the one-off impact of the Bell-Astral transaction on Bell’s stand-alone share of the TV market. Instead, our analysis of the 2012 data relies on two fundamental tenets of good scholarship on media concentration:

(1)  a long-term focus on concentration trends over a 28-year span from 1984 to 2012;

(2)  using two standard research tools to examine the structure of media markets rather than changes in the stand-alone market shares of individual media firms: Concentration Ratios and the Herfindahl-Hirschman Index (HHI).

These research methods are essential because snapshots of just one or two media sectors or firms are often selectively used to make unwarranted generalizations about the larger media ecology. Moreover, ‘before’ and ‘after’ snapshots fail to capture dynamic trends over time. These are precisely the kinds of commonly used techniques that serve to muddy the waters, and that sound methodology in media concentration research is explicitly designed to counteract (Noam, 2009, chs. 1-3IMCR, ndCMCR, 2012).

Analysis of the 2012 data also reconfirms the existence of a fundamental problem in the CRTC’s data for pay and specialty TV: key aspects of it cannot be reconciled with the results found in the audited annual reports of several companies covered by the Commission’s data sets. Tallying up the CRTC’s data for Astral, for example, yields a figure of $540.9 million, while the company’s Annual Information Form indicates a figure of $562 million, after the revenues from its two conventional TV stations, in-house advertising and online segments are excluded (see p. 8 and PWC, 2012, pp. 45, 52 and PWC, 2013, p. 60).

Nor is the Astral example an anomaly, as I will show in a subsequent post. This is not a view that we reached lightly but only after lengthy discussions with a Commission analyst well acquainted with the Individual Pay, Pay-per view, Video-on-Demand and Specialty Services Financial Summaries being referred to.

We hope readers will find our analysis of the 2012 data helpful in relation to other matters, as well. In the next week we will also release our analysis of the 2012 data for vertical integration between cable, satellite and IPTV distributors (BDUs) and TV and radio broadcasters in English- and French-language markets, and for Canada as a whole.

Our analysis will also be updated as new data becomes available for the remaining telecom, media and internet industries covered by the CMCR project: wireless and wired telecoms, Internet access, search engines, music, newspapers and magazines.


[1] The CRTC released total revenue figures for pay and specialty TV and broadcast distribution services; it did not do so for conventional TV or radio. To estimate revenues for these two sectors, we used last year’s cumulative annual growth rates cited in the Communications Monitoring Report, while checking that figure against other quality sources such as PriceWaterhouseCoopers’ (2012) Global Entertainment and Media Outlook, 2012 – 2016 to help ensure the reliability of our estimate.

Netflix and Canadian TV: Menace or Messiah?

We hear a lot about Netflix, and we hear it often, by both those who love and loathe it. It has become a fixture on the Canadian media scene in a very short time.

Indeed, there has been much gnashing of teeth since Netflix’s inception in this country in 2010, including the tightening up of bandwidth caps, inquiries by the CRTC, as well as the constant invocation of the streaming video on demand service (SVOD) in regulatory proceedings, from the CRTC’s 91h hearings just last week and no doubt in the one that it is set to start next week for Bell and Astral’s proposed amalgamation.

With roughly 1.6 million subscribers at the end of last year (IHS Screen Digest), it’s revenues can be estimated to have been about $134.3 million in 2012. This is a sizeable amount for sure, but where does it fit within the existing $7.5 billion industry (not counting the carriage and distribution side of the biz)?

So, the question for our post today: Netflix, menace or Messiah?

Netflix’s estimated 1.6 million subcribers, no doubt lean toward the latter view, even if they have to endure deliberately downgraded quality (i.e. no HD) to ensure they don’t blow their monthly bandwith caps and a slimmer catalogue to choose from. Even those in the TV biz regularly tell investors that they don’t expect any short- to mid-term harm, while the long-run is still anybody’s guess. 

However, look further and read the pages of leading newspapers in this country (take this piece by Andrew Coyne from the National Post just two days ago for starters), and Netflix is often cast as ushering in the death of “old TV” and as the spearhead of a much bigger ‘video revolution’ that is poised to bring Canada’s big four vertically integrated media goliaths to their knees: Quebecor, Rogers, Bell and Shaw.

