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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.

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.

 

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

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

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

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

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

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

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

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

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

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

As the Competition Bureau clearly stated:

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

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

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

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

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

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

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

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

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

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

Journos as Megaphones: The Globe and Mail Covers Bell

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TV Advertising

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

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

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

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

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

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

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

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

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

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

Media and Internet Concentration in Canada, 1984 – 2011

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

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

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

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

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

Competing Views on Media Ownership and Concentration

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

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

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

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

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

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

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

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

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

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

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

Methodology

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

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

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

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

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

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

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

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

HHI < 1000                                     Un-concentrated

HHI > 1000 but < 1,800             Moderately Concentrated

HHI > 1,800                                    Highly Concentrated

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Network Infrastructure Industries

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

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

CR & HHI Network Industries, 2011

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

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

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

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

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

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

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

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

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

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

The Content Industries

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

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

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

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

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

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

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

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

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

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

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

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

Online Media

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

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

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

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

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

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

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

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

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

Table: Online News Sources, 2004 – 2011

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

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

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

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

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

 

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

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

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

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

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

Concluding Thoughts 

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

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

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

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

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

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

CRTC Kills Bell Astral Deal: What Happened and Why?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The following figure shows the story.

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

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

Conclusions Drawn

Ultimately, the submission concludes:

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

It is time to reverse the tide.

Weak Links and Wikileaks: How Control of Critical Internet Resources and Social Media Companies’ Business Models Undermine the Networked Free Press

I’ve written several times on Wikileaks over the past year-and-half. In this piece I draw together and update my thoughts on Wikileaks in light of recent developments, with a focus on how concentration of ownership and control over critical internet resources (internet access, domain name registries, webhosting sites, payment services, etc.) and the business models of social media companies such as Twitter compromise freedom of expression and the press on the Internet, with Wikileaks serving to illustrate the point.

What follows is a first draft of a chapter that I have written for a forthcoming book edited by Benedetta Brevini, Arne Hintz and Patrick McCurdy. Beyond Wikileaks: Implications for the Future of Communications, Journalism and Society. I would be delighted to hear any constructive comments and criticisms you might have.

In his seminal piece on Wikileaks, Yochai Benkler (2011) makes a compelling case for why Wikileaks is a vital element of the networked fourth estate, and why we should view its harsh treatment by the U.S. government as a threat to the free press. As he says, the case embodies a struggle for the soul of the internet, a battle that is being waged through both legal and extralegal means, with major corporate actors – Apple, Amazon, eBay (Paypal), Bank of America (Visa), Mastercard, etc. – using their control over critical internet resources to lean in heavily on the side of the state and against Wikileaks.

This piece reviews Benkler’s case for seeing Wikileaks as an crucial element of the networked free press, adds a few details to it, then presents an important new element to the story: the role that Twitter, the social media site, has played in what I will call the Twitter – Wikileaks cases. In contrast to the pliant commercial interests that Benkler discusses, Twitter fought hard in a series of legal cases during the last year-and-a-half to avoid having to turn over subscriber account information for several people of interest to the U.S. Department of Justice’s ongoing Wikileaks investigation: Birgitta Jónsdóttir, an Icelandic MP and co-producer of the Collateral Murder video whose distribution over the internet by Wikileaks put it, and her, on a collision course with the U.S. to begin with, Wikileaks’ volunteer and Tor developer, Jacob Applebaum, and the Dutch hacktivist Rop Gongrijp.

The DoJ’s “secret orders” raise urgent questions about state secrets and transparency, the rule of law, internet users’ communication rights, and the role of commercial entities that control critical internet resources. The Twitter – Wikileaks cases also cut to the heart of journalism in light of how journalists routinely use social media such as Twitter and Facebook, but also search engines and internet access services, to access sources, share information, and generally to create and circulate the news.

Wikileaks and the Emergence of Next Generation Internet Controls

Information filtering, blocking and censorship have been the hallmark of China’s model of the internet since the 1990s. Now, however, we are at critical juncture in the evolution of the Internet, with the United States government’s anti-Wikileaks campaign showcasing how such methods are being augmented by a wide range of legal and extra-legal methods in capitalist democracies. Indeed, governments the world over now rely on multidimensional approaches that use technical tools to filter and block access to certain kinds of content while normalizing internet control through legislation and by out-sourcing or privatizing such controls to commercial internet companies (Deibert & Rohozinski, 2011, pp. 4-7). Among other things, the Wikileaks case shows that such actors are often all-too-willing to serve the state on bended knees, albeit with some important exceptions to the rule as the Twitter – Wikileaks cases discussed later in this chapter illustrate.

