CRTC Kills Bell Astral Deal: What Happened and Why?

On Thursday this week, the CRTC killed the Bell Astral deal (news release, full decision). The decision was entirely unexpected by anyone, including me, although all along I have argued that Bell’s bid to acquire Astral Media, the 9th largest media company in Canada, gave the CRTC ample ground to do exactly what it did. I also argued that it was the right thing to do, and that the CRTC should stop Bell’s take-over bid for Astral “dead in its tracks”.

Several things stand out from the decision. First, it sets a precedent. To find the closest parallel to this case, we’d have to reach back more than a quarter-of-a-century to 1986 when the regulator quashed a bid by Power Corporation – owner (then and now) of Quebec-based newspaper group, Gesca – from acquiring Tele-Metropole, the cornerstone of what eventually became TVA: the “largest and most important private French-language television station in Quebec and one of the leading Canadian television stations in terms of local production”, as the decision noted at the time.

Second, the decision makes crystal clear that the CRTC, under new chair, J.P. Blais, will take a large view of media consolidation rather than its typically flinty-eyed view of the world. The CRTC will also look carefully at questions of market share and media concentration, and do so not just using audience ratings as its preferred method but also revenues in ways that capture trends within specific media sectors (e.g tv) and across the media as a whole (see paras 29, 51-54).

Of course, numbers are never determinative, according to the CRTC (see para 52), and nor should they be, I would argue. There is no ‘magic number’ upon which things turn, but measuring media concentration within and across the relevant telecom, media and internet sectors, across time as well as in relation to relevant trends elsewhere in the world, is an essential prelude to the conversation that needs to be had. The Commission now seems more ready than it has been in a long, long time to have that conversation. This is a very good thing.

Third, the CRTC rejected Bell’s claim about the threat of OTT services offered by Netflix, Apple, Amazon, etc., on the grounds that they were exaggerated. As the Commission (2011c) stated less than a year ago in its Results  of  the  Fact-Finding  Exercise  on  Over-­the-­Top  Programming Services,

“. . . the evidence does not demonstrate that the presence of OTT providers in Canada and greater consumption of OTT content is having a negative impact on the ability of the system to achieve the policy objectives of the Broadcasting Act or that there are structural impediments to a competitive response by licensed undertakings to the activities of OTT providers” (p. 8).

That evidence has not changed and the CRTC said so in this decision (para 62). In 2008, according to a Media Technology Monitor/CBC study about 3 percent of tv viewing occurred on the Internet (MTM/CBC, 2009, p. 49). According to their most recent study, “only 4% of Anglophones report only using new platforms to watch TV” (MTM/CBC, 2012, p. 4).

Netflix’s annual revenues, based on 1.2 million subscribers, can be an estimated $115 million in 2011, or about .7% of the total television universe (including BDUs). To this we can estimate that Google’s revenues in Canada last year would have been roughly $1.3 billion, or half of online advertising revenue (IAB, 2011). While that may have had an impact on the newspaper and magazine industries, there is no evidence it has done anything of the sort with respect to the broadcasting industry.

The CRTC also cast a jaundiced eye on Bell’s proposal for BellFlix – a new online, on-demand tv service for its subscribers — that would, so Bell argued, allow a combined BellAstral to effectively compete with foreign OTT operators like Netflix. Bell sprung the proposal on the CRTC on the opening day, but the CRTC didn’t buy it because, first, eleventh hour proposals do not follow the rules. The deadline for complete applications was August 9th, not Day 1 of the hearings.

More importantly, an online “TV Anywhere” service is now a requirement of the internet-centric media world, not a bolt on somehow dependent on Bell’s take-over of Astral (para 61). In other words, Bell will have to launch such a service regardless, if it wants to meet current realities and consumer demand.

Fourth, the CRTC rejected Bell’s argument that there was no need to worry about vertical integration because, “This issue was recently exhaustively canvassed by the Commission in its Vertical Integration proceeding” (Bell, Supp. Brief, para 59). In fact, the CRTC observed that consumer groups, non-integrated distributors (Telus, MTS Allstream, SaskTel, Cogeco, Eastlink, etc.) as well as independent broadcasters (VMedia, APTN, Zoomer, etc.) “filed evidence and argument” that cast significant doubt about the capacity of the new vertical integration rules to effectively constrain “BCE’s alleged anti competitive behaviour with respect to program rights negotiations and product launches” (emphasis added, para 32; all submissions can be found here). Put simply, Bell has been acting as a brute ever since it re-acquired CTV just last year, and for this it has now paid the price.