The long list of new content acquisition deals, and charts showing internet traffic attributable to Netflix going through the roof (here and here), all seem to have a point, and who knows, maybe all of the kerfuffle is on the mark. I don’t want to offer anything definitive on the point other than to say that, me, I’m skeptical.

However, what I do want to know is something a bit more systematic about where things stand. And so as I’m won’t to do, I’ve encouraged my students to have a look at things and recently, one of them, Patrick Foley, did a real bang up job putting together the following chart showing Netflix’s content acquisition and development.

I’ve added to the table here and there and then developed some commentary of my own afterwards, but I think it’s good to, first, take a deep breadth and take stock of what kinds of content deals that Netflix has and hasn’t done. Otherwise, I’m afraid that a compendium of disparate press releases will add up to the impression that there are barbarians at the gate and unless we do something fast, they’re gonna tear the place apart – that “place” being the “Canadian television system” as we know it.

So here we go, a selection of Netflix’s content acquisition and development deals over the past few years.

Netflix’s Content Acquisition and Development Deals

Year Library Content
Starz 2008 2008  5 yr. deal. $30 million per year. Access to 2,500 titles, including “classic films” such as “Scarface” and “Beetlejuice”
NBC Universal 2010 Renewed contract for 5 additional years, worth $1 billion. Rights to titles from Paramount, MGM, and Lionsgate studios. Also acquires rights to old and new episodes of ”SNL,” “30 Rock”, “The Office,” and other popular shows. Can offer SVOD (streaming video on demand) 90 days after airing on Pay TV.
CBS Corp. 2011 4 yr. “Pay- as-you-go” deal with The CW Network (jointly owned by CBS and Time Warner) 700 hours of old CW programming and rights to new episodes. Older shows like “Cheers” can now be streamed. So too for newer ones, e.g. “Gossip Girl” and “Vampire Diaries”
Time Warner 2013 “Pay-as-you-go” deal between Netflix Turner Broadcasting & Warner Bros (TW subsidiaries) ($100s millions). New and old Warner Bros content produced for TV (i.e. shows already aired on ABC, NBC, FOX, HBO, Cartoon Network, TNT, etc.), including “666 Park Avenue” “Revolution”
Disney 2012 $200-$300 Annually Classic Disney titles and access to newly released Disney movies for 3 years (7 months after theatre release). Latter came its way after Disney’s contract with Starz ended. Classics like ”Pocahontas”, ”Alice in Wonderland” and LucasFilms productions available for internet streaming.Beginning in 2016 Netflix can exclusively stream films from Pixar, Marvel, DisneyNature, and Disney Animation Studios.
Starz 2013 Netflix did not renew contract Netflix loses rights to 2,500 “classic films” such as “Scarface” and “Beetlejuice”
2012 Arrested Development Former Fox TV series revived. May be prequel to movie.
Media Rights Capital 2011/12 – 2013 House of Cards Adaptation of previous BBC miniseries of same name. First TV series to premier on Netflix, beginning Feb. 1, 2013.
Viacom / Dreamworks 2013 Turbo F.A.S.T. (Kids animation series)  Original animated series based on forthcoming Dreamworks’ movie, Turbo.

Sources: Edwards (2012). Bloomberg; PR Newswire 2012; Kang (201). Washington Post. Villarrea. (2013). LATimes. Gruenwedel (2013). Home Media Magazine.

There’s much to be said about the above list of activities. Instead of writing another of my trademark long, long posts, however, let me distill a few points that I think are the most important.

Characteristics of Netflix deals:

  1. Acquire old, classic, established libraries of content.
  2. Acquire rights to air new episodes from ongoing TV series, and newly produced movies, after time delay.
  3. Youth/kid/teen oriented content is really important.
  4. ‘Old TV’ is the main ingredient of ‘new TV’, with established TV series revived and remade into new ones (Arrested Development; House of Cards) and forthcoming movies become TV series before they even hit the box office (Turbo F.A.S.T).  In other words, original content is derivative of existing content.

