Bell Canada takeover of Astral Media blocked

October 19, 2012 by Etan Vlessing

In a surprise move, the Canadian Radio-television and Telecommunications Commission (CRTC), Canada’s regulatory broadcast agency, has denied a bid by Bell Media-parent BCE to acquire Astral Media for $3.4 billion.

“The commission is not convinced that the transaction would provide significant and unequivocal benefits to the Canadian broadcasting system, and to Canadians sufficient to outweigh the concerns related to competition, ownership concentration in television and radio, vertical integration and the exercise of market power,” the regulator said in its decision Thursday.

The move means Astral Media could return to the market, and be acquired by competitors like Rogers Communications, which expressed earlier interest in the Canadian media group. Astral operates several pay and specialty channels in Canada including kids channels Teletoon, Family Channel, Disney XD, Disney Junior and Cartoon Network.

BCE during earlier CRTC hearings argued the Bell-Astral combo was required to face down foreign competition on the internet.

But the CRTC rejected that argument for scale.

“BCE did not demonstrate that it needs to be bigger to compete with foreign services. The commission does not consider that there is compelling evidence on the record to demonstrate that foreign, unlicensed competitors are having a significant impact on negotiations for program rights by Canadian broadcasters,” the regulator wrote.

Here the CRTC reiterated earlier decisions that Netflix Canada and other so-called over-the-top services do not pose a competitive threat to traditional Canadian broadcasters and, at least for now, are complementary to what consumers already view.

But the CRTC, in denying the deal, did not even take the alternative route of asking for asset-divestitures to answer criticisms from industry opponents.

The denial also puts an end to a $241 million benefits package agreed to by Bell Canada that would have included investment in indie TV production and the creation of a French news network.

The regulator, while conceding the benefits package was generous, also noted that “certain initiatives fall outside the guidelines established in commission policy and general practice.”

In supporting its decision, the regulator said it went beyond considering a change of ownership for Astral Media to considering how the blockbuster takeover deal would impact the wider industry.

“The proposed transaction would not only remove the last major independent, non-integrated broadcaster from the system, but transfer its undertakings to the largest vertically integrated broadcaster and telecommunications service provider in Canada,” the CRTC stated.

The regulator appears to have sided with rival carriers like Quebecor, Cogeco and Telus that insisted the Astral Media acquisition would give Bell Canada undue market control.

“With the combination of the largest and third largest participants in discretionary television services (by revenue), one entity would control more than 63% of revenues from French language discretionary services,” the CRTC said.

The regulator stated that, post-merger, Bell Canada and its Astral Media properties would control 42.7% of the English language market, which surpasses the 35% threshold for market share.

That market dominance would still be significant in French Canada, where the CRTC said a Bell Media/Astral combo would have a total viewing share of 33.1%.

While no longer in a position to be swept up by Bell Canada, Astral Media is still due a payday with the phone giant set to pay the media group an up to $150 million break-up fee.