More importantly for the long-run is what the CRTC had to say about consolidation and vertical integration en route to squashing the deal. First, and to avoid over-stating the significance of what is going on, the CRTC noted that it has long been a fan of consolidation and vertical integration, and still is. Second, and with a big however, it also picked up on a point that I have made many times: greater consolidation and vertical integration has not been an unalloyed blessing (far from it); in fact, the process has been thrown into reverse in many other countries around the world.

In the U.S., the results of de-convergence have been remarkable. Aside from the mega-merger of Comcast and NBC-Universal last year, media companies have been beating a hasty retreat from vertical integration and “convergence”. The number of pay and specialty tv channels controlled by cable companies fell dramatically from the 50-55% range in the early 1990s to 15% by 2006 (Thierer & Eskelsen, 2008, pp. 55-56; Waterman & Choi, 2010).

As Viacom-CBS Chairman Sumner Redstone declared in 2005, “the age of the conglomerate is over” (Sutel, 2005). A year later, Time Warner President Jeffrey Bewkes called claims of convergence and synergy “bullsh*t”! Mainstream Media economist Alan Albarran (2010) summed up the lessons as follows: “Looking back, vertical integration was not a very successful strategy for media companies, and it was a very expensive strategy – costing billions of dollars over time. In the 21st century, the early trends have been to shed non-core assets that distract from the base of the company . . .” (Albarran, p. 47). Further examples could be piled up like leaves in autumn.

With this decision, the CRTC put Bell and the rest of the telecom and media industries on notice that claims about vertical integration and consolidation will no longer be taken as an article of faith, although it will still look upon such claims fondly.  This is critical and while it could put a halt to any more ‘blockbuster deals’ for the time being, I am more inclined to think that it’s too early to tell.

Fifth, the CRTC rejected Bell’s bid for Astral on the grounds that it did not pay sufficient attention to radio (paras 57&60).

Lastly, Bell’s benefits package was roundly criticized and rejected for being self-serving. Too many of the benefits would flow to activities that Bell was already doing (e.g. its otherwise laudable Mental Health promotion campaign) or to services that it had already been directed by the regulator to invest in, i.e. expanding broadband access in the North by its subsidiary Northwestel (para 59).

There is a bigger implication in this latter point too, however, a not-too-subtle slap not at Bell, but rather the independent television and production sector, J-Schools and others who line up at the trough for their share of the public benefits package, all the while soft-peddling their criticisms of ownership consolidation as a prerequisite to doing so, as the Canadian Media Producers Association and Canadian Writers Guild, for instance, did in this case and every other one like it in the past decade.

The CRTC’s decision, thus, interrupts the well-known cycle whereby independent television and film production community pull their punches in ownership cases in the hope that they will be in the acquiring company’s good books when it puts together its “public benefits package” as it seeks regulatory approval. This has created a seriously distorted and sordid cycle of dependency in which higher concentration and problems in the long run are sacrificed for short-term gains. It is essentially taking scraps off the table in a strategic way instead of a principled stance on the matter, or one informed by any evidence one way or another about the desirability of such transactions.

It also could take the process out of the gutter insofar that it lifts the chill over independent broadcasters and those in the creative community who will no longer have to cower out of fear that they will be frozen out of the big vertically integrated players’ programming schedules, or denied access to essential distribution facilities, if they speak out against a deal like this one. Those who stood opposed to the Bell Astral deal jeopardized their own access to the schedule of what is already the second largest tv operator in Canada, and which would have been the largest if the deal had been consummated (see para 28).

This is what economists call the ‘monopsony problem’, where there are many sellers and very few buyers. This problem is acute enough already, with the ‘big four’ – Shaw, Bell, Rogers and Quebecor, in that order – already dominating 81 percent of the ‘total tv market’. That number would have grown to just under 90 percent, if Bell had its way.

The last point I want to address for now is the claim being bandied about that the CRTC’s decision to kill the Bell Astral deal reflects a new activist regulator under the stewardship of its new chair, J. P. Blais.  The claim seems to have first emerged in a Globe and Mail article by Steve Ladurantaye at the beginning of the hearings when Blais read aloud a series of public criticisms of the Bell Astral deal.