Make Peace Not War: or how the Traditional US (but not Canadian) TV and Film companies learned to live with Netflix

  1. Netflix breathes new life into classic/old content.
  2. It opens a new distribution window: ‘streaming video on demand’: SVOD, slotted into the pre-existing, window-based Hollywood model that staggers the release of movies between regions and across time.  Hollywood always learns to, at least eventually, embrace these new windows, even if late in the game, as my professor Janet Wasko taught us many years ago. Why? Because they are new markets, sources of revenue, that’s why (see here for latest evidence of growth of new windows relative to box office.).
  3. Netflix is complementary because Netflix subscribers tend to watch more TV rather than less, as the MediaTechnologyMonitor studies have repeatedly shown. As the most recent MTM study says, for instance, “Netflix customers are not so-called cord cutters. . . . In fact, Netflix users were found to be more likely than other consumers to shell out for a premium TV package, even while paying $8 a month for the streaming service”. UK communication and media regulator, Ofcom (see p. 3), has come to similar conclusions (also see here with respect to UK).
  4. Netflix may increase “packaged-media sales” (DVDs, DVD box sets, etc.) and cable VOD by sizeable amounts (15-30%), some Time Warner execs have claimed, although some of the scholarly literature I have read seems less convinced.
  5. Adds foreign films that lack North American theatrical release (thanks Patrick).
  6. Enables time-shifting and space-shifting via Microsoft’s Xbox 360, the Nintendo Wii, Sony’s PS3, Blu-ray disc players, and internet-based video players like Apple devices (again, thanks Patrick).
  7. And some stalwarts of the ‘traditional mediacos’ have a position on Netflix’s Board of Directors alongside internet and tech companies and that affords them at least a small lever of influence and control: e.g. Ann Mather (Walt Disney, Pixar, Google, MGM, Village Roadshow Pictures), Leslie Kilgore (Amazon, LinkedIn), Jay Hoak (Technology Crossover Ventures) A. G. Battle (Ask Jeeves, Expedia), Reed Hastings (Netflix, Facebook, Microsoft) (Netflix, 2012).

Why Canada’s Vertically-Integrated Players Continue to Hate Netflix:

  1. Must compete with Netflix over rights to new distribution window vs. treating them as an inexpensive bolt on to the existing suite of rights they acquire.
  2. They don’t have much original content of their own so must compete even more with Netflix.
  3. Netflix seems to give media workers more creative autonomy in their work and a bigger slice of the pie and more say afterwards.
  4. The creation of a new window – SVOD – increases pressure to compress ‘old windows’, especially VOD – a lucrative cash cow for existing BDUs’ specialty and pay TV services that continue to rake in operating profits in the mid- to high-20% range (see p. 1).
  5. Netflix enables time-shifting and space-shifting on other company’s devices —  Microsoft’s Xbox 360, the Nintendo Wii, Sony’s PS3, Blu-ray disc players, Apple, etc. – rather than their own.
  6. Finally, Canadian media execs seem to loathe Netflix because they have no position of influence or control at Netflix, or anything like it.

Does this mean that nothing’s changing? Absolutely not! Television and how it is made, circulated, controlled and consumed is changing dramatically.

Fast disappearing is the old scheduled model of tv programming punched out by vertically-integrated tv cos modelled on the Fordist approach to car production (ownership of everything from inputs to manufacturing and dealerships), with highly unionized workforces and subsidized consumption brought to you courtesy of advertisers and government funding.

And what’s coming online? Hold your breath, folks, but it just may be the the centuries’ old  ‘publishing model’. In this model, TV execs function as commissioning editors signing contracts and royalty cheques with creative talent. Most media work becomes more and more precarious, less unionized and less well paid. Disappearing are the “old days” when union bosses negotiated long-term contracts for media workers with durable media jobs and clear roles and back are the really old old days when everybody had to fend for themselves.

In addition, in the publishing model, as with books, people pay for what they get while the ratio of advertising and government subsidies to public service media steadily declines. Audiences’ preferences become more closely aligned with what they pay for as a result, but the gap between the media rich and media poor expands.

