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Posts Tagged ‘Bell’

Carleton Study Challenges Claims of Big Wireless Players and Promotes Need for Maverick Brands

Cross posted from Carleton University homepage.

Well, this is a bit of a cheat, but Steven Reid at Carleton University did such a great job conveying the central message of a new report that we put out at the Canadian Media Concentration Research Project that I thought I’d just crib the whole thing and re-post it here. Thanks Steve.

Steven’s wordsmithing follows:

Carleton University’s Canadian Media Concentration Research project, directed by Dwayne Winseck of the School of Journalism and Communication, has released a report entitled Mobile Wireless in Canada: Recognizing the Problems and Approaching Solutions. The study outlines the state of wireless competition and concentration in Canada in relation to 57 countries worldwide, covering a period of three decades.

“The deep divide between the wireless industry and the government that has erupted over the latter’s attempt to reduce domestic and international roaming charges and foster more competition is the focus of the study,” said Winseck. “The study challenges the industry’s claim that there is no competition problem in Canada and emphasizes the importance of maverick brands that extend the market to those at the lower end of the income scale – women and others who are otherwise neglected by the well-established wireless players.”

The report supports the assertion that mobile wireless markets in Canada are not competitive. It offers a comprehensive, long-term body of evidence that places trends in Canada in an international context. The study shows that Canada shares a similar condition with almost all countries that were studied: high levels of concentration in mobile wireless markets.

The difference between the wireless situation in Canada and elsewhere is the lack of resolve to do anything about this state of affairs said Winseck. The study concludes that Canada’s situation is not promising, although there are some bright spots on the horizon.

“For the time being, the tendency is to deny reality, even when incontrovertible evidence stares observers in the face,” said Winseck. “This, however, is symptomatic of a bigger problem, namely that in Canada the circles involved in discussing wireless issues are exceedingly small and they like to hear the sound of one another’s voices. Their members do not look kindly on those who might rock the tight oligopoly that has ruled the industry from the get-go.”

The study highlights the importance of emerging maverick brands like T-Mobile in the U.S., Hutchison 3G in the U.K., Hot Mobile and Golan Telecom in Isreal, and Iliad and Free in France.

Maverick brands have many things in common:

  • All have faced aggressive incumbents and they tend to disrupt the status quo, pushing down prices, driving massive growth in contract-free wireless plans and unlocking phones.
  • They have relied on the state for a fundamental public resource that underpins the entire mobile wireless setup: spectrum.

Incumbents have fought against new wireless companies, challenging governments in an attempt to preserve their domination of the spectrum. In Canada, three companies currently hold 90 per cent of the spectrum: Rogers (41 per cent), Telus (25 per cent) and Bell (24 per cent).

The study shows that compared to the countries included in the study:

  • Wireless markets in Canada, regardless of how they are measured, are remarkably concentrated;
  • Canadians are first in terms of time the spent on the Internet, GBs of data uploaded and downloaded, smartphone data sent and received etc.;
  • Canada is highly ranked when it comes to capital investment in its wireline infrastructure, but lags in wireless investment.

“Whether or not people get the media, wireless and Internet capabilities they need to live, love and thrive in the 21st century depends on making the right choices now,” said Winseck. “Those choices are staring Canadians in the face. How we act, and how our government moves ahead, will set the baseline for how mobile wireless media in this country will evolve for the next two decades – the length of the licences being awarded in the upcoming 700 MHz spectrum auction – and probably for a lot longer than that.”

An executive summary of this study can be found at: http://www.cmcrp.org/2013/11/18/executive-summary-the-cmcr-projects-wireless-report-mobile-wireless-in-canada-recognizing-the-problems-and-approaching-solutions/

The full report can be viewed at: http://www.cmcrp.org/wp-content/uploads/2013/11/Mobile-Wireless-in-Canada2.pdf

KeyWords: Bell and Astral Discover the Public Interest

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

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

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

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

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

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

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

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

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

Table 1, below, shows what I found.

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

Sources: See below.

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

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

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

Sources:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Subject:   Research question

Hi Dwayne,

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

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

HHI < 1000 = Un-concentrated

HHI > 1000 but < 1,800 = Moderately Concentrated

HHI > 1,800 = Highly Concentrated

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

HHI < 1500 = Unconcentrated

HHI > 1500 but < 2,500 = Moderately Concentrated

HHI > 2,500 = Highly Concentrated

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

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

Thanks,

Greg

My Response

Hi Greg,

Thanks for your inquiry.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2012 Revenues

Bell Mrkt Share Before

After

CR4 Before

CR4 After

HHI Before

HHI After

CR4 2008

HHI 2008

Conv TV        
ENG

30.7

30.9

90.7

90.9

2337.2

2347.2

96.1

2724.9

FR

0

0

95.1

95.1

4403.4

4403.4

94.5

4005.7

ENG + FR

22.6

22.8

82.9

83

2287.9

2293.5

86

2367.4

Spec & Pay TV

 

 

 

ENG

28

33.8

83.1

84.5

2109.2

2525.2

73.2

1543

FR

27.1

59.2

97.9

97.7

2870

4085.1

87

2755.1

ENG + FR

27.9

38

81.5

83.8

1925.7

2534.2

71.9

1451.7

Total TV

 

 

 

 

ENG

29.2

32.5

81.9

86.2

1891.2

2127.2

77

1762.2

FR

11.1

24.4

91.7

92.9

2594.2

2801.7

85.2

2389

ENG + FR

25.4

30.8

76.8

83.3

1691.5

1989.5

70.9

1486.7

Radio

 

 

 

 

ENG

9.8

21.9

51.6

59.6

822.6

1014.4

56.5

970.8

FR

0

27

84.1

84.1

2406.6

2406.6

90.1

2704.9

ENG + FR

7.9

23.2

53.4

62

825.3

1127.3

60

1047.2

VI & Network Media (2011)

 

 

 

 

ENG

31.3

31.8

83.2

84.2

1984.4

2014.9

N/A

N/A

FR

35.2

40.1

71.8

76.7

1872.1

2233.1

N/A

N/A

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

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

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

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

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

Best wishes,

Dwayne

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

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

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

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

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

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

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

Discussion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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.

 

Press Pause: Why the CRTC Should Delay the Bell-Astral Round 2 Hearings

My column for the Globe and Mail today argues that the CRTC should take it’s time before putting the 2nd set of hearings into Bell’s proposed acquisition of Astral Media in motion.

The column was prompted by comments made a few weeks back, when BCE indicated that it had hope the Canadian Radio-television and Telecommunications Commission might give special fast-track treatment to its bid for Astral Media now that we’re going over things for the second time, “abbreviated hearings” it called them.

The CRTC should do nothing of the sort and, in fact, hold off for a while before doing anything at all, because the tools the regulator will rely on to assess the transaction are not up to the task.

This second-kick-at-the-can strategy that BCE wheeled out after the CRTC first rejected the deal last October (see here , here and here), is highly unusual. To the best of my knowledge, nothing like this has ever been done before. There is nothing routine about this transaction and, thus, it is hardly worthy of being fast-tracked.

Not least because the thresholds set in the CRTC’s 2008 Diversity of Voices decision (see para 87) are fundamentally flawed, and should be scrapped and new ones put into place before any review of media ownership transactions on the scale of the Bell-Astral deal gets out of the gates.

The oft-repeated idea that any merger or acquisition should automatically be approved if it results in the combined entity having under 35 per cent of the total TV market creates more problems than it solves (see here, here and here).

The 35 per cent guideline was imported from the standards set by the Competition Bureau in 2003 for reviewing mergers and acquisitions in banking, and form a weak standard when it comes to media diversity. Rules for banks balance competition with the stability of the national economy. Media concentration rules are about fostering the maximum amount of diversity feasible and a free press fit for democracy.

Even worse, adopting the ill-fitting 35 per cent guide, the CRTC cherry-picked the weakest half of the Competition Bureau’s two-part rule for assessing bank mergers.

The second part of the Competition Bureau’s guidelines suggests that there is a problem of market power when any merger or acquisition results in the top four firms controlling more than 65 per cent of the market. The share of the big four – Bell, Shaw, CBC, Rogers – today is already roughly 81 per cent for the total TV programming market – well-over the Competition Bureau’s standards. If Bell does get the green light to acquire Astral Media, it would rise to just under 90 per cent. This reason alone is enough to pause and reflect.

As the Competition Bureau clearly stated:

“If the sum of the merging firms’ pre-merger market shares is below 35 per cent, there are likely to be sufficient products and suppliers to which consumers can turn in response to any attempt by the merged entity to exercise market power. If the four-firm concentration level is below 65 per cent, then co-ordination among firms in the market is likely to be too difficult to raise competition concerns (para 47).”

Conversely, when a single firm’s combined market share tops 35 per cent its ability to exercise dominant market power is just too great, while when the top four control more than 65 per cent of the market, the potential for them too collude rather than compete vigorously in the marketplace becomes unacceptably high as well.

Also, the guidelines set out in the Diversity of Voices ruling did not anticipate the extent to which vertical integration would come to reign supreme across the entire sweep of the telecoms, media and internet in just a few years. When the new rules were created in 2008, Bell had sold down its controlling stake in CTV and was pretty much out of the TV programming business. The three vertically integrated conglomerates – Shaw, Rogers and Quebecor – at the time accounted for just 43 per cent of the total TV business (delivery and programming combined).

By 2011, Bell had returned to the fold by re-buying CTV; Shaw had bulked up by taking over Global from the bankrupt Canwest. Four vertically integrated telecom, media and internet giants now accounted for more than three quarters of the TV market: Shaw, Bell, Rogers and QMI, in that order. Toss Astral Media into the mix – the ninth largest media firm in the country – and the number rises closer to 80 per cent.

I am quite sure that former CRTC head Konrad von Finckenstein, never anticipated these conditions. A five-year-old 35 per cent threshold is no longer some kind of magic number upon which the Bell-Astral deal should turn come decision time.

We should also remember that not just the CRTC, but Canadians in general did not like the original Bell-Astral deal. In fact, 60 per cent opposed the deal.

Some may brush that aside as anti-capitalist populism, but the fact is, such a stance is the norm and when you probe the data further in such surveys, we find that the more educated the respondent is, the more likely they are to spurn any deal that appreciably changes the scales in favour of fewer choices and more concentration.

This is the impulse of a democratic culture. It should not be treated lightly, or dismissed with scorn.

It seems to me to be only prudent that the CRTC takes whatever time it needs to ensure that the tools it will use in Bell-Astral Round Two are up to the task. Until they are, Bell and Astral should step back and get in line rather than raising the possibility of fast-tracking this thing.

This isn’t just about Bell Astral; it’s about the rules of the road and ensuring that the media ecology in this country comes as close to embodying democratic ideals as is humanly and politically possible.

Journos as Megaphones: The Globe and Mail Covers Bell

Once again, yet another story in the Globe and Mail yesterday was out peddling a tale of doom and gloom about the state of conventional commercial television broadcasters in Canada. This time, the story came hot on the heels of a Supreme Court of Canada ruling Thursday that threw cold water on the idea that cable, satellite and IPTV services should pay broadcast tv companies — Bell (CTV), Shaw (Global), Rogers (CityTV), Quebecor (TVA), the CBC, and a smattering of smaller independents — to deliver their signals to the tv screens of Canadians across the country.