Three intertwined tendencies are stoking the shift to a more controlled and regulable internet. First, the concentration of ownership and control over critical internet resources is increasing: incumbent cable and telecom firms’ dominate internet access, while a few internet giants do the same with respect to search (Google), social media platforms (Facebook, Twitter), over-the-top services (Apple, Netflix), webhosting and data storage sites (Amazon) and payment services (Visa, Master Card, Paypal), among others. Simply put, more concentrated media are more easily regulable than many players operating in a more heterogeneous environment. Second, the media and entertainment industries have scored victories in Australia, UK, NZ, US, Taiwan, South Korea, France and a handful of other countries for three-strikes rules that require Internet Service Providers (ISPs) to cut-off internet users who repeatedly run afoul of copyright laws. A 2011 UN report condemned these measures as disproportionate and at odds with the internet’s status under the right to communication set out in Article 19 of the Universal Declaration of Human Rights (1948), but they remain operative nonetheless (La Rue, 2011). Lastly, the internet is being steadily integrated into national security and military doctrines, with thirty or so countries, notably the US, Russia and China, leading the push (U.S. Congressional Research Service, 2004). The U.S. Department of Defense’s revised “information operations” doctrine in 2003, for instance, defines the internet (cyberspace) as the fifth frontier of warfare, after land, sea, air and space (United States, Department of Defense, 2003). National security and law enforcement interests are also central in new laws currently being considered in the US (CISPA), Canada (Bill C-30) and the UK (Communications Data Bill).

These trends are increasing the pressure to turn Internet Service Providers (ISPs) and digital intermediaries into gate-keepers working on behalf of other interests, whether of the copyright industries or law enforcement and national security. This drift of events is already bending the relatively open internet, with its decentralized architecture pushing control to the ends of the network and into users’ hands, into a more closed and controlled model. Such trends are not new, but they are becoming more intense and firmly entrenched in authoritarian countries and liberal capitalist democracies alike. This is the big context within which the anti-Wikileaks campaign led by the U.S. government has unfolded.

Wikileaks and the Networked Free Press

There are counter-currents to these trends as well, and one of those is the rise of Wikileaks in the heart of the networked free press, just at a time when the press is struggling to find a sturdy footing in the internet-centric media ecology. While it is common to bemoan the crisis of journalism, Benkler (2011) strikes a cautiously optimistic note, laying the blame for the ongoing turmoil among traditional news outlets on their own self-inflicted wounds that have festered since the 1980s. The rise of the internet and the changing technological and economic basis of the media magnifies these problems, he argues, but the internet is not responsible for them. In fact, nascent forms of non-profit, crowd-sourced and investigative journalism may be improving the quality of journalism.

Wikileaks is part and parcel of these trends. In the events that put it on a collision course with the U.S. government, the whistle-blowing site burnished its journalistic credentials by working hand-in-glove, at least after the “collateral murder” video, with The Guardian, the New York TimesDer SpeigelLe Monde and El Pais to select, edit and publish the Afghan and Iraq war logs and embassy cables. By cooperating with respected journalistic organizations, Wikileaks material was selected, edited and published according to professional news values rather than driven solely by the logic of hactivism or being an indiscriminate and irresponsible dump of sensitive state secrets into the public domain. The collaboration between traditional news outlets and Wikileaks also demonstrated that gaining access to large audiences in a cluttered media environment still requires ‘big media’. Altogether, these efforts set the global news agenda four times in 2010. For its efforts, Wikileaks chalked up a bevy of presitgious awards for its significant contributions to access to information, transparency and journalism, adding to the long list of honours that it had already won from press and human rights organizations, including from British-based Index on Censorship, Amnesty International and Time Magazine, among many others, since its inception (see Wikileaks Press, nd).

Interestingly, while Wikileaks had been offering journalists free access to the war logs and embassy cables for some time, it was only after it offered exclusive national rights to The Guardian, New York Times, and other major newspapers around the world that journalists showed much of an interest. Rights, money, and market power are still important lures, and are cornerstones of market-based media, with or without the internet – although it is important that Wikileaks certainly does not follow the conventional commercial model, and offers an alternative to it.

