Proposed acquisition of the English-language newspapers of Quebecor Media Inc. by Postmedia Network Inc.

Key characteristics of the newspaper markets

The newspaper markets in question have a number of key characteristics that impacted the Bureau's review.

Newspaper markets are two-sided markets. Newspapers are doubled-sided platforms that bring together two different types of economic agents—readers and advertisers—and facilitate interactions between them. As a result, the performance of newspapers is impacted by their performance on both sides of the market and by the interaction between those two sides. In other words, readers' valuations of a newspaper may be impacted by the quantity and quality of advertising in that newspaper, while advertisers' valuations of a newspaper are heavily dependent on its readership levels. In conducting its review, the Bureau was therefore guided by a recent and expanding economic literature on two-sided markets.

The newspaper markets under review are declining markets. Key metrics for the newspaper markets demonstrate that the print newspapers in these markets are facing a steady and continuing decline in readership and advertising. As a result, market conditions exert downward pressure on the parties' ability to exercise market power.

Evidence indicated that the newspapers under review are differentiated. Not only do they differ in their format, but they also differ in the emphasis, detail and tone of their content; their subscription, news stand and readership adjusted advertising prices; and their approaches to distribution, among other factors. The Bureau's analysis was therefore attentive to assessing the degree of rivalry among the parties' local daily newspapers in each of the newspaper markets.

1. Are the advertising markets and the readership markets properly defined antitrust markets?

In evaluating this question, the primary consideration for the Bureau was whether non-newspaper media (and primarily digital media) should be included in the relevant markets. With respect to advertisers, even taking into account the trend of switching away from print newspaper advertising, the Bureau concluded that in respect of the proposed transaction:

• the advertising markets are appropriately defined and
• non-newspaper media are more likely complements than true substitutes for newspapers, especially for local advertising.

In fact, many of the factors raised by the Competition Tribunal in the Southam^{Footnote 3} matter were found to be of continuing relevance in making this determination. In the course of its review, the Bureau learned the following:

• Some advertisers have already significantly reduced their newspaper advertising budgets and believe that in the event of a post-merger price increase, they could switch to digital advertising, or another form of media. However, others indicated that despite the increasing importance of digital media, at this time they would not be able to substitute away from newspaper advertising and would not do so even in the case of a price increase.
• Newspaper advertising, as a broadcast medium, allows local advertisers to reach a large audience of mature and generally well-educated readers within a specific geographic area on a frequent basis. Newspapers provide the advantages of targeting a specific demographic; flexibility in terms of ad size, placement and frequency; the ability to communicate complex information; the ability to reach multiple readers; and portability.
• Digital alternatives are generally not a broadcast medium, but rather are primarily search-based media that target a different part of a consumer's purchase decision. A potential purchaser of a product or service will often be prompted to perform electronic searches after first seeing or hearing an advertisement through a broadcast medium. Radio and television advertising, while examples of broadcast media, are generally more expensive than newspaper advertising.
• Newspapers excel in the detailed reproduction and display of prices and products (often specifically referenced as "price/product information") that are of particular significance to certain types of advertisers (e.g., supermarkets, drugstores, electronics outlets and automotive dealers). Other forms of media, such as radio and television advertising, permit advertisers to provide high level information about particular promotions or products or a company's "brand" (this is sometimes referred to as the distinction between "retail" or "display" advertising and "image" or "brand" advertising).
• In certain industries, consumers specifically look to advertising in specific newspapers when researching a purchase. Accordingly, newspaper advertising is still imperative for certain industries, and businesses that do not advertise in those newspapers risk a competitive disadvantage.

On balance, the Bureau found that advertisers tend to use a complementary mix of various media to achieve different goals and reach diverse groups. While the newspaper advertising portion of that mix is clearly declining, many advertisers confirmed that while there is a degree of substitutability towards other forms of media, a portion of their budget must remain in newspaper advertising.

With respect to readers, the Bureau found a greater degree of evidence to suggest that local daily newspaper readers have viable options outside of local daily newspapers. Nevertheless, market contacts explained that there remains a portion of readers that still has a strong preference for local print newspapers; that places a high value on local content; that actively seeks out the type of advertising that is available in local newspapers; and that is resisting digital options. While the Bureau was not able to systematically identify this group of readers, the readership market was adopted as a market definition in order to capture the preferences of these potentially "captive" readers.

2. To what extent is there direct rivalry between the parties in the advertising markets?

In order to assess the degree of rivalry between the parties with respect to the advertising markets, the Bureau reached out to a broad set of market contacts, reviewed thousands of documents from industry participants, and carried out extensive econometric analyses. There was very little evidence of direct rivalry between the parties' newspapers with respect to advertising. Rather, in this particular matter, the evidence demonstrated that the parties are not close rivals. Market contacts indicated that the prices for advertisements placed in the parties' respective newspapers vary significantly and that the parties deliver to largely distinct audiences; accordingly, the parties' products tend to serve as complements rather than substitutes.

In particular, several natural experiment econometric analyses were carried out using data provided by the parties and other market participants to assess the various dimensions of potential rivalry between the parties in the relevant advertising markets. Natural experiment analyses are a statistical tool used by the Bureau to evaluate the competitive impact that merging parties have on each other, and thereby estimate the potential loss in competition that might be expected to arise from a merger. Overall, the analyses carried out in this matter failed to support a finding of strong rivalry between the parties to the proposed transaction.

3. Is there close rivalry between the parties in the readership markets and to what extent are they likely to face effective competition post-transaction?

Extensive documentary and empirical evidence demonstrated that the parties are not close rivals from the perspective of readers, a finding that was supported by the views of market participants and by an analysis of the demographic characteristics of the parties' respective audiences. In short, the parties' newspapers appeal to different types of readers and those readers do not tend to substitute between the parties. Furthermore, the evidence showed the presence of free local daily newspapers in the relevant markets to be an important competitive constraint.

4. How does the two-sided nature of the market impact the likelihood that the parties will be able to exercise enhanced market power post-transaction?

In this case, the Bureau found that:

• The parties are keenly focused on their circulation and readership figures, and rely on them heavily in marketing to potential advertisers;
• The parties are very cognizant of the impact that major strategic decisions will have on their subscription numbers and are mindful of opportunities to gain readership from other sources;
• The parties focus their subscription efforts on gaining readers of a particular demographic, which they can, in turn, market to advertisers;
• Advertisers regularly assess returns of investment from newspaper advertising through, among other things, circulation numbers and often obtain price concessions from newspapers in light of declining circulation numbers;
• There is evidence of downward pricing pressure being exerted on the parties in these markets in order to compete with free newspapers and generate additional advertising revenues through improved circulation;
• There is recognition that editorial investments and engaging content are important to gain and retain readership; and
• Econometric evidence supports the existence of a strong interaction between the advertising and readership sides of the newspaper markets.

Efficiencies

In coming to its decision to issue a NAL, the Bureau also weighed substantive efficiencies submissions by Postmedia suggesting that the proposed transaction is likely to bring about meaningful cognizable efficiencies.