BCE says Astral acquisition to provide more stability for broadcasting sector

MONTREAL—BCE Inc.’s $3.38 billion acquisition of Astral Media Inc. will provide more scale and stability for Bell’s assets in the broadcasting sector, particularly for local TV stations declining in revenues, BCE and Astral officials told CRTC commissioners. A panel of 17 Astral and Bell officials appeared before commissioners Monday to open a weeklong hearing on BCE’s reworked application to acquire Astral, a radio station and specialty channel owner, after the regulator denied the company’s initial application last fall, citing concerns about BCE’s market power, competition, and a deal that it said wasn’t in the public interest. BCE officials told the CRTC Monday that it has addressed the CRTC’s concerns about market power and viewership shares in the English and French markets, referring to its agreement announced in March with the Competition Bureau, under which BCE will sell off 12 specialty channels, half of them to Corus Entertainment Inc. The company said the deal would bring more competition to the Quebec market and stability to the local, over-the-air TV stations it owns, including the CTV and CTV Two networks, after the company said last December that local TV stations cannot survive on advertising alone. “All of Bell Media’s local television stations, as well as Astral’s two local TV stations in British Columbia, will remain open with current levels of programming maintained,” said Kevin Crull, president of BCE division Bell Media. “The financial model is very challenged but I don’t think that the business is going to stop serving viewers anytime soon.” Bell and Astral officials told commissioners that BCE would build on Astral’s resources and programming, including investments in Canadian content, if the deal goes through. Ian Greenberg, president and CEO of Astral, said Bell’s acquisition of popular Astral programming, including HBO shows, will support Bell’s plan for a TV Everywhere service to compete with online, foreign competitors like Netflix Inc., which is growing subscribers. Greenberg said that at the beginning of last year, Netflix had about one million subscribers, and that now, a year later, the company estimates Netflix’s Canadian subscribers to be close to two million. George Cope, chief executive of BCE, said the company wants to build on an investment of $6 billion in Canada’s broadcasting sector since it’s acquisition of CTV for $3.2 billion in 2010. Cope rejected criticism from competitors who argued in comments to the CRTC that Bell is seeking excessively high rates for the rights to its content for mobile and over-the-top platforms. Cope said BCE’s business model depends on licensing its TV Everywhere content and system as widely as possible so that all consumers have access to it. “Our model fails if we don’t distribute this content through every one of those channels. Our stock will be hammered, the business will fail, and the $6 billion will be have to be written off,” Cope said. He said BCE, a vertically integrated company with mobile wireless, broadcast, and wireline divisions, is now negotiating the licensing of its TV Everywhere content and platform with companies across the country, and that the regulatory process is putting a chill on those negotiations. CRTC Chair Jean-Pierre Blais opened the hearing Monday by saying the CRTC will look at whether the transaction is in the public interest. “This is without a doubt an important transaction. Its scope and magnitude are such that it could potentially redefine the Canadian broadcasting system and have an impact on the communications system as a whole,” Blais said. Through the Astral acquisition, BCE would own The Movie Network and its HBO content, one of the most valuable channels on television. Bell has said TMN and its existing TSN channel account for 13.8 per cent of all cable TV operator's programming costs. Competing broadcast distributors Telus Corp. and the members of the Canadian Cable Systems Alliance (CCSA) said in comments to the CRTC last month that they could not get access to the company's content for on-demand platforms at reasonable rates, raising concerns from the CRTC that BCE could use its stable of channels to an unfair competitive advantage. BCE officials proposed that they would include references to the CRTC’s vertical integration regulations—intended to prevent large, vertically integrated companies from anticompetitive behaviour—into its broadcasting licences. Blais asked whether BCE would be willing to insert specific provisions from the code into its licences, to which the officials said they would provide a more detailed answer on Wednesday. The BCE and Astral officials said their reworked application addressed the CRTC’s concerns about the deal expressed last fall, and that Bell’s acquisition of additional French-language content would increase competition in Quebec with Quebecor Media Inc., whose Videotron Ltd. cable subsidiary has 80 per cent share of the broadcast distribution market in the province. As part of its application process, BCE filed a report with the CRTC that said, in the French-language TV broadcasting market, the company would end up with a 24 per cent share of the revenues, compared to 21.2 per cent for Quebecor, 40.2 per cent for CBC/Radio-Canada, and 9.6 per cent for other, smaller broadcasters. Blais asked whether more content in the hands of one company could raise costs for other broadcast distributors and affect choice and affordability for TV consumers, especially as the rights to acquiring programming are outpacing the rate of inflation. Cope said BCE cannot control what other broadcast distributors charge for their TV services, though he said larger scale media companies are a way to keep costs down. “Our scale, the scale of Rogers , the scale of Shaw , the scale of Quebecor, I think is actually the future and a way to maybe keep costs reasonable as they pass through to the consumer,” Cope said. “We can guarantee the consumer more choice, a healthier environment in Canada, and probably on balance, the costs a little bit lower.” Crull said programming and licensing costs for the pay and specialty channel sector in 2012 rose almost twice as much as revenues. “Broadcasters are right now absorbing those costs, and recouping them in advertising or passing them on to distributors,” Crull said. Blais said BCE’s English-language TV audience share would be 35.7 per cent after the channel divestitures, and noted that the CRTC’s 2008 diversity of voices policy says the commission will “carefully examine” any acquisition that results in a company having between 35 and 45 per cent of English or French television audience share. “You would have, at the end, three of the top 10 English discretionary services. You already have two in the form of TSN and Discovery, and you’d be adding The Movie Network. Shouldn’t we be concerned about that, taking into account that you’d have 35 per cent of English-language discretionary services?” Blais said. Cope said bigger scale for the company will help it compete with more to offer and wider distribution in the over-the-top space, benefiting consumers and the Canadian broadcasting system. “There is a benefit across the entire system,” he said. The hearing continues this week with interveners, including Rogers, the Public Interest Advocacy Centre, and Telus Corp. on Tuesday and Quebecor and the CCSA on Thursday. BCE will reply to the interveners on Friday. BCE also reports its quarterly earnings on Thursday. —With reporting by Simon Doyle at sdoyle@thewirereport.ca and copy editing by Nicholas Kyonka at nkyonka@thewirereport.ca

BCE says Astral acquisition to provide more stability for broadcasting sector

News | 05/06/2013 6:33 pm EDT

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