A seismic shift in media competition may be underway, as the Competition Bureau – reviewing an acquisition that would turn Postmedia Network Canada Corp. into a monolithic newspaper company – decides whether to broaden its definition of the newspaper market to include digital competitors.
The deal, announced October 6, will transfer ownership of Quebecor's Sun Media portfolio – comprising 175 English-language newspapers, speciality publications and digital properties – to Postmedia in a transaction valued at $316 million.
Unlike most media mergers, this deal will span several provinces and may effectively place Postmedia in ownership of all print media properties in many major Canadian markets. As a result, the Commissioner of Competition has issued a statement inviting comment on the deal from consumers and the public.
It is the second newspaper merger in four months and the second involving Quebecor, which in June sold 74 community newspapers to Transcontinental Inc.'s media division. In that deal, Transcontinental acquired community newspapers exclusively, whereas Postmedia is buying a more comprehensive portfolio.
The Postmedia deal raises the question of whether the Competition Bureau will consider factors that underscore the unique circumstances that face media mergers: the effect on the quality of the content; the financial pressure that traditional print media are under; and the changing nature of the “product market,” as opposed to the business or geographic markets.
“In the past, when the Bureau has looked at newspaper mergers, its focus has been on advertisers,” says Donald Houston, a competition lawyer at McCarthy Tétrault LLP. “So if you are an advertiser in a newspaper, does the merger reduce your choices or do you have other options?”
John Rook, a competition lawyer at Bennett Jones LLP, says he doesn't believe the Bureau will consider broadening the scope of the product market to include the digital space — a rethink that could leave the merged entity with a much lower conception of concentration and market share.
“The market has been evolving quite rapidly as a result of the advent of new technology,” Rook says. “All of these newsprint companies are under enormous pressure because of the reduction in circulation, the reduction in advertising revenue that's available to them because there are alternatives to what is currently found in the newspaper, and therefore the traditional definition of what is the product market and what is the geographic market needs to be reconsidered.”
In one media merger case in 1970, media magnate K.C. Irving was investigated by a federal commission of inquiry for having owned all the major newspapers except one French-language paper in New Brunswick. The court in the case concluded that it was purely a question of economic considerations, not cultural.
“Ever since that time, newspaper mergers have been reviewed by the competition authority under the general category, namely, ‘Is there an increase in concentration in market share in the market for advertising and the like, as opposed to the cultural aspect?'” Rook says.
And while the Bureau has come to look into the definition of the product market, it is not territory that they are obligated to define.
“The latest version of their merger guidelines says they don't actually have to make a final determination of that [product market definition],” says Peter Glossop, a competition lawyer at Osler, Hoskin & Harcourt LLP. “They can just look at the effects on competition.”
Interestingly the scope of the product market was narrowed in the Transcontinental case, when the commissioner of competition concluded that other media were not substitutes for advertising in community newspapers, which triggered a sell-off by Transcontinental of 33 of its own papers.
“I think the Bureau must and will recognize that for advertisers – which is typically where the Bureau's focus is – there are lots of other alternatives to newspapers for advertising,” says Houston. “Whether they will conclude that those other alternatives are sufficiently close substitutes so as to say this isn't a problem, that remains to be seen.”
In the United States, the Department of Justice has historically stood firm on not broadening the definition of the product market to include digital media products as an option for advertisers. The United States has also legally recognized the preservation of newspapers when it passed the Newspaper Preservation Act of 1970, which in theory would allow the bypassing of antitrust laws to form joint operating arrangements (JOA) between two competing newspapers to keep the financially troubled paper afloat.
“The DOJ has looked at newspaper mergers and has rejected attempts to broaden the definition of the market,” Rook says.
But while the traditional focus for the Bureau has been on advertisers, many in the media have been wondering what this kind of concentration will mean for the quality of the content. It's a consideration the Bureau took into account in its Transcontinental decision.
“They said that in that case they also considered the impact on what they described as the quality of the content,” Houston says. “So the interesting question is, to what extent will they also want to look at the ‘quality of the content' in this deal?”
In a 2002 paper by the Economic Policy Institute, Mark Cooper argued that there should be both economic and non-economic considerations “when examining the structure of the media and communications market and when reviewing the impact of mergers in those markets.” So far, the Competition Bureau has only really considered the economic impact on advertisers.
“The preservation of the diversity of opinions and voices and the concentration of media — that's traditionally not been a focus in Canada,” Rook says. “If they are in fact taking over newspapers that are currently owned and operated by competitors … will they take into account the fact that there will be a reduction in the voices, diversity of choice? My sense is no, but you never know what the contextual background of these things is.”
Glossop says it is the first time he's heard the Competition Bureau consider the quality of the content in a Canadian newspaper merger context.
But in what is considered a dying industry, the Transcontinental deal may prove to be an important reference case to look at when it comes to weighing advertising competition, the diversity of opinions, and the financial viabilities of these print products.
That's because on September 5, an update on Transcontinential's forced divestiture of 33 papers showed that only 14 had been purchased — effectively allowing Transcontinental to retain the papers. These publications will cease operation, forcing Transcontinental to reorganize its weekly newspaper portfolio, and leaving Transcontinental in ownership of the only remaining community newspaper in several communities.
“There is a very rigorous set of hurdles that have to be established, which are set out in the guidelines for what a failing firm is,” Glossop says, referencing the “failing firm doctrine.”
“For example, not only are they failing, but is there is a competitively preferable purchaser who would purchase the asset rather than the buyer you're looking at who's doing the deal,” Glossop says.
Despite the massive attention this recent media merger has garnered, Rook says based on previous decisions – which will undoubtedly include the Transcontinental deal – the Bureau will want to be consistent. “There has to be some reason to depart from the precedent that you've already established.”
