New math and CRTC Benefits ?

LETTER TO THE EDITOR: Confusion reigns over Shaw's Canwest benefits package
Cartt.ca
July 27, 2010
CARTT.CA'S UPDATED STORY on the Shaw/Canwest deal seeks to fill in “incomplete data” on Shaw’s proposed benefits package of $23 million for a transaction reported at $2 billion. That’s not a typo. We estimate that this comes to 1% of the value of the transaction. Since Commission policy dictates 10% for benefits it’s fair to ask: Are we missing $177 million? Let’s look at the numbers.
In their main application, Shaw ascribed a value of the transaction at $475 million. At that point, they were proposing a benefits of $23 million, which would be spent on the conversion to digital of some transmitters outside of the mandated areas for conversion. That is no benefit, but simply a cost of doing business.
Once the transaction became much larger with Shaw’s acquisition of Goldman Sachs’ interests in the former Alliance Atlantis specialty services, the value increased from $475 million to $2 billion, resulting in Shaw being set to become the largest vertically integrated communications company in Canada. However Shaw argues that the bulk of this increase in value should not be considered for the purposes of determining the appropriate amount of tangible benefits because what they purchased from Goldman Sachs did not give them any control, since Goldman was a foreign investor and thus did not have any control over the Canwest assets in the first place.
So according to Shaw, no transfer of control occurred in that part of the transaction thus reducing the value of the transaction from $2 billion to $506 million. But the question is, do we really believe that Shaw will not now control the full panoply of Canwest/AA assets?
Shaw stuck to its guns on the meagre $23 million in benefits and it is only after much prodding by the Commission in numerous deficiency questions that Shaw finally agreed to respond to the hypothetical question of what additional benefits package they would propose “if the Commission were to determine that [Shaw’s] proposal was not sufficient and/or appropriate.”
And what do they propose?
Shaw’s new spin on the benefits package is that they are offering $203 million, or just over 10% of the transaction, but that would include some $95 million in benefits money already owed by Global as a result of the Canwest/Alliance Atlantis merger. In effect, if forced by the CRTC to increase benefits from $23 million, Shaw would pay monies already owed by the company it is acquiring. In fact, Shaw has actually suggested that the Commission would itself be the one doing the double counting if they were to impose a benefits requirement on Shaw that didn’t include what was already promised as part of an earlier transaction.
Shaw also mentions several times the alleged financial hardship of Canwest as a rationale why benefits should not be paid. And yet didn’t Canwest just a few weeks ago report a solid return to profit in its third quarter. Indeed its operating profits have doubled to $150 million from $74 million in the third quarter of 2009.
Shaw also proposes to spend on additional programming content, new media content such as mobile and VOD applications and new morning news shows. It suggests that this adds yet another $85 million to the benefits pot. Sounds like another cost of doing business. Isn’t this money they would be spending in any event just to compete with CTV? There is no mention of any of these monies going to any third party initiative.
So, once one discounts from the proposed package all the monies which are already owed under promises made with respect to a previous transaction and monies merely associated with the cost of doing business, one has to wonder if Shaw has proposed any true tangible benefits at all.
You have to read the reams of deficiency questions and responses to get any sense of what Shaw is now alleging that they are proposing. That is a problem for the CRTC because as it moves to increase the level of vertical integration in broadcasting by enhancing the dominance of the top three cable companies, there are already concerns being raised by many non-integrated distributors, broadcasters and producers as to how to ensure access and prevent the exercise of undue preference.
On its face such vertical integration poses a threat to access and diversity, so it would be nice to think ,at least in return for upping that risk, that the CRTC got the minimum required benefits for independent creators, along with some safeguards to help the independents sleep at night.
Michael Hennessy
senior vice-president, regulatory and governmental affairs,
TELUS