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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

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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.

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.

 

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.

The Significant Impact of the Bell Astral Deal on Media & Internet Concentration in Canada

Today was a good day. An unbelievably frantic one, but a good day nonetheless. I’ve been pouring blood, sweat and tears into a submission to the CRTC’s hearings on Bell’s bid to buy Astral Media to be held in Montreal next month. Today was the deadline for submissions to the CRTC.

My submission is part of an intervention by the Public Interest Advocacy Centre, Consumers’ Association of Canada, Canada Without Poverty, and Council of Senior Citizens’ Organizations of British Columbia opposing the Bell/Astral deal. The documents were filed with the CRTC today.  All submissions to the CRTC can be found on its website here.  

Bell claims in its application to the CRTC that a combined Bell/Astral “will not exercise market dominance in any sector of the broadcasting industry” (emphasis added, Bell, Reply, A14c). My submission on behalf of PIAC et. al. argues otherwise and that the transaction deserves very close scrutiny, and that key elements of it should be stopped dead in their tracks.

The key findings in the submission can be summarized as follows:

  1. a successful bid by Bell to acquire Astral would catapult it to the top of the ranks in radio, with revenues of $500 million, 106 radio stations, just under 29 percent of the market – twice the size of its nearest competitors: Rogers, CBC and Shaw (Corus). Notwithstanding such an outcome, this would not trigger regulatory intervention under the CRTC’s new ownership rules or its Common Ownership Policy. Consolidation in radio increased in the early 2000s before drifting downwards in recent years. Radio is unconcentrated by conventional measures. The Bell/Astral deal, however, would reverse the tide and result in the highest levels of concentration in the past twenty-five years
  2. there would be no direct impact on traditional television broadcasting.
  3. in the specialty and pay television market, Bell’s market share would rise sharply from 28% in 2011 to over 42%. This gives the CRTC ample grounds to intervene.
  4. across the total television universe, Bell’s position would be reinforced, rising sharply from 27% in 2011 to 35%. This, too, provides grounds for intervention.
  5. television markets worldwide tend to be more concentrated than often assumed. Canada is, at best, a middle-of-the-road performer on this measure, and often at the high-end of the scale. While concentration is slowly declining elsewhere, in Canada it is rising sharply; the Bell – Astral deal will compound the trend.
  6. Canada currently has the second highest level of cross media ownership and vertical integration among thirty-two countries studied by researchers in the International Media Concentration Research Project (Columbia University). It will be the highest amongst these countries if the CRTC does not pull the plug on the Bell — Astral deal.

The following figure shows the story.

Crossmedia Ownership/Vertical Integration Ratios — Canada # 1 amongst 32 Countries Surveyed Worldwide

Source: International Media Concentration Research Project with updates for 2011-2012 for Canada by author

Conclusions Drawn

Ultimately, the submission concludes:

  1. The CRTC probably has no choice but to give a pass to Bell with respect to its take-over of Astral’s radio assets. Bell meets the Commission’s requirements under the Common Ownership Policy, or at least will once it divests itself of ten stations in Vancouver, Calgary, Winnipeg, Toronto and Ottawa-Gatineau. This is unfortunate because, until now, radio has been one of the least concentrated and most diverse media in the country. The Bell-Astral deal will increase concentration significantly, whereas in most countries covered by the IMCR study, it is declining.
  2. Television is a different matter. There will be no direct effects on broadcast television. There will, however, be large and significant effects on the specialty and pay television and “total television” markets. Concentration levels in all of these areas are already very high by the CRTC’s own standards, historical norms, global standards and by CR and HHI standards used to measure media concentration in this submission.
  3. The impact will be most extreme in the specialty and pay tv market, where Bell will increase its share of the market from 26.6% to 42.2% — well in excess of every other major player in the market: Shaw (32.3%), Rogers (10.7%), CBC (4.1%) and QMI (3.2%). Together, these five companies will control 92.5% of this market. Out of the eighteen countries for which adequate data is available, Canada currently is the 11th most concentrated market. If the Bell – Astral deal is approved, we’ll fall down another notch to 12th place.
  4. The trend is similar with respect to the “total television” market, but not quite as pronounced. On the basis of the CR, it is already more concentrated than it has ever been in the last twenty-five years. In terms of the HHI, things could soon be right back where they were in 1984, when the HHI score was 2307.5 and the VCR all the rage. By my calculation, the HHI score is presently 1918, up significantly from three years earlier when it was 1,481. Should the Bell deal go through, it will have 35% of the market and the HHI score will be higher still at 2308.8 – one point more than twenty five years ago. The CRTC’s own concentration rules permit it to intervene actively in the face of such levels, and it should.
  5. Lastly, Canada already has the second highest levels of cross-media ownership consolidation and vertical integration in the 32 countries examined by the IMCR project. We don’t need to be first. The CRTC ought to oppose this venture on this ground alone, although it is unclear whether it even as the power, let alone the will, to do so. Concentration within and across the network media industries –  demonstrably and empirically – has been extremely high, and is set to get higher yet.

It is time to reverse the tide.

Bell’s Bid to Swallow Astral Media

Sometimes I just wish I could wake up in the morning and not be thrust into the hurly-burly of all the stuff roiling the telecom-media-Internet industries in Canada. But no! If it ain’t copyright maximalists trying to lock up content (Bill C-11) or spooks trying to stuff the telecom-Internet infrastructure with new surveillance gear (Bill C-30), it’s big TMI conglomerates like Bell swallowing up erstwhile competitors like Astral.

