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Archive for May, 2011

Canada in the Minority on Vertical Integration, UBB

My second column for the online edition of the Globe and Mail, was just published tonight. 

The article picks up on recent trends with respect to media and Internet concentration in Canada and which came to head last week as Bell, Shaw, Quebecor, Rogers, Netflix, the Canadian Media Production Association, Open Media and hundreds of others filed documents detailing the stance they will take at crucial CRTC hearings on vertical integration and Usage-Based Billing in June and July.

This entry repeats the story with a few additional links and two additional figures to fill out the picture presented in the Globe and Mail version: the first illustrates the growth of the ‘network media economy’ over the past quarter of a century and the second shows concentration trends across eight segments of the media, telecoms and Internet industries between 1984 and 2008.

At stake in the upcoming hearings is control over a set of industries – what I call the ‘network media industries’ – that have grown immensely from $42.3 billion in revenue to nearly $74 billion between 1996 and 2009 (adjusted for inflation), as the following figure shows:

Figure 1: The Growth of the Network Media Economy in Canada, 1984-2009*

Also at stake is whether the ‘business models’ of the dominant telecom and media giants or the open and decentralized principles of the Internet and digital media will set the course of development in the decades ahead.

Lastly, the issues are also fundamentally about media concentration, a hotly contested subject that is as important as it has ever been, but one that is usually compromised by a lack of evidence. Consequently, fiery debates typically take place in a vacuum and closely track ideology rather than evidence.

To take one example, the existence of 500 ISPs suggests a highly competitive market. CRTC data, however, point in the opposite direction, with the ‘old’ telephone or cable providers serving 95% of subscribers and the ‘big six’ alone accounting for three quarters of the market: Bell, Shaw, Rogers, Telus, Quebecor, Cogeco.

My own data shows that concentration climbed sharply between 1996 and 2004, and has stayed remarkably flat ever since, with over two-thirds of Internet access revenues going to the ‘big six’. While not quite as high as the CRTC’s figures, the upshot is still a few players competing in oligopolistic markets.

The problem with the CRTC’s data is three-fold: it focuses only on the top four or five players. It is presented inconsistently from one year to the next. It relies on information that it refuses to disclose. Last year, I filed several Access to Information requests to obtain this data, but was refused each step of the way.

I did so as the lead Canadian participant on the International Media Concentration Research Project – a project led by Eli Noam, a renowned Professor of Economics and Finance, and media expert, at Columbia University. The project includes more than forty researchers from across the political spectrum who are systematically collecting data for every sector of the telecom, media and Internet industries since 1984.

So, what does the evidence for Canada show?

First, that each sector of the media is concentrated by standard measures. Second, that patterns follow a U-shape, with concentration falling in the 1980s, rising sharply from the mid-1990s until peaking in the early 2000s, and staying relatively flat since then. Third, that concentration is high by global standards and more than twice as high than in the US. The trends are shown in the figure below:

Figure 2: Media, Telecom and Internet Concentration, 1984-2008 (Concentration Ratios)

These trends have been encouraged for several reasons. First, there can be no doubt that the Internet has vastly expanded the range of expression available, but this reality often overshadows the fact that several core aspects of the Internet are prone to concentration (e.g. ISPs, search, social networking sites, etc.) and that the biggest players now control an ever-expanding stable of outlets.

Formal rules on media concentration were adopted for the first time in 2008 by the CRTC and this is a far cry better than none at all. However, by using the same criteria used to regulate banking and granting frequent exceptions, the rules are weak and detached from the values of free speech and democracy.

Second, there is too much deference to claims that the traditional media are ‘in crisis’. Such claims are generally false (see here).

In fact, ‘old media’ such as television have grown impressively and new media markets have been a boon for established players. The vast majority (95%) of Internet access revenue ($6.5 billion), for instance, goes straight to the incumbents’ bottom-line.

Companies that have crashed and burned, notably Canwest, were actually profitable. However, saddled with debt, it could not weather the short-term decline in revenues caused by the global financial crisis and forced into bankruptcy in 2009-2010.

Third, the myth that Canada’s small media market requires big players with deep pockets further underpins consolidation. However, Canada has the eighth largest network media economy in the world, after France and Italy and just ahead of South Korea and Spain.

