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The CBC’s Place and Role in the Networked Media Universe

Today I participated in a panel debate at the Manning Centre’s annual conference. It’s a big conflab that attracts a whose who list of the Conservative Party and party faithful.

The question we debated was, “Is it time to pull the plug on the CBC?” I debated the question with James Baxter from iPolitics and Brian Lilley, a co-founder of Rebel Media and all about town commentator for various conservative-type talk shows, publications, etc.

So, should we pull the plug on the CBC? I said no! What follows is a slightly tidied up copy of my talking notes.

Main Arguments for how to think about the CBC, and why we need it:

  1. Over the last three decades, the CBC has become a much dimmer star in a much larger internet- and mobile wireless-centric media universe;
  2. it is still important — just a lot smaller than it once was;
  3. the CBC should be put on better footings with respect to funding, its mandate and independence from the government of the day;
  4. However, I also wonder if focusing on the CBC is like looking at things through the wrong end of the telescope?
    • Broadband internet and mobile wireless are now central to our whole way of life, economy and society, including the media, the CBC and journalism.
    • We can no longer talk about the CBC, journalism or ‘the media’ without talking about internet & mobile phones.
    • Mobile phone rates, data caps, broadband access, fibre-to-the-doorstep, and common carriage are as important as the CBC to most CDNs – in personal terms (intimacy @ a distance), social terms (access to knowledge, entertainment, opportunities, others), and $ terms (CDNs spend $5 on bandwidth for every $1 on media content).

I leaned on two main sources for my talk: Noam (2016). Who Owns the World’s Media. New York: Oxford University Press and, of course, the data sets and reports from the Canadian Media Concentration Research Project that I direct.

Argument #1: CBC is a small fish and a vastly bigger pond

It has shrunk greatly over time against the backdrop of a vastly larger media landscape, as Figure 1 below illustrates. 

Figure 1: CBC vs Network Media Economy, 1984-2015, (Total $ millions)

cbc-v-nmeSource: Canadian Media Concentration Research Project (2016).

The role of the CBC has been dwarfed by a handful of developments:

  1. Wholly new media have been added to the media universe: e.g. mobile phones, broadband internet access, pay TV, OTT, online gaming, social media, search engines, the hosting, buying and selling of stuff – ebay, Amazon, kijijji.
  1. The media universe is becoming ever more internet- and mobile wireless-centric, hence why I talk about the “network media economy” — carriage is king, not content;
  1. The size of the network media economy quadrupled from $19 billion in 1984 to $75 billion today;
  1. Canada’s media economy is not small but one of the twelve biggest in the world;
  1. The Canadian media economy has not only become much bigger and more complex but also become more concentrated since the turn-of-the-21st Century (although with important exceptions, such as, and crucially, internet news sources, radio and magazines). Among other things, Figure 2 below shows how the CBC’s place within the Canadian media economy shrunk between 1992 and 2015.

Figure 2: CBC place in the Network Media Universe, 1992 vs 2015

 1992media-cos-1992 2015

media-cos-2015

The CBC is now a pygmy amongst giants. It’s share of the total media economy dropped from 5% in 1980s and early 1990s to less than half that amount today.

Based on revenues in Canada, Google is now bigger than the CBC, while Facebook is about half its size.

What also stands out is the extent to which a handful of companies stand at the apex of the internet and media landscape: Bell, Rogers, Telus, Shaw, Quebecor. Bell dominates with nearly 30% of all revenue, while the big five account for just under three-quarters of all revenue; that figure was 64% in 2000 and 60% in 1996.

High levels of media concentration are not unusual, however. Summarizing the results of a thirty-country study, Eli Noam observes that media concentration is often “astonishingly high” around the world. Canada is no exception.

Canada does stand out, however, in terms of the extent to which telephone companies and ISPs own all the main TV services and most radio services in Canada, except for the CBC. The “Big 5’s” share of the total TV market — Bell, Rogers, Telus, Shaw and Quebecor — has grown from 54% in 2008 to just under 80% in 2015 (78%). This combination of carriage and content is called vertical integration; Canada has some of the highest levels of vertical integration in the world, and this is not a good thing. It matters because:

  1. Having come to own content, telcos increasingly want to act as gatekeepers (publishers) to the internet rather than as gateways (common carriers). CBC has been excluded from Videotron’s Unlimited Music offering, for example, where wireless subscribers get access to a selected catalogue of streaming music services without the use of them counting against your monthly data caps. All telcos would like to do this. Bell’s Mobile TV offering tried to do much the same before being slapped down by the CRTC and the Federal Court of Appeals;
  2. Telcos’ content holdings in TV, radio, online and print are trinkets on their much larger corporate edifices. They don’t care much about media, content or journalism other than that they hope this “content” stuff will help them sell mobile phone and internet subscriptions – the real engines and profit centres of their operations;
  3. Signing up for mobile wireless and broadband internet services in Canada is very expensive relative to the forty countries that make up the EU and OECD, as is the price of data. Data caps are also used widely and set at low levels after which punishing ‘overage charges’ kick in – as if we are using ‘too much internet’.
  4. As a result, markets for fibre-based internet access are underdeveloped while mobile wireless and broadband internet uptake is lower than it could be;
  5. Regulatory capture – governments have been unwilling to steal their spine to deal with such realities. The revolving door between industry and government does not help. The Harper Government went part way down the path needed to bring about more competition but the Liberal’s approval of Bell’s takeover of MTS last week effectively throws the last government’s pro-telecoms competition policy under the bus. CPC leadership candidate Maxime Bernier probably knows this file best amongst all of the party’s leadership candidates, but his plans are uninspired and too closely linked to those of the telcos.

Instead of railing against the CBC, these kinds of issues should be higher up on our list of priorities. The industrial media age of the 19th and 20th centuries is giving way to the internet-based society of the 21st Century. The choices we make now will shape what happens for decades, and perhaps longer. We need to get this right.

Besides getting a better measure of the CBC’s diminished place within the digital media marketplace, we also need to realize that the CBC is kept on a very short leash by a several political constraints, four to be specific:

  1. Funding levels for the CBC are low by international standards – less than half the average and about a sixth of the high-end of the scale. The figure below illustrates funding levels per person in Canada versus other OECD countries, using 2014 data from all of the other countries but 2016 data for Canada to capture the increased funding put into the CBC by the Trudeau Government.

Figure 3: Public Service Media Funding/Person: Canada vs Select OECD Countries, 2014

funding-for-psm

Source: Nordicity (2016). Analysis of Government Support for Public Broadcasting. London, UK & Ottawa: Nordicity.

  1. Short-term annual funding cycles opens the CBC up to political influence through budgeting – should have five- or ten-year cycles instead;
  1. Lack of independence from the government-of-the-day in terms how the CEO and Board is appointed – Conservative or Liberal;
  1. As a recent article by DeCillia and McCurdy shows, the 467 instances of media coverage of the CBC that they examined between 2009 and 2014 highlights the extent to which the CBC faces an overwhelmingly hostile press that typically casts it as threat to commercial interests rather than taking up its place within a democratic society.

However, despite being hemmed in by business interests on one side and political constraints on the other, the CBC still manages to do some things remarkably well:

  1. Investment in original journalism and Canadian content. While the CBC accounts for just a fifth of all TV and radio revenue, it is accounts for a third of investment in original TV/radio journalism, news and information programs and a quarter of all spending on TV and radio content production in Canada. It also maintains 9 foreign news bureaus while the private sector has cut to a bare minimum.
  2. The CBC TV audience has declined but still garners 10% audience share and is still a significant TV news source (8% in English regions, 18% in QC).
  3. CBC radio services are much loved (national audience share of ~20%), and its streaming music services are popular;
  4. Trust for the CBC is high and has stayed fairly steady over time (CBC Annual Rpt, p. 34) whereas trust for traditional media has fallen (e.g. ¾ of Anglophones and 4-out-of-5 Francophones see it as fair and balanced, and reasonably diverse while trust levels for traditional media fell from 71% in 2012 to 58% at start of this year) (Edelman Trust Barometer);
  5. The CBC has been an early adopter of digital technologies, the internet and mobile apps. Well before 2008, the CBC was making its archive of programs, streaming services, TV episodes, print and audiovisual news and commentary available via its website, apps, and on iTunes, YouTube, etc. – all for $33 a year (3rd lowest amongst 18 comparable OECD countries) (Nordicity, 2016, p. 44). The commercial companies did not start in earnest until 2010, but they are still dragging their feet to this day.
  6. The results show — the CBC is the #1 source of online news for Canadians, as the Figure below illustrates.

Figure 4: Top Internet News Sources in Canada, 2015

avg_monthly_unique_visitors_2015

Source: ComScore Long Term Trend, September 2012 — September 2015, Total Canada, News and Information Category.

While the CBC is the number 1 internet news source in Canada, it is crucial to stress that it does not dominate the internet news environment. People get their news from many internet news sources — old (e.g. CBC, Postmedia, Toronto Star, CTV) and new (e.g. iPolitics, Huffington Post, Buzzfeed), domestic and foreign (e.g. BBC, Yahoo!-ABC, the Guardian, New York Times).

But before adopting a rose-tinted vision of things, however, there are several reasons for caution:

  1. Most news organizations are short on money, trust and full-time journalists. New internet news ventures like iPolitics are groping their way to survival. The “crisis of journalism” is real, as the Public Policy Forum’s recent report The Shattered Mirror: News, Trust and Democracy states – but not of the magnitude or for the reasons it suggests. Against the backdrop of a heightened state of flux, the CBC offers a steady, reliable and well-trusted source of news.
  2. New online journalistic ventures like iPolitics, Canadaland, The Tyee, Ricochet Media, etc. are important to their own niche audiences, but none of them crack the top 60 most popular internet news sources.
  3. While trust in traditional media is weak and declining it is lower yet for ‘internet-based’ media (sometimes undeservedly so). In contrast, a large majority of Canadians — 75-80% — trust the CBC. As such, it helps fill the ‘trust gap’ and since democracy rests on trust, we can say that the CBC’s makes a positive contribution to democracy.
  4. The economic base of the media no longer depends on advertising revenue but subscription fees: broadband internet, mobile phones, cable TV, Netflix, Spotify, etc. Subscription revenue now outstrips advertising revenue by a 5:1 ratio.
    • Advertising spending has flat-lined since 2008 and fallen on a per capita basis in the last three years This is not because of the rise of the internet, Google and Facebook but the sluggish economy. What’s left is increasingly going to the internet. Google and Facebook, in turn, dominate internet advertising not because they are vampire squids sucking the lifeblood out of journalism and ‘old’ media but because they are better at doing what the mass media used to do best: delivering audiences to advertisers. Figure 5 shows how advertising revenue tumbled for most media after 2008, and even slowed for internet advertising.

Figure 5: The Impact of the Financial Crisis on Advertising Across Media, 2004-2015

financial-crisis

Source: Canadian Media Concentration Research Project.

  • Advertising-funded mass media are in trouble not because of the CBC, but because (a) total advertising $ are stagnating or in decline; (b) pay-per media are expanding; and (c) the internet is better at delivering audiences to advertisers. The general public has never paid the full cost of general news services, and likely never will. Consequently, journalism and ‘general media services’ have always been subsidized by either advertising, wealthy patrons, propaganda in authoritarian regimes or the public purse in democratic countries.
  • Given this baseline reality (i.e. unwillingness to pay), the market does not and cannot fully support the kinds of general journalism and media services that Canadians want and democracy needs. This is not to denigrate the market, but recognize its limits. Filling in the gap between what the market offers and what people want and democracy needs is the raison d’être of the CBC. As the bottom of the advertising subsidy falls out from under some media and journalism, what kind of subsidy will rush in to fill the void: (1) rich sponsors; (2) propaganda; or (3) the public purse? My vote is for the CBC.

What is to be done?

  1. Stop looking through the wrong end of the telescope; the CBC plays a smaller role in a larger and more internet- and mobile wireless centric media universe;
  1. The CBC needs to be put on a stronger footing by:
  • Clarifying that its mandate includes offering services across all digital media;
  • More than doubling its budget to bring it into line with the average of the OECD countries and eliminate advertising from its TV and online services;
  • replace current annual funding cycles in favour of five- or ten-year cycles to help shield it from political influence and allow it to plan appropriately;
  • make the appointment of its President and Board more independent from the government-of-the-day;
  • dial-down the anti-CBC hyperbole in the press and some political quarters.

Valuing journalism and quality media is not a zero-sum game but a virtuous circle that benefits all: strong spending on PSM occurs alongside greater personal willingness to pay for news (Norway, Sweden, Denmark, Finland & the Netherlands), and is positively tied to very high rankings on free press indexes and strong democracies.

