Concentration and regulatory dominoes may mean Red Tag sale on Canadian content

Listening recently about the precipitous drop in the price of Alberta crude to levels that former federal Minister Jim Prentice referred to as red tag prices for Canadian oil producers, I couldn’t help but draw a nagging analogy to the problems Canadian content producers face when it comes to issues of media concentration.

Round two of BCE’s Inc.’s bid to take over Astral Media is expected to play out this spring at a new hearing before the Canadian Radio-television and Telecommunication Commission (CRTC).  Last October, the CRTC shocked many in the industry, at least those not paying attention, when it killed the initial $3.4 billion deal for Astral by ruling it would put too much market power into the hands of one company.  And, said CRTC Chair Jean-Pierre Blais at the time, “BCE failed to persuade us that the deal would benefit Canadians.”

So months later it will be very interesting to see how the new-and-improved application, once made public, will address the numerous concerns raised by the CRTC.  To producers of kids and animation programming, this could be a very big deal in a very scary way. Everyone knows Bell has to divest some Astral or CTV assets to get to the “right” numbers in terms of market share.  And the buzz at conferences like the recent Kidscreen Summit in New York has fuelled speculation that BCE might choose to divest itself of Astral’s English-language children’s services Family Channel, Teletoon, Teletoon Retro and Disney XD. The reason for this is that these channels are likely not central to Bell Media’s strategy in the sense that sports, movies and drama series are likely to be.

While BCE’s divestiture plans are all speculation until the application is gazetted, the most likely buyer knocking at the door, should it seek to sell  the Astral kids services, may be Corus Entertainment. Corus already owns a 50% share of the Teletoon franchises along with Astral.  Buying up the rest of those assets along with Family and DisneyXD would seem a natural fit from its perspective. In fact, in a December interview with BNN, Corus President and CEO John Cassaday confirmed Corus would be the “natural buyer” of the Teletoon assets—but did not elaborate further. But would they stop there? While buying all the Astral kids assets may fit Corus’s strategy, given its recognized and well-earned leadership in the field, it would be bad news for producers. It would merely shift the concentration problem from one vertically integrated family to another, particularly in light of speculation the Shaw family may combine its controlling holdings in Shaw Media and Corus at some point.

This brings me to Jim Prentice’s red tag comment. The price of Alberta oil has dropped precipitously because the US has become the only significant buyer. That has gutted oil producer revenues and returns to the treasuries in Alberta and Ottawa. Single or dominant buyers tend to set rather than negotiate prices and that is not a good thing, either in the case of oil or in the supply chain for television content.

Historically Corus’s  50/50 Teletoon split with Astral and has helped keep a healthy balance in the system that has produced the highly rated Canadian animated kids shows such as Johnny Test, Mudpit and Detentionaire and the brand new original series Rocket Monkeys. That balance has already begun to tilt. Not that long ago there were many other players in the kids programming business, including the private conventional channels. As those doors closed due to business decisions, there has been a reduction in the markets in which producers could sell their shows. Many other services have also cut back on kids programming – including, it seems, the CBC -because of ownership transactions or business decisions.

If, in addition to acquiring full control of the Teletoon assets, Corus also adds Astral’s other stations to what it owns already–YTV, Treehouse, ABC Spark, and Nickelodeon – the company would own all of the Canadian services primarily dedicated to kids programming. Combined they would hold more than 45 % of the kids audience on Canadian stations.[1]  And Corus would own an 84% share of the kids’ audience for Canadian animation programs.

This would give Corus clear market dominance in kids programming and even fewer doors for the independent production sector to knock on with kids programming ideas.

Maybe we are just being paranoid and BCE may decide to divest Astral’s pay TV movie services instead, but that is highly unlikely because it would run against strategy and hurt any OTT/TV Anywhere plans. Moreover BCE would have little incentive, to put it mildly, to sell its pay movie assets to either Rogers or Quebecor since that might amount to handing a loaded gun to in-territory competitors. The other most likely buyer could be Corus or Shaw (same family) but that shifts the concentration problem from kids to the features market. Hence the domino analogy in the title of this blog.

So we in the production sector will keep our eye on the market for kids and animation on the assumption it never hurts to be paranoid. When it comes to concentration and assessing limits on supply it is important to define the right product market. In this case the market for buying kids and animation programming is made up of the channels that acquire and exhibit that type of programming. If BCE does divest its kids and animation assets to Corus, we plan to argue that the CRTC should apply the same Diversity of Voices test it relied on to deny BCE-Astral last year – but base that test on the kids and animation audiences  not the audience for all programming. From a supplier perspective that’s how to assess market power.

 


[1] BBM, Kids 2-11, English TV, 2011-12 broadcast year.

 

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