April 5, 2007 Ms. Diane Rhéaume Secretary General CRTC Ottawa, ON K1A 0N2 Dear Ms. Rhéaume: Re: CTVglobemedia Inc. Application # 2006-1667-5: Acquisition of all common shares of CHUM Executive Summary Unconditional approval of this application would create a dominant player in English language Canadian television and nullify the Commission s common ownership policy. In exchange for approving CTVgm s acquisition of CHUM s radio and specialty television assets, CTVgm should be required to divest the five CHUM/City stations and to retain CHUM s six A-Channel stations, which otherwise would lose the fiscal capacity to maintain an attractive schedule and viable local programming. 1. is an independent watchdog for Canadian programming on radio and television, supported by 100,000 Canadians. FRIENDS opposes the application in its present form, and proposes modifications that we respectfully suggest the Commission should require prior to approving the transaction, as outlined in the following submission.
CRTC PN 2007-3: application 2006-1667-5, page 2 2. CTVglobemedia Inc. ( CTVgm ) now controls 60% of the top 25 programs on English language television in Canada in the 25-54 demographic, and 56% in the 18-49 demographic. 1 Upon approval of the proposed transaction, CTVgm would control almost 40% of Canadian specialty revenues. Thus, the proposed entity would exercise a dominant position in the market, a matter of concern to advertisers, competitors and viewers alike. 2 3. The applicant proposes to retain CHUM Radio, most of CHUM s specialty channels, and CHUM s City stations in Toronto, Winnipeg, Calgary, Edmonton and Vancouver, while divesting CHUM s A-Channel stations in Ottawa, Barrie, Wingham, London, Windsor and Victoria, as well as Access Alberta, the Canadian Learning Channel and SexTV. 4. FRIENDS has no objection to CTVgm s acquisition of CHUM s radio assets. 5. CHUM s 21 specialty properties include 10 analog and 11 digital channels. As noted above, common ownership of these channels with CTVgm s existing specialty channels will result in one entity controlling just under 40% of total Canadian specialty revenues. In the English language music category, CTVgm would have a near monopoly; only Stornoway s BPM would remain outside CTVgm s control. 6. This consolidation would give CTVgm unprecedented clout in negotiations with Broadcast Distribution Undertakings (BDUs). Such clout may be expected to affect negatively the interests of smaller specialty operators who lack the leverage to fight back on critical matters such as fees for carriage. Approval of this part of the proposed transaction would confer a huge business advantage to CTVgm, to the disadvantage of other players in the broadcasting system. 7. Unlike the Commission, FRIENDS and other intervenors do not have access to component data on CHUM s returns on equity for 1 During the period August 28, 2006 to February 25, 2007 (Nielsen Media Research) 2 FRIENDS understands that the Competition Bureau issued court orders containing 12 pages of detailed questions to about 35 advertising agencies and broadcasting competitors of CTVgm in February 2007, and subsequently withdrew these court orders on the eve of its decision, inexplicably concluding that the proposed merger would not prevent or lessen competition substantially.
