March 27, 2022
Ed Rogers is almost king. Brad Shaw is almost rich. The $26 billion Rogers-Shaw merger cleared its first hurdle last week with CRTC approval of the deal’s $5 billion in broadcasting assets.
Bottom line, the CRTC doesn’t think cable subscribers will be worse off. It accepted Rogers’ argument that it is merely stepping into the shoes of Shaw’s broadcasting operations in regional markets as the second of two major cable companies.
Of less interest to the general public were the competitive issues between cable distributor Rogers and broadcasters wanting a fair shake on the programming they will sell to Canada’s dominant distributor of English language channels at 47% of the TV distribution market (Bell’s cable operation is next at 28%).
In what amounts to refereeing commercial relationships between media companies in a small national market for programming, the CRTC salved legitimate concerns about Rogers’ opportunity to abuse market power with tougher regulations and conditions of merger. Even these tighter rules may not comfort small programmers who can’t survive without Rogers carrying their channels. But it’s all Inside Baseball to the Canadian public.
The ruling predictably ran into a hale of press releases and tweets from big telco and CRTC critics deeply opposed to any merger, several of whom suggested this decision about a cable TV merger was so bad that it demonstrated the CRTC was unfit to carry out its other tasks to regulate wholesale Internet pricing, wireless competition, and any broadcasting responsibilities delegated to it by Bill C-11.
The critics aside, media mergers always generate Canadians’ cynicism about what seems to be rubber-stamping.
Perhaps it’s because no media merger has ever been refused by the CRTC or any other arm of government including the Competition Bureau. (Bell’s initial attempt to buy Astral for $3.4 billion in 2012 was denied by the CRTC but approved on a second proposal after Bell shed assets).
It’s not widely known that the fine print of the Broadcasting Act does not instruct the CRTC to preside over mergers. Nevertheless the CRTC asserts it has that authority “in the public interest” as an extension of its statutory responsibility to foster a diversity of programming.
The definition of the “public interest” under section 3 of the Broadcasting Act is an unranked list of economic and cultural objectives. On the economic side of the menu are consumer priorities of “efficiency” and “affordability” along side of the establishment of “reasonable terms” between media companies that buy and sell the programming that subscribers pay for.
And on the other side of the public interest menu are a list of cultural and linguistic programming objectives.
What you won’t find is a mandate to review mergers or guidance on how to do it.
That distinguishes the Broadcasting Act from the Competition Act which expressly authorizes the Competition Bureau to inspect mergers for market power and their potential to “substantially lessen competition.” The Competition Act has only one test of the public interest on its menu, “efficiency.”
Perhaps because of the Broadcasting Act’s broad definition of the public interest and its application to mergers, the CRTC long ago developed a “Tangible Benefits” policy which says any merger of television assets (e.g. Shaw’s Pay Per View or On Demand channels) reducing the number of media competitors must mitigate the potential harm to the diversity of programming by paying “tangible benefits” in an amount equal to 10% of the transaction price. Those dollars are then distributed by the merged company to content creators that are either non-profit (like the Canada Media Fund) or unprofitable (like independent local news stations).
A sensible cultural policy, Tangible Benefits looks a lot like the purchase price of acquiring greater market power that may affect consumer prices.
But despite reasons to be cynical, it is still good public policy to evaluate any merger on its own merits.
Recall, the CRTC only reviews broadcasting assets, meaning cable, satellite, and TV programming, but not wireless or Internet infrastructure.
The Commission bought Rogers’ argument that by stepping into Shaw’s shoes in regional markets there was no obvious change to the competitive dynamic with other cable companies and so consumers are not worse off. As a consolation prize, the Commission gave a soft order to Rogers (calling it an “expectation,” not a condition of merger) to maintain existing prices and terms of service or to improve them in the long run. The leading consumer advocate, the Public Interest Advocacy Centre, was not consoled, saying such Polyannish assurances had let subscribers down.
For competition between media companies, the Commission met the concerns expressed by small media companies that a nationally-dominant Rogers would cheat them out of a fair price for their channels by adding more teeth to good faith bargaining rules to discourage Rogers from exploiting its enlarged market power.
The Commission also increased the tangible benefits bag of goodies from Rogers’ proposed $5.5 million to $27 million. To do that, the Commission overruled Rogers’ calculation of the transaction value of the deal that excluded Shaw’s On-Demand and Pay-per-View channels which will be shut down by Shaw the day before its paying audiences are passed along to Rogers.
Did the CRTC give Rogers a pass too easily on consumer interests?
Significantly, the Competition Bureau can still review this even though it passed muster at the CRTC. However it’s worth remembering that Canadian competition law has a high tolerance for corporate concentration and makes no assumptions it hurts consumers.
At this point I expect even the deal’s critics are fatalistic about the Competition Bureau coming to the rescue. It’s unlikely the Bureau would diss the CRTC by finding against Rogers on cable TV issues.
On the telco side of the merger, Industry Minister François-Philippe Champagne has more or less forced Rogers to find a buyer to take Shaw’s wireless business, Freedom Mobile, relieving some of the public pressure to block the entire deal.
A post-script on local TV news:
A lot of attention during the CRTC merger hearings in November 2021 focused on the fall-out on local news if the deal went through.
That’s because when Rogers acquires Shaw’s cable assets it also inherits the $13 million per year CRTC earmark that enables parent-company cable revenue to be spent on local TV news. That $13 million is 10% of the Shaw-owned Global TV network’s news budget of $130 million. Global will remain outside of the transaction in the hands of the Shaw family through its control of Corus Broadcasting.
Rogers committed to spending the windfall $13 million on more journalists at its western City-TV stations in Vancouver, Calgary, Edmonton and Winnipeg. That will be a major boost to Canada’s fourth TV network, even as it beggars the number three network, Global.
The knock-on effect of this zero-sum game in local news is that Global, now a stand-alone television network of 15 stations, will immediately apply to the CRTC’s special news fund (the Independent Local News Fund, or ILNF) currently distributing $20 million per year to 16 small television stations that also are not affiliated with a major cable company. If Global can draw from the ILNF waterhole, it will run dry.
The CRTC had few tools at its disposal in a merger application to do anything about this miserable situation other than to scupper the entire deal. Sensing an ugly political situation, Rogers suggested the Commission assign a one-time payment of $1.7 million of its proposed $5.4 million tangible benefits package to the ILNF (though it didn’t spare them being skewered by MPs at the Heritage Committee in February).
The Commission instead penciled in the ILNF for a $4.3 million share of a much larger $27 million tangible benefits package and indicated it would be revisiting the ILNF and local news funding in the future.
The next chapter in this story will likely be a pitched battle behind the closed doors of the Canadian Association of Broadcasters —which the CRTC has delegated to administer the ILNF— over whether to welcome Global News to the waterhole.