The deal, announced October 6, will transfer ownership of Quebecor's Sun Media portfolio – comprising 175 English-language newspapers, speciality publications and digital properties – to Postmedia in a transaction valued at $316 million.
Unlike most media mergers, this deal will span several provinces and may effectively place Postmedia in ownership of all print media properties in many major Canadian markets. As a result, the Commissioner of Competition has issued a statement inviting comment on the deal from consumers and the public.
It is the second newspaper merger in four months and the second involving Quebecor, which in June sold 74 community newspapers to Transcontinental Inc.'s media division. In that deal, Transcontinental acquired community newspapers exclusively, whereas Postmedia is buying a more comprehensive portfolio.
The Postmedia deal raises the question of whether the Competition Bureau will consider factors that underscore the unique circumstances that face media mergers: the effect on the quality of the content; the financial pressure that traditional print media are under; and the changing nature of the “product market,” as opposed to the business or geographic markets.
“In the past, when the Bureau has looked at newspaper mergers, its focus has been on advertisers,” says Donald Houston, a competition lawyer at McCarthy Tétrault LLP. “So if you are an advertiser in a newspaper, does the merger reduce your choices or do you have other options?”
John Rook, a competition lawyer at Bennett Jones LLP, says he doesn't believe the Bureau will consider broadening the scope of the product market to include the digital space — a rethink that could leave the merged entity with a much lower conception of concentration and market share.
“The market has been evolving quite rapidly as a result of the advent of new technology,” Rook says. “All of these newsprint companies are under enormous pressure because of the reduction in circulation, the reduction in advertising revenue that's available to them because there are alternatives to what is currently found in the newspaper, and therefore the traditional definition of what is the product market and what is the geographic market needs to be reconsidered.”
In one media merger case in 1970, media magnate K.C. Irving was investigated by a federal commission of inquiry for having owned all the major newspapers except one French-language paper in New Brunswick. The court in the case concluded that it was purely a question of economic considerations, not cultural.
“Ever since that time, newspaper mergers have been reviewed by the competition authority under the general category, namely, ‘Is there an increase in concentration in market share in the market for advertising and the like, as opposed to the cultural aspect?'” Rook says.
And while the Bureau has come to look into the definition of the product market, it is not territory that they are obligated to define.
“The latest version of their merger guidelines says they don't actually have to make a final determination of that [product market definition],” says Peter Glossop, a competition lawyer at Osler, Hoskin & Harcourt LLP. “They can just look at the effects on competition.”
Interestingly the scope of the product market was narrowed in the Transcontinental case, when the commissioner of competition concluded that other media were not substitutes for advertising in community newspapers, which triggered a sell-off by Transcontinental of 33 of its own papers.
“I think the Bureau must and will recognize that for advertisers – which is typically where the Bureau's focus is – there are lots of other alternatives to newspapers for advertising,” says Houston. “Whether they will conclude that those other alternatives are sufficiently close substitutes so as to say this isn't a problem, that remains to be seen.”
In the United States, the Department of Justice has historically stood firm on not broadening the definition of the product market to include digital media products as an option for advertisers. The United States has also legally recognized the preservation of newspapers when it passed the Newspaper Preservation Act of 1970, which in theory would allow the bypassing of antitrust laws to form joint operating arrangements (JOA) between two competing newspapers to keep the financially troubled paper afloat.
“The DOJ has looked at newspaper mergers and has rejected attempts to broaden the definition of the market,” Rook says.
But while the traditional focus for the Bureau has been on advertisers, many in the media have been wondering what this kind of concentration will mean for the quality of the content. It's a consideration the Bureau took into account in its Transcontinental decision.
“They said that in that case they also considered the impact on what they described as the quality of the content,” Houston says. “So the interesting question is, to what extent will they also want to look at the ‘quality of the content' in this deal?”
In a 2002 paper by the Economic Policy Institute, Mark Cooper argued that there should be both economic and non-economic considerations “when examining the structure of the media and communications market and when reviewing the impact of mergers in those markets.” So far, the Competition Bureau has only really considered the economic impact on advertisers.
“The preservation of the diversity of opinions and voices and the concentration of media — that's traditionally not been a focus in Canada,” Rook says. “If they are in fact taking over newspapers that are currently owned and operated by competitors … will they take into account the fact that there will be a reduction in the voices, diversity of choice? My sense is no, but you never know what the contextual background of these things is.”
Glossop says it is the first time he's heard the Competition Bureau consider the quality of the content in a Canadian newspaper merger context.
But in what is considered a dying industry, the Transcontinental deal may prove to be an important reference case to look at when it comes to weighing advertising competition, the diversity of opinions, and the financial viabilities of these print products.
That's because on September 5, an update on Transcontinential's forced divestiture of 33 papers showed that only 14 had been purchased — effectively allowing Transcontinental to retain the papers. These publications will cease operation, forcing Transcontinental to reorganize its weekly newspaper portfolio, and leaving Transcontinental in ownership of the only remaining community newspaper in several communities.
“There is a very rigorous set of hurdles that have to be established, which are set out in the guidelines for what a failing firm is,” Glossop says, referencing the “failing firm doctrine.”
“For example, not only are they failing, but is there is a competitively preferable purchaser who would purchase the asset rather than the buyer you're looking at who's doing the deal,” Glossop says.
Despite the massive attention this recent media merger has garnered, Rook says based on previous decisions – which will undoubtedly include the Transcontinental deal – the Bureau will want to be consistent. “There has to be some reason to depart from the precedent that you've already established.”
Lawyer(s)
John F. Rook
Peter L. Glossop