BCE Inc.'s massive bet on media is going truly national, as the communications giant makes a $3-billion play for Astral Media Inc. to shore up its broadcasting business in the one province where it was weak: Quebec.
The deal, announced Friday, gives the country's largest communications firm a stable of French-language television and radio stations to compete with rival Quebecor Inc. It also cements BCE's position as the leading force of consolidation in Canada's media industry: Since 2010, it has announced deals worth nearly $7-billion to buy control of CTV Inc., Maple Leafs Sports and Entertainment Ltd., and now Montreal-based Astral.
If approved by broadcast and competition regulators, the transaction would also mark the end of an era in Canadian broadcasting. The vast majority of the country's television and radio assets would be controlled by four telecommunications companies – BCE, Vidéotron Ltée, Rogers Communications Inc., and Shaw Communications Inc. – after the disappearance of large, family-controlled media firms like Astral and CanWest Global Communications Corp.
The move also underscores BCE's effort to shift its business away from legacy businesses like the home telephone. "For the first time, wireless, TV and media will now represent the majority of Bell Canada's revenue," chief executive officer George Cope said at a press conference. But it also highlights the radical shift in the competition for advertisers and viewers caused by the Internet.
For years, the only competitors that Canadian media companies had to worry about was each other. But the country's TV providers are now nearly as worried about international forces such as Google and Netflix as they are about their homegrown rivals.
This shift has been led by consumers as they change their media habits, flocking to the Web for cheap or free content. Advertisers have followed suit, putting more money in the pockets of Internet giants in a bid to reach those audiences. From 2007 to 2011, advertisers' spending on television in Canada rose 6.5 per cent.
At the same time, expenditures on Internet advertising has risen 114.7 per cent and is expected to outstrip TV in total dollars spent next year, according to a report from ZenithOptimedia.
In a bid to protect the still-lucrative broadcast business, companies have been fighting for more control, centralizing assets in the hands of a few giants. The sale of Astral is part of that trend.
The deal calls for BCE to pay $50 for each of the company's class A non-voting shares, and $54.83 for the class B subordinate voting shares. BCE plans to pay about 75 per cent in cash and the rest in stock.
BCE began considering the purchase as early as September, 2010, when it announced the plan to buy the CTV network and its stable of radio and specialty channels, chief financial officer Siim Vanaselja said in an interview.
"We thought [at the time]that there's a hole in our strategy in the Quebec market and in French-language content … we began thinking, wow, if we could combine Astral with CTV, then Bell Media truly becomes a powerful, integrated company with French-language-leading platforms across all of our markets."
Astral, which owns a portfolio of English and French-language pay TV and "specialty" cable TV channels, such as Teletoon/Télétoon and Canal Vie, as well as Canada's largest network of radio stations, has long been rumoured as a takeover target in the media sector. Astral CEO Ian Greenberg will now join BCE's board of directors.
Last December, BCE teamed up with Rogers Communications Inc. to buy Maple Leaf Sports in an attempt to secure control of lucrative sports assets – the most highly prized, and expensive, content on television. The same month, its talks with Astral were beginning in earnest.
Buying Astral would also give Bell a tighter handle on its costs: The company's channels represent the largest single content cost for Bell's TV distribution business, BCE said in a statement. The deal would also give Bell extra negotiating heft with the U.S. studios from whom it buys much of its content during its annual pilgrimage to Hollywood.
In Quebec, Bell has been locked in a battle for customers with Quebecor's telecom unit Vidéotron Ltée, which has leveraged Quebecor's vast media French-language media assets to enrich its new wireless and existing high-speed Internet networks. Lately, Bell has focused on mobile TV for smartphones, attracting more than 200,000 viewers to the service so far. But its French-language offerings were more sparse.
"BCE has tried everything to slow down Vidéotron. They thought CTV [which owns TSN and French sports channel RDS and broadcasts Montreal Canadiens games] would do the trick and that has not helped," Scotia Capital analyst Jeff Fan said. "So [the deal]is not so much 'media,' I think it's Videotron."
The deal makes Bell Media the No. 1 French-language radio company, allowing it to further push the brand with francophone audiences.
It also vaults Bell Media from a fourth to first place overall in the commercial radio market in Canada. It means the top three players in the radio market in Canada combined now control 61 per cent of the market, based on 2010 revenues.
"That is the one area that I would be pressing to have some selloff. I do not want them to have that level of strength in radio," said Sunni Boot, chief executive officer of ZenithOptimedia, which buys space across media for advertising clients.
With files from reporters Sean Silcoff and Iain Marlow