Tag Archives: Bell

Bell-AstralFinal

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.

Bell-Astral2 – Part 2

Ah yes, my long-awaited post.  The clamouring can stop now.

I’m not going to go through the whole application (you know what you have to do if you want that service) but highlight some of the issues, with context.  I know that most of you won’t read the 63 pages of the Supplementary Brief or the appendices or the deficiency letters.   If you are only interested in English Television (as I tend to be), then the only Astral assets that Bell is acquiring are TMN and TMN Encore, 50.1% of Viewer’s Choice and local stations in Terrace and Dawson’s Creek, BC.

As you remember from Part 1, though the Competition Bureau has agreed that if Bell-Astral sells off certain television and radio services then it will not be overly competitive, the CRTC has its own review with its own issues.  They have been identified in the public notice as:

  • Concentration of Ownership and Vertical Integration (Television)
  • Common Ownership Policy (Radio)
  • Value of the transaction
  • Proposed Benefits Package
  • Other issues pertaining to radio

While a number of these issues were thoroughly discussed in Bell-Astral1 in September and Bell-Astral feels certain that this new structure addresses them, the issues will be discussed again in the Bell-Astral2 hearing.

Bell hopes that it has addressed concentration of ownership (or the “Diversity of Voices” policy) by agreeing to sell off those assets co-owned by Corus to Corus (Teletoon and more) and by selling the Family Channel services to unknown (at this time) bidders.  [Note that Bell expects to announce the new owners of Family Channel in April, after the submission deadline.  There will be other hearings for the Teletoon services and the Family Channel services]  The concentration is definitely much less than at the first hearing but the Commission will still want to review the facts and the thoughts of intervenors.

Vertical integration is the often messy question of whether Bell, as a vertically integrated company (BDU-broadcaster) can use its market power in an anti-competitive way to impose excessively high rates on smaller BDUs who want to carry Bell-owned services.  There may also be vertical integration issues with independent broadcasters who want to ensure that Bell is not favouring its services over the independent services.  At the last hearing there were many allegations of improper behaviour by Bell but at times it felt like a case of ‘he said – she said’ (though in this context ‘he said – he said’ is more accurate).   If there are real issues to be dealt with here, those intervenors are going to have to come to the table with specific evidence of anti-competitive behaviour that needs to be protected against.

As the big issues were so big last time, very little time was spent on valuation of the transaction.  Valuation has become increasingly complex and variable – and redacted due to claims of confidentiality – so intervenors have come to rely on Commission staff to ask the necessary questions during the deficiency process and at the hearing and adjust the valuation as necessary.  The impact of the valuation of the divested assets (ie those not yet purchased) will be dealt with by an adjustment so that if the buyer pays less than those assets were valued, Bell proposes that it will make up the difference in the calculation of benefits.

The independent television production community is most interested in benefits.  There are intangible benefits and tangible benefits.  Bell-Astral has spent a lot more time on describing the intangible benefits this time than last time as there really were no identifiable intangible benefit to the industry (i.e. other than to Bell and Astral’s shareholders).   While some of these intangible benefits will cost money, that cost will be outside the tangible benefits package.  They include:

  • Maintain Astral and Bell local stations open till the end of their licences in 2017 and 2016 respectively
  • Maintain French media headquarters in Montreal, English in Toronto and set up new regional development offices in Vancouver and Halifax
  • Two executives who will be “Canadian programming champions” in Montreal and Toronto (not clear where they sit in the org chart or if they are required to wear capes).
  • Adhering to CMPA and APFTQ terms of trade

The tangible television benefits are primarily French.  The English benefits (31% based on value of the assets) proposed are:

On Screen Benefits

  • $5 million to the Harold Greenberg Fund
  • $3.25 to Telefilm’s Private Donation Fund
  • $24.56 to ‘Other Programming of National Interest’

Social Benefits

  • $9.15 million to film festivals, a CAFDE Promotion Fund for distributors, Media training programs (Banff, NSI etc.), the Academy of Canadian Cinema & Television and Canadian Women in Communications
  • $5.23 to Consumer Education, the Canadian Broadcasting Participation Fund and the Canadian Broadcast Standards Council

Unlike the first hearing (and many other hearings recently), there was no attempt to increase the social benefits beyond the standard 15% or to direct the benefits to self-serving projects (such as the Northwestel project during Bell-Astral1).  A lot of the arguments made by the English independent production community have been addressed but that doesn’t mean there won’t be concerns.  One issue will be the timing of the on-screen benefits as Bell has proposed that they would be paid out over seven years but would not start till the existing pool of benefits (BCE-CTV and Shaw-Global) expire in 2017.  In the last hearing the independent production community generally opposed this schedule.