Since Thursday when the decision came down, the claim that the CRTC has become an activist commission with a consumer bent has gained a great deal of fuel. Michael Geist, writing in the Toronto Star, says that this ain’t your mom and dad’s old CRTC, but one that has put the consumer back in the drivers’ seat. A piece in the Globe and Mail by Steven Chase today makes the same case. Thursday night, and over at the National Post, Terrance Corcoran bemoaned the turn-of-events, seeing the CRTC as playing the populist card and pushing its activist agenda behind the “shadowy concept” of the public interest.

I have several reservations about this view. First, I am uncomfortable that most of the references are to consumers, with none to citizens and just a few to ‘the public’, and then in disparaging terms (Corcoran). These decisions are not just about cable and satellite bills (Globe & Mail); they are about citizens’ and the public’s access to the maximum range of entertainment, news and information sources possible. They are also about “the Public’s” ability to use these media, especially the internet, without having that use hedged about by restrictions and limits imposed by TMI giants bent on protecting their legacy television businesses and transforming the open internet into the pay-per model, where usage based billing and bandwidth caps run roughshod over citizens’ communication rights. This is about communication rights, democracy and pleasure, not just cable and satellite bills.

Lastly on this point, in contrast to seeing the CRTC as suddenly having been remade in a consumer activist mould by J. P. Blais, I think we need to entertain a more critical view.

In this view, as social and political theorists have long shown and discussed (see, for example, C. Wright Mills, The Power Elite), the room for significant changes and unexpected outcomes increases immensely when there is a split amongst elites. And in this case, that split was on full display, with Bell standing on one side arrayed against not just citizens and consumers wary of yet even more telecom-media-internet concentration, but the biggest players in the biz, indeed, almost all of the rest of the industry except Shaw, who sat on the sidelines.

Bell may be a behemoth, but pitted against the rest of the industry and the public, the CRTC had a massive opening through which to think outside the box. And it did, and make no mistake about it, this is a big decision. However, the real test will be whether that continues to be a trend when the industry once again closes ranks, as it so often does, or most of the key players involved do like Shaw did this time around: sit on their hands. Will the CRTC be as emboldened then to pursue “the people’s” interest? For that, we’ll have to wait and see.

Code Yellow: Threats to Freedom of Expression, Online and Off, in Canada

This morning the Huffington Post published an article I wrote for PEN Canada as part of its ‘Non-Speak Week’, “a string of events and exchanges exploring the state of freedom of expression here in Canada”, according to the group. The original version of the piece, with links, is reproduced below.

We reach certain points in time, what the critical media scholar Robert McChesney calls “critical junctures”, or that the sociologist and media historian Paul Starr calls “constitutive moments”. Now is one such moment, and choices and decisions made nowcould tilt the evolution of the network media ecology in Canada toward a more closed, surveilled and centralized regime instead of an open one that strives to put as much of the internet’s capabilities into as many people’s hands as possible. The latter approach maximizes the diversity of voices and is essential to any free press — digital, networked, or otherwise — and to the role of communications media in a democracy.

Threats to an open media and internet ecology, and thus to creative and expressive freedoms in Canada, are unlikely to arrive outfitted in jackboots. Instead, they will arise from the slow, cumulative outcome of decisions that will affect levels of media and internet concentration, internet surveillance for law enforcement and national security reasons, and a concerted push to turn internet service providers (ISPs) and digital intermediaries such as Google and Twitter into agents on behalf of the entertainment and software industries’ copyright maximalist agenda.

In terms of media and internet concentration, Canada already has some of the highest levels of concentration and cross-media ownership in the world. The ‘big four’ telecom-media-internet (TMI) giants – Bell, Shaw, Rogers and Quebecor Media Inc. – already control roughly half of the network media economy in Canada. This is set to get much worse if the CRTC gives Bell’s bid to take-over Astral Media the green light in a decision expected later this year.

The problem of media and internet concentration is crucial to freedom of expression for many reasons. First, large TMI conglomerates are often rickety enterprises that spend more to pay down the debt incurred by acquisitions and mergers than good journalism, investment in new technology and infrastructure, or supporting open media.

Second, these same entities have turned to soft tools of censorship such as usage-based billing and bandwidth caps to protect their investment in legacy media and which are transforming the user-centric internet into the pay-per Internet. Such measures constrain what we can and cannot do with our internet connections. They privilege incumbents’ own online video services while discriminating against other sources. Bandwidth caps are not unique to Canada, but the fact that they are near universal among the big players and set at very low levels with high prices relative to global standards, does set us apart from the rest of the world.