  1. Deal with the reality of high levels of media concentration and sky high levels of vertical integration in Canada because:
  • telcos don’t care about content;
  • telco-ISPs are pushing hard to become gatekeepers (publishers) in relation to the open internet rather than gateways (common carriers).
  • lower the high prices for mobile wireless and broadband internet services and data and curb the use of data caps, as if somehow people use “too much internet”. Taking these steps will help increase the adoption and use of mobile wireless and broadband internet services;
  • will help to decrease the problem of regulatory capture stop the spinning revolving door between industry and government – regardless of who or which party is in power.
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Shattered Mirror, Stunted Vision and Squandered Opportunities

Two weeks ago, the Public Policy Forum published its report on the state of the news media in Canada: The Shattered Mirror: News, Democracy and Trust in the Digital Age. It’s an important report, and needs to be taken seriously.

The report’s portrait of the state of journalism in Canada is grim: advertising revenue has plunged in the past decade – due, it claims, to the internet, and to Facebook and Google especially; daily newspapers have been closed, merged or pared back during the same period; many local TV stations face a similar fate; well over 12,000 journalism jobs have vanished; fake news is pouring in to fill the void; and the social ties that bind us together are fraying. All of this adds up not just to a crisis of journalism but a potential catastrophe for democracy writ large, the report intones.

In the report’s view, throughout the 20th Century advertisers, audiences and news organizations shared a mutually beneficial three-way relationship: advertisers got cheap access to large audiences, journalists got paid, and we got our news for next to free because advertisers footed the bill. This literally was the “free press”, and by lucky happenstance, democracy was the better for it.

That’s all coming undone now, though, say the wise counsel of mostly senior journalists and journalism professors huddled around the Public Policy Forum’s new CEO, Edward Greenspon (and former Globe and Mail and Bloomberg News senior editor) who led the development of this report. They conclude with a dozen recommendations designed to turn back the tide. The cornerstones of their policy proposals aim to redirect advertising revenue that is currently flowing into the coffers of Silicon Valley-based internet giants like Google and Facebook back to Canada. Another group of policy recommendations aims to use a proposed new Future of Journalism and Democracy Fund to boost the capacity of professional journalism taking root in emerging digital news ventures and First Nations journalism organizations.

I think that the exercise is potentially useful, and that there’s no need to shy away from the idea that the federal government can adopt supportive policies to bolster journalism and help a democratic culture to thrive. However, this report is badly flawed. All along the way it cherry-picks evidence and gooses the numbers that it does use to make its case. There is also an acute sense of threat inflation that hangs about it. The extent to which Google, Facebook, Silicon Valley and “the Internet” are made the villains of the piece is both symptomatic of how the report tries to harness such threats to preordained policy ends and a framing that undermines the report’s credibility.

The Shattered Mirror also dodges four fundamental issues that hobble both its analysis and policy recommendations:

  1. Media concentration and the unique structure of the communication and media industries in Canada;
  2. The impact of the financial crisis of 2008 which, even though its epicentre lay elsewhere, has resulted in a lacklustre Canadian economy ever since. This resulted in a sharp drop in advertising that slammed ad-funded news media and from which they have never recovered, and likely won’t;
  3. Advertising is no longer the centre of the media economy, and receding ever further from that role by the day, so hinging a policy rescue on recovering so-called lost advertising is out of step with reality and likely to fail;
  4. The general public has never paid full freight for a general news service and likely never will. Thus, it has always been subsidized, and as the bottom on advertising revenue falls out that source of subsidy will have to be replaced by another if we really are concerned about getting the news we deserve – trying to wrestle money out of Google and Facebook (the report’s central policy proposal) won’t cut it. The proposal to apply the GST/HST to them, with some tweaks, so as to make it apply to all forms of advertising and to earmark these newfound tax revenues to original Canadian content, could help and is, thus, one I support.

Finally, I am skeptical about the “real news versus fake news” frame that girds the report. The language about “vampire economics” is overwrought. Such things give a tinge of moral panic to the report, and taints the analysis and policy proposals. Unless otherwise cited or linked to, the data sets underlying the discussion can be downloaded under Creative Commons principles from the Canadian Media Concentration Research Project’s Media Industries Database. A PDF version of this post is available here.

Chronicling the Crisis: the Public Policy Forum Makes its Case

As the Public Policy Forum documents, advertising revenue has plunged for daily newspapers, and is beginning to fall for television. Addressing “classified advertising” specifically the report states that “three-quarters of a billion dollars a year in reliable revenue vaporized in a decade” (i.e. 2005-2015). Daily newspaper display advertising revenue totaled $1.8 billion in 2006; a decade later it had been cut in half. Altogether, total daily newspaper advertising revenue has plunged by 40% — from $3.3 billion in 2006 to an estimated $2 billion this year. Community newspaper revenue has fallen by $407 million since 2012 (pp. 17-19). Will the last journalist please turn out the lights?

According to The Shattered Mirror, a similar fate is beginning to beset TV. Profits have plunged from 11% for “private stations” in 2011 to -8% last year, for instance (p. 24). Another study by Peter Miller and the Friends of Canadian Broadcasting that hangs about The Shattered Mirror report but which is not cited, worries that, economic trends, and what it sees as a series of wrong-headed decisions by the CRTC, could lead to another 30 local TV stations going dark by 2020.

Newspaper circulation has also been cut four-fold from just over 100 newspapers per 100 households to half that amount in the mid-1990s, to just eighteen last year. The paid daily newspaper as we have known it for the past century could be extinct in five years, the Public Policy Forum report warns (p. 15). And as those implications come to pass, fake news is pouring in to fill the void, desiccating the social bonds that tie us together as a nation, as a people, and as a democracy.

Figure 1 below illustrates the point with respect to declining circulation.

Figure 1: The Vanishing Newspaper: Newspapers sold per 100 households in Canada, 1950-2015, projected to 2025

figure-1-vanishing-newspaper

Source: Public Policy Forum (2017), The Shattered Mirror, p. 15.

In addition, twelve thousand journalists and editorial positions have been lost in recent decades, according to figures cited from the Canadian Media Guild. Unifor and the Communications Workers of America also report another 2000 or so positions lost as the massive shift in advertising revenue to the internet guts Canada’s news rooms.

The lost revenue at the root of this carnage, however, the report argues, has not vanished but migrated to the internet. In fact, internet advertising has sky-rocketed from half-a-billion dollars a decade ago to $5.6 billion last year, states the report. This ‘shift’ has benefitted a small number of internet giants based in Silicon Valley, while depriving Canadian news media of the money they need to survive.

The report is emphatic that the free-wheeling early days of the internet have been eclipsed by the rise of a few foreign digital media giants and a process of “vampire economics” whereby those giants, and Facebook and Google in particular, are sucking the lifeblood out of “real news”. As the report states, the internet giants are getting an incredibly “sweet deal”: “leverage the news others finance and grab the advertising that used to finance that news” (p. 31). But as Facebook and Google get rich, journalists, news organizations and, yes, us and democracy are being robbed blind. The report is explicit that only once this lost advertising revenue is brought home, will all be well: the so-called crisis of journalism will be solved and democracy saved.

Some of that money flowing south needs to be clawed back and the two behemoths need to learn to show more respect for the news content that they have used to build their empires, the report stresses. Not only do we need to do this, we can do it if policy-makers gather up the political will needed to change the Income Tax Act to make advertising on Canadian internet news sites tax deductible but not foreign websites (as has been done for newspapers and broadcasting since 1965 and 1971, respectively). GST/HST should also be applied to foreign internet companies that sell advertising and subscriptions in Canada, e.g. Google, Facebook and Netflix. These measures would cost little and raise $300-400 million that could be used to fund public policy initiatives to strengthen professional journalism (p. 84). In addition, Facebook and Google must be made to play an active role in stemming the tide of “fake news” flooding into our country while giving priority to Canadian news sources. In other words, they must be made to act more like responsible publishers (p. 97).

Tunnel Vision, Goosing the Numbers, and “Off Limits”

Advertising-supported journalism is not the ‘natural order of things’.

The case that the authors of The Shattered Mirror make about the severity of the crisis of journalism is impressive at first blush. Ultimately, however, it is neither convincing nor credible.

Its fixation on advertising revenue, for instance, assumes that it has always been an integral part of the natural journalistic order of things. It has not. Advertising revenue soared from being less than half of all revenue to account for between two-thirds and 90% of revenue at big city newspapers in the US and parts of Europe between 1880 and 1910, and in Canada two decades after that (Sotiron, 1997, pp. 4-7). While the advertising-supported model of journalism carried the day during the ‘industrial media age’ for much of the 20th Century thereafter, there is little reason to believe that it will or even should have an eternal lock on being the economic base of the media forever into the future – the Public Policy Forum report’s wishful thinking notwithstanding.

Moreover, while advertisers tied their fortunes to the commercial media model for close to a century, they had no special love for the media or the journalistic functions they perform, per se. Instead, they did so because it was the most cost-effective way to meet their needs. New and better means to deliver up audiences to advertisers at a much lower price have been developed since and, unsurprisingly, businesses have reached for the newest tool in their toolbox: the internet. This is an uncomfortable truth that the report refuses to acknowledge, and thus to engage with. Not even King Canute could turn back that tide, and nor should we want him to even if it was possible. We have to find a better way to pay for the news for just this reason and also because, for the most part, Nasreen Q Public never has been willing to pay for a general news service.

Advertising is being eclipsed by “Pay-per” media.

Advertising is also becoming a smaller and smaller part of a bigger and bigger media economy. It has long been eclipsed by the “pay-per model”, or subscriber fees, where people pay directly for the communications and media they use. Subscriber revenue outstripped advertising by a 5:1 margin for the ‘network media economy’ in 2015 (see here for a definition of the ‘network media economy”, p. 1). “Pay-per media” are now the economic engine of the media economy. The Shattered Mirror, however, does not seem to recognize this and thus examines the problems facing journalism through the wrong end of the telescope, e.g. advertising.

Take TV specifically. The report states that “TV revenue is start[ing] to drop”. The statement is true for advertising-supported broadcast TV, but not for TV as a whole. Subscription revenue for specialty and pay channels, OTT services like Crave TV and Netflix as well as and cable TV now account for three-quarters of all revenue, and for the most part continue to grow. Annual funding for the CBC makes up the rest, i.e. just over 5%. The Shattered Mirror draws general conclusions about the supposedly sorry state-of-affairs for TV writ large based on a small as well as diminishing part of a larger vista. The advertising-supported part of TV accounted for less than half of all revenue in 2015 (e.g. 42.6%). It is in trouble, but again this is a fraction of the whole picture.

In addition, blaming “the internet” ignores other potential explanations for the problems that do exist. Why, for example, is broadcast TV not in dire straits, and in some cases making a bit of a comeback in the US and some other countries (see FCC and Ofcom, for example)? The report does not bother to ask, let alone explore such realities, for reasons that will become clear in a moment (hint, it has to do with media concentration and the unique structure of the media and communication industries in Canada, issues that the report explicitly eschews).

Having left out the fastest growing and biggest segments of the media economy – the ‘pay-per’ segments – and painted a picture of rapacious foreign internet giants stealing away advertising revenue from Canadian news media organizations, the report ignores another fundamental fact that does not fit the story it wants to tell: advertising revenue across the entire economy has stagnated for close to a decade. Moreover, per capita advertising spending dropped from $371 per person in 2008 to $354 in 2015 – the last year for which a complete set of data is available. TV advertising specifically has stayed flat in absolute terms while falling from $102 per person in 2008 to $94 last year (see here). That said, however, and unlike the report’s claim to the contrary, total TV revenue continues to grow, and indeed revenues for specialty and pay TV as well as OTT services have soared over the years based on subscriber revenues, albeit with slow growth in some aspects of some of these services in the last year or two.

In addition, the report’s claims regarding the steep decline in “private station” profits from 7.3% to -8% between 2011 and 2015 is misleading (p. 16). The statement implies that it applies to TV in general but in fact refers only to the smallest and shrinking part of the TV landscape: commercial broadcast TV. Operating profits for pay and specialty TV — the biggest and still growing segment of the TV landscape — were 20.8% in 2015, however. For cable TV and radio, they were 19% (see CRTC here, here and here). Meanwhile, operating profits at Bell Canada Enterprises’ media arm were 25% in 2015 and an eye-popping 40% for the company as a whole – four times the average for Canadian industry (Statistics Canada). Figure 2 below illustrates the point.

Figure 2: Bell Media Operating Profits, 2015

fig-2-bell-profitsSource: BCE, 2015 Annual Report, p. 130.

Parenthetically, it is also important to note that Bell is the biggest, vertically-integrated TV operator in Canada by far, accounting for roughly 30% of all TV revenues and 28% of total revenue across the network media economy. Ignoring conditions at a company with this clout across the media economy is negligent, but also part of a tendency in this report to selectively invoke a small part of the picture to fill in a portrait of catastrophe of a larger kind. In terms of the rules of rational argument, this pattern is a type of spurious reasoning called an “indexical error”. The report is chock-a-block full of such examples, which lends to the impression that the report’s authors are goosing the numbers.

