HERI Committee Report

MAINTAINING A SINGLE SYSTEM

Chapter 11
Ownership

Ownership issues, and debates around ownership, have tended to focus on fundamental questions about values such as: What is the appropriate mix of public and private property in the system? What are the rights enjoyed by the owners of private broadcasting undertaking? What obligations are attached to those rights?

This chapter looks at these fundamental questions. It begins by reviewing the history of ownership concerns in Canada, current rules and the various types of media ownership that exist in Canada today, including horizontal integration, vertical integration and cross-media ownership. This is followed by a discussion of diversity and ownership. Thereafter, the merits and drawbacks of foreign ownership in the Canadian broadcasting system are discussed. Where applicable, what the Committee was told is presented and proposed solutions are offered.¹

A. Current Ownership Rules for Canadian Broadcasters and Distributors

The philosophy of Canadian ownership and control has always been central to Canada's cultural industries. The Broadcasting Act of 1968 established a policy that the Canadian broadcasting system should be owned and controlled by Canadians. The purpose of this principle was "to safeguard, enrich and strengthen the cultural, political, social and economic fabric of Canada." To this end, Section 22(1)(a)(iii) of the Broadcasting Act (1968) stated that:

No broadcasting licence shall be issued, amended or renewed ... (a) in contravention of any direction of the Commission issued by the Governor-in-Council under the authority of this Act respecting...

To implement this principle, the government issued Order in Council P.C. 1968-1809 on 20 September 1968, directing the CRTC to reduce the permissible foreign ownership. This Direction reduced the permissible foreign ownership of Canadian broadcasting to 20% of the voting shares. It also required all members of the Board of Directors to be Canadian citizens and limited total foreign ownership of all investment in any licenced undertaking, including debt capital and retained earnings to 60%. Holding companies were limited to one level.

A new Direction (Order in Council P.C.1969-630), issued on 27 March 1969, allowed an additional level of corporate holding companies and broadened the definition of the term "Canadian citizen" to include a personal corporation totally owned by Canadian citizens. This Direction also added cable television to the foreign ownership requirements and prohibited participation by a foreign government.

In 1970, the Special Committee of the Senate on Mass Media, chaired by Senator Keith Davey expressed concern about increased cross-ownership among the Canadian media and of media ownership by non-media conglomerates. Another concern was that large media entities in the Canadian system were not dedicating sufficient resources toward the achievement of public-policy objectives, such as Canadian television programming. That senate committee, however, did not propose limits on cross-media ownership and concentration; instead, it recommended that the Broadcasting Act be amended to recognize that the public interest should be protected against excessive media concentration.

The 1978 Royal Commission on Corporate Concentration, chaired by Robert B. Bryce, also studied media concentration and cross-ownership but within the context of a broader study on the implications of concentrated ownership in all sectors. The general conclusion of this report was that an ownership group could potentially take advantage of its dominant position, but that "there are no practical legislative or regulatory instruments available to deal with this problem."² The report also noted, that: "the CRTC has the power to control the ownership of broadcasting outlets but it is apparent that their decisions are much more heavily influenced by other considerations."³ With this in mind, the report's authors recommended that: "the CRTC be empowered to prevent the owners of broadcasting stations from also owning newspapers and other print media that circulate in the same market."⁴

The Royal Commission on Newspapers chaired by Tom Kent, which reported in 1981, did not have the mandate to look at broadcasting, but dealt nevertheless with the question of newspaper and broadcaster cross-ownership. This report concluded that cross-ownership was a matter for concern, where cross-owned media were operating in the same market. Where common ownership was found in the same market, the Commission's authors were of the view that newspaper interests should not be permitted to own a cable outlet, radio or television station if 50% of the population who could receive these stations lived in the area where the newspaper was available.

Based on these recommendations, the government issued an Order in Council Direction on 29 July 1982, which stipulated that the CRTC may not issue or renew licences to applicants effectively controlled, directly or indirectly, by the owner of a daily newspaper "where the major circulation area of the daily newspaper substantially encompasses the major market area served or to be served by the broadcasting undertaking, unless the Commission is satisfied that refusal to do so would be contrary to overriding public interest."⁵ This directive was rescinded in 1985 (Order in Council P.C. 851735) upon a change in government.

The Task Force on Broadcasting Policy chaired by Gerald Caplan and Florian Sauvageau noted in its 1986 report that Canada had no policy regarding the acceptable threshold for concentration of media ownership, and suggested that it was time to address that question. Since that time, the CRTC has revised its regulations on radio and television, to allow ownership or control of "no more than one over-the-air television station in one language in a given market,"⁶ as well as three or four radio stations in one language in a given market (depending on market size). In addition:

Where an independent producer applies (whether alone or with other partners), either to purchase an interest in, or to obtain a licence for, a broadcasting undertaking, the Commission will expect the applicant or applicants to address the issues arising from the vertical integration of a production company and a broadcaster, and propose appropriate safeguards.⁷

In other words, in the case of independent production companies, the CRTC now examines each proposed ownership transaction that comes before it, with the expectation that the applicant(s) will address issues arising from any resulting integration, and propose appropriate safeguards.

Regarding foreign ownership, as noted in Chapter 2, the Broadcasting Act of 1991 preserved the principle that the Canadian broadcasting system "should be a single system, effectively owned and controlled by Canadians." Apart from this recognition in the Act, the federal government's Convergence Policy Statement of 1996 suggested that telecommunications and broadcasting organizations should be treated equally. Concerning competition, it supported an update to:

Canadian ownership rules for broadcasting licensees to encourage the investment required to accelerate the implementation of the advanced technologies and to increase Canadian content services by harmonizing the rules for the broadcasting industry with those of the telecommunications industry.⁸

That said, the Government also noted that:

Canadian ownership rules applicable to broadcasting and telecommunications must be respected. Although the requirements for broadcasting have been substantially harmonized with those now in place for telecommunications, it is not government policy to ensure ongoing harmonization of ownership rules for broadcasters and Canadian carriers in the future.⁹

For this reason, it concluded that:

While new technologies allow providers of telecommunications and broadcasting services to offer similar services, the distinction between telecommunications, broadcasting and their services will remain. Different policy objectives require distinct regulatory mechanisms.¹⁰

The Governor in Council on 8 April 1997 issued a Direction to the CRTC (ineligibility of Non-Canadians) requiring 80% Canadian ownership and control for all broadcast licensees and 66.6% for holding companies. This Direction also sets out additional restrictions on non-Canadian activity to maintain effective domestic control of broadcasting as follows:

The Canadian Radio-television and Telecommunications Commission is hereby directed that no broadcasting licence may be issued, and no amendments or renewals thereof may be granted, to an applicant that is a non-Canadian.

... Where the Canadian Radio-television and Telecommunications Commission determines that an applicant is controlled by a non-Canadian, whether on the basis of personal, financial, contractual or business relations or any other considerations relevant to determining control, other than the beneficial ownership and control of the voting shares of a qualified successor by a Canadian carrier or its acquiring corporation, the applicant is deemed to be a non-Canadian.

The definition of Canadian is key. This may be straightforward for individuals but can be complicated for organizations.¹¹ Shareholders can own a company that itself owns other companies. The company that owns all or part of another company or companies is a holding company. Thus, the owners of the holding company indirectly own any companies owned by the parent company.

In terms of limiting foreign ownership and control, attention must be paid to both direct and indirect ownership. According to the federal government's 1997 Direction to the CRTC, non-Canadians may own up to 20% of a broadcaster directly and up to 33.33% of a holding company that owns a broadcaster. In effect, this allows a non-Canadian to own up to 46.7% of a Canadian broadcaster. Figure 11.1 shows how this is calculated.

For large corporations whose shares are widely held, a block of voting shares less than 50% can still provide effective control of a corporation. To overcome this possibility the Direction defines control to mean:

control in any manner that results in control in fact, whether directly through the ownership of securities or indirectly through a trust, an agreement or arrangement, the ownership of a corporation or otherwise.

If a non-Canadian has effective control, by any means, in a Canadian corporation, that corporation loses its status as a qualified corporation. Without that status the corporation may not acquire or be granted a broadcasting licence in Canada.

Surprisingly, the schedule of regulations related to the Investment Canada Act does not include broadcasting; it simply makes reference to a "prescribed specific type of business activity that, in the opinion of the Governor in Council, is related to Canada's cultural heritage or national identity." This omission is not of great significance, however, given the mandate for Canadian ownership and control of broadcasting that is found in the Broadcasting Act.¹²

The Competition Act in a less direct sense also deals with issues related to ownership. The Competition Bureau sets out permissible types of corporate behaviour in the marketplace. As the Commissioner of Competition noted in his 22 May 2002 appearance before the Committee:

The Competition Act is a federal law of general application to the Canadian economy. The [A]ct governs with some exceptions, all business dealings in Canada, and contains both criminal and non-criminal provisions. ...

The ultimate objective is the safeguard and protection for the competition system rather than the protection of (the) individual competitor. The Competition Bureau's mandate is straightforward. We strive to ensure that Canada has a competitive market place and that all Canadians enjoy the benefits of competitive prices, product choice and quality service.¹³

B. Broadcast Media Ownership in Canada

Figure 11.2 shows the 10 largest media groups (excluding telecommunications) by revenue in Canada today: As can be seen, the revenues of these top groups — although not a consistent set — total more than $12.5 billion.

It should be pointed out, however, that these groups are — relatively speaking — not that large when compared with the world's top audiovisual companies. As the Centre d'études sur les médias points out in a paper prepared for the Committee:

... none of these Canadian players appears in the lists of the world's top 50 audiovisual companies for 2001, as established by the European Audiovisual Observatory. That ranking is dominated by three American corporations: Time Warner, whose audiovisual revenues (films, radio and television) have reached US$19.7 billion, Viacom with US$19 billion and Walt Disney with US$18.3 billion.¹⁴

As can be seen, each of the world's three largest media companies has revenues that eclipse the top 10 Canadian companies combined. However, as the following citation demonstrates, ownership in Canadian broadcasting can best be characterized as an intricate and intensely interconnected set of stakeholders:

In Canada, a ... thrust towards consolidation and vertical integration has ... taken place. CanWest Global, for example, has consolidated its national network of television stations. It subsequently purchased the newspaper and Internet assets of Hollinger Inc.. ... CanWest Global is also vertically integrated through its acquisition of production house, Fireworks. At the same time, Bell Canada Enterprises bought both CTV Inc. and the Globe and Mail. CTV and the Globe and Mail were added to BCE's Internet service Sympatico in a newly created media holding, Bell Globemedia, which also owns, along with partner Cogeco, the French-language broadcaster TQS. On a smaller scale, Corus Entertainment, which is affiliated with the Shaw cable group, has acquired control of animation producer Nelvana. And in French Canada, Quebecor has acquired the Quebec-based TV giant Videotron, which in turn controls the TVA television network, two production houses — TVA International and JPL Productions — plus a dozen specialty channels.... As a result of these mergers and acquisitions, there is now a small cluster of powerfully vertically integrated media giants in Canada.¹⁵

This particular expression of concern highlights three different types of issues about ownership in Canada: horizontal integration, vertical integration and cross-media ownership.

Horizontal integration deals with a firm taking over a similar business (e.g., a television broadcaster acquiring other television broadcasters or increasing its market share among television broadcasters). Vertical integration deals with a firm in an industry acquiring firms in other stages of the same industry (such as a television broadcaster acquiring a production company that makes television programs). Cross-media ownership deals with a firm in an industry acquiring a firm from another industry (e.g., a television broadcaster acquiring a newspaper). These various aspects of ownership are discussed below.

Before proceeding, however, it is worth noting that witnesses, in general, were of two minds about horizontal integration, vertical integration and cross-media ownership. One was that Canadian companies need to be large enough and sophisticated enough to compete in a global market. For example, Rogers Communications Inc. suggested that recent ownership changes are an ongoing process that will ensure the competitiveness of Canada's media companies on the world stage.

On the other hand, a variety of witnesses expressed concern that the concentration of media under a small number of ownership groups will pose a threat to the democratic process by reducing access to a diverse range of different views and opinions. Witnesses expressing this view would like to see restriction on the concentration of ownership to prevent the possibility of having just one voice in particular contexts. This particular issue, which was also raised in the Committee's panel discussions on foreign ownership, will be addressed in a separate section of this chapter.

Horizontal Integration

One trend that has long been a concern is the movement towards a horizontal integration (concentration) of ownership. Figure 11.3 shows recent trends in multi-station television ownership in Canada. It shows that top five ownership groups owned 68% of all television stations in 2000, up from 28.6% in 1970. It also shows that single-station ownership was far less common in 2000, with just six such entities.

There are similar concerns about the cable industry. In 1999, for example, the top five cable companies (Rogers, Shaw, Videotron, Cogeco and Moffat) had 80.1% of all cable subscribers. Since then, there has been even further consolidation, with Shaw acquiring Moffat's cable operations in March 2001. As the president of the Canadian Cable Television Association put it before the Committee:

To give you a perspective on the cable industry, there are six companies that serve almost 90% of the Canadian cable television customer base and over 100 companies that serve the rest of the market. These larger companies have already expanded their offering, adding digital cable and high-speed Internet service for our customers. Some of the smaller cable companies have also started to introduce advanced services, but many of them offer a more limited service due to the significant investments required to bring these advanced technologies to their remote and geographically dispersed customer base.¹⁶

The direct-to-home satellite market is even more concentrated than cable with two firms, ExpressVu and StarChoice. Both cable and satellite companies compete as broadcasting distributors for customers.

Vertical Integration

The CRTC has long worried about vertical integration (or concentration) that is, the simultaneous ownership of different stages in the production, broadcasting and distribution of programs. Its major concern has been that an undue preference would be given to programming from a related entity (or programming from a competitor to a related entity would face discrimination) and that this would reduce diversity of voices.

Until recently, the CRTC examined potential issues arising from the vertical integration of program producers and broadcasters on a case-by-case basis. For example, cable companies were not allowed to purchase interests, including controlling interests, in analog pay and specialty programming services. In June 2001, however, the CRTC announced that cable companies would be allowed to purchase interests, including controlling interests, in analog pay and specialty programming services. This decision allowed vertical integration. Thereafter, in August 2001, the CRTC renewed the licences of CTV and Global but stipulated that no more than 25% of their Canadian content in prime time could come from production companies they owned. This decision placed a limit on the self-dealing practices (i.e., business transactions between operations owned by the same holding company) that are possible in a vertical integrated company.

Cross-Media Ownership

The term "cross-media ownership" refers to the acquisition by an individual or a firm of assets in two or more kinds of media. The year 2000 was a milestone in the evolution of the Canadian media landscape, with a large number of such changes in ownership. For instance, BCE (a telephone company) invested in television and the newspaper industry; Rogers and Shaw (cable operators), and Quebecor (a company specializing in print media and printing) acquired assets in broadcasting; and, CanWest Global Communications (broadcasters of conventional and specialty channels) bought assets in the print media.

This trend towards cross-media ownership has led to the creation of several large media companies. Figure 11.4 provides summary information on cross-media ownership for the four most dominant players (BCE, Quebecor, Rogers, and CanWest Global) in Canada today.¹⁷ As can be seen, Quebecor is active in every area listed in the above table. This puts it in a position of overall media dominance — at least in the province of Quebec — that is without parallel in any comparable industrialized jurisdiction.

Another example of a Quebec-based company with a history of cross-media ownership is Astral Media (see inset).

Conglomerates

A fourth type of ownership group is the conglomerate; that is, a business involved in activities in a number of sectors that are not directly related. The most well-known North American conglomerate with media holdings is General Electric, which also owns NBC television. Similarly, as the Centre d'études sur les médias notes:

In Quebec, Power Corporation is an example of this type of integration. Through its Gesca subsidiary (print), the group is a major media player. It also holds interests in the financial services sector (life insurance and investment funds). Internationally, its interest in Pargesa Holding gives it significant presence in Bertelsmann, a European communications giant, but also in industrial production, energy and financial services.¹⁸

Ownership and Diversity

The Centre d'études sur les médias notes that:

Diversity is considered an essential component of democratic pluralism in modern society. It is the various components of the media universe which make it possible to establish a tangible link between diversity and pluralism, while reflecting the various points of view and opinion trends in society and providing access to relevant information. In return, this enables citizens to participate in public affairs in an informed manner.¹⁹

Furthermore:

The concept of diversity is generally broken down into two main parts: content and sources. Content refers to the large range of opinion, information and entertainment that can meet the many needs of the various components of our complex society. Diversity of sources, on the other hand, refers to the producers, personnel and craftsmen who produce the content and to the media that broadcast them.²⁰

When discussing cross-media ownership and foreign ownership, many witnesses mentioned the importance of having access to diverse content and diverse sources. A great deal of uncertainty and some fear were expressed that diversity in the media — particularly television and newspapers — is on the decline. As will be seen below, however, cross-media ownership at the local level has become a matter of concern in certain local and regional markets. As University of Ottawa Professor Marc-Françcois Bernier pointed out:

When I talk about diversified information — I always come back to that — I do not mean that we should have 12 Internet sites with the same information: that is multiplicity and not diversity. And I will add that it is true that we have more access to international information now thanks to the Internet. However, local and regional information are still the poor cousins. More and more, concentration and convergence are such that decisions are made outside the regions, and people no longer have access to information that concerns them first and foremost; but they know what is happening in Nigeria, because someone feels that is more important. I am not saying that it is not important, but people must also have access to local and regional information, and that is something they have less and less of.²¹

Similarly, Ms. Anne-Marie Des Roches, Public Affairs Director, Union des artistes, noted:

In order to contribute to cultural diversity, Canada must be a master of its own creative and broadcasting space. This challenge can only be met through a consistent regulatory strategy. We must avoid communication infrastructures that only serve as relays for the broadcasting of foreign cultural products.

Controlling our own creative and broadcasting space means strengthening the balance established by the Broadcasting Act. The CRTC is responsible for managing the delicate balance between achieving social and cultural goals and supporting an economically solid and competitive communications industry. The balancing required is therefore closely linked to Canadian content requirements and the ownership of companies.²²

The Centre d'études sur les médias in its report for the Committee concluded that: "Only an in-depth study can determine" whether "pluralism and diversity of information suffered as a result" of recent changes in the ownership of Canadian media companies. This is because: "Across English Canada ... competition remains strong between the two networks (CTV and CanWest Global), as it does in news between TVA, TQS and Radio-Canada in Quebec." Furthermore, ownership concentration in English-language newspapers:

.... has declined significantly since 1999, when Conrad Black's Hollinger group held more than 40% of total circulation (English and French) and nearly half of English-language circulation. The current 37% share held by CanWest, the main publisher of dailies, is only slightly greater than that of Southam in 1980 (33%).²³

As for the French-language market, the Centre expressed some concern because: "as a result of Hollinger's sale of its three dailies to Power Corporation, two groups instead of three now account for virtually all circulation." That said:

... the two titles in Montréal and Quebec still belong to different owners. What can also be seen is that a number of observers agree that Quebec's Le Soleil, for example, has vastly improved since it was transferred from Hollinger to Power Corporation. The policies of the groups are not standardized, and there is no automatic link between a paper's quality and its membership in a chain. Some chains engage in good journalism; others do not.²⁴

With these considerations in mind, the next section briefly summarizes what witnesses had to say about diversity and ownership. Thereafter, proposed solutions are provided.

What the Committee Heard

When Mr. Alain Gourd, Executive Vice-President, Bell Globemedia, appeared before the Committee he cited a recent CRTC study on diversity in the Canadian broadcasting system which found that:

From 1991 to 2001, both the number of stations and number of owners of television stations in key Canadian markets have risen significantly. ... There has been a similar progression in the francophone market. In 1982, for example, there were basically three news services for francophone viewers. Radio-Canada, Telemetropole (TVA) and Radio-Quebec.²⁵

Furthermore:

In 2002, this figure has increased significantly. Besides TVA, which now offers LCN and Radio-Canada, which provides RDI, we now have Tele-Quebec, the new version of Radio Quebec, TQS and the French TVOntario network, TFO, by satellite, the Canal Vox community channel, Teleuniversite and le Canal Savoir, the international TV5 service and many other specialized services including Astral and Canal Vie, which all provide news in one form or another.²⁶

Speaking to this same point, Mr. Ken Goldstein, Executive Vice-President and Chief Strategy Officer, CanWest Global Communications Corp., had this to say about diversity of views. He asked:

Does cross-media ownership affect the expression of diverse opinions? No, It does not. There is nothing in the structure of cross-media ownership that has any structural impact on the expression of diverse opinions. It is a matter of corporate culture, not a matter of corporate structure.²⁷

But other witnesses vehemently and passionately disagreed with this statement. Their contention was that media convergence — by its very nature — has an inevitable impact on the diversity of views and content available to citizens. As Professor Marc-François Bernier explained:

I am particularly interested in the impact of convergence on the quality of the press and information. Convergence, or to put it another way, concentration, generally creates — and this has been borne out by several studies — a form of growing pressure to make content compatible with the businesses plans of the conglomerates.²⁸

For this reason it was his belief that: "the important thing is to have a variety and diversity of journalists in the field as well as radical independence among newsrooms in order for this diversity to work."²⁹

Speaking to this same point, Professor John Miller, Director of Newspaper Journalism at Ryerson University, asked the Committee:

Are there more reporters covering the news now than there were ten years ago? I guarantee you there are not.

Are their owners able to vote for you? Do they live in town or thousands of miles away? Can you talk to them on Main Street? No, you cannot. These papers are owned by six giant media companies, some with interests in television, radio, filmmaking, and the Internet.

These are papers whose owners' first loyalty is not to readers but to shareholders, who view the delivery of news and information as contributing nothing to the revenue side of their ledgers, just to their overhead.

That is why those media companies and their representatives have been before you seeking the widest possible rules on cross-ownership and opening up the borders to other bidders.³⁰

Similarly, Mr. Wilson Southam told the Committee:

I would urge you to remember, despite the plain promises that are made to people, that a lot of this stuff is about the nuances of climate, and climate operates in very funny ways. We'll probably never have a perfect press, but what you can do by keeping it separated in terms of local editorial independence is to at least have different biases in different places being freely expressed, which gives us some of the diversity that gave us national health and the Canadian Pension Plan.³¹

Witnesses also warned the Committee to be wary of claims that the Internet has increased the diversity of content and views available to Canadians. For example, Mr. Bernier suggested that the Internet "has not resulted in new original sources of information."³² Similarly, Mr. Tom Kent observed that:

The Internet in itself is a channel. It's not a source of content. It carries a lot of content and that's its strength. ... I think all I'm saying here is that the Internet is really ... it's not a bad thing, it is irrelevant to the problem we're discussing now.³³

Other witnesses, however, did not share this perspective. Professor Matthew Fraser, for example, noted that anyone with Internet access is free to seek out content and views from across Canada and around the world. His contention was that:

We no longer live in an era of press barons, where one British press baron can command and shape opinion, maybe in the way The Globe and Mail did a generation ago. We live in the 500-channel universe. The Internet has ... I can go on to Le Monde and read Le Monde on the web tomorrow. I can consult with The Guardian in the United Kingdom ... many newspapers. We have a diversity thanks to technology.³⁴

Furthermore, it was his belief that there is a generational factor that is often overlooked:

We tend to debate this issue through the optic or the prism of our own experience. ... We should have people in this room who are 25 and under and ask them how they consume media. ... They're on the web. They're consulting all these media organs in a very splintered way. They multi-task. They go to cnn.com. They go to cbc.ca. They might go to nationalpost.com. Or they're doing their homework while they're watching the news.³⁵

Speaking to this same point, Ms. Janet Yale told the Committee:

I think there have been some newspaper reports that talk about the concern in terms of cross-media ownership, if you will, and what that means for diversity of voices and public expression. My personal view is that with the Internet, we're in a completely different environment. There's just an explosion of sources of information for people today. If you look at young people in particular, they don't rely on the daily newspaper as a source of information. They think of the Internet certainly as one of their primary sources of information, and there are more sources of information on the Internet than you can count.³⁶

In short, witnesses perspectives were split between those who were convinced that cross-media ownership has had, or will have, important negative consequences on the diversity of views available to citizens and those who believe that there are many more ways to obtain information for Canadians than at any time in the past. It is worth noting, however, that nearly all witnesses who spoke in favour of the existing regime were from larger media companies.

Potential Solutions

Witnesses raised a number of different, but related, problems concerning the balance between reasonable limits on media ownership — particularly cross-media ownership — and the preservation of diversity in Canadian broadcast system. This situation prompted Mr. Kirk Lapointe to tell the Committee that it will be hard pressed to find a one-size fits all solution. He explained:

... meeting the challenge of diversity is a remarkable uphill undertaking. It's not a matter of snapping one's fingers and making it true. It's not a matter of setting numerical targets, recruiting and promoting in particular ways, and tracking progress. It's a day-by-day grinding and methodical process that involves everyone in an organization in an unthreatening way building a more sophisticated media operation.³⁷

Similarly, the Centre d'études sur les médias noted that:

... there will be no miracle solution to the problem of media concentration. It is through a series of measures from various sources that we will guarantee that the media discharge their social responsibility and provide the diversified, high-quality information essential to citizens and to democratic life.³⁸

In this regard, the study conducted by the Centre provides some particularly useful insights. For example:

Figure 11.5 summarizes the extent of cross-media ownership in nine major markets that were studied by the Centre d'études sur les médias for the Committee. As can be seen, apart from Vancouver, none of the major ownership groups exceed a 50% audience shares for their local newscasts. On the other hand, three of these markets — anglophone Montréal, Regina and Saskatoon — have just one local newspaper, and Vancouver has two local newspapers controlled by the same ownership.

To sum up, the Committee realizes that the question of cross-media ownership is a complex issue. Private media ownership groups are larger and more integrated than at any other time in Canadian history. The owners of media conglomerates argue that they need to be large in order to be competitive internationally and to achieve economies of scale. They are, after all, competing against global giants such as Disney, AOL-Time Warner, Bertelsmann and Viacom. On the surface at least, having big media companies with deep pockets engaged in Canadian broadcasting appears to be a positive step. They have the reach, resources and durability needed to take chances, absorb losses and promote programs. But this argument creates a particular set of problems related to cross-media ownership.

For example, companies such as CanWest Global and Bell Globemedia do not invest as heavily in Canadian television drama as many witnesses — particularly creators — would like, and for a variety of reasons (as outlined in chapters 5 and 8) remain heavy importers of prime-time American shows. Moreover, CanWest Global's insistence on a centralized editorial policy has caused some to worry that journalists will be pressured to comply with the expectations and perspectives of the parent group that owns their respective newspapers.

As witnesses concerned about the perils of cross-media ownership told the Committee, the danger is that too much power can fall into too few hands and it is power without accountability. Ownership of multiple media outlets in the same local or national market gives corporations extraordinary power to shape the views of citizens. Under such circumstances the number and range of voices and perspectives that are available to readers and viewers can be sharply limited. The cross-promoting of one media outlet by another turns news and commentary into an advertisement or a marketing ploy. This can only have a corrosive effect on the trust that citizens place in news organizations.

There are also concerns about the effects that multitasking will have on journalists. The problem is that if newspaper reporters are expected to appear on television and radio as well as file stories for the Internet, they will have less time to devote to cover news stories.

Furthermore, the argument that Canadians now live in a multi-channel universe and have access to a wide range of online news sources, ignores an important consideration. National and local news programming still attracts millions of viewers each day and newspapers still enjoy a sizeable readership.

It is noteworthy that other jurisdictions have taken action to limit cross-media ownership. In the United States, the Federal Communications Commission has prohibited cross-ownership between press and broadcasting since the 1970s. For example, in 1975 the FCC banned television/newspaper cross-ownership for two reasons: to promote a diversity of ownership and to encourage a diversity of viewpoints in the American media. More recently, the FCC reduced these barriers, but it is doing so in a market that is highly fragmented. In France, legislation seeks to ensure that no group will be in a position to dominate more than two of the four leading media sectors (press, radio, television, cable), and applies thresholds to the allowable degree of concentration at the regional and national levels. Meanwhile, the new Communications Act in the United Kingdom, proposes that no person who owns a newspaper with 20% of either a national or local readership be allowed to hold a licence for either a national or regional commercial TV service. In the U.K., restrictions would also apply to newspaper owners who wish to have radio licences.

In Canada, cross-media ownership has reached unprecedented heights with the media takeovers that occurred in 2000. The problem the Committee has confronted is how to address this situation, given that is faced with the fait accompli of convergence, consolidation and concentration. This means making recommendations that will ensure that citizens can have access to a variety of viewpoints, without throwing the Canadian media industry into financial turmoil. This is perhaps the most delicate issue that the Committee has had to address. This is why it has carefully considered a series of options:

1) Take no action and let the issue be resolved by the marketplace. Ensure strong support for public broadcasting.

The Committee has considered whether it is necessary to recommend any action given that the market appears to be in the process of "resolving" at least some of the issues. Some corporations that were caught up in a wave of optimism during the stock market and high-tech euphoria of the late 1990s now find themselves heavily in debt and unable to find ways to make convergence work. Some financial analysts have argued that the convergence model is deeply flawed and that companies will eventually retreat to their core businesses. The argument in favour of inaction is that the situation may be very different two years from now than it is today and that government intervention should be seen as a last resort. One can argue that public policy goals would be better and more effectively served by investing in public broadcasting as a way of providing the balance that the system needs.

2) Make a strong statement about the need for journalistic independence and ask the CRTC to strengthen its policy on the separation of news rooms.

With this option, the effects of cross-media ownership can be mitigated if journalists are insulated from the pressures of convergence. Regulatory barriers can be implemented to ensure that newsrooms of newspapers will be run separately and independently from television operations. This will ensure that a variety of voices is maintained. It will also avoid taking the drastic step of ordering media corporations to sell their properties. But here the CRTC may be in a bind. It will only act if it receives complaints — but journalists and others may be too afraid to complain. This may be an instance where the proposed Canadian broadcasting monitor (see Chapter 19) could play a role.

3) Propose a "contract" between media owners and directors of editorial services.

The Committee notes that one way out of this dilemma would be to adopt a suggestion made by former Royal Commission chair Mr. Tom Kent during his testimony before the Committee. Mr. Kent repeated a proposal first made in the report of the Royal Commission on Newspapers that owners sign a "contract" with editors-in-chief to ensure that there is an arm's-length relationship between editors-in-chief and publishers and owners. The contract would cover a certain time period — five years for instance — and would give editors wide discretion over all newspaper operations including editorial policy and hiring. They could also be free in the words of the Royal Commission to "comment adversely on the views or the particular actions of any person, company or other organization associated with the proprietor."³⁹

The Committee recognizes, however, that since the CRTC does not have jurisdiction over newspapers, any move to impose jurisdiction would probably provoke a major legal battle as well as a political uproar. That said, the regulator could ensure that such "contracts" would apply to television station managers. This would have the effect of distancing television operations from pressures to converge with newspapers.

4) Recommend that Canada devise a clear policy on cross-media ownership.

In this scenario, no action would be taken until new rules are formulated. As in the case of France, these rules could allow for some level of cross-media ownership to exist. A variety of solutions could be imagined. A newspaper owner might be allowed to enjoy the benefits of holding a local broadcasting licence only in cities where there were a minimum, for instance, of four other television stations. A corporation might be allowed to maintain a television licence only if it sold its majority position in the local newspaper. A minority stake could be allowed. Similarly, strict limits could be imposed on the number of broadcasting outlets and newspapers that one corporation could own. Distinctions could be made between local, regional and national markets.

5) Recommend that the CRTC be directed to not licence any broadcasting operation whose owners have a controlling interest in a daily newspaper.

Several witnesses who appeared before the Committee made this particular suggestion. Although this proposal needs further examination (e.g., it is far from clear that newspaper editorials would be influenced simply because an owner must apply to the CRTC for renewal of a broadcast licence) it is certainly appealing. As noted above, the CRTC received such a directive from government during the early 1980s. Its subsequent repeal may have been unwise. The difficulty now would be the impact that such a regulation would have on the industries concerned.

6) The outright prohibition of cross-media ownership

The Committee recognizes that this option is the most drastic. Presumably radio, television and broadcasting distribution undertakings would have to divest themselves of newspaper properties or risk not having their licences approved when they came up for renewal. The effects on Quebecor and CanWest Global in particular would be substantial. Many of the major newspapers in the country would all be for sale at the same time. It is not clear who the prospective buyers might be or whether such a step would lead to less rather than more newspaper competition. Such a recommendation, however, would be a clear message to the government, the CRTC and corporate owners.

Proposed Solutions

The Committee notes that two committees of the Quebec National Assembly, La commission de la culture and Le comité conseil sur la qualité et la diversité de l'information have released reports on media concentration in recent years. The Committee recognizes the important work of these committees and notes that before dissolution of the National Assembly in March 2003, that the government of Quebec announced its intention to introduce legislation to enhance media diversity in a context of concentrated ownership.

Thus, the Committee makes two recommendations on editorial independence and on cross-media ownership.

Editorial Independence

The Committee believes that the many challenges of cross-media ownership must be addressed to defend journalistic independence. The Committee therefore makes the following recommendations, which it believes are required to deal with the current situation, seek to correct it, and look to the future.

The Committee realizes that this is a daunting task as it implies numerous contingencies and particular circumstances. It would be tempting to propose, for example, that the CRTC be directed to refuse broadcast licences to applicants who control a Canadian daily newspaper. But should this apply only to cross-media ownership in the same local market? What about national networks and national newspapers? Who would be able to buy the properties of which certain owners may find themselves obliged to divest?

Unfortunately, the Committee does not have enough information at this stage to properly allow for all contingencies. That being said, the Committee is in a position to make a strong statement and propose a number of immediate measures. Therefore, and despite the fact newspapers are outside the mandate of this Committee — and are not subject to regulation — the Committee is of the view that action must be taken to protect the integrity of editorial independence and journalistic freedom. Therefore, the Committee strongly denounces any attempt to stifle editorial independence and journalistic freedom. Furthermore:

But for this to be effective, the Committee also believes that an oversight mechanism is necessary. For this reason, the Committee believes that the Canadian broadcasting monitor, proposed in Chapter 19, could play a role. Accordingly:

The Committee also agrees with the Centre d'études sur les médias that elected officials have a role to play. As the Centre wrote in its report prepared for the Committee:

We believe the onus is on elected representatives to take action in this field. There are major limits to the case-by-case approach. Decisions depend on specific situations and the players involved. On the other hand, the legislative approach makes it possible to develop a conceptual framework and allows for a certain continuity in rules, which should not change abruptly in response to business plans.⁴⁰

The Centre further suggests that:

Every Canadian mechanism designed to govern media ownership should therefore take the language aspect into consideration and include rules designed to maintain ownership diversity, first, at the local level, but also at the national level, to ensure diversity of national information sources.⁴¹

And, that:

... any mechanism designed to regulate cross-ownership would do well to take the groups' spheres of influence into consideration by examining all the media outlets they own or wish to acquire.⁴²

In addition to ownership regulations, the Centre notes that measures could be adopted to improve competition. Financial assistance could be provided to local media who make a vital contribution to their community. Support could be provided to media, which add to the range of diversity in information and opinion. The CBC is, of course, the first among these and any move toward resolving its chronic funding difficulties (along the lines of those recommended in Chapter 6) would help.

Cross-Media Ownership

The Committee is of the view that the potential problems with cross-media ownership are sufficiently severe that the time has come for the federal government to issue a clear and unequivocal policy on this matter. The Committee's principal recommendation on this issue is that the government direct the CRTC to postpone the awarding or renewal of broadcasting licences involving cross-media ownership pending the publication of such a policy. This should be done within one year of the tabling of the Committee's report.

C. Foreign Ownership

Canada, at least in terms of population and the size of its economy, is relatively small compared to those countries with which it has historically had political and geographic links. Canada has availed itself of foreign capital to aid its growth, but it has had concerns throughout its existence about the effects of capital flows — and strong economic links with other, larger countries — on its sovereignty and distinctiveness.

The United States, because of its geographic proximity, has always been a concern for some Canadian policy-makers. In the elections of 1887 and 1891, for example, Sir. John A. MacDonald was able to tap feelings of Canadian nationalism and a distrust of the U.S. to win elections. During this period, it was the United Kingdom that provided the bulk of foreign investment in Canada. This investment was predominantly portfolio investment rather than direct investment; that is, investment in bonds rather than equity, which entails some control in an enterprise.

By the 1950s, the U.S. was the leading source of foreign investment in Canada, particularly equity investment. Concerns about losing control of our economy led to several studies, such as the Watkins Report in 1968 and the Gray Report in 1972, both of which examined the costs of the large flows of foreign investment. These studies, in turn, led to legislation to screen foreign investment to ensure benefits would outweigh costs. These included the Foreign Investment Review Act (FIRA) of 1973, which was replaced by the less restrictive Investment Canada Act in 1985.

Both FIRA and the Investment Canada Act were broad-based, dealing with foreign investment in general. Some sectors, such as banking, were considered especially susceptible to having high costs from foreign investment and control. These sectors had specific restrictions on foreign investment. Not surprisingly, cultural industries have long had such specific restrictions.

Since the mid-1960s technical developments and regulatory changes have led to increased competition in telecommunications. This, in turn, has led to some questioning of the restrictions on foreign ownership in both the telecommunications and broadcasting sectors.

What the Committee Heard

Witnesses raised several issues concerning foreign ownership. The first was whether the current restrictions should be retained or loosened. The second had to do with the coverage of any changes. Should ownership restrictions be relaxed for both content providers and carriers? If the components are treated differently, what should the differences be? A final issue, related to the first, was how Canadian broadcasting policies, particularly Canadian content policies, could be maintained with foreign ownership.

Discussions of foreign ownership before the Committee were at times heated, with fairly clear differences among those who appeared. In general, the unions, creators and supporters of public broadcasting opposed changes to the foreign ownership restrictions. Some broadcasters and distributors favoured continued Canadian control in the industry, but thought that the current restrictions might be relaxed to allow up to 49% foreign ownership.

The Minister of Canadian Heritage told the Committee that it was the policy objectives of the Broadcasting Act, not the associated regulations that are important. She said:

The intent of the foreign ownership requirements is to ensure a diversity of voices. If these objectives can be achieved in another way, I don't think we should preordain that review, but I think you should be reviewing that.⁴³

One of the strongest statements on the need to maintain limits on the foreign ownership of broadcasting in Canada was made by Ms. Joie Warnock of the Communications, Energy and Paperworkers Union of Canada. She said:

On foreign ownership, the very fact the foreign ownership issue is being considered in the context of the Canadian broadcast system is evidence of the extent to which our public agenda is being controlled by the forces of globalization.

... The direction indicated by the very few who advocate elimination of foreign ownership restrictions runs contrary to the fundamental goals of the current Broadcasting Act. We must protect our sovereignty in one of the few remaining bastions of Canadian identity.⁴⁴

Those arguing for a loosening of foreign ownership restrictions included AOL-Time-Warner and the Canadian cable companies. The latter group emphasized the distinction between content providers (broadcasters) and carriers (the BDUs), and argued that the restrictions should continue for the former and be relaxed for the latter. AOL-Time-Warner (with AOL Canada) made its case for relaxing ownership restrictions in its brief and in its appearance before the Committee:

The Canadian government and the CRTC have recognized that Canadian companies need to be strong and well financed to compete in an increasingly global broadcasting market. The broadcasting and media industries continue to experience consolidation. Canada is no exception. Foreign investment is required to ensure Canadians continue to have access to a wide diversity of views.⁴⁵

The Canadian Association of Broadcasters, however, argued in favour of Canadian control of broadcasting but suggested that this could allow the relaxing of current restrictions to allow for up to 49% foreign ownership:

Our members have a variety of approaches to the topic of foreign ownership, as you know, and that's due largely to their corporate strategies, their structures international development strategies and so on.

At this point in time there is consensus on majority Canadian control with views on foreign ownership levels ranging from the status quo to an unrestricted 49% of ownership tied to a reciprocal liberalization of similar rules in other countries.⁴⁶

At least one broadcaster, however, saw a relaxation to 49% for foreign ownership as just the first step to getting more capital for the industry. The ultimate position could be 100% foreign ownership, a position that would not upset the broadcaster if Canadian content requirements stayed in place and were applicable to all broadcasters. As Mr. Leonard Asper of CanWest Global Communications told the Committee:

We're saying for content companies, as a practical measure in a first step, go to 49 percent. Keep the content rules, make sure you get reciprocity for it so that we can expand it to their markets and have broader outlets over which to amortize Canadian programming, for example.

We also say that a second step could be to go to 100 percent. It doesn't matter, as long as there's content regulation underneath it.⁴⁷

Another reason given for relaxing ownership rules was the increased cost of investment in Canadian capital: either in the form of debt or equity investments. This is often referred to as the cost of capital. Indeed, current limits on foreign ownership in the broadcasting sector in the U.S. and other countries can strain or limit the ability of Canadian companies to forge those strategic partnerships. As Mr. Geoffrey Elliot of CanWest Global Communications explained:

Strategic partnerships require a sufficient level of investment to ensure participation in the management and strategic direction of an asset as opposed to possible portfolio investments that the current lower foreign investment limits usually imply.⁴⁸

Mr. Elliot went on to argue that the complete elimination of the rules — although not objectionable to CanWest Global — was not required and that Canada should only make changes to its rules if similar changes were, in parallel, made in other countries.

A related argument was put forward by Professor Matthew Fraser who argued that the cross-subsidy model in Canadian broadcasting — foreign ownership restrictions that allow Canadian broadcasters to profit from showing U.S. programs so they will produce and show loss-making Canadian programs — does not really work and is, in some respects, paradoxical. As he suggested:

I would argue that in Canada, we have to conceive of the Canadian market in a different way and realize that Canada is now part of a continental market. The distinction between Canada and its regulatory system and the United States as a different territory no longer is valid.⁴⁹

One of the main economic arguments for allowing foreign ownership is that it would lower the cost of capital for Canadian firms. This argument came up several times. If foreign ownership restrictions were lessened or eliminated, the cost of capital would fall for incumbent broadcasters or, put another way, the value of their assets could rise, which would also increase their stock values. An important but difficult question is how much would the cost of capital fall if ownership restrictions were removed?

One attempt to sketch an answer to this question was given by a senior vice-president with Rogers Communications Inc., Mr. Dean MacDonald, who appeared before the Committee with the Canadian Cable Television Association:

The intense infrastructure expenditures required to maintain our competitive edge are the biggest challenge our industry now faces. It is imperative that avenues be open to gaining access to the capital needed to continually invest in the latest technology and maintain our position as a world leader in communications, and not just our industry's, but also our country's leadership role.⁵⁰

He went on to note that:

... cable companies' customers in the U.S., on average, are valued at approximately $2,000 more than the Canadian companies. With higher valuations comes a greater ability to leverage capital investments, obviously. Canadian cable companies are at a severe disadvantage relative to those in the U.S. So in order to keep making infrastructure investments, we need access to capital on more favourable terms.⁵¹

However, as Mr. Richard Paradis, President, Canadian Association of Film Distributors and Exporters, explained:

I would like to highlight the weak credibility of the argument whereby Canadian companies desperately need an injection of foreign capital to ensure their growth. This would not occur without Canadian ownership restrictions being dropped. In the last few years, a significant number of major transactions have occurred in the Canadian communication, broadcasting and media sectors in general. Nevertheless, every Canadian company involved in these transactions has easily managed to raise capital, which amounted to billions of dollars. Further, the majority of these companies raised this money entirely in Canada without needing to look for foreign investment, which is authorized to a maximum of 33.33% for parent companies and 20% for licence holders.⁵²

Another example of this view can be found in a newspaper interview with the newly appointed chairman of the CRTC, Mr. Charles Dalfen, in July 2002. Mr. Dalfen suggested that the foreign ownership rules in telecommunications and broadcasting do not need to be changed given that the current restrictions do not limit growth in these sectors. He argued:

I've worked a lot of these files in the private sector. I have rarely if ever seen deals that didn't succeed because there was a lack of foreign capital. They were business-plan driven, and to the extent that the business plan made sense, capital was available.⁵³

As mentioned, the cable companies drew the distinction between foreign ownership restrictions for carriers and restrictions for content providers. In line with this distinction comes the argument that it is the content providers who have a protective responsibility for Canadian culture and, because of this position, the foreign ownership restrictions should be retained for them. Carriers, who simply carry whatever channels or programming is approved, do not need these restrictions. Many witnesses accepted the feasibility of having different restrictions for the two segments of the broadcasting industry. For example the Alberta Motion Picture Industries Association observed that:

... if it's distribution it's on one side of that line ... Canadian ownership is not the issue; if it's about broadcasting undertakings, clearly it has to be majority owned and controlled by Canadians.

If a company had both, they would have to split it into two parts, and only the distribution holding could hold higher foreign investors. The broadcasting undertaking would still have to be majority and effectively controlled by Canadians. I think that split makes some sense. Who owns the wires and how it gets there doesn't really matter; it's what's on it. But we have to make sure that doesn't slip into them owning the content in some way. As long as it doesn't, we're okay.⁵⁴

But BCE, which owns conventional broadcasters, specialty channels and the satellite distributor Bell ExpressVu, disagreed and argued for the retention of foreign ownership restrictions for both parts of the Canadian broadcasting industry:

BCE believes that the need is still there for Canadians to control broadcasting enterprises, both programming and distribution. It has been a fundamental and long-standing policy in this country that the Canadian broadcasting system be effectively owned and controlled by Canadians. ...

BCE also believes that cable television undertakings, like satellite television undertakings, are properly characterized as "broadcasting undertakings" under the Broadcasting Act, rather than as "carrier undertakings". There's a fundamental distinction between the two activities.

... we operate broadcast distribution undertakings competing with cable and the wire-line service. ... we realize we make choices that are not like those of a common carrier. We make choices that actually have a big influence on what Canadians get to see and hear.

We recognize that if those choices were made in New York or Los Angeles, it's far more likely those people would deal with people they're used to dealing with and whom they have gotten to know socially. They owe them a favour or want a favour from them or they've done business with them. It's quite possible that the Canadian coming out of St. John's, Toronto, or Vancouver wouldn't even get in the door to present a proposal for a specialty channel.⁵⁵

An important consideration in the debate on foreign ownership is whether Canadian broadcasting policies, especially Canadian content requirements, could be retained and enforced in a Canadian system dominated by foreign owners. The Canadian Cable Television Association (CCTA) argued that any Canadian laws or regulations would still have full effect. The president of the CCTA, Ms. Janet Yale, argued that it was alarmist to suggest that foreign-owned firms would ignore Canadian policies:

The analogy I like to draw is to all kinds of other multinational organizations that choose to operate in Canada or other jurisdictions around the world. No one suggests that when General Motors sets up a car plant in Canada they're going to be less likely to comply with the laws of the land, whether it's taxation or employment issues or environmental issues, or whatever. The fact of the matter is that the price of entry is compliance with the laws of the land.

I think the same is true for cable as a distribution undertaking. We are companies that carry programming, and those carriage requirements are established by the CRTC. Why would anyone think a company that happens to be owned by someone other than a Canadian would not comply with the laws of the land with respect to carriage rules any more or less than they would comply with other laws of the land? I think when we talk about Canadian content we really have to think about it as a case where in the cable industry we are distributors of programming, and whoever owns those undertakings will comply with the laws of the land in terms of the carriage requirements.

