When Rogers Communications Inc. hired Jordan Banks as the new president of its media division this summer, it was not just announcing new leadership. It was sending a message.
The symbolism was clear. On the way out was a seasoned broadcaster, Rick Brace, who first went into the television business more than 40 years ago and had been pulled out of retirement to take the job in 2015. On the way in was a former eBay Inc. and Facebook Inc. executive, a generation younger, with long experience in technology and e-commerce but virtually none in the worlds of TV and radio.
Whether the 51-year-old Mr. Banks has what it takes to modernize the media business Ted Rogers built is very much an open question. What’s not in dispute is that it’s already in a state of some turmoil. In the past year it has jettisoned some high-profile (and expensive) personalities at Sportsnet, cancelled the traditional “up-front” presentation for advertisers in a cost-cutting move, sold off its publishing business for loose change, and seen the exit of the last of the executives who negotiated its blockbuster $5.2-billion, 12-year rights deal with the National Hockey League.
The latter remains the centrepiece of the challenges Mr. Banks is taking on – a pricey, uncertain deal that was signed even as the TV audiences were splintering and consumers were changing the way they watch and pay for sports. The NHL contract is a treadmill that keeps picking up speed: The cost of the rights escalates over the term of the contract. That means the company must boost hockey revenues to keep pace with costs. While the NHL contract helped make Rogers Media a larger business – revenues last year were nearly $2.2-billion, up from $1.7-billion in 2013 – the division doesn’t earn a lot more now that it did then.
Advertising is part of the problem. Consider the sheer number of advertisements on Sportsnet and Citytv that are for other Rogers products or are public-service ads, such as those against drunk driving. Those are spots that haven’t been sold. Advertising dollars have steadily flowed out of all forms of conventional media and toward digital players, particularly Google and Facebook, Mr. Banks’s former employer.
In effect, people like Mr. Banks were part of the problem for Old Media companies such as Rogers. Does he have any solutions?
“Rogers clearly has incredible assets and properties that need to be rethought,” Mr. Banks says. In his first interview since taking the job, Mr. Banks discussed the company’s plans for streaming, his view of the NHL deal and his firm belief that the media business is not broken.
“We are rethinking how to be more relevant, more often, to more people in Canada," he says, "acknowledging that the digital transformation that we are in the middle of is profound.”
But Mr. Banks seems unwilling to acknowledge that this transformation has left Rogers on the back foot. In fact, during a lengthy conversation at Rogers headquarters in Toronto, he even denies that digital giants such as Facebook have amassed more market power than his new employer.
This astonishing claim comes just after he has finished diagramming the business model of Rogers Media in a rather analog way: taking a marker to a large paper pad in the corner of the room. The upside-down pyramid he draws lays out the basic arithmetic of media: win customers’ attention, and you make money on advertising (and in the case of streaming or cable TV packages, through subscriptions). The problem of course, is that consumer attention is more divided than ever – with competition from digital giants whose market dominance far outstrips Rogers’s.
“I would respectfully disagree, a little bit, on that,” he replies.
Why? Rogers’s local presence is “stronger than any global platform,” he argues, thanks to its radio stations in more than two dozen markets, Rogers TV and Citytv stations.
Bet on sports
Mr. Banks’s second reason for being so bullish is a hectic, anxiety-ridden world that drives people toward entertainment consumed socially – in other words, sports.
“We own sports in this country,” he boasts. “I can’t imagine a better mix of sports rights exists anywhere.”
Ever since the NHL deal, Rogers has been on a years-long mission to focus its media strategy on sports.
“Now we have sold off the publishing business, what you see in our media business is sports. That continues to have very good top line growth,” said Anthony Staffieri, Rogers’s chief financial officer, at a recent BMO Capital Markets conference.
The idea is that sports is one of the few programs people feel the need to watch live, which helps protect TV ad revenue. And it’s content that people will pay for, in subscriptions.
Indeed, Sportsnet has been able to charge more for TV subscriptions – even while, like many specialty television services, it has been shedding subscribers.
In 2017, the number of Sportsnet subscribers fell by more than 7 per cent to 7.5 million, while subscriber revenue grew almost 4 per cent to $293.4-million, according to numbers submitted to the Canadian Radio-television and Telecommunications Commission (CRTC). Subscriber numbers declined again last year, to less than 7.2 million, while subscriber revenue grew another 10 per cent to $323.7-million. (Those numbers reflect only the flagship Sportsnet channel.)