The more important point for now, however, is that investigative journalism is not the exclusive preserve of the traditional press, but it is the signature feature of what Wikileaks does. That the interjection of Wikileaks into the journalistic process led to outcomes that are probably better than the ‘good ole days’ is underscored by the fact that while the New York Times consulted with the Obama Administration before publishing the war logs and diplomatic cables, it did not withhold the material for a year. Indeed, this is a big and important difference from its behaviour in 2005 when, at the behest of the Bush Administration, the New York Times delayed James Risen and Eric Lichtblau’s (2006) expose of unauthorized, secret wiretaps conducted by the National Security Agency in cooperation with AT&T, Verizon and almost all of the other major telecom-ISPs in the U.S. (Calame, 2006). The war logs and embassy cables stories likely became headline news in 2010 faster than would otherwise have been the case because of Wikileaks role in these events, and its strategy of playing news organizations’ competitive commercial interests off of one another. Moreover, with little need to maintain good standing with the centres of political, military and corporate power, Wikileaks never assumed levels of deference similar to the New York Times and other established news sources.

All-in-all, Wikileaks is emblematic of a broader set of changes that, once the dust settles, will likely stabilize around a new model of the networked fourth estate, an assemblage of elements consisting of (1) a core group of strong traditional media companies; (2) many small commercial media (Huffington Post, the Tyee, Drudge Report, Global Journalist, etc.), (3) non-profit media (WikiLeaks, Wikipedia), (4) partisan media outlets (Rabble.ca, Daily Kos, TalkingPointsMemo), (5) hybrids that mix features of all the others and (6) networked individuals (Benkler, 2009). The fact that WikiLeaks is so central to these developments, and so solidly at one with journalistic and free press traditions, helps to explain why neither it nor any of the newspaper organizations it partnered with have faced direct efforts by the U.S. to suppress the publication of WikiLeaks’ documents (Benkler, 2011). If the story ended here, it would be a happy one, a triumph of a plucky, determined watchdog willing to take on the powers-that-be, without fear or favour, a testimony to the power of the internet to contribute to freedom of expression, the free press and the public’s right to know – in other words, democracy.

Using Ownership and Control of Critical Internet Resources to Cripple Wikileaks

Unfortunately, however, the story does not end there. The problem, as Benkler (2011) states, is that what the U.S. was not able to obtain by legal measures, it gained with remarkable ease from private corporations and market forces. Thus, buckling under the slightest of pressure, Amazon banished Wikileaks’ content from its servers the same day (December 1, 2010) that Senator and Senate Committee on Homeland Security and Governmental Affairs Chair, Joe Lieberman (2010), called on any “company or organization that is hosting Wikeleaks to immediately terminate its relationship with them”. Wikileaks quickly found a new home at webserver firm OVH in France but lost access to those resources after France’s Industry Minister warned companies on December 4 that there would be “consequences” for helping keep Wikileaks online. A day later, the Swedish-based Pirate Party stepped in to host the “cablegate” directory after they were taken off line in France and the US.

Yet, Wikileaks’ troubles didn’t end there because just a day before it was kicked out of France, the U.S. company everyDNS delisted it from its domain name registry. As a result, Internet users who typed wikileaks.org into their browser or clicked on links pointing to that domain came up with a page indicating that the site was no longer available (Benkler, 2011; Arthur, 2011). The Swedish DNS provider, Switch, faced similar pressure, but refused to buckle. It continues to maintain the WikiLeaks.ch address that Internet users still use to access the site, but has faced a barrage of Distributed Denial of Service (DDoS) attacks for doing so.

As Amazon, OVD and everyDNS took out part of WikiLeaks technical infrastructure, several other companies moved into to disable is financial underpinnings. Over the course of four days, Paypal (eBay) (December 4), MasterCard and the Swiss Postal Office’s PostFinance (December 6), and Visa (December 7) suspended payment services for donors to the site. Two weeks later, Apple removed a Wikileaks app from the iTunes store (Apple removes Wikileaks, 2010). Thus, within a remarkably short period of time, a range of private actors cut-off Wikileaks’ access to critical internet resources. The actions did not kill the organization, but the financial blockade did contribute mightily to the fact that Wikileaks funding plummeted by an estimated 95 percent (Wikileaks, 2011).

Privacy Rights Online and Internet Companies’ Business Models: Weak Foundations for the Networked Fourth Estate and Communication Rights

One important entity has stood outside this state-corporate triste on the outskirts of the law: Twitter. Indeed, it has stood alone among big American corporate internet media brands in refusing to assist the United States’ anti-Wikileaks campaign. Faced with a court order to secretly disclose subscriber information for three of its users, it said no.