Let’s consider a few other claims made about collapsing circulation and the “vanishing newspaper” and the scale of journalistic job losses, before turning to its willful refusal to deal with fundamental considerations about how the unique structure of communication and media industries in Canada directly bear on its topic but which are wholly ignored.

The Vanishing Newspaper?

These examples are not innocent. They are part of a process of “threat inflation” with the aim of buttressing the case for the policy recommendations on offer. Much the same pattern can be seen in the report’s depiction of circulation trends for daily newspapers. Now, make no mistake about it, the picture cannot be spun as a good news story. That is not my point. Looking at the issues from different angles and a more measured and nuanced view reveals that that things are far from rosy, but they are not the catastrophe that The Shattered Mirror makes them out to be. The reasons why things are as bad as they are also demands a richer and more multidimensional explanation than the ‘single-bullet’ explanation the report offers: blame the internet (and Facebook and Google). To illustrate the point, let’s return to Figure 1 above, which is repeated below to make the job easier.

Figure 3: The Vanishing Newspaper: Newspapers sold per 100 households in Canada, 1950-2015, projected to 2025

figure-1-vanishing-newspaper

The message of the Figure 3 is clear: newspapers have undergone a precipitous decline, and could vanish altogether soon. Indeed, already by 2015, the number of newspapers sold per 100 households was one-quarter of what it was in 1975. By this measure, the relentless decline and seemingly inevitable outcome look really, really bad – catastrophic even.

Now, let’s expand our measures to look at things from four additional angles: (1) total number of newspapers sold per week per person; (2) total number of newspapers sold per week per household; (3) total circulation; and (4) by revenue – shown for both total revenue and just advertising revenue. My numbers start in 1971 because that is the earliest date for which I could gather data fit for the task, but as far as I can tell that has no impact on the main point. And just to make my main point clear, it is that the Public Policy Forum’s Shattered Mirror report has selectively chosen a measure that paints the worst-case scenario rather than a nuanced, multidimensional picture of a situation that is bad enough that it doesn’t need to be exaggerated. In other words, I am depicting a strategy of policy argumentation that I call “threat inflation”.

Figure 4, presents two sets of data, one for the number of newspapers sold per week per person and another for the number of newspapers sold per week per household – both for the period from 1971 to 2015 (the latest year for which figures are available).

Figure 4: Per Household and Per Capita Decline of Daily Newspapers Circulation in Canada, 1971-2015

fig-4-circulation-decline-per-hhld-capita

Sources: Newspaper Canada; Statistics Canada.

Figure 4 confirms that newspaper circulation has been in long-term decline and there appears to be nothing on the horizon to turn that around. If we care about newspapers because they are one of the main sources of original journalism – as I emphatically do – this is a ‘bad news’ story. Yet, while the decline shown in Figure 4 is obvious – indeed, circulation was cut in half over the period covered on the basis of total copies per week per household – that is half the rate depicted by The Shattered Mirror. The difference is likely due to the fact that the number of people per household has declined over time, so fewer people per household means fewer newspapers in each house even before we take declining circulation into account — versus the “vanishing newspaper” scenario.

Now, let’s look again from the vantage point of circulation per capita shown in Figure 4 above. It also shows that circulation levels have declined steadily since 1971, but by only about 35% versus the four-fold collapse The Shattered Mirror depicts. This is what I mean by threat inflation: choosing methods and numbers that inexorably lead to the worst-case conclusion.

Now let’s look at things from the vantage point of total newspaper circulation because if you’re in the journalism business, a key consideration has got to be not how many daily newspapers you can sell per person or per household but in total. Figure 5 depicts the trend over time.

Figure 5: The Rise and Fall of Newspapers Circulation in Canada, 1971-2015

fig-5-rise-fall-of-newspaper-circ

Sources: Newspaper Canada; Statistics Canada.

Figure 5 shows that, in terms of sheer volume, newspaper circulation continued to rise until 1990 (versus falling steadily from 1950). It has fallen since, albeit in fits and starts. And obviously, against a population that has swelled from 22 million to nearly 36 million over the timeframe covered, circulation is shrinking in relative terms, which is the point of the earlier figures. Yet, the point is once again that this is a ‘bad news’ story but not a catastrophic one, and the fact that circulation peaks in 1990 and then goes down in fits and starts thereafter also raises interesting questions about timing that are ignored by the Public Policy Forum report, again likely because they don’t fit the tale of doom and gloom that it is mobilizing, but which I will return to below.

Now let’s turn from circulation to revenue data to see what things look like from this vantage point. Figure 6 does that based on stand-alone advertising revenue and all sources of revenue (advertising, subscription and other, including digital/internet).

Figure 6: The Rise and Fall of Newspapers Revenue in Canada, 2000-2015

fig-6-rise-fall-of-newspaper

Sources: Newspaper Canada; Statistics Canada.

As Figure 6 shows, advertising as well as subscription and other sources of revenue continued to rise for newspapers into the 21st Century. Indeed, while circulation was in decline regardless of the measure used, revenue continued to climb. Revenue peaked in 2008 at $3.9 billion and $4.7 billion, respectively, for advertising and ‘total’ revenue measures — a crucial point in time for reasons that will emerge in a moment. Revenue has plunged since, with newspaper advertising revenue falling to $2.3 billion (a drop of 40%) and total revenue to $3.2 billion (a drop of 32%) in 2015. This is bad.

Thus far, none of the measures reviewed leads to a ‘good news story’, but each of them in their own way change the magnitude, timing and potential causes of the problem. Of utmost importance is that there is no downward spike in the fortunes of the press on any of these measures that coincides with when the internet takes off, either in its dial-up phase in the mid- to late-1990s or when broadband internet took centre stage in the early-2000s. Given this, the internet – and Facebook and Google – cannot be the villain of the piece that The Shattered Mirror (and so many lobbying the government from the “creator” and “cultural policy” groups) makes it out to be.

In fact, this is not news. While such claims are common, that they are wide of the mark is well known. One of the world’s top media economists, Robert Picard of the Reuters Institute of Journalism at Oxford University, for instance, has made this point for much of the last decade. I have too with respect to Canada and across the world. That neither circulation nor revenue dives downward with the arrival of the internet cuts to the heart of the central claim in The Shattered Mirror. Yet, like so much of the evidence that does not fit its “sky-is-falling-because-foreign-internet-giants-ate-Canadian-news-media’s-lunch” rhetoric, this evidence doesn’t make the cut. If all of this is correct, we must also change our diagnosis and policy proposals accordingly.

Alternative Explanations: Stagnating Advertising Revenue and Vanishing Jobs

Not only does newspaper revenue not spike downwards with the advent of the internet, the onset of economic woes for advertising supported media do not coincide with the time frames that the Public Policy Forum report identifies, typically 2005 or 2006 for newspapers and ‘recently’ for TV. The upshot of its misdiagnosis is to effectively carry on with the ill-fated case its authors want to make while avoiding another possible – and I believe far better — explanation for the woes they describe: the impact of the financial crisis in 2008 and economic instability that has followed ever since.

Figure 7 below illustrates the point by showing a sharp downward kink in revenue for nearly all the media sectors it covers since 2008. This reflects the impact of the global financial crisis on the media economy. At this point in time, advertising revenue falls for total TV advertising revenue, broadcast TV, newspapers, radio, out-of-home advertising and magazines. The impact even hits internet advertising and pay TV services, as their revenue growth flattens temporarily before rising again a year or two later.

Figure 7: The Impact of the Financial Crisis and Economic Stability on Media Revenue (millions$), 2004-2015

fig-impact-of-financial-crisis-on-ad

Sources: IAB.canada 2015 Actual + 2016 Estimated Internet Ad Revenue; TVB (2016). Net Advertising Volume, CRTC Communications Monitoring Report.

Total advertising revenue fell by 7% from $11.6 billion to $10.8 billion. It rose again the next year to recover the lost ground but unevenly. Tellingly, however, advertising revenue has fallen from $371 per person in 2008 to $354 on a per capita basis in 2015, and from $102 per Canadian to around $94 for TV– as indicated earlier.

The recovery that has occurred has taken place in fits and starts and has been very uneven across different media sectors. The long-term effects of that appear to be three-fold. First, it has gutted newspaper advertising revenue. Second, it has propelled the shift of the economic base of TV from advertising to subscriber fees. Third, amidst the upheaval, the internet has consolidated its place at the centre of advertising revenue. It now accounts for more than a third of all advertising revenue (36.2%) in a stagnating pool of advertising money.

Again, none of this is a mystery, except to those who work the policy apparatus here in Canada, and there is no mention of it in The Shattered Mirror or indeed in any of the policy reports being wheeled into action by the myriad of groups vying to shape the outcomes of Heritage Minister Melanie Joly’s Canadian Content in a Digital Age review. Beyond this cloistered community, however, the fact that the fate of advertising-based media turns tightly on the state of the economy – and indeed, is something of a canary in the coal shaft for it – is reasonably well known and discussed by media economists from across the political spectrum. This has been the case for many, many years (see, for example PicardGarnhamMiegeVogel but also any media economics text). That the subject is not even broached by the Public Policy Forum’s report is a measure of the extent to which it ignores evidence and ideas that don’t fit the story it wants to tell, and of a piece with its methodological tactics throughout the report.

In sum, it is a mistake to focus on a ‘silver bullet’ explanation of complex issues like the one before us. The fixation on the negative impact of the internet and the two villains of the piece, i.e. Google and Facebook, is misplaced. In short, advertising revenue has taken a nose dive because the economy has been shattered not because Tyrannosaurus Digital Media Rex Google and Facebook ate the news media’s lunch.

A Catastrophic Loss of Journalists?

Just as the data with respect to declining circulation and lost revenues in The Shattered Report is circumspect, so too are the figures that it cites for the number of journalist and editorial positions lost over the years partial and incomplete. The report says that between 12,000 and 14,000 such positions have been lost over an indefinite period that sometimes stretches back to the 1990s but with a stress on recent events. The figures cited are based on a tally of headlines announcing such cuts and more systematic record-keeping by the Canadian Media Guild, Unifor and the Communications Workers of America. I have no doubt that the human impact of the losses they document are real and severe.

However, there are two short-comings of the data presented. For one, it is based on headlines and record keeping that do a great job chronicling jobs lost but a poor one at keeping track of those gained. Second, Statistics Canada data depicts a wholly different picture. The report needs to at least explain why the Statistics Canada data offers a less satisfying account of the conditions than the sources it relies on. It does no such thing. In fact, and once again consistent with a pattern, the authors ignore this data completely.

According to Statistics Canada data the number of full-time journalists in Canada has not plummeted. In fact, it has crawled (stumbled?) upwards from 10,000 in 1987 to 11,631 in 2015. Figure 8 below illustrates the point.

Figure 8: Journalists vs the PR, Advertising and Marketing Professions,
1987-2015

fig-8-of-journos-vs-pr

SourcesStatistics Canada (2016) Employment by occupation: 1123 Professional occupations in advertising, marketing and public relations and Statistics Canada (2016). Employment in Journalism occupation, by province. Custom LFS tabulation. File on record with author.

While this is a small increase, it is an increase all the same, and counter-intuitive as well. Things that are counterintuitive beg you to explore why they are so. Also consider that after years of a sluggish economy in the early-1990s, and extensive consolidation and cut backs in the latter part of the decade, the number of working journalists fell to a little over 6,000 (1998). If we take that as our base, the number of working journalists has nearly doubled since and, consequently, the period looks more like one of modest growth rather than a catastrophe.

Of course, this small increase should not be over-played. It has occurred against the backdrop of a media economy that has quadrupled in size. Even if the number of journalists has stayed relatively steady rather than collapsed, this still means that their numbers have shrunk relative to the size of the media economy. In other words, similar amounts of journalistic resources in a much bigger media pie constitutes a relative decline. This is cause enough for concern without the hyperbolic rhetoric that The Shattered Mirror leans on.

In addition, whatever modest growth has taken place has been vastly out-paced by the number of people working in the PR, advertising and marketing professions. Whereas there were four people of the latter type for every journalist in 1987, by last year, the imbalance had swelled to 10:1 — a triumph of the persuasion professions over journalism, which again is cause enough for commentary and concern. Yet again, the Public Policy Forum’s report is silent on the point.

My point, once again, is not to assert that the Statistics Canada data is definitive on the matter of journalistic and editorial job losses. Instead, it is to highlight how selective The Shattered Mirror report is. The pattern is one where evidence that fits its grim vision of the current state of journalism in Canada is highlighted while that which cuts across the grain is either downplayed or ignored completely.

