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BCE president George Cope, left, and Astral Media CEO Ian Greenberg announced the takeover of Astral by Bell in March. (PAUL CHIASSON/THE CANADIAN PRESS)
BCE president George Cope, left, and Astral Media CEO Ian Greenberg announced the takeover of Astral by Bell in March. (PAUL CHIASSON/THE CANADIAN PRESS)

Media

Is Bell too big? Add to ...

To hear Kevin Crull tell it, he had no idea he had such bitter enemies.

After all, when BCE Inc. announced last March that it would be plunking down $3.3-billion to buy Astral Media Inc., the only sound was applause: from analysts, who said the deal was another slam dunk by his boss, the company’s basketball-playing chief executive officer George Cope; and from shareholders, who saw Astral’s stock price leap almost 35 per cent in a day.

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True, a handful of busybodies were off in a corner, moaning abstractly about the dark dynamics of market concentration, but nobody much seemed to be listening.

And then, a neon flare across the Astral plane: In the quiet of mid-August, some of Bell’s largest competitors pulled the pin on a noisy campaign aimed at killing the deal when it goes before the Canadian Radio-television and Telecommunications Commission for scrutiny early this month.

The deal would see Bell Media, of which Mr. Crull is president, own more than 100 radio stations and almost 90 TV channels. And it would give the company a hammerlock on distribution of programming that competitors fear would allow Bell to force them to pay exorbitant fees or lose their customers. Bell says it needs to bulk up to provide real competition among Canadian broadcasters and fend off increasingly savvy online challengers.

The merger’s fate rests in the hands of the broadcast regulator, which will spend the week of Sept. 10 cloistered in a Montreal boardroom hearing out all sides. It could let the deal go through unaltered, insist some changes be made, or kill it outright.

The hearings are critically important to the country’s broadcast industry, as they will establish the balance of power between broadcasters and TV distributors for years to come. By some measures, Bell’s proposal is without precedent in the industrialized world. Every other G8 country has prevented this sort of accumulation of power, something its competitors have seized upon in their bid to see the deal killed.

Calling themselves The Say No to Bell Coalition, the cable companies Cogeco and Eastlink, together with the print/cable/broadcaster Quebecor, have flooded the country with newspaper ads and television commercials warning that Canadians could end up being forced to buy certain TV channels from Bell even if they didn’t want them.

Through the attacks, Mr. Crull, the executive charged with fulfilling his boss’s vision, has held his tongue.

Until this week.

“There’s a level of misleading information and a tone of the debate that I am surprised by,” he says on Thursday afternoon in the old CITY-TV building on Toronto’s Queen Street West. “It’s a very, very offensive attack, in my mind, to use words like, ‘Bell’s behaviour,’ ‘anti-competitive activity,’ and things of that sort.”

Number, numbers

Consumers who are caught in the middle can be forgiven if they can’t figure out whether the deal is in their best interest or not – the two sides don’t even agree on how to measure the size of the broadcast market, never mind their individual share of it.

Measurements matter: The CRTC has said it would closely scrutinize any deal that sees one company control 35 per cent of the country’s market, and would outright kill any arrangement that would push that number above 45 per cent.

But the debate is making the picture fuzzy. Should the math include all TV signals, or just the ones controlled by Canadian broadcasters? Do they throw the CBC-SRC into the mix – as Bell suggests – in which case Canada has five, not four, major broadcasters and therefore becomes an also-ran behind the public broadcaster-dominated United Kingdom, Germany and France in the damning market concentration charts?

But put all of that aside for the moment, because some things are indisputable.

“This is a huge merger from anybody’s standpoint, in any country,” says Robert Picard, a professor with the University of Oxford’s Reuters Institute for the Study of Journalism who specializes in media economics.

If the acquisition goes through, Bell Media will own or have a share of 86 television channels: 30 conventional TV stations, and a mix of 56 specialty and pay services. (BCE owns a 15 per cent stake in The Globe and Mail and Mr. Crull is on The Globe’s board.)

In 2009-10, those channels attracted 37.6 per cent of all Canadian viewing – and 41.4 per cent of English-language viewing (or 44.9 per cent when joint ventures are included), according to CRTC data. Bell disputes even those numbers, saying that if viewership of U.S. services such as CNN are taken into account, their share of viewing would be only 33.5 per cent.