In December 2010, at the same times as Wikileaks was being cut-off from critical internet resources, the US Department of Justice demanded that Twitter turn over subscriber account information for Birgitta Jónsdóttir, Jacob Applebaum and Rop Gongrijp as part of its ongoing Wikileaks investigation. The information sought was not innocuous and general, but intimate and extensive: i.e. subscriber registration pages, connection records, length of service, Internet device identification number, source and destination Internet protocol addresses, and more (United States, 2011a, pp. 7-8). Twitter was also told not to disclose the request to the people concerned, and to stay quiet about the whole thing. It did none of this.

Instead, the company mounted a serious legal challenge to the Justice Department’s “secret orders” and pushed the envelope in interpreting what it could do to protect its subscribers’ information (McCullagh, 2011). In Twitter – Wikileaks Case #1, the social media site won a small victory by gaining the right to at least tell Jónsdóttir, Applebaum and Gongrijp that the DoJ was seeking information about their accounts (United States, 2010). They were given 10 days to respond before it was compelled to comply with the DoJ order. It also took the extra step of recommending that they seek legal help from the Electronic Frontier Foundation (EFF), a public interest law watchdog on all matters digital and about internet/cyberspace governance (a copy of Twitter’s letter to Gongrijp is available at Gongrijp, 2011).

The EFF has represented Josdottir on the matter since, while Twitter’s lead counsel, Alex MacGillvray, has stood for the company. Interestingly, Iceland has also weighed in by strongly criticizing the US over Jónsdóttir, while a group of 85 European Union Parliamentarians condemned the United States’ pursuit of Wikileaks. They were especially critical about how the US was harnessing internet giants to its campaign. They “failed to see” how, among other things, the Twitter Order could be squared with Article 19 of the Universal Declaration of Human Rights. More to the point, they worried the United States’ actions were contributing to the rise of a

“national and international legal framework concerning the use of . . . social media . . . [that] does not appear to provide sufficient . . . respect for freedom of expression, access to information and the right to privacy” (Intra-Parliamentary Union, 2011).

The first Twitter – Wikileaks case, or “Twitter Order”, was a shallow victory. It allowed the company to inform Jónsdóttir, Applebaum and Gongrijp that they were of interest in the DoJ’s ongoing Wikileaks investigation, but did not prevent the disclosure. Yet, even this shallow victory looks positive relative to how easily Amazon, Apple, eBay (Paypal), Mastercard, Bank of America (Visa), everyDNS, etc. enlisted in the United States’ campaign against Wikileaks. Twitter staked out a decidedly different position that insisted upon the rule-of-law, speaking out in public and going beyond what was necessary to help its subscribers ensure that their rights, and personal information, are respected.

The full perversity of these circumstancs only came fully into light in the Twitter – Wikileaks Case #2, when Jónsdóttir, Applebaum and Gongrijp appealed part of the first case to overturn, and thus prevent, the requirement that Twitter hand over their account details to the DoJ (United States, 2011a). The U.S. District Court‘s decision in the case in November 2011 had direct results and some potentially far sweeping implications.

The first direct result, as we have seen, is that Twitter had to hand over Jónsdóttir, Applebaum and Gongrijp’s subscriber information. Another, however, is that they have no right to know whether the DoJ has approached Facebook, Google or other Internet companies with secret orders, and if so, for what kinds of information, and with what results (p. 52). The courts seem to believe that neither they nor the public-at-large have the right to know the answers to these questions. For their part, Google, Facebook and Microsoft (Skype) have stayed silent on the affair despite their frequent pontification about internet freedom in a generic sense and mostly in relation to ‘axis of internet evil’ countries, such as Saudi Arabia, China, Russia and Iran, among a rotating cast of others.

If these results are not discouraging enough, more sweeping implications flow from two other directions in the second Twitter – Wikileaks ruling. The first is the poor analogy the court draws between the internet and banks to ground its decision as to why companies of the former type must hand over subscribers’ information just as readily as the latter do when served with a court order. There is a lot of potential discussion in this point alone, but for now it suffices to say that thinking about social media in terms of banking, insurance and clients is a long way from comprehending the internet as a public communications space.

Of more interest for here is the mind-boggling claim that internet users forfeit any expectation of privacy – and hence, privacy rights – once they click to accept internet companies’ terms of service policy. As the court put it, Jónsdóttir, Applebaum and Gongrijp “voluntarily relinquished any reasonable expectation of privacy” as soon as they clicked on Twitter’s terms of service (United States, 2011a, p. 28). Thus, instead of constitutional values, law or social norms governing the situation, the court ruled that privacy rights are creatures of social media companies’ business models. Social media users, according to the court, would have to be woefully naive to expect that privacy is a priority value for advertising-driven online media, given that almost the entire business model of major Internet companies is about collecting and selling as much information about audiences as possible.

