History’s habit of repeating itself has once again hamstrung Canadian antitrust law when it comes to preventing media monopolies. This time, however, the Supreme Court of Canada has left the door wide open to once again increasing our already world-leading levels of media ownership concentration.
The decision to allow a
hazardous waste landfill monopoly in northern B.C. went little noticed at the
time outside the competition law community. It triggered long dormant
provisions in the Competition Act, however, that make preventing monopolies much
more difficult, especially in vulnerable media industries. It set a precedent
that prioritized cost-cutting “efficiencies” and, in some very poor timing, was
soon followed by federal approval of yet another “devastating” news media merger, as a parliamentary report would describe it..
This points up once again the
need for reform of the Competition Act, as has been urged by successive federal
media inquiries dating back a dozen years. After all, covering the news more
“efficiently” with fewer and fewer journalists employed by bigger and bigger
media monopolies can’t be good for democracy.
When the Competition Act was enacted
in 1986, it aim was to use civil procedures such as court orders to prevent
monopolies better than the old antitrust law had by using criminal charges. Not
a single merger case had been successfully prosecuted under the Combines
Investigation Act in its 76-year life due to the higher criminal burden of
proof beyond a reasonable doubt.
The Combines Investigation Act had
been rendered ineffective against media monopolies in particular by a 1972 Supreme
Court of Canada ruling. Prosecutors initially won a conviction on charges of
monopoly against the Irving Oil family, which had acquired all five daily newspapers in New Brunswick. It was overturned on appeal, however, after
the Supreme Court ruled the crown must prove not only a lessening of
competition but also a detriment to the public.
The Irving
press monopoly persists to this day as a result, allowing little news coverage of the family’s economic dominance of that province.
The Competition
Act, according to one legal scholar, “literally rewrote the book on competition law in Canada,
particularly with regard to merger control and the review of the activities of
dominant firms.” It has unfortunately proved just as incapable of preventing
media monopolies, and now the Supreme Court has made its job even more
difficult, if not impossible.
As a 2006 Senate report on news media pointed out, the Competition Act allows only economic factors, such as advertising
revenues, to be considered in adjudicating mergers and takeovers. “The result,”
the Senators noted, “has been extremely high levels of news media concentration
in particular cities or regions.” They recommended allowing a panel of experts to
review media mergers and take the public interest into account.
It didn’t happen because a deregulationist Conservative
government led by Stephen Harper had already gained power in Ottawa
and would hold it for almost a decade. It presided over even more consolidation
of Canada’s
newspaper industry, including the takeover of our largest and then
second-largest chain by U.S.
hedge funds, despite supposed limits on foreign ownership.
The Competition Bureau, which
enforces the Competition Act, approved the 2014 takeover of Sun Media by
Postmedia Network without holding hearings. It oddly concluded the sale was “unlikely
to substantially lessen or prevent competition” despite it giving Postmedia 21
of the country’s 25 largest newspapers, including eight of the nine largest in
Western Canada and both dailies in four of our six largest cities.
Postmedia said it expected to
save $6-10 million in cost cutting efficiencies from the takeover. It promised,
however, that the competing newspapers it acquired in Calgary,
Edmonton, and Ottawa
would maintain separate newsrooms, as its dailies in Vancouver
had for decades, by government order.
Falling ad revenues, however, soon
forced Postmedia to seek another $50 million in efficiencies, mostly to service
the company’s massive high-interest debt held by its own hedge fund masters. It
thus announced in early 2016 that, despite promising not to, it would merge the
newsrooms of its four newspaper duopolies, including in Vancouver.
A parliamentary committee chaired
by Vancouver MP Hedy Fry quickly convened hearings into media and local
communities, at which Competition Bureau officials testified they were
powerless to stop the consolidation. The Fry committee’s report issued in
mid-2017 renewed the call made by senators for reform of the Competition Act.
My research has found that the Supreme Court of Canada ruling in the case of Tervita v. Canada, set a precedent against preventing what the Fry report called a “devastating” news
media merger. Even worse, the ruling enables even more mergers by badly hobbling
the Competition Bureau.
The judgment was delivered in
early 2015, even as Postmedia’s takeover of Sun Media was under federal review.
In allowing the hazardous waste monopoly the Competition Bureau had blocked, the
Supreme Court required the feds to quantify the anti-competitive effects of a
merger or takeover. If their calculated dollar value does not outweigh the efficiencies
that acquiring companies show will result from the deal, it must be allowed
despite otherwise amounting to an illegal monopoly.
The so-called “efficiencies
defence” had always been in the Competition Act, but it went untested for
almost 40 years before the Supreme Court ruling gave it life. The defence was “unique
among competition/antitrust statutes around the world,” according to one analysis.
It was included because the then-Conservative
government “had high hopes that it would play a significant role in
facilitating efficient restructuring in Canada.”
Those hopes went unrealized, however, and with the Tervita ruling the provision
seems to have now backfired.
The effect of the ruling, lawyers noted, was to raise the bar for the Competition Bureau to prevent monopolies. It put Canadian merger law,
according to a pair of economists, “far out in
front of the wave” of integrating economic principles into merger law.
It prompted Competition Bureau head John Pecman to boast in a speech to lawyers that economists are now the “rock
stars of competition law enforcement.”
The Competition Bureau,
however, did not quantify the anti-competitive effects of the Sun Media takeover
to weigh them against Postmedia’s planned corporate efficiencies. It simply
rubber stamped the deal using some very questionable logic.
The savings available from
mergers of news media companies are considerable, but they invariably involve
cuts to expensive journalism. The cost to the public of a reduction in news
coverage is arguably the impairment of democracy, but how do you put a dollar
figure on that?
