Source : National Post

Competition issues cloud bidding by Shaw, Asper clans

by Matthew Fraser

The biggest and bloodiest asset carve-up in the history of Canadian broadcasting was supposed to take place today before the federal broadcast regulator.  But the sordid spectacle has been postponed, doubtless because the players involved are worried that an unseemly display of market belligerence might not be suitable for public consumption.

For the past two years, the Asper and Shaw clans have been scrapping over the enfeebled assets of WIC Western international Communications, pulling in opposite directions.  Jim Shaw Jr. wants to seize control of WIC's dozen radio stations, roster of specialty channels, and stake in the Cancom satellite system.  Izzy Asper, who controls Winnipeg-based CanWest Global Communications, hopes to realize his dream of operation a truly national television network with the addition of WIC's nine stations.

After a bitter takeover fight, the Shaw-Asper battles over WIC ended last year in a deadlock: The Shaws controlled 49% of WIC's voting shares, and Mr. Asper had a 46% non-voting stake.  WIC's vulnerability to this predatory contest was a familiar story.  Following the death of WIC founder Frank A. Grifffiths, none of his offspring proved sufficiently talented to carry the company forward into the next generation.  So Mr. Griffiths' elderly widow decided to sell out.

The Shaws were willing to pay roughly $450-million for their chunk of WIC, while Mr. Asper agreed to a $950-million price tag for WIC's coveted television stations.  But a deal was never consummated, partly because of failed attempts to lay off a significant part of the transaction costs onto Canadian taxpayers.  Also, the Shaws and Aspers have been under pressure to come up with a deal whose optics did not offend CRTC concerns about concentration, vertical integration and self-dealing.  Indeed, if today's CRTC hearing had not been hastily postponed at the request of the warring Shaws and Aspers, the regulator would have heard a chorus of warnings about their market dominance, abusive behaviour, and anti-competitive tactics.

The Friends of Canadian Broadcasting group, for example, has publicly accused the Shaws of "intimidation" tactics toward specialty channels seeking distribution on Shaw's cable systems.  Shaw Cable, like other big cable TV groups such as Rogers, has tended to give priority carriage to channels it owns, or in which it has a stake.  Shaw's fast-tracking of Headline Sports provoked such an outcry that the CRTC eventually forced Shaw to divest the channel.  The Friends and others are now calling on the CRTC to bock Shaw from acquiring any of WIC's television channels, including a stake in the Family Channel.

Shaw anticipated this by spinning off its television channels into a separate public company, Corus, and insisting there are "Chinese walls" between Corus and Shaw's cable TV operations. Critics say, however, that creating Corus amounts to little more than cosmetic surgery.  In the final analysis, they claim, the Shaws are calling the shots and have an overwhelming incentive to self-deal and stifle competition.

Izzy Asper has a different problem.  If he acquires WIC's nine television stations, he would own three stations in the Vancouver market (BCTV, CHEK and Global), two stations in the Toronto market (Global and ONTv), and two stations in the Montreal market (Global and CFCF).  That violates the CRTC's longstanding one-station-per-market rule (which the regulator actually disregarded itself when it allowed WIC to own two stations in the Victoria-Vancouver market).  Mr. Asper's Global TV would also find itself in the somewhat bizarre situation of owning affiliates of its arch-rival, CTV.

Mr. Asper is under pressure to divest assets in markets where he would control more than one TV station.  Ivan Fecan, CEO of CTV, will happily take BCTV, which is by far the biggest force in B.C. television.  CTV would also be interested in its Montreal affiliate, CFCF.  The Toronto-based CHUM Group, which owns Citytv, is keen to own a TV station in Vancouver. So is Manitoba's Craig family, which until now has been a regional broadcaster.  The Craigs would also like to acquire ONTv in Hamilton, Ont. to siphon advertising revenue from the lucrative Toronto market.

One obstacle to potential purchases is price.  CTV and CHUM do not wish to pay inflated prices for WIC's Asper-owned stations.  CHUM, well known for its successful combination of creativity and parsimony, would rather spend $25-million to launch a new station in Vancouver.  The biggest obstacle, however, is Izzy Asper.  He will oppose forced divestiture in B.C. and Ontario.  Mr. Asper will point out, correctly, that CHUM itself already owns two stations (Citytv and Barrie's VR) that reach the Toronto market.  Moreover, U.S. regulators have deregulated ownership of television stations south of the border, and the CRTC should do the same.

What should the CRTC do to sort out this mess?  The regulator should let market forces play out as much as possible and limit its role to ensuring pluralism, encouraging competition and policing anti-competitive behaviour.  The solution: Encourage the entry of new players such as CHUM and the Craigs in B.C. and Ontario to promote competition.  Allow CTV to buy back its own affiliates.  And force Shaw to divest WIC's specialty channels and keep its radio stations.

© The National Post