It was a small victory for the non-vertically integrated entities that have long been in the business of television distribution, such as Cogeco, Eastlink and other cable companies, as well as several telcos across the country that are trying to expand their IPTV services in order to break into this highly concentrated field: Telus, MTS Allstream, Sasktel. Even Rogers, given its relatively small place in the conventional tv universe, opposed the fee-for-carriage model being touted by Bell, Shaw and a few others.

However, rather than entertaining the idea that the Supreme Court’s decision might be a good thing because it means that there will be no new ‘fee-for-carriage’ charges on already expensive cable and satellite bills (i.e. a “TV Tax”), or that it could foster more competition in the anemic tv distribution biz, where the big four — Shaw, Bell, Rogers and Quebecor — control roughly 84 percent of industry revenues, the Globe and Mail article hands the narrative over to the loser in the case: Bell.

Instead of framing the victory as potentially a small victory for consumers, or examining the Supreme Court decision itself, the article rips and reads from Bell’s talking points. Of the 813 words in the article, 144 are direct quotes from Bell; the Supreme Court decision gets 37.

Indeed, Bell sets the narrative frame for the story from the get-go, not just in terms of the sheer volume of ink spilt transcribing and transmitting its view to readers, but by the fact that it is the first to be quoted, and extensively so, with paragraphs five and six completely handed over to the company’s talking points. Here’s Bell setting the stage in paragraph five, lamenting why the decision is bad, not for itself, but Canadians:

“TV viewers across the country would have benefited from long-term stability for their local television stations, which currently rely on an advertising market that has seen permanent structural change, and is no longer able to fund such a model on its own.”

A few paragraphs later, Bell locks down the frame that sticks for the rest of the story: “the ad market for local television is in permanent decline.”

But hold the phone! Are any of these claims true? Umm, there’s room for interpretation, although not in the Globe and Mail’s piece, but the answer is basically (i) mixed if we look just at broadcast television advertising revenue, (ii) no if we look at total revenues for broadcast tv and (iii) an even bigger NO if we look at advertising revenues for all tv services.

As the CRTC’s most recent Communication Monitoring Report shows, advertising revenues for conventional tv for the past four years have been basically flat, hovering between $2,320 – $2,350 million. Advertising revenues went to hell in a hand-basket in 2009, but have risen by nearly $220 million in the two years since (p. 73).

If we look at all revenues for conventional television, the picture is even clearer. While revenues plunged in 2009 at the height of the economic downturn, other than that they basically stayed flat between 2008 and 2010.

By 2011, revenues for conventional tv were up $86.3 million over the previous year and over $100 million more than they had been at the outset of the global economic downturn in 2008. They were roughly $315 million more than five years ago, i.e. $3,491 in 2011 versus $3,176.2 million in 2006 (all revenue figures can be seen here). Not bad, really, and hardly the picture of distress portrayed by Bell.

Every media economist knows that the fortunes of advertising supported media hinges on the state of the general economy. In light of that, the fact that conventional tv has weathered the economic downturn, and done so whilst so much else in its environment is in a heightened state of flux, is not a catastrophe, as Bell and the Globe and Mail would like us to believe, but quite remarkable.

Perhaps if we dig deeper to look at advertising revenues across all television services as a whole, we will see the deep structural shift that Bell claims is happening, and which the Globe and Mail simply transcribes and transmits, as dollars are forever siphoned away from television in favour of the internet?  Um, no.

The big picture for advertising revenues across all television services (conventional and pay/specialty) is even more unequivocal: television advertising revenues have risen steadily and substantially over past twelve years, as the following figure shows:

TV Advertising

Source: Interactive Advertising Bureau (2012). 2011 Actual + 2012 Estimated Canadian Online Advertising Revenue Survey; Interactive Advertising Bureau (2009), 2008 Actual + 2009 Estimated Canadian Online Advertising Revenue Survey.

While there is absolutely no doubt that all of the players are scrambling to come to terms with new realities and still moving grounds, it is precisely because conventional television is not in crisis that the CRTC decided earlier this year to phase out the much hated Local Programming Improvement Fund (LPIF) that it had put into place in 2008 when things really did look rocky.

Journalists do a disservice to their readers by packing stories and what purports to be analysis with talking points from Bell rather than doing the leg work needed to access readily available data that paints a fuller and, by and large, very different picture.

Of course, there is tons of room to argue over the evidence but the flat portrait of conventional tv in decline painted at the Globe and Mail obscures the terrain of debate. If this was just an isolated instance, then perhaps we could just move along, nothing to see here. My sense, however, is that it is not.

To be more specific, we saw exactly this kind of coverage by the Globe and Mail when the CRTC quashed Bell’s bid to acquire Astral Media (see here and here, for example). Bell was essentially given free reign to vent, to tell us why the CRTC decision was wrong, how the CRTC under new chair J.P. Blais had gone activist, how Astral’s market cap had taken an undeserved beating as a result, what George Cope and Kevin Krull planned to do about things, and finally, when Bell teed up a second bid for Astral its move was pitched as somehow being routine, just another kick-at-the-can, when it is anything but.

There’s two final points to be said on these matters, at least for now: first, the task of journalists is not to act as conveyer belts for corporate PR and a monochromatic view of the world. Readers deserve better.

Second, and in this particular context, the fact that the owners of the Globe and Mail, the Thomson family, have a significant equity stake in Bell, and Bell holds a 15% stake in the Globe and Mail, raises questions about the ability of journalists to cover this beat without serving on bended knees. There is no proof that Globe and Mail journalists are taking orders from headquarters on this stuff, and if they were, the chance that we could know about it are about zero since we have no access to the internal workings of the newsroom and the day-to-day routines of journalists.

The fact that researchers can seldom gain access to the internal working of media organizations is why I do not generally like to try to connect my analysis of the structure of the media industries with the quality of the content they provide, whether good, bad or otherwise. One thing that this means, however, is that we have to trust journalists and for that to happen they have to give us good reason to do so.

People who own stuff like to tell others what to do and certainly have the potential to do so within the media, so it seems to me that journalists must walk the extra mile to demonstrate their autonomy rather than serving up Bell’s view of the world in one case after another in which the company finds itself on the losing end of the stick. Two months ago, the context was Bell Astral, two days ago the Supreme Court. Tales of doom and gloom advance a policy agenda and in this case, that of Bell and a few others, and that is why it is so important not to parrot what they have to say.

With Bell Astral Round Two likely to be teed up in the New Year, we deserve better journalistic coverage of the media industries in this country and I sure hope we get it. The last thing we need is yet another rooftop from which the most powerful and well-endowed media voices in the land get to shout about their view of the world and how things oughta be.

Media and Internet Concentration in Canada, 1984 – 2011

As my last post explained, the media economy in Canada has grown immensely and become far more complex in the past twenty-five years with the rise of the Internet and digital media. In this post, I ask whether the media have become more or less concentrated amidst all these changes?

While opinions are rife on the issue, as McMaster University professor Philip Savage (2008) observes, the debate over media concentration in Canada “largely occurs in a vacuum, lacking evidence to ground arguments or potential policy creation either way” (p. 295).

The need for good evidence on the question has been obvious over the past year in the context of Bell Canada’s bid to buy Astral Media, the ninth largest media company in Canada. Indeed, the CRTC’s decision to kill the deal in late October turned in a big way, although not entirely by any stretch of the imagination, on the evidence about media concentration.

The same question will be front-and-centre in Bell Astral Round Two. While nobody knows what version 2.0 of the deal looks like outside of the two companies’ inner sanctum, and the CRTC staff currently vetting it before it is opened for public interventions (probably in the new year), the issue of concentration will undoubtedly loom large in whatever discussions, and regulatory actions, do occur.

That said, however, we must make no mistake about it, studying media and internet concentration is not about Bell or Astral, or any specific transaction. In fact, the issue in the Bell Astral case is not if Bell is too big but whether telecom, media and internet markets in Canada are already too concentrated as a whole? How do we know one way or another? This post helps to address these questions.

Competing Views on Media Ownership and Concentration

Grappling with these issues is not just about remedying the ‘missing evidence’ problem, but thinking clearly about how the issues are framed.

Many critics point to media concentration as steadily going from bad to worse, but with little to no evidence to back up such claims. Perhaps the best known example of this is Ben Bagdikian, who claims that the number of media firms in the U.S. that account for the majority of revenues plunged from 50 in 1984 to just five by the mid-2000s. Similar views also exist in Canada, where critics decry what they see as the inexorable trend towards greater media concentration and its debilitating effects on “democracy’s oxygen”, for instance, or vilify the media moguls behind such trends who have, in these critic’s words, created “Canada’s most dangerous media company”.

A second group of scholars set out to debunk the critics by quantitatively analyzing reams of media content only to find the evidence about how changes in media ownership and market structure effect content to be mostly “mixed and inconclusive” (Soderlund, et. al al. 2005). The problem with this conclusion, however, is that it proceeds as if media concentration’s ‘impact on content’ is the only concern, or as if preserving the existing status quo might not be a significant problem in its own right (Gitlin, 1978). Undeterred, this line of scholarship trundles on so that, half a decade later, similar studies by many of the same authors, Cross-Media Ownership and Democratic Practice in Canada: Content-Sharing and the Impact of New Media, reach pretty much the same conclusions (Soderlund, Brin, Miljan & Hildebrandt, 2011).

A third school of thought mocks concern with media concentration altogether. According to this school, how could anyone believe that the media are still concentrated when there are thousands of news sources, social networking sites galore, pro-am journalists, user-created content and a cacophony of blogs at our finger tips, 700 television channels licensed by the CRTC, ninety-four newspapers publishing daily and smartphones in every pocket? Ben Compaine (2005), a media economist at MIT, has a one-word retort for those who think that concentration still matters amidst this sea of plenty: internet!

Those in this camp also argue that focusing on concentration when traditional media face the perilous onslaught of global digital media giants such as Google, Amazon, Netflix, Facebook, and so on is akin to rearranging the deck chairs on the Titanic – foolhardy and doomed to fail (Thierer & Eskelen, 2008; Dornan, 2012). Journalistic accounts often share this view, routinely invoking, in mantra-like fashion, the idea that media are more competitive than ever. Like their acdemic counterparts, such accounts offer little to no evidence to support such claims, other than pointing to the same roster of foreign digital media goliaths as if examples equals evidence. It does not.

While some might find it hard to fathom, there’s a fourth school of thought, and one that I largely subscribe to, that accepts that fundamental changes have occurred, but rejects claims that this renders concern with media consolidation obsolete. For all those who guffaw at charges of media concentration, it is easy to point, for example, to the fact that only about a third of the 94 daily newspapers said to exist are actually still publishing original content on a daily basis. Of the 700 television channels listed on the CRTC’s books, just over 200 actually filed a financial return last year. And half of those tv channels belong to just four companies — Bell (33), Shaw (46), Rogers (11) and QMI (12). Their share of the market, as we will see, is much higher yet. Keeping our eye on these facts also highlights, for example, how dominant incumbent players use price (usage-based billing) and bandwidth caps, for example and among other tactics, to protect their legacy television businesses (i.e. CTV, Global, CityTV, TVA), while hobbling rivals (Netflix) and limiting people’s choice as a result.

