CTVglobemedia-CHUM Transaction. Opening Remarks. Broadcasting Notice of Public Hearing CRTC

Transcription

1 CTVglobemedia-CHUM Transaction Opening Remarks Broadcasting Notice of Public Hearing CRTC May 1, 2007

2 Introduction Good morning/afternoon Mr. Chair, Commissioners and CRTC staff. My name is Richard Stursberg, I am the Executive Vice-President of CBC Television. To my right is Kirstine Layfield, Executive Director, Network Programming. To my left is Dave Scapillati, General Manager, Sales and Marketing and to his left, Bev Kirshenblatt, Senior Director, Regulatory Affairs. In opposing this transaction, we have addressed a number of issues in our written intervention. Today I would like to focus on three key questions: 1) Why is this particular application before you today? 2) Is this proposed transaction in the public interest? 3) If there are problems and we believe there are can the transaction be salvaged? 2

3 1. Why are we here today? Let s start at the beginning. This application is the result of a decision by the Waters family to sell their interest in CHUM after the death of CHUM s founder, Allan Waters. Contrary to the suggestions of CTVgm, CHUM was not a struggling company that needed to be rescued, a company that was financially distressed in any way. The opposite is true. CHUM was a very successful broadcasting company that was growing on all fronts. The 50 per cent premium that CTVgm paid for the CHUM shares is a clear testament to the success of CHUM and the value of the CHUM assets. By way of confirmation of this valuation, Astral was outbid by only five per cent. The Waters family sold CHUM because they wanted to leave the broadcasting business; not because they had to save the company from insolvency. Is that a sufficient reason to approve this transaction? Clearly not. The Commission has an obligation under the Broadcasting Act to assess whether the transaction is in the public interest and fulfils the policy objectives of the Act which brings me to our second question. 2. Is this transaction in the public interest? As we identified in our written submission, this application raises numerous concerns. In our oral remarks, we would like to focus on what we consider to be the most important of these points the effect this transaction would have on competition. 3

4 Tilting the playing field CTVgm has tried to argue that this transaction will level the playing field between itself and CanWest. This is simply not the case. CTVgm is already the largest and most successful English-language television broadcaster in Canada. It is not playing catch up with anyone. CTVgm wants to own two local operations in the five most important English-language markets Toronto, Vancouver, Calgary, Edmonton, and Winnipeg. In their written interventions, CBC/Radio-Canada, CanWest and others have shown that the existing CanWest situation is totally different from what CTVgm is proposing for itself. CanWest does not own two stations in any local market as defined by the CRTC. There is no structural imbalance that needs to remedied. And, while CTVgm has argued that the common ownership policy is no longer relevant in a world of increasing programming choices the Commission has clearly indicated that it will not review its current policy in this proceeding. Based on the facts before us, there is no justification for an exception to the Commission s common ownership policy. But that is only the beginning of the story. If this transaction were approved, CTVglobemedia would capture 50 per cent of all television advertising revenue in the English market conventional and specialty. This would be a remarkable outcome. The largest English-language television broadcaster would become even larger and enjoy unprecedented market power. 4

5 This level of market power would exceed all traditional measures of acceptable industry concentration well above the Competition Bureau s market share threshold of 35 per cent. If this transaction were permitted, only two major private broadcasters would remain together controlling 75 per cent of all advertising revenues. In the United States, the US Department of Justice and the Federal Trade Commission use the Herfindahl index to measure concentration. Any measure above 1800 is regarded as highly concentrated. In the case of this transaction, after the merger, the industry would be close to Most economists would certainly regard this as an unacceptable level of concentration. The effect on other broadcasters would be significant and negative in two ways. First, this level of market power would allow CTV-CHUM to obtain prices for its advertising inventory that would be higher than a fully competitive environment would permit. The ability to extract those premiums would inevitably come at the expense of smaller players, most notably CBC/Radio-Canada, the only broadcaster that shows Canadian programming in real prime time. We ve put some data together for you in your reference materials. This chart which relies on the CRTC s own financial data from 2005 shows how CTV would be able to use its market power to maximise its revenues, and the possible consequences for smaller players. Put simply, it would be able to do two things: First, it would be able to raise the price for its existing high-value properties, most notably, its successful US shows. This would reduce the money available to others, since the conventional advertising market is flat and may shrink in the future. 5