But this is ridiculous because Twitter, Facebook and Google’s terms of service policies are about maximizing the collection, retention, use and commodification of personal data, not privacy. It is as if the ruling is intentionally out of whack with the political economy of the internet so as to give the state carte blanche to do with digital intermediaries as it pleases. Christopher Soghoian (2011) captures the crux of the issue in relation to Google, but his comments apply to Internet companies in general:

Google’s services are not secure by default, and, because the company’s business model depends upon the monetizaton of user data, the company keeps as much data as possible about the activities of its users. These detailed records are not just useful to Google’s engineers and advertising teams, but are also a juicy target for law enforcement agencies.

Conclusions and Implications: Wikileaks, the Networked Fourth Estate and the Internet on Imperiled Ground

Things don’t have to be this way. The idea that privacy rights turn on the terms of service policies of commercial internet companies rests upon a peculiarly squinty-eyed view of things and leverages the mass production and storage of personal data enabled by Twitter, Facebook, Google and so forth for the advantage of the state. But even if we took corporate behaviour as our moral compass, Twitter has occasionally distinguished itself, as it did during the London riots/uprising in August 2011 by refusing to comply with the UK government’s requests to shutdown its service and handover users’ information, while Facebook complied. Thus, even by the standards of corporate behaviour, Twitter’s behaviour could cultivate a higher sense of privacy amongst its users.

Concentrated Internet Markets and Small Details: Changing the business model of internet companies to minimize the collection, retention and disclosure of personal information, as the EFF recommends and as some non-commercial sites such as IndyMedia sources do, would be helpful. Sonic.net, a small ISP with 45,000 internet subscribers in the San Francisco area, and which is also implicated in the Wikileaks case because Jacob Applebaum, a key figure in the Twitter – Wikileaks case, as we saw above, has been one of its subscribers, does just this. Most ISPs, in contrast, take the opposite view, as a cursory review of the terms of service policies from AT&T, Comcast. Verizon and Time Warner – the big four ISPs in the U.S. that account for just over 60% of internet access revenues (Noam, 2012) – illustrates. While Sonic.net may offer a model of a free and open internet that maximizes its users’ privacy by minimizing data collection and retention, the fact of the matter is that with less than .05 percent of the US internet subscriber base, it is easily ignored.

Ultimately, the relevant measuring rod of communication rights is not corporate behaviour or the market, but legal and international norms. Social norms govern how we disclose personal information in complex, negotiated and contingent ways, as well (Nissenbaum, 2011). Internet companies’ terms of service policies and the Twitter – Wikileaks cases largely ignore these realities, and thus are out of touch. These issues as well as the fact that the vast majority of people do not even read online terms of service policies — and those who do more often than not do not fully understand them — were brought to the court’s attention, but brushed aside. The decision at least makes it clear that the hyper-commercialized ‘free lunch’ model of the Internet comes with a steep price: our privacy rights and an entire industrial arrangement poised to serve as the handmaiden of the national security state.

The Virtues and Vices of Twitter: It is against this backdrop that the significance of what Twitter has done is clear. It has not flouted the law, but has been hoisted upon its own petard on account of its “business model”. But this is an irreconcilable contradiction of capitalism, to use a marxist formulation, and won’t be solved by simply changing Twitter’s business model. Nonetheless, Twitter went beyond just complying with the law to afford as much respect for users’ rights as circumstances allowed. We might also ask if Twitter’s recent adoption of a “transparency report” chronicling government requests for user information and to take-down certain content reflect lessons learned by the company in the midst of the anti-Wikileaks campaign as well?

There is no need to pretend that Twitter is the epitome of virtue, because it is not. While Google, WordPress and others have all signed on to the broad statements of principles regarding privacy and online free speech rights in the Global Network Initiative, for example, Twitter, along with Facebook, has not. But in this area, pontificating is rife, and while Google preaches transparency and open information absolutism, it has said nothing direct or substantial about the U.S.’s treatment of Wikileaks, or even if it has been implicated in the campaign.