The exact numbers are important because television programs are not just a commodity worth millions of dollars in subscriptions and ads – they are culture that can affect the way people think and dream and vote. Most governments believe a diversity of viewpoints is important to foster a vibrant democracy. That’s why regulatory bodies such as the U.S. Federal Communications Commission and its counterparts across the European Union place caps on ownership that usually restrict companies from controlling more than 20 to 25 per cent of the market.

“While the rest of the world is using broadcasting law and competition law to reduce concentration in content provision, Canada has really permitted far greater concentration than any other country,” Prof. Picard says.

Canadian broadcast executives argue that there’s a good reason for that – the country’s broadcast system is inundated with signals from the United States, and they insist they must bulk up to compete with the flood of unregulated content coming through so-called over-the-top services such as Netflix.

Bigger companies can buy and control more content, they argue, and when they have more content, they can attract more consumers. And the more money they make through their subscribers, the more money they are obligated to invest back into Canadian programming and network infrastructure.

Bigger companies, in other words, are better able to ensure the survival of the Canadian broadcasting system.

“In Canada, scale is really important because we’re competing against global players,” Mr. Crull says. “If we want Canadian broadcasters to survive against that kind of scale, where really there’s not, obviously, borders protecting our Canadian producers and Canadian broadcasters against them, then the Canadian guys have to have scale.” Canada has approximately 13 million houses, making it, he says, “preposterous to conclude that four major broadcasters is too consolidated.”

“Can I say something, culturally, that really bothers me?” Mr. Crull asks. “This idea that big is bad, and big is evil. I think we would concede that Bell is big. We actually think big companies are good for Canada, and very much in the public interest.”

“There’s economic reports that make it clear that, overwhelmingly, the most significant contributor to an economy’s performance in GDP and growth is big companies’ capital investments. And Bell is a leader in Canada that way. So we seem to demonize big, and I don’t quite understand it.”

 

Vertically challenged

Bell is a vertically integrated company, which means it is both an owner and distributor of content. So while it’s trying to build its base of television subscribers by winning over new customers from its rivals, it’s also selling those same rivals popular services such as TSN.

The company has more than two million subscribers to its TV distribution services, putting it in the middle of the pack behind Shaw and Rogers, and ahead of Quebecor, Cogeco, and Telus.

As Bell gets bigger, its rivals worry the company will demand especially high fees for popular channels such as TSN, or use them as leverage to extract better terms for its unloved services. If they tell Bell they won’t pay, Bell could withhold the channels and leave them with critical gaps in their programming.

Cogeco found itself in this situation over the past year, as it tried to gain access to Bell’s RDS-2 French sports channel. It felt it was being bullied into accepting channels the cable company didn’t want to push on its subscribers.

“You should detect this is blatantly unfair and unprecedented,” Cogeco chief executive officer Louis Audet says. “This is not the Wild West. If you condone this behaviour, eventually everyone disappears and there is one player. This is not a theoretical problem, it is a very practical and pragmatic problem.”

Bell insists any complaints about its negotiating tactics have little to do with the Astral deal – it’s just trying to get market price for its products. But Mr. Audet says Bell has a long history of self-serving interests, and “there is a strong body of evidence to suggest Bell will do as it usually does.”

“In the old days, the cable guys couldn’t build networks and had to rent from Bell,” he says. “Eventually we got the right to build networks and had to buy them from Bell at an inflated price. We wanted into telephony, and it was denied to us until it was maybe 10 years too late. The new chapter is for Bell to buy all of the programs and either make others pay high prices or deny them channels so they can attract customers.”

The existential threat for companies such as Cogeco, he says, is that if they push back and tell Bell they won’t pay higher rates for popular channels, then they will lose market share and find themselves unable to compete for new customers.

“This is most regrettable for the diversity of our system,” he says.

New rules were introduced last year to prevent large companies from pushing around its smaller competitors.

Essentially, the guidelines say any vertically integrated company must do unto other companies as it would do unto itself. In other words, no hoarding of content, and no restrictive clauses that make their own services more attractive to consumers than those of their less integrated rivals.

But there is unease over whether the rules will be effective. They were only introduced a year ago, and only a few cases have made it before the CRTC.