Think catalogues of movie and TV program titles, not a linear scheduled flow of appointment viewing. Long live TV, while everything changes.

So, Netflix, Menace or Messiah? You be the judge.

Competition Bureau Blesses Bell – Shaw Take-Over of Astral Media

Bell Astral Round 2 officially got under way today with an announcement by the Competition Bureau that it will conditionally approve the deal. In the Competition Bureau’s words, “Today’s agreement is essential to preserving choice for consumers and ensuring continued and effective competition in this area.”

The Competition Bureau and Bell place a great deal of emphasis on the pay and specialty tv channels and radio stations the latter agreed to sell off to get approval for the deal, as well as the modest restrictions that the Bureau imposed to prevent Bell from blocking rivals’ access to two marquee channels in the Astral line-up: The Movie Network and Super Écran.

The bottom line, however, is that no amount of divestitures can obscure the fact that already extremely high levels of media, telecom and internet concentration in Canada — by historical, international and anti-trust standards — will become a lot higher yet (see here). At least that will be the case, if the CRTC does not steel its spine for a second time to take a much more expansive view of the issues than the Competition Bureau’s myopic views of the deal’s impact on economic efficiency and “relevant advertising markets”. 

More important than the conditions placed on the deal is what Bell did get. Bell already owns thirty pay and specialty tv channels (e.g. CTV News, ESPN, Comedy Network, TSN, Réseau des Sports, Discovery Channel, etc.) and it will add eight more if its deal with the Competition Bureau sticks: the French-language SuperÉcran, CinéPop, Canal Vie, Canal D, VRAK TV, and Z Télé, and English-language services The Movie Network, HBO Canada, and TMN Encore. This, too, must be seen on top of the 28 conventional tv stations that Bell owns that make up its CTV1 and CTV2 networks across Canada.

Thus, even after the divestitures required, Bell will still hold 66 tv channels and its share of the pay and specialty tv market will rise sharply from 27.4% to 38.7%. But as I’ve always said, media and internet concentration is not about the market share of a single player but the structure of the relevant sectors and the telecom, media and internet (TMI) industries as a whole.

Thus, more important than just Bell’s dominant market share is that in the pay and specialty segment of the tv industry, the big 4 companies’ — Bell, Shaw, Rogers and the CBC, in that order if the deal succeeds — share of revenues will rise from 87.6% to 90.5%. This is far in excess of the CR4’s typical threshold for establishing a prima facie case of concentration of 50% and well above the Competition Bureau’s own standards set for banking (para 47)

An already sky-high Herfindahl – Hirschman Index (HHI) score of 2270 will move into uncharted territory at over 3000 (recall, that the U.S. Department of Justice typically uses an HHI of 1800 as a threshold for defining high levels of concentration) (on questions of the CR and HHI methodology, see here). Table 1, below, shows the results. 

Pay and Specialty Television Ownership Groups, Revenue, Market Shares and Concentration Levels, 1984-2011 (1)
2004 2006 2008 2010 2011 Post Comp Bureau Divestitures
Shaw/Corus (4)

18.7

15

17.5

31.7

33.1

35.1

  Canwest

2.1

1.9

16.1

Shaw
Bell

27.4

38.7

CTV Globemedia

28.4

26.3

Rogers

15.8

15

10.9

11.5

12.3

12.3

Astral

5.9

13.2

17

15.9

15.6

Bell – Shaw

CBC/Radio Canada

6.4

6.3

5.1

4.3

4.4

4.4

Quebecor (5)

1.6

1.9

2.5

3.5

3.9

3.9

Pelmorex

1.9

1.9

1.7

1.4

1.3

1.3

Fairchild (Chinavision)

1.2

1.2

1

0.8

0.8

0.8

MusicPlus/MusiqueMax (7)

0.6

0.6

0.5

0.6

0.4

0.4

Cogeco (as TQS from 2001-08)

0.1

0.1 (Remstar)
Spec and Pay TV $ (14)

2050

2428

2929.9

3459.4

3732.1

3732.1

Conventional TV $

3159.9

3175.9

3381.4

3405.6

3491.9

3491.9

Total TV $

5209.9

5603.9

6311.3

6865

7224

7224

C4

61.9

57.1

72.9

85.4

87.6

90.5

HHI

1181.27

1205.71

1816.24

2069.58

2269.24

3084.6

Sources: CRTC’s Communication Monitoring Report and its Pay and Specialty Statistical and Financial Summaries; Corporate Annual Reports.

