Audiovisual: BCE/Astral, a Transaction with Multiple Dimensions
CCA Bulletin 13/12
August 15, 2012
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!