CRTC decision on BCE-CTV deal will benefit CanCon: experts
Regulator has shown some teeth but needs to do more to encourage Canadian programming, say some
When BCE made its original application to the CRTC seeking approval for its $1.3-billion takeover of CTVglobemedia, the telecommunications giant had no plans to increase its funding of Canadian content.
Under the CRTC's so-called benefits policy, in any transfer of ownership or control involving television services, the buyer must devote 10 per cent of the valuation of the sale to what the regulator calls tangible benefits — i.e. initiatives that benefit the community the company serves and the Canadian broadcasting system in general.
Where BCE funding will go
Television: $221.8 million
- Programming of national interest: $100 million
- Enhanced local news in six markets: $28.8 million
- Satellite technology upgrades: $60 million
- A-Channel stations: $30 million
Radio: $17.5 million
Canadian Broadcasting Participation Fund: $3 million
Broadcasting Accessibility Fund: $5.7 million
Total: $245 million
But in the case of BCE (Bell Canada Enterprises Inc.), the telecom giant argued that it was already assessed the tangible-benefits fee when it first bought CTV in 2000 and should not have to pay any more.
To many in the media industry, that was unacceptable, and on March 7, the Canadian Radio-television and Telecommunications Commission agreed with those critics. It valued the total CTV acquisition at around $2.45 billion and approved the takeover only on the condition that BCE invest 10 per cent of the valuation, or $245 million, in the Canadian broadcasting system over the next seven years, the term of its licence.
"Let's remember that BCE started out with a proposal of zero dollars, based upon the fact they had already owned a fraction of CTV," said Norm Bolen, president and CEO of the Canadian Media Production Association, a trade group representing production companies across the country.
"We were pushing for a higher valuation of the transaction, and the commission agreed with us. If the commission had agreed with their original stance, it would have been a huge blow to the system and the independent production sector."
New money could fund bigger-budget shows
Under the March 7 decision, $100 million of the $245 million must go to the production of Canadian drama, documentary or award show programming of national interest.
About $118.8 million must go to supporting Canadian television interests by maintaining the financially troubled A-Channel stations for at least three years, enhancing local programming and expanding the television services BCE carries on its satellite network.
Stephen Waddell, executive director of ACTRA, the union representing performers working in English-language media, says such commitments should be part of BCE's regular cost of doing business and should not take away from the funding of new Canadian productions.
The union had been expecting the telecommunications regulator to commit the full $245 million to content.
"Our concern is that of the 10 per cent, they only allocated $100 million to programs of national interest," Waddell said. "It's the genre of programming that needs the most support."
Bolen shares Waddell's concern but said the $100 million in incremental funding for Canadian programming could help local producers compete more effectively with their American counterparts.
"Some of the broadcasters will not only choose to do more programs at normal budgets but also more higher-budget shows to get better production values on screen" he said.
"Traditionally, one of the biggest hurdles to Canadian productions [has been] a lower budget. It's hard to make a $1-million show look like a $4-million show. Production values cost money; that's a fact of life."
Content regulations should go further
When BCE initially purchased CTV in 2000, the tangible benefits funds were used to produce incredibly successful programming, Waddell said.
"By way of example, they used the benefits to produce and sustain the production of Corner Gas," he said. "So, another iconic series like that could come out of this situation.
"We hope audiences will be able to enjoy some distinctive Canadian programming."
According to Ian Morrison, a spokesperson for media watchdog Friends of Canadian Broadcasting, the CRTC showed its teeth in the BCE decision, which could result in a windfall for Canadian audiences.
"As a result of the CRTC doing its job, future programs of a high quality will be the outcome," he said.
Waddell, however, thinks that while the regulator has done a commendable job, it needs to go further and start re-examining its Canadian content regulations, particularly when it comes to prime time (7 p.m. to 11 p.m.).
"Where there's a problem is on the conventional networks, where prime time is dominated entirely by U.S. programming," he said.
"We've said for the last decade that there should be a requirement for Canadian networks to program at least two hours of Canadian programming [in prime time]. Unfortunately, the CRTC has not gone far enough with their television policy."
What is vertical integration?
