When Media Giants Merge, What's the Worry?

This week the Canadian Radio-television and Telecommunications Commission will hold hearings on Canada's biggest media and communications merger -- BCE Inc. and CTVglobemedia Inc. The merger will combine the country's biggest telecom provider, private broadcaster, Internet provider, and second largest wireless provider into a single powerhouse.

The implications are enormous, yet in stark contrast to a similar recent merger in the United States between cable giant Comcast and broadcaster NBCU, the competition concerns will take a back seat to the "benefits package" that BCE must pay to the Canadian cultural community.

The U.S. merger resulted in a year-long review by the Federal Communications Commission (the CRTC's counterpart) and the Department of Justice (DOJ). The DOJ alone interviewed more than 125 companies and individuals in the industry and reviewed over one million documents from the merged companies.

While the deal was ultimately approved, the U.S. regulatory bodies focused on the prospect that the new media giant could lead to anti-competitive behaviour. For example, the emergence of the online video distributors such as Netflix, GoogleTV, iTunes, and Hulu were identified as particularly vulnerable with the FCC concluding that "Comcast-NBCU will have the incentive and ability to discriminate against, thwart the development of, or otherwise take anticompetitive actions against OVDs."

As a result, the FCC established a host of rules designed to maintain a competitive environment and restrict the merged Comcast/NBCU from discriminating against these new competitors. Moreover, it forced Comcast to drop off the Hulu board of directors and even extended net neutrality rules to the set top box, which will increasingly be used to distribute both digital TV and the Internet.

Competition not so much Canada's concern

The exhaustive nature of the review and the focus on preserving a competitive market for the distribution of content on multiple platforms including the Internet is striking when compared to the Canadian situation.

The CRTC received more than five hundred comments on the merger, but the majority fall into two categories that have little, if anything, to do with future media distribution models. The first category are hundreds of letters of support for the merger from charities, retailers, restaurants, sports teams (including the Ottawa Senators), and politicians, all expressing their admiration for Bell and CTV, ignoring the competitive implications, and urging the commission to swiftly approve the transaction.

The second category come from creator groups such as the Directors Guild of Canada, the Documentary Organization of Canada, and the Canadian Media Production Association, who focus almost exclusively on the size of the benefits package that should be paid as part of the transaction. This payoff -- designed to help fund the creation of new Canadian content -- might provide some short term benefits but does nothing for the longer term implications of a converged, vertically integrated marketplace with the prospect for excluding new competitors and stifling the distribution of the very content the groups hope to create.

Competition breeds innovation

While the CRTC is scheduled to address the vertical integration issue in a separate hearing in June (originally planned for May but postponed when Canadian broadcasters advised the commission that they would be in Hollywood purchasing rights to U.S. programs that month), it may come too late. Companies such as Telus, Cogeco, and Eastlink raised concerns (as did ACTRA), but BCE has responded that "vertical integration is typically accompanied by economic benefits which should be encouraged by regulators."

The CRTC's take remains to be seen, but it is the comparative approaches between the U.S. and Canada that tell a bigger story -- one focused on long-term competitiveness and marketplace innovation in using the Internet to find new ways to distribute content and the other jumping at short-term gains that come with the benefits package payoff without regard for how their work will ultimately be distributed.