This school also suggests that core elements of the networked digital media – search engines (Google), Internet access (ISPs), music and book retailing (Apple and Amazon), social media (Facebook) and access devices (Apple, Google, Nokia, Samsung, RIM) – may actually be more prone to concentration because digitization magnifies economies of scale and network effects in some areas, while reducing barriers in others. If this is correct, then we may be witnessing the rise of a two-tiered digital media system, with many small niche players revolving around a few enormous “integrator firms” at the centre (Noam, 2009; Benkler, 2006; Wu, 2010).

The more that central elements of the networked digital media are concentrated, the easier it is to turn these nodal points — Facebook, Google, ISPs, Twitter, and so forth — into proxies that serve other interests in, for example, the preservation of dominant market power in ‘legacy’ media sectors (e.g. television and film), the copyright wars, efforts to block pornography, and in law enforcement and national security matters. In other words, the more concentrated such nodal points are, the more potential digital media giants have to:

  • set the terms for the distribution of income to musicians, newspapers and books (Google, Apple, Amazon);
  • turn market power into moral authority by regulating what content can be distributed via their ‘walled gardens’ (Apple),
  • set the terms of ownership and use of user created content and how it is sold in syndicated markets as well as to advertisers (Google and Facebook) (van Couvering, 2011; Fuchs, 2011);
  • and set defacto corporate policy norms governing the collection, retention and disclosure of personal information to commercial and government third parties.

Whilst we must adjust our analysis to new realities, it is also true that long-standing concerns have not disappeared either. To take just one case in point, consider the fact that during the 2011 election campaign, every single newspaper in Canada, except the Toronto Star, that editorially endorsed a candidatefor Prime Minister touted Harper – roughly three times his standing in opinion polls at the time and the results of the prior election. When 95 percent of editorial endorsements for PM across the nation stump for one man – Harper — something is amiss.

Ultimately, talk about media concentration is really a proxy for bigger conversations about consumer choice, freedom of expression as well as democracy. While such discussions must adapt to new realities, the advent of digital media does not mean that such conversations should fall silent. Politics, values and heated debates are endemic to the topic, and this is how things should be (Baker, 2007Noam, 2009; Peters, 1999).

Methodology

Discussions of media concentration will never turn on the numbers alone, and nor should they, but it is essential to be as clear as possible about the methods used to assess the issue. To begin, there is no naïve vantage point from which data about these issues can be innocently gathered and presented as if evidence is just out there laying in a state of nature, somewhere, waiting to be plucked like apples from a tree.

Data, in other words, does not serve as a one-to-one map of the reality it claims to describe. Nonetheless, there are good ways to make a good body of evidence and bad. An essential factor all down the line is the need for researchers to be open and reflexive about their methods and theoretical starting points.

A fuller discussion of the methodology that I use can be found here, here and here, but for now we can lay out the bare bones of the approach before turning to the analysis itself. I begin by selecting a dozen or so media sectors at the heart of the analysis: wired & wireless telecoms; cable, satellite & IPTV distributors; Internet access; broadcast tv; pay & subscription tv; radio; newspapers; magazines; search engines; social media sites; and online news services.

Data were collected for each of these sectors over a twenty-seven year period, 1984 – 2011, first at four-year intervals up until 2008 and annually since. For the DIYers among you, here’s a handy dandy list of sources.

Data for the revenues and market share for each ownership group in each of these sectors was then assembled. I then group each of the above sectors into three categories, assess the concentration level in each category, and then scaffold upward from there to examine the network media industries as a whole: (1) network infrastructure; (2) content: (3) online media.

I typically drop wired and wireless telecoms from the whole of what I call the network media industries because the size of these sectors means that they tend to overshadow everything else.

Lastly, I use two common tools — Concentration Ratios (CR) as well as the Herfindhahl – Hirschman Index (HHI) – to depict levels of competition and concentration over time. The CR method adds the shares of each firm in a market and makes judgments based on widely accepted standards, with four firms (CR4) having more than 50 percent market share and 8 firms (CR8) more than 75 percent considered to be indicators of highly levels of concentration.

The HHI method squares and sums the market share of each firm with more than a one percent share in each market to arrive at a total. If there are 100 firms, each with a 1% market share, then markets are highly competitive, while a monopoly prevails when one firm has 100% market share. The following thresholds are commonly used as guides:

HHI < 1000                                     Un-concentrated

HHI > 1000 but < 1,800             Moderately Concentrated

HHI > 1,800                                    Highly Concentrated

The Historical Record and Renewed Interest in Media Concentration in the 21st Century

There has always been, even if episodically, keen interest in media ownership and concentration in Canada and the world since the late-19th and early-20th centuries.

In 1910, for example, the Board of Railway Commissioners (BRC) broke up the three-way alliance between the two biggest telegraph companies — Canadian Pacific Telegraph Co. and the Great Northwestern Telegraph Co. (the latter an arm of the New York-based goliath, Western Union) – and the American-based Associated Press news wire service. Why?

In the face of much corporate bluster, the BRC did this because the two dominant telegraph companies were giving away the AP news service to the top newspaper in cities across Canada for free in order to bolster their stranglehold on the lucrative telegraph business. Allowing this to continue, stated the BRC matter-of-factly, would “put out of business every news-gathering agency that dared to enter the field of competition with them” (1910, p. 275).

Thus, in a conscious bid to use telecoms regulation to foster competition amongst newspapers, and to free up the flow of news on the wires, the BRC effectively dismantled the alliance. For upstarts such as Winnipeg-based Western Associated Press – which had initiated the case – it was a significant victory (Babe, 1990).

Media concentration issues arose episodically thereafter and came to a head again in the 1970s and beginning of the 1980s, when three inquiries were held: (1) the Special Senate Committee on Mass Media, The Uncertain Mirror (2 vols.)(Canada, 1970); (2) the Royal Commission on Corporate Concentration (1978); and (3) the Royal Commission on Newspapers (Canada, 1981).

Things lay dormant for more than two decades thereafter, but sprang to life again in the late-1990s and turn-of-the-21st century after a huge wave of consolidation thrust concerns about media concentration back into the spotlight. Three inquiries were held between 2003 and 2007 as a result: (1) the Standing Committee on Canadian Heritage, Our Cultural Sovereignty (2003); (2) the Standing Senate Committee on Transport and Communications, Final Report on the Canadian News Media(2006);[i] as well as (3) the Canadian Radio-Television and Telecommunications Commission’s Diversity of Voices inquiry in 2008.

Structural Transformation: Two (three?) Waves of Consolidation and the Rise of TMI Conglomerates

As I noted in my last post, for all sectors of the media economy in Canada, revenues grew immensely from $37.5 billion in 1984 to just under $70 billion last year (or from $12.1 billion to just under $34 billion when we exclude wiredline and wireless telecoms) (in inflation-adjusted “real dollars”). Between 1984 and 1996, new players meant more diversity in all sectors, except for newspapers as well as cable and satellite video distribution, where concentration climbed significantly.

Conventional as well as pay and subscription television channels were already expanding during this time. In terms of ownership, incumbents and a few newcomers – e.g. Allarcom and Netstar – cultivated the field, with their share of the market growing steadily in tandem with the number of services available (underlying data for these claims can be found here).

Concentration levels remained very high in wired line telecoms in the 1980s and early 1990s, while wireless was developed by two companies, Bell and Rogers. As had been the case in many countries, telecoms competition moved slowly from the ends of the network into services and then network infrastructure, with real competition emerging in the late-1990s before the trend was reversed and concentration levels again began to climb.

In the 1980s and early-1990s, consolidation took place mostly among players in single sectors. Conrad Black’s take-over of the Southam newspaper chain in 1996 symbolized the times. In broadcast television, amalgamation amongst local ownership groups created the large national companies that came to single-handedly own the leading commercial television networks – CTV, Global, TVA, CHUM, TQS – by the end of the 1990s.

While weighty in their own right, these amalgamations did not have a big impact across the media as a whole. There was still significant diversity within sectors and across the TMI sectors. The CBC remained prominent, but public television was being eclipsed by commercial television as the CBC’s share of all resources in the television ‘system’ slid from 46 percent in 1984 to half that amount by 2000 to just over twenty percent today (see the motion chart on CMCR website illustrating this point).

While gradual change defined the 1980s and early-1990s, things shifted dramatically by the mid-1990s and into the 21st century as two (and maybe three) waves of consolidation swept across the TMI industries. A few highlights help to illustrate the trend:

Wave 1 – 1994 to 2000: Rogers acquisition of Maclean-Hunter (1994). Peaks from 1998 to 2001: (1) BCE acquires CTV and the Globe & Mail ($2.3b); (2) Quebecor takes over Videotron, TVA and the Sun newspaper chain ($ 7.4b) (1997-2000); (3) Canwest buys Global TV ($800m) and Hollinger newspapers papers, including National Post ($3.2b).

Wave 2 – 2006-2007.  Bell Globe Media re-branded CTVglobemedia, as BCE exits media business. CTVglobemedia acquires CHUM assets (Much Music, City TV channels and A-Channel).  CRTC requires CTVglobemedia to sell City TV stations – acquired by Rogers (2007). Astral Media buys Standard Broadcasting. Quebecor acquires Osprey Media (mid-size newspaper chain)(2006). Canwest, with Goldman Sachs, buys Alliance Atlantis (2007) (Showcase, National Geographic, HGTV, BBC Canada, etc) – and biggest film distributor in Canada.

Wave 3 – 2010 – ? Canwest bankrupt. Newspapers acquired by Post Media Group, TV assets by Shaw.  BCE makes a comeback, re-buys CTV (2011) and bids for Astral Media in 2012, but fails to gain CRTC approval.

That the massive influx of capital investment drove consolidation across the telecom, media and Internet industries during these periods is illustrated in Figure 1 below.

Figure 1: Mergers and Acquisitions in Media and Telecoms, 1984 – 2011 (Mill$)

Sources: Thomson Financial, 2009; FPInformart, 2010; Bloomberg Professional; CRTC, Communication Monitoring Report.

Consolidation has yielded a fundamentally new type of media company at the centre of the network media ecology: i.e. the integrated media conglomerate. Extremely popular in the late-1990s in many countries around the world, many media conglomerates have since collapsed or been broken up (AOL Time Warner, AT&T, Vivendi, CBS-Viacom, and parts of NewsCorp, etc)(see, for example, Jin, 2011; Thierer & Eskelen, 2008; Waterman & Choi, 2010). The trend elsewhere has not, however, taken hold in Canada.

Indeed, in Canada, sprawling media conglomerates are still all the rage. Four such giants and a half-dozen other large but more specialized companies part their size make-up the core ‘big 10’ companies in the network media economy: Bell (CTV), Shaw (Global), Rogers (CityTV), QMI (TVA), CBC, Post Media, Cogeco, Telus, Astral, and Eastlink. A detailed chart of each by ownership, revenues, and sectors operated in is available here and will be addressed further in the next post.

