Corus Entertainment Inc. CEO Doug Murphy took the stage on Wednesday to talk up his vision of the media company of the future. It was a pitch targeted at both investors and potential buyers of the TV and radio station owner, which has been put in play by major shareholder Shaw Communications Inc.
Mr. Murphy, a graduate of Harvard Business School who has spent the past 15 years building Corus, told a Bank of Nova Scotia investment conference that his company is taking the fight to digital rivals. Corus is rolling out content and data meant to link advertisers directly to audiences. (Commercials for minivans go on programs known to be watched by car buyers with big families.) The company will also pump out video-on-demand shows – such as the racy Outlander series – that minimize ads and network promotions. As he concluded his presentation, Mr. Murphy said: “That’s the future of Corus, and that’s also where television has to go.”
Here’s the problem: An increasing number of viewers see the future of television in Netflix, where subscribers can binge watch with no ads and no promos at all. That’s the reason Netflix Inc. recently overtook Walt Disney Co. as the world’s most valuable media company, with a lofty US$164-billion market capitalization, compared with the $1.4-billion valuation on Corus.
Corus is an orphan in an era when the dominant media players are either massive, like Netflix, or have rich, indulgent parents. (Mr. Murphy’s presentation came just hours after AT&T Inc. got the green light from a U.S. court on its US$85.4-billion takeover of Time Warner, and on the same day Comcast Corp. offered US$65-billion for a big chunk of 21st Century Fox.) Corus is a debt-heavy, conventional media company in need of a wealthy saviour to patiently support its journey through an uncharted landscape.
That patron is clearly not Shaw Communications or the family that controls it. Shaw recently hired TD Securities to find a buyer for its 38 per cent stake in Corus, worth approximately $540-million. Bradley Shaw, CEO at the family controlled company, decided two years ago that Shaw’s future lies in wireless services. He may have to stick around as a Corus shareholder if no bidders emerge. But, with his company facing a $400-million-plus bill for wireless spectrum next year and billions more in capital spending down the road, Mr. Shaw is looking to raise cash where he can.
Corus cannot expect another Canadian telecom company to step up as its new parent. In a report Wednesday, BMO Capital Markets analyst Tim Casey said: “We do not expect any meaningful interest from potential strategic buyers (read BCE or Rogers) given their respective business mixes and regulatory challenges, and Quebecor is a Quebec-only media company.”
No foreign suitor can sweep in to make Corus part of a larger media play. Mr. Casey said: “Foreign ownership restrictions will prevent any non-Canadian buyer from obtaining a path to control.”
That leaves two realistic options for Corus, which owns 15 conventional TV channels, 44 specialty networks, including the Food Network and HGTV, and 39 radio stations. Either a private equity buyer emerges, or Mr. Murphy and his team fix Corus on their own.
Which brings us back to what he talked about in Wednesday’s conference. After singing the praises of the company’s programming, Mr. Murphy said his priority is “aggressively deleveraging” a balance sheet weighed down with $2-billion in debt.
Cannaccord Genuity analyst Aravinda Galappatthige said Wednesday that a weak balance sheet at Corus “makes the private equity play a bit more difficult, notwithstanding strong free cash flow generation.”
The challenge for Mr. Murphy is to bulk up while slimming down – ensuring the TV and radio businesses thrive while knocking back debt. His plans should become clear when Corus reports financial results later this month. The company is expected to cut its $1.14 annual dividend by between 50 and 70 per cent.
Cutting the dividend in half would save more than $110-million a year. After that, it gets more difficult to find moves that will allow it to pay back lenders more quickly. It’s possible Corus could sell off TV or radio stations, but analysts see this as weakening the platform at a time when rivals are getting stronger.
“While the radio assets could be worth $325-million to $350-million and Nelvana could be worth over $100-million, we believe the sales of these assets might actually hurt rather than help the thesis of Corus as a public company,” Mr. Galappatthige said. He added: “Selling some flagship TV assets makes no sense to us.”
Chopping debt while continuing to create content that draws audiences may help Corus attract a private equity backer. It would certainly mean the company is better positioned. But in era where most TV and radio businesses enjoy the backing of larger conglomerates, an independent Corus looks increasingly lonely.