Abolish foreign ownership restrictions in cable industry, cable leaders tell committee

There is still room under existing foreign ownership rules for foreign companies to invest in Canadian cable companies, but the cable industry claims a complete removal of existing rules is needed. That was the message delivered last week in Ottawa by the leaders of Canada’s largest cable companies to the Parliamentary committee reviewing the Canadian broadcasting system. The review is currently focused on media consolidation and restrictions on foreign ownership. Appearing November 28 before the House of Commons Standing Committee on Canadian Heritage, Shaw Communications Inc. CEO Jim Shaw admitted that existing investment in his and other cablecos had not yet peaked at the current maximum. Canadian regulations currently limit foreign ownership of Canadian broadcasting companies including cablecos to 20 per cent direct investment and 33 per cent indirect investment, for a total possible foreign ownership of 46.7 per cent in voting equity. "Just because we haven’t hit the ceiling (of current foreign investment limits) doesn’t say anything at all," he said. Rogers Cable Inc. president and CEO John Tory pointed out that current restrictions act as a disincentive for investors to put money into Canadian cablecos even within the existing restrictions. "You have to monitor these things to make sure you don’t go beyond the limits…There are people who might otherwise invest in our company who would feel if they took a minority position, they might have trouble selling it," he said. If their share was near the current maximum they couldn’t, for example, sell to an existing foreign investor who currently owns 10 per cent; their only possible buyer would be a Canadian, he noted. Janet Yale, president and CEO of the Canadian Cable Television Association (CCTA), stated that the cable industry wants the foreign ownership restrictions completely eliminated. "What’s the difference between 51 per cent and 100 per cent?" she told the committee.Calling a cable licence a "licence to spend," Shaw told committee members that foreign investment would be helpful – but not absolutely necessary – for cable to finance the introduction of new products, such as video-on-demand, and to continue the rollout of Internet access over cable lines. "The cable industry is strong and will build ahead. (Relaxing foreign investment restrictions) is not a mandatory requirement. It’s a matter of how much we want to be leaders and how many jobs we want to create…The more access we have to capital, the more we can flourish," he said. Tory added in a media scrum following the committee hearing: "What we’re really talking about is access to capital, all forms of capital. We have huge capital requirements and I bet if you added up the entire Canadian broadcasting system on the content side, you definitely wouldn’t have a number that would even come close to approaching the requirements we’ll have in the next two years." Shaw added that the cable industry has collectively spent about $5.5 billion in the last three years. "Spending that kind of money – and we’re looking at more money to be spent in the future – we just need (capital) to develop," he said. However, several powerful broadcasters disagree that it’s about the free flow of capital. Representatives of CHUM Ltd., Alliance Atlantis Communications Inc. and Astral Media Inc. told the committee December 4 that there are no limits on investment in Canadian companies without voting control. Alliance Atlantis Communications Inc. chair and CEO Michael MacMillan said the real issue wasn’t capital flow, but control of Canadian companies. "We’re not talking about investors, such as pension funds, that will not be involved in the business. We’re talking about people already in the business who want voting control of Canadian companies. They want that control so that they can find a wider audience for their existing product," he told Canadian Communications Reports. He believes that if allowed to get control of Canadian companies, U.S. entertainment giants will then force their products on Canadian viewers, and not be concerned about finding a place for Canadian programming. Call-Net Enterprises Inc. president and CEO Bill Linton agrees that foreign ownership is not the issue. During a panel discussion on November 28 in Ottawa at a conference of the Canadian Chapter of the International Institute of Communications, he said that the real issue was profitability in the industry. "We could liberalize the rules and get financing from Mars. The issue is profitability," Linton noted. "Under different times two years ago, Call-Net raised $2.6 billion in the U.S. bond market, and the company formerly known as AT&T Canada raised $4.5 billion in the U.S. markets. So there was plenty of financing when there was a different wave of values. Our issue now is profitability." He wants to see the government look at pricing and the ground rules for competition. But Cogeco Inc. president and CEO Louis Audet insisted the real issue was financing. He told CCR the reality is that the equity and debt markets in Canada are very small. "There comes a