Competition Bureau’s foresight was 20/20 in allowing Corus-WIC merger

If the Competition Bureau was second-guessing itself after more than six years, it can stop: a report released earlier this month reveals the bureau accurately assessed market conditions and reasonably predicted outcomes when it approved Corus Media's acquisition of the WIC Broadcasting assets in 2000. For everyone else in the broadcasting space, the report offers a glimpse at some of the effects of increased media consolidation. In Ex Post Merger Review: An Evaluation of Three Competition Bureau Merger Assessments, which was commissioned by the bureau last year, CRA International Inc. also looks at the 2003 merger of a number of Western Canadian coal companies and the 1998 joint venture between building material suppliers Carmeuse and Lafarge S.A. The Corus/WIC transaction, however, which came on the heels of a change in the CRTC's common ownership radio policy, is presented as the main case study. Given the bureau was operating in relatively uncharted territory when it approved the acquisition, it was likely pleased by CRA's positive assessment. "The bureau's analyses were quite accurate in terms of their predictions of market conditions into the future, given the information that was available at the time of the review," reads the report. "We found no instance where the bureau made a significant error in logic or made use of an erroneous assumption or measurement." In 1998 the CRTC increased to three the number of radio stations a company could own or control in a market where there were less than eight stations (small markets) and to four in markets with eight or more stations (large markets) - the previous policy allowed ownership of only one AM and one FM station in any market. The fallout of the policy change was substantial: 58 transactions took place in 1998 and the first quarter of 1999 compared to only eight transactions two years earlier and the revenue share of the five largest broadcasters increased from 41% in 1997 to 64% by 2005. As the market faced a period of potentially unprecedented ownership concentration, CRA notes that, not unlike the situation we currently face with television today, the broadcasters "argued that consolidation would lead to an increase in the diversity of formats, though the CRTC was not fully convinced of the extent of such an effect."Corus' acquisition of WIC presented the Competition Bureau with one of the largest and earliest transactions induced by the 1998 policy as Corus acquired two stations in each of Vancouver, Calgary, Edmonton, Winnipeg, Hamilton and Toronto. Although the bureau noted that market shares in Calgary and Edmonton were high enough to raise concerns, it concluded that sufficient competition remained in these markets and that entry was likely due to an additional policy amendment by the CRTC.To counteract the impact of the revised policy on consolidation the commission also eliminated the Radio Market Policy, thereby reducing barriers to entry. This change facilitated an increase in the total number of radio stations in Canada from 479 in 1997 to 722 in 2005. Indeed, the bureau's prediction of increased entry more than came to fruition, but the massive change in the market structure also made it difficult for CRA to separate impacts of the Corus/WIC transactions from those resulting from the policy change. As such, the report delves as much into the overall impact of allowing more consolidation and entry on the radio market. "The result of increased consolidation and entry is resolved by examining large and small markets separately," reads the report. "In large markets, by 2004 there were 1.1 fewer owners on average and 1.5 more stations. In small markets there were also more stations per market (0.8) but also more owners per market (0.2). Thus we observe the number of stations per owner increased more in large markets than in small markets."In terms of variety, the report presents one rationale that "a 10% increase in the number of stations results in only a 1.9% increase in the number of formats," so a diversity of programming may not have been proportionally served by entry. This relates directly to the impact that consolidation and expansion has on listeners, which CRA writes is the one area the Competition Bureau neglected in its analysis. "We do not have a measure of the benefits generated to listeners from radio, but it seems safe to assume that it is very large and on the order of importance as the benefits to advertisers," writes CRA. "The available evidence, including that presented here, clearly suggest that listeners are impacted by mergers....There is certainly the possibility that radio stations could exercise market power over listeners by increasing commercial loads, and it is also possible that listeners could benefit from mergers if quality improves."

Competition Bureau’s foresight was 20/20 in allowing Corus-WIC merger

News | 10/17/2007 10:58 am EDT

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