TORONTO – Bell Canada’s announcement this morning that it will spend $1.3 billion for all of CTV looks like a bid to protect and power a lot of its asset engines with a lot of superb oil and fuel.
The deal comes with $1.7 billion in debt, and factoring in Bell’s 15% ownership of CTVglobemedia, places a total value of $3.2 billion on CTV. The Globe and Mail newspaper has been carved out, as the Thomson family will take majority ownership of the paper.
If approved (and this doesn’t look to ring any Regulatory warning bells) the new company will bring under one roof the top broadcaster and specialty service company in Canada, our biggest ISP, largest traditional telco, second-largest wireless provider, third-largest TV carrier and several of the most popular web destinations in Canada (sympatico.ca, ctv.ca, tsn.ca, rds.ca).
It also brings Bell in line with Shaw (which is buying Canwest), Rogers (which owns a number of media assets) and Quebecor (which owns Videotron and some very popular French language media assets).
And the media assets owned by CTV, from its Cancon to the U.S. fare for which it has purchased cross-platform Canadian rights, will make Bell the most powerful, shiniest, tricked out car on the Canadian media and telecom highway. If that doesn’t look like the parts to protect Bell/CTV from what may or may not come around the bend next from the global media market, we don’t know what else would. It’s also an excellent way for Bell to take a big chunk out of its nearly $300 million annual marketing spend.
(As we noted here, the sale of CTV is not all that surprising as something has been going on for months. We just thought it would be Rogers to pull it off and not Bell. With 13 years covering this beat, I guess we still expect Ted’s company to do most of the broadcast buying. That said, Bell had a right of first refusal on any CTV sale and we were told it vowed to match any offer for the broadcaster anyway.)
With all of the major Canadian ISPs and wireless companies now in a virtual dead heat when it comes to network speeds or handset technology (at least those which a regular consumer can detect or easily distinguish from, so please don’t send me your Mbps rates, folks), the only remaining differentiator between the companies is either pricing, or the content that can be viewed on TVs, PCs, handhelds and tablets.
And no one likes a price war (except consumers, that is).
But if there are exclusive places where Canadians can find content they can’t live without, that can be a significant battle won if you are the only brand that has it. For example, extreme Canadian NFL fans might want to switch to Bell Mobility, given their exclusive deal with the pro football league announced this week.
Other carriers are moving in that direction as well. Videotron made exclusive content a key portion of its wireless launch yesterday, Telus has its own deal with the CFL and Rogers On Demand Online customers can get video to their PCs or handsets (we watched some of the World Cup on our Rogers-powered BlackBerry, for example).
It also gives Bell a big bargaining chip (stick?) when it comes to content negotiations with other carriers. “We were not prepared to buy all our content from our competitors,” Bell CEO George Cope told an analysts conference call Friday morning. “Buying all that content from our competitors doesn’t exactly lend itself to great negotiating leverage if you don’t have anything to negotiate back.”
“You can only get TSN one way, and that’s from CTV,” added CTV president and CEO Ivan Fecan, who noted that with the regulatory shackles coming off general news and sports channels, exclusive content on cable, satellite and telco TV will be a new avenue to explore. The online and mobile world is not regulated, so exclusive content deals are becoming the norm there.
The Olympics was the catalyst in convincing Cope that not only did it make sense for a carrier to own content, but that the networks and devices were now up to the job of carrying and displaying it. “The Olympics was the driver for the rationale for seeing this transaction had to happen,” he added, noting how he used his own handset often to follow hockey action.
(Ed note: We wished we had a Bell phone during the 2010 Winter Olympics.)
And when it comes to selling content to competitors? “It will be call by call,” said Cope, who cited an example how the business news content on BNN would be a great exclusive for Bell Mobility business customers. “We don’t have to offer any of it,” to others, he said.
Look for the new Bell-CTV to put together all sorts of sliced and diced and bundled content products and packages as exclusives for their customers. “The competitors have stuff that Bell wants. Bell has stuff their competitors want. So Bell has traders – and there’s also options to develop specific products or specific types of content things that might be exclusive to Bell or anyone else,” added Fecan, who announced to CTV staffers at a company town hall later in the day that he will retire within the next year).
(BTW – we wouldn’t expect the new company to suddenly try and keep TSN to itself, away from all distributors. But with deregulation in sports specialties coming, will we see a rise in the TSN wholesale rate demanded by the new company? Or perhaps carriage of tied to increases in rates for other channels in the CTV stable – including a fee for carrying CTV itself? Sure seems possible, since the other carriers who will want to keep TSN are all Bell competitors for customers on the TV, wireless and landline phone subscription front.)
This transaction also protects both Bell and CTV from over-the-top video providers such as Netflix (coming to Canada this fall) and Hulu (which wants to come to Canada). The new company will own access to the content as well as multiplatform distribution – and with its corporate heft afford to either keep it as exclusives or sell at a premium. “(T)he deal reduces the risk of over the top disintermediation of video operators in Canada,” said Scotia Capital media analyst Jeff Fan in a note to investors.
“Strategically the deal makes sense, validating Shaw’s strategy,” added Fan (Shaw goes in front of the CRTC September 21st to get approval to buy Canwest). “The deal secures key content for BCE, putting it on better footing with competitors (Rogers) and (Quebecor).
“We have made no secret of our scepticism for content-conduit ‘convergence’ so we are not going to be bullish on the prospect for any revenue synergies from this deal,” added National Bank Financial’s Greg MacDonald in his report on the deal. “Of course there will be no real cost synergies so from a strategic perspective we would call it a small positive in that it gives Bell a hedge in the event that content on-demand and mobile distribution rights gain more value.”
In terms of regulatory hurdles, we don’t foresee many standing in the way of this deal (heck, it’s been approved once before already), we would expect the creative community to object to Bell’s contention that the benefits package the CRTC normally demands when such transactions happen should be set at $0 (because, heck, they already paid $230 million worth they bought CTV the first time back in 2000 for $2.3 billion)
“BCE already paid benefits to the CRTC on the original CTV transaction,” said Bell CFO Siim Vanaselja. “They shouldn’t have to pay it twice,” said Fecan.