Blindspot: the Media Concentration Problem

The Shattered Mirror also gives short shrift to the idea that media concentration and the structure of the communication and media industries might be a significant factor giving rise to the woes besetting the news media, except for the highly concentrated nature of internet advertising. As Greenspon told J-Source, media concentration is just not “the existential risk to media that it was for a number of years”. However, the report is more than willing to turn the screws on Facebook and Google’s dominance in the one market — online advertising – where they undoubtedly and overwhelmingly do dominate, while simultaneously turning a blind eye to high levels of concentration in several media markets and in terms of vertical- and diagonal-integration across the telecoms-internet and media landscape in Canada.

By The Shattered Mirror estimation Facebook and Google account for two-thirds of all internet advertising spending in Canada. It also shows that internet advertising has become more concentrated over time, not less: the top ten companies took 77% of all internet and mobile advertising revenue in 2009, but by 2015 that number was 86%. The top twenty companies accounted for 90% (pp. 31-32). There is evidence that these levels are growing. I agree with this part of the report’s analysis, not surprisingly since it draws heavily on data and estimates from the Canadian Media Concentration Research Project that I direct.

The same claims have been circulated by those who have advised or influenced the direction of The Shattered Mirror. Ian Morrison, the head of the Friends of Canadian Broadcasting, summarized the key claims being made as follows, for example:

Based on data from the Canadian Media Concentration Project [sic] at Carleton University we estimate $5 billion of Canadian advertising goes to foreign-owned internet companies such as Google and Facebook . . . . With the Interactive advertising Bureau projecting $5.55 billion in overall internet advertising revenue . . . for 2016, we estimate that almost 90 percent of what Canadian advertisers spend on digital ads will leave the country.

In an interview with the Globe and Mail’s Simon Houpt, Greenspon asserted that Google and Facebook alone “take in about 85% of digital ad dollars” – although that number conflicts with others elsewhere in the report. However, the numbers do seem to regularly get mixed up, so that it is not quite clear if we are talking about just Facebook and Google or some ‘other’ foreign internet giants as well.

My main concern is that claims that foreign-owned internet companies will take $5 billion in projected internet advertising revenue for 2016 – or 90%, and that Google and Facebook alone account for up to 85% of the total — out of Canada are stretching the available data beyond what can be reasonably supported. They build estimate upon estimate, jump through hoops, and draw questionable inferences to come up with these figures (see pp. 30-31).

The CMCR Project data estimates with reasonable confidence that, combined, Google and Facebook accounted for about $3.1 billion, or two-thirds, of a total of $4.6 billion in internet advertising revenue in 2015 – the last year for which final figures are available. There’s some room for adjustment either way. Based on what we do know the figures touted in The Shattered Report and elsewhere do not seem credible, even if repeating them in one venue after another seems to have given them an aura of holy writ.

This is especially troubling because the estimates offered not only extrapolate from the limited base of what we do know but serve as a springboard to The Shattered Mirror’s #1 Policy Recommendation:

Policy Recommendation 1: Change the Income Tax Act to make advertising on Canadian internet news sites tax deductible (as has been the case for newspapers and broadcasting since 1965 and 1971, respectively) while applying a ten percent withholding tax for advertising on foreign websites. The key aim is to open a new “revenue stream of $300 to $400 million that would be used to finance a special fund” much along the same lines as the existing levy on cable TV companies is used to fund Canadian content (pp. 83-84).

At a bare minimum, if their numbers are off, so too are these estimates.

Overall, the path to this policy recommendation and the proposal itself is flawed for a handful of reasons. For one, as just indicated, the available evidence is insufficient to support the report’s #1 policy proposal. Second, even if the numbers were right (or close), both the analysis and the policy proposal ignore the structural shift in the economic base of the media from advertising to the pay-per model described earlier, while assuming advertising has and should forever form an integral part of the natural order of the news media. Third, it appears to swap the bad idea of an ISP tax levied against wireline- and mobile wireless internet access providers (which, not coincidentally, are Canadian) for a “platform levy” applied against ‘foreign digital platforms’, e.g. Google and Facebook. If this is correct, the bait and switch on nationalistic grounds is objectionable on its own.

The bigger problem, however, is that the recommendation seeks to take an approach that has been applied to limited (single) purpose broadcasting distribution systems for the past half-century and apply it to general purpose internet platforms that host, store and facilitate a dizzying and ever expanding array of content, applications, services and uses. And it does so in the name of supporting a narrow range of content – “real news”, as the report calls it – that constitutes a tiny sliver of what people use and enjoy these platforms for. Whether applied to ISPs or digital platforms, the idea that the multitude of uses that people make of the internet should be harnessed to promoting journalism (or Canadian content generally) – no matter how important – is objectionable. In terms of a common test applied to free speech cases, while the goal being sought is legitimate, the means being promoted to achieve it is akin to a sledge hammer when what we need is a scalpel.

Finally, while the report does a good job of documenting the extent of the internet giants’ dominance of the online advertising market, both the analysis and proposal exaggerate the extent to which Google, Facebook and other ‘foreign internet giants’ influence reaches across the media landscape in Canada. By ignoring the latter, the effect is to minimize the extent to which media concentration and the uniquely high levels of vertical and diagonal integration between telecoms-internet service providers and other key areas of the media, especially television, have given rise to homegrown problems rather than the debilitating “vampire economics” imported from afar (the following paragraphs draws heavily from a series of CMCR Project reports: see here, here and here for more details and elaboration).

How to Look at Media Concentration

Using what I have learned as the “scaffolding method”, it is essential to look at the state of competition and/or concentration in one media sector at a time, group the different sectors together into reasonable clusters such as “content media” (e.g. newspapers, TV, radio, magazines, etc.), “connectivity media” (e.g. internet access, mobile wireless, etc.) and “internet media” (e.g. search, internet advertising, social media, browsers, etc), and then group everything together so as  to get a view of the network media economy in its entirety. One must also look at trends over time, and in comparison to other parts of the world.

The Shattered Mirror report does nothing of the sort, and so it paints a picture sloppily with a broad brush, declaring that media concentration is not a problem when it feels fit to do so, but a worrying concern where that suits its purposes, i.e. in the areas that Google and Facebook dominate. Ultimately, there is no overarching sense of how everything fits together, and so the image drawn is arbitrary, and wholly dependent on the whims of the observer.

So, let’s try to get things straight in a minimal amount of space in what is already a long post. Google and Facebook do dominate internet advertising and the general trend with respect to concentration in this specific media market is up – as stated above. However, once we scaffold upwards from there to get a sense of how internet advertising fits into the whole media economy, we can see that it accounts for just 5.9% of a total $78 billion in revenue in 2015. Google and Facebook were the 6th and 14th biggest media operators in Canada in 2015, and had estimated Canadian revenues of $2.3 billion and $757.5 million, respectively. They accounted for 3% and 1% of all revenue across the media economy.

By comparison, the biggest player, Bell Canada, had $21 billion in revenue from its telecoms and TV operations in 2015. This was 28% of all revenue across the whole media economy, and nearly twice the size of its largest rivals: Rogers and Telus. It ten times that of Google and more than 25 times the revenue of Facebook. Thus, while certainly impressive, Google and Facebook don’t quite cut the imposing figure that The Shattered Mirror makes them out to be once placed in context.

When we look at specific media sectors and across the media economy as a whole, four observations about concentration levels in Canada stand out:

  1. They are generally high (with the exception of radio and magazines);
  2. They have gone up since the turn-of-the-21st Century (except modest dips from still high levels in the past five years for mobile wireless and cable/IPTV TV);
  3. They are not unusually high by comparative international standards but that’s mostly because, as one of the most authoritative sources on the subject states, media concentration around the world is “astonishingly high” (Noam, 2016, p. 25 and especially chapter 38, pp. 1307-1316);
  4. Canada is unique, however, in its high levels of vertical and diagonal integration.

In terms of vertical integration, Canada stands unique amongst countries insofar that telecoms operators own all the main television services, except the CBC. The scale of vertical integration more than doubled between 2008 and 2015, as the “big 4” – Bell, Rogers, Shaw (Corus) and QMI – expanded their stakes into mobile wireless, internet access, television distribution and more traditional areas of the media such as TV and radio. The “big 5” television groups – Bell, Shaw (Corus), Rogers, Quebecor and the CBC – collectively owned 217 television services in 2015. They accounted for 86.2% of total television revenue, up from three-quarters in 2008. Their TV operations include Canada’s major TV news outlets, from broadcast TV networks like CTV, Global, CityTV and TVA, as well as cable news outlets such as CTV, BNN, the Canadian franchise for the BBC, CablePulse 24, and so forth. The big four vertically-integrated telecoms giants are central to the news ecology in Canada. The Shattered Mirror gives no sense of this.

Beyond this, there are three other reasons why the unique structure of the media and communications industries in Canada are not peripheral, or anachronistic, but central to the study of news.

Lush Profits, Thin Journalistic Gruel

First, similar to the conditions at Bell that we saw earlier, Shaw, Rogers and Quebecor had operating profits of 42%, 38% and 37%, respectively in 2015 — roughly four times the average for Canadian industry. Shaw’s operating profits for its media division (including Corus, which is jointly-owned and controlled by the Shaw family) of 33% — even higher than those of Bell (25%). Operating profits at Rogers and Quebecor’s media divisions were a more modest 8.3% and 7.3%, respectively – a little lower than the average for Canadian industry. These observations are at odds with the story of doom and gloom that permeates The Shattered Mirror. The situation ranges from ho-hum at the media divisions of Rogers and Quebecor to fantastic at Bell and Shaw. While there is a difference between their focus on television news versus newspapers, which are increasingly ‘sticking to their knitting’, the fact that they are among the top news sources for Canadians furthers the point that they should be at the heart of the matters before us rather than pretty much excluded altogether.

Journalism and Data Caps: Reducing Dependence on the ‘Vampire Squids’ (i.e. Google and Facebook)

Second, these vertically-integrated companies also own all the main distribution networks (e.g. mobile wireless, wireline, ISPs and BDUs). Consequently, instead of wireline cable and telephone companies competing with wireless companies for control of customers’ access to the internet, TV and beyond, they have dominant stake on both sides: e.g. wireline and wireless. This is known as diagonal integration.

The last stand-alone mobile wireless company in Canada – Wind Mobile – was acquired by Shaw in 2016. By contrast, in many countries there are stand-alone, ‘maverick’ mobile network operators such as T-Mobile or Sprint in the US, or 3 in the UK.

Diagonal integration is important because it dampens competition between rival networks. Where it looms large, subscription prices for internet access and mobile phones tend to be a lot higher, data caps much lower, the application of zero-rating to some content and services but not others is more extensive, and ‘excess use’ charges very steep. Recent studies show that the cost of mobile wireless data plans is very high and data caps low in Canada relative to the EU28 and OECD countries (see Tefficient, 2016, p. 12; Rewheel, 2016, The state of 4G pricing – 1st half 2016 DFMonitor 5th Release).

These structures of ownership and the practices they engender can also transform carriers into editors, or gatekeepers. In doing so, it makes them more like broadcasters and publishers rather than common carriers (an idea that is similar to but not the same as what is now commonly referred to as Net Neutrality). The heavy reliance on relatively low data caps and expensive overage fees by all the telecoms-internet and media giants – Bell, Rogers, Shaw and Quebecor — in Canada constrains what and how people consume the news, watch TV, listen to music, communicate with one another over the internet and mobile devices, buy stuff, consult online health and education resources, and work.

As an integral part of human experience, and the critical infrastructure of the economy, society and journalism, this is an enormous issue. Many of those pushing for a renewed sense of cultural policy have called on the government to leverage these conditions by zero-rating Canadian content (i.e. exempting it from data caps) while applying data caps to everything else. Doing so is an explicit call to gerrymander control over the pipes to tilt the field against ‘foreign content’ in favour of Canadian content. Imagine, however, if data caps were far more generous and prices more affordable. Then, Canadians could freely access content of their choice, including news which, as The Shattered Mirror shows they value greatly (even if unwilling to pay for it), without worrying about going over their restrictive monthly data caps and paying a punishing price because of that.

This would have great value for news organizations as well. They would benefit in two ways. First, news organizations would enjoy a less obstructed pathway to where their audiences increasingly get their news from: their smartphones. Second, they would avoid the non-negligible costs of designing their online news offerings for platforms such as Google’s AMP and Facebook Pages.

Google AMP and the news sites that use it are explicitly designed for mobile wireless access, for example, where the cost of data is high and the use of data caps by mobile wireless operators prevalent and a lot lower than the desktop Internet. Based on this, Google’s AMP strips down webpages and services so that results load nearly ten times as fast, thereby saving on data charges.

The costs of designing for Google AMP, however, are considerable and a whole new sub-industry of designers with specialized technical and journalistic skills is being called into existence to service the need, and charging accordingly. The roster of the ‘big brand’ news organizations that have signed up to these efforts speaks volumes about who can afford the additional burdens, financial, technical, human or otherwise: eg. the CBC, Postmedia, New York Times, Wall Street Journal, the Guardian, Financial Times, Vox, Atlantic.com, to name the most prominent.

