Vertical Integration: What does the CRTC know?

Five months ago the CRTC announced that it was reviewing its regulatory approach to vertical integration, in which large distribution companies like Shaw or Bell own radio and/or television stations. The CRTC’s 22 October 2010 notice said that while vertical integration can benefit Canada’s broadcasting system with “cost savings and increased efficiencies”, some concerns had been raised about the potential for large distributors to give their own programming services preferential carriage terms while denying access to other services.

The CRTC invited Canadians to comment by March 7th, 2011 (later changed to April 27th, 2011), and said it would hold a public hearing on the issue on May 9th (later changed to June 20th).

So – what does the CRTC know about vertical integration? The CRTC has given a few hints that it is thinking about this important issue. For example, in a speech given on May 5, 2011, the CRTC’s Chairman (Konrad von Finckenstein) said that

“We're very concerned about what vertical integration of the industry means for the future. Our hearing next month will consider this question in depth.”
….
Our communications industry is more vertically integrated than that in any other country. It has wisely hedged its bets by investing in all platforms and in content as well and putting it all under one roof. And yet there are still quite a few significant independent players that contribute mightily to the diversity of the system. This is probably the model that can work in most mid-sized economies like ours.

But if things remain as they are, there is the danger that the system is not sustainable. It is possible that vertical-integration bets will fail, and investments in distribution assets combined with content assets will diminish in value. At the same time, independent broadcasters and distributors may not survive under the present arrangements.

Suppose you were the CRTC – and were about to consider a new policy to address the beneficial and detrimental aspects of common ownership of programming and distribution services. What would you need and want to know about vertical integration to devise a policy to strengthen Canada’s audio-visual cultural sector?

Perhaps you would want to know how much vertical integration exists? Or what the impact of vertical integration has been? Or – in the wake of several years of national and international economic turmoil – how vertical integration has affected employment in the audio-visual sector?

Just over a month before the CRTC’s vertical integration deadline for interventions, I wrote the Commission to ask for copies of research about this issue. Specifically, I asked for any studies the CRTC had undertaken or commissioned about:

  1. vertical integration and negotiations with respect to programming
  2. vertical integration and negotiations with respect to carriage
  3. measurements of the level of vertical integration in Canadian broadcasting
  4. measurements of the level of vertical integration in Canadian telecommunications,
  5. the CRTC’s dispute resolution process with respect to carriage negotiations
  6. the impact of vertical integration on Canadian broadcasting
  7. the impact of vertical integration on Canadian telecommunications, or
  8. the impact of vertical integration on employment in Canadian broadcasting and/or telecommunications .

The CRTC sent me its answer today (May 26, 2011). In the last four years during which more the CRTC has approved more than $9 billion worth of ownership transfers, the Commission has undertaken or commissioned just three research studies:

  1. Samuel J. Reich’s 2009 “Structuring Baseball’s ‘Final Offer’ Arbitration process for use in proceedings before the CRTC: A report” – which the CRTC had already previously published a few years ago
  2. An undated, unattributed two-and-a-half-page document entitled “Vertical Integration in Foreign Jurisdictions”
  3. An October 7, 2010 ten-page Powerpoint presentation by Kern Phung Lu and Linda Wollenschlager of the CRTC Policy Development and Research group entitled “Communications service providers and their markets”.

A PDF copy of the CRTC’s three documents is attached HERE and HERE. It is interesting to note that the only document that deals with Canada, the October 2010 Powerpoint, seems to be the only document that has been redacted – so heavily that apart from the title page, purpose page and concluding page (that says, “Thank you”), almost nothing remains. One wonders what is so potentially dangerous that Canadians cannot know about vertical integration in telecommunications (powerpoint page 3), in broadcasting (powerpoint page 4), or in communications (powerpoint page 5). On the other hand, if the full sum of the CRTC’s knowledge about vertical integration is summed up in this 10-page document, the Commission may not know very much at all.

The lack of research by the CRTC in this important area should seriously concern Canadians for at least three reasons. First, as Parliament’s delegate in implementing Canada’s broadcasting and telecommunications policies, the CRTC should be a leader in objective, impartial and reliable empirical research about Canada’s communications sector, and could reasonably be expected to undertake research about its own policies. Second, if the CRTC has little or no empirical research about the sector it regulates and the effects of its policies, the Commission is likely to rely ever more heavily for research and data on the enormous private companies it is supposed to regulate. Third, since few, if any, not-for-profit public interest groups or associations have the resources needed to undertake solid research, little empirical information is available to counter private companies’ arguments.

The lack of objective analysis and research by the CRTC about this country’s audio-visual sector highlights a serious absence of accountability and transparency in Canadian communications regulation.



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