While Bell’s take over of Astral will have minimal effect on conventional over-the-air television, its impact on the total tv market, an amalgamation that adds conventional tv stations to the pay and specialty tv segment, will be significant. Bell’s share of total tv revenues will rise from just under 26% to just under 32%. Sure, these figures fall beneath the CRTC’s threshold of 35% set out in the Diversity of Voices ruling in 2008, but that is more a measure of the weakness of the rules rather than a satisfactory state of affairs. The CR4 for the total tv market will rise sharply from 81% to just under 90%; the HHI will similarly shoot upwards from its current excessive level of roughly 1900 to 2284, as the following table shows.

Total Television Market

2004

2006

2008(2)

2010

2011

Post Comp Bureau Divestitures
Bell

25.7

31.6

Shaw/Corus (7)

7.4

6.5

7.1

21.4

24.4

25.4

CBC/Radio Canada (4)

22.8

21.2

22.1

20.5

20.8

20.8

Rogers[vi]

3.8

7

9.7

11.6

10.5

10.5

Astral

6.2

6.5

7.2

8.1

8.1

 Bell – Shaw

Quebecor (8)

5.9

6.1

5.8

5.5

5.6

5.6

Remstar

0.9

0.9

0.9

Total TV $

5209.9

5603.9

6311.3

6865

7224

7224

C4

63.6

61.9

75.7

79.7

81.4

88.3

HHI

1310.6

1290.09

1750.26

1796.93

1897.01

2284.4

One of the more perverse outcomes of the state-of-affairs overseen by the Competition Bureau is how it plays to one of Canada’s other major TMI conglomerates: Shaw. Indeed, while there is much talk of divestiture, the arrangements brokered by the Competition Bureau effectively dismantles Astral Media — the ninth largest media company and most significant non vertically-integrated media enterprise in the country — in a way that allows Bell to keep the company’s crown jewels while handing over much of everything else to Shaw.

Indeed, Shaw is a major beneficiary of this transaction, moreso than citizens, consumers and the public will ever be. This is because Corus, which it controls through common ownership by the Shaw family, will pick up the two English-language radio stations as well as the half-a-dozen pay and specialty channels that Bell must sell: the bilingual Teletoon/Télétoon service, English-language Teletoon Retro and Cartoon Network (Canada), and French-language Télétoon Rétro, Historia and Séries+. Bell will also sell off ten other radio stations and another half-dozen specialty and pay channels: The Family Channel, Disney XD,Disney Jr. (English and French), MusiquePlus and Musimax.

This horse-trading amongst dominant players in the industry overseen and blessed by the Competition Bureau smacks of the worst in Canadian regulatory traditions, i.e. the state giving its seal of approval to incumbent interests in already concentrated markets. The matter is made all the more unsavoury by the fact that Shaw was Bell’s only industry ally in Round One of the Bell-Astral deal, supporting Bell’s application to the CRTC and largely sitting silent on the sidelines. The rest of the industry and many others — Quebecor, Cogeco, Telus, MTS, Sasktel, Eastlink, the Independent Broadcasters Association, public interest and consumer groups, etc — fought strategically and on principled grounds against the original deal. The upshot of these arrangements is the creation of two roughly equal behemoths, Bell and Shaw, with each accounting roughly for 38.7% and 35.1% of revenues in the pay and specialty tv sector, respectively, and about 31.6% and 25.4%, respectively, of revenues in the total television market.

Call it a duopoly, but it certainly is not competition in any normal sense of the term. On what should be the more exacting terms of creating the most diverse media possible in line with the ideals of the free press and democracy, such arrangements are a travesty.

