This week's upset win by Craig Broadcast Systems Inc. in the awarding of a new Toronto TV licence rings the opening bell in Round Two of the Canadian media convergence slugfest.
The victory by the small Calgary company in Canada's major media market will trigger intense jockeying by the companies that control Canada's television, radio, newspaper and Internet content companies, industry players say.
But don't expect the big knockout punches that characterized Round One -- the takeover binge of 2000 -- when a number of major media companies changed hands. It will be years before the ramifications of Craig's regulatory victory play themselves out.
"No one has a gun to their head," says one Toronto analyst.
By expanding Craig's reach beyond the Prairies, the Canadian Radio-television and Telecommunications Commission has planted the seed for what could be a major new television force -- a counterweight to CTV, Global and the CBC.
"It's conceivable that this decision could ultimately result in the creation of a fourth [television]network in Canada," says John Cassaday, president and chief executive officer of Corus Entertainment Inc., the Toronto-based media company.
But one reason for caution is that some of the heavyweights are too punch drunk to come out swinging. Balance sheets of companies such as Quebecor Inc. and CanWest Global Communications Corp. are in rough shape, and the ad market is still emerging from a severe slowdown.
"We expect to see a gradually improving year as we move through it," says Hugh Dow, president of media buyer M2 Universal in Toronto.
Certain players, such as BCE Inc., the majority owner of Bell Globemedia, are putting out fires elsewhere in their portfolios, or managing their acquisitions to start showing bottom-line results to a more skeptical stock market.
Alliance Atlantis Communications Inc., for example, will spend the balance of the year trimming debt and reducing film and TV production. Nevertheless, "our current focus is not the end plan," says Michael MacMillan, chief executive officer and chairman. "Of all the different opportunities we see, our top priority is to grow our broadcasting group."
Much of the excitement will come from players who didn't make big moves in the 2000 frenzy, who had a lot riding on the Toronto licence decision, and now must develop a coherent response.
Top candidates to make interesting moves are Torstar Corp., whose media convergence strategy was riding on a Toronto licence win; CHUM Ltd., which opposed the granting of any new station in its key market; and Craig itself, which may need a partner to develop its Toronto franchise -- and would certainly need one to leapfrog to national network status.
But every player is examining its alternatives. "We determined what the opportunities are for us. Others will ask the same questions," says Corus's Mr. Cassaday, who is interested in, among other things, the potential for selling children's programming to a new Craig station.
For a company in shape to arrange financing, assets are much cheaper than two years ago, although not cheap enough yet for the still-debt-burdened media players. There will be a tendency toward smaller, strategic acquisitions, not blockbuster bids.
Still, there are some unpredictable factors. Most of the players are entrepreneur-owned or family companies, which are reluctant to sell. What makes sense to an investment banker may not wash for reasons of pride, ego or long-term legacy. Such forces will determine the future of Craig, CHUM and even Torstar, whose leader-to-be Robert Prichard must navigate among five fractious controlling families. Mr. Prichard, currently the company's chief operating officer, will assume the role of president and chief executive officer on May 1.
"May Day, when the new guy takes over, will certainly have a different connotation. This [a Toronto TV licence]was supposed to be his launch pad," says one Toronto media executive.
As this past week has shown, the biggest wild card of all may be the CRTC, which has the power to create wealth, as it did for the Craig family, or take it away, as CHUM will argue it has in Toronto.
Even if deals are done, the CRTC process can be a crapshoot, based on the commission's own internal politics. The CRTC's Toronto ruling was a split decision, with three commissioners voting for Craig and two backing the Torstar bid with its generous promises of Canadian content.
The majority faction underlined the need to strengthen existing players, rather than licence new broadcast operators. Also, Craig was trumpeted as a fresh western voice in the Toronto-Hamilton region.
Even though each CRTC decision is made independently, there was the sense that Craig was being rewarded after losing a key Victoria licence to CHUM and then coming up short in bidding for a Vancouver station.
Next time around, will one of Toronto's losers become a winner? Here is a roundup of the key players and where they stand. Alliance Atlantis Communications Inc., Toronto
Where it's at: If the entertainment company were a movie, it would be a Clint Eastwood spaghetti western. The Good: a stable of strong analog TV specialty channels, including Showcase and History Television. The Bad: a long list of developing channels, including interests in 10 digital services that are unlikely to show a profit for the next three years. The Ugly: despite the success of CSI: Crime Scene Investigation, film and television production business is high risk and heavily dependent on government funding.
What it needs: A better balance sheet. Alliance Atlantis -- and Bay Street -- loves analog broadcasting's stable revenue stream and the company is trimming film and TV production business accordingly. In January, operations were restructured and the payroll reduced.
Scenarios: The company has little financial flexibility and may have no choice but to sit on the sidelines during