On January 15, 2008, Canada's broadcasting and telecommunications regulator, the Canadian Radio-television and Telecommunications Commission (CRTC), issued new policies respecting cross-media, television and broadcast distribution undertaking (BDU, e.g., a cable or satellite TV provider) ownership 1. Under these policies, as a general rule:
- a person will be permitted to control undertakings in only two of three types of media (radio, conventional "over-the-air" television and newspapers) serving the same (local) market (cross-media ownership policy);
- the CRTC will not approve applications for transfers of effective control that would result in common ownership of television undertakings (conventional, specialty and pay) with a total national audience share (across all types) greater than 45%, will carefully examine applications that would result in a share between 35% and 45%, and will expeditiously review applications resulting in a share less than 35% (television ownership policy); and
- the CRTC will not approve applications for transfers of effective control of BDUs that would allow one person to control all BDUs in any given market (BDU ownership policy).
The stated purpose of the new policies is to preserve the "diversity of voices" in the Canadian broadcasting system, including the diversity of editorial voices at the local level and the diversity of programming at the local, regional and national levels. According to the CRTC, the new policies were driven by public concerns raised by recent consolidation in the media sector. Although stating that a diversity of voices continues to exist in the current Canadian broadcasting system, the CRTC justified the new policies as necessary to address the potential effects of the further consolidation that is expected to occur in response to audience fragmentation.
At the same time as it adopted the new policies, the CRTC reaffirmed its existing policies respecting conventional television and commercial radio ownership 2.
The new policies raise a number of questions. Are they actually necessary? What impact will they have on the interface between the CRTC's regulation of the Canadian broadcasting system and the application of the Competition Act to the sector, in particular in relation to broadcasting mergers? Will they lead the CRTC to block potentially beneficial licence applications or mergers?
Are the new policies necessary?
Despite what the CRTC described as a "wave of consolidation in the Canadian broadcasting industry," the CRTC acknowledged that a diversity of voices continues to exist in the Canadian broadcasting system. Rather than addressing an existing problem, therefore, the CRTC based its new policies on the potential impact of future consolidation, which it expects in response to audience fragmentation. Indeed, the CRTC expressly recognized that none of the transactions reviewed by it during the recent "wave" would have raised concerns under its new policies.
Setting aside the question of whether concerns about this potential future impact are justified, there is nothing in the new policies that the CRTC could not have done pursuant to its broad regulatory powers. The CRTC's powers to issue licences, approve licence transfers and set licence terms (including in the context of renewal proceedings) provide it with ample tools to preserve a diversity of voices in Canada's broadcasting system. By formally extending the CRTC's consideration to newspapers, the new policies also raise questions about whether the CRTC may be exceeding its jurisdiction, which is limited to the broadcasting system.
Even if the new policies do not add to the CRTC's powers, they do arguably promote transparency and predictability, both of which are widely accepted as highly desirable regulatory objectives. There is a risk, however, that these objectives could be achieved at the expense of the CRTC's flexibility to make appropriate licensing determinations on a case-by-case basis. The CRTC could avoid this risk by allowing exceptions where their application is either not necessary to achieve a diversity of voices or would otherwise not be in the best interests of the Canadian broadcasting system. Whether the CRTC will take such an approach is unclear, given the rigid language used to describe the policies, including a statement that "[a]s a result [of the new cross-media ownership policy], a person or entity will only be permitted to control two of the following types of media that serve the same market: a local radio station, a local television station or a local newspaper." 3
How will the new policies affect the interface between the CRTC's regulation of the Canadian broadcasting system and the application of the Competition Act?
While the CRTC's new policies with respect to diversity of voices apply only to the CRTC, their effects may extend to the relationship between the CRTC and other regulatory regimes, such as the Competition Act.
