Resource Centre Policy Briefs

Submission to the Competition Policy Review Panel

January 11, 2008

Friends of Canadian Broadcasting is a watchdog for Canadian content in the audio-visual system, supported by 100,000 Canadians. Friends is non-partisan and is not affiliated with any broadcaster.

We recognize that your Panel's primary mandate is to ensure that government policies and initiatives are conducive to ensuring that Canadian companies remain competitive within the global economy, and that Canada itself remains competitive in attracting foreign investment and consequent employment opportunities. A productive economy is the basis for the quality of life of Canadians, including Canada's distinct identity and cultural sovereignty.

Sharpening Canada's Competitive Edge notes that 'given Canada's relatively small, diverse market and given that its cultural businesses are small in comparison with their global competitors, successive Canadian governments have based public policy in this area on the premise that market forces alone are insufficient to ensure the availability of a suitable range of Canadian cultural products".

The purpose of this submission is to provide the Panel with some evidence in support of the current policy rationale for the above statement.

It is fundamentally important that Canadian public policy ensure that Canadian cultural sovereignty is not adversely affected by trade and investment decisions by design or inadvertence. The present foreign ownership rules in the Broadcasting Act provide generous opportunities for Canadian broadcasters and broadcast distributors to develop equity relationships with foreign partners. In the specialty television sector, for example, many of these now exist.

Non-Canadians may own up to 20% of a broadcaster directly and up to 33.3% of a holding company that owns a broadcaster, thus allowing combined direct and indirect ownership by non-Canadians at a level up to 46.7%.

It is important to take note that the policies of successive Canadian governments have enabled an audio-visual system where market forces, combined with appropriate regulation, now permit Canadian viewers and listeners to enjoy greater choice than is currently available to Americans. As well, Canadians have access to time-shifting of both Canadian and US channels, which is not available in the American market. Many Canadian cable and satellite subscribers have access to multiple same time zone options which also do not exist in the United States. All of these are positive achievements of public policy and are important to preserve. They result from regulation which facilitates the functioning of Canadian markets.

In the Canadian broadcasting environment, the term 'market forces" is analogous to the Darwinian notion of letting the strongest survive – in this case the survivors being those programming groups that have the services that cable and satellite distributors want or the leverage to ensure carriage of their full line-up of channels. Public policy is there to ensure that there is room for smaller players with more modest market power, and who make a substantial contribution to diversity in the broadcasting system.

It is also important to note that the vast majority of programming offered by American satellite channels which are not legally available in Canada is in fact available to Canadian audiences through Canadian channels which have bought the Canadian rights. This explains the historic reluctance of the CRTC to allow certain foreign channels to enter the Canadian market when their entry would result in no increase in diversity of programming while at the same time reducing the pool of revenue-producing programming available to Canadian broadcasters.

The net result of the CRTC's policies has been a significant and well-documented increase in the amount of domestic competition based on licensing, as well as a significant increase in non-regulated competition. This latter is likely to increase as a result of projected technological change.

We note as well that certain US services are included as part of the current cable and satellite offering in Canada without an obligation to make any contribution whatsoever to the Canadian broadcasting system through the Canadian Television Fund or other mechanisms.¹ Friends has pointed out on numerous occasions thatmany US services were originally permitted in Canada because the cable monopolies petitioned the CRTC to be allowed to carry these services as necessary ‘drivers' to help launch specialty television in Canada. It is for this historic reason that many US services were simply added to the list of satellite services eligible for carriage in Canada with nothing required nor expected of them in return. As specialty television has grown in Canada, this ‘grandfathered' status has evolved to the continuing advantage for all of these US services.

The CRTC had the opportunity to re-visit the issue of contribution from US services with the migration from analog to digital technology, but chose not to do so. However, the US channels have not hesitated to play the ‘trade' card when it suited their interests.²

It is fundamentally important that Canadian broadcasters and specialty channels not be put into a position where they can no longer compete because foreign services are provided preferential treatment in whatever form.

With regard to cable and satellite broadcasting distribution, it is important to note that real competition is limited in Canada. While in many Canadian households there is a choice among cable, DTH and MMDS-type services, this choice is effectively available only to consumers with relatively deep pockets, those not living in most multiple unit dwellings, or those whose abode faces southward. For Canadians of modest means, including the majority of senior citizens, cable is the only economic option, and there is no choice of provider. ³

Real competition in cable delivery might arise if Time Warner or Comcast were allowed into Canada, but the protection from foreign competition which Canadian distributors enjoy appears to us a worthwhile trade-off for regulations which have the effect of ensuring shelf space for Canadian programming in the English-language audio-visual system.

