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Remarks by Ian Morrison at Parliament Hill Seminar on Foreign Ownership

Jan 15, 2004

Thanks to our hosts, the Communications, Energy & Paperworkers union, for organizing this event and for inviting me to speak on foreign ownership of Canadian communications.

I follow this issue for Friends of Canadian Broadcasting. Our mission, as you may know, is to defend and enhance the quality and quantity of Canadian programming in the English language audio-visual system. Sometimes we’re called a “lobby”, but we don’t qualify for that description under the definition within the Lobbyist Registration Act. We describe ourselves as a “watchdog” group, sometimes even a “scarecrow”.

We continually monitor all parts of the system, in particular the private-sector broadcasters, both over-the-air broadcasters, such as CTV and Global, and the newer satellite and cable-delivered specialty channels such as Showcase, Bravo or Discovery. We also keep an eye on the cable monopolies, or former monopolies, as some would say. When we aren’t doing that, we’re watching the performance of the public broadcasters, the CRTC and the federal government. We function like one of those radar antennas that you see scanning the horizon at airports. Our horizon is the audio-visual system.

You’ll note that I did not include telephone companies in the above list, even though some see convergence drawing them towards the audio-visual system.

The hot button for much of the current pressure to open up foreign investment rules comes from the cable owners as a result of their competition with the telcos in broadband Internet delivery. If telcos are opened up to foreign investment, so the argument goes, so should the cable companies, because they compete with the telcos in high speed web delivery.

I know from sources I trust on this Hill, including members of the current Cabinet, that there is currently a very strong lobby – I’m using that word carefully here – by the four cable billionaires to open the rules for foreign control of the cable industry. Make no mistake, as a certain Prime Minister would say, that’s where the push is coming from, not from BCE, or Telus, or even some of the new telecom entrants, certainly not from SaskTel.

Listen, for example, to the testimony of William Linton, CEO of CallNet Enterprises, a non-incumbent telecom company, before the Commons Industry Committee last year:

“The fact is it is not access to capital that is holding back competition in Canadian telecom. It’s the lack of opportunities to earn a return on investment…. More foreign capital won’t get competition moving. It won’t level the playing field. It won’t reduce the inflated rates that we pay to the incumbents for access to their networks that they inherited from a 100-year monopoly.”

The Broadcasting Act states that "the Canadian Broadcasting system shall be effectively owned and controlled by Canadians." Our system consists not just of broadcasters, but also broadcasting distribution undertakings, such as Rogers, Shaw, Vidéotron and Cogeco. Since 1991, when Parliament passed the current Broadcasting Act, restrictions on foreign ownership have already been watered down in response to arguments by broadcasters and cable monopolies that they should enjoy a level playing field with telcos.

Last year, following upon former Industry Minister Rock's expressed wish to open up foreign investment in the communications sector, we saw the second act of this drama unfolding. All of us who care about a distinct country on the northern half of the continent, should not suspend our disbelief.

As you know, the large cable owners are both broadcasters and distributors. However, content and delivery are very different industries. On the content side, these businesses are not capital intensive. Indeed their equipment costs have declined markedly in recent years owing to technological enhancements. Their big costs are operating costs – making and buying programs.

According to CRTC data, between them, Rogers, Cogeco, Shaw and Vidéotron control access to 87% of Canada's  basic cable subscribers. [1] Unlike most industries actively lobbying on Parliament Hill, each of these big cable companies began and remains family controlled.

The essence of their original business model developed as a result of Parliament's determination that foreign – that is American television broadcasters – should not be allowed to own and operate transmitters in this country. Cable's business niche, under territorial monopoly licences from the federal government, has been to bring high quality American signals into Canadian homes. Even today, cable's only legal competition comes from two Canadian-owned satellite distributors, one of them controlled by Shaw, and a handful of small wireless cable systems. In the co-axial cable video delivery business, they remain territorial monopolies.

The larger cable companies do a pretty good job on the technical side, but when it comes to public trust and Canadian identity, the general public gives them low marks. In 1993, 1995 and 2001, Compas Inc., which was Friends' pollster – until CanWest forced them to choose between us – posed the following question to Canadians:

"I am going to read you the names of several groups. Please tell me how much confidence you personally have in each group to protect Canadian culture and identity on television. You can do this by giving me a rating on a 7 point scale, where 7 means you have a very high level of trust or confidence and 1, the opposite."