Telus Corp. and Bell recently resolved an 18-month battle over TSN, after Telus accused Bell of demanding viewership guarantees that were only attainable if the channel was placed on its basic service, and forcing it (along with a price increase) on all of their customers.

The CRTC eventually ruled that was an unreasonable arrangement, which allowed Telus to keep the channel without the conditions Bell had tried to impose.

Bell says the concerns are overblown, that the rules are the rules. But they do agree with their rivals on one thing – it takes far too long for a dispute to make its way through the CRTC.

Why size matters

 

It’s impossible to know how the average channel-surfing cable subscriber feels about the takeover, but there have been some signs of general unease.

When Forum Research tacked a question to the end of one of its recent nationwide polls asking about support for the deal, 60 per cent said they disapproved after being were told it would mean the resulting company would control 38 per cent of the country’s television market and 29 per cent of the radio market.

But the question may have been more of a referendum on capitalism than the proposed merger itself: Forum president Lorne Bozinoff says respondents were likely expressing a general distaste for a company that many have spent their lives grumbling about, for any number of reasons.

“They don’t want to see big companies getting bigger,” he says. “They hear the number of channels and it sounds big. They think there’s nothing in it for the consumer that they’ve heard about, so they tend to shy away. But I don’t know how much people actually care about it – I’m not saying they stay up at night worrying.”

In other words, they are against the deal because they were put on hold for too long when they wanted to ask a question about their bill, or get a new TV system installed. The polling bears this out – in parts of the country where Bell offers home phone and television services, respondents were far more likely to dislike the proposal.

“The more you know about Bell, the more you don’t like the deal,” Mr. Bozinoff says. “I don’t know that it is obvious to people that there are economies of scale involved. They are reacting to the fact that Bell is getting bigger and will have more say over their choices.”

And in the past week, a consumer-focused group called Stopthetakeover.ca launched its own online drive to scuttle the deal by appealing to the country’s Competition Bureau and Industry Minister, both of which have the power to alter or outright kill the deal.

The group – whose membership roster includes anti-poverty groups and unions – argues that Bell will use its size to dominate smaller rivals, charging them high rates for programming that will eventually be passed to consumers.

While people often talk about vertical integration as if it were a new phenomena, history is rich with examples of governments stepping in to break up companies that controlled too much of the content they existed to distribute. In the early 1900s, the Canadian government busted up the cozy relationships that telegraph companies had developed with news agencies. In the 1940s, the United States took a dim view of the way Hollywood studios controlled the theatres where its films were shown, and busted up the system.

“You don’t have to go into fantasyland looking for answers as to why this might be a bad idea,” says Dwayne Winseck, a communications professor at Carleton University who wrote some of the material the group has used to make its anti-merger point. “Just maintaining the normal rules of the markets, we know that too big is too big. It impacts pricing and it impacts innovation.”

Prof. Winseck – who says the deal shouldn’t be allowed to proceed because it would make Bell too dominant a player in Canada – says Canadians have been willing to give media companies a free pass because there is a perception that the Canadian broadcasting market is small and in need of large corporate heroes.

But the country is eighth in the world when it comes to generating revenue in the telecom, media and Internet sectors – it pulled in $34.4-billion last year, putting the country between Italy and South Korea.

“Bell presses all the time that we need big players with deep pockets to compete with global behemoths,” he said. “I say this is a big myth they perpetuate, but we allow these arguments to provide cover for consolidation. People who usually puke when you drop a nationalist card accept it all the time in this area.”

Not everyone is against the merger: Troll through the interventions filed with the CRTC, and you’ll find plenty of praise from TV producers and community groups across the country – almost all of whom, it must be said, have a direct financial stake in Bell’s success. This week, Bell announced it was creating a $15-million production company with the Cirque du Soleil, though it would revisit that if the deal fell through.

For decades, that’s just how the small world of Canadian broadcasting has operated, all to ensure a strong home-grown industry.

But today, says Prof. Picard of Oxford, that rationale may have run its course. “If you look at media, Canada has always allowed levels of concentration that are two to three times higher than those found in Europe and in the United States. And understandably so – the idea that Canada had to protect against the U.S. certainly made sense, and it had to be competitive against the U.S. if it was going to produce its own.

“It’s had a very good record, in terms of producing Canadian content, and done very well. But is more concentration needed to continue doing that?”

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