At the end of the day, the central question remains: does any of this work? Nobody knows.

Nonetheless, these platforms are fast becoming an integral part of the news ecology, and they are also part of the problem of news providers having to give up control of their content and operations to internet companies. By dealing with the high-levels of vertical and diagonal integration in Canada that are at the root of restrictively low data caps that magnify the cost of uniting audiences with journalism to begin with, the happy upshot could be to lessen journalism’s excessive dependence on the ‘vampire squid’ internet giants like Facebook and Google that the Public Policy report rails against.

Blowing up the Bottom Line: The High (Social) Cost of Media Concentration

Perhaps one of the most important reasons that it is folly to willingly turn a blind eye to high levels of media concentration and the peculiar structure of the media industries in Canada is because the costs of bulking up have had devastating impacts. The cost of bulking up that have led to where we are have not been negligible and were built atop dreamy-eyed visions of convergence from the late-1990s until the turn of the century. At the time, the valuations of media assets soared but such visions of the future failed while saddling media enterprises with unsustainable debt levels that were payable at interest rates that sometimes ran as high as 18% in the case of Canwest, for example. This took place precisely when all-hands-on-deck were needed to deal with the rise of the internet and changing audiences’ behaviour. Many of these ventures failed and wiped out billions in capital. A few highlights will help to illustrate the point.

Sun Media, for example, was acquired by Paul Godfrey at a total value of just under $400 million in 1996, with a few small papers added in exchange for the Financial Post the next year, and then flipped to Quebecor in 1998 for $983 million – double the original value in two years. Quebecor then acquired regional newspaper publisher Osprey for $517 million in 2007. All-in-all, the combined value of Sun and Osprey was nearly $1.5 billion. They were sold back to Godfrey and Postmedia in 2015 for $316 million — $1.2 billion in the value of the capital behind the newspapers wiped out, while onerous debt payments continue to hang like an albatross around the biggest chain of newspapers in the country until the present day.

So, too, with the Southam newspaper chain. Conrad Black consolidated ownership over the chain in 1996 for around $1.2 billion, then sold them to Canwest four years later for $3.2 billion. However, Canwest went bankrupt and the papers were sold to Postmedia in 2010 in a highly leveraged deal for $1.1 billion — the same as when Black gained control decade-and-a-half earlier. Last year, Postmedia was worth $56 million — a loss of a billion dollars in market capitalization in five years (also see Bruce Livesey’s National Observer article and Marc Edge’s new book on the meltdown of journalism within the Postmedia empire, and more broadly).

At the height of the turn-of-the-21st Century convergence craze, Bell acquired CTV and the Globe and Mail. Together with the Thomson family it created Bell Globemedia, with Bell holding a 70% ownership stake in the entity and the Thomson family the rest. The capitalization of the new company was $4 billion. Bell Globemedia floundered from the beginning, however, and Bell exited the business in 2006. The venture was renamed CTV Globemedia and recapitalized at a value of $1.2 billion – a loss of nearly $3 billion (BCE AR 2006, p. 84). Of course, Bell reacquiring CTV in 2011 for $1.3 billion.

Collectively, roughly $6 billion in market capitalization was destroyed and precisely when the country’s biggest media companies should have been focusing attention, investment and whatever other resources they could muster on dealing with the rise of the internet and, somewhat later, the smartphone, and changes in how people were using the media. This is to say nothing of the extraordinary wave of lay-offs and job cuts at these outlets, and the labour strife that accompanied such processes. The Public Policy Forum’s report gives us a whiff of the costs in terms of journalistic and editorial jobs lost, but nowhere does it connect the dots. Of course, having ruled these issues “off-limits”, what should we expect?

Inner Circles, Cloistered Views and Missed Opportunities

That The Shattered Mirror, as it’s lead author’s post release comments indicate, willingly walked away from these issues is stunning, and naïve. In doing so, it walks away from an impressive body of research from around the world that says that these issues are important, extraordinarily complex, and foundational to understanding the emerging digital media environment.

While I am happy that the authors plucked from some of our flagship reports (see here and here), I am disappointed that they only picked the juicy parts that fit into their vilification of Facebook and Google and the “vampire economics” that they say rules the highly concentrated internet advertising market in Canada while turning a blind-eye to all the other data and discussion in our report. Interested readers will also find much value in the work Eli Noam, a Professor of Finance and Economics at Columbia University and editor, most recently, of Who Owns the World’s Media, a thirty-country survey done by as many research teams covering three decades that looks at the issues in front of us with an open mind, and some stunningly important conclusions – many of which are counter-intuitive and at times seems to run at cross-purposes to one another. Robert Picard of the Reuters Institute of Journalism at Oxford University is another excellent media economist who looks at these issues with an open mind, as is Gillian Doyle, among many others.

That the report refuses to engage with media concentration and the peculiar structure of the media is not surprising given that many of those surrounding its lead author, Edward Greenspon, in the development of this report have not just sat back and taken arm chair academic views on these matters but have been leading cheerleaders for the processes of consolidation in Canada that have got us to where we are. So why look in the mirror? The industrious reader can consult the list of acknowledgements to sort out who is who and draw their own conclusions.

Given all this, that media concentration wasn’t on the agenda is not surprising. It’s still a pity, though, because the issues are serious. By taking the course that it has, the report has also squandered an opportunity to build on the momentum that has been building in regulatory circles at the CRTC, Industry Canada and even the Competition Bureau. For the past several years, each of them have been using many of the policy levers at their disposal to address media concentration and counter some of the abuses of dominant market power present in several media markets – abuses that are no longer mere allegations but established legal facts. That the Public Policy Forum has taken the stance it has is a missed opportunity, not just in terms of building on the momentum that already exists amongst regulators and policy makers, but also the incredible amount of research and writing that many scholars, public interest and consumer groups, citizens and others have poured into these activities.

Final Thoughts and a Few Policy Proposals

The effort fails in terms of the analysis conducted for all the reasons set out above, and because the prescriptions counselled draw from the past and will be a drag on the future. Its analysis fixates on a dwindling part of the media, namely media that are subsidized by advertising, as if they are a part of the natural order of things and should be so forever. As both an empirical and a normative matter, this is simply not the case.

In the real world, however and as we have seen, the media economy is increasingly internet- and mobile wireless centric. For better or worse, subscriber fees and the “pay-per model” have become the driving force. The report fails to deal squarely with the idea that the underlying subsidy that has been provided by advertising for a good part of the 20th Century is stagnating, and by some measures in decline (per capita), and that the part of the advertising revenue that does remain is going to Facebook and Google not because they are venal but because they are more efficient at doing what the ‘legacy media’ used to do best: deliver audiences to advertisers.

That was always a bit of a Faustian bargain, and still is. There is no reason why we should pull out all the stops to try to bring it back. It won’t happen, and advertising subsidized media raise their own prickly problems, not least of which is it is never really the audience – us – that are the main parties calling the shots. Given the extent to which it is wedded to advertising, it is also not surprising that the report acknowledges but shies away from another undeniable fact that is inseparable from the points raised here and which is key to understanding journalism: the general public has never paid for a general news service. This has not changed (see here and here, for example).

Forgetting also that there has never been any true love between business and the advertising-supported media model — just a marriage of convenience — the report keeps alive the innocent fable of how the mutually beneficial relationship between advertisers, journalism and audience brought us “the free press” and how we must wrestle this back from the “vampire economics” of Silicon Valley. No, that won’t work, no matter how much the report gooses the numbers and argues in favour of its proposal to impose a withholding tax on the advertising and subscriber fees of ‘foreign digital platforms’. Nor should it. The invidious distinctions between Canadian media versus those from the world beyond our borders that it draws is based on warmed over cultural nationalism from the 1960s and 1970s, and this, too, should also raise an eyebrow.

The idea that we should harness society’s whole communication infrastructure – increasingly the internet – to foster a small sliver of activities that people use it for is also backwards. As said earlier, in the past, this may have been an acceptable idea because a limited purpose broadcasting distribution network was leveraged to support a single activity: broadcasting. Means were directly related to ends, and this made sense, even against the tough standards of free speech. Yet, today, we are in a different place where Canadians are being asked – incessantly – to harness a multi-purpose and general communication infrastructure (the internet) that already supports a vast array of activities that continue to expand in terms of diversity to a narrow, albeit incredibly important, range of activities.

The Shattered Mirror is not a forward looking report in these regards. It largely ignores questions about how the availability and control of distribution infrastructure (rather than just “digital platforms”) fundamentally effects the shape of the news media overall. To the extent that it does, the recommendations trot out the familiar calls for an ‘ISP tax’ to fund journalism that is so beloved by resurgent cultural nationalist groups (rather than the capacious language of “general intelligence” and “the people’s correspondence” that informed the universal postal system during the founding days of American democracy). They seem to see Minister Joly’s review of Canadian Content in the Digital Age as a once in a lifetime chance to entrench policy tools designed a half-a-century ago for ‘the industrial media age’ forever by applying them holus bolus to the emergent internet and mobile wireless-centric communications and media universe of the 21st Century. Nothing could be less helpful.

As I have tried to make clear above and every time I write on these matters, I am an enthusiastic supporter of the idea that a viable democracy needs good journalism, and that the culture of a democratic society needs arts, knowledge, media, public libraries, schools, science, archives, and a whole bunch of other things. We need a big view of culture, and we need to pay for it accordingly. So here are a few of my big ideas:

  1. Bite the bullet and accept that the general public has never paid full freight for a general news service and that, consequently, it has always been subsidized by advertising, “the state” or rich patrons. The question is how to do that today in a way that is fair, independent, effective, and accountable? The report goes part way in this direction with its Policy Recommendation #3 to change tax laws to encourage charities and philanthropists to step into the breach and invest in original news. I agree, but also think we need to dig deeper along the lines suggested below.
  1. Apply the HST/GST to all advertising expenses and subscription fees without discrimination based on medium or nationality, and earmark the funds generated for a “Future of Journalism and Democracy Fund” of the type the Public Policy Forum envisions (Policy Recommendation #5), but make the fund even broader to support other kinds of original Canadian content creation, from films, TV drama, video games, music, archives, etc. Consolidate the CanCon funds I say, and take a very big view of what CanCon is.
  1. Bolster the CBC across its mandate to inform, enlighten and entertain versus The Shattered Mirror’s emphasis on the first function (its Policy Recommendation #10). Do this because a ‘platform agnostic’ public media service not only informs people but plays a key role in cultivating new talent across the arts, and exposing artists to the audiences they need to go on to become bigger commercial successes. In line with these ideas, unshackle the CBC from any suggestion that its sails have been forever tied to the listing mast of the broadcasting ship. It should also be funded accordingly and in line with median levels of government support for public media in OECD countries (versus at the lower ends of the scale) (a modified version of the Public Policy Forum’s Recommendations 11 and 12, but without the restrictive focus on the CBC’s “informing” function).
  1. We can no longer think about journalism and the media without thinking about broadband internet and mobile wireless. In an ever more internet- and mobile wireless-centric media universe, this is essential. The “founding fathers” in the US stressed the essential role of a free press to democracy (as The Shattered Mirror notes), but they also went much further by subsidizing a universal postal system to bring “general intelligence to every man’s [sic] doorstep” to the tune of tens of billions of (current) dollars a year in the 19th Century to achieve that aim. So, too, must we integrate our thinking about broadband and mobile wireless policy with content, journalism and news together today (on postal history and news, see John).
  1. This means emphasizing the importance of common carriage and universal broadband internet. It is essential to not impose the publishing or broadcasting models on society’s communication infrastructure. Mobile wireless and internet access providers should be gateways not gatekeepers. This will help ensure that news organizations and all forms of media, cultural and personal expression can have unfettered access to those with whom they’d like to share an experience, an idea, a story. It will also help to reduce journalists and news organizations from their growing dependence on Google, Facebook, Apple, etc. for the reasons outlined above. Universal broadband internet service should also be funded accordingly by raising the subsidy from its current level of roughly $2 per person per year to a figure, by way of suggestion, between the $5 per person per year that Sweden invests to promote universal broadband internet uptake and the $33 per person per year that we currently invest in the CBC. The report is silent on these issues but by implication, it is hostile to them.
  1. Crush the idea that appears from time-to-time in the report that Facebook and Google should be treated like publishers. They are not. Similar to how the development of modern capitalism depended on the creation of the limited liability corporation so too do broadband internet and digital platforms that host, store and distribute huge amounts of other people’s content require the concept of the limited liability ‘digital intermediary’ to operate at scale. Google, Facebook, and the others that facilitate commercial and cultural intercourse over the internet are already treated this way by the law, and they should continue to be treated as such, without being ‘above the law’, or worse enrolled by governments using beyond the rule-of-law tactics to tackle a myriad of evils, whether stamping out child pornography, mass piracy, terrorist propaganda, counterfeit goods, etc. Where the interest is great, the law needs to swing in behind the power that these intermediaries have by dint of the fact that they stand mid-stream amidst the torrent of internet traffic.