Looking at media concentration from the vantage point of the ‘big ten’, the media have become more concentrated than ever. Their share of all revenues (excluding telecoms services) rose sharply in the 1990s and between 2000 and 2008 hovered steadily in the mid- to low-60 percent range. The big four’s share of the network media economy subsequently rose significantly to just under 68 percent in 2010 (after Shaw’s acquisition of Global) and rose again to just under 70 percent in 2011 (when Bell re-acquired CTV) — an all-time high and a substantial rise from 52% in 1992. The levels of media concentration in Canada are more than twice as high as those in the U.S., based on Noam’s analysis in Media Ownership and Concentration in America (2009).

Breaking the picture down into the following three categories and applying the CR and HHI tools provides an even better view of long-term trends:

  • ‘network infrastructure’ (wired and wireless telecom services, ISPs, cable, satellite and other OVDs);
  • ‘content’ (newspapers, tv, magazines, radio);
  • ‘online media’ (search, social, operating systems).

At the end of the post, I combine these again to complete the analysis of the network media industries as whole in a slightly different form.

The Network Infrastructure Industries

All sectors of the network infrastructure industries are highly concentrated and pretty much always have been, although Internet Access is a partial exception.

Table: CR and HHI Scores for the Network Infrastructure Industries, 1984 – 2011

CR & HHI Network Industries, 2011

Much the same can be said with respect to wireless services: they have consistently been highly concentrated, and still are until this day, despite the advent of four newcomers in just the past two years: Mobilicity, Wind Mobile, Public and Quebecor.CR4 and HHI measures for wired telecoms scores fell during the late-1990s as greater competition in wired line telecom services took hold. They reached their lowest level ever between 2000 and 2004 before after shocks from the collapse of the speculative dot.com bubble took out many of the new rivals (CRTC, 2002, p. 21). Competition grew more and more feeble for most of the rest of the decade before drifting modestly upwards since 2008. Concentration levels, however, still remain high by late-1990s, turn-of-the-century standards, as well as those of the CR and HHI measures.

Two competitors – Clearnet and Microcell – emerged in the late-1990s and managed to garner 12 percent of the market between them, but were then taken over by Telus and Rogers in 2000 and 2004, respectively. Whether the recent round of newcomers will fare any better it is still too early to tell, but with only 2.2 percent of the market as of 2011 they are a long way from the high tide of competition set a decade ago.

As the telecoms and Internet boom gathered steam in the latter half of the 1990s new players emerged to become significant competitors in Internet access, with four companies taking more than a third of the ISP market by 1996: AOL (12.1%), Istar, (7.2%), Hook-Up (7.2%) and Internet Direct (6.2 percent).

The early ‘competitive ISP era’, however, has yielded to more concentration since. Although the leading four ISPs accounted for a third of all revenues in 1996, by 2000 the big four’s (Bell, Shaw, Rogers & Quebecor) share had grown to 54 percent. Things stayed relatively steady at the level for most of the decade before inching upwards in the past few years to reach 57.1 percent in 2011.

HHI scores for internet access also moved upward between 1996 and 2000, but are still low relative to most other sectors. However, this is probably more an indicator of the limits of the HHI method in this particular case, since 93% of high-speed Internet subscribers rely on one or another of the incumbent cable or telecom companies’ ISPs to access the Internet, according to figures in the CRTC’s Communication Monitoring Report (p. 148).

ISP provision in Canada is effectively a duopoly, with the left over 6-7% of the market not dominated by the incumbents scattered among the 400 or so independent ISPs that still exist. This is a slight increase from last year, but it does not mark the return to competitive internet access.  Canada has relied on a framework of limited competition between incumbent telecom and cable companies for wiredline, wireless, internet access and video distribution markets and in all of these markets they dominate, with some other smaller rivals in each.

Cable, satellite and IPTV distribution is one of the only segments assessed where concentration has risen steadily from low levels in the 1980s (850) to the top of the scales in 1996 (2300), before drifting downwards by the turn-of-the-century to the low 2000s where it has remained ever since. It has dipped below that, to the 1900-range, for the last five years, but this is still at the very high end of the scale.

As I noted in the last post, the IPTV services of the incumbent telcos – Bell, MTS, Telus and SaskTel – are becoming a more significant factor in the distribution of television, after a slow and staggered start. By 2011, IPTV services accounted for 7.6 percent of the TV distribution market, based on my numbers, or 3.8 percent using CRTC data (see page 96).

While I have yet to get to the bottom of why this discrepancy exists, what can be said is that, on the basis of my figures, the growth of IPTV services has made small incursions into the incumbent cable and satellite service providers’ turf (i.e. Shaw, Rogers, Quebecor, Cogeco and Eastlink). However, this has done little more than nudge the CR and HHI scores, as the table above shows.

Over the last twenty-seven years, cable tv has become ubiquitous and new tv distribution infrastructures have been added to the fold – DTH in the 1990s, and now, slowly, IPTV. New players have emerged, but never have so few owned so much. New technologies have generally added to this and have not fundamentally disrupted the broad trajectory of development when it comes to tv distribution channels: more channels, and even some new players, but with more of the whole in the hands of the old. The wired society in Canada is probably the poorer for this.

The Content Industries

Until the mid-1990s, all aspects of the tv industry (i.e. conventional broadcast tv as well as pay and specialty channels) were moderately concentrated by HHI standards and significantly so by CR measures. Competition and diversity made some modest inroads from 1998 to 2004, but the trend abruptly reversed course and levels have climbed steadily and substantially since, and sharply in the last two years. Figure 2, below, shows the trend in terms of CR scores; Figure 3, in terms of the HHI.

Figure 2 CR Scores for the Content Industries, 1984 – 2011

 Figure 3 HHI Scores for the Content Industries, 1984 – 2011

The largest four commercial television providers control about 81% of all television revenues in 2011, up from 75% a year earlier. Levels of tv concentration were pushed to new extremes by

Shaw’s take-over of Canwest’s television assets in 2010 and Bell’s buy-back of CTV last year. The big four’s share of all tv revenue before these transactions in 2008 was 70%. A ten percent leap in concentration in two years is a lot.

If the CRTC had approved Bell’s acquisition of Astral Media – the fifth largest television company in Canada, ahead of Quebecor – the all-time high levels of concentration set in 2011 would have been surpassed by an even higher 89.5%. In contrast, the big four accounted for 61% of the tv biz in 2004, a time before major players such as Alliance Atlantis and CHUM were bought out by the now defunct Canwest and Bell/CTV 1 (circa 2000-2006), respectively.

The CR and HHI measures for tv were at all time lows in the 1990s. This was a time when newcomers emerged (Netstar, Allarcom), yet before the time when the multiple ownership groups that had stood behind CTV and Global for decades combined into single groups. The period was also significantly more diverse because the CBC no longer stood as a central pillar in tv and radio, while pay and specialty television channels were finally making their mark. Today, the latter are the crown-jewel in the tv crown.

Today the largest four tv providers after Bell and Shaw are: the CBC, Rogers, Astral, and QMI, respectively, and in that order. By 2011, these six entities accounted for ninety-five percent of the entire television industry. Similar patterns are replicated in each of the sub-components of the ‘total television’ measure (conventional television, pay and specialty channels), as the chart above illustrates.

In contrast, in 2004, the six largest players accounted for a little over three-quarters of all revenues. The run of HHI scores reinforces the view that the television industry is highly concentrated and has become markedly more so in just the past two years.

Like the cable industries, there has never been a moment when diversity and competition has flourished in the newspaper sector. Consolidation rose steadily from 1984, when the top four groups accounted for two-thirds of all revenues, to 1996, when they accounted for nearly three-quarters – a level that has stayed fairly steady since, despite periodic shuffling amongst the main players at the top. Levels declined slightly in 2011 from 2010, from 77% to 75%, likely on account of Postmedia’s decision to sell some of its newspapers (Victoria Times Colonist) and to cut publishing schedules at others.

Of all media sectors, magazines are least concentrated, with concentration levels falling by one-half on the basis of CR scores and two-thirds for the HHI over time. I have not been able to update the data for this sector for 2011, but there is little to suggest a need to change this view.

Radio is also amongst the most diverse media sectors according to HHI scores, but slightly concentrated by the C4 measure. In fact, in 2011, it became moreso, likely because of a shuffling of several radio stations between Shaw/Corus and Cogeco. Bell’s take-over bid for Astral – the largest radio broadcaster in Canada with 17.5% market share – would also have further pushed radio in the direction of concentration had it been approved last month by the CRTC. Had that scenario come to pass, levels of concentration would have still remained well-beneath the CRTC’s self-defined thresholds, but high by the CR measure and just moderately high by the HHI.

Online Media

So far, there’s little reason to believe that trends are any different in the online realm, as measures of the ISP segment showed. But what about other core elements of the increasingly Internet-centric media universe, such as search engines, social media, online news sources, browsers, and smartphone operating systems?

The trends are clear. Concentration in the search engine market continued to grow between 2010 and 2011, with the CR4 score rising from 94% to 97.6%. Google’s share of the market, however, seems to have plateaued, at just over 81 percent of this domain. Microsoft (8.6%), Yahoo! (4.2%), and Ask.com (3.7%) trail far behind, yielding a CR4 of 97.6% and an off-the-charts HHI of 6,683.

Figure 3: C4 Scores for the Search Engines, 2004 – 2011

Source: Experien Hitwise Canada. “Main Data Centre: Top 20 Sites & Engines.” last Accessed October 11, 2012.  http://www.hitwise.com/ca/datacenter/main/dashboard-10557.htm

Social media sites display a similar but not quite as pronounced trend, with Facebook accounting for 63.2% of time spent on such sites in 2010, trailed by Google’s YouTube (20.4%), Microsoft (1.2%), Twitter (0.7%), and News Corp.’s MySpace (.6%) (Experien Hitwise Canada, 2010). Again, the CR4 score of 86% and HHI score of 4426 reveal that social networking sites are highly concentrated.

Similar patterns also hold for other layers of the media ecology. The top four web browsers in Canada – Microsoft’s Explorer (52.8%), Google’s Chrome (17.7%), Firefox (17.1%) and Apple’s Safari (3%) – have a market share of over 90 percent (Comscore, 2011).  There is no data available for Canada with respect to smartphone operating systems, but US data shows that the top four players in 2010 accounted for 93 percent of all revenues: Google’s Android OS (29%), Apple’s iOS (27%), RIM (27%) and Microsoft’s Windows 7 (10%) (Nielsen, 2011).

However, not all areas of the internet and digital media environment, of course, display such patterns. The picture with respect to online news services, for instance, is significantly different. Between 2003 and 2008, the amount of time spent on online news sites nearly doubled from 20 to 38 percent, with most of the leading 15 online news sites simply being the extensions of well-established media companies: cbc.ca, Quebecor, CTV, Globe & Mail, Radio Canada, Toronto Star, Post Media, Power Corp. The other major sources included CNN, BBC, Reuters, MSN, Google and Yahoo! (Comscore, 2009; Zamaria & Fletcher, 2008, p. 176).

