News analysis
What will Bell Globemedia do with its new CHUM?
With Bell Globemedia’s $1.7 billion acquisition of CHUM Limited seemingly a done deal, the question among media buyers is just how Ivan Fecan and co. plan to capitalize on their acquisition of the lower-case phobic CHUM.
Depending on the CRTC’s reaction to the proposed sale–and it’s certain to be subject to intense scrutiny by the federal regulator–the new entity will house a vast collection of media assets including the conventional assets CTV and Citytv, specialty services including TSN, MuchMusic and Bravo, plus radio and print.
For advertisers, such consolidation typically means pressure on ad rates.
“Media buyers are not complete fans of consolidation, only because we know exactly what happened in the radio world,†says Bruce Claassen, founder and CEO of Toronto-based Genesis Media. “When (companies) own three or four stations in a market, our ability to negotiate between those four stations gets a little dicier.â€
While BGM plans to divest itself of the CHUM-owned A-Channels if the sale proceeds, the deal will still give BGM multiple TV stations in key markets-particularly in Western Canada.
“Could some muscle be applied there?†says Claassen. “Yes, there’s a possibility.â€
Patrick Walshe, CEO of Starcom MediaVest Group in Toronto, says the deal potentially represents “less choice,†for advertisers, but adds: “You could be optimistic and say there’s more choice and more chances to do bigger deals.â€
A recurring question among buyers is just what BGM plans to do with CHUM’s 33 radio stations.
“I don’t know that BGM wants to be in the radio business,†says Walshe. “(But) If you’re going to sell radio, this is a great time to do it because it’s at the top of its game.†(Canadian Radio-television and Telecommunications Commission figures show profits soared by 24% at radio stations across the country last year.)
But Claassen adds that radio is a mature sector with few potential takers for the CHUM stations who won’t run afoul of the CRTC’s ownership restrictions. “Outside of Astral (Media)perhaps, there aren’t going to be a lot of guys who are going to be able to pick it up without having five stations in Toronto,†says Claassen.
Still, Claassen believes the stations would be more valuable to companies with a significant radio portfolio, such as Corus Entertainment, Rogers Media or Standard Broadcasting. “They’ve already got the radio operators, sales staff,†says Claassen. “Corus or the other guys could absorb all or most of those radio stations, incorporate them within their system, and right off the top generate 10% or 15% margin improvement purely because of the economies of scale. The value of those stations to a current multi-station owner is much higher than it is to Bell Globemedia.â€
Should the deal receive regulatory approval, BGM will acquire a group of assets operating in what CHUM Limited president Jay Switzer admitted to analysts on Wednesday is a “challenged section.†The company, he admitted, “has some work to do.†CHUM also announced Wednesday that it is laying off 281 full and part-time employees as part of a long-promised restructuring in its news division.
While lamenting the loss of another independent Canadian media operator, Walshe acknowledged that consolidation is a part of the business. “This is a game where scale is incredibly important,†he says.
Less clear is what impact the proposed sale will have on BGM’s chief rival, CanWest Global Communications. “I can’t imagine Leonard (Asper) and the boys being real happy to hear this news,†says Claassen.
CanWest, added another buyer who wished to remain anonymous, is already “vulnerable†in the specialty TV sector, but Claassen ruled out a possible run at a major specialty player such as Alliance Atlantis.
“I don’t think CanWest has the dough,†he says. “I don’t think they have enough wiggle room to be able to entertain that concept.â€
Still, equity markets acted quickly yesterday scooping up other media stocks, seemingly on speculation that there will be more mergers to come.
Alliance Atlantis Communications jumped 10% to $36.03, Corus Entertainment was up 9% to $39.50 and Astral Media was up 10% at $38 on the Toronto Stock Exchange.
Alliance is believed to be the next attractive takeover target, as well as Standard Broadcasting Corp.
Astral, meanwhile, could be either a buyer or a target because it is sitting on $100 million of cash and short-term investments. That money could be used to purchase a competitor or by a buyer to pay part of the bill.
–Chris Powell with files from Canadian Press