Mirko Bibic must be heaving a huge sigh of relief that the transaction has finally been approved. Bell won’t be happy with all of the details but it’s at least done and from my perspective, the additional conditions are things that they can live with. They might have to hire a new body to manage the new reporting requirements but that won’t cost much.
As always, my perspective on this transaction (which is my own alone) is focused on the English television side of the deal (Steve Faguy does a great job on the radio market with an emphasis on Montreal, which was so hotly contested). There are some parts of the decision though that are noteworthy in that they signal the Commission’s thinking in the upcoming rationalization of the benefits policy (part of the Three Year Plan).
The big clear message from the top was that this transaction was still carefully reviewed for the public interest and was only approved as being in the public interest with the addition of a few new safeguards. The revised application wasn’t a slam dunk. “The Commission finds that but for these safeguards, it would not have been persuaded that the present transaction is in the public interest, and would not have approved it.” (para 28).
Aspects of the Vertical Integration code will now be enforceable conditions of licence, there are conditions around negotiation of non-linear programming rights, access to advertising availabilities by competitors and affiliation agreements have to be filed shortly after they are signed. These all relate to a number of allegations that were made during both Bell-Astral1 and Bell-Astral2 that Bell was already treating smaller BDUs and independent programming services unfairly due to its size and would only get worse if it got bigger. Rather than make any determination on the validity of these allegations (many of which were not supported at the hearing by evidence of the unfair activity) the Commission has taken the position that the new bigger Bell will have more opportunities to be anti-competitive so there’s a greater potential (whether or not they are anti-competitive now) and that potential has to be protected against. The final piece to this is the warning that the Commission will not hesitate to act if they are presented with evidence that Bell is acting anti-competitively.
A lot of the decision was dedicated to a revised valuation. This section will be of value to valuators of future transactions. One of the parts that I liked was the valuation of leases related to the out-of-home business (billboards). As those leases relate to an unregulated side of Astral, the Commission had asked for an auditor’s report of how they came to the valuation. This is one of the ways that broadcasters artificially reduce benefits payable by increasing the value of unregulated assets that can be deducted from the calculation. Instead of an auditor’s report, Bell filed an accountant’s report explaining how the valuation was made. As they didn’t get an independent verification as requested, the Commission did not deduct the value of the leases related to the out-of-home business from the valuation. Lesson – provide the Commission exactly what they ask for or it will cost you (Note – the same thing happened to Shaw when it acquired Global so they had warning).
So the value of the transaction was increased from $4.017 billion to $4.154 billion. The Commission then changed the allocations between TV, radio and unregulated assets. It is also worth noting that Bell tried to argue that SVOD (i.e. TMN on Demand) services were unregulated but the Commission added them back in as extensions of regulated assets. They did not do the same for the value of digital assets such as websites related to broadcasters, which is something that I had argued for in Bell-Astral1. The bottom line for benefits then is $175.4 for television and $71.5 for radio. Note that radio was increased from the usual 6% to 7% of the value of the assets because of the size of the transaction. An increase for size for radio has been done recently (Corus) but that argument hasn’t worked for the television side for years. It is likely that the television transactions are just so large that the transactions could not support an increase in the benefits formula.
Unlike previous transactions, the Commission has not decided for Bell how they will allocate the increased benefits but instead require them to file a proposal on how they will be spent by July 29th. I hope that the result and the final approved benefits are public. In the past when the Commission has left the final package to later determination there have been letters that you had to know to ask for to be able to find out what exactly was agreed to. Not good for the process.
Most of the television benefits were approved as proposed but there were some exceptions. The proposal to allocate $3million to CAFDE for a fund for the promotion of feature film was not approved. Bell is to come back with a new proposal for the promotion of feature film. What is odd is that there really isn’t any direction as to what needs to be fixed. What is clear is that the Commission didn’t buy the argument of feature film producers such as the Producers Roundtable of Ontario that the funds should go to feature film production before promotion.
OLMC’s (Official Language Minority Communities) have been a major concern of the Commission this past year at this hearing and at CBC. After many years of making presentations about the need for specific allocations they earned an allocation as part of the CBC licence renewal and an allocation of 10% of each of the English and French envelopes of the benefits package.
An important wonky determination is that 100% of PNI not only has to be independently produced but also original. If a program airs on TMN and then on CTV (or airs on Citytv and then TMN) it only is original for the first broadcaster unless both broadcasters participated in the financing of the production. This is similar to the Canada Media Fund’s definition of original.
Bell proposed an allocation of $2.73 million to Consumer Education as part of the social benefits. The Commission has found this to be too vague and is requiring more detail with a direction that it would be appropriate to fund The Broadcasting Accessibility Fund, MediaSmarts and the Centre d’études sur les medias. Lesson – if you don’t provide detail then the Commission just might decide for you.
Social benefits will have to be reallocated on a language basis as well. They were majority English but have to be consistent with onscreen benefits, which were allocated along the lines of the value of the services in each language – 69% French and 31% English.
Bell had proposed that a significant portion of the television benefits in English would be spent over three years starting in 2017 because of the large amount of benefits for English television currently in the system. A number of the creator groups objected to this. The Commission did not agree to this proposal because some of the communities (OLMCs) and some genres of programming (documentaries) are not participating in the current benefits bulge and need the funds now. Benefits will be paid in equal installments over the next seven years.
As part of the application, Bell made a number of ‘intangible’ benefits proposals that in some ways the Commission is treating as tangible. In particular they are asking for more detail on the new position of ‘Canadian Programming Champion’ to ensure that it’s not just BS and Bell will have to file annual reports to demonstrate what the champion did, what their budget was, who they met with and what projects were funded. This report will be public. As well, the commitment to regional offices has been expanded from Vancouver and Halifax to include Winnipeg and detail as to their mandate has to be filed and then reported on annually. The regional communities have experience with regional offices that have no authority and exist only to fulfill benefits requirements (*cough* CHUM-Craig *cough*) and the Commission wants to ensure that doesn’t happen again.
I was surprised to see the Commission re-evaluate Astral’s group CPE and PNI because that issue hadn’t been aired much but it does make sense. Bell will have to sell off a number of the Astral specialty services and several of them are low CPE and PNI services which reduced the overall historical average CPE and PNI for the group. The Commission is asking Bell to make a proposal but their preliminary view is that CPE should increase from 30% to 32% and PNI from 16% to 18%. Remember that Astral’s group CPE and PNI will still be calculated separately from Bell so this is important to ensure that services like TMN and Family Channel maintain their level of investment in Canadian programming.
There are quite a few details still to be worked out and proposals to be made by Bell by July 29th, so the dollars at play in each envelope are not yet certain. Again I hope that that part of the process will also be public and we will have a clear, public decision on the final makeup of the benefits package that we don’t have to go hunt for. Please.
Thanks KL. Awesome synopsis!
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