Compas reported the results by summing the percentage of respondents who gave each group a 5, 6 or 7 rating, in other words, a high rating. The results varied little over the eight year period. The CBC topped this trust rating at 70% in 2001; CTV was 65%, the CRTC 60%, Global 55%, the federal government 47% and cable and telephone companies only 37%. Encouraging news for cable in this is that its score rose from a low of 29% in 1995.

It's as if the public had heard American cable magnate Leo Hindery Jr.'s keynote speech to the Canadian Cable Television Association's Vancouver Convention in April 2002. I quote:

"You and your associates have been joined at the hip with the U.S. cable industry for so long that we are like Siamese twins with a common purpose." [2]

In the last few yearss, as you know, these big cable companies have entered a new business, delivering high-speed Internet access to the households they serve.

Over the past year, behind closed doors and before two Commons Committees, they have argued that their Canadian ownership requirements should mirror those of the telcos. They argue that allowing more foreign investment in Canadian cable will close the gap between the market's valuation of a Canadian cable subscriber and that of an American subscriber.

A few comments.

First, why do we need to close the gap? How will that benefit the average Canadian? It’s widely known that American cable companies have huge public relations problems and typically cost about 50% more than Canadian cable for the same range of services.

How do <?xml:namespace prefix = st1 />Bay Street financial analysts view the cable industry? The market's evaluation is "below investment grade". Why? The reasons include excess debt, some of it acquired through highly-ambitious, over-priced acquisitions. Québecor recently acquired Vidéotron for $5.6 billion dollars. Even Ted Rogers wouldn't, or couldn’t, match that price.

Rogers chose to buy the Toronto Blue Jays – talking of synergies with SportsNet. Unfortunately, until recently the Blue Jays lost $50 million each year. Now that’s only $25 million , owing to the decline of the value of the US dollar. And of course, both Rogers and Shaw have each seen major investments in the Internet go sour.

If Parliament were to accede to the cable industry's demands and permit foreign takeovers, perhaps the valuation of Canadian subscribers would indeed rise. Borrowing capacity might increase. But how does that benefit Canadians? Not at all.

But it does benefit those who control the companies. Remember that the controlling shareholders are members of just four families: the Audets, the Peladeaus, the Rogers and the Shaws.

Here’s how they benefit. There aren't that many potential buyers in Canada. A change in foreign ownership restrictions means that there will be more potential bidders for their shares. That drives up share values. If you raise foreign ownership levels, it ultimately will mean a major payday for those families. It's just that simple.

I'm not saying there's something inherently wrong with that. But let's acknowledge what this is really all about. It certainly isn't about doing anything to benefit most Canadians.

Here's what Gordon Pitts, a reporter with the Globe and Mail’s Report on Business and author Kings of Convergence wrote about Ted Rogers' failed $5.4 billion takeover bid for Vidéotron:

“Industry watchers suggest that… Rogers simply wanted to bulk up on (Vidéotron's) cable assets. Some suggest that when foreign ownership rules are relaxed, it could offer any buyer a huge volume of subscribers in a concentrated area. The possibility of foreign ownership is always a factor in the cable guys' estate planning, and Ted Rogers is not entirely immune to it." [3]

Pitts offers a parallel comment on the Shaws:

“Industry speculation is that if the rules are changed to allow higher foreign ownership of cable companies, an opportunistic U.S. 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." [4]

The point is that one effect of a 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.

Those of us who try to discern the priorities of the Martin government have little to go on other than a certain speech at the Air Canada Centre and gleanings from various scrums. On this issue, however, I noted an ominous report in the November 14th issue of the Globe and Mail in a piece by Gloria Galloway, who was covering the Liberal Leadership Convention:

“The concentration of the ownership of Canadian news media should be addressed. Mr. Martin said the government has a role to play in the content of media and ensuring that Canadian stories are told by Canadian voices. But he would agree with deregulating distribution, a policy that could open the door to increased foreign ownership.”

As Linda McQuaig wrote in a remarkable column in the January 11th issue of The Toronto Star – I’m going to quote extensively from it:

“Martin… appointed Francis Fox as his principal secretary. Until recently, Fox was an executive for Rogers AT&T, part of the empire of billionaire Ted Rogers…. While working for Rogers, Fox lobbied the government for an end to the foreign ownership restrictions.

