ARCHIVED -  Decision CRTC 98-226

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Ottawa, 21 July 1998
Decision CRTC 98-226
Sportscope Television Network Ltd.
Across Canada - 199709391
Transfer of shares - denied
1.  Following Public Notice CRTC 1997-158 dated 30 December 1997, the Commission denies, by majority vote, the application by Sportscope Television Network Ltd. (Sportscope) for authority to transfer 682,576.36 of its common shares (the purchased shares) representing a 47.85% voting interest in Sportscope to Shaw Communications Inc. (Shaw).
The Parties
2.  Sportscope is the licensee of a national English-language specialty programming undertaking devoted exclusively to sports programming, with a particular focus on sports highlights, including video clips, scores and updates (Headline Sports).
3.  Currently, Shaw owns and controls three specialty television programming services and a pay audio service. Shaw also holds minority interests in three other specialty television programming services.
4.  Shaw is the country's second-largest cable operator, serving approximately 1.5 million Canadian households. Following a series of cable system acquisitions and dispositions, approximately 85% of Shaw's cable systems are now concentrated in major urban centres. Shaw also effectively controls the direct-to-home satellite undertaking and the satellite relay distribution undertaking licensed to Star Choice Television Network Incorporated.
5.  Additionally, Shaw holds a 50% interest in the Sega Channel (games) and a 50% interest in a video-on-demand service. Shaw is also the licensee of several radio stations and holds interests in telecommunications services.
Concerns regarding the proposed transaction
6.  In Public Notice CRTC 1997-158, the Commission noted that Shaw's ownership position in seven specialty television programming services, including its pay audio service, along with its involvement in various broadcasting distribution undertakings, may give it an undue competitive advantage. The Commission identified concentration and cross-ownership, potential market power and the possibility of gate-keeping as potential concerns arising from the proposed transaction. In addition, the Commission stated that it would assess any intervention relating to these potential concerns and consider whether it would be in the public interest to allow Shaw to acquire a significant interest in another specialty service.
7.  The Commission received 14 interventions concerning this application: eight in support, four offering conditional support and two in opposition. Canadian Satellite Communications Inc. provided a comment on the matter.
8.  The Canadian Association of Broadcasters, Stentor and the Specialty and Premium Television Association supported approval of the application, provided the Commission impose requirements on Shaw to alleviate their concerns regarding concentration of ownership and the potential for undue preference. They also each proposed that the Commission initiate a public process to clarify its access policy and the undue preference provision in the Broadcasting Distribution Regulations (the regulations), specifically in relation to broadcast distributors who also hold interests in specialty television programming services. ExpressVu Inc. stated that it would not oppose the application if the Commission imposed conditions of licence on Shaw requiring it to prove that any preference is not undue.
9.  Torstar Corporation (Torstar), an opposing intervener, referred to its complaint against Shaw currently before the Commission. In that complaint, Torstar claimed that Shaw is acting as a gatekeeper with respect to exempt programming services and is using rates to block access by arm's length third parties. Torstar suggested that the Commission resolve this complaint before approving Sportscope's application.
10.  Friends of Canadian Broadcasting (Friends) also opposed this application. According to Friends, cable multiple service operators (MSOs) have abused their dominant position through predatory techniques such as requiring compulsory marketing fees, which the intervener argued constitute "fees-for-carriage". Friends also claimed that cable MSOs realign channels to the benefit of specialty television services in which they have an ownership interest.
11.  In response, the applicant stated, among other things, that the proposed transaction is not an application by Shaw to acquire day-to-day control of Sportscope. The applicant noted that Sportscope's current Chairman, President and Chief Executive Officer would continue in his present position and would maintain his 47.85% ownership stake in the company. In response to allegations that Shaw has granted undue preference to specialty television programming services in which it holds an ownership interest, the applicant stated that the decision to carry such services was justified by unique circumstances. With regard to the concerns expressed in Torstar's intervention, the applicant stated that negotiations with the intervener regarding carriage of its exempt programming services are ongoing in a separate context and should remain distinct from this proceeding.
The Commission's Findings
12.  In its 19 May 1995 report to the Government entitled Competition and Culture on Canada's Information Highway (the Convergence Report), the Commission stated:
 Until there is sufficient capacity on cable networks, and until transparent access rules are in place to prevent undue preference, affiliates of cable licensees should not generally be granted licences to operate, nor should they be permitted to acquire ownership or control of, programming undertakings other than over the air radio and television services.
13.  The Commission's Access Rules, first set out in Public Notice CRTC 1996-60 dated 26 April 1996, are now incorporated into the new regulations that came into effect in January 1998. The Access Rules contemplated sufficient channel capacity, the second requirement noted in the Convergence Report, and a more competitive broadcasting distribution environment. In the Commission's view, such conditions could mitigate any preference by cable operators toward specialty services in which they hold an interest.
14.  At the time it licensed additional specialty services in September 1996, the Commission anticipated that there would be greater channel capacity available through the implementation of new digital technologies (for example, the roll out of digital boxes). The Commission further expected the development of a more competitive environment in the broadcasting distribution sector. It was with this understanding that the Commission licensed a number of specialty services in which cable companies or affiliates had ownership interests.
15.  In examining the current broadcasting distribution environment, the Commission finds that market conditions with respect to channel capacity and competition have not materialized to the extent previously anticipated. The Commission considers that the current channel capacity and the level of competitiveness are not sufficient to effectively mitigate any potential undue preference that may be conferred by cable operators on undertakings in which they hold an interest.
16.  Having considered all of the arguments presented on this issue, the Commission considers that, given Shaw's extensive vertical and horizontal holdings in the Canadian broadcasting industry, its dominant market position could lead to gatekeeping and other anti-competitive practices. Consequently, the Commission considers that approval of this application would not be in the public interest at this time.
Laura M. Talbot-Allan
Secretary General
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