Indeed, it is exactly this kind of insider coopetition that has defined Canada’s TMI industries for too long and which the original CRTC decision looked like it might undo. The Competition Bureau’s Consent Agreement certainly blunts that hope, if not kills it outright.

To be sure, this transaction has always been animated by the idea that Bell’s acquisition of Astral might just put it in a better position to undo Quebecor’s dominance of French-language media markets. Is we keep our eyes focused only on the ‘clash of titans’ scenario in which the end game is to pit an even bigger Bell against Quebecor, there is some truth to this, but focusing on only one or two players is not the proper way to assess the structure of any market, let alone media markets.

Looking at Table 3 below, we can see that on the basis of revenues, the CBC is currently the largest player in French language television markets, followed by Quebecor with roughly 24 percent market share and Astral with just over 17%. Bell, V Interactions and Shaw/Corus trail far behind with 8.2, 4.4 and 2.2 percent market share, respectively.

Table 3: French Language Total Television Revenues (Millions), 2007 – 2011

2007

2009

2010

2011

PCBD*

2011 Market Share

PCBD Mrkt Share)

BCE

7.2

8.2

113.5

123.5

327.5

8.2

21.6

Quebecor

278.2

335.9

337.1

364.3

364.3

24.1

24.1

Astral

223.2

235.2

238.3

260.2

22.8

17.2

1.5

CBC(3)

489.7

532.9

606.7

629.5

629.5

41.6

41.6

V Interactions

64.4

61.9

66.5

66.5

4.4

4.4

Cogeco

107.0

Shaw

6.1

5.7

30

33.2

66.5

2.2

4.4

Canwest

18.5

22.3

Shaw
Others

137.6

123.4

46.5

35.6

36

2.4

Total French-language Conventional TV

817.5

826.0

892.0

925.8

925.8

925.8

925.8

French pay and specialty TV

450.0

502.0

542.0

587.0

587.0

587.0

587.0

Total French-language TV

1267.5

1328.0

1434.0

1512.8

1512.8

1512.8

1512.8

CR4

91.0

 91.7

HHI

2699

2818.9

Sources: CRTC (2012). Communications Monitoring Report and Aggregate Annual Returns and company Annual Reports.

If the scenario contemplated by the Competition Bureau’s Consent Agreement goes ahead, Bell will replace Astral as Quebecor’s biggest commercial rival.  Shaw/Corus’ place in the French-language market will also be strengthened on account of the increased share in French-language TV services that it will have. While such a scenario might put two of Canada’s largest TMI conglomerates on a more equal footing in Quebec, the elimination of Astral will reduce the number of independent media groups and further drive up already extremely high levels of concentration within Quebec and across the Canada as a whole.

That concentration is already extremely high in Canada there can be no doubt, with the big four firms (CBC, Quebecor, Astral and Bell), as Table 3 above shows, controlling 91% of all revenues. The CR4 will rise if Bell acquires Astral to just under 92%, while the already sky-high HHI will rise from an exceptional 2699 to 2818.  To be sure, these increases might appear modest, but it cannot be emphasized enough that this is only because concentration levels are already off-the-charts by any reasonable measure.

The claims that a bulked up Bell will make for a more formidable competitor to Quebecor is even less convincing when we look beyond the domain of television. In radio for example, while Bell will bulk up on French-language radio stations to complement its English-language stations, Quebecor isn’t involved in radio at all. Net outcome? More concentration in radio, but zero benefit in terms of competition and diversity.

The table below shows the results with respect to French-language radio.