The fact that intermediaries are increasingly being enrolled by governments to undertake these tasks without proper legal underpinnings, however, has already created problems enough (here, here and here). Calling, as this report does, to enroll ‘digital intermediaries’ like Facebook and Google to suppress “Fake News” is similarly fraught with problems. That this is so is readily evident in Facebook’s ham-fisted approach to enforcing its “community standards” that have led it to censor, for example, the Pulitzer Prize winning “napalm girl” photo of Kim Phuc running naked away from a village just after it was bombed by the US during the Vietnam War and when it has taken down or otherwise blocked access to images of, for instance, the famed Statue of Neptune in Bologna, the Little Mermaid Statue in Copenhagen, Evelyne Axell’s Ice Cream and Gustave Courbet’s Origin of the World. Illma Gore’s sketch of Donald Trump in the nude has also been banned from the site (see here).

While the desire to stamp out ‘fake news’ may seem especially appealing at the moment, there is good evidence that despite the fact that “fake news stories” were plentiful in the 2016 US election, the effects are probably not as strong as many seem to think. As the new “Social Media and Fake News in the 2016 Election” study by Hunt Allcott and Matthew Gentzkow from New York University and Stanford University, respectively, finds, this is because even though Americans use social media a lot, only a small portion of them – 14% — relied on social media as their “most important source of news” during the election. Instead, TV was the main source of political news by far. Even those who did get their news from social media, and were therefore exposed to fake news that favoured Trump over Clinton by a wide margin, very few could remember “the specifics of the stories and fewer still believed them”, observes a Poynter Institute summary and commentary on the study being recited here.

Ultimately, we need to see this report for what it is: the latest in an unending firehose of reports from well-heeled think tanks across the country, including the Friends of Canadian Broadcasting (here, here, here), the Fraser Institute, the MacDonald Laurier Institute and the C.D. Howe Institute that cover much the same ground. All of them respond to and in one way or another try to influence Heritage Minister Melanie Joly’s call for a top-to-bottom review of cultural policy, dubbed Canadian Content in a Digital World. That she has stimulated such interest is to her credit. However, the extent to which these reports are flooding the ‘marketplace of ideas’ with tired old ideas is a problem that I hope she and the good folks at the Department of Canadian Heritage – the cultural policy sausage factory, if you will – recognize them for what they are, and deal with them accordingly.

The Shattered Mirror also complements the Canadian Heritage Parliamentary Committee’s unfinished survey of similar terrain, and a series of recent decisions by the CRTC that are intended to shape the future of TV, broadband internet and mobile wireless services in this country: (1) its trilogy of Talk TV decisions; (2) its universal broadband internet service, and (3) several others that go to the core of the increasingly fibre and mobile wireless internet infrastructure that underpin the entire communications and media landscape upon which more and more of our economy, society and our day-to-day lives depend.

This report has nothing to say on the full sweep or specific details of these matters but lines up with those complaining bitterly about the CRTC’s new found willingness to take on media concentration and the perils of vertical and diagonal integration. The extent to which they do so and pine to keep industrial-era media policies — tweaked to bring them up to ‘digital speed’ — forever is a measure of how backwards such stances are and really just how much they see things through a rearview mirror. We deserve better, and let’s hope we get it.

Media and Internet Concentration in Canada, 1984-2012

Reposted from the Canadian Media Concentration Research Project website (for a downloadable pdf version of this report please click here).

This is the second post in a series. Building on last week’s post that analyzed the growth of the media economy between 1984 and 2012, this post addresses a deceptively simple yet profound question: have telecom, media and internet (TMI) markets become more or less concentrated over the same period of time?

In Media Ownership and Concentration in America, Eli Noam (2009; also see 2013) notes that creating a coherent portrait of media concentration is difficult. Strong views are plentiful, but good evidence is not.  Canadian scholar Philip Savage makes much the same observation, noting that debates over media concentration in Canada “largely occur in a vacuum, lacking evidence to ground arguments or potential policy creation either way”.

This post addresses that gap by providing a long-term, systematic, data-driven analysis of concentration trends across a dozen or sectors in Canada for the years between 1984 and 2012: wireline and wireless telecoms, internet access, BDUs (cable, satellite & IPTV), specialty and pay TV, broadcast TV, radio, newspapers, magazines, search engines, social media sites, online news sources, browsers and smart phone operating systems. These are the essential elements of the network media economy.

Concentration trends are assessed sector-by-sector and then across the network media as a whole using two common analytical tools — concentration ratios (CR) and the Herfindahl – Hirschman Index (HHI). While we cite our sources below, by and large, the following documents and data sets underpin the analysis in this post: Media Industry Data, Sources and Explanatory Notes and the CMCR Project’s Methodology Primary.

Media Concentration: Contentious Debates, Main Issues

Some consider discussions of media concentration in the age of the internet to be ridiculous. Leonard Asper, the former CEO of bankrupt Canwest, quipped, “the media have become more fragmented than ever. People who think otherwise probably believe that Elvis is still alive”. Chris Dornan points to how a Senate report that came out in 2006 was written by a bunch of Senators with their heads buried in the sand.

In Bell Astral 2.0, BCE said that while many critics allege that concentration in Canada is high, the evidence, “regardless of the metric employed – proves otherwise” (Bell Reply, para 46). When there are thousands of websites, social networking sites galore, pro-am journalists, a cacophony of blogs, 744 TV channels licensed for distribution in Canada, ninety-five daily newspapers and smartphones in every pocket, how could media concentration possibly be a problem?

If there was ever a golden media age, this is it, argue Thierer & Eskelen, 2008. Media economics professor, Ben Compaine (2005) offers a terse one-word retort to anyone who thinks otherwise: Internet.

Shackling media companies with ownership restrictions when they face global digital media giants like Google, Amazon, Netflix, Facebook, and so on is to condemn them to a slow death by strangulation (Skorup & Thierer, 2012; Dornan, 2012). Journalist’s too often share this view mostly, it seems, because they rely on industry insiders while considering balance and objectivity to be achieved when two industry insiders are shown to disagree with one another. 

Critics, in contrast, tend to see media concentration as steadily going from bad to worse. Ben Bagdikian, for instance, claims that the number of media firms in the US that account for the majority of revenues plunged from 50 in 1984 to just five by the mid-2000s. Canadian critics decry the debasement of news and the political climate of the country (here and here). Others see internet as another frontier of capitalist colonization and monopolization (Foster & McChesney, 2012).

A third school of scholars aims to detect the influence of changes of media ownership and consolidation by quantitatively analyzing reams of media content. They generally find that the evidence is “mixed and inconclusive” (here). The newest of such studies, Cross-Media Ownership and Democratic Practice in Canada: Content-Sharing and the Impact of New Media, comes to similar conclusions (Soderlund, Brin, Miljan & Hildebrandt, 2011).  

Such findings, however, proceeds as if ‘impact on content’ is the only concern, or as Todd Gitlin put in many years ago, as if ‘no effect’ might not be better interpreted as preserving the status quo and thus a significant problem in its own right.

A fourth school of thought, and one that I largely subscribe to, sees the shift from the industrial media of the 19th and 20th centuries to the online digital media of the 21st century as entailing enormous changes. However, it also argues that these changes also entail an equally enormous “battle over the institutional ecology of the digital environment” (Benkler, 2006, ch. 11). The history of human communication is one of recurring ‘monopolies of knowledge” (Innis, 1951) and oscillations between consolidation and competition (John, 2010; Babe, 1990), so why should we expect this to be any less true today(Noam, 2009; Benkler, 2006; Wu, 2010; Crawford, 2012)?

As Noam (2013) states after reflecting on the results of a thirty-country study, concentration around the world is “astonishingly high”.  Whether Canada ranks high by international standards, low or in between will be dealt with in a subsequent post.

The core elements of the networked digital media – e.g. wireless (Rogers, BCE, Telus), search engines (Google), Internet access (ISPs), music and book retailing (Apple and Amazon), social media (Facebook) and access devices (Apple, Google, Nokia, Samsung) – may actually be more prone to concentration because digitization magnifies economies of scale and network effects in some areas, while reducing barriers in others, thereby allowing many small players to flourish. A two-tiered digital media system may be emerging, with numerous small niche players revolving around a few enormous “integrator firms” at the centre (Noam, 2009; Wu, 2010).

All this matters because the more core elements of the networked media are concentrated, the easier it is for dominant players to exercise market power, coordinate behaviour, preserve their entrenched stakes in ‘legacy’ media sectors (e.g. television and film), stifle innovation, influence prices and work against market forces and the needs of consumers and citizens (see here, here, here, here and here).  Large consolidated telecom, media and internet giants also make juicy targets for those who would turn them into proxies working on behalf of the copyright industries, efforts to block pornography, and as part of the machinery of law enforcement and national security (see here, here and here).

In sum, the more concentrated the digital media giants are, the greater their power to:

  • set the terms for the distribution of income to musicians, journalists and media workers, and authors (Google, Apple, Amazon);
  • turn market power into moral authority by regulating what content can be distributed via their ‘walled gardens’ (Apple);
  • set the terms for owning, controlling, syndicating and selling advertising around user created content (Google, Facebook, Twitter) (van Couvering, 2011; Fuchs, 2011);
  • use media outlets they own in one area to promote their interests in another (see Telus intervention in Bell Astral, 2.0 pages 4-6 and here);
  • 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, long-standing concerns remain as well. Consider, for example, the fact that every newspaper in Canada, except the Toronto Star, that editorially endorsed a candidate for Prime Minister in the 2011 federal election touted Harper –three times his standing in opinion polls at the time and the results of the prior election.

Ultimately, talk about media concentration is really a proxy for conversations about consumer choice, freedom of the press and democracy. Of course, such discussions must adapt to changes in the techno-economic environment of the media but the advent of digital media does not render them irrelevant (Baker, 2007; Noam, 2009; Peters, 1999).

Methodology

Measuring media concentration begins by defining the media studied, as noted at the outset. I then collected revenue data for each of these sectors and for each of the firms within them with over a one percent market share. This handy dandy list of sources and others listed here were used.  

Each media is analyzed on its own and then grouped into three categories, before scaffolding upward to get a birds-eye view of the entire network media ecology: (1) platform media; (2) content media: (3) online media. The results are analyzed over time from 1984 to 2012. Lastly, two common tools — Concentration Ratios (CR) and the Herfindhahl – Hirschman Index (HHI) – are used to depict levels of concentration and trends over time within each sector and across the network media ecology as a whole.

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 media concentration (see Albarran, p. 48). The Competition Bureau uses a more relaxed standard, with a CR4 of 65% or more possibly leading to a deal being reviewed to see if it “would likely . . . lessen competition substantially” (p. 19, fn 31).

The HHI method squares and sums the market share of each firm in a 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 a single firm has 100% market share. The US Department of Justice set out new guidelines in 2010 for determining when concentration is likely to exist, with the new thresholds set as follow:

HHI < 1500                                 Unconcentrated

HHI > 1500 but < 2,500             Moderately Concentrated

HHI > 2,500                                    Highly Concentrated

At first blush, these higher thresholds seem to water down the earlier standards that had been set at lower levels and used since 1992. The new guidelines, however, are probably even more sensitive to reality and tougher than the ones they supersede.

This is because they go beyond setting thresholds to give more emphasis to the degree of change in market power. For instance, “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”, observes the DOJ (emphasis added, p. 19).

Second, markets are defined precisely based on geography and the relevant details of the good at hand versus loose amalgamations of things that are based only on superficially similarities. This is critical, and it distinguishes those who would define the media universe so broadly as to put photocopiers and chip makers alongside ISPs, newspapers, film and TV and call the whole thing “the media” versus the ‘scaffolding approach’ we use that starts by analyzing each sector before moving up to higher levels of generality from there until reaching a birds-eye perspective on the network media as a whole.

Third, the new guidelines also turn a circumspect eye on claims that enhanced market power will be good for consumers and citizens because they will benefit from the increased efficiencies that result. What is good for companies is not necessarily good for the country (see Stucke & Grunes, 2012).

Lastly, the new guidelines are emphatic that decisions turn on “what will likely happen . . . and that certainty about anticompetitive effect is seldom possible and not required for a merger to be illegal” (p. 1). In practice this means that the goal is to nip potential problems in the bud before they occur; to “interdict competitive problems in their incipiency”, as the guidelines say (p. 1). Crucially, this means that experience, the best available evidence, contemporary and historical  analogies as well as reasonable economic theories are the basis of judgment, not deference to impossible (and implacable) demands for infallible proof (p. 1).