Finally, an editorial comment.  I like this Supplementary Brief much more than the first one.  It is easier to read, has much less hyperbole and sets out clearly the various aspects of the transaction.  Bell seems to have listened to the objections of the stakeholders and the CRTC and tried to address almost all of them in their application.  It remains to be seen whether it is enough and whether other issues get raised at the hearing.  My big hope is that we do not see another case of negotiation throughout the hearing, with stakeholders, Commission and applicant scrambling to deal with new, half-thought out, proposals in a comprehensive way.  That didn’t work for any of us.

Submission deadline is April 5 and the hearing will take place starting May 6 and probably last the week.

For some additional insight (including more on radio and French services) check out Fagstein and Carrt and coverage by the Globe and Mail‘s Steve Ladurantaye – these were my hearing buddies during Bell-Astral1 (and of course my wonks – not nerds – wonks).

Bell-Astral2 – Part 1

I was going to wait until the CRTC Public Notice was released later this week before I posted, but thought some of you might be wondering about how the Competition Bureau decision fits into this transaction in the meantime.

Separate and apart from the CRTC review of the Bell acquisition of Astral’s assets, the Competition Bureau also had to review the transaction.  It is required to review all mergers or acquisitions when the value of the assets being acquired are more than $50 million.  As you will recall Astral is somewhat over that threshold at $3.38 billion.  The purpose of the review is to ensure that the transaction is not anti-competitive.  This is similar to the CRTC’s review but not as complex, as consolidation is only one of the issues that the CRTC looks at when reviewing an acquisition (e.g. valuation, ‘twin sticks’, benefits policy among others).  The Competition Bureau also looks at the transaction from a commercial perspective:  would the transaction provide Bell with enhanced market power in negotiating terms for its broadcast services with other distributors.  The CRTC reviews that issue but as well looks at the impact on the consumer should a broadcaster dominate viewing share.  The Competition Bureau review is also different from the CRTC’s in that it is a private investigation and not a public hearing.

We do not know anything about the discussions between the Competition Bureau and Bell but we know the end result so we can guess.  Bell had talked to the CRTC last fall to find out what it would take to get the transaction approved and it looks like the Competition Bureau had similar concerns.  An acquisition of all of Astral’s assets would put too many television and radio services in one company’s hands.  Bell would dominate the market.  Despite Bell’s very public disagreement with that assessment after the initial decision to reject Bell-Astral1, Bell management have agreed with the Competition Bureau to sell off certain Astral assets in order to maintain a reasonable and not dominating share of the viewing audience.

In the Consent Agreement Bell agreed to divest itself of 6 English specialty television services and 7 French.  On the English side Bell is getting rid of Astral’s kids services (I’m only going to say this here – called it!) and hanging on to TMN.   As you may recall from Bell-Astral1 the largest part of the transaction was for French television services and radio, so Bell will still be acquiring a substantial chunk of Astral.  We will not know the exact valuations of what is being kept and what is being sold until we see the detailed material that will be part of the CRTC Public Notice.

Corus has agreed to buy Astral’s share in Teletoon and Cartoon Network and become the sole shareholder in those services (along with French specialty services and two radio stations).  They would have had a fight at the CRTC if they had picked up Family/Disney XD/Disney Jr. because then they would have monopolized private broadcasting for children.  Those services are being put out for bids.  There has been much speculation as to who might be interested in those services as there is no natural home for them.  It will be very interesting to see who ends up buying them and moving into the kids space.

So when we see the CRTC Public Notice (please not when I’m on the train to Prime Time) we will get more information on the Bell-Astral2 transaction, might also see an application for approval of Corus-Astral and will see benefits package proposals for one or both.  I am assuming that we will have to wait to see the Public Notice on the acquisition of the Family Channel services but that could have been happening behind closed doors all along.

Stay tuned!