Deepening National Security Imperatives: The U.S. governments’ campaign against Wikileaks further entrenches the post 9-11 securitization of the telecom-internet infrastructure, in the U.S. and globally, given the reach of the most well-known US telecom and internet giants (Risen & Lichtblau, 2006; Calame, 2006). Some courts have condemned expansive claims of state secrets and unbound executive powers when it comes to national security matters, but others seem to grant the state a blank cheque (United States, 2006; United States, 2011b). When the law has not proved serviceable, as the earlier discussion suggests, important U.S. government figures have tip-toed around its edges, compliant private companies in tow, to get what it wants. Congress has also stepped in occasionally to make legal what before was not, as in the passage of the much revised and expanded Foreign Intelligence Services Act (FISA) in 2008, which is now up for renewal again and set to pass with little opposition in Congress (United States, 2008).

The Global Dimension: The campaign against Wikileaks cannot be kept to narrow confines and readily spills over into wide ranging areas, including diplomatic and global internet policy angles, too. Nation-States, and the US in particular, are flexing their muscles and attempting to assert their sovereignty over cyberspace – a point that defines the Wikileaks case. Scholars such as Lawrence Lessig, Ropald Diebert, Jonathan Zittrain, Jack Goldsmith and Timothy Wu, among many others, have long shown that cyberspace is no more immune to government intervention than you or are I are immune to the laws of gravity. Struggles over the Internet Corporation for the Assignment of Names and Numbers (ICANN), the rift between Google and China, and the United State’s campaign against Wikileaks clearly expose that fallacy for what it is. Legitimate criticisms of U.S. dominance of critical internet resources has been a staple of global internet politics since the ITU’s tussles with ICANN in the late 1990s, through WSIS I & II (2001 – 2005), to the creation of the Internet Governance Forum (2005), and back again to the ITU in 2012 (Mueller, 2010). The Wikileaks case offers a rational basis for such concerns. Criticisms of the U.S. in the Wikileaks case by EU parliamentarians, for instance, are of this kind.  The Guardian newspaper in the UK made the same point, too, by choosing Jónsdóttir, Assange, Applebaum and Twitter’s chief legal counsel, Alex MacGillvray, for its list of twenty “champions of the open internet” in April 2012 (Ball, 2012). Many of the awards bestowed upon Wikileaks by respectable human rights and free press organizations before and after the organization’s Collateral Murder video, war logs and Embassy Cables trilogy in 2010 are of a similar kind.

The problem, however, is that legitimate criticism are often mangled when mixed with attempts by strong states in authoritarian countries to use them as a Trojan Horse to smuggle in even less appealing attempts to dominate their own sovereign slices of the internet. A balkanized collection of Web 3.0, nationally-integrated internet media spaces is the result.  To the extent that the anti-Wikileaks campaign feeds such a pretext and fuels the ‘clash of sovereigns’ on the internet, it is unhelpful.

At the opposite end of the spectrum, the Twitter-Wikileaks rulings may serve the U.S. government’s bid to drive Wikileaks out of business well, but they have also lit a fire in the belly of hactivist groups like Anonymous and LulzSec, for whom such things are their raison d’etre. It may not be too much to suggest that the whiff of the anti-Wikileaks campaign fresh in the air helped to bring about the demise of recent attempts to strengthen national and international copyright laws – e.g. SOPA, PIPA and ACTA — given that, like the campaign against Wikileaks, each sought to leverage critical internet resources to control content and further restrict what people can do with their internet connections. If that, in fact, is the case, perhaps the battering of Wikileaks may have unintentionally served a noble cause.

Perhaps we can take solace in that and the fact that the distributed nature of the Internet means complete copies of Wikileaks files have been scattered across the planet, beyond the reach of any single state, no matter how powerful: the ultimate free speech trump card in a way. Yet, the fact that Wikileaks is now floundering, one of its founding figures on the lamb, and its funding down to a tenth of what it once was means that we ought not be so sanguine in our views. Happy stories about digital democracy should not deter us from the harsh reality that important open media principles have already been badly compromised, and more are at stake yet. Indeed, the deep ecology of the Internet is at stake, and so too is how we will conduct our lives in this highly contested place.

Tales from New Zealand — the Ultrafast Broadband Internet: Digital Public Works for the 21st Century vs. Incumbent Interests?

Last month I visited Auckland, New Zealand to give a talk at the The Future with High Speed Broadband Conference organized by the Competition Commission (full paper here).

The aim was to assess the factors that might encourage or hobble the country’s plan to make ultrafast, broadband internet service available to all. The Ultrafast Broadband Initiative, and its counterpart for rural areas, looks like a digital public works project for the 21st century, with the government forcing a restructuring of the country’s backwards incumbent telecoms players and investing nearly $2 billion in rolling out a combination of fibre-optic and wireless connections to over 90 percent of New Zealanders in the next six- to eight years. However, as I discovered, there are several factors that significantly stand in the way of such ambitions.