These assumptions overturn a quarter-century of economic orthodoxy and its grip on thinking about market concentration (see Stucke & Grunes, 2012 and Posner). Freed from the straight-jacket of Chicago School economic orthodoxy, and the subordination of policies and politics to economists and judges, the new guidelines set a tough hurdle for those with the urge to merge. It was precisely this kind of thinking that killed the bid by AT&T – the second largest mobile wireless company in the US – to acquire the fourth largest, T-Mobile, in 2011, for instance (also Stucke & Grunes, 2012).

In Canada, in contrast, the CRTC Diversity of Voices sets up thresholds for a broadly defined TV market in which a proposed deal that results in a single owner having less than 35% of the total TV market will be given the green light; those that fall in the 35-45% range might be reviewed; anything over 45% will be rejected (para 87). Unlike the Competition Bureau that uses the CR4 method whereby a deal that result in a CR4 over 65% may be reviewed to determine whether it will substantially lessen competition, the CRTC has no such guidelines, although a recent accord between the two regulators might change this.

The CRTC’s threshold for TV, instead, is based on a single snapshot of a single company’s share of one broadly defined market – the total TV market –“before” and “after” a single transaction. It is a static measure that has no sense of trends over time, the relational structure of markets or any capacity to analyze the drift of events across media and the network media ecology as a whole.

The Competition Bureau draws selectively from the US HHI guidelines. It does not use the HHI thresholds. Instead, it focuses on “the relative change in concentration before and after a merger” (emphasis added, p. 19, fn 31). How faithful it is to either its CR4 guidelines or the HHI criteria for judging relative changes in market power is open to question, however, in light of its decision earlier this year to bless Bell-Astral 2.0 (here). In Canada regulators appear to mostly make it up as they go along rather than consistently follow a coherent set of guidelines.

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

There has always been 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?

The BRC did this because, it argued, in the face of much corporate bluster, that allowing the telegraph companies to give away the AP news service for free to the leading newspaper in one city after another might be good for the companies but it would “put out of business every news-gathering agency that dared to enter the field of competition with them” (1910, p. 275). In a conscious bid to use telecoms regulation to foster the development of rival news agencies and newspapers, the BRC forced Western Union and CP Telegraphs to unbundle the AP news wire service from the underlying telegraph service. It was a huge victory for the Winnipeg-based Western Associated Press – which initiated the case – and other ‘new entrants’ into the daily newspaper business (Babe, 1990).

Media concentration issues 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 before springing to life again after a huge wave of consolidation in the late-1990s and turn-of-the-21st century thrust concerns with media concentration back into the spotlight. Three inquiries between 2003 and 2008 were held 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); (3) the CRTC’s Diversity of Voices report in 2008.

Competitive Openings and Two (three?) Waves of TMI Consolidation

As I noted in my last post, the media economy in Canada grew immensely from $39 billion in 1984 to $73.3 billion last year (in inflation-adjusted “2012 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. Concentration climbed significantly in both of those sectors.

Conventional as well as pay and subscription television channels expanded during this time as well. 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.

Concentration levels remained very high in wired line telecoms in the 1980s and early 1990s, too. Mobile wireless telecoms services were developed by two incumbents, 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 began to climb again, notably after the dot.com crash in late-2000.

In the 1980s and early-1990s, consolidation took place mostly among players in single sectors. Conrad Black’s take-over of Southam newspapers 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 national commercial television networks by the end of the 1990s: CTV, Global, TVA, CHUM, TQS.

While weighty in their own right, these amalgamations did not have a big impact across the media. 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 less than half that amount today (20.4%).

Gradual change defined the 1980s and early-1990s, but things shifted abruptly 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), but peaking 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’s 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 the biggest film distributor in Canada.

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

The massive influx of capital investment that drove these waves of consolidation across the telecom, media and Internet industries is illustrated in Figure 1 below.

Figure 1: Mergers and Acquisitions in Media and Telecoms, 1984–2012 (Mill$)

Mergers and Acquisitions, 1984-2012

Sources: Thomson Reuters. Dataset on file with author.

Mergers and acquisitions rose sharply between 1994-1996, and spiked to unprecedented levels by 2000. The collapse of the TMT bubble ended such trends, until they restarted again between 2003 and 2007 before being ground to a halt by the Global Financial Crisis (2007ff), and with only a tentative step up since. These patterns reveal that trends in the network media economy parallel the state of the economy in near lockstep fashion; they also closely track those in the US and globally.

Consolidation has yielded a specific type of media company at the centre of the network media ecology in Canada: i.e. the integrated media conglomerate. While popular in the late-1990s in many countries, 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; Jin, 2013; Skorup & Thierer, 2012; Thierer & Eskelen, 2008; Waterman & Choi, 2010).

Despite deconvergence trends elsewhere, in Canada media-telecom and internet conglomerates are still all the rage. Figures 2 and 3, in fact, illustrate the acceleration of the trend toward vertical integration from 2008 to 2012, largely due to Shaw’s acquisition of the Global TV and a suite of specialty and pay TV channels from Canwest (2010) and Bells re-purchase of CTV (2011).

Figure 2:

Vertical Integration+NME 2008 w telecom

Figure 3:

Vertical Integration+NME 2012 w telecom

Sources: Media Industry Data, Sources and Explanatory Notes

By 2012, four giant vertically integrated TMI conglomerates accounted for 56% of all revenue across the network media economy: Bell (CTV), Rogers (CityTV), Shaw (Global) and QMI (TVA). Add Telus to the fold and the number swells to 71 percent. The ‘Big 5’ are joined by a second tier of a dozen or so more focused entities: the CBC, MTS, Google, Cogeco, Torstar, Sasktel, Postmedia, Astral, Eastlink, Power Corporation, the Globe and Mail, Facebook and Netflix, ranked on the basis of Canadian revenues.

Strip out the wireline and wireless telecoms sectors and we get a more sensitive view of what is going on across the rest of the media universe because those two sectors are so big that they cast a shadow over everything else. From this vantage point, the big ten’s share of revenue reached it’s low point in 1996 (51.7%), before reversing course to reach 58% in 2000. By 2004, the big four’s share of all revenues (without telecoms) soared to 70%, where things have stayed basically flat since.  The big 10’s market share in 2012 was 69%: Bell, Shaw, Rogers, QMI CBC, Google, Cogeco, Torstar, Postmedia and Telus, in that order.

The big four’s share of the network media economy rose significantly to 48% in 2010 (after Shaw’s acquisition of Global) and rose again to 51% in 2011 (when Bell re-acquired CTV), where it has basically stayed since — an all-time high and well above the low point CR4 score of 24% in 1996. Media concentration in Canada is currently more than twice as high as in the US based on Noam’s analysis in Media Ownership and Concentration in America.

Figure 4 below depicts the relative share of the major players in the network media economy as things stood in 2012, without the telecommunications sectors. 

Vertical Integration+NME 2012 w:out telecom

Figure 4:

Sources: Media Industry Data, Sources and Explanatory Notes

The next section doubles back to look at things sector-by-sector, and within the three main categories in which we group these sectors:

  • platform media (wireline & wireless, ISPs, cable, satellite, IPTV);
  • ‘content’ (newspapers, tv, magazines, radio);
  • ‘online media’ (search, social, operating systems).

At the end, I combine these again one last time to complete the analysis of the network media industries as whole.

Platform Media

All sectors of the platform media industries are highly concentrated or at the high-end of the moderately concentrated scale, and pretty much always have been, although Internet Access is a partial exception.

Table 1: CR and HHI Scores for the Platform Media Industries, 1984 – 2012

CR & HHI Network Industries, 2012

Sources: Media Industry Data and Sources and Explanatory Notes.

CR4 and HHI measures for wireline telecoms scores fell in the late-1990s as some competition took hold. They reached their lowest level ever at the time between 2000 and 2004 before the the dot.com bubble collapse took out many of the new rivals with it (CRTC, 2002, p. 21). Competition waned thereafter until 2008, but has risen since. Levels of concentration for this sector are very high nonetheless by both the CR4 and HHI measures.

Mobile Wireless

Much the same can be said with respect to wireless services. They have consistently been highly concentrated, and still are, despite the advent of four new entrants since 2008: Mobilicity, Wind Mobile, Public and Quebecor.

Some recent studies argue “that there is not a competition problem in mobile wireless services in Canada” (see here and here). That conclusion rests on questionable assertions about efficiencies are often asserted but seldom hold up under scrutiny and contestible markets theory in contrast to realities on the ground (see here, here and here).

Claims that there is no wireless competition problem in Canada clash with the reality that CR4 scores have been stuck in the ninety-percent range for the entire history of wireless in Canada, a level well-above the Competition Bureau’s standards. Concentration is a durable fixture in the wireless sector rather than something that will wilt over time. CR and HHI scores have drifted downwards since new rules to encourage new entrants were adopted for the spectrum auction in 2008, but in 2012 the HHI score was still 2873 – far above the 2,500 market that defines a highly concentrated market. 

Two competitors – Clearnet and Microcell – emerged in the late-1990s and managed to garner 13.4 percent of the market between them, but were taken over by Telus and Rogers in 2000 and 2004, respectively. It is still too early to tell whether the new entrants will fare, but with only 7% market share in 2012 they were just half way to restoring the high-water mark of competition set a decade ago with mounting signs of trouble swirling about all of them, except Quebecor and, to a lesser extent, perhaps Wind – but these are points for next year’s post.

Internet Access

As the telecoms and Internet boom gathered steam in the latter half of the 1990s new players emerged to become significant competitors, with four companies taking over 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, where it stayed relatively steady for much of the rest of the decade. Since 2008, however, the CR4 has crawled upwards to reach 59% last year.

HHI scores for internet access doubled between 1996 and 2000, but are still low relative to most other sectors and to this measure’s standards for concentration. However, this reflects the limits of the HHI method in this case, since 93% of residential internet subscribers use one or another of the incumbent cable or telecom companies’ for internet access. The top 5 ISPs account for 76% of all residential high-speed internet access revenues (CRTC Communication Monitoring Report, pp. 143-144).

Climbing down from national measures to the local level, internet access is effectively a duopoly, with the left over 7% of the market not dominated by the incumbents scattered among 500 or so independent ISPs. TekSavvy is the biggest ISP with an estimated 180,000 subscribers in 2012 and just over 1% market share. Other small ISPs are on the wane (Primus). Indy ISPs’ market share has increased slightly from 2010, but it has stayed flat for the past two years and is nowhere near returning to the high-water mark of competitive internet access in the late-1990s. 

Canada has relied on a framework of limited competition between incumbent telecom and cable companies for wireline, wireless, internet access and video distribution markets. Incumbents still dominate all of these sectors, while smaller rivals continue to eek out an existence on the margins in each.

Cable, Satellite and IPTV

Concentration in cable, satellite and IPTV distribution rose steadily from low levels in the 1980s (850) to the upper end of the moderately concentrated zone (by the new HHI guidelines) in 1996 (i.e. HHI=2300), before drifting downwards to the low 2000s by the turn-of-the-century. This is where things have stood until recently as the incumbent telcos’ IPTV services exert pressure on the incumbent cable companies.

The cable, satellite and IPTV industry is still largely a duopoly at the local level. The CR score has dropped 5% since 2004 but the big four still dominate with 81% market share: Shaw (25.1%), Rogers (22.3%), Bell (21.1%) and Quebecor (12.5%). Add the next five biggest players – Cogeco (7.5%), Eastlink (3.8%), Telus (3.6%), MTS (.9%) and SaskTel (.9) – and all but two percent of industry revenues are accounted for.

The telcos’ IPTV services are making incursions into the incumbent cable and satellite service providers’ turf, accounting for 7.5% of the TV distribution market by revenue in 2012 (based on my numbers, or about 6.7% percent using CRTC data)(see p. 110). In terms of subscribers, IPTV services account for 10% of the market (CRTC numbers are slightly lower, p. 111) (see here for partial explanation of the differences).

Since IPTV services began to be rolled out by MTS and SaskTel in 2004, followed later by Telus and Bell in 2008 and 2009, respectively, the HHI score has fallen 320 points (see Table 1 above) and now sits at the lower end of the “moderately concentrated” scale. The threat to incumbent cable companies is greatest in western Canada, where MTS, SaskTel and Telus have rolled out IPTV services faster than Bell from Ontario to the Atlantic.

Within the platform media industries as a whole, new players have emerged, but it is primarily the expansion of incumbent telcos and cable companies outside their traditional turf and into one anothers’ industries that is generating the greatest effect. There has been a modest increase in competition in all platform media sectors in recent years since except internet access. While new technologies have increased the structural complexity of platform media, they have not disrupted the long-standing trajectory of development when it comes to tv distribution: more channels, and a few new players, but with more of the whole in the hands of the old.

