The Vertical Integration Hearings

by Jordan Richardson on June 24, 2011

On Monday, the CRTC began its hearings on vertical integration. According to Investopedia, vertical integration is “(w)hen a company expands its business into areas that are at different points of the same production path.” Its example is particularly useful: “A car company that expands into tire manufacturing would be an example of vertical integration. A company such as this is often referred to as vertically integrated.”

In Canada’s telecommunications industry, vertical integration refers to the fact that the major players – Bell, Rogers, Shaw, and Quebecor – own content and the means to distribute said content.

The last few years have been filled with deals to line this apparatus up appropriately and now Canada’s regulatory body is trying to sort it out to determine how it should be regulated.

For those scoring at home, Bell owns the CTV and The Globe and Mail, Rogers owns CityTV and a pile of magazines like Macleans, Shaw owns Canwest Global and the National Post newspaper, and Quebecor owns the Sun television networks and newspapers along with French television channels. Telus is the odd one out of this ownership web, as you can see.

So the CRTC hearings are taking place to essentially determine the control of the aforementioned content and to ideally prevent, say, Bell from not sharing CTV content with Rogers’ customers.

On Thursday, Cogeco Cable got into the mix. They warned against vertical integration, arguing that an integrated media market simply passes money from one hand to the other. And Cogeco should know, too. They bought Cabovisao in Portugal in 2006 and have faced “the squeeze” from rival ZON Multimedia SGPS SA, a company that owns many cable and satellite services as well as television networks.

There are already shades of the sort of wheeling and dealing we can expect to see in Canada, too. Bell, for instance, is in the process of negotiating new deals for TSN service. This includes a higher fee per subscriber because the company is now free to negotiate an increase; in other words, Bell is jacking up the rates because they can. Distributors have to line up to eat the increase, which means that they’ll pass it down to consumers and cable rates will go up. Cogeco, with its deal to carry BCE-owned networks having expired last year, is up to the bargaining table to deal with the increase.

Cogeco, Telus and some other companies not on the vertical integration bandwagon tabled a motion with the CRTC to introduce rules that would prevent exclusive deals, the pulling of channels from competitors over fee disputes and fair pricing. The integrated giants, however, want the CRTC to take the hands-off approach and allow the market to sort it out.

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