Friday News Finds – May 11, 2018

By Tegan Valentine

Hello and welcome back to Top Five Friday Finds – the weekly series in which we share five of the business news stories that dominated the papers (and our conversations) this week.

Airplanes may reach the highest of highs, but one major Canadian airline seems to be dealing with the lowest of lows. A few weeks ago, we commented on a potential WestJet pilot strike. Well, this week, WestJet’s Air Line Pilots Association (ALPA) held a vote on the proposed strike action – and over 91% of voters decided to support taking a stand, and walking off the job. Since the vote, ALPA Chair Rob McFadyen has stated that the union hopes to avoid a strike and come to a friendly agreement with management. With that being said, McFadyen has expressed that the union believes that large gaps exist between the company’s current compensation structure, working conditions, and job security, and what the union would like to see. The impending strike has already begun to harm WestJet’s pocketbook. Fewer passengers are booking WestJet flights, with Canadians choosing to rely on other airlines in the face of uncertainty. This week, company CEO Ed Sims commented that WestJet has “seen progressive…softness or a deterioration on bookings” in addition to “a degree of anxiety from…potential guests”. This has led to lower earnings expectations as well – and the street has responded accordingly. WestJet’s share value dropped nearly 10% on Tuesday following the company’s Annual General Meeting.

Now let’s talk about friendly Canada-Norway relations! On Thursday Canadian Tire announced that it will be buying Norway-based sportswear company Helly Hansen for $985 million. While Hansen is based in Norway, it turns out that the Canadian Tire takeover transaction occurred decidedly closer to home. Since 2012, Ontario Teachers’ Pension Plan has owned the Norwegian acting living and outdoor gear brand. Teachers acquired Hansen in the hope of expanding its international presence, and ultimately led Hansen to a consistent rise in profits over the past 3 years. Hansen is not the first athletic apparel member of the Canadian Tire family. Back in 2011, Canadian Tire acquired FGL Sports (best known for its Sport Chek and Atmosphere franchise banners) for $771 million. While Canadian Tire is excited about the transaction, investors remain unsure. Canadian Tire class A shares fell nearly 6% in response to the deal’s announcement, with analysts suggesting that the deals steep price-tag likely lead to investor ‘sticker shock’. Management remains decidedly optimistic, and has expressed its hope that the acquisition will give Canadian Tire an international platform on which to expand in the future.

We might have our own football league, but for many viewers, the most exciting football game of the season isn’t the Grey Cup – it’s the Super Bowl. Why? The Super Bowl isn’t just about football, it’s an entertainment event featuring sport, an exciting halftime show, and exciting (and expensive) commercials. Those commercials are at the heart of a new legal controversy. On Thursday the Supreme Court of Canada announced it will hear appeals from Bell Canada and the National Football League over a Canadian Radio-television and Telecommunications Commission ruling that exempted the Super Bowl from the common practice of Canadian ad substitution. ‘Simultaneous substitution’ is a practice mandated by the CRTC that requires television distribution companies in Canada to distribute local or regional stations in place of a foreign station when both stations are broadcasting identical programming simultaneously. This practice explains why a Canadian viewer can watch an American television program (for example Greys Anatomy) on a local Canadian station (for example CTV), with local Canadian advertisements, while the program is airing simultaneously in the United States on an American channel (for example ABC). Simultaneous substitution was first introduced in the 1970s, with the CRTC arguing that the practice is required to “protect the rights of broadcasters, to enable television stations to draw enough advertising revenue and to keep advertising money in the Canadian market”. The policy does support said goals, but it has been subject to scrutiny. In 2016, in response to numerous public complaints, the CRTC decided that, in the case of the Super Bowl, simultaneous substitution is not in the public interest. Viewers wanted to watch the big budget commercials enjoyed by their American counterparts, and the CRTC agreed that Super Bowl commercials are as much a part of the Super Bowl as the game itself. The CRTC’s decision was upheld by the Federal Court of Appeal in December, with Judge David Near deferring to the CRTC’s judgment. In considering the appeal, the SCC is expected to consider both simultaneous substitution, and the role the court should play when reviewing actions by administrative bodies like the CRTC.

Speaking of American television – this week, 21st Century Fox reached an agreement with Sinclair Broadcast Group and Tribune Media to buy seven television stations for $910 million. The deal is tied to a proposed $3.9 billion takeover of Tribune by Sinclair, which was first announced in May 2017. Sinclair’s purchase of Tribune will allow for Sinclair to become the largest owner of TV stations in the United States – something that has attracted regulatory scrutiny. As a result, the company has gradually gone through the process of identifying and divesting stations to dilute its hold on the television market. In February, Sinclair unveiled a plan to sell two top-market Tribune stations. This was followed by an April announcement, in which Sinclair identified an additional 23 stations that would be sold to secure federal approval of the deal. Fox’s decision to purchase seven, local television stations from Sinclair is crucial to the financial future of Fox. The company is in the process of selling $52.4 billion of its studio and key cable assets to Disney, and is in the process of expanding its owned-and-operated (O&O) television footprint. Analysts predict that ‘O&O’ television will become increasingly important to Fox moving forward.

And finally, after commenting on the United State’s competition bureau, let’s take a moment to consider our own. The federal Competition Bureau announced this week that it intends to investigate Canada’s broadband internet market. Canada’s internet market is notoriously closed. According to the Bureau, 87% of Canada’s internet users rely on telephone and cable companies (as opposed to the mere 13% of users who rely on alternative service providers). This often leaves consumers paying higher prices, for lower quality service. As a result, the Bureau will be exploring ways to increase competitiveness in the Canadian internet market – namely by changing regulations, simplifying the switching process, and increasing customer access to information. The Bureau will be taking submissions until September 2018, and aims to publish a final report in 2019.