Television networks such as Global and CTV used to be a media equivalent of beach-front homes, irreplaceable properties that commanded premium prices.
These waterfront estates are being swept away by digital storms, as demonstrated by the disappointing quarterly financial results this week by Global owner Corus Entertainment Inc. Advertising revenue fell more than 4 per cent compared with last year across the company’s 59 conventional and specialty TV offerings. Corus also took a $1-billion impairment charge against its TV licences and slashed its dividend by nearly 80 per cent.
Chief executive Doug Murphy explained that while the company has a long-term strategy to win over audiences, there are no short-term fixes for TV channels that used to be dependable cash cows.
Mr. Murphy cannot say it, but what Corus needs is a deep-pocketed, patient owner, willing to live with the significant uncertainty surrounding established TV networks, which have been overtaken by streaming entertainment providers such as Netflix. That sense of support is missing at major shareholder Shaw Communications Inc., which is actively shopping its stake in Corus.
The board and management team at Corus started the process that saw investment bank TD Securities Inc. hired to scour the landscape for buyers of the Shaw stake, according to sources familiar with the process.
Shaw has a strong balance sheet and no immediate need to cash in a Corus holding currently worth approximately $400-million. However, Shaw has made it clear that its future lies in wireless and cable, not broadcasting. Corus cannot look to its controlling shareholder for the capital needed to fund its journey into the brave new world of television.
The growing distance between parent and offspring was clear on Thursday, when Shaw chief executive Bradley Shaw was asked during a quarterly analyst call whether the reduced dividend from Corus cut into telecom company’s expansion plans.
“I always look at it from a Shaw point of view. As for the Corus dividend, we’ve never included that in our free cash flow growth,” Mr. Shaw said. “When I look at our balance sheet and leverage, we’re in great shape to fund our business plan ... so we’re very comfortable. And, with Doug and team, it’s very challenging over there in that business.”
The Corus team, with Shaw’s blessing, kicked off what they hoped would be a discreet search for a wealthy benefactor. That mandate is now widely known and it’s clear that Corus needs to rework its balance sheet by paying down debts that total $2.1-billion at the same time it upgrades the content coming from its TV and radio stations.
In Mr. Murphy’s dreams, TD Securities turns up a domestic pension plan or private-equity fund willing to take Corus private, recapitalize the business, then sink a significant chunk of change into the company to help the management team reinvent their approach to broadcasting. That is a tall order: The big wins for private equity funds have come at companies in boring, predictable sectors, rather than businesses beset by wrenching disruption.
After reviewing Corus’s turnaround plans this week, National Bank analyst Adam Shine said: “The key is whether management can execute to achieve more stable results which nobody expects in the short term and won’t be easy longer term.”
That pessimistic outlook doesn’t exactly stir the hearts of potential bidders for Corus. Mr. Shine looked at what lies ahead for the company and said: “Private equity will be in the spotlight on this one, but it’s distinctly possible that Shaw will continue to hold its Corus stake for a while longer despite a presumed desire to divest.”
Corus is going to find it hard to find a buyer for beachfront property in the midst of a storm.