BCE buying ‘mature’ broadcast assets from Astral, companies tell CRTC

BCE Inc. aims to purchase “mature” broadcasting assets from Astral Media Inc. that operate in a fragmented media market where it is increasingly challenging to sell more TV subscriptions and raise prices, Astral said in regulatory filings with the CRTC. Bell seeks to purchase the broadcast company in a competitive, online environment where there are questions, over the long-term, about the “ability to create 'real' revenue and earnings growth” for Astral's television and radio broadcast assets, Astral said in a Feb. 15 letter to the CRTC that responded to commission questions. On Wednesday the CRTC released the companies' second, reworked application to purchase Astral for $3.38 billion. The commission denied Bell's first proposal last fall, citing concerns about competition, market concentration in the broadcast sector, and a deal that did not appear to be in the public interest. Bell and Astral released a reworked proposal Monday and an agreement with the Competition Bureau to sell off 12 pay and specialty channels as part of the purchase, with Corus Entertainment Inc. taking ownership of six of them. The reworked deal still requires approval by the CRTC, which said in a notice Wednesday that it will hold a public hearing on the acquisition starting May 6 in Montreal. The new CRTC application, this time filed by Astral instead of Bell, contained the company's responses to commission questions about the transaction and its value as part of the regulator's determination of the benefits Bell should pay to support the Canadian broadcasting system. As part of broadcasting transactions, the CRTC requires the purchasing company to make commitments to support Canadian broadcasting. Astral, citing a report prepared for the companies last year by PriceWaterhouseCoopers that examined the value of the transaction, said in its Feb. 15 response to the CRTC that its pay and specialty channels are “mature” and operate in an online environment where it is challenging to add more TV subscribers and grow advertising. “As discussed in the PwC report, the ability to continuously sell more subscriptions is becoming increasingly challenging as the market for Astral's TV services mature and come under pressure from OTT services and other substitute offerings,” Astral said in the letter. “Astral's TV and radio broadcasting assets are, for the most part, mature businesses participating in mature industries. In the case of television, this comprises specialty, pay, pay-per-view and conventional. New technologies which enable users to access content over the Internet is putting pressure not only on subscribers but also advertising revenues (where applicable) as viewers go elsewhere to find the content they wish to consume. If viewers are migrating, then pressure is also put on advertising revenues (where applicable),” the letter said. Astral owns 22 pay and specialty TV channels and more than 80 radio stations across the country, as well as out-of-home advertising space. The company said in the letter that the radio industry is also exposed to changes in technology despite being a viable market for local advertisers, particularly those targeting car commuters. Astral cited the PwC report to say that new technologies and market fragmentation is putting pressure on the company's ability to retain listeners and generate advertising revenue. “Astral's online operations are relatively new (i.e., still in the growth phase) and this industry is currently forecast to continue to grow rapidly for some time which impacts the selected terminal growth rate,” the letter to the CRTC said. In an appendix to the application called “Evolving Consumer Preferences for Video Consumption,” Astral said the rising use of online, over-the-top video services is also driving up demand for, and the cost of, digital distribution rights. Foreign, online competitors like Netflix Inc. are significantly pushing up Astral's cost of content rights following contract renewals since 2010 with four major U.S. studios, Paramount Pictures Corp., Twentieth Century Fox Film Corp., Universal Studios Inc.and Sony Picture Studios, the appendix said. “In these four cases, the average rates paid were significantly higher than before the arrival of Netflix, with Netflix outbidding Astral for the right from Paramount and Fox (English-language),” Astral said. In a release Wednesday, Bell and Astral maintained their plan to sell off 12 specialty channels, resulting in a French-language TV viewership share of 23 per cent and English-language share of 35.7 per cent for Bell. Those numbers are according to a report completed for the companies in January by consulting firm Communic@tions Management Inc. The CRTC said in its notice that, as party of the hearing, it may discuss "the concentration of ownership and potential market dominance that the post-divestiture BCE/Astral entity would have," including its negotiating power with other distributors; presence in popular genres like movies and sports; and any "potential negative impact that the proposed transaction could have on independent entities." The deadline for comments on the new application is April 5. As part of the deal, Bell will also divest 10 English-language radio stations to meet the CRTC's ownership rules for radio market concentration. Bell said in the release that the companies filed a separate CRTC application due to a “strong desire expressed by Montréal sports fans” to keep TSN Radio 690, or CKGM Montreal, as an English-language sports station rather than converting it to French to meet the ownership rules. That application asks the CRTC for an exception to continue to operate TSN 690 as an English-language sports radio station, which will also be considered at the hearing in May. The CRTC said in its notice Wednesday it will look at whether the station “would have no adverse impact on any existing station and would not preclude the Commission from licensing new English-language stations in the future.” Astral said in its Feb. 15 letter that Bell is not prepared to divest other stations in Montreal, including CJAD, CJFM-FM, or CHOM-FM, and that if the CRTC denied the request for an exception for TSN Radio 690, it suggested that “Bell sell CKGM Montréal or return its licence, as determined by the Commission.” Bell referred to two campaign websites Wednesday related to the transaction. One of the them, SaveTSN690.ca, is dedicated “to keep TSN Radio 690 as it is,” a release said. The site encourages listeners to sign a petition or write letters of support to the CRTC. Bell and Astral also launched an updated website CanadiansDeserveMore.ca in an effort to better communicate the Astral purchase to the public and drum up support. Visitors to the site can “show their support for the transaction and get answers to their questions about the proposal,” a release said. As part of the deal, Bell proposes to keep eight Astral TV channels, including French-language channels Super Écran, CinéPop, Canal Vie, Canal D, Vrak TV, and Z Télé, and English service The Movie Network (which includes HBO Canada, and TMN Encore). Bell also seeks to keep Astral's two over-the-air TV stations in rural British Columbia, CJDC in Dawson Creek and CFTK in Terrace, as well as Astral's stake in pay-per-view channel Viewer's Choice Canada, the release said. The CRTC traditionally requires companies acquiring broadcast assets to commit to benefits packages amounting to 10 per cent of the value of the transaction for television and 6 per cent for radio. Bell and Astral released Wednesday a proposed benefits package of $174.64 million, lower than the $240-million package Bell had proposed last spring when it sought to purchase all of Astral's television assets. Bell will invest $124.6 million in Canadian television, 85 per cent of which will go to independent, on-screen productions, the release said. The company said it intends to launch new French-language TV services for Quebec audiences, including one called Investigation based on Discovery TV. Bell said it will also put $23.8 million toward feature films through the Harold Greenberg Fund; $4 million into the French-language Television Format Development Initiative to support independent producers, directors, writers and actors; $5 million for Telefilm Canada's Private Donation Fund; $4.9 million on French-language youth programming initiatives; $43.65 million on French-language TV programming; and $50.04 million for Canadian radio and the development of emerging musical artists. The company said it will become the first national radio broadcaster to commit to a minimum of 25 per cent airplay for emerging Canadian artists at “applicable stations.” —With reporting by Simon Doyle at sdoyle@thewirereport.ca, files from and editing by Nicholas Kyonka at nkyonka@thewirereport.ca

BCE buying ‘mature’ broadcast assets from Astral, companies tell CRTC

Broadcast | March 6, 2013

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