Independent ISPs, tv channel owners (the Weather Channel), online video providers (Netflix) and others have consistently claimed that the big players use their dominant positions to crush competition. The CRTC, despite its own analysis, however, has failed to deal with media concentration head-on. The Harper Government’s directives to rely on “market forces to the maximum extent feasible” have further disarmed the regulator.

These issues will no doubt come to a head during the vertical integration and Usage-Based Billing hearings. Yet, there is every reason to be skeptical about what can be accomplished given that this is a classic case of “bolting the barn door after the horse has already left the stable”. Industry Minister Tony Clement’s recent declaration that vertical integration is the way of the future further reinforces the perception.

This is not the way of the future, however, but of a discredited past. In the U.S., for instance, the fully integrated multimedia conglomerate has become the exception (e.g. Comcast/NBC-Universal) after the disastrous AOL Time Warner merger, the break-up of Viacom-CBS, and collapse of the ‘old’ AT&T. Indeed, the reign of sprawling media conglomerates is in retreat in almost every other developed capitalist democracy.

With events in Canada running counter to trends elsewhere, it is time to think about breaking-up Bell/CTV, Shaw/Global (Corus), Rogers/City-TV and Quebecor/TVA (Sun TV) into two separate parts: network infrastructure and content services. This is called ‘structural separation’ and under this scenario these entities would become wholesalers of network facilities and retailers of their own content and services.

They would sell access to their networks to other content providers and ISPs on equal terms. This would give them an incentive to increase revenues by intensifying the use of their networks by others instead of by prioritizing services and content they own. Over a century of experience teaches a simple rule: when allowed to combine network ownership with the content delivered over them, incumbents will always confer advantages on themselves that they deny to others.

Steps to address this reality are already in place in the U.K., Australia, New Zealand, Singapore, and Sweden. There may be circumstances in Canada that require unique adaptations of the separations principle. However, only by hiving off control over the medium (networks) from control over the message (content) will innovation, competition, free speech and an open network media ecology trump the incumbents’ vested interests and dogma.

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Politics, the Press and Bad News for Democracy: Newspaper Endorsements Update on Last Day Before Election

For the last three days we’ve been playing the politics and the press game, counting up the editorial endorsements for Prime Minister made by the major daily newspapers across the country.

I’ve been focusing on 61 daily newspapers that belong to one of the nine main newspaper ownership groups in Canada that account for roughly 95 percent of the newspaper industry revenues. Today I added another newspaper to the list, the Winnipeg Free Press.

This means that we now can speak of the 10 largest newspaper groups in Canada. Our “sample” in other words now accounts for roughly 97 percent of the newspaper business in Canada.

The basic idea behind the free press is that it is suppose to reflect a plurality of a society’s voices and political forces. If that is true, shouldn’t the range of editorial opinion in the press come at least somewhat close to matching up with public opinion?

The news that I’ve delivered so far has not been good. On day one, I showed that out of the four editorial endorsements made by that time — one by the Globe and Mail and three others by members of the Post Media Group (National PostTimes Colonist and the The Province) — all picked Harper as their man. By yesterday, the number of endorsements had grown to 13, with 12 plunking down foursquare behind Harper.

In other words, despite only having support of roughly a third of Canadian citizens, 92% of editorial opinion in the press in Canada were stumping for Harper. Something was definitely out of whack, but perhaps there was hope because conceivably the remaining papers could come along to save the day, singing the praises of Ignatieff, Layton, Duceppe, or May in some way that roughly corresponded with the distribution of votes and voices in Canada.

Sorry, that hasn’t happened. For those hoping that somehow the editorial pages might finally line up with popular sensibilities and the disparate political forces that make up the fabric and culture of democracy in Canada, the bad news is now really bad news.

By today, Sunday before the election, the number of endorsements has leapt to 31. If the ‘editorial voices’ of Canada’s main daily newspapers roughly corresponded to people’s views based on a mixture of current opinion polls and the last election, then we would expect something like, give or take a few, 10 to 12 endorsements for the CPC and Harper, just under a quarter to line up behind either Layton and the NDP or Ignatieff and the Liberals, and the remainder to be split across the Greens and Bloc.