While that trend meant that attention was consolidating around a few online news sites, and those of traditional journalistic outlets in particular, it nonetheless seems clear that Canadians have diversified their news sources relative to the traditional news environment (newspapers, tv, radio, magazines).  On either the CR or HHI measure, online news fall under the concentration thresholds and are diverse relative to any of the other sectors, except magazines.

However, the fact that concentration levels edged upwards between 2004 and 2007, after the rapid “pooling of attention” that took place between 2003 and 2007 (see immediately above), suggests that a certain plateau might have been reached in terms of the range of sources people are using. Nonetheless, online news sources are not concentrated on the basis of the measures used here. The following table shows the results.

Table: Online News Sources, 2004 – 2011

News website 2004 (N=1482) 2007 (N =1306 ) 2011 (N=1651 )
CBC 10.6 18.3 13.8
Google 5.3 9.2 10.4
MSN / Sympatico 18.2 11 14.7
Yahoo 9.3 7.4 6.5
CNN 9.3 9.4 6.1
CTV 6.2 2.9
Canoe 2.4 7.6 2.9
Cyberpresse 3.5 3.3 3.9
Globe and Mail 4.1 5.9 3.6
BBC 4.9 2.8
Toronto Star 2.6 2.4 1.5
Global 2
Other 32.6 14.4 31.1
CR4 43.4 45.9 45.4
HHI
97.9 100 100.2

Source: Table calculated by Fred Fletcher, York University, from the Canadian Internet Project Data sets (Charles Zamaria, Director).  Reports on the 2004 and 2007 surveys are available at http://www.ciponline.ca.

The Network Media Industries as a Whole (excluding wired and wireless telecoms)

Combining all the elements together yields a birds-eye view of long-term trends for the network media as a whole. As Figure 4 below shows, the HHI score across all of the network media industries is not high by the criteria set out earlier, but the long-term upward trend is clear and significant.

Figure 4: HHI Scores for the Network Media Industries, 1984 – 2010

 

While the HHI for the network media fell in the 1980s and early-1990s, by 1996 trends had reversed and levels were higher than they were a dozen years earlier. Thereafter, the number rose steadily to close to 600 in 2000, where it hovered for several years before falling again in 2008. Since then, however, the HHI score has shot upwards, rising from 510 in 2008 to 623 after Shaw acquired Global and then to 739 once Bell re-acquired CTV after having sold down its majority stake a few years earlier.

The effect of the Bell Astral deal would have been significant in terms of the network media as a whole, raising the HHI score to over 800 – an all time high. This is still low by HHI standards, but we must bear in mind that we are talking about concentration across the entire sweep of the network media industries, not just a random assortment of a few sectors.

The CR4 standard, as shown in Figure 5 below, reveals the trend even more starkly, with the big four media conglomerates – Bell, Shaw, Rogers & QMI – accounting for more than half of all revenues in 2011, a significant rise in a vastly larger media universe from just under forty percent held by the big four twenty-seven years earlier in what was a Lilliputian pond by comparison. While still only moderately concentrated by the CR4 standard, this is for all media combined.

In each and every single sector of the media that the big four operate, they dominate, as the earlier review of CR and HHI scores illustrated. Moreover, the trend in both scores is up, significantly so in the past three years from a CR4 of around 40% to its current level of just over 50%. If this really was a golden digital media age, as some like to contend, that number should be going firmly in the opposite direction.

Figure 5: CR 4 Score for the Network Media Industries, 1984 – 2010

Concluding Thoughts 

Several things stand out from this exercise. First, we are far from a time when studies of media and internet concentration are no longer needed. Indeed, theoretically-informed and empirically-driven research is badly needed because there is a dearth of quality data available and because, one after another, the press of events and specific transactions – Bell Astral in 2012, but Bell’s re-acquisition of CTV the year before and Shaw’s acquisition of Global in 2010 – demands that we have a good body of long-term, comprehensive and systematic evidence ready-to-hand.

This kind of data is still very hard to come by and data collection for 2011 reconfirmed that at every step of the way. The CRTC still needs a dramatic overhaul of how it releases information and of its website, as David Ellis has recently argued so eloquently. The underlying data sets it includes in seminal publications like the Communications Monitoring Report, Aggregate Annual Returns, and Financial Summaries needs to be made available in a downloadable, open format that allows people and researchers to use it as they see best. The regulated companies themselves must also be made to be more forthcoming with data relevant to the issues, and not less, as they so strongly desire.

The trajectory of events in Canada is somewhat similar to patterns in the United States. Concentration levels declined in the 1980s, rose sharply in the late-1990s until peaking around 2000. However, it would appear that whereas in the U.S. a process of deconsolidation set in thereafter, with the obvious exception of Comcast’s blockbuster acquisition of NBC-Universal last year, concentration levels in Canada have climbed, and steeply so, in the past three or so years.

Current media concentration levels in Canada are roughly two-and-a-half times those in the U.S. and high by global standards (Noam, 2009). Moreover, large media conglomerates straddle the terrain in Canada in a manner that is far greater than in any of the other thirty countries studied by the IMCR project, including the U.S., Germany, Japan, Australia, the UK, and so on, where media conglomerates are no longer all the rage as they once were a decade ago.

The assets from the bankrupt Canwest have been shuffled in recent years, and some significant new entities have emerged (e.g. Channel Zero, Post Media, Remstar, Teksavvy, Netflix, The Mark, Tyee, Rabble.ca, Huffington Post). The overall consequnence is that we have a set of bigger and structurally more complicated and diverse media industries, but these industries have generally become far more concentrated, not less.

There is a great deal more that can and will be said about what all this means, but in my eyes it means that concentration in no less relevant in the “digital media age” of the 21st century than it was during the industrial media era of centuries’ past.

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.

Ask the Wrong Questions and . . . : the CRTC’s Review of Wireless Competition

In the middle of last week the CRTC began to solicit views on whether or not a national code for wireless services is necessary. The CRTC had received several applications, it said, suggesting that such a code might be needed.

Who might want such a code?  The big wireless providers, Rogers, Bell and Telus, that’s who, and their lobby group, the Canadian Wireless Telecommunications Association.

Why? Because they’ve been facing mounting efforts at the provincial level to more strictly regulate their pricing and service packaging. Ontario, Manitoba and Quebec have been leading the way (see here).  Rabble rousing Openmedia also has the wireless industry in its sights with its “stop the squeeze” campaign (also see the Open Media/CIPPIC study here). A standard code generated by the industry could help dampen the clamour.

In its notice, the CRTC wondered aloud about whether its reliance on competition to the maximum extent possible in wireless, and its decision way back in 1994 to not regulate the sector, might be misguided in light of stubbornly low levels of competition.  Anybody who thinks the regulator should actually do something has to (a) show the circumstances have in fact changed and (b) that this change represents a turn for the worse. Only then will the CRTC intervene.

And if does intervene, what can we expect? Not real regulation, but rather a “national code for wireless services” designed by and mostly for the industry.

So, have things changed? Well, yes, of course: 2G, 3G, now 4G and LTE. Smart phones are increasingly making their ways into the palms of Canadians across the land. The internet of devices is highly wifi dependent, and mobile data and video use is growing fast. The industry has also grown from a $3.7 billion industry in 1996 to $18 billion in 2010.

However, one thing that has stayed constant is the fact that the wireless services have never been truly competitive and likely never will be. Nor, however, is it necessary that we expect them to be. But the CRTC said that it would need evidence to indicate that market forces are not working before it would act.

Let me introduce two such indicators: one, the empirical evidence on the state of competition and concentration in the wireless sector between 2000 and 2011 and, two, some indicators of price and quality drawn from relevant global standards.

1. Competition and Concentration: In 2000, the big three wireless providers — Bell, Rogers and Telus — accounted for just over 87% of the industry. Today, they account for just over 93%. The “big three” control more of the sector than ever, and besides that Rogers and Bell now straddle every other significant segment of the telecom-media-internet industries. What they do in any one of these areas affects the developments elsewhere, and broadband wireless services in particular.

The wireless industry was already highly concentrated in 1994 when the CRTC decided that the market was competitive enough to stop doing what it’s suppose to do: regulate. Competition did increase modestly during those early years, with two new rivals – Clearnet and Microcell — snatching away 12 percent of the market away from the incumbent telcos and Rogers by 2000. The two rivals were short-lived, taken over by Telus and Rogers in 2000 and 2004, respectively.

Competition peaked in 2000, then the sector became sharply more concentrated by 2004, before falling slightly and staying relatively flat ever since. Whether recent newcomers — Mobilicity, Wind Mobile, Public and Quebecor – will fare any better, it is still too early to tell. With only 2.7% of the market as of 2011, they are far off the mark set at the high-point of competition in 2000.

The graph below charts the trend between 2000 and 2010 using the  Herfindhahl – Hirschman Index (HHI). Remember, the basic rule with the HHI is that scores under 1000 indicate reasonable competition, 1000-1,800 moderate levels of concentration and anything over that, high levels of concentration. They’ve been over 3000 for most of the decade.

HHI scores for the Wireless Sector, 2000 – 2010

Sources: CRTC’s Communications Monitoring Report for 2008 and 2010, and the Telecommunications Monitoring Report from from 2000 to 2007,  Canadian Wireless Telecommunications Association’s Wireless Phone Subscribers in Canada.

While there’s room for interpretation, the bottom line is that the wireless sector is and always has been highly concentrated. It is less competitive now than it was in 2000, when ‘market forces’ peaked.  The CRTC is right that after this length of time, and in the face of the immovable reality of high levels of concentration, yes, maybe it is time to temper the ‘maximum reliance on market forces’ mantra.  A code may just be in order, although one might go even stronger and ask for proper regulation, i.e. for the CRTC to do its job versus playing overseer to an industry-developed code.

2. What about Prices and Quality?

In terms of prices, we can look at things charitably and not so charitably. First, we can look at the CRTC’s data for information on pricing for wireless services, but we’d look in vain. The best I can see is a combined price index for wired and wireless telephone service in comparison to the cost of cable and satellite services as well as Internet access services.  The figure shows the trend below.

Source: CRTC (2011). Navigating Convergence, p. 65.

Seen from this angle, things look not too bad, at least between 2002 and 2007, when prices were falling below the level of the general consumer price index. The situation reversed after that, however, with the price of wireless services rising relative to the cpi since 2007. Prices have not risen as fast as in cable and satellite subscriptions, but they have not fallen to nearly the extent as they have for Internet access.

We can also look at this relative to seven other countries that can be meaningfully compared with Canada.  As the following figure drawn from the UK regulator, Ofcom, shows, the amount that Canadians pay to their wireless provider each month is at the high end of the scale and always has been throughout the period covered. Also note that prices in every other country surveyed, except Australia, have been falling, while in Canada they’ve been on the rise.

Source: Ofcom (2011). International Communication Monitoring Report, p. 256.