“Presumably, Fox won't forget all his ideas on the subject, just because he's now working closely on a daily basis with the Prime Minister.

“With Fox in Martin's inner office and Copps gone from cabinet, the cable guys might soon find their estate planning much more enjoyable.

“If the cable guys get their way, the rest of the broadcasting industry will surely demand seats on the gravy train, too.

“In a speech last November, Leonard Asper, CEO of CanWest Global, which owns Global-TV, said that while he favoured the foreign ownership option, he was "bitterly opposed to opening it up for cable, satellite and telecom without opening it up for broadcasting."

“So, if Martin starts tampering with foreign ownership restrictions, it could be just a short hop-step-and-a-jump to Fox and AOL-Time-Warner buying up our TV networks as well as our cable companies.

“With Canada's close location and cultural similarity, our broadcasting industry would be uniquely suitable for integration into the U.S. media conglomerates.

“Rather than opening this door a bit and encouraging a rush to foreign ownership throughout the media, why not just keep the door closed?

“Even the U.S. has rules against foreign ownership in its broadcasting industry; a rich Saudi businessman can't simply buy up Fox News. The Americans understand the problem.

“So do some Canadian businesspeople.

“Michael MacMillan, CEO of movie distributor Alliance Atlantis Communications, argues that broadcasting "is not a commodity; it's a cultural influence ... Ownership has a great deal of influence, I believe, over what is produced and why."

“And William Linton, CEO of telecommunications firm Call-Net Enterprises, argues that it matters if the decisions are made in "New York boardrooms where the Canadian region will be just another shaded area on the map, waiting on the whims of executives with a dozen other regions to consider.

"I believe these decisions are much too important to our survival to be left to another country."

“That was a businessman talking. Imagine if our Prime Minister had that kind of commitment to the national culture.”

Today’s poll released by our hosts, the Communication, Energy & Paperworkers union – which is Canada’s largest media union – confirms our own polling and that of Decima Research last year. By a wide margin, Canadians oppose allowing control of our communications systems to fall into foreign hands.

I’d like to conclude by nailing down why, specifically, it matters to Canada’s audio-visual system for the cable and satellite delivery systems to remain in Canadian hands. Instead of explaining this in my own words, I’d like to quote from a joint presentation by the CEOs of Alliance Atlantis Communications, Astral Media and CHUM to the House of Commons Industry Committee on February 12th, 2003:

“Broadcast Distribution Undertakings (BDUs) are not really the analog of “common carriers”…. There is an established legal concept that says that a common carrier cannot control the content or influence the meaning of the content of what is being carried. 

“But, when a broadcast distributor offers television programming to its subscribers, it does something very different.  Unlike a phone company, the BDU does have an active role in “controlling or influencing” the content it offers: it makes critical decisions about which services to market, promote and package as well as the appropriate level of resources that should be devoted to such marketing and promotion. It also negotiates vital wholesale prices and sets program packages, sets retail prices and program promotion channels.  So BDUs make “programming decisions” every day: they play a fundamental role in the success or failure of Canadian programming services….

“If integrated foreign media companies were to gain control of a Canadian BDU, and remember, we’re talking about strategic operating control, it would surely, and quite understandably, be driven by a different set of concerns. Such companies are not just cable companies or Internet portals.  They are generally dominant distributors of a large volume of television and film programming. They would have a natural incentive to promote their own content, whether on non-Canadian services currently available to Canadian BDU subscribers or on programs that their other arms already sell to Canadian broadcasters. They have the means and the leverage to prefer their own properties.”

Let’s use the coming months to ensure that our government gets this message – loud and clear.

–   30   –

For information: Jim Thompson (613) 567-9592



[1] Broadcasting Policy Monitoring Report 2002, page 94 at www.crtc.gc.ca.

[2] Mr. Hindery Jr. is Chariman and CEO of YES Networks, a major regional sports network, and formerly CEO of InterMedia, TCI and AT&T Broadband, April 15th, 2002, on www.ccta.ca.

[3] Pitts, Gordon. Kings of Convergence: the Fight for Control of Canada's Media. Doubleday. Toronto. 2002, page 166.

[4] Ibid., page 285.