CRTC PN 2007-3: application 2006-1667-5, page 3 individual properties. It is our understanding that previous media consolidations have limited the options for mid-sized players such as CHUM, because they are more affected by audience fragmentation than larger players. However, despite its horsepower disadvantage, CHUM/City s prime time schedule has been evolving in recent years from a reliance on movies to a greater mix of prime-time US shows which appeal to City s younger demographic. 3 8. CTVgm argues that it has suffered from a structural imbalance with CanWest Global inasmuch as CanWest has been permitted to operate two stations in three 4 major markets while CTV has had only one station. However, there is a significant difference between owning a second station which is carried in a major market, and owning a second station that is licensed to that market. 5 9. To equalize the imbalance, CTVgm alleges that it would be fair that they should be allowed to own and operate CHUM/City stations in Toronto, Winnipeg, 6 Calgary, Edmonton and Vancouver. However, it is reasonable to conclude that CTVgm knows full well that their proposal to keep the City stations is contrary to the common ownership policy, and that acceptance of 3 CHUM/City s attraction to movies has declined in part as a result of a compression in viewing windows between theatre and DVD. As well, the advent of daily ratings has demonstrated to advertisers that the average movie was drawing much smaller audiences than City s blockbusters during the sweeps. America s Top Model was a big hit last year for City, and this season shows such as Ugly Betty and Men in Trees have done very well. 4 CanWest Global operates CIII and CHCH in Ontario, BCTV and CHEK in British Columbia and CHCA-TV in Red Deer carried by cable in Calgary and Edmonton (and has asked for re-broadcasting licences in both cities). In its approval of the acquisition of WIC Television Ltd. by CanWest (Decision CRTC 2000-221), the Commission accepted arguments that the ownership of stations in adjacent larger and smaller markets would help guarantee service in the smaller market, and extracted stronger local commitments in the smaller market in return. Editorial and ownership concerns were of less importance owing to the greater number of stations in the larger markets. In addition, the Commission was concerned that stations in the smaller local market would end up in the hands of smaller, and less-strongly financed players who could not maintain the same level of local service as the proposed acquirers. Also, CanWest and CHUM both offered more than the usual 10% public benefit in recognition of the exceptions they were seeking. 5 AC Nielsen s extended market area definitions sometimes stretch beyond the geographic boundaries of discrete metropolitan areas, eg. Toronto/Hamilton, Vancouver/Victoria. 6 Portage la Prairie
CRTC PN 2007-3: application 2006-1667-5, page 4 this application would stretch the existing exceptions to the point of abandonment of the policy. 10. When CHUM acquired the assets of Craig Broadcasting in 2004, 7 Toronto One was subsequently sold to comply with the Commission s common ownership policy, rather than CHUM having the option of selling CKVR in Barrie in order to retain Toronto One. 11. Historically, your Commission has not allowed the common ownership of two stations licensed to serve the same major market in the same language. 8 12. When assessing the possible impact of such an acquisition, it is relevant to look at the economic status quo, which incorporates the pre-existing so-called structural imbalance. As noted above, CTV currently controls 60% of the top 25 shows in the 25-54 demographic, and 56% in the 18-49 demographic. This is significant because advertisers are most often attracted to the top programs, and therefore programming dominance will translate into revenue dominance, thereby impacting every other broadcaster. 13. Because CTV currently has only one stick, it cannot schedule all of its programming in simulcast. As a result, CTV must select the best simulcast shows, and schedule the remainder in alternative time periods, with some programming being put on the shelf, or sold off to other broadcasters. 9 14. While CTV already dominates the Top 25 shows with one station in each market, with two sticks in all the major markets, CTV could not only simulcast a much higher percentage of the primetime schedule; it could also afford to purchase more programming, and pay higher prices. Simply stated, CTV would have even 7 Broadcasting Decision CRTC 2004-502 8 Twin stick exceptions in smaller markets such as Thunder Bay and Lloydminster have been taken where threats to economic viability were demonstrable factors. Under the Commission s long-standing policy, an exception is warranted when a particular fact situation suggests a general rule should not apply. Consideration of a change in the Commission s historic policy on this issue has been deferred to a future hearing. 9 Hollywood rights-holders typically package programming. If a customer wishes to acquire a top-rated show, it must often purchase less desirable programming at the same time as part of the transaction.
