Archived — Acquisition of Sogides Ltée by Quebecor Media inc.

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Technical Backgrounder

March 2006


This technical backgrounder is intended to summarize the main findings of the Competition Bureau’s review of the acquisition of Sogides Ltée (Sogides) by Quebecor Media Inc. (QMI).

Readers are advised to exercise caution in interpreting the Competition Bureau’s assessment of this transaction. Enforcement decisions are made on a case-by-case basis, and the conclusions discussed in this backgrounder are specific to this merger and are not binding on the Commissioner in any future matters. The legal requirements of section 29 of the Competition Act and the Bureau’s policies and practices regarding the treatment of confidential information limit its ability to disclose certain information obtained over the course of a merger review. Readers should also bear in mind that portions of the Consent Agreement entered into by QMI, Pierre Lespérance and the Commissioner of Competition are confidential, with the result that certain details cannot be discussed in this backgrounder.

In the fall of 2005, QMI contacted the Bureau regarding its interest in acquiring Sogides. The Bureau reviewed the proposed merger to determine its effect on competition. The transaction was classified as “complex” in accordance with the Bureau’s service standards. In conducting its review, the Bureau gathered information from a number of sources, including parties to the transaction, French-language book publishers,  distributors and retailers, various Quebec book industry associations and government officials responsible for the industry. The Bureau did not use formal powers or hire economic experts in its analysis of the transaction.

Following the review of the transaction, the Bureau concluded that the merger of QMI and Sogides would not likely result in a substantial lessening or prevention of competition in the publishing and distribution of French-language trade books. However, in the course of reviewing the transaction, the Bureau learned that Sogides’ president, Pierre Lespérance, had an interest in Gestion Renaud-Bray Inc. (Renaud-Bray), which competes with QMI’s Archambault Group Inc. (Archambault) bookstores. QMI and Sogides signed a Consent Agreement with the Competition Bureau to eliminate the possibility of information exchanges between Archambault and Renaud-Bray through Mr. Lespérance. Such an information exchange could be detrimental to publishers and distributors who have supplier relationships with Archambault and Renaud-Bray bookstores. The agreement includes the following requirements:

  • the resignation of Mr. Lespérance from Renaud-Bray’s Board of Directors; and
  • the appointment of an independent agent to replace Mr. Lespérance on the Renaud-Bray’s Board of Directors

The remainder of the backgrounder will discuss the analysis of the transaction regarding book publishing and distribution and its findings.

The Parties

QMI’s activities include the publication of daily and weekly newspapers, books and magazines; the distribution and sale of newspapers, magazines, books and music; television broadcasting; and cable television and new media.

In terms of total sales, Sogides is one of the largest publishers and distributers of trade books in Quebec. Sogides’ publishing sector includes Les Éditions de l’Homme, Le Jour, Utilis, Les Presses Libres and Groupe Ville-Marie Littérature Inc. (which includes Éditions de l’Hexagone, Typo & Dessin and VLB Éditeur). Sogides’ distribution sector activities are grouped under its subsidiary Messageries ADP Inc.

Product Market

The Bureau defined publishing and distribution of French-language trade books as the relevant product markets.

Barriers to Entry

Publishing

The Bureau determined that the barriers to entry for the establishment of a new, small-scale publishing firm were low. According to several stakeholders, anyone with a personal computer could become a publisher. Others noted that authors could publish their own manuscripts. In fact, several Quebec authors have created their own publishing firms. The existence of more than 100 publishers in Quebec supports the view that the publishing market is easily accessible. However, large-scale entry would require more resources, including qualified staff.

Several stakeholders raised concerns about being unable to compete against the marketing strength of Quebecor. However, this is a reality that existed before the transaction. Through its daily newspapers (Le Journal de Montréal and Le Journal de Québec) and its television network TVA, QMI already enjoys considerable advantages over its competitors with respect to book promotion for its own publishing firms. The transaction thus does not change the degree of QMI’s vertical integration.

Some industry participants indicated that the transaction could possibly increase their total sales. In fact, several believe that the transaction will lead to competitive advantages, owing to their smaller size and ability to react quickly to industry trends and develop new niches. They were of the view that the transaction could provide growth opportunities for existing publishing firms.

The Bureau concluded that the barriers to entry for a new publisher are generally not significant. Although the transaction creates a significant player in the publishing industry, it may also provide growth opportunities for existing publishers. 

Distribution

The Bureau determined that entry barriers for distribution of French-language trade books were not insurmountable. Although infrastructure, such as warehouses, can be rented at low cost and computer systems are easily accessible, the review found that the success of a distributor depends more on its ability to attract and retain publishing firms in its distribution network. Distributors looking to attract publishers to their distribution network must have an impeccable reputation regarding on-time delivery while demonstrating quality service. This can only be done by investing time and money.

Other Competitors

Publishing

Market contacts estimated there to be more than 100 publishing firms in Quebec. Although a good number of them are very small, there are approximately 10 large Quebec publishing firms (i.e. with annual sales over $1 million). These publishing firms represent an alternative to the merged entity. Moreover, they are alternatives to QMI and Sogides for writers. The Bureau believes that the number and variety of books offered to consumers will not likely change following the transaction.

The Bureau also concluded that French and European publishing firms provide stiff competition for Quebec publishing firms as a whole. Although French publishing firms may not be the first choice for Quebec-based French-language authors, a number of authors are published by large French publishing firms. The stakeholders contacted also said that books from French publishing houses are in direct competition with books published in Quebec.

Distribution

Although there are fewer players in distribution than in publishing, the Bureau believes that there are enough distributors to prevent a unilateral price increase by the merged entity. In fact, the Bureau has identified more than 20 distributors in Quebec, and because exclusive distribution contracts are short-term, a unilateral price increase would result in a market share loss for the merged entity. Moreover, all of the publishing firms believe the transaction will not have much impact on distribution. Distributors look to maximize the use of their facilities by attracting as many publishers as possible. The Bureau concluded that a distributor requesting more concessions than industry norms would risk losing a publisher to a competitor.

Conclusion

The Bureau is satisfied that the transaction is unlikely to result in a substantial lessening or prevention of competition in the market for publishing and distribution of French-language trade books.

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