Because Rogers does not break out results for its Sportsnet Now streaming service, it’s hard to know how many of those subscribers are migrating from cable TV owned by Rogers to streaming owned by Rogers. What is clear, however, is that the TV subscribers who are left, are paying more. The question is how long Rogers will be able to push prices higher in an era of cable cord-cutting.
The media group’s top line sales are expected to grow at a 2-per-cent to 3-per-cent annual clip, according to Mr. Staffieri, an improvement over revenues that were flat over the past 12 months. At the same time, Rogers is taking the axe to costs, including saying goodbye to high-priced athletes and TV and radio hosts. That is expected to boost profit margins.
The Blue Jays, for example, lost 95 games this year and finished near the bottom of the league. The Jays traded several of their top-paid players, including fielder Kevin Pillar, who made US$5.8-million, and pitcher Marcus Stroman, who earned US$7.4-million.
Financially, the season was a success. Rogers Media’s all-important earnings before interest, taxes, depreciation and amortization (EBITDA) rose by $12-million to $72-million in the most recent quarter. The group’s EBITDA margin increased to 12.2 per cent from 9.9 per cent, a jump that analyst Drew McReynolds at RBC Dominion Securities Inc. said was “primarily due to lower Blue Jays salaries.”
Mr. Banks says he believes Rogers Media is protected in these down periods by a fan base that is loyal.
“What I love about this business is, you have this core group ... that good times and bad, will listen to the FAN, will watch Leafs games, will go watch the Blue Jays,” he says.
Still, there were more than a few empty seats at the Rogers Centre this year. Mr. Banks acknowledges that “winning is a crucial accelerant” to attracting less-rabid fans who may go dormant when teams don’t perform. Asked whether that means more investment in Blue Jays salaries, he says only, “I think the entire Rogers organization is interested in winning at everything we do.”
Part of coping with change is also making media assets more personalized, Mr. Banks says. He’d like to see Rogers offering more services to sports fans such as sending alerts to their phones with highlights when a favourite player scores a goal, or providing more information to help them manage their fantasy leagues.
In his research note, Mr. McReynolds pointed out that management expected EBITDA to grow further this year, "driven by continued cost efficiencies.”
As the analyst wrote these words, Rogers let go hockey commentators Nick Kypreos, Doug Maclean, and John Shannon and high-profile radio broadcaster Bob McCown, who was one of the country’s best-paid media personalities, earning more than $1-million a year.
In one of many examples of Rogers Media trying to do more with less, Mr. McCown will be replaced on Monday by hosts Tim Micallef and Sid Seixeiro, who will do double duty as hosts of both the company’s national drive-home radio show and the Tim & Sid TV show on Sportsnet.
“What happened over the summer, I think, was a terrific job done by my predecessor, Rick, to make sure that we acknowledge things are changing and we need to change with them,” Mr. Banks says. “... I’m the beneficiary of that. I’d be lying to you if I said that that wasn’t a consideration of me taking the role. If this was a total turnaround, I wouldn’t have been so interested.”
The success of Rogers’s sports media strategy hangs on the massive NHL-rights deal – “the greatest sports rights in Canada,” Mr. Banks says – which is now at the halfway mark with six seasons to go.
When asked whether Rogers is making money on the deal, Mr. Banks says that three weeks into the job he isn’t sure. “I haven’t dug deep enough to figure out from an accounting perspective,” he says.
Sportsnet president Bart Yabsley isn’t saying either. “It’s a great deal for us. We’re really happy with it.”
Hockey has pushed revenue sharply higher for Rogers Media, but the division’s profits have followed more modestly. In 2013, the year before the hockey deal kicked in, Rogers Media reported revenue of $1.70-billion and adjusted operating profit of $161-million. In 2018, revenue was $2.17-billion and adjusted EBITDA (the profit measure it currently discloses) was $196-million.
While Rogers wants its radio and TV stations to make money, their contribution to the company’s bottom line is minimal. However, Rogers is hoping for success in sports translating into increased awareness and loyalty from owners of its cell phones and internet services.
“Sports sponsorship can enhance customer stickiness and loyalty,” said June Cotte, a professor who teaches marketing at Western University’s Ivey Business School.
Linking the Maple Leafs, Raptors, Toronto FC and Blue Jays to sports stations and cell phone and cable marketing campaigns makes sense to analysts, but it is harder to make a case for continuing to own traditional broadcasters such as Citytv. “I think investors understand how media assets with a direct association to sports can complement the legacy network business. It’s less clear how City fits into the thesis, particularly given the secular challenges facing conventional television,” said Tim Casey, an analyst at BMO Capital Markets. He added: "Radio, while small, does support the Rogers brand from a promotional perspective and it does have attractive free cash flow conversion.”