The Competition Act requires prior notification of mergers that exceed certain monetary and shareholding thresholds and also allows the Commissioner of Competition, who heads the Competition Bureau and is Canada's primary competition enforcement official, to challenge mergers that substantially prevent or lessen competition, whether or not they exceed the thresholds for pre-merger notification. (For ease of reference, the Commissioner of Competition and the Competition Bureau are referred to simply as "the Bureau.") To the extent that the CRTC reviews and approves a broadcasting merger, however, parties may challenge the Bureau's jurisdiction pursuant to the so-called "regulated conduct doctrine," which has been used by courts in certain cases to oust the Competition Act's application to conduct that was required or authorized pursuant to other legislation.
The stated position of both the CRTC and the Bureau is that they have concurrent jurisdiction over broadcasting mergers.4 However, as the body charged with the regulation and supervision of "all aspects" of the Canadian broadcasting system, the CRTC enjoys a broad jurisdiction over broadcasting matters, including mergers. Indeed, the broad scope of the CRTC's jurisdiction has prompted litigation as to whether its jurisdiction over broadcasting mergers is exclusive, thereby precluding the application of the Competition Act.5 Owing to a settlement between the parties, no decision was rendered by the court in that case, leaving unanswered the question of the whether the CRTC's jurisdiction over broadcasting mergers is exclusive. The CRTC has recently called for a clarification of its role and the role of the Bureau in "communications" mergers, and advocated that it have "ultimate responsibility" for approving such mergers.6
The jurisdictional question is important, owing to the different analytical approaches followed by the CRTC and the Bureau. In contrast to the CRTC, the Bureau's reviews of media mergers focus on their economic aspects, such as advertising. However, as the CRTC itself has recognized, 7 concentration of economic aspects is not wholly divorced from the question of diversity of voices, insofar as common to each is the question of who ultimately controls the media undertakings. Thus there would appear to be some potential for overlap (possibly significant overlap) between the CRTC's and the Bureau's reviews of a broadcasting merger.
At the same time, there are important differences in the methods used by the CRTC and the Bureau in their analysis of diversity of voices and the economic effects of mergers, respectively. The Bureau carries out a detailed analysis of relevant product and geographic markets in order to assess the likely economic impact of a merger in those defined markets. As compared to the Bureau's approach, the CRTC's approach to assessing "diversity of voices" appears simplistic, as evidenced, for example, by the cross-media ownership policy's focus on mere ownership of particular kinds of media and the television policy's focus on national television audience shares (without, for example, distinguishing between "news and information programming," which the CRTC identified as its primary area of concern, and other programming). The CRTC does purport to borrow aspects of the Bureau's analytical approach (e.g., the "market share" thresholds used to assess concentration under the new television ownership policy, which are adapted from those the Bureau used to preliminarily assess the proposed bank mergers in the late 1990s), although without undertaking the Bureau's detailed market-definition analysis prior to calculating such shares. Given a merger transaction that is reviewed by both the CRTC and the Bureau, therefore, the CRTC's policies would seem to promote rather than discourage a repeat of the 2002 dispute over the Bureau's jurisdiction to review broadcasting mergers.
Will the new policies lead the CRTC to block potentially pro-competitive licence applications or mergers?
Another potential consequence of the blunt nature of the CRTC's approach to diversity of voices is that it could lead the CRTC to block potentially pro-competitive licence applications or mergers. Applying its cross-media policy, for example, the CRTC might block expansion of an entity owning a local television station and a local newspaper into the local radio business, even though such expansion could, in certain circumstances, stimulate greater competition in the local radio market and provide benefits to advertisers and consumers in the process. Similarly, in considering a merger involving BDUs, the CRTC's policy seems to preclude consideration of potential efficiencies, and more specifically the possibility that efficiencies could outweigh any negative effects caused by a reduction in competition by such a merger. The Competition Act, in contrast, recognizes these potential benefits by allowing otherwise potentially anti-competitive mergers if they are "likely to bring about gains in efficiency that will be greater than, and will offset, the effects of any prevention or lessening of competition."
While helpful to business in terms of shedding light on the CRTC's approach to broadcasting ownership issues, the new policies have also raised new questions that highlight the jurisdictional divide between the CRTC and the Bureau.