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Re: CRTC Notice of Consultation CRTC 2010-783 Vertical Integration Regulatory Framework

Apr 27, 2011

Mr. Robert Morin
Secretary-General
CRTC
Ottawa, ON
K1A 0N2

Dear Mr. Morin:

  1. Friends of Canadian Broadcasting is an independent watchdog for Canadian programming on radio, television and new media supported by 150,000 persons. FRIENDS does not seek to appear at the June 20 public hearing.
  2. Under the watchful eye of your Commission, consolidation in the broadcasting industry has reached the point where four broadcasting distribution undertakings (BDUs): Bell, Quebecor, Rogers and Shaw now control all Canadian television channels other than a few small independents and the Canadian Broadcasting Corporation.
  3. We presume that the Commission considers the plus side of consolidation - the control of most television channels by well-financed entities - exceeds the negative effects of excessive concentration of ownership including reduced diversity of voices in the television system. But this calculus pre-supposes that the industry will benefit from cross-subsidization, where appropriate.
  4. As you know, cross-subsidization is a cornerstone of the Canadian broadcasting system where, for example, the sale of US programming has generated revenue to finance Canadian programming and where English-language programming on ethnic channels has cross-subsidized third-language programming.
  5. Through conditions of licence, your Commission has the authority to enforce cross-subsidization, particularly where you are aware of the profitability of other parts of the regulated business.
  6. BDU profits now exceed conventional broadcasting revenues. 'Market forces' do not apply to a 'negotiation' between parties where one side dominates the other. Only large broadcasters with 'must carry' services (either through regulatory requirement or popularity) have any hope of achieving equitable agreements with BDUs based on negotiation. As all such broadcasters are now controlled by distributors, the focus of your attention regarding undue preference or disadvantage should be directed towards protecting the interests of the small independent players.
  7. FRIENDS is concerned to read in the Notice references to "the potential to behave in an anti-competitive manner" when a review of the transcripts from the recent BDU hearing makes clear that you have heard extensive evidence from the largest to the smallest broadcasters of predatory practices on the part of BDUs. However, now it is only the smaller players that continue to exist independently of corporate BDU control. We question whether it would be in the business interest of any independent broadcaster to confront your Commission with evidence of predatory behaviour from entities that exercise effective control over their very survival.
  8. Going forward, the public interest requires that the Commission presume that undue preference and disadvantage is pervasive, and regulate accordingly. As an example of appropriate regulation, FRIENDS cites the re-distribution of a small portion of BDU profit through the Local Programming Improvement Fund, which has protected and enhanced Canadian local programming in smaller centres throughout the land.
  9. As a result of research presented to your Commission by our colleagues at the Communications, Energy and Paperworkers Union, it is clear that de-regulation of basic cable by Rogers and Shaw led to a 65% to 80% increase in rates during the first six years since de-regulation, while the CPI increased by only 15% over that period. Appropriate regulation is part of your mandate. You have all the authority you require within existing legislation.
  10. Absent effective regulation, when new packaging rules are implemented in September 2011 Canadians can expect to see even more BDU 'creativity' at the expense of smaller, independent licensees.
  11. Under the protection of the Broadcasting Act, independent producers have thrived in Canada and produced thousands of hours of programming which is now viewed not only throughout Canada, but around the world. Protecting independent owners was not contemplated two decades ago when Parliament passed the Act because in 1991 virtually the entire industry was comprised of small, independent companies. Since then, approval of successive transactions has promoted consolidation, leading step-by-step to the present vertically-integrated structure.
  12. Independent owners are now an endangered species because, without access to distribution controlled by only four decision-makers, they are denied access to well over 90% of Canadian viewers. FRIENDS encourages the Commission not only to recognize the importance of independent ownership to the health of the Canadian broadcasting system, but also to embrace the need to provide similar protections for independent owners such that they can, in fact, access viewers and receive fair compensation for the services they provide.
  13. Regarding the proposed reduction in the transparency of specialty and pay financial information, the public interest requires publication of these financials. In addition to the public interest, it is essential to maintain historically consistent information in order to measure the effect of consolidated BDU ownership on the system.
  14. Although the industry may consider the benefits test as a 'land transfer tax', from a public policy and public interest perspective, public benefits have made critical contributions to support and expand the quality and quantity of Canadian programming. The 'first' BCE CTV takeover benefits, for example, proved conclusively that a properly developed, funded and promoted Canadian series could generate audience levels that were competitive with the most popular of Hollywood fare: witness Corner Gas.
  15. There remains an inherent lack of equity when radio transactions benefits are set at 6%, television at 10% and distributors at 0%. Removing the BDU public benefit has transferred hundreds of millions of dollars away from Canadian programming and into shareholders dividends, while contributing to the present consolidation. Consider the example of Aurora Cable, which initially resisted Rogers' offers. Rogers then announced that they would over-build Aurora, which led to a change of heart on the part of the small distributor - akin to Chicago's mayor welcoming Al Capone to town.
  16. FRIENDS supports a 10% public benefit for all transactions in the broadcasting sector. We also support a smaller, affordable regulated basic service.

Yours sincerely,

Spokesperson

For information: Jim Thompson 613-567-9592