point where your requirements as an industry are so large that they can no longer be satisfied (in Canada)," he noted. "We’re talking about the equity market and it has to be addressed (through changes to foreign ownership limits)…This is advocating the free circulation of capital." Tory added: "The Canadian capital markets have been terrific at supporting our companies and have helped us to grow. But we need more money than the market – given its size – can supply. "Believe me, we’ve been told by the marketplace, and we’re all committed to achieving free cash flow," Tory said. "But if customers come on by the thousands to our Internet and digital services, we have to spend the money to serve them. And we have to keep the networks operating well." The heads of Canada’s largest cablecos maintain that there will reach a point when the cable industry will have their fiscal houses in order and won’t be so reliant on outside investment. "Through discipline and continued growth, we’re going to achieve that (profitability)," Tory said. Audet added that profitability is not where it should be, but that the cable industry is working on improving the situation. "All of us are adjusting to competition, and I think that we are coming out of that period of adjustment and we will be successful." Shaw told reporters: "The industry as a whole is not profitable right now. I think that if you look at it long-term, that’s not sustainable. You can’t spend more than you get forever." While the greatest push for the easing of foreign ownership restrictions has come from the telecommunications sector (CCR, July 4/01), most broadcast industry players claim that the two industries cannot be separated. That’s a view shared by Clifford Lincoln, chair of the heritage committee (see article in this issue). CanWest Global sides with cablecos Broadcaster CanWest Global Communications Corp. also wants a loosening of foreign ownership restrictions for expansion purposes."The real issue is the need to provide more room for Canadian broadcasting companies to grow in a highly competitive world of media convergence, rapid technological change and international media consolidations. Technology and the Internet are breaking borders and protected national markets for media of all kinds," Geoffrey Elliot, CanWest’s VP of corporate affairs, told the committee on November 26. He noted that policy reviews that could lead to a relaxation of foreign ownership rules are also underway in the United States, Britain and Australia. He said there was a "unique opportunity" now to pursue reciprocal adjustments in the current round of multilateral trade negotiations in the World Trade Organization (WTO). CanWest is advocating an easing of foreign ownership rules, not only in Canada but in other countries as well so that it can expand into the United States, which also has restrictions on broadcast ownership. CanWest would like the limits for broadcasters raised to 49 per cent including any combination of direct or indirect ownership. "Total elimination of controls on foreign ownership, while not objectionable to CanWest, is not required," Elliot said. "Raising of existing Canadian limits on foreign ownership should, however, be accompanied by similar relaxation of the rules in the U.S. and Europe and other countries such as Australia." But the broadcast industry is not united in this view. Astral Media chair André Bureau is on record for keeping existing rules to ensure the presence of Canadian content (CCR, May 9/02), and MacMillan has been a strong opponent to change (CCR, May 24/01). At the November 26 committee hearings, Bell Globemedia representatives were much more cautious, while Elizabeth McDonald of the Canadian Film and Television Production Association (CFTPA) and Ian Morrison of the lobby group Friends of Canadian Broadcasting called for the status quo (CCR Update, Nov. 28/02). "The reality is that there is no easy solution," said Bernard Courtois, executive counsel for BCE Inc. and Bell Canada. The diversity of voices could be affected by a North American market for content that is more homogeneous, he noted. Alain Gourd, group executive VP corporate at Bell Globemedia, pointed out that one consequence might be a plummeting of the levels of French-Canadian content in Quebec as a foreign-owned broadcaster would likely replace some of the homegrown content with dubbed Hollywood product it produces. "One concern is once these foreign business bodies step into our board rooms, what are their demands going to be. Is there going to be a continued place for Canadian voices and Canadian stories? Those voices will be compromised," McDonald argued. She further pointed out that a lobby by foreign owners could very well develop to have current Canadian content regulations changed. "There is no guarantee that existing rules would remain," she cautioned. "I am heartened to see that BCE is looking at this issue so hard. They are in the content business, and we’ve put together a very delicate system."

Abolish foreign ownership restrictions in cable industry, cable leaders tell committee

Broadcast | December 5, 2002

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