Following value-for-signal, LPIF decisions, analysts question future of CTV Two

BCE Inc. will not make any moves to downsize its stable of local television stations while its proposed acquisition of Astral Media Inc. is under consideration by the CRTC, even if the company wishes to drop some money-losing stations, analysts said. Industry analysts are speculating about the potential closure of Bell's CTV Two stations given a new regulatory environment, particularly the CRTC’s decision to phase out the local TV fund and the Supreme Court’s decision late last year that denied local TV stations the right to charge carriage fees from broadcast distributors. Bell reacted to both of those decisions by raising the question of whether local TV could survive on advertising alone. It would make financial sense for BCE to shutdown or sell its CTV Two network, formerly called A-Channel, which Bell acquired in 2011 through the purchase of CTVGlobemedia’s broadcasting assets, analysts said. “They’re in business to make money,” Richard Paradis, president of media and consulting firm Groupe CIC in Montreal, said in a telephone interview. “If their stations are really losing money, it’s hard for them to keep them alive.” In a July decision, the CRTC said it would phase out the Local Programming Improvement Fund over three years. The fund, supported by a 1.5 per cent levy on broadcast distributors’ revenues, gave out $106 million to 80 small- and medium-market local TV stations to support local TV in 2011. “They appreciated the existence of the , which is now being removed,” Paradis said, adding that he does not anticipate any moves while Bell’s proposed $3.38-billion acquisition of Astral is under consideration. “I think they certainly won’t move too much in that direction until their bigger project gets through the commission.” In a decision in October, the commission blocked an initial Bell proposal to acquire Astral, citing concerns related to competition, Bell’s market power and a proposal that did not appear to benefit the public interest. The company has since reworked its application and re-applied to the CRTC. Maher Yaghi, a telecom and media analyst with Desjardins Securities in Montreal, agreed in a telephone interview that any possible changes to CTV Two or Bell’s media assets are on hold while the Bell-Astral deal is not finalized. “It’s in their best interest … to continue to show that they are investing and supporting local production in Canada to get the green light from the CRTC to acquire Astral,” he said. “I think going out and starting to slash budgets and stations in broadcasting could hurt them close that acquisition.” At a hearing on the local TV fund in March 2012, Mirko Bibic, chief legal and regulatory officer at Bell, said 16 of the company’s stations would not have been profitable in 2011 without LPIF funding, and that six of them lost money despite the fund. Following the Supreme Court’s decision in December that denied the CRTC’s proposed value-for-signal regime, BCE division Bell Media issued a release warning about the viability of local TV. “With Value for Signal, TV viewers across the country would have benefited from long-term stability for their local television stations, which currently rely on an advertising market that has seen permanent structural change, and is no longer able to fund such a model on its own,” the release said. The release added that, in 2012, Bell’s conventional television stations saw a decline in total revenues and operating income. “Small-market stations remain particularly challenged financially, and will become more so as the CRTC’s Local Programming Improvement Fund support is phased out,” Bell Media said. The CTV Two network has four over-the-air television stations in Ontario and one in British Columbia, as well as two cable channels in Atlantic Canada and Alberta. The CTV network has more than 20 local stations. In a request to the CRTC for fewer Cancon requirements in 2010, CTVglobemedia told the commission that it’s A-Channel stations had lost $98 million since 2007 and “continue to lose tens of millions of dollars annually.” Bell is required by the CRTC to keep its CTV Two stations open until Aug. 31, 2014, with the exception of CTV Two Barrie, which must be maintained until Aug. 31, 2016. Those stipulations resulted from the CRTC decision that approved Bell's acquisition of CTVGlobemedia. Jacqueline Michelis, a spokeswoman for Bell, said in an emailed statement that the company is focused on ensuring local radio and television stations remain open. "As we have stated on previous occasions, as a new company, Bell Media is focused on ensuring local radio and television stations remain open, despite a very challenging economic situation that sees many of these stations remain unprofitable," she said. Paradis said companies have previously shut down broadcasting operations that are not financially viable, and handed over their broadcasting licences to the CRTC. “It’s happened quite often in radio it’s happened less in television,” he said. “But all the station owner has to do is say, ‘Thank you very much commission. Here’s my licence and I’m not going to operate this station anymore.’” Bell could also try to sell some stations, “but from their point of view, they probably might consider that it’s not a very interesting part of the business to be in,” Paradis said. Independent technology analyst Carmi Levy said in a telephone interview that based on Bell’s announcements, the company does not appear to be investing heavily in its CTV Two properties. “I think in terms of overall priority to the organization, Astral is much more significant to Bell’s near and longer term prospects than CTV Two was or ever will be,” he said. Astral, a specialty channel and radio broadcasting company, said in a release last week that the first quarter of 2013 was the company’s best ever quarter for consolidated revenues, during which it brought in $274.5 million. Astral said the closing date for the Bell transaction has been extended to June 1, 2013, and that either company can postpone the deal’s closing date to July 31, 2013. A public hearing on the transaction is expected in the spring. —With reporting by Danika Grenier at dgrenier@thewirereport.ca and editing by Simon Doyle at sdoyle@thewirereport.ca

Following value-for-signal, LPIF decisions, analysts question future of CTV Two

Broadcast | January 14, 2013

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Following value-for-signal, LPIF decisions, analysts question future of CTV Two

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