5 April 2007 Ms. Diane Rhéaume Secretary-General Canadian Radio-Television & Telecommunications Commission Ottawa, Ontario K1A ON2 Re: Broadcasting Notice of Public Hearing CRTC 2007-3- Item 1, Application by CTVglobemedia Inc. (CTVgm) (formerly Bell Globemedia Inc.), on behalf of CHUM Limited (CHUM) (Application No. 2006-1667-5) Dear Ms. Rhéaume: Introduction 1 The Canadian Broadcasting Corporation/Radio-Canada (“CBC/Radio- Canada”) is pleased to submit the following intervention in response to an application by CTVglobemedia (CTVgm) on behalf of CHUM Limited (CHUM) seeking approval for the transfer of all of the Common Shares of CHUM to CTVgm’s wholly-owned subsidiary 1714882 Ontario Inc. 2 CTVgm is the largest broadcasting conglomerate in English Canada with extensive assets in the area of conventional television, specialty services, newspaper and new media. CHUM is the third largest broadcasting group in English Canada with significant assets in conventional television, specialty services, radio and new media. If approved by the Commission, this transaction would create a broadcasting entity of unprecedented scope and scale across all broadcasting platforms. 2 3 According to its application, CTVgm wishes to retain a subset of CHUM’s regulated operations and divest the remaining licensed undertakings to independent third parties.1 However, the latter are marginal assets and the proposed divestiture does not at all reduce the significance of this transaction. 4 CTVgm values the transaction – as it relates to the regulated assets which CTVgm wishes to retain - at $1.36 billion and proposes a tangible benefits package for the relevant assets (conventional television, specialty services and radio) amounting to $103.5 million. 5 CBC/Radio-Canada has identified three areas of concern with CTVgm’s application: • The resulting entity would have an unprecedented scope and scale in the Canadian broadcasting system, which would grant it an undue competitive advantage and have a significant adverse effect on other broadcasters, such as CBC Television, in both the advertising market and in the programming supply market. • The transaction would result in a concentration of ownership which would have an unacceptable impact on the plurality and diversity of voices in English Canada and would directly conflict with the Commission’s common ownership policy for conventional television stations. • The proposed valuation of the transaction is incorrect and the proposed distribution of tangible benefits is inappropriate. 6 As a result of these concerns, and specifically, in view of the inappropriate nature of the distribution of the proposed benefits, CBC/Radio-Canada opposes the CTVgm application. CBC/Radio-Canada wishes to appear at the oral hearing to present and expand upon its views. 1 The divested assets would comprise CHUM’s A-Channel Television Stations (CIVI-TV Victoria, CHRO- TV Pembroke, CHRO-TV-34 Ottawa, CFPL-TV London, CHWI-TV Wheatley, CKNX-TV Wingham, CKVR-TV Barrie), CKX-TV Brandon, Access: The Educational Station, The Learning Channel and SexTV: The Channel. 3 The Creation of a Juggernaut 7 CTVgm owns 25 conventional television stations, 21 specialty services, the Atlantic Satellite Network (ASN) and 40% of TQS. In the Fall of 2006 CTVgm aired 16 of the top 20 shows on English television. In 2005, CTVgm received 36% of total English television advertising revenues – nearly 50% more than its nearest rival, Canwest, which had a 25% share of the advertising pie. TV Advertising Revenues by Major Player, English-Language Services 2005 Other Quebecor 6% 1% CBC CTVglobemedia 6% Rogers 1% 36% Corus 6% Alliance Atlantis 5% Canwest CHUM 25% 14% Source: CBC/Radio-Canada estimates based on CRTC Data 8 There can be no doubt that, even prior to its proposed acquisition of CHUM, CTVgm is by far the largest and most successful television broadcaster in English Canada. 9 CHUM is the third largest English language broadcaster in Canada with 12 conventional television stations, 21 specialty services, 34 radio stations and a subscription radio licence. In 2005 CHUM garnered 14% of total English television advertising revenues. 4 10 If the new CTVgm were to come into existence, its dominant position in the Canadian broadcasting system – especially in the area of English television - would have very serious consequences for other broadcasters. 11 In the area of advertising, CTVgm’s enormous number of services, as well as its success at acquiring top shows – in part because of the depth of its financial resources - would provide it with an unprecedented degree of power in the advertising market. In particular, CTVgm would be in a position to demand that advertisers wishing to purchase spots in the most popular “must have” programs would have to purchase a bundle of ads across its full range of services, including some of CTVgm’s less attractive spots. This could include buys on Citytv to further support its move into the US simulcast business that is already improving its power ratio. Power Ratio* of English-Language Conventional TV Services, 2002 - 2005 3.6 CTV 3.4 3.2 o CanWest 3.0 2.8 CHUM Power Rati 2.6 2.4 2.2 2002 2003 2004 2005 Source: CRTC; BBM/NMR * Power Ratio: Revenue share / Previous year audience share 12 The dominant position of CTVgm in the advertising market would significantly impair the ability of smaller broadcasters, including CBC Television, to grow their advertising revenues. Given that over 50 % of CBC television’s funding comes from commercial revenues, and that the vast majority of this amount is derived from advertising, this situation could have a very serious negative effect on CBC/Radio-Canada’s ability to fulfil its licence conditions and its statutory mandate. The same would likely also be true for private sector television licensees. 