Audiovisual: BCE/Astral, a Transaction with Multiple Dimensions

CCA Bul­letin 13/12

August 15, 2012

Just the Facts

In mid-September, the CRTC will be hold­ing hear­ings to study BCE’s acqui­si­tion of Astral’s hold­ings. Why is this deal impor­tant for the cul­tural sec­tor? Because of the eco­nomic impor­tance of the audio­vi­sual sec­tor and because it is the most widely con­sumed form of cul­tural expres­sion. This acqui­si­tion com­pletes an unprece­dented con­sol­i­da­tion of pro­duc­tion and dis­tri­b­u­tion of Cana­dian cul­tural con­tent. This will prob­a­bly be the last such large trans­ac­tion in the coun­try, unless of course the gov­ern­ment decides to change the rules on for­eign own­er­ship of cul­tural indus­tries. It raises dif­fer­ent con­cerns depend­ing on whether you’re look­ing at the Anglo­phone or Fran­coph­one markets.

1. Mag­ni­tude – BCE is buy­ing Astral’s prop­er­ties for $3.8 bil­lion. If the trans­ac­tion is approved as pro­posed, BCE will own 70 tele­vi­sion ser­vices and 107 radio sta­tions. With­out Astral, BCE already earns $3.3 bil­lion in prof­its on rev­enues of $19.5 bil­lion; they are the prin­ci­pal TV and phone ser­vice provider with 2.1 mil­lion clients. As TV con­tent provider, the poten­tial posi­tion of BCE is of par­tic­u­lar con­cern in the Anglo­phone mar­kets. BCE will hold more than 40% of the mar­ket share for Eng­lish spe­cialty ser­vices view­ers; it will have close to 40% of the total rev­enues for com­mer­cial television.

2. Jobs – Pro­duc­tion of Cana­dian tele­vi­sion shows and films has an eco­nomic value of $2.4 bil­lion, and in 2010–2011 rep­re­sented the equiv­a­lent of 128,000 full-time employ­ees, includ­ing 50,300 in pro­duc­tion itself. Pro­duc­ers, actors, musi­cians, direc­tors, screen­writ­ers live off of this indus­try. When a trans­ac­tion takes place, the appli­cant must con­tribute 10% of trans­ac­tion amount to tan­gi­ble ben­e­fits for the pro­duc­tion of Cana­dian con­tent (music, tele­vi­sion, cin­ema). In this case, BCE says it will inject $200 mil­lion, but 20% of this amount is not tar­get­ing the pro­duc­tion of Cana­dian con­tent, a fact which cre­ates a lot of opposition.

3. The future of fund­ing for the audio­vi­sual sec­tor – Fund­ing for music, cin­ema and tele­vi­sion pro­duc­tion will become a big headache over the years for a num­ber of rea­sons. Nor­mally the ben­e­fits are spread over a period of 5–7 years and there­fore the trans­ac­tions that have taken place in recent years have injected hun­dreds of mil­lions of dol­lars into the pro­duc­tion of sound record­ings and tele­vi­sion pro­grams. This source of fund­ing will soon dry up and so far, nei­ther the Com­mis­sion nor the indus­try has found alter­na­tives to this approach.

Oppo­si­tion – Com­peti­tors Québecor, East­link and Cogeco, as well as con­sumer groups, have opposed the deal argu­ing that Bell will have too much con­trol over the Cana­dian tele­vi­sion mar­ket. Accord­ing to them,

• BCE’s posi­tion will be so dom­i­nant that no other busi­ness will be able to com­pete for rights on the most pop­u­lar TV shows;
• This amal­ga­ma­tion could cause prices for TV and radio com­mer­cials to rise.

These inter­ven­ers raise impor­tant and valid argu­ments that will have to be exam­ined more closely dur­ing the hear­ing, the first of impor­tance for the new Com­mis­sion Chair, Jean-Pierre Blais.

One other major issue is raised by the cul­tural, polit­i­cal and eco­nomic sec­tors in Québec that insist that Astral’s head office and pro­gram­ming deci­sions remain in Québec, a con­di­tion actu­ally demanded from the CRTC by most of them.

Tell Me More

The future of fund­ing for the audio­vi­sual sec­tor. As men­tioned pre­vi­ously, the end of large acqui­si­tions will mark the demise of an impor­tant source of fund­ing for Cana­dian pro­grams and so far, nei­ther the Com­mis­sion nor indus­try has found alter­na­tives to fund the pro­duc­tion of pro­grams of all gen­res, notably drama.

Add to this the fact that the Com­mis­sion has just elim­i­nated the Local Pro­gram­ming Improve­ment Fund (LPIF) which helped sta­tions show local pro­gram­ming to view­ers in var­i­ous regions. Addi­tion­ally, the fee-for-signal sys­tem for con­ven­tional sta­tions, announced by the CRTC in 2010 but never imple­mented, is now before the Supreme Court. What­ever the out­come of this legal case, some have sug­gested the pos­si­bil­ity that this pol­icy will be aban­doned any­way because the con­text has changed so much as a result of increased concentration.

Dif­fer­ent mar­kets. In keep­ing with the Broad­cast­ing Act which rec­og­nizes two dis­tinct mar­kets, Anglo­phone and Fran­coph­one, the Com­mis­sion will have to eval­u­ate the request from sev­eral angles as there are many dif­fer­ent dynam­ics at play.

