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New rules helpful, but also raise questions

|Written By Julius Melnitzer

Someone looking for the rules governing restrictions on cross-media ownership in the Canadian market could be forgiven for looking up the Competition Bureau. Their next choice would be the Canadian Radio-television and Telecommunications Commission, and that would be more fruitful.

New cross-media ownership policies raise important questions, says Jeffrey Brown.

The problem is, there’s a hazy jurisdictional divide between the two regulatory bodies, a complication that emerges clearly from the CRTC’s new cross-media ownership policies, issued in January.

“While the new rules are helpful to business in terms of shedding light on the CRTC’s approach to broadcasting ownership issues, they have also raised new questions that highlight the jurisdictional divide between the CRTC and the bureau,” says Jeffrey Brown of Stikeman Elliott LLP’s Ottawa office.

They fall under three rubrics:

• Cross-media ownership policy: ownership of only two of three types of media (radio, conventional over-the-air television, and newspaper) in a local market will be allowed;

• Television ownership policy: no one will be allowed to control any combination of conventional, specialty, and pay undertakings which have more than a 45-per-cent share of the national television audience. The CRTC will closely examine transfers generating a share between 35 and 45 per cent, and will review expeditiously applications for a share less than 35 per cent;

•  BDU ownership policy: no one will be allowed to control all broadcast distribution undertakings (cable or satellite TV) in a given market.

“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.”

Interestingly, the CRTC expressed no concern regarding the existing state of diversity; rather, it aimed its policies at an expected round of consolidation resulting from the trend to audience fragmentation. The commission also confirmed its existing policies regarding conventional television and commercial radio ownership.

Brown says the policies raise some important questions.

“Are they actually necessary?” he asks. “What impact will they have on the interface between the CRTC’s regulation of the Canadian broadcasting system and the Competition Act’s impact?

Will the new policies result in the blocking of potentially beneficial licence applications or mergers? And will the CRTC inject any real meaning into the words ‘in general’ that are found in these rules?”

On the last question, Brown suspects the CRTC will stick closely to the rules it formulated. “It’s sometimes difficult to sway regulators to deviate from the policy, even though the rules contemplate some exceptions to their own black and white language,” he says.

Brown notes that among the proposals received by the CRTC were a number of submissions in favour of a case-by-case policy over hard and fast written guidelines.

“What I read into the rejection of that proposal is a good chance that the CRTC will be following these rules quite strictly,” he says.

But not arbitrarily. “When a policy of this nature is articulated, it’s hard to make a case that goes against the four corners,” says Brown’s partner Gregory Kane. “But it’s not impossible.”

While certainty and predictability - goals espoused by the CRTC - will certainly flow from the articulation of the new policies, Brown wonders whether the rules are too blunt an instrument to achieve the purposes intended.

“Take a city like Toronto where someone who is already into TV and newspapers wants to take a run at the radio market with an innovative product offering . . . The prohibition against ownership in three media would preclude that offering, and perhaps do some harm to the diversity of voices objective because, from a competitive standpoint, a new player could shake things up in the radio business.”

He also questions whether there’s a need for new rules. “The CRTC recognized that none of the transactions reviewed by it during the recent wave of consolidation would have raised concerns under its new policies,” he says.

He says the CRTC’s general regulatory powers are broad enough to preserve a diversity of voices in Canadian broadcasting. “But 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,” he says.

That’s not the only jurisdictional problem. The Competition Act requires prior notification of mergers that meet certain thresholds. It also allows the bureau to challenge mergers that substantially prevent or lessen competition, whether or not they meet the thresholds.

“To the extent that the CRTC reviews and approves a broadcasting merger, however, parties may challenge the bureau’s jurisdiction pursuant to the regulated conduct doctrine, which courts have used to oust the Competition Act’s application to conduct authorized by other legislation,” he says.

Officially, the CRTC and the bureau agree that they have concurrent jurisdiction over broadcasting mergers. There’s no question that the CRTC has a broader jurisdiction over all broadcasting matters. But whether its jurisdiction is exclusive remains an open question.

In January the CRTC called for clarification of its role in communications mergers. It even went so far as to advocate that it have “ultimate responsibility” for such mergers.

It isn’t just an academic issue. “The jurisdiction question is important, owing to the different analytical approaches followed by the CRTC and the bureau,” he says.

The bureau tends to focus on the economic aspects of a merger, carrying out detailed analyses of the relevant products and markets to determine the economic impact. The CRTC has a more simplistic focus on concepts like ownership and audience share, without distinguishing between similar but different products.

Finally, the CRTC’s BDU policy seems to preclude consideration of the potential efficiencies in a merger. By contrast, the Competition Act allows 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.

“The CRTC’s policies would seem to promote rather than discourage a dispute over jurisdiction,” Brown says. But also, “the CRTC has recognized that concentration of economic aspects is not wholly divorced from the question of diversity of voices, as each is concerned with control of media undertakings. This suggests that there is potential for significant overlap in the respective reviews.”

Scott Prescott of Ottawa’s Fasken Martineau DuMoulin LLP, says current stakeholders are “not disappointed” in the policies. But the people trying to get into the market are.

“Not only the new players, but perhaps even the small independent broadcasters who have difficult competing against larger integrated media companies, are not happy with the new rules,” he says. Nor is the independent program-production community.

“Their concern is that they have fewer and fewer doors to knock on to sell their program rights, and they find it increasingly difficult to negotiate what they believe are equitable terms of trade with the larger broadcasters.”

If and until the expected consolidation that prompted the rules begins to emerge, the status quo will reign.

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