5 13 The timing of such an outcome is particularly problematic. As the Commission is well aware, the advertising market for conventional television broadcasters has stalled and may soon be in decline. The most recent evidence that describes this situation comes from the Commission’s 2006 Private Conventional Television Financial Summaries, where total conventional broadcaster advertising revenues (local and national) experienced a mere 0.2% annual growth in 2006. CBC/Radio-Canada Television and other small private conventional television broadcasters, who are already suffering from this market stagnation, will be the hardest hit by this proposed merger that will draw together and control a greater proportion of increasingly elusive advertising dollars. 14 In addition to dominance in advertising, CTVgm would also achieve an unprecedented dominance in the market for programming. It is already the case that CTVgm acquires significant excess programming that stays on the shelf. This is programming that other broadcasters might have wished to buy but could not. CTVgm also engages in restraint of trade because its programming power gives it the leverage to significantly outbid other players for major properties, such as the Olympics, and thereby discourage the formation of competitive programming alliances around specific program properties, particularly sports. 15 The new CTVgm would have significantly enhanced buying power and a much greater array of television viewing slots for the programming it acquires. With advertising revenues likely to be twice those of Canwest and 8 times those of CBC Television, the new CTVgm would be able to outbid virtually all other broadcasters for the most popular programming – foreign or Canadian. This extraordinary buying power would further entrench CTVgm’s ratings position, reinforce its dominance in the advertising market and provide it with yet greater strength in the programming market. 16 The potential for a snowballing effect is obvious. The end result could be an overwhelmingly dominant television broadcaster with all other broadcasters playing only niche or marginal roles. And, even if the situation were to stabilize prior to reaching such an extreme result, it would almost certainly settle in a way that would leave CTVgm in a position of unrivalled predominance in the English television market. Other broadcasters would be seriously weakened and unable to contribute in 6 anywhere near the same fashion to the broadcasting system as they have in the past. This would be as true for CBC Television as it would for private broadcasters. 17 Approval of this transaction as presented by CTVgm would give the new CTVgm 30 conventional television stations – almost 30% more than the next largest player Canwest, 37 specialty services – more than any other player in the system, 50% of total advertising revenues in the English market and real dual station ownership in all of the must-buy markets in English Canada. 18 In CBC/Radio-Canada’s submission, CTVgm’s proposed acquisition of CHUM would have a totally unacceptable impact on the Canadian broadcasting system by creating a single broadcaster of unprecedented size and dominance. The negative consequences for other broadcasters and for the system as a whole would be extremely serious. In order for a competitive market to function effectively there has to be some measure of balance between the players. If approved, this transaction would put the Canadian broadcasting system seriously out of balance. 19 There is no counterbalancing public policy reason which would justify allowing this transaction to proceed on the basis proposed by CTVgm given the negative implications for the Canadian broadcasting system. Moreover, the proposed transaction is especially inappropriate given the potential social consequences that could result from such a concentration of media ownership and control. Concentration of Ownership – The Impact on Plurality and Diversity 20 In addition to the economic and operational consequences of CTVgm’s proposal, there is also a concern for the maintenance of a plurality and diversity of voices in Canadian broadcasting. 21 This is a matter of vital importance for the democratic, social and cultural health of Canadian society. If a free and democratic society is to be healthy and vibrant there must be both a plurality and a diversity of voices available across all 7 media.