French-language Radio Revenues  

2007

2008

2009

2010

2011

Post CompBur Divestitures $ Mills)

CBC

155.5(4)

161.9

166.2 (4)

145.1

140.3

140.3

Astral

108.8

109.5

108.4

107.9

108.7

Bell – Shaw

Cogeco

30.3

33.2

36.3

41.8

84.1 (1)

84.1

Corus

48.1

49.3

50.4

55.5

BCE

108.7

Total Fench Private Radio Rev

224.9

230.9

238.4 (2)

251.1

258.4 (3)

273.2 (5)

Total Fench Radio Rev

380.4

392.8

404.6

396.2

398.7

407.7

Sources and Notes:  CRTC (2012). Communications Monitoring Report and Aggregate Annual Returns and company Annual Reports; CBC figure for 2007 is based on estimate of 41% of CBC radio revenues allocated to French language services, as per 2008. For 2009, the Aggregate Annual Returns identifies French radio rev for CBC as 170.5, however it is 166.2 in the Canadian Media Monitoring Report; Cogeco data for 2011 from Annual Report differs (p. 29) from CRTC figure of $113.6 (Aggregate Annual Return).

Moreover, while Bell will divest ten English-language radio stations as part of its agreement with the Competition Bureau, more importantly it will retain 77 out of Astral’s 84 radio stations. Add that to the 30 that Bell will retain in its existing stable and it will have 107 radio stations across the country — a development that will, as I stated last year when this transaction was first announced, see Bell “catapult from being the fifth ranked player in radio to top dog”. It’s exact share of revenues can’t be precisely counted, but would be about 26% before the divestitures and likely somewhere around 21-23% afterwards by my estimation.

This is not terribly high, but it does reverse the trend of declining concentration in radio, which is pause enough for concern. Indeed, the best the Competition Bureau can muster in this regard is that it “is satisfied that the proposed divestitures are sufficient to ensure the transaction will not result in a substantial lessening or prevention of competition in any radio market.” That’s a far cry from saying that it will contribute anything positive. 

Finally, Quebecor’s dominance of French-language newspapers and magazines will remain completely unscathed by Bell’s acquisition of Astral, since neither of them is involved in either of these areas, except for Bell’s minority stake in the Globe and Mail. Given the protracted strife and lock-outs at Quebecor’s Journal de Quebec and later the Journal de Montreal in recent years, and Pierre Karl Péladeau’s commitment to using his media outlets to push a clear political and ideological agenda, there is no doubt a great deal of antipathy toward Quebecor in Quebec, across the country and amongst journalists in particular.

This has no doubt fomented a desire to undercut Quebecor’s ability to seemingly lord over the French press with impunity. While that no doubt plays well into Bell’s claims about increasing competition with its erstwhile rival, the fact that it has no stake in the French press further weakens its claim.

Ultimately, the CRTC might yet turn back Bell’s bid to take-over and carve up Astral Media by taking a more expansive view of these matters under the Broadcasting Act and, more importantly, from within the traditions of a free press and democracy. At the same time, however, the fact that the Competition Bureau moved on its own today does not bode well.

Two years ago in the United States, by contrast, the Department of Justice and FCC worked hand-in-glove in relation to the closest parallel to the Bell-Astral agreement: Comcast’s acquisition of NBC – Universal in 2011. To be sure, both regulators gave the green light in that instance, but the terms were a far cry from the weak measures that appear to have been adopted by the Competition Bureau on its own.

We still await details of the Competition Bureau’s Consent Agreement, but so far, its actions seem woefully myopic and unhinged from even its own standards of assessing market concentration. This, however, is probably the price we play when fundamental matters of communication and democracy are left to those who see the world only through a constrained economic lens.

The net outcome of this transaction will be demonstrably higher levels of concentration in both French and national pay and specialty tv markets as well as the total tv market overall. The same will be true with respect to radio.

It will also further the extremely high levels of vertical integration across the entire sweep of the TMI industries. That, in turn, will, at the very least, solidify our dubious honour of having the second highest levels of cross media ownership concentration among the 14 comparable countries surveyed by the International Media Concentration Research Project. In fact, it will likely make us Number 1 on this measure.

At the same time, the idea of carving up the market between Bell and Shaw smacks of too much that is unsavoury of how media policy in this country has worked for far far too long. This has to change. There was hope that such change might be in the air last year when CRTC spiked the first incarnation of the Bell Astral deal.  That hope just got dimmer.

 

Follow

Get every new post delivered to your Inbox.

Join 129 other followers

%d bloggers like this: