Canadian Radio-television and Telecommunications Commission

Media Concentration and Diversity of Francophone Voices in Canada

Étude Économique Conseil
September 2007

Contents

• Concerns Being Expressed
• Issues We Should Be Examining
• How Diversity of Voices Is Reflected in Media Products
• The Media and Means of Integration Used for Concentration Purposes in the Industry
• Media Concentration in French-language Products/Markets in Canada: Main Groups
• Forms of Integration of Main Groups Active in French-language Products/Markets in Canada
• Advantages Sought Through Concentration
• Advantages Sought and Potential Effects on Content, by Group Type-Concentration of Ownership
• Advantages Sought and Potential Effects on Content, by Group Type-Multimedia Integration
• Simple Model of Linkages Between Economy-of-Scale Incentive of Consolidation and Diversity of Opinion
• Conditions on French-Language Media Products Market in Canada
• Incentives/Constraints for Reducing, Maintaining or Increasing Range of Diversified Products and Content
• Implications for the Issue of Regulation

Concerns Being Expressed

Arguments

• Waves of mergers and acquisitions have increased concentration, and this trend is expected to continue
• The equation already applied to the concentration of ownership within each traditional media type, but the threat is even greater with (horizontal and vertical) cross-media ownership combinations
• Factual examples show that mergers have been accompanied by cost-cutting measures that have affected diversity of voices (newsroom cutbacks, program homogenization.)
• Conflicts of interest / risk of bias in relating news of public interest concerning the group-increased risk as a result of concentration
• Increased risk of ideo-political bias

Implicit Conditions

• The kinds of advantages sought through larger size, more integration and more concentrated ownership lead to reorganization to optimize the group's overall production function (derived from formerly separate production/marketing functions) and its range of products/services, which is bound to reduce voices, or
• Gaining the expected advantages of economies of scale and scope and increased market power = resource cutbacks and product homogenization

Issues We Should Be Examining

• Need for more careful economic assessment of relationship between type of market structure and diversity of voices
• Debate fails to place sufficient emphasis on:
  • connection between the forces that push groups toward concentration (incentives, advantages sought) and the behaviours they are led to adopt to gain the advantages from the concentration
  • the parts of their operations they may consequently decide to reorganize
  • of those, the ones with a potential to directly affect diversity of voices either negatively or positively
  • conditions related to supply and demand that affect the degree of risk of a decline in the diversity of voices
• Consequent need to examine the situation and the conditions respecting the supply of French-language media products in Canada in order to better understand the degree to which the diversity of Francophone voices may be affected by increased concentration

How Diversity of Voices Is Reflected in Media Products

• Diversity of voices under the Broadcasting Act:
  • Wide range of programming that should, among other things:
    • reflect Canadian opinions, ideas, values and artistic creativity, display Canadian talent in entertainment programming and offer information and analysis concerning Canada and other countries from a Canadian point of view
    • provide an opportunity for the public to be exposed to differing views on matters of public concern
  • Regulation that must, among other things:
    • take into account regional needs and concerns
• As a "reflection" of the different aspects of diversity in the Canadian population, diversity of voices in media products is seen in:
  • Programming structures and the general picture that emerges in the choice of programs offered Canadian viewers
    • Diversity, scheduling, length of programs based on.
      • Type of content (news, drama, music.)
      • Type of audience, by age (adult, youth/children.)
      • Different regional considerations (national/regional programming)
  • Program content and the general picture that emerges with regard to
    • Topics addressed with respect to issues of interest to Canadians
    • Facts presented on those topics
    • Different/opposing opinions on those topics
      • Opinions reported
      • Editorial opinions expressed

Does increased concentration lead to decreased diversity of voices?
To answer, it is necessary to examine both the determinants of the supply of programming and messages and the structure of the diversity in the population.

The Media and Means of Integration Used for Concentration Purposes in the Industry

Media Concentration in French-Language Products/Markets in Canada: Main Groups

Profile by Media Type and Upstream/Downstream Segment

Forms of Integration of Main Groups Active in French-Language Products/Markets in Canada

Integration Models by Media Group

Different forms of concentration

• from simple horizontal concentration (one media type, one geolinguistic market)
• to major multimedia, multi-geolinguistic integration/ diversification
  
  and more or less differentiated models based on types of media combinations involved (press-television, radio-television / general-specialty, specialty-specialty.)

Advantages Sought Through Concentration

• Economies of scale
  • Fewer resources required to produce the same number of goods/services (more efficient), or same number of resources used to produce more products and/or better products in order to secure clientele
  • Role of indivisibilities and fixed costs in production
  • Low or nil marginal cost (broadcasting or written press)
• Economies of scope
  • Economies flowing from joint production of some products and/or combination of range of products for the same clientele (complementary products or substitutes)
• Negotiating power and control
  • Larger size increases power to negotiate with suppliers and clientele
  • Integration can make it possible to take or strengthen a position in strategic areas of control of the value chain:
    • Access to scarce resources (program banks / rights)
    • Access to clientele (distribution control)
• Risk management
  • Active in different markets (vertical or horizontal) that have different dynamics, thereby lessening overall risk

Advantages Sought and Potential Effects on Content, by Group Type-Concentration of Ownership

• Example of merger of two general daily press undertakings

Merging the two undertakings may make it possible to:

• achieve economies of scale for different services (general admin., writing, advertising, production.)
• while expanding (number of editorial pages) and diversifying content (supplements) in each of the two markets (= higher quality product)
  
  To further reduce costs, the merged entity might be tempted to homogenize the newspaper by cutting back on regional coverage, although it must protect its business interests by not creating any market opportunities for competitors and by dissuading any new competitors from entering the market (this is elaborated on farther on, in the example relating to differing opinions)

By improving product quality (two differentiated joint editions), the merged entity expects:

• more client loyalty and increased circulation
• higher subscription revenues
• higher advertising revenues-national and regional markets (by raising readership-based unit rates and adding advertising space)
• reduced average unit cost as a result of lower marginal costs for printing and greater negotiating power over other suppliers

• The example of the merger of general daily press undertakings can serve as an illustration for all horizontal combinations of the same kind involving a single media type (with similar types of products/clientele, types of resources required, and processes).
• Economies of scale result in lower average cost and opportunities to strengthen/improve the product (including content), earn higher revenues and increase profitability.
• Risk to diversity of voices flows from the fact that the merged undertaking may be tempted to homogenize the product to further reduce costs.
• However, the merged entity must weigh the risks of opening up a market opportunity for existing or potential competitors (contestability)

Advantages Sought and Potential Effects on Content, by Group Type-Multimedia Integration

• Example of merger of general daily press undertaking and general television undertaking in same geographic market

Simple Model of Linkages Between Economy-of-Scale Incentive of Consolidation and Diversity of Opinion

• A simple diversity model based on two opinions serves to illustrate the merged undertaking's more general challenge in its choice of programming/content, taking account of the public's interests and its own interest in protecting itself from the competition

Three figures showing distribution of two differing opinions/ideologies expressed by the public

What would prompt the single or merged undertaking to reduce/maintain diversity of opinion in its product?

Distribution of Differing Public Views
Case 1

* Note that "entry" is not a potentiality limited to unregulated media (such as the written press). It also applies to broadcasting media subject to the licensing system. The door is open for other interested parties, such as newcomers from other media or telecom enterprises, to make submissions and apply for operating licences. This might more or less dissuade a single enterprise from ignoring the minority voice, depending on its perception of the risk of new competition.

Market Structure and Diversity of Editorial Voices

• Economies of scale tend to favour concentration (one media enterprise).
• If the owner of the single enterprise chooses to express only the dominant opinion, the business risk (loss of revenues) may be limited if the product's other consumption attributes succeed in attracting part of the second opinion group.
• Could place ideological leanings above maximum profit.
• This risk of the majority group patently ignoring the minority voice also presupposes that there is no room for new competition (hypothesis that depends on the size of the minority segment and non-recoverable entry and operating costs).*

Distribution of Differing Public Views
Case 2

Market Structure and Diversity of Editorial Voices

• No business interest for (single) concentrated ownership seeking economies of scale to express only one editorial opinion (based on owner's ideological leanings).
• Would open the door to a profitable entrant.
• However, if the members of the two groups are more interested in seeing their own opinion expressed and much less interested in objectivity in coverage and reporting of the facts (demand for agreement with ideology is stronger than demand for truth), the owner of the single enterprise might also gain from product differentiation based on opinion, rather than diversity of opinion in one product.
• Hence the same conditions that ensured diversity of opinion in a previously existing market balance with two separately owned enterprises and the expression of differing opinions will lead the owner of the merged enterprise to maintain differentiation and diversity of voices (potentially by adapting the enterprise's overall distribution strategy to the ideological persuasions of the geographic sub-markets).

Distribution of Differing Public Views
Case 3

Market Structure and Diversity of Editorial Voices

• In circumstances where there is a third, very large, volatile opinion group between opinion groups 01 and 02, the market could find a two-player balance that favours differing opinions mitigated to maintain the necessary differentiation while seeking the middle ground (to benefit from economies of scale).
• However, unlike the previous case (two clearly distinct opinion groups), the ground is more fertile for concentration. The owner of the merged enterprise can take better advantage of economies of scale by reflecting diversity of opinion in a single product insofar as the potential preference of readers/viewers to have their opinions reflected rather than be given the truth (objective reporting) should be less of an issue in the volatile opinion group.
• Diversity of voices is thus equivalent with either market structure (more or less concentrated), except that the public as a whole could:
  • have greater exposure to differing opinions in a single product produced by a merged undertaking, and
  • potentially have access to other, more diversified content as a result of economies of scale and the merged undertaking's desire to prevent any new market entry.
• In terms of diversity of voices (like the opinion 01 / opinion 02 ideology criterion in the preceding example), there is no stronger assurance of coverage of minority voices after concentration than before concentration.
• Example where two criteria give rise to four categories-for example, youth: 20%, adults: 80% and male: 50%, female: 50%-with a different distribution of interests depending on program/content type, male and female teenagers (10% / 10%), though in the minority, may be target markets for differentiated products.
• Increased economic or regulatory opportunities to reach more targeted clientele/groups allows for audience fragmentation as well as greater diversity.

Conditions on French-Language Media Products Market in Canada

• Linguistic differentiation provides no significant protection for diversity of Francophone voices in a relatively small market unless the level of concentration is such that it allows operators to internalize the advantages of integration and size.
• Reasons
  • In a small market, separately owned undertakings must adjust their production/operation scales to lower fixed/unrecoverable cost levels.
  • There are few market entries when fixed costs are a significant barrier (general television broadcasting and distribution, general daily press.)

Incentives/Constraints for Reducing, Maintaining or Increasing Range of Diversified Products and Content

• Generally speaking, there is a possibility of bias, but no systematic link between concentration and diversity of voices.
• This proposition suggested by the preceding simple illustrative model was recently the subject of a convincing econometric demonstration applied to the US press:
  • "We find a statistically insignificant effect of the slant of co-owners papers on a newspaper's slant, equivalent in magnitude to a change of 2.4 percentage points in a newspaper's slant for every 10 percentage point change in the average slant of co-owned papers"
  • "We find little evidence that fixed costs cause a homogenization of new content"
    
    "What Drives Media Slant? Evidence from U.S. Daily Newspapers," M. Gentzkow - J. M. Shapiro. Working Paper 12707, National Bureau of Economic Research, Cambridge USA, November 2006
    
    Sampling of 400 newspapers; index of media slant based on frequency with which newspapers use left-leaning or right-leaning language in political content.
• This proposition is also consistent with the findings of a market-based economic model developed by researchers at Harvard Business School and Universitad de los Andes:
  • "Anecdotal accounts of cross-owned media firms often bring attention to the fact that this results in a homogenization of viewpoint. But, understanding the impact of cross-ownership also forces one to confront the question of when and why diversity in view persists in firms that are cross-owned"
  • "Cross ownership per se does not give much more room to peddle the owner's ideology, for the simple reason that suppressing this voice leaves a market voice that can be filled by an entrant"
    
    "Information or Opinion? Media Bias as Product Differentiation," M. Anand, R. Di Tella, A, Galetovic. Journal of Economics & Management Strategy, Vol. 16, Issue 3, pp. 635-682, Fall 2007
• There are obviously all kinds of criteria for determining diversity within a group, even a small one, which means that there can be a very large diversity of voices, depending on how groups are divided and reconstituted at different levels and using different combinations of criteria.

In Summary

• Maximizing economies of scale and scope and controlling access to scarce resources, consumers and entries are strong incentives for consolidation.
• Product homogenization may be one of the behaviours enterprises are led to use to achieve the expected advantages (e.g. distributing identical programming or programming that is an homogenous as possible across a network).
• However, enterprises must also maintain a position that ensures the quality of their products in order to reach the largest number of people while providing a differentiated combination of attributes for consumers and in comparison to the competition.
• The advantages sought from merging undertakings will thus not, in many cases, be derived primarily from economies of scale (obtained by streamlining costs), but from the merged undertakings' ability to draw a bigger audience by providing better quality, more attractive, and more expensive productions (stars, location shooting, foreign correspondents, live reporting on events...).
• In short, combined ownership does not give the group carte blanche to ignore voices, since doing so would open the door to potential competition.
• In the case of the French-Canadian market, linguistic differentiation offers some protection for the expression of diverse voices, but given the relatively small size of the market, a large number of small operators would not necessarily guarantee true diversity or effective expression of voices. Hence, market conditions that favour the establishment of a small number of operators able to internalize the advantages of integration and size can contribute to diversity of voices.

Implications for the Issue of Regulation General Perspective

• While there is no evidence of a systematic relationship between diversity of voices and market structure or, more specifically, between greater concentration and less diversity, neither are there fewer economic reasons for the legislator to focus on such diversity in today's more concentrated universe than there were in the less concentrated universe of the past.
• However, the regulatory perspective has changed: the object of attention and of restrictive measures is no longer competition and market structure per se-or it is becoming less so-rather, it should be the link between corporate strategies and diversity of voices.
• From this perspective, there is a need to establish a framework to objectively define and measure diversity of voices (which is doable), enabling the regulator to monitor the situation and assess proposed strategies and actual behaviour in relation to the aim of ensuring diversity of voices.
• The lack of a systematic connection between market structure and diversity dismantles the relevance of pre-established direct measures for limiting concentration (especially since there are costs associated with maintaining a separation), but not of measures relating to programming content in terms of groups' contribution to diversity.
• When the traditional broadcasting regulation system was set up, diversity of voices was ensured by looking primarily at broadcasters' programming, in a context of management of a scarce resource (available frequency spectrum).
• With the easing of this constraint, more attention had to be given to competition, mainly through measures that set limits on the number of licensees in local, regional and national markets and measures relating to the separate management of entities.
• The current context calls for regulatory refocusing on groups' programming and content, along with the easing of a priori limitations respecting concentration, something that would more specifically come under the Competition Act.
• Similarly, the integrated world of converging media calls for the regulator to develop a more comprehensive approach for monitoring and oversight of broadcasting groups, as it has begun to do for networks.
• This might involve:
  • Defining a class of enterprises as "multimedia groups/networks" on the basis of criteria related to the groups' types of multiservice/ multimedia operations (horizontal/vertical integration aspects), and
  • Considering the following options:
    • Adopting a consolidated licence system for these enterprises rather than considering all applications separately at the time of renewal by class of service, or
    • Maintaining the current system (separate applications) for these enterprises, but introducing a special procedure whereby each group would be required to appear to explain its intentions and commitments with regard to diversity. The regulator could then issue a notice of any concerns to the group. This notice would give the group a framework and benchmarks with regard to the regulator's requirements or expectations respecting the group's contribution to diversity, for purposes of its preparation of licence applications by class of service.

Implications for the Issue of Regulation Circumstances Requiring Intervention

• Issue of behaviour "outside transactions" affecting diversity of voices
  • Public authorities are called upon and able to exercise their intervention prerogatives to ensure diversity of voices in the case of transactions relating to ownership of media undertakings (mergers/acquisitions) and renewals of operating licence agreements.
  • But what happens when it comes to the regulator's notice that diversity of voices is declining in a context not related to ownership transactions (changes in the behaviour and practices of a specific group or business arrangements/agreements between undertakings but not involving ownership transactions)?
  • In such circumstances, the regulator should have the latitude to intervene:
    • by having the licensee(s) in question reappear before its officials, and
    • by exercising an audit privilege if required
      in order to verify evidence of diminished diversity of voices, determine and check the degree to which the change is driven by the business strategy and ensure that credible commitments are made to implement the required remedies.
  • These strengthened and more open prerogatives of the regulator to scrutinize groups' behaviour are of even greater importance where the framework is not based on rules restricting concentration in given markets.

Implications for the Issue of Regulation

• Role of public broadcaster
  • The limitations of the private system to serve certain aspects/components of diversity (small segments of such clearly distinct nature that there is no possibility of making operations profitable by incorporating them into a range of products serving a broader clientele) are a reality in both the more concentrated and less concentrated media universes.
  • The public broadcaster thus continues to play a key role in serving diversity.
  • In the context of greater concentration, the public broadcaster should be able to ensure diversity of voices itself by expanding to become a multimedia group offering diversified programming and platforms.
• Types of indicators for measuring diversity
  • Difficult/cumbersome construction initially, but doable on the basis of an analysis of programming, prevalence of topics put forward, stakeholders (internal/external) and opinions presented (editorial/outside).

Appendices

Canadian Media Groups Active in French-Language Markets/Products-Sector Coverage

• Astral Media Inc.
• Corus Entertainment
• Quebecor Media Inc.
• Cogeco Radio-Television
• CTV GlobeMedia
• RNC Media (Radio-Nord)
• Transcontinental
• GESCA

The information in the tables that follow was obtained from the following sources:
media groups in question, the CRTC and the Centre d'étude sur les médias of Laval University

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Date Modified: 2007-09-21