Jim ShawLarry MacDougal
Now that the CRTC has ruled in favour of private broadcasters, in effect forcing cable companies to negotiate fees to carry their signals, what are the implications for cable stocks?
Jeff Fan, an analyst at Scotia Capital, weighed in with a research note on Tuesday, arguing that on the surface the ruling is a negative for cable companies, because it means their content costs are about to rise and they may have to pass along these costs to consumers in the form of higher subscriber fees - which is unlikely to be popular.
As far as whose necks are sticking out the most, he said companies that own broadcasting assets are likely to be less affected than those that do not. In other words, Shaw Communications Inc. is the most exposed, while Quebecor Inc. , BCE Inc. and Rogers Communications Inc. are the least exposed.
"If we assume that all conventional channels will receive a fee of up to 50 cents as initially proposed, and that none will be passed on to subscribers, then the impact on EBITDA [earnings before interest, taxes, depreciation and amortization]ranges from 2 per cent for BCE to 14 per cent for Shaw," the analyst said. "Perhaps over time this will help pinpoint one of the financial merits of Shaw's pursuit of CanWest."
There is a "but" here, though: There are many hurdles to clear before this ruling can become reality.
"Even though the CRTC has ordered to establish a negotiation framework, even the CRTC is unsure whether it is empowered to do so," Mr. Fan said. "Hence it has asked the Federal Court of Appeal for a hearing on an expedited basis. We think this could take many months and could even take up to a year to finalize."
As well, the government must still rule on this decision, and it could overturn it based on the need to provide affordable local programming. The cable company stocks were relatively flat on Tuesday afternoon, implying that investors aren't freaking out over this issue.
David Berman