Deal gives Newcap entry to key Toronto, Vancouver radio markets

Newcap Inc. is looking for opportunities to further expand its radio footprint in large Canadian cities after striking a deal to enter the “major leagues” of Canadian radio, said the company’s president and chief executive, Rob Steele. In a release Monday, the Newfoundland Capital Corp. subsidiary said it had reached a $112-million deal to acquire five BCE Inc. radio stations in Canada’s two largest English-language radio markets: CHBM-FM and CFXJ-FM in Toronto, and CKZZ-FM, CHHR-FM, and CISL-AM in Vancouver. The deal, once approved, would give the Dartmouth, N.S.-based broadcaster its first stations in the two major markets and allow it to compete for national ad sales with the country’s largest private broadcasters, Bell, Rogers Communications Inc. and Corus Entertainment Inc., industry analysts said. “While they’ve always been a big company, this gets them to play in the major leagues,” independent broadcast consultant Andrew Forsyth said in a telephone interview. “They have been called up to the bigs and I think that, from a growth point of view, this is absolutely the right thing for them to be doing.” In a research note released Monday, RBC Dominion Securities analyst Haran Posner said the five Bell stations reported $40 million in revenue in the 12-month period that ended on May 31, and estimated that they recorded a combined $13 million in earnings before interest, taxes, depreciation and amortization (EBITDA). Newcap’s other 88 stations in small and medium-sized markets across the country produced a combined $35.8 million in second-quarter revenues and $10.3 million in EBITDA, the company said earlier this month. Forsyth said that part the Bell stations’ success can be attributed to the strength of the Toronto and Vancouver markets. Toronto offers the most lucrative radio market in Canada, with the city’s FM stations pulling in a combined $189 million in revenues in the 2012 broadcast year while its AM stations totalled $81.3 million in revenues, according to CRTC data released in June. Vancouver’s FM stations earned a combined $83.8 million in revenues over that time, the CRTC said, while its AM stations recorded $42.3 million. Ottawa, Newcap’s largest market to date, earned $49.7 million in revenues spread across its FM stations during the 2012 broadcast year, the commission’s data said. Steele said in a telephone interview that Posner’s $13 million estimate of the five stations’ potential earnings is “very reasonable,” and estimated that it will take the company between five and seven years to recoup the costs of acquiring those stations. He said the $112-million price tag reflects the fact that Bell was forced to sell the stations in order to comply with CRTC “diversity of voices” rules that limit broadcasters to owning no more than two same-band, same-language radio stations in each market, following its purchase of Astral Media Inc. earlier this year. The fact that other major broadcasters, including Rogers and Corus, already own stations in both markets also limited the number of potential buyers and helped keep the cost lower than it would have been otherwise, he added. “It’s a sizeable chunk to buy, and for a lot of independents it probably would have been too much to do,” he said. Steele said Newcap has been trying to enter the Toronto market for years to help it appeal to national advertisers, and because it would help the company attract “the best people, the best talent” by offering more room for career growth within the company. He said the additions would allow the broadcaster to offer advertisers “a national platform” and to label itself as Canada’s only commercial broadcaster with stations from coast to coast, since Bell, Rogers and Corus don’t operate in Newfoundland and Labrador. “If you look at our group of assets, right now the obvious holes are Toronto and Vancouver,” he said. Newcap, he added, will continue to pursue opportunities to add to its stable of stations, and will particularly look to add stations in other large Canadian cities. “We’re not in Montreal, we’d like to be. We’re not in Winnipeg, we’re not in Regina or Saskatoon,” Steele said. “Those are larger markets that I’d like to be in … They would be markets that would be desirable to us.” The company, he said, will particularly look for opportunities to acquire stations from other independent broadcasters—which he estimated currently own about 300 radio broadcast licences combined across the country—or to acquire those broadcasters. Newcap’s expansion into the Toronto and Vancouver markets comes nine months after the company sought potential buyers for a sale of its Alberta broadcast division, a move that Steele said would have turned the company into “an Eastern Canada” broadcaster. He said the sale process was skirted when the company realized that no one was going to offer the price it wanted for those stations. “The lesson learned on that one was it’s a better time to buy than to sell,” he said. “We didn’t get the price and I was just as happy that we didn’t. Now we have a national company.” Forsyth said Toronto’s CFXJ-FM (dubbed 93.5 Flow) and Vancouver’s CHHR-FM (Shore 104.3) offer Newcap the greatest growth opportunities, since both have historically underperformed in their markets and could perform better under a different format or new management. According to ratings data available on BBM Canada’s website, CFXJ-FM had a 1.4 per cent share of the Toronto market between Feb. 25 and May 26 this year, compared to a 5.4 per cent share for CHBM-FM. During that same period, the BBM data said, CHHR-FM held a 1.1 per cent share of the Vancouver radio market while CKZZ-FM held a 7.3 per cent share. Steele said Newcap will undertake market research in both cities to determine how best to grow each station’s audience, and will wait until after the deal receives CRTC approval to make any decisions. David Bray, a radio analyst and president of Bray and Partners Communications, said in an interview that Newcap’s success in the Toronto and Vancouver markets will help determine how well the company will compete in the long run. “These are larger markets and it gives them a foothold in the major markets, which is critical to long-term success,” he said. “This is the ultimate push … This is the push they’ve been waiting for their entire corporate existence.” —With reporting by Nicholas Kyonka at nkyonka@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Deal gives Newcap entry to key Toronto, Vancouver radio markets

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