We can also look to the OECD for some guidance.  In terms of wireless broadband access per 100 people, Canada ranks 26th out of 34 countries.  The following chart shows the comparison.

Source:  OECD (2011). Broadband Portal.

Of course, there’s much more that could be said, but just from a cursory glance, all is not right in the wireless kingdom. Of course, many seem to think that opening up foreign investment is the way to go. As I’ve said before, I’m not so sure. Now is not exactly the high-tide of foreign investment in mobile services, at least in the Euro-American economies. And many of those same sources seem to have the US in mind when they hope that big foreign investors will come in to save us from the rapacious grip of Rogers, Bell and Telus. I’m afraid, however, as Susan Crawford, amongst others observe, the US is no better than here, and even more of a basket case on some measures.

The upshot of all this: wireless will likely never be competitive. The CRTC needs to regulate versus oversee an industry-developed code. Lastly, instead of auctioning off all the spectrum, Industry Canada should look to develop an open wireless model.

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.

Categories: Internet Tags: , ,

Dead Horses and Internet Policy: the CRTC’s Usage-Based Billing and Vertical Integration Decisions as Lost Opportunities

I wanted to write you a short blog post, but I postponed and pondered, and so wrote a long one instead (with apologies to Mark Twain).

Some things fundamentally constitute the media landscape, and the CRTC’s vertical integration and Usage Based Billing (UBB) decisions in the last two months are two such instances. In each case, the bar was set low and delivered a wee bit of something for everyone, the decisive affect being to disrupt vested telecom, broadcasting and Internet players (often one and the same thing) and the status quo as little as possible.

It took me this long to fully appreciate that the key is not to understand what these decisions did, but rather what they did not do. Lesson number one when reading regulation: never trim your sails to the low bar set by CRTC and vested stake-holders.

Lesson two: don’t get lost in the underbrush of techno-economic mumbo jumbo that inevitably serves in these situations to shroud the interests and stakes involved in mystery, and to bash any meaningful whole into an indiscriminate heap of technical details without context or sense of the big sweep of things.

The vertical integration deal could have been about many things, but was mainly about whether or not the big four — Bell, Shaw, Rogers and Quebecor (QMI) – would be able lock down access to broadcast content for the 3rd and 4th screens (that’s fancy cyber-talk for the Internet and smart wireless portable devices). The big four argued that they should be able to leverage control over their own content and platforms for competitive advantage however they see fit. This is the way of the world, the Schumpeterian clash of goliaths versus goliaths that drives capitalism forward, they said.

The CRTC said no, or at least not entirely, and this is a good thing because it means that Telus, MTSAllstream, SaskTel and Wind, for example, can buy access to programming from CTV, Global, City, TVA and the more than 120 other TV channels the big four conglomerates own between them. Control over content – sports content especially – cannot be used by the vertically integrated telecom-media-Internet (TMI) behemoths to squash competition with Telus, Sasktel, Wind, Public, Mobilicity, said the CRTC. This was and is a good thing.

The CRTC also put an end to block-booking arrangements where channels were sold in bundles to carriers, called for greater choice in pricing for consumers, and let the big four keep exclusive rights for content they produce specifically for the 3rd or 4th screens. In contrast, Hollywood was forced to abandon block-booking of films in theatres in 1948. The end of block-booking was brought to the Canadian television universe by the CRTC sixty-three years later. Something for everyone, you could say.

Sorry if I am not impressed. Power is not about who wins and loses, and scattered compromises, but how the issues are framed, and by whom, and the ideological buy-in needed to get there. The vertically-integration ruling is mainly a compromise to a clash among the incumbent telecom and broadcasting titans, with the CRTC shoring up faulty markets for bandwidth, content rights and access to audiences. This is systems maintaining not disrupting regulation.

It is okay as far it goes, but the CRTC dealt with trans-media concentration with the weakest tools at its disposal, other than doing nothing at all. Independent tv and film producers, as well as media unions concerned about declining conditions of work within the consolidated Canadian media industries came away empty handed.

Fundamental principles within the Telecommunications Act (1993) (secs. 27, 28 and 36) that require network and content providers to be treated equally and in a non-discriminatory fashion are ignored. The possibility that rival OVDs — Netflix, YouTube, Apple – might be given access to networks and platforms on terms equivalent to those that Bell, Rogers, Shaw and QMI give to their own online video services is not even broached. The possibility that people might have a “freedom to connect” that supersedes the Netcos’ right to manage their networks as they see fit is unthinkable from within the CRTC’s constipated view of the world.

Michael Geist, however, thought that such issues might be taken up in the UBB decision. They were not.

The UBB decision sets the record for making a molehill out of a mountain. While it stresses the principle of equality between telephone and cable companies, it has precious little to say about equality between them, on the one side, and rival ISPs and OVDs, on the other. For most people, it is a change that will likely come and go without much notice (see below).

The ruling recognizes the fast growth in online video use, but does little to insure that bandwidth is available at levels and prices consistent with current and projected growth. It is in many ways cultural policy by stealth insofar that universal bandwidth caps reinforce the incumbent telecom and broadcasting companies’ – Bell/CTV, Shaw/Global, Rogers/City, QMI/TVA – custodianship over the “integrity of the Canadian broadcasting system”, discouraging the use of rival OVDs such as Netflix along the way.

Interestingly, the only one standing outside this corporate media love-fest is the CBC, the most innovative of all of Canada’s broadcasters when it comes to podcasts, streaming video, the use of BitTorrent, and so on.

Canadians are the world’s most extensive online video users, so these are important issues. The following chart illustrates that “real-time entertainment” (TV, YouTube, Porn) now accounts for the biggest proportion of Internet traffic for significant periods of the day. Downplaying the vital significance of this issue, as the CRTC’s UBB decision does (and the vertical integration hearing before it), is irresponsible, if not deliberately deceptive.

To be sure, Shaw and Telus have raised their bandwidth caps over the past six months, and Bell has reigned in its use of P2P throttling, all of which recognize, at least in part, the steep growth in online video. More importantly, though, these changes may be the most important outcome of the political firestorm unleashed since last January when Canadians discovered that they had been dragooned into a pay-per model of the Internet over the last five years.

The lesson? Want change? Don’t go to the regulator; go to the streets, like OpenMedia did, with half-a-million people in tow.

The CRTC’s assumptions about bandwidth use as the basis of the two pricing models adopted by its UBB ruling – the existing flat rate model and new ‘capacity-based model – appear to be far less then more capacious limits recently put in place at Shaw and Telus, and behind global best practices further yet.

They are wildly out of synch with the illustration above created by the deep-packet inspection equipment maker Sandvine, too. When Sandvine talks about the appropriateness of using price and bandwidth caps to “discipline users”, it imagines a scenario where users have 200GB caps per month for peak use, and unlimited use thereafter (see p. 5). Putting aside the unsavoury language of using technology and prices to discipline how people use the Internet, these numbers are multiple times higher than the 40-60 GB per month that the CRTC’s UBB decision seems to assume.

Other than in the most abstract of ways, there are no real world examples of how Canadians use the Internet or how online video distributors (OVDs) such as Apple, Netflix and Youtube might be affected by the CRTC’s UBB decision. Yet, the UBB decision is cultural policy, even if it refuses to identify itself as such, protecting incumbent telecom and broadcasting players, on the one hand, stifling people’s everyday cultural production and consumption in the online, network media ecology, on the other.

The CRTC obscures questions about online media use by casting the remit of the UBB proceedings in resolutely narrow terms and shrouded in a thicket of dense language that only a technocrat can appreciate. Its headline achievement is the wholly uninspiring creation of a wholesale pricing framework based on the existing flat rate model for any Netco that wants it (Shaw, SaskTel, Telus)  and a new “capacity-based model” for those who asked for it (Bell, Rogers, QMI, Cogeco, MTSAllstream).

The two options and the ability to buy bandwidth in 100 Mbps blocks will give independent ISPs more flexibility in terms of how they package and price their services. For 94 percent of Internet users, however, the decision will have little impact.

They will continue to be saddled with the pay-per Internet model and bandwidth caps that Bell began foisting on them in late-2006, with other incumbents following in its footsteps ever since. The decision not only leaves this model intact, but girds it.

With increased flexibility, some indy-ISPs will be able to offer stripped-down services to low-end Internet users at cheaper prices. While 1.5 Mbps Internet service no longer serves as a target for Internet development anywhere, a cynic might say that this so-called flexibility at least adds to the chances that there will be an el cheapo Internet option for the poorest among us.

The CRTC doesn’t want to talk about how its decisions fit into questions of accessibility and usabililty, however. Be that as it may, there is a large broadband Internet access divide in Canada, and it is a class divide.

Household Internet use closely tracks income, as the chart below shows, with those at the top of the income scale (98%) nearly twice as likely to use the Internet from home as those at the bottom (52%). Or to put this another way, between one-fifth and one-half of households on the first three rungs of the income ladder do not have Internet access. Only the wealthiest in the top twenty percent have near universal access.

Source: 2010 Canadian Internet Use Survey, Business Special Surveys and Technology Statistics Division, Statistics Canada.

Some argue that the importance of the Internet to all aspects of our lives means that we should expand our understanding of communication rights to include “freedom of expression, freedom of connection” via the Internet. The CRTC and those who it regulates would undoubtedly see any such talk as heresy.

On a less prosaic level, there will be pricing and packages galore under the new wholesale pricing regime; probably to the point of confusion. While it is conceivable that some low-end Internet users may benefit, for mid-range, high-speed Internet services prices will likely rise 25 percent relative to comparable services now.

Indy ISPs will also be under more pressure to manage their subscribers’ use and to push high bandwidth real-time entertainment video use into off peak hours. This pressure will become more intense over time as online video use continues to explode. Daytime soaps or early a.m. World of Warcraft, anyone?

Overall, prices for Internet services for all users in Canada will continue to be high relative to relevant global standards. Whereas the tendency in countries that we’d probably like to emulate is for bandwidth to increase steeply and prices to fall gently, in Canada, bandwidth availability and prices are both going up, with some companies (Telus and Shaw) seeming to do a better job than most.

Canada will continue to retain the dubious distinction of being among just three advanced capitalist democracies – Australia, Iceland and New Zealand – where bandwidth caps are low and near universal in coverage. In 2010, by contrast, twenty other OECD countries had no data caps at all. Elsewhere, bandwidth caps were one option among several. In Spain, just two of twelve broadband providers surveyed used bandwidth caps, for example (OECD, 2011, p. 275).

At the heart of the UBB decision is the CRTC’s stubborn insistence that Internet access is sufficiently competitive, despite the fact that 94% of users obtain access from the dominant incumbent telephone or cable companies in their city. This stance is decisive because its sets the foundation upon which everything else turns (for the state of media and Internet concentration in Canada, see here).

Because of this position, the new rules do not give maximum, unbundled access to bandwidth and other essential elements that rival ISPs need to serve their subscribers over the incumbents ‘last mile’ links, but the minimal level possible whilst still giving access to network facilities at all. The highly restricted form of network access given to independent ISPs is based on a concept invented out of whole cloth three years ago by the CRTC itself: i.e. “non-essential, conditional mandated access” facilities. There’s no such thing anywhere else in the scholarly literature or the real world, as far as I know.