The Media Content Industries

Television

In the late 1980s until 1996, concentration in broadcast TV fell sharply while the specialty and pay TV channels emerging at this time displayed similarly high levels of competition. TV became much more diverse as a result.

Such trends abruptly reversed in the late-1990s, however, with something of a lag before the specialty and pay TV market began to follow suit. After the turn-of-the-century concentration levels for TV climbed steadily and substantially. The upswing since 2008 has been especially sharp. Figure 5, below, shows the trend in terms of CR scores; Figure 6, in terms of the HHI.

Figure 5 CR Scores for the Content Industries, 1984-2012

CDN Content Industries, 1984-2012 (CR4) 

Figure 6 HHI Scores for the Content Industries, 1984-2012

CDN Content Industries, 1984-2012 (HHI)

Sources: Media Industry Data and Sources and Explanatory Notes.

In 2012, the largest four television providers controlled about 78% of all television revenues, up substantially from 71% four years earlier. In terms of the 700 TV channels actually operating in Canada, the big four own 171 of them in total and which account for just under four-fifths of all revenue: Shaw (66 tv channels), Bell (61), Rogers (24) and Quebecor (20). In contrast, in 2004, the big four accounted for 62% of the TV biz, a time before major players such as Alliance Atlantis and CHUM had carved out a significant place for themselves in the TV marketplace (circa 2000-2006), respectively.

Concentration across the total TV market has been pushed to new extremes in recent years, first, by Shaw’s take-over of Canwest’s television assets in 2010 and, second, by Bell’s buy-back of CTV the year after that. They would have been higher yet had the CRTC approved Bell’s acquisition of Astral Media – the fifth largest television provider – rising to about 86%. The about face on that matter in 2013 will be dealt within in next year’s version of this post.

In 2012 the largest four tv providers after Bell and Shaw are: the CBC, Rogers, Astral, and QMI, respectively, and in that order. Together, they accounted for 91% of the entire television industry last year. 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 has become markedly more concentrated in the past two years.

CR and HHI measures for tv were the lowest in the 1990s 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 significantly more diverse because the CBC no longer stood as the central pillar in tv and radio, while specialty and pay television channels were finally making their mark. Today, the latter are the jewel in the TV crown, but they are highly concentrated by the CR4 measure, with a CR4 of 81%, yet only moderately so by HHI standards with a score of 1906.

Newspapers

Concentration in the newspaper industry rose steadily from 1984 until 2008, when it peaked.  In 1984, the top four groups accounted for 61% of all revenues, a number which had risen to about two-thirds of the market in 1996 – a level that stayed fairly steady for most of the next decade before rising again to an all-time high within the time frame studied here in 2008. At that point, the four largest newspaper groups accounted for three-quarters of the market: Canwest (23.7%), Quebecor (21.5%), Torstar (19.3%) and Power Corp (10.5%).

Levels have since declined considerably by either the CR4 or HHI measure, with the former falling to 69% in 2012 and the latter dropping from 1628 in 2008 to 1,398 – well within the ‘competitive’ range by the lights of the new HHI standards or only moderately concentrated by the old standards. The new conditions likely reflect Postmedia’s decision to sell some of its newspapers (Victoria Times Colonist) and to cut publishing schedules at others. Indeed, its market share has fallen steeply from 24% in 2008 when the papers were still in the hands of Canwest to just 17% last year, and within a significantly smaller market. A few new publishers have also emerged amidst the tough times now facing the newspaper industry, notably Black Publishing and Glacier Publishing in western Canada.

Magazines

Of all media sectors, magazines are least concentrated, with concentration levels falling by nearly one half on the basis of CR scores and two-thirds for the HHI over time.

Radio

Radio is also amongst the most diverse media sectors according to HHI scores, and only slightly concentrated by the C4 measure. The shuffling of several radio stations between Shaw/Corus and Cogeco in 2011 had continued the long-term decline in concentration, but in 2012 there was an uptick as the CR4 rose from 56% to 60% and the HHI from 954 to 1027. Bell’s take-over bid for Astral – Canada’s largest radio broadcaster – would have further pushed radio along this path had it have been approved by the CRTC in 2012. Levels of concentration would have been high by the CR measure, with the CR4 rising from 60% to 68%, but with an HHI of 1371 it would still have been well within the unconcentrated zone by the revised HHI guidelines or moderately concentrated by the old ones. .

Online Media

As the earlier discussion of internet access showed, there is little reason to believe that core elements of the Internet are immune to high levels of concentration. But what about other core elements of the Internet and digital media ecology: search engines, social media sites, browsers, operating systems and internet news sites?

Concentration in the search engine market grew markedly from 2004 to 2011. CR4 scores have been persistently sky-high during these years, rising from 93% in 2004 to almost 98% in 2011, while HHI scores have been off-the-charts in the 4000-7000 range. Google’s dominance seemed to be locked in the low 80%-range, with others lagging far behind, during this period.

Google’s share of search, however, tumbled in 2012 to just under 68%, although this still leaves Microsoft (17.8%), Yahoo! (5.4%), and Ask.com (6.2%) trailing far behind. The CR4 and HHI scores are still sky-high at 97% and 4995, respectively, and as Table 2 shows.

Table 2: CR4 and HHI Scores for the Search Engine Market, 2004-2012

Search Engine CR, 2004-2012

Source: Experien Hitwise Canada. “Main Data Centre: Top 20 Sites & Engines.” last Accessed May 2013.

Social media sites display a similar but not quite as pronounced trend. Facebook accounted for 46% of unique visitors to such sites in December 2012, followed by Twitter (15%), LinkedIn (12%), Tumbler (12%), Instagram (9%) and Pinterest (6%) (Comscore). Again, the CR4 score of 85% and HHI score of 2762 reveal that social networking sites are highly concentrated.

Similar patterns hold for the top four web browsers in Canada. Microsoft’s Explorer (55%), Firefox (20%), Google’s Chrome (18%), Apple’s Safari (5%) have a market share of 98 percent (Netmarketshare).  In terms of smart phone operating systems, the top four players accounted for 96 percent of revenues: Apple’s iOS (55%), Google’s Android OS (29%), Java (7%), Nokia’s Symbian (5%). RIM (3%) and Microsoft (1%) accounted for the rest (Netmarketshare).

Internet news sites are an exception to the extremely high levels of concentration in the online digital media environment. Internet users time on top 10 online news sites nearly doubled from 20 to 38 percent between 2003 and 2008. Most of that increased time is spent on sites that are extensions of well-known traditional media companies: cbc.ca, Quebecor, CTV, Globe & Mail, Radio Canada, Toronto Star, Post Media, Power Corp. Other major sources included CNN, BBC, Reuters, MSN, Google and Yahoo! (Zamaria & Fletcher, 2008, p. 176).

Despite this rapid “pooling of attention” on the top 15 or so news sites, concentration levels stayed flat between 2004 and 2007. They declined thereafter until 2011 – the latest year for which good data is available. Online news sources are not concentrated by either the CR or HHI measure and are diverse relative to any of the other sectors, except magazines.

Table 3: Internet News Sources, 2004-2011

Online News Sources, 2004-2011

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

Combining all the elements together yields a birds-eye view of long-term trends for the network media as a whole. Figure 7 below gives a snapshot of the state of the network media economy in 2012, listing those sectors that were unconcentrated, those that were moderately concentrated and finally those that were highly concentrated by HHI standards.

Figure 7: Concentration Rankings on the basis of HHI Scores, 2012

Concentration Rankings, 2012

Clearly, things are not all to one side, with several sectors showing low levels of concentration. However, there is no shortage of segments where concentration is either moderately high or very high. Perhaps one of the most striking things to stand out from Figure 7 is the extent to which core elements of the internet and digital media ecology seem to be prone to very high levels of concentration.

Figures 8 and 9 show the trends over time on the basis of, first, CR1, CR4 and CR10 scores, followed by a depiction of the trends based on the HHI.

Figure 8: CR 4 Score for the Network Media Economy, 1984-2012

CR1, 4 & 10, 1984-2012 Iw Telecom)

Sources: Media Industry Data and Sources and Explanatory Notes.

 

Looking the entirety of the network media economy, several distinct points emerge: The biggest company’s share of revenues across the whole of the media twenty-eight years ago was 48%; in 2012, it was 26.4% albeit in a vastly larger media universe. That company in 1984 was BCE; it is still the same company today, and substantially larger than the second and third ranked firms, Rogers and Shaw.

The CR4 levels today are about the same as they were twenty-eight years ago: 66.7% versus 65.1%. Today, the top 10 firms have a larger market share than they did in 1984: 81% versus 76%. These figures would have been higher had the CRTC given the green light to BCE’s first bid to acquire Astral in 2012, as Figure 8 shows.

Figure 9: HHI Scores for the Network Media Economy, 1984-2012

HHI 1984-2012 (w Telecom)

Sources: Media Industry Data and Sources and Explanatory Notes.

As Figure 9 shows, the HHI fell by half from 1984 to 2000. Trends then moved erratically for the next few years before stabilizing in the 1200 to 1300 range, before a significant step up in 2010 and with another potential step in the same direction last year before the CRTC nipped Bell’s bid to acquire Astral in the bud.

The results depict a competitive scenario by the revised 2010 HHI standards (or moderately concentrated by the old standards) – if we take the ‘total media universe’ as the beginning and endpoint of analysis (e.g. Ben Compaine, Ken Goldstein, Adam Theirer). But this is problematic for several reasons.

First, it obscures trends at lower levels of analysis, i.e. sector-by-sector and then by category – platform media, content media and online media – before moving to the total network media. We use the “scaffolding method” precisely so that we can pick up on such things.

Second, such conclusions skate over the fact that while concentration levels according to the most sensitive measure – the HHI — fell greatly between 1984 and 2000, they have basically stayed flat ever since, with a significant uptick since 2010.

Third, from the point of view of the CR4 and CR10, there is a distinct u-shape trend over the past three decades. Concentration fell steeply in the 1980s until 1996-2000, when there was a sharp reversal leading to the CR4 being pretty much the same now as it was thirty years ago. On the basis of the CR10, concentration levels were higher in 2012 than in 1984, i.e. the CR10 in 2012 was 81% vs. 76% in 1984.

From this perspective, concentration has grown significantly over time. At best, one might argue that the CR and HHI scores cut in somewhat different directions, or at least the latter are not so pronounced as the former, and thus the results must be seen as mixed. There is little reason, however, to view the current state of affairs and contemporary trends through rose-tinted glasses.

Concluding Thoughts 

Several things stand out from this exercise. First, we are far from a time when studies of media and internet concentration are passé. Indeed, theoretically-informed and empirically-driven research is badly needed because there is a dearth of quality data available. Moroever, general developments and the press of specific events – Bell Astral 1.0 in 2012, the resurrected version of the Bell Astral deal that was approved earlier this year, and now the wireless wars in which some claim there is no competition problem in mobile wireless services at all versus those who argue the opposite – demand 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 2012 reconfirmed that at every step of the way. The CRTC still needs a dramatic overhaul of how it releases information and of its website. The underlying data sets included in the Communications Monitoring Report, Aggregate Annual Returns, and Financial Summaries should be made available in a downloadable, open format (also see David Ellis’ series of posts on this point).

The regulated companies themselves must also be made to be more forthcoming with data relevant to the issues, not less as they so strongly desire (see here for a recent example). The CRTC also publishes too much data that does not square with what the companies themselves state in their Annual Reports. Good decisions cannot be made poor data.

The trajectory of events in Canada is similar to patterns in the United States. Concentration levels declined in the 1980s, rose sharply in the late-1990s until peaking circa 2000 and staying mostly flat thereafter. While processes of deconsolidation and vertical dis-integration have taken hold in the US — with the exception of Comcast’s 2011 blockbuster take-over of NBC-Universal — trends in Canada are running in the opposite direction and with the forces of concentration having gained momentum since 2010.

Of course, trends are not all to one side. The assets from the bankrupt Canwest have been shuffled in recent years, and the process is ongoing with Postmedia selling off further papers in the past year, thereby allowing small newspaper publishers to grow (Black Publishing, Glacier). Some significant new entities have emerged (e.g. Blue Ant, Post Media, Remstar, Teksavvy, Netflix, Tyee, Rabble.ca, Huffington Post, a worker-owned TV station in Victoria, CHEK, and a and CHCH in Victoria and another independently owned TV station in Hamilton, CHCH).

The overall consequence is that we have a set of bigger and structurally more complicated and diverse media industries, but these industries have generally become 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.

The next two posts will look at the state of media concentration in the English- and French-language regions of the network media economy, followed by another that will look at the state of media concentration in Canada relative to the US and the thirty countries studied by the International Media Concentration Research (IMCR) project, including the U.S. Germany, Japan, Australia, the UK, France, and so on. The final two posts in the series will profile the top 20 TMI companies in Canada as well as trends with respect to ownership, boards of directors, revenue, profits and debt.

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.

 

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