So, where do things now stand? The table below shows the results

Parent Group & Titles Mrkt. Share ($ 2009) Dailies / Group CPC Lib. NDP Just Vote/ Multiple Parties
Post Media 27% 12 10 1
Sun Media 25.9 18 6 3
Toronto Star 13.9 1 1
Globe & Mail 7.2 1 1
Power Corp/ Gesca 9.8 7 3
Winnipeg Free Press 1 3.5 1
Transcontl. Media 3.2 11 1 2
Glacial 2.9 6 1
Halifax Herald 2.2 1 1
Brunswick News 2.1 4 1
10 Groups Total Tally  62 Titles 97.5% Market Share 21  0 1 10

Layton luckily picked up an endorsement from the Toronto Star. He and the NDP also got some mixed blessings among the papers of the La Presse group — which stands out as the most representative among the papers across the country, with papers in its group such as La Presse, Le Soleil and Le Droit backing a mix of candidates from all of the parties.

Counting just the endorsements of specific candidates for PM (Harper, Layton, Ignatieff, Duceppe, May), we find a stunning 21 out of 22 backing Harper. In other words, 95 percent of editorial opinion has solidified behind Harper. This is almost three times his standing in the public mind, and the last election.

The newspapers aligned with the Sun Media Group (Quebecor Media Inc, or QMI) and the re-incarnated Post Media Group have engaged in ‘bloc endorsements’. That they have done so is an indictment of editors who have sold their souls, shilling for owners one by one right across the country rather than exercising any editorial autonomy and freedom of their own minds. Instead, they take their marching orders from Montreal and Toronto. Readers deserve better.

This is also an indictment of the heavily concentrated nature of the newspaper and media business in Canada, with just two entities — QMI and Post Media — accounting for over half of the newspaper industry.

To be sure, their grip is not iron clad, and within both groups a few smaller papers like QMI’s Barrie Examiner, The Brockville Recorder and Times and The St. Catharines Standard as well as the Post Media’s Regina Leader-Post, appear to have been not quite so willing to swallow their master’s line. Instead, each of these small town papers has chosen to write ‘get out and vote for somebody’, civic-duty editorials. More than half of the small city newspapers in places like Nainamo, Sault St. Marie, Kenora, Dawson Creek, and so on offered no editorial endorsements at all.

The editorials of the small city papers listed above and others like them are so important because at least they express an independent local editorial voice, and are more varied than unison of voices that have been strung through most of the big city papers.

But make no mistake that these are minor papers in the QMI and Post Media stables. In Vancouver, Calgary, Edmonton, Saskatoon, Toronto, Montreal (but not Halifax and much of the Maritimes) and other major cities right across the country where these groups have dailies, editors are stumping for Harper. Even single major newspapers such at the Globe and Mail and the Winnipeg Free Press have weighed in strongly on the CPC side of the scale in Canada’s biggest cities and nation-wide.

This is not a free press. This is bad for democracy. The fact that a shackled press now stands to an extraordinary degree singing their praises for Dear Leader S. Harper from the same hymn sheet should give us pause for thought and reflection.

Even though I think that this is a problem of the highest order, let me close with three caveats that I think might lead us to a somewhat happier place:

First, opinions pronounced from the bully pulpit of the editorial page on behalf of media owners comes across as much more of phalanx of congealed opinion than the rest of the pages of the press. In other words, the solidity of editorial opinion is not matched to the same degree by journalistic opinion which, while still constrained, is of a broader range.

Second, journalists, and maybe even editors, are people too. The Globe and Mail, to its credit, seems to be doing some soul searching around these issues. Yesterday it published an exceptionally strong condemnation of its own editorial endorsement by Concordia University journalism professor Matthew Hays.

Today, it has also opened up the pages as well to deeper reflections from readers, while acknowledging the dominantly negative response to its choice. Despite looking like the press of a banana republic from some angles, the editorial pages at the overwhelming majority of Canada’s newspapers that are now serving as the mouthpiece of the CPC — Conservative Party of Canada — are not the same as the Xinhua News Agency and the Communist Party of China.

Third, the fact that editorial opinion is so out-of-step with popular opinion reveals the tenacity and autonomy of the public mind. Our minds are not blank slates upon which editors stamp their views.  That, however, does not excuse the gap one wit, but rather should make us wonder what a real free press would look like, one that actually did simultaneously draw from the public well while also contributing to it.

Tomorrow’s a big day. Let’s change things around so that we can address some of the bigger issues at hand, including some of those relayed here in the past three days.

Oh yes, for the super-duper, updated paper-by-paper breakdown of each newspaper’s editorial stance (with links to the editorial), please see Editorial endorsements Updated (May 1).

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