Under such fairy-tale conditions, concentration disappears and the CRTC ignores the potential to use the much stricter “essential facilities” guideless, let alone functional or structural separation, to foster more competition and more open networks. While these measures are growing in appeal in Europe and have been adopted in Australia, Italy, the Netherlands, New Zealand, Sweden and the UK (OECD, 2011, pp. 11-44; Benkler, 2010, p. 159), there is little trace of them in either the vertical integration or UBB proceedings.

Under the “essential facilities” guidelines, rival ISPs would be able to acquire access to bandwidth and last mile connections on terms that are equal to those that incumbents’ offer to their own ISPs. The CRTC could also demand much higher levels of information disclosure from the incumbents and use a more transparent process to set the wholesale rates that ISPs will have to pay as a result.

Crucially, the CRTC could cap the wholesale prices that the dominant players charge at “cost + 15 percent”. Instead, the CRTC’s ‘sufficient competition’ standard set rates on the basis of “the individual large cable and telephone companies’ costs to provide the service plus a reasonable markup” (p. 2).

What those costs are, and whether they are reasonable, we’ll never know, because nobody but the CRTC and the incumbents have access to the underlying data used and just what measure of reasonable is used. Indeed, the whole process is erected atop a murky foundation of minimal data disclosure and transparency. This is Internet Policy making in the dark.

The result is a fairy-tale world of the CRTC’s making where dominant market power disappears and wholesale rates appear to be more fiction than anything based on a scrupulous reading of the facts. Bandwidth apparently is cheap and plentiful in Manitoba and more expensive in territories served by Shaw and Telus, while scarce and very expensive in the rest of Canada.

Capacity-Based Model Capacity Rate/100 Mbps Access Rate
MTS Allstream $281 $23.08 (32 Mbps)
Rogers $1,251 $21.00 (25 Mbps)
QMI (Videotron) $1,890 $23.77 (30 Mbps)
Bell $2,213 $25.00 (25 Mbps)
Cogego $2,695 $24.98 (30 Mbs)
Flat-Rate Model Monthly Access Rate/Subscriber
Shaw $21.25 (25 Mbps)
Telus $39.51 (25 Mbps)
Sasktel $53.49 (25 Mbps)
Bell Alliant $30.27 (15 Mbps)

The CRTC attempts to explain away the eight-fold disparity between Bell and MTSAllstream’s prices in a footnote buried in the appendix at the back of the decision by pointing to the simple architecture of the latter’s network relative to Bell’s. I doubt this adequately explains the chasm, but even if it did, then I say give us simple architectures rather than complex TMI conglomerate structures, please.

Still, Bell’s senior vice-president for regulatory and government affairs, Mirko Bibic and QMI’s CEO-hands-on owner Pierre Karl Peladeau have groused about how the CRTC forces them to give discounted rates to rivals. This is simply not true. The wholesale prices set are rate caps not an artificially low floor.

For Bell and QMI (as well as Cogeco), the interesting things is that, left pretty much to their own devices, they put forward prices that look ridiculous relative to those offered by MTSAllstream and Rogers, as well as those who did not ask for the capacity-based rates at all (e.g. Shaw, Telus, SaskTel, Aliant).

Some have suggested that perhaps the CRTC was being shrewd after all, and may have heisted Bell, QMI and Cogeco on their own petard. With Konrad von Finckenstein on his way out the door in January, the idea of a last parting shot at those whose gaming of the regulatory process seems to know no bounds has some appeal.

If this is a game, however, it is too clever by half. Key tools in the regulatory and Internet policy toolkit have been left laying fallow and there is not a mention of common carriage or network neutrality to be found in the UBB ruling, although if there was ever a home for such bedrock principles, this is it. Instead, there are only references to Cabinet Directives and select passages cherry-picked from the objectives of the Telecommunications Act to the effect that the CRTC is to rely on market forces to the maximum extent possible. On this, the UBB and vertical integration rulings are one.

It is not that there were no other options being kicked about in these two rulings. Over the past year, many have emerged with alternative, realistic views of how things could be. It was not just OpenMedia and 500,000 petition signers that blasted the do-over of the user-centric, open Internet into a provider-controlled pay-per Internet model, but many smart people who tossed their ideas into the ring: a former Director General of Telecommunications Policy at Industry Canada (Len St. Aubin), the ex-Chief Knowledge Officer at Canarie (Bill St. Arnaud), popular writers (Peter Nowak), University of Ottawa Canada Research Chair in Law and E-Commerce, Michael Geist, Jean-Francois Mezei (Vaxination Informatique) and respected scholars (David Ellis, Catherine Middleton), make up just a small number of those who offered us much to think about with respect to the issues at hand.

These people did not all read from the same hymn sheet. What they did offer, though, was a set of bright ideas and realistic visions that only seem beyond the pale by the dim lights of what passes as Internet policy and regulation in this country.

CRTC’s New Telecom-Media-Internet Vertical Integration Rules and Elephants in the Room

The world has been sitting on pins and needles since the CRTC’s hearings on vertical integration in the telecom-media-Internet industries held in June.  CRTC’s just come out with its new rules on the subject today. You can see the press release here or the full decision here.

A lot was at stake. The big four vertically integrated media companies in Canada — Bell, Rogers, Shaw and Quebecor Media (QMI) — said there was no problem, and proposed that, at most, the CRTC should accept some amalgamation of their propsed code. Everybody else disagreed: Telus, CBC, Access Communications, public interest groups, Channel Zero, the Weather Channel, and in a qualified way, Astral.

Rogers also carved out a somewhat distinct position given that with its CityTV network being the smallest of the big four’s holdings (QMI/TVA, Bell/CTV, Shaw/Global (Corus), suggesting a code with a bit of teeth so that it could feed its own mobile and Internet operations. A complete list of positions is available here.

Arguments were made about small markets needing big media players, and that argument front-ended the CRTC’s press release today.  In fact, however, as I’ve said in previous posts, Canada’s total media economy is not small, but the eighth largest in the world, and growing fast. We don’t need ‘big media’ to coddle small Canadians, but rather carriers the provide clear channels and the most open media set-up possible, full stop.

So, what did we get? The CRTC announced six key measures, but there’s at least two big elephants in the room that we need to consider, too. Here’s the six headline items:

  1. The big four — Bell, Shaw, Rogers, QMI — cannot offer tv programs exclusively to their own mobile or Internet subscribers. They must make them available to Telus, Wind, Access Communications, MTS Allstream, etc. Score on this one: Good (para 22).
  2. Programs created specifically for Internet or mobile distribution by the big 4 can be exclusive. Score on this one: umm, I suppose it’s a good one (para 23).
  3. No disrupting people’s experience in front of the telly. In other words, no black outs like the kinds that have bedevilled relationships between Bell and Quebecor in the past and which have periodically erupted in the US between, for example, Time Warner and Comcast on the distribution side of the business and Disney, Fox (NewsCorp) and Scripps Howard on the content side, when things get nasty over carriage (transmission) and programming rights. Score: sure, seems pretty good to me (para 104).
  4. Status quo maintained with respect to independent television producers access to schedules of the big four’s specialty channels (25 percent) and broadcast schedule (satisfactory).
  5. End of “block-booking”, the practice of tied selling where access to one channel is tied to taking a block of several channels. It was outlawed in the US for Hollywood in 1948 (S.Crt’s Paramount Decision), and it came to television in Canada today. Score: thumbs up (para 63).
  6. CRTC admonished the vertically integrated companies to come up with a broader range of ‘pick and pay’ models within six months allowing people to order television and programming services ala carte.  And what happens if they don’t? Another round of hearings, that’s what. Score: pass for at least trying and the cute raised eyebrow. If you don’t regulate, you can always browbeat these behemoths into doing something, suggesteth the latter. I don’t know, this one just seems to punt the issue down the line (less than satisfactory, but with words of encouragement so that KVF can do better next time).

So, on points 1, 2, 3 and 5, some clear ‘wins’ for competitors and consumers. Point four holds the line, while point six will require us to wait and see if the different players can sort things out amongst themselves. Otherwise, well, more consultations, hearings and decisions. Indeed, the CRTC points to many instances where additional consultations, hearings and decisions might be needed if the different interests can’t sort things out by themselves.

One particular issue worthy of mention here is the CRTC’s efforts to push Bell, Rogers, Shaw and QMI to share subscriber info collected and stored in their set-top boxes with independent programmers (para 141), albeit with due deference to privacy laws and concerns. The threat of yet another round of consultations on this issue also now hangs in the air if the two sides are unable to work things out themselves.

And how about those elephants-in-the-room, you ask? There’s two, I’d suggest, and they’re inter-related.

First, references to the common carrier sections (non-discrimination, equal treatment) provisions in the Telecommunications Act (1993)(secs. 27, 28 and 36), and specifically dealing with broadcast programming, are ignored, referenced only in passing. Vertical integration has rendered these a bit of a fiction, but the CRTC does have enormous powers under these sections.

That it has not leaned on them at all shows how far common carrier/network neutrality principles, and the rule of law, have been eclipsed by a ‘cobbling-things-together-as-we-go-along’ approach. Even from the perspective of “the market”, I don’t think this is a good thing.

The second big elephant in the room is that there’s nothing in the new rules establishing parity of treatment between rivals’ online video distributors (OVDs) such as Netflix, AppleTV, GoogleTV, etc., on the one hand, and the big four’s own online “tv everywhere” initiatives and IPTV offerings, on the other. With the ‘common carrier’ principles apparently in hibernation, perhaps this is not surprising.

What this means is that when Bell, Shaw, Rogers and QMI stuff tv programming/video down their pipes, it won’t count against the bandwidth caps that apply to almost all Internet access offerings in Canada. For Netflix and other OVDs, the caps apply and bandwidth is measured bit by bit. Call this the Netflix choke-hold, and the CRTC seems to have done nothing about it.

This element of the decision is a lost opportunity and one can’t help wonder if its a byproduct of all the fuss being made about how OVDs like Netflix are supposedly ravaging the foundations of the incumbents’ tv operations (although accounting for less than 1 percent of industry revenues) and the strong push by  Shaw, Astral, a report of the Senate Committee of Canadian Heritage, and the incumbent industry-driven Over the Top Services Working Group to have such entities regulated as broadcasters. For anyone thinking of setting up a similar OVD operation in Canada, this element of the decision seems like bad news.

In contrast, the FCC and Department of Justice approved the Comcast — NBC (Universal) amalgamation in January earlier this year on the condition that Comcast – NBC (Universal) not give preferential treatment to its own online tv services over those of rival OVDs or withhold NBC-Universal programming rights from OVD providers either. The CRTC’s decision address the latter point, but does nothing with respect to the first. A half victory?

We also need to remember that even the incomparably stricter measures adopted by the FCC -DOJ conditions in the Comcast – NBC case are modest in comparison to steps like structural separation and alternative network build outs that have been taken in, for example, the UK, NZ, Australia, Sweden, Chile, Romania, . . . . These measures were simply off-limits in the current proceedings.

