The Canadian broadcasting system needs a well-financed alternative to online services such as Netflix, which threatens to draw consumers away from traditional television because they can spend more to acquire the exclusive content needed to keep viewers from cutting their cords.
That was the message delivered by BCE Inc. and Astral Media Inc. on Monday in the first day of a week-long hearing into their proposed $3-billion merger, as executives told the Canadian Radio-television and Telecommunications Commission why the two companies believe their deal should be approved.
Astral chief executive officer Ian Greenberg said his company, which counts the Movie Network and HBO Canada among its holdings, needs the backing of a deep-pocketed benefactor if it is to continue buying the content Canadians want to watch on television. Companies such as Netflix, he said, can easily outspend Astral but would have a much harder time outbidding the telecommunications giant BCE.
Netflix has about 2 million Canadian subscribers, he estimated, almost double its numbers from a year ago. There are about 12 million Canadian households with traditional television packages. While the subscription television market is still adding subscribers, the pace of growth has slowed considerably and will likely begin to fall off in the coming years as more consumers turn toward less expensive online alternatives.
"Netflix is just one prominent example of the kind of scale being brought to bear on Canada's industry – challenges to our business that we believe we must meet head-on by expanding our own scope and scale. That is what this transaction enables," said Mr. Greenberg, as he reminded the commission he started the company with his brothers 50 years ago with a $15,000 bank loan.
Companies such as Netflix are under no obligation to offer Canadian content to Canadian subscribers, and also don't give back a portion of their revenue to fund Canadian productions in the way Canadian television providers must. They are also increasingly competing with television providers by financing their own exclusive television series.
BCE chief executive officer George Cope said his company – with its $37-billion market cap compared to Astral's $2.7-billion – can better compete with Netflix (which has a market cap of $11.8-billion) when movie and television rights are available.
The companies have previously suggested they could create their own Netflix-like service to compete with the U.S. alternative, something they believe would be easier if BCE owned almost two dozen specialty channels. Mr. Greenberg said his company's pay television channels would also benefit from the advertising BCE could provide on its CTV television network. This wouldn't only benefit BCE and Astral, he told the commission, but also the producers who create Canadian content because their shows would have much better exposure and could draw larger audiences.
"Astral alone can't afford to buy national time for pay TV," he said. "This once and for all would provide more prominence ... The scale we talk about means we'd be able to promote content, particularly Canadian content, on the CTV platform for English language specialty channels. It would be a boon to content providers and the Canadian broadcasting system."
The CRTC warned BCE and Astral Media they must prove their merger is in the best interest of Canadians if they hope to have their deal approved.
"We will determine if this transaction would benefit Canadians, as well as the Canadian broadcasting system," said Jean Pierre Blais, chairman of the CRTC. "We also want to be convinced that the application filed by Astral Media represents the best possible proposal under the circumstances. For all of these questions, the burden of proof rests squarely with the applicants and their representatives."
Mr. Blais was speaking at the opening of a week-long hearing into the deal, which is a modified version of a deal the commission rejected a year ago. The deal has been modified – The companies have struck deals to sell off some of their English-language television channels, such as Teletoon and Disney XD, to reduce their combined market share; BCE will sell 10 radio stations; and the company made a promise about keeping its head office in Montreal.
The chairman reminded everyone that this week's hearing has nothing to do with the hearing a year ago, and that the deal will be assessed on its merits.
"I do not need to remind you that the CRTC reviewed a similar application last year," he said. "I would, however, like to make it clear to all participants that this proceeding is separate, and that the application will be evaluated on its own merits."
The companies make their case all day Monday, and then the commission will spend the rest of the week hearing from opponents and supporters of the deal. BCE and Astral will be able to make a closing statement Friday.
BCE, the parent company of Bell Media, owns 15 per cent of The Globe and Mail.