• The impact of BCE in the Fran­coph­one mar­ket will not nec­es­sar­ily be the same as in the Anglo­phone market.
• How to respond to objec­tions in Anglo­phone mar­kets that Bell’s acqui­si­tion of Astral will give them dis­pro­por­tion­ate power? It is impor­tant to note that the Com­pe­ti­tion Bureau will also con­sider the nature of this transaction.
• There are also impor­tant issues that do not appear on the pub­lic record but that pro­vide a back­drop to the debate: Astral’s head office loca­tion and the acqui­si­tion of the chan­nel “V”, the other French pri­vate con­ven­tional television.

The Anglo­phone Market

In the Anglo­phone mar­ket, BCE will hold twice as much of the tele­vi­sion mar­ket as its near­est com­peti­tor, Shaw Com­mu­ni­ca­tions, which by the way sup­ports the deal. The coali­tion of Québecor-Cogeco-Eastlink has iden­ti­fied a series of real dan­gers related to such concentration.

• Bell Canada could end up occu­py­ing such a dom­i­nat­ing posi­tion that no other busi­ness would be able to com­pete for the pur­chase of rights for the most pop­u­lar tele­vi­sion shows.
• Apart from pos­si­bly caus­ing the prices of tele­vi­sion and radio com­mer­cials to rise, the acqui­si­tion could mean that Bell would also be able to charge adver­tis­ers to pur­chase adver­tis­ing on more than one plat­form at a time (note: all com­pa­nies do this!)
• In order to watch your favourite pro­gram­ming, Bell could push you to pur­chase other ser­vices like tele­phone, mobile, inter­net and television.

These dan­gers are real but let’s face it: the supplier/distributor inte­gra­tion train left the sta­tion a while ago! What needs to be done now is to impose and enforce license con­di­tions lim­it­ing the pos­si­bil­ity of undue com­pe­ti­tion and opti­miz­ing the pro­duc­tion of domes­tic pro­gram­ming in all gen­res for all plat­forms. The Com­mis­sion is not par­tic­u­larly known for demand­ing account­abil­ity and enforc­ing the con­di­tions it sets, so one can under­stand the feigned or actual con­cerns expressed by Bell’s com­peti­tors. Can we expect a shift in this chap­ter under the new Com­mis­sion Chair? That’s what stake­hold­ers are demand­ing of the CRTC, because this trans­ac­tion is excep­tional for both its scale and pos­si­ble impact.

The Fran­coph­one Market

BCE’s tele­vi­sion acqui­si­tions are mostly in French and this cre­ates a whole dif­fer­ent dynamic in the Fran­coph­one mar­ket. Québecor is already a dom­i­nant player in the tele­vi­sion mar­ket: it owns 35% of the tele­vi­sion mar­ket in Québec, and its con­ven­tional tele­vi­sion net­work TVA is widely dis­trib­uted across the coun­try. BCE’s acqui­si­tion of Astral would ensure they would hold 24% of tele­vi­sion audi­ences in the French mar­ket. The arrival of Bell in radio and spe­cialty tele­vi­sion in Québec would allow a rebal­anc­ing of the mar­ket and some­what reduce the cur­rent dom­i­nance of Québecor.

More­over: Québecor has broad shoul­ders to bear the weight of com­pe­ti­tion. The Québecor Empire made $201 mil­lion in prof­its and $4.21 bil­lion in rev­enues in 2011. They are the dom­i­nant player in the tele­vi­sion dis­tri­b­u­tion indus­try in Québec and third in Canada, they are the largest French mag­a­zine pub­lish­ers in Québec, with 26 dailies and 236 week­lies sold, and they own 17 pub­lish­ing com­pa­nies, to name a few of their properties.

The radio sec­tor may how­ever raise some con­cerns. BCE is acquir­ing three French-language radio net­works, includ­ing NRJ and Red FM whose French mar­ket shares are 85% in Gatineau-Ottawa, 72% in Sher­brooke, and 57% in Trois-Rivières. That’s a lot, but this sit­u­a­tion existed before the pro­posed acqui­si­tion and the CRTC did not seem to be very concerned.

That being said, the risks of abuse of power by BCE are present in the Québec mar­ket as well as in the Anglo­phones mar­kets, just as they existed with Québecor’s acqui­si­tion of TVA. These risks must be dealt with by reg­u­la­tion or by con­di­tion of license.

As was men­tioned pre­vi­ously, the cul­tural, polit­i­cal and eco­nomic sec­tors in Québec insist that Astral’s head office and pro­gram­ming deci­sions remain in Québec. It is a con­di­tion demanded by most inter­ven­ers in Québec. Given the speci­ficity of French-language broad­cast­ing, and the eco­nomic and cul­tural impact that BCE will have, the Com­mis­sion needs to make this a requirement.

The other impor­tant issue is the pur­chase of the pri­vately owned con­ven­tional chan­nel “V” by BCE. The nego­ti­a­tions had already begun before the announce­ment of the acqui­si­tion of Astral and were inter­rupted. If they were to resume, Québecor, Cogeco and many other play­ers will have major argu­ments to oppose the trans­ac­tion. BCE could not hold a French-language con­ven­tional chan­nel with­out down­load­ing sev­eral spe­cial­ized ser­vices and radio sta­tions. We’re not there yet, but the transaction’s major play­ers already are!