Now, this is not just a little deal, but a massive deal between Bell/CTV, the largest TMI conglomerate in the country with revenues of just over $22 billion, and Astral, the eighth largest media outlet in Canada with revenues of $888.1 million in 2010. While Astral is the fifth largest television operator (after Bell/CTV, Shaw/Global, Quebecor/TVA, CBC, in that order) and second largest radio station owner (after the CBC) in Canada, it is but a pygmy alongside Bell. If this deal goes through, we will have lost yet another independent and our position as having one of the most concentrated set of TMI industries amongst the developed capitalist economies will be yet further cemented (see here).

Bell has major and more often than not dominant stakes in the following TMI sectors (with ranking in each market indicated in parentheses): wired (1) and wireless telecoms services (3), internet access (1), tv distribution (cable, DTH, IPTV) (3), broadcast television (2), pay and specialty channels (2) and radio (5).

For it’s part, Astral is the fourth largest specialty pay television service provider in the country with 24 channels (e.g. the Movie Network/HBO Canada, Super Écran, Family, Disney Junior, Disney XD, Canal Vie, Canal D, VRAK.TV and TELETOON). It currently has just over 15 percent of the market. Astral is also the second largest radio station ownership group in the country, with 83 stations and 17.1% of the market.

All told, it is, as indicated above, the eighth largest media player on the media landscape in Canada (excluding wired and wireless telecoms services). Steve Faguy has a good break-down according to English and French language markets.

Astral has also been important because in a country where vertical integration has moved from the margins to the norm, it was one of the most significant non-integrated actors. Astral is to television and radio what Telus is to telecoms: a large, indeed, dominant player in its own right, but without clout across the mediascape as a whole and thus a source of some diversity within each of the media sectors they operate.

The figure below shows the “big 10” media companies in Canada before this transaction.

Should this deal be permitted, Bell will end up with:

  • 40% of the pay and specialty television market;
  • a whopping 34.3% share of the entire Canadian television universe;
  • and catapult from being the fifth ranked player in radio to top dog with over a quarter of all radio revenues;
  • its dominance across the TMI industries as a whole will be further cemented, rising from roughly 16% of all revenues across the network media industries to just under a fifth of all revenues (excluding wired and wireless telecoms).

All said and done, if the Competition Bureau and CRTC approve the transaction, Bell will add 24 pay and specialty television services to the 29 it already owns (total 53 services) in addition to already owning the largest conventional television broadcaster, CTV, plus the second english-language network, CTV2 (the former A-channels). It will have 116 radio stations, whereas it currently has 33.

Instead of relying on the market as a way of acquiring and developing programming and content, Bell’s acquisition of Astral would simply absorb a significant part of the television and radio market into its sprawling hierarchy, in the hope that doing so will drive it’s efforts to drive more traffic over its broadband networks and thus feed its desire to have bandwidth, not content, serve as a key source of revenue.

As the famous economist Ronald Coase noted as far back as 1937, there are two ways of dealing with uncertainty and complex business environments: the market or hierarchies. The fact that “Astral products currently represent Bell’s largest single content cost”, as the news release announcing the deal this morning notes and as Faguy observes, is probably one of the most important elements of the transaction. Indeed, it is. No longer needing to rely on the market, Bell’s acquisition puts an over-weighted thumb on the scales of hierarchies over markets.

Bell CEO, George Cope’s claim that “Anything that moves the pendulum away from regulation is a good thing for consumers, the concept of monopoly is . . . antiquated” is simply self-serving cant.  Yet, it really is an open question as to whether or not regulators will turn back this deal.

I have my doubts mostly because the CRTC seems congenitally incapable of encountering a merger or take-over it can’t justify. The arguments are always the same: deep pockets are good for CanCon, Canada’s media economy is small relative to world standards, integration will give behemoths incentives to invest. All such claims are mostly bogus.

The CRTC’s 2008 Diversity of Voices decision set out some rules on the matter, but I’m afraid that they are too weak.  That decision set out four key guidelines to be used to evaluate mergers and acquisitions, but the most important one in the present case is the ownership caps it set out.  According to these new guidelines, any transaction that results in a single ownership group controlling less than 35% of the television broadcasting and pay and specialty market will be seen as not diminishing diversity and approved.  Those that fall into the 35-45% range will be considered as potentially lessening competition and reviewed, while anything over 45% will be seen as creating excessive concentration and rejected.

Today’s deal falls in category two as potentially lessening competition and thus will no doubt be reviewed. However, the problem is that the adopted thresholds are based on standards originally developed by the Competition Bureau for measuring competition in banking services. They have nothing to do really with important values related to diversity of sources and content, freedom of expression, and so forth that are relevant to assessing communication and media matters.

The transaction will not cross the 45% threshold which triggers outright rejection, but in pay and specialty television services, the fact that Bell will have 40% of the market comes damn close.  A more reasonable standard would see this rejected on its own merit. As I’ve said a million times before, we already have one of the most concentrated markets in the world and we are no better for it. This deal should be stopped in its tracks.

At the end of the day, and seen from the perspective of the media economy as a whole, this will also move levels of concentration amongst the “big four” (Bell, Shaw, Rogers, QMI) even higher.

Concentration levels among the big four for pay and specialty television services will move from roughly 84% to just under 90%. If we combine conventional broadcast tv with pay and specialty tv, the big four will go from controlling 77.5% of the the entire television market to 85.%. And if we take the big view and look across the entire network media economy, levels of concentration amongst the big 4 will rise from the already historic all-time high of 59 percent to about 68%.

This is truly incredible and if we care at all about the health, diversity and range of voices in the Canadian media, such ventures need to be turned back. We must also remember that Bell has failed at this once before, when it owned CTV and the Globe and Mail between 2000 and 2006 before failing and bailing.

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