Having said that, we draw a very clear distinction between carriage businesses and content businesses. On the content side of the line, we support the idea that those content undertakings should be Canadian-owned and controlled.⁵⁶

Mr. Peter Murdoch of the Communications, Energy and Paperworkers Union of Canada, however, warned that moving head office responsibilities outside Canada would eventually lead to weakened Canadian policies in broadcasting:

The movement of head offices alone to outside our national border means decision-making, research, response to cultural policies, broadcasting management expertise, and a host of other head office functions now homed in Canada would be lost.⁵⁷

A Canadian Heritage official also acknowledged possible problems that could arise with foreign ownership in broadcasting, but saw them as challenges, and, like his minister, remained open-minded on the issue:

There are all kinds of distribution regulations designed to manage the impact of cultural policy. For example, broadcasters must include the [A]boriginal channel in their line-up. They must include channels in the minority official language, and there are other rules. It is difficult enough to regulate Canadian broadcasters. Regulating foreign broadcasters, and imposing the same conditions on them, will very likely present a whole new challenge, but as the [M]inister said, what counts at the end of the day is how those broadcasters act. What do they actually do? I believe she said that, if there were other models available or other ways of doing things, we would clearly have a responsibility to explore them.⁵⁸

Proposed Solutions

While American conglomerates such as AOL-Time-Warner and larger cable and telecom operators such as Rogers would like to see foreign ownership limits either raised or lifted entirely, the Committee is of the view that one wrong move could do irreparable harm to the Canadian system. Once this happens, there will be no turning back. For this reason, the Committee believes that the suggestion that ownership restrictions can be lifted in the telecommunications sector without a serious impact on broadcasting content is seriously flawed.

Moreover, with the exception of large distribution undertakings and a few witnesses speaking as individuals, testimony on this question was virtually unanimous in favour of maintaining Canadian control. It is important to underscore the fact that Canada is in an absolutely unique position with respect to its proximity — both cultural and geographic — to the world's leading producers of broadcasting content. It is reasonable to assume that Canadian broadcasting companies would make an enticing target for takeover and integration into the North American media market, and that the policy apparatus that has been put in place to ensure a Canadian presence on the air would soon come under attack.

The Committee therefore believes strongly that the rules on foreign ownership should be maintained at current levels, as they are sufficiently high to promote an influx of foreign capital without relinquishing Canadian control. Investors are interested in placing their funds in viable businesses, not necessarily operating them. Current rules allow for up to 46.7% foreign ownership in the case of a holding company, which owns broadcasting or telecom operations (such as Rogers or BCE). This limit has yet to be reached in any significant cases. In short, there is already room for new foreign investment capital while holding the line on majority Canadian ownership and Canadian control.

The Committee notes that in parallel with its own study, the Standing Committee on Industry tabled a study on foreign ownership in the telecommunications sector on 28 April 2003. Its main recommendation is that:

... the Government of Canada prepare all necessary legislative changes to entirely remove the existing minimum Canadian ownership requirements, including the requirement of Canadian control, applicable to telecommunications common carriers.⁵⁹

The Industry Committee also recommends that any changes to telecommunication carriers "be applied equally to broadcast distribution undertakings."⁶⁰

The Heritage Committee strongly disagrees with the recommendations on foreign ownership made by the Industry Committee. The main arguments presented in the Industry Committee's report are economic. It argues that freer access to foreign investment will allow for more competition in the telecommunications sector and that this will benefit consumers. As Mr. Michael MacMillan, Chairman and Chief Executive Officer, Alliance Atlantis Communications Inc., told the Committee, ownership in broadcasting:

... has an importance well beyond most commodities. It's not a commodity, it's a cultural influence, and that's why we are here to talk about it and not about cups and saucers and pens and pencils. Ownership has a great deal of influence, I believe, over what is produced and why.⁶¹

The Committee agrees with this perspective and sees the Industry Committee's recommendations to be an extremely simplistic approach to a complex set of issues. In particular, its report ignores the many public policy and cultural issues that are at the heart of the matter. As the first section of this chapter explains, there are important issues about media ownership in Canada that can hardly be considered trivial. For example, in a discussion on the impact of vertical integration on Canadian journalism, Mr. Marc-François Bernier noted that:

The culture of journalism also has numerous flaws and failings, particularly when it comes to its lack of rigour or equity ... So we can't blame everything on convergence and concentration, but these phenomena are being added to the risk that exists already or which is weighing down on the quality of information.⁶²

Therefore, "One scenario that we should consider is that, in the long term, [media concentration] will hurt the social legitimacy of journalism and its credibility."⁶³

As for any relaxation of foreign ownership rules, this committee has several concerns. For example, if one is worried about concentration of media within Canadian controlled companies, it follows that one must, by extension, be concerned by any excessive concentration of Canadian media assets in foreign hands. As Ms. Anne-Marie Des Roches told the Committee:

This is a slippery slope and a blatant danger. If we open the door for telephony, I believe, that within about seven years, in other words the length of time that the CRTC licence lasts, everything will be out of our control. It should be noted that the pressure does not just stem from foreign capital; it also stems from all the free trade agreements on which no firm commitment has yet been made.⁶⁴

Moreover, if ownership rules were changed, could Canada's creators be guaranteed the same access to the Canadian market they now enjoy? Furthermore, how would existing subsidy programs work if Canadian-controlled firms were no longer operating national networks in Canada? Would existing successes, for example, with French-language programming continue? As Mr. Alain Gourd told the Committee:

With regard to TV programming ... [l]et's say that the content acquisition policy were decided in Los Angeles: would it be easier to sell French-Canadian content in Los Angeles or in Montréal? Some might take refuge behind the CRTC regulation, which states that there must be a minimum of 60% in the grid and 50% in prime time... If TVA and TQS were suddenly controlled by foreign English-language interests, such as a company in the U.S., the U.S. owners might well be tempted to reduce Quebec's content to its very minimum and fill the slots with U.S. products dubbed into French. I think that is what would happen.⁶⁵

As for the English-language market, Mr. Bernard Courtois, described the following hypothetical scenario:

Take diversity of voices in Canada when you're talking about content and markets. If Time Warner Cable buys a Canadian cable operation, AT&T Broadband buys a Canadian cable operation, or CBS, NBC, and ABC operate in Canada, you're going to have a North American market. There are significant economies of scale in this business, and you're not going to have as many diverse sources of information. When you talk about diversity of voices, you're talking about different sources.⁶⁶

Similarly, Ms. Megan Williams, National Director, Canadian Conference of the Arts told the Committee that:

... while some might argue that it's not important who makes a program or who broadcasts it as long as it meets Canadian content requirements, we beg to differ. ... The artistic choices made in the creation of an individual recording, feature film, or radio or television documentary or dramas are of course affected by influences from around the world, but they are filtered through the sensibilities of Canada artists and producers. Similarly, the creation of a program schedule should be based on appealing to Canadian audiences not as an afterthought to an international schedule, but as the primary focus.⁶⁷

An additional problem is that if the ownership rules are opened fully to foreign investment, it would require wholesale changes to Canada's regulatory agencies and support measures, because as Professor Matthew Fraser reminded the Committee, unlike the United States where:

... the Department of Justice and anti-trust officials are extremely aggressive about policing market failures such as vertical integration or undue market dominance. In Canada ... we don't have the same tradition. We don't have the same institutional vigour. We don't have the same kinds of statutes that give our institutions the same kind of legitimacy to go after market failures.⁶⁸

Therefore, given what was heard during the study of the Canadian broadcasting system about corporate and technological convergence, the Committee remains convinced that any relaxation of the existing foreign ownership rules in broadcasting or telecommunications could have an adverse effect on the Canadian broadcasting system. For this reason:

Endnotes