Outside of must-carry services, cable and satellite distributors control access, packaging, marketing, and rates. Even with existing access rules, the CRTC has heard many allegations of abusive ‘negotiation' tactics used by cable and satellite distributors, especially with respect to smaller companies that have absolutely no negotiating leverage.

The current access rules ensure that those services which have met the test of the CRTC's licensing process receive access in accordance with their business plan. Friends strongly supports maintaining these access rules for all services. However, if such access rules were to be changed in future, we have recommended creating a separate set of rules for independently-owned specialty services so that they too can participate in the system. ⁴

We also wish to provide the Panel with commentary on political and public opinion dimensions of the cultural sovereignty debate, as follows:

In 2003, when the House of Commons Standing Committee on Canadian Heritage issued its famous 'Our Cultural Sovereignty" report under the leadership of Clifford Lincoln, it recommended that 'the existing foreign ownership limits for broadcasting and telecommunications be maintained at current levels". ⁵

The then Canadian Alliance Party, whose leader is now the Prime Minister, issued the following dissenting opinion: 'The Canadian Alliance disagrees with (this recommendation). The Canadian Alliance supports relaxing foreign ownership rules on Canadian industry, including telecommunications and broadcast distribution. We suggest conducting an immediate review to determine whether to reduce or completely remove these rules". Those same words found their way into a briefing note circulated by the new Conservative Party of Canada to their 308 candidates during the 2004 election campaign.

Since its election in 2006, the Conservative government has been largely silent on this topic, although former Industry Minister Maxime Bernier spoke publicly about relaxing the rules. In late November, the current Heritage Minister, Josée Verner told the House of Commons Standing Committee on Canadian Heritage: 'Our government has no intention of changing anything with respect to foreign ownership. I can assure you of that."

However, government spokespersons have recently indicated publicly that the issue of foreign ownership lies within your Panel's mandate.

We believe that the push for allowing foreign ownership of broadcasting comes mainly from four family-controlled cable monopolies: Vidéotron, Cogeco, Rogers and Shaw. Why are they pushing so hard? Within Canada, there are not many potential buyers for their controlling positions. Opening up broadcasting to foreign control would vastly increase the number of potential bidders for their controlling shares. This would drive up the value of their shares. So, if the Canadian government were to raise foreign ownership levels, it ultimately would mean a major payday for those families.

Here is what Gordon Pitts, a Globe and Mail reporter and author of 'Kings of Convergence" has written about the Shaws:

'Industry speculation is that if the rules are changed to allow higher foreign ownership of cable companies, an opportunistic US player, perhaps John Malone, would take a much bigger stake in Shaw Communications, and possibly buy out the Shaws entirely. That suspicion is reinforced by the sense that JR, Jim and Heather Shaw are above all pragmatists. They love the business, but they aren't married to it. In the long run, the Shaws will likely be sellers, and they will do very well for themselves."

The point is that one effect of the relaxation of foreign ownership rules in this regulated industry would be to put billions of dollars into the pockets of the members of four families – at the stroke of Her Excellency's pen.

As a contribution to your Panel, and in collaboration with ACTRA and the Communication, Energy & Paperworkers Union (CEP), Friends commissioned a public opinion poll from Harris/Decima in order to bring to the table the views of Canadians on the issue of foreign ownership and control of media and communications in Canada. The message from this poll is straightforward:

82% of Canadians think it is important for the Canadian government to work to maintain and build a culture and identity distinct from the United States.
61% of Canadians are opposed to foreign control of telephone, cable and media companies.

Details of this Harris/Decima poll are appended to this submission.

We wish the Panel great success in its important work and we urge the Panel to recommend that foreign ownership laws for Canadian media and communication companies be retained.

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For information: Jim Thompson 613-567-9592

¹A&E might be an exception, but only as a result of what they have done voluntarily, not as a result of regulatory requirements.

²An example is Country Music Television (CMT).

³As outlined in the CRTC's 2007 Monitoring report, in 2006 cable reached almost 74% of Canadian homes served by a BDU. Of this number, the top four cable companies: Rogers, Shaw, Vidéotron and Cogeco, with a combined 6,895,000 homes represented almost 94% of total cable homes, and 69% of all homes. Total DTH reaches only 26% of BDU homes and 19% of all homes.

⁴Friends suggests that an independent service could be defined as one that is not controlled by a BDU or a national broadcast group.

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