CRTC PN 2007-3: application 2006-1667-5, page 5 greater dominance of the Top 25, tying up programs so that they are either unavailable to its principal competitor, or available only at inflated prices. 15. A review of the Commission s recently released conventional television financial results for the 2006 broadcasting year demonstrates the impact of the competition which already exists for US programming, as well as the changing ratio between expenditures on US and Canadian programming. US spending may be expected to accelerate if CTV were allowed to expand its distribution base. 16. The Competition Bureau would have us believe that the acquisition of CHUM by CTVgm would not prevent or lessen competition substantially, supposedly because CHUM currently has no programs among the top 25 shows. 17. What the Bureau failed to note, we hope as a result of ignorance of the broadcasting business, is that CTVgm s acquisition of CHUM/City would materially change the face of the City primetime schedule by increasing the number of simulcast shows, resulting in a further imbalance in the system in CTV s favour. 18. FRIENDS concludes that there is good reason to expect that one result of approving this transaction as proposed would be to create a duopoly in private conventional English TV: a duopoly in which one party, CTV, would have a permanent structural advantage over the other, CanWest Global. Such an outcome would be a negative development for the broadcasting system: for markets, competition and viewers. 19. Similarly, we note that in each of the five big markets, City and CTV are currently important players in local television news. 20. The editorial safeguards proposed by CTVgm are inadequate. While they would create a semblance of editorial diversity, true editorial diversity can only be achieved by separate ownership. Under common ownership, the local CTV and City stations would naturally help each other, using common source footage to cut net resources or when one station s crew is unavailable. 21. They may also be expected to subtly promote one another when opportunities arise. Journalists at both CTV and City will know where their bread is buttered and exercise natural self-censorship
CRTC PN 2007-3: application 2006-1667-5, page 6 in ensuring that they serve the broader corporate interest, certainly hesitating to criticize their corporate owners or colleagues. 22. Hence we recommend that the Commission s approval of this application be conditional upon CTVgm divesting the five CHUM/City stations. The appropriate test for the Commission to apply to a proposed acquisition which is contrary to the common ownership policy is: Is this the best possible outcome in the circumstances? Clearly, the answer is No. 23. Together these five City stations reach a substantial number of Canadians, and in the hands of a party at arms length from CTVgm and CanWest they would avoid the duopoly outcome and afford viewers and advertisers a third option in conventional private English language television in Canada. Approval of the application would forever foreclose the possible emergence of a third national private conventional broadcast player. Forcing the sale of the five City stations will keep that option open, and likely ensure City s re-emergence on a more stable basis as a strong player. 24. Further, we note that, if the Commission were to approve this application, a precedent would be created which would make it very difficult to prevent a future TVA takeover of TQS. If English Canada, with a population base of 26 million, could sustain only two private conventional networks, why should not TVA be allowed to swallow TQS in a market of six million? 25. CTVgm bears the risk and onus for justifying an abandonment of the common ownership policy. It has failed to do so. The argument that any other outcome would create too much uncertainty should be dismissed by the Commission. In any event, the Trustee/CHUM will have to buy US programming for both the City stations and the A-Channels for the forthcoming broadcast year in May 2007, well before any CRTC decision on this application. 26. In its application, CTVgm makes an argument that the A-Channel stations, particularly in Ontario, have pulled the City stations down financially and away from their local service roots. Contrary to CTV s position, the apparent unprofitability of the A-Channels argues in favour of the A-Channel stations being maintained under the financial protection of CTV, while selling off the City stations.
CRTC PN 2007-3: application 2006-1667-5, page 7 27. The City stations are more established, profitable and reach more Canadians more efficiently than the A-Channels. For example, CityTv Toronto reaches all of Ontario, compared with five A- Channel stations. A new, arms-length owner would likely continue to be successful with the five City stations, or more likely, more successful, absent the drag of the A-Channels. 28. Furthermore, the A-Channel stations, without the support of CHUM or CTV, would have no national program acquisition partner, resulting in a significant degradation of their prime time schedule. This could only diminish revenues and ultimately further degrade local service. 29. Without a strong, synergistic owner such as CTV, the A-Channels are more likely to continue to struggle financially and ultimately suffer more cuts to local news and other local programming infrastructure to the detriment of their local audiences than to become profitable. We note that, in all the A-Channel markets, these stations provide a distinctive local news voice, and in some markets, the only local news voice. 30. A best-case scenario for the proposed transaction is that it might offer some benefit to viewers in five large, already well-served English-language markets to the detriment of local audiences in six smaller and medium-sized markets. In the much more likely scenario, there would be no tangible benefits in the larger markets, and a reduction, or even death knell to local service in some of the smaller markets, as noted above. 31. FRIENDS proposes that a far better outcome would be for CTV to keep the A-Channels, as well as CKX Manitoba (Brandon), resulting in: a transaction consistent with the current exceptions to the common ownership policy; CTVgm obtaining competitive parity with CanWest Global; and a huge benefit to CTVgm: owning the CHUM specialties, allowing CTV to dominate the youth demographic and reap close to 40% of Canadian specialty revenues.
32. Commensurate with these benefits, CTVgm would rightly assume the obligation to ensure that the A-Channels continue to meet their local programming and other obligations in the smaller local markets they serve. 33. We attach evidence that a copy of this submission has been delivered to the applicant. 34. FRIENDS does not seek to appear at the public hearing. Yours sincerely, Ian Morrison Spokesperson cc: CTVglobemedia Inc.