Lastly, a small number of massive integrated media and internet companies are more regulable than many entities of different stripes and sizes. In short, a few big firms make for juicy targets for those who see them as potential tools in their own efforts to push either a law and order agenda, as was the case last year with the Investigative Powers for the 21st Century Act (Bill C-51), or part of the arsenal of a strong copyright enforcement regime, as some sought but did not fully achieve with the Copyright Modernization Act passed earlier this year.

I think we need to push back against the tide. As part of my efforts to do so, over the past year I joined with the Digitally Mediated Surveillance research project and the New Transparency Project to create a video to discuss why internet surveillance and the Harper Government’s proposed lawful access bill specifically are bad for privacy, democracy, civil liberties and an open internet.

That bill died last Parliament and was to be reintroduced with the Government’s omnibus crime bill passed earlier this year. Its essential aim was to have ISPs and telecommunications providers retool their networks with far greater surveillance capabilities and to require telecoms providers, ISPs and search engines to disclose subscriber information, including name, address, IP address, and email addresses, to law enforcement officials without court oversight.

Fortunately, this aspect of the omnibus bill was stripped out at the last minute in the face of withering public criticism led by groups such as Open Media, dissent within the ranks of the Conservative Government, and even a broadside against it in one of Rick Mercer’s famous rants.  The victory is significant, but a similar bill sits in the wings waiting for an opportune moment to be reintroduced. Moreover, University of Ottawa law scholar Michael Geist observes that telecoms providers and ISPs already comply with over 90% of requests from law enforcement requests for information about their subscribers without a warrant.

As I said earlier, a few massive firms are more likely to be pliable entities than recalcitrant ones. This example shows that this is, in fact, the case. Such murky ties outside the formal rule of law do not bode well for freedom of expression in Canada, online or off. For an open network media ecology and citizen’s rights to autonomy and to express themselves freely to flourish, the collection, retention and disclosure of personal information between private media companies and the state should be minimized, not maximized.

The final factor in this trilogy of forces bearing down on an open internet is the copyright maximalist agenda. A strong version of this was visible earlier this year in the United States with the Stop Online Piracy Act, or SOPA. SOPA would have required: (1) ISPs to block access to ‘rogue websites’, (2) search engines to make such sites disappear from their results, (3) payment providers like Paypal and Visa to cut-off payments, (4) and advertisers to cut-off suspect sites from advertising placement, among other things.

The fundamental remaking of the Internet such activities contemplated unleashed a firestorm of protest, ultimately leading to a tactical withdrawal of SOPA. Yet as SOPA was being withdrawn in the US, copyright maximalists here in Canada were on a roll.

They deployed their hyperbolic rhetoric that carved up the world into good guys and bad guys, with repeated references to “wealth destroyers”,  “parasites”, “rogues” and “pirates” to make their case for why Canada needs strong digital locks, longer copyright protection terms, and for ISPs and search engines to step up to the plate on their behalf.

Copyright maximalists spurned claims that their agenda had anything to do with freedom of expression, but last year a United Nations’ report on internet and human rights argued exactly the opposite point of view:

“. . . [C]utting off users from Internet access, regardless of the justification provided, including on the grounds of violating intellectual property rights law, [is] disproportionate and thus a violation of article 19, paragraph 3, of the International Covenant on Civil and Political Rights” (p. 21).

Article 19, in case you didn’t know, sets out freedom of expression and opinion as a fundamental human right at the global level and calls on the 167 countries that are party to it to promote and protect such rights to the fullest extent possible.

In a powerful testament to the ability of “the Public” to influence arcane matters of policy and law, the copyright maximalist’s got only a fraction of what they wanted: digital locks yes, but no term extensions or requirement that ISPs, search engines and other digital intermediaries serve as tools on their behalf.

These examples suggest that when it comes to freedom of expression, there will be no smoking gun, just a slow tilt biasing the evolution of the telecom-media-Internet infrastructure in favour of greater control on behalf of incumbents, the state and copyright maximalists. For freedom of expression to flourish, we need to keep our eyes wide open to such efforts by stealth that seek to transform the network media ecology into one that is more closed, controlled and regulable.