New Zealand shares several things in common with Canada that could turn this project into a big ‘white elephant’. The most important similarities are (1) extremely high levels of media concentration (higher in NZ than Canada); (2) powerful and recalcitrant incumbents; and (3) being two of just four countries worldwide where bandwidth caps are nearly universal and set at exceeding low levels (Iceland and Australia are the other two, see OECD).

As luck would have it, the British comedian and actor Steven Fry was in New Zealand working on Peter Jackson’s new film The Hobbit at the same time I was in town. He set things up perfectly a day before my talk by lambasting the pathetic state of New Zealand’s internet service after his attempts to upload recently completed film footage were throttled and thwarted by the ridiculously low bandwidth caps of between 2 to 5 GB per month that come standard with most telecom-ISP plans.

New Zealand has “probably the worst broadband I’ve ever encountered”, Fry railed on Twitter. Turns itself off, slows to a crawl. Pathetic!”

Media, ministers, Telecom NZ spokespeople and the island was abuzz with a basic fact of life in the country that everybody knows, but which takes an outsider to cast a bright light on in none-too-polite terms: the country’s internet service sucks. That was my role too: the outsider who can say things that local industry-regulatory-political insiders cannot.

With attention on high alert, the attendance at my talk was likely higher than it might have been. Media coverage was good from day one, too, with ComputerWorld catching the gist of my talk as follows: “Get real on data caps, peering and Sky TV dominance, says Canadian professor”. A video of the talk is below.

The Minister responded the next day by trying to squelch any idea that things were as bad as I painted, or that new approaches to regulation are needed. The New Zealand Herald and ComputerWorld, however, have drawn directly on my paper since then to counter such a do nothing attitude.  We’ll know better next month how all this will play out when the Competition Commission publishes its much anticipated final report on the matter.

The New Zealand situation is interesting and important beyond its own inhabitants for several reasons. For one, for much of the last quarter-of-a-century, it has been the outpost of a ‘free market fantasy’. To supporters of such a view, deregulation would liberate telcos from the heavy hand of government intervention and competition, innovation and lower prices for better service would flourish for all as a result.

That never happened. The “free market fantasy” years were nothing short of a disaster.

More recently, however, the country has embarked on a series of seemingly forceful steps that would leave the free market fantasy years behind in favour of something altogether different. The four key steps in this process include the development of telecoms specific regulation and functional separation at Telecom NZ in 2006, followed by the launch of the Ultrafast Broadband (UFB) initiative by the right-of-centre, conservative National government after its election in 2008, and finally what some call the ‘nuclear option’ in telecoms regulation — structural separation — earlier this year.

According to many observers, such steps and a strong regulator are necessary to counter incumbents intent on thwarting the rise of real competition and open networks. The UK regulatory, Ofcom, for instance, argues that only once it stiffened its spine and required British Telecom to break itself into two parts —  one for wholesale, and one for retail — under the Openreach framework did telecoms and Internet development significantly improve in that country.

The new regime led to a huge influx of service-based competition, new investment, cheaper broadband prices and more internet providers, while broadband use increased significantly as a result. Prices for residential broadband services fell 16% per year between 2005 and 2007.

With an eye on the UK experience, New Zealand followed suit in 2006. The results to many observers have been impressive. As the Berkman study (2010) concludes, “in the two earliest instances where functional separation was introduced [UK and New Zealand], it had rapid effects on competitive entry, penetration, prices, and/or speeds” (Benkler, et. al, 2010, p. 84).

New Zealand’s Ultrafast Broadband (UFB) initiative charts new ground as well, both as a way out of a legacy of a muddling market and as a forceful response to the financial crisis of 2007-8. The scale and hefty investment in commercial and state-owned companies involved is unique, but several other countries have also begun to follow suit, not just for legacy networks, but for ‘next generation access’ (NGA) networks based on a combination of fibre optics and wireless, too, including: Australia, Italy and Sweden (see the OECD’s study on Next Generation Access Networks).

The state of telecom and internet development in New Zealand has indeed improved since these changes were implemented. There is a modest increase in competition in some telecom markets and an improved regulatory environment.

Nonetheless, the country still sits at the bottom of the pack when it comes to broadband internet development. Moreover, its rank has actually fallen relative to other countries. Thus, where the Berkman study ranked New Zealand 22nd out of 30 countries based on 2008 data, my ranking puts it at 28th out of 34 OECD countries based on 2010 data. The following table shows the results.

