MONTREAL – Bell Canada and Astral Media executives attempted a bit more of a conciliatory approach in presenting its new, sharper, different, application to the CRTC which seeks permission to bring the two companies together under changed conditions compared to last time; but the questions from the panel of commissioners were equally as tough as the first go-around in September 2012.
(The details of the deal – already approved by the Competition Bureau, can be found here – and the company’s opening presentation unveiled nothing new, as demanded by the CRTC. So, the real story was in the day-long Q&A.)
As expected, TV market share concerns dominated CRTC chairman Jean-Pierre Blais’s opening queries Monday morning at the Hotel Gouverneur. The chair quickly noted a merged Bell Media and Astral will earn 60% of the French language specialty and pay TV service revenue so he asked Bell executives whether they thought that was too much. “Why is that a good thing?” he asked in French.
Bell and Astral executives urged the chairman to take a more nuanced view of that number, noting that pay and specialty can’t really be lumped together – and if we’re going to start adding up shares of revenue in the TV market, we should count everything, including conventional TV ad revenues, too.
Pay TV, said the Bell/Astral executives, is a far different animal than specialty channels. They are premium priced, generally the highest rung on the programming ladder and therefore often the last purchased by consumers – and because of that they face far higher churn. They are also not ad supported but 100% reliant on subscriber dollars and are only in about 25% of homes, nationally, noted John Riley, president of Astral Television. “They also tend to be handled separately than other services in a negotiation,” he added.
Besides, said Bell’s EVP of regulatory and government relations, Mirko Bibic, all those specialty channels and pay services and their resulting revenues are owned by one company right now, and they’ll still be owned by one company, albeit a different one, should the CRTC approve the deal. Chairman Blais countered by noting the likes of Super Écran, Canal D and Canal Vie will be owned by a vertically integrated Bell rather than the independent Astral and that “might cause worry.”
The Bell/Astral executives, in response, sang the praises of how large media companies can help Canadian companies compete against large, foreign over-the-top entities and that the VI companies can present more options for Canadians, have more resources to do things like multiplatform services and have more dollars to pay Canadian producers.
However, Blais (pictured in a cpac.ca screen capture) stopped Bibic to say, in French, so we heard it through the translator: “You haven’t answered my question… don’t you think 60% would be too much?”
Bibic insisted that all TV revenues should be counted for such purposes and that picking a slim silo like specialty and pay revenues makes little sense when regulating a competitive marketplace. If all TV revenues for Bell/Astral, Quebecor, including its broadcast ratings leader TVA and others are piled in, a combined Bell/Astral would have earned just 24.5% of overall TV revenues in the last broadcast year.
Such a combination would simply make Bell a very strong competitor to Quebecor in this province, noted George Cope, who said the Péladeau family-owned company, in his estimation, is “the most vertically integrated player in the country,” with its media, cable, telecom and wireless businesses so prevalent here.
ON THE ENGLISH TV SIDE, there is agreement that a combined Bell/Astral will have just over 35% total audience share, the point at which the Commission has previously stated causes “close examination” when it comes to mergers. That’s when Bell then took a more siloed explanation approach, noting that it will own fewer than one-third of Canadian specialty channels and when you look at just the Category A services, Bell/Astral would have just 28% of viewing as compared to 55% of audience share among Cat A services for Shaw and Corus – two separate companies who share the same owner (JR Shaw). So this part of the merger, noted Bell Media president Kevin Crull, “is not a cause of concern for concentration.”
Added Cope: “We really, Ian and I, do believe that the one place the Canadian consumer will win, and therefore the broadcasting system will win… is having the scale to be able to compete for some of the acquisition of the content on the movie side… It ensures that there is some scale there to compete.”
The largest, most talked about OTT provider, added Bell’s CEO, (it’s Netflix, but he didn’t say Netflix) now has a market cap four times that of Astral’s. “I think there is a benefit across the entire system,” for a company the size of a combined Bell/Astral to be able to purchase popular content but, “whether my competitors will say that at the hearing, I don’t know, but my instincts tell me they will even sleep better at night knowing that the movie assets are in the hands of BCE, trying to acquire those assets to distribute to Canadians against some of the OTT providers,” said Cope.
(Ed note: It will definitely be interesting to know whether Rogers, Telus, Quebecor, Cogeco and others will say they’ll sleep better knowing that…)
Later in the Q&A, chairman Blais began probing just what regulatory conditions Bell would accept should the Commission decide to approve the deal, but with certain additional prerequisites, such as making portions of the Vertical Integration Code of Conduct mandatory, or requiring more divestitures than Bell has already set out and is planning for. Bell has said before, as well as now, that it would accept the VI Code as a condition of license but the chairman noted it was not written to be such and is not binding. The code uses wording saying what parties should do, rather than what they must, or shall do. (something Cartt.ca analyzed back when that code was released – a code which Bell Media didn’t care for much in 2011, to the chagrin of then-CRTC chair Konrad von Finckenstein.)
Blais asked Bell what part or parts of the VI code would Bell be willing to change the “shoulds” to “shalls” and then accept them as conditions of license, should the CRTC approve the purchase of Astral. “I would have thought it would be in your interest, but you seem to be resisting, to actually provide more specific wording so that we would know, and there would be no ambiguity, whether you’re on side or off side.
“Here’s the concern I think I’m hearing from others,” Blais continued, adding that since the code is a guideline and not a mandate, “what is likely to occur is that there will be a long back and forth with smaller, independent… programming undertakings,” who are loathe to complain anyway and then if and when they do, it takes a very long time to wind through the regulatory proceedings. Then, “because of all the ambiguity,” if judgements are pursued to the end without a settlement it is costly and takes many, many months. “That is why I think people aren’t quite convince that putting the code in, writ large,” is not good enough, said Blais.
Bibic reiterated the various rules that are already in place to safeguard both sides of a dispute, including standstill provisions and that neither side is ever allowed to remove programming signals from a Canadian customer’s channel lineup. Crull also cautioned the Commission against trying to define exactly what something like “commercial reasonableness” looks like since one side’s rational business behaviour could be considered unreasonable by the other side in a dispute.
Pushing further, Blais asked, what Bell’s reaction would be if the Commission decided to take a specific section or sections of the VI Code and make them mandatory and applied them to a decision on this purchase. Would Bell accept section 1(b) of the VI Code as a mandatory stand alone condition of license, he asked? That clause says: “A programming undertaking, BDU or new media exempt undertaking should not require a party that it is contracting to accept terms or conditions for the distribution of programming on a traditional or ancillary platform that are commercially unreasonable, such as:… b. requiring minimum penetration or revenue levels that force distribution of a service on the basic tier or in a package that is inconsistent with the service’s theme or price point.”
Under the chair’s line of questioning, the “should” would become “shall”, meaning mandatory. Bibic, Cope and his team said they’d like some time to think it over and promised to respond in writing by Wednesday.
Chairman Blais said he was asking this now/again “because we’d been asking through the deficiency process for this and the answer seemed to always come back that ‘we just want this general clause’ and I appreciate this may not be your preferred position but I think we need to have some more meat, regulatorily speaking.”
There’s much more regulatory meat coming over the week, with Tuesday featuring interventions from the Public Interest Advocacy Centre, Rogers Communications, Telus and others.