Bell, Shaw, QMI and Rogers, of course, argued all along that the need to regulate them was always speculative and groundless.  But that is simply not born out be the evidence provided during the hearing by Telus, Access, MTS Allstream, SaskTel, Channel Zero, Wind, etc.. All of the latter parties argued that the problems are all too real and that gaining access to CTV content, for instance, became a whole lot harder once Bell acquired it earlier this year.

The historical record, as I’ve also argued, is also quite unequivocal on the folly of allowing those who own the medium to control the message. It is certainly a step in the right direction that the CRTC explicitly disagreed with the Big Four’s Panglossian view of the world, and has at least taken some steps to deal with the real issues at hand.

But the CRTC treads lightly in this domain and one thing that you won’t find in its decision is the actual evidence regarding the heavily concentrated state of the TMI industries in Canada. Yes, I state these numbers regularly, but it’s worth repeating them and also my consistent refrain that when you allow those who control the medium to control the messages flowing over it, predatory behaviour and choke points on the free flow of information will arise as sure as night follows day.

So, again, just as a reminder, here was the picture in 2010 of Bell, Shaw, Rogers and QMI’s share of the entire TMI industries in 2010:

  • 84 per cent of cable and satellite distribution
  • 78 percent of all television revenues
  • 66 per cent of wireless revenues
  • 54 per cent of Internet Service Provider revenues
  • 53 per cent of the wired telephone market
  • 39 per cent of radio

That is, ultimately, the source of the issues at hand, and unfortunately, the CRTC’s decision today seems mostly to be tiny pin pricks in the side of the real elephant-in-the-room.

Crony Capitalism?: Revolving Door between Telecom-Media-Internet Industries in Canada and Ex-Politicos

Where do ex-politicians go when they retire? It would appear that they take up sinecure amongst the boards of directors at Canada’s leading telecom-media-Internet (TMI) companies.

The appointment of recently retired Industry Minister Jim Prentice to Bell Canada’s board of directors and Stockwell Day’s appointment to Telus, respectively, in the last two weeks has tongues wagging. Many think it ain’t right, others see no problems; I see it as business as usual, systemic and a big problem that contradicts the ideals of a free press and any notion that TMI policy in this country is anything more than industrial policy and a major industry player protection racket.

Of course, not everyone sees things this way. As one lobbyist from the software industries in Canada badgered me over the weekend on Twitter, what’s an old political hack suppose to do when they leave office? What’s wrong with Prentice and Day taking up shop at Bell and Telus?

Well, lots. If it was just Prentice and Day stepping from the halls of Parliament to paneled boardrooms of Corporate Canada, perhaps it would be exceptional and not much to be worried about.  However, if we look at the boards of directors at the top ten TMI players in Canada, we see that they are not the exception but the rule. The boardrooms are brimming with their type, with a total of fourteen directors – an ex Prime Minister (Brian Mulroney at QMI), an ex-first lady (Mila Mulroney at Astral), two former Chairpersons of the CRTC (Francois Bertrand at QMI and Andre Bureau at Astral, and more, as the chart below shows – occupying these coveted spots.

Top 10 Telecom-Media-Internet Companies and the Ties that Bind

Ownership Politicos as Directors Family Members as Directors Links With Other MediaCos
Astral Greenberg Andre Bureau (CRTC chair)

3

Paul Godfrey (PostMedia)
Mila Mulroney Phyllis Yaffee (Dir. Torstar)
Bell Publicly Trade (Diversified) Jim Prentice (Cons. Ind. Minister) Not Relevant
E. C. Lumley (Lib. Cab. Min)
Carole Taylor (BC Fin Min)
Cogeco Audet (64%)

1

Rogers (36%)
PostMedia Godfrey (6.5%) David Emerson (Lib. Cab. Min)

1

Quebecor Péladeau Brian Mulroney (Cons. PM)Francoise Bertrand (Chair CRTC)Kory Tenycke (VP Sun News, ex Harper Dir. of Communication)

1

Rogers Rogers John H. Tory (ex. Ont. PC leader)David Peterson (ex Lib Premier Ont.)

4

Issabelle Marcoux (Transcontinental
Shaw Shaw Sheila Weatherhill (PM Advisory Cmmt on Public Service)

3

Torstar Atkinson, Thall Hindmarsh, Campbell, Honderich Roy Romanow (ex Premier of Saskatchewan)

2

Phyllis Yaffee (Dir. Astral)
Globe & Mail Thomson (65%)

2

OTPF (25%)
Bell (15%)
Telus Publicly Traded Diversified Stockwell Day (ex CPC Cab. Minister) Not Relevant

14

16

Sources: Corporate Annual Reports and Forbes Corporate Executives & Directors Search Directory <http://people.forbes.com/search&gt;

Things are particularly strange in Canada by the added fact that eight of the top ten TMI companies in this country are family-controlled. This degree of media mogul control and political ties to the inner sanctums of top media companies is reminiscent of an ‘ancien capitalism’, where families and the ‘political class’ are in charge rather than citizens and ‘expert’ managers at the helm of publicly-traded firms where ownership is dispersed and corporate operations transparent.

Things are different in the US, where Eli Noam points out in his authoritative Media Ownership and Concentration in America that the number of owner-controlled media firms fell from 35 percent to just 20 percent between 1984 and 2005 (p. 6). I think that Noam slightly exaggerates the decline given that five of the top global media conglomerates — Comcast (the Roberts family), News Corp (Murdoch family), Viacom-CBC (Redstone family), Bertlesmann (remnants of Bertlesmann and Mohn families) and Thomson Reuters (Thompson family) – are of this type. Moreover, the media baron still cuts a large figure at the top ICT and Internet companies to, think: Apple (Jobs), Facebook (Zuckerberg), Google (Page, Brin and Schmitt), Microsoft (Gates and Ballmer), Yahoo! (Yang), IAC (Diller and Malone) and CBS (Redstone).

The ongoing case of the telephone hacker scandal in the UK reminds us that with the Murdock family – Rupert and his son James – at the helm, we are far from the end of the era when media moguls ran supreme. Thus, while not totally unusual, the degree of ties between moguls and political appointments at Canada is of a different kind and more extensive. Such arrangements are backwards, if you will, and more like nations with a tradition of oligarchic capitalism, as in Russia and Latin America, then in the liberal capitalist democracies of the US and Europe.

It is not that we just have an outmoded system of family control with ex-politicos having positions of influence right across the ranks of TMI sectors, but also that the main players have ownership stakes in one another’s companies, as is the case with Rogers owning about a third of the equity in Cogeco and Bell a residual 15 percent stake in the Globe and Mail.

Also blunting the sharp edge of competition and independence between different players in the market is the fact that directors on the board of one company sit on the boards of supposed rivals. Phyllis Yaffee, an industrial stalwart with oodles of experience and one who actually does have the expertise and savvy to fill a directors’ shoes is on boards at Astral and Torstar. Paul Godfrey, also an old hand and savvy operator in the business, sits on the boards at Astral and PostMedia Co. —  the company a company that he has spearheaded the development of to assume ownership of the twenty odd newspapers (Ottawa Citizen, Windsor Star, National Post, Calgary Herald, Montreal Gazette, etc.) left behind by the wreckage of Canwest. That wrecked vassal is yet another company that was family controlled (the Aspers) and not shy about stacking its board with ex politicos (e.g. Derek Burney, ex. Chief of Staff for Harper).

We also, as I have said repeatedly in this blog and elsewhere, a very highly concentrated set of industries. Altogether, the big 10 firms listed in the table above account for just under three quarters of all revenues in the TMI industries (excluding wired and wireless telephone services). I think the two are related.

It is not just that all our TMI industries, individually and as a whole, are very highly concentrated, but that policy and regulation in this country does not deal with this fact. Instead, policy-makers and regulators, to a large degree, cultivate concentration on the grounds that whatever problems this raises will be offset by industrial gains.

As David Ellis pointed out the other day, the CRTC does not regulate the TMI industries on the basis of any known standards of market concentration, but functions primarily to grease the supply-side of the industrial machinery that make up the TMI sectors.

The problem is not just that this leaves consumers and citizens on the sidelines while industry calls the shots. The problem is that the phenomenon of politicos on the boards of directors at the major TMI companies, and the revolving door between the regulator and government policy-shops on one side and industry on the other are pervasive, enduring and systemic.

What this means is that we cannot just look for one-off instances of influence peddling, as in, say, the allocation of spectrum in past and forthcoming wireless auctions, as Peter Nowak points out. Nor is that putting Harper’s former Director of Communication, Kory Tenyecke in the position of VP at QMI’s Sun News will leave a dirty trail of finger prints on every story covered, with lurid tales of stories spiked and stories spun to favour Harper and the Conservatives.

To be sure, a few cases of such things will happen, with one or two leaking out to become grist for the mill and confirming some people’s worst fears. The problem is deeper than that, however, and less easy to suss out in terms of what it all means. However, as I showed during the election this year, it is true that of the twenty-two papers that issued endorsements for Prime Minister in the last election, all but one stood foursquare behind Harper — a wall of Conservative editorial opinion behind the Conservative candidate for PM.

Yet, the meddling hand of direct owner or political influence is much more subtle, and rarer than this. Instead it takes place at two more general levels: corporate policy making and the allocation of resources, say, resources for faster Internet connections, more journalists and coverage of world affairs and the environment versus cut-backs, low levels of investment and fluffy content to titillate and instigate bickering rather than understanding and civil discourse. It is at this general level that directors hold sway. Indeed, that’s what they’re hired for, to set long term policy and make sure that those directly controlling the purse-strings do so wisely.

Beyond this, the real problems are three-fold: First, the revolving door between regulator (CRTC) and those who make the rules while in government, on the one hand, and the TMI companies, on the other, institutionalizes an approach to media policy as industrial policy and a strategic game. The extent of this also means that everybody in the game must adopt a similar strategy, which only aggravates the problem and makes things all the less apparent in terms of who and what is really calling the shots.

Consequently, regulation and policy-making is not so much about guiding the development of telecom, media and Internet in relation to democratic and free press values but industrial policy concerns. As I stated earlier, the CRTC serves principally to grease the supply-side machinery of these industries, rather than regulating in the public interest or in relation to a broad understanding of how people actually use media facilities and what we want. Perhaps this is not surprising, given that the last known sighting of the CRTC’s old motto, “communication in the public interest”, was in December 2008 (see here). It has disappeared from the top of its webpage and prominent place on the front of publications ever since. No wonder some commissioners and the vice-chair have a hard time understanding the link between media and democracy.

Such arrangements are an affront to common sense and to principles of a free press in liberal capitalist democracies. They smell bad and smack of crony capitalism unfit by even the standards of liberal capitalist democracies.

Finally, they fly in the face of liberal theories of a free press. According to classical theories of the free press, and especially Whig tales of press history from the rise of advertising-funded mass media in the late-19th and early-20th centuries, the media are suppose to be independent of government. They are also to serve as a watchdog nurturing the public sphere rather than as waiting lapdogs for retired politicos in the hope that they can tilt the industrial policy-making game in their new masters’ favour.

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