6 Second, it would be able to bundle the relatively lower value CHUM inventory the inventory CBC/Radio-Canada competes against with its high-value US shows to deny us selling opportunities. As a result, CTV/CHUM s programs would become must-buys for advertisers. Advertisers would be obliged to redirect spending away from CBC/Radio-Canada. And with more revenue going to CTV/CHUM, we would be unable to dedicate the same resources to the production of Canadian programs. We can return later to the chart itself, if you would like to. It is worth noting that we are not alone in thinking this would happen. The Association of Canadian Advertisers is equally concerned. The ACA states that approving the CTVgm application would give CTVgm an undue competitive advantage. If the advertisers are worried, I think we also have a right to be. The new CTVgm would also be able to use its dominant position and enhanced revenues to outbid others in the programming market. From CBC/Radio-Canada s perspective, this is especially troubling in the context of Canadian programming and CTVgm s proposal to keep all the tangible television benefits to itself. With the enhanced advertising revenues available to it, as well as control of millions of dollars of benefits money, CTVgm would be in a position both to outbid CBC/Radio- Canada for new Canadian programs, as well as tie up independent producers formally or informally with first look deals for CTVgm s sole benefit. 6

7 I would like to take a moment to focus on this issue of self-directed benefits in the context of the present transaction. The very purpose of the public benefits mechanism is to ensure that the deal also benefits the public, since the license being sold actually belongs to the public. It is completely incompatible with the purpose of public benefits to assign them to the parties involved in the transaction. To do so, turns them from public into private benefits. The only proper approach to benefits in a situation such as this, is to require the benefits to be assigned in a way that benefits the broadcasting system as a whole, not just CTV and CHUM. In our view, the best mechanism for this is the Canadian Television Fund. CTV argues that the Commission should adopt the same approach to their benefits as it did in It notes that the arrangement worked well because it allowed producers one-stop shopping. Rather than running around trying to organise their financing, producers were able to focus on the creative work associated with making television shows. That was probably a good argument in But now all broadcasters can offer onestop shopping, because the Canadian Television Fund has adopted an envelope based approach to allocating its resources. The envelope system works pretty much the same way that CTV would like to use the benefits, itself. This means that putting the money directly into the Canadian Television Fund could also achieve the one-stop shopping objective. We recognise that the Competition Bureau looked at this transaction. They issued subpoenas to many companies to gather information on the impact of the proposed 7

8 transaction on the advertising markets. Then, before all the evidence was received, they halted the process. In this sense, it appears that the Bureau neither approved nor disapproved the transaction. In any event, the CRTC s mandate is more fundamental and far broader than that of the Competition Bureau, and therefore its examination of this transaction is far more important. We do not think that the Commission should give any weight to the fact that the Competition Bureau chose not to take steps to further investigate and possibly block the CTVgm acquisition of CHUM. The Commission is charged with ensuring that Canada has a diverse, vibrant and robust broadcasting industry which is capable of achieving the goals set out in the Broadcasting Act. In our view, it is clearly contrary to those goals and against the overarching public interest to permit the creation of a mega-broadcaster a company that would be able to dominate the English television market, squeezing both advertisers and other broadcasters. 3. Can this transaction be salvaged? And, that brings me to our final question. Given the clear problems with this application, it is natural to ask is there a way to fix it? CTVgm says yes safeguards. 8

9 In our view, this makes no sense. There are no policy reasons for approving this transaction. The CTVgm acquisition of CHUM would not solve any problems it would only create them. Why would the Commission want to create a behemoth only to then forge a set of chains to make sure it does not wreak havoc on the broadcasting system? Why create an unnecessary regulatory burden for the Commission and others? Why create problems of administration, monitoring and enforcement? Why do this when it is totally unnecessary? CTVgm does not need to buy CHUM. CTVgm is doing very well already. And, CHUM does not need to be bought by CTVgm. There are lots of other Canadian media companies who would be interested in the CHUM assets. And that brings me back to the beginning of our presentation. Why are we here today? Because the Waters family wanted to sell CHUM and CTVgm outbid Astral for the assets. That is not a good reason to approve this transaction. This transaction is against the public interest. It should not be approved. Thank you for giving us the opportunity to present these comments. We would be happy to answer any questions you might have. 9