Table 1: Country Ranks Based on Weighted Averages for Broadband Penetration, Price and Speed (2010 Data)

Country

Penetration

Speed

Price

Overall Weighted Avg Rank

1 Sweden

5.3

1

8.7

5.0

2 Japan

11.3

3

2

5.4

3 Finland

8.3

6.5

4.7

6.5

4 Korea

2

6

15

7.7

5 Denmark

4.7

11

10.3

8.7

6 France

15.7

5

10

10.2

7 Netherlands

8.3

6.5

17.7

10.8

8 Norway

4.3

4.5

23.7

10.8

9 UK

14

11

9

11.3

10 Estonia

18

11.5

7.3

12.3

11 Slovak Rep

22.3

3.5

12.3

12.7

12 Australia

17

9

12.3

12.8

13 Iceland

7.7

12.5

18.3

12.8

14 Austria

19.7

10.5

8.3

12.8

15 Italy

25

8.5

8.3

13.9

16 Germany

15

15.5

12.3

14.3

17 Switz.

13

14

18

15.0

18 Belgium

18

11.5

17.3

15.6

19 Portugal

22

1.5

24

15.8

20 Slovenia

24.3

3

20.7

16.0

21 Czech Rep.

22

10.5

15.7

16.1

22 Poland

23.7

11.5

13.7

16.3

23 US

12

17.5

21.3

16.9

24 Hungary

23.7

14

14.3

17.3

25 Canada

16

13.5

24.7

18.1

26 Greece

26

18

10.3

18.1

27 Israel

18.7

16.5

21.7

19.0

28 New Zealand

16.3

15

28.3

19.9

29 Lux

13.3

20

31.3

21.5

30 Ireland

20.7

20.5

26.3

22.5

31 Spain

22

19

27

22.7

32 Turkey

33.3

15.5

23.3

24.0

33 Chile

32.7

22.5

30

28.4

34 Mexico

33

23.5

32

29.5

Note: Prices in USD PPP and include line charges (where applicable). Penetration is a composite of fixed broadband subs/100, households and mobile broadband; Speed is based on average advertised download speed plus fastest speed; Price on low, mid and high-end offerings. Source: OECD (2011). Broadband Portal.

The significant decline in New Zealand’s broadband conditions relative to other countries, slipping from 22nd to 28th, reflects the fact that other countries are also pushing similar initiatives, too, seemingly faster than New Zealand.

Ultimately, the UFB could be the great national digital public works project of the 21stcentury, but if New Zealanders are to realize its full benefits, they must confront several realities head on: (1) high levels of media concentration; (2) restrictive bandwidth caps, (3) low levels of media and internet use, (4) a regulator that is not yet accepted as an essential element in an open, competitive and pluralistic media environment, and (5) strong incumbents intent on bending new technologies and possibilities to their ends.

The last point is particularly important because whilst all the policies and indeed the UFB initiative itself is based on an open Internet model that places as much of the capabilities and resources of these networks at the ends of the network and on to the desktops and into the hands of as many online service providers and users as possible (Saltzer, Reed, & Clark, 1981; Isenberg, 1996; Benkler, 2006), New Zealand’s telecom and broadcasting industry incumbents are hell-bent on creating a supplier-driven walled garden model, circa 1999, where power and resources reside in the core of the network, owned and controlled by network operators and their business partners.

A series of unregulated deals struck between Sky TV — the local monopoly provider of pay-tv services delivered by satellite and local arm of the global behemoth, News Corp. — and all of the key telecom and ISP players (except Orcon) since late-2009 reveal a full-court press by the incumbents to simply graft the ultrafast broadband Internet now being built out mostly at government expense onto their current business models. If they succeed, the media economy will not expand as much as it could; nor will it be as pluralistic. Media and internet use will also likely remain low, because uninspired. Competition, diversity and an open Internet, in short, will be crushed in the name of preserving incumbent interests.

For those who are fans of structural separation, the New Zealand case shows how even that form of regulation can be subverted. It also shows that strong measures are needed to enhance not just network neutrality but also to deter alignments between network and content providers alike designed to throttle competitors and to maintain their own position at the centre of the network media universe.

This is particularly problematic in the context of the UFB because, left unaddressed, one gets the impression that the government is financing the roll-out of a state-of-the-art broadband Internet for incumbents in the telecoms and media industries. Perhaps that’s how we can square the  decidedly right-of-centre government’s decision to publicly-fund such a project to begin with?

Bell’s Bid to Swallow Astral Media

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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