But not everyone is convinced TV and radio networks that rely on hockey and other pro sports can continue to prosper.
“We’re bearish on sports leverage. We think sports rights fees are rising at a seven per cent compound annual growth rate and could go higher in the next round of resets. It’s tough to imagine revenue growth can match that,” Steven Cahall, media analyst at investment bank Wells Fargo Securities LLC, said in a recent report on U.S. broadcasters. "We believe the leagues will continue to cannibalize viewership with OTT [over-the-top, a term for digital audio and video streaming] and digital deals.”
However, Mr. Banks says Rogers will not have to worry about the price of rights for another six seasons, and that the company is “delighted” with the NHL contract.
“Knowing what I know now, would I do that deal again? I’d do that deal again all day ‘til Sunday,” he says.
When the Toronto Maple Leafs were eliminated in the first round of the NHL playoffs last spring, Rogers saw postseason audience numbers fall. That’s important because advertising revenue fluctuates with audience numbers – and a good season can have reverberations, helping to sell advertising in the following year. Mr. Banks is hoping for a different result in this year’s postseason. He cites the Raptors’ playoff run as a perfect example of what winning can do. (Rogers holds half of the Raptors’ broadcast rights.)
“The Raptors win the championship, you see ratings and attendance go up 40 per cent," Mr. Banks says. "If we got any of that same result – which we will, when Canadian teams in the NHL ultimately go to the playoffs – it bodes very well for our business.”
TV and streaming
That business is changing fundamentally, however. Mr. Banks brings the buzzy language of the tech world into his new role. He describes Rogers Media not as a media business, but as a “platform.”
But something gets lost in translation. Platforms, unlike media companies, don’t pay for content. Facebook and Google, which together have reshaped the digital advertising market, don’t pay for rights fees, broadcast talent or writers. With no geographically restricted rights deals, no regulation, no networks to build, their scale has extended around the globe. And the data they gather on their users’ habits and interests draw marketers to spend billions on advertising with them. These platforms’ growth has occurred largely at the expense of other media companies, as advertisers shift more of their investments into digital. Having spent seven years at Facebook, Mr. Banks knows that advertisers will follow audiences.
And those audiences are not signing up for more TV subscriptions. In 2013, 81.5 per cent of Canadian households paid for cable, satellite or internet protocol television (IPTV); by 2017, that number had fallen to 72.3 per cent, according to the most recent CRTC numbers.
“Something like 50 per cent of all media in Canada right now is consumed OTT,” Mr. Banks says. “... Anybody under the age of 35, that’s probably 80 per cent. ... We’re not going to change the emerging consumption habits of consumers. We need to be bigger, stronger and more aggressive in the OTT space.”
He points to the Citytv and FX apps as an example of Rogers Media’s forays into streaming, and says the company will continue to expand the formats in which it delivers content “to help bolster” the business. That could include partnerships with streaming services or with other content owners.
The streaming space is becoming more competitive by the day, as both tech and entertainment giants – including Apple Inc. and Walt Disney Co. – are launching their own services. Streaming is also affecting the radio business: Rogers already makes podcasts, but is now working on a strategy to make its radio brands heard on smart speaker systems, which Mr. Banks sees as the future of the radio business. Ideally, a Google Home or Alexa assistant would call up content from 680 News or Sportsnet 590 The Fan on demand. “You can’t just think about radio. You need to think about the power of voice and audio,” Mr. Banks says.
Coping with all of this change will require investment. Before taking the job, Mr. Banks says he met with the board, the chief executive officer and chief financial officer, and the Rogers family – asking them all what the commitment is to the media business. He says he heard a common refrain that there was “not only the appetite to invest but the necessity to invest.” However, the figure he cites to illustrate that commitment – $2-billion – was the operating expense of running the media division last year, rather than fresh capital spending. Pushed on this point, Mr. Banks says, “a dollar is a dollar.”
At least one industry peer has already decided media and telecom businesses are best operated separately: In 2016, Shaw Communications Inc. sold Shaw Media to Corus Entertainment Inc., the media business Shaw spun off in 1999.
But at least for now, Mr. Banks says Rogers will back the media business through the transition that is to come. Before the days of cable or internet, Rogers was a media company and the family’s roots are in radio.
“Their family legacy sits right in the heart of media,” Mr. Banks says. “... As long as the family is around ... it’s going to be a part of the business that is meaningful.”
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