When one corporation owns different companies in a supply chain, it is vertically integrated. For example, an automaker might own a tire company, a parts manufacturer and a glass company, as well as the plants where the cars are built and the dealerships where they are sold.
In the media industry, vertical integration was a popular business model during the golden age of Hollywood, from the 1920s to the 1950s. At that time, five major studios controlled the production and distribution of their films since each owned a chain of movie theatres. Recently, though, media conglomerates have leaned toward horizontal integration, owning holdings across multiple platforms — broadcast, print and online, for example.
With BCE's acquisition of CTV, Shaw's purchase of Global and the purchase of Citytv by Rogers, the media industry in Canada has become more vertically integrated, although it still retains some elements of horizontal integration.
The CRTC requires that about seven of 28 hours of prime time programming per week go to Canadian content but is reluctant to demand any more than that, Morrison said.
"The CRTC's philosophy is regulation if necessary but not necessarily regulation," he said. "Any broadcaster will always find a way to get around them. What they would typically do is run more of their Canadian shows in the summertime to save peak periods for their American blockbusters."
Private Canadian broadcasters will always make more money with their simulcasts of U.S. programming, and it would be counterproductive to require them to do otherwise since some of the profit they make from U.S. content is funneled back into the pockets of Canadian producers, Bolen said.
"They're running a business, and they should be able to run it as they see fit," he said. "So, if they are given more flexibility, resulting in greater revenue, that ends up being a benefit for Canadian productions because 30 cents of every dollar of gross revenue goes into Canadian content."
30 per cent of each broadcaster's annual gross revenue must be funneled back into the production of Canadian content, as part of their new licensing agreements.
Waddell doesn't buy this argument and is concerned that the continued domination of U.S. shows will only eat up audience share for Canadian programming.
"Canadian broadcasters are not going to be able to continue to gain an audience if all they're doing is re-broadcasting American programming," he said. "They've got to put some distinctive Canadian programming into their prime time schedules."
Vertical integration is new reality
Expecting private broadcasters to put Canadian programming front and centre in their prime time lineups ignores the basic tenets of the business, says Bolen.
"You're talking about a large vertically integrated company," he said. "If you're a private broadcaster, you believe that your job, overall, is to provide return to your shareholders.
"Having all the cash and not spending it is better than spending it on something that will improve their margins on Canadian programming, which will never be a big winner. The Canadian content is a cost of doing business for them and is secondary to their primary directive."
Vertical integration (see sidebar) in Canadian media, and any subsequent regulation, is something the CRTC will address at a public hearing in June. With acquisitions like the BCE-CTV takeover and Shaw's purchase of the former Canwest television properties already approved by the commission, Waddell feels the hearing may come too late.
"They're counting the deck chairs on the Titanic," he said. "Clearly, we've got a situation in Canada where the entire system is vertically integrated. These huge corporations own everything from top to bottom."
Mobile devices the next regulatory frontier
Bolen said he hopes the CRTC doesn't focus on vertical integration per se but instead looks into its potential effects on new media.
"Vertical integration is a reality; nobody's going to stop that train," he said. "The important question to ask is, will BCE actually be allowed to take CTV assets and put them exclusively on mobile?"
In its BCE-CTV decision, the CRTC put a moratorium on any content agreements that would enable BCE to restrict the availability of its programming to its mobile network and shut out other carriers. For now, BCE must make such content available to its competitors, at least until the June hearing.
Bolen said he believes granting media companies the right to make their content exclusive to their mobile networks would be detrimental to the Canadian media landscape.
"We believe there should be no exclusive use of Canadian content," he said. "If you're a broadcaster, your content is available to every cable and satellite company, period. That content, because it's subsidized by the Canadian taxpayer, should also be available to every mobile user, no matter what provider they're with.
"Their argument is if you can get it on TV no matter what, it doesn't really matter if you can get it on mobile devices. That's going to be the big fight."
In Morrison's view, these recent decisions have radically realigned the Canadian media industry, putting the control of content square into the hands of its distributors.
"In view of that concentration of power," he said. "What kind of regulatory regime is required to protect the public?"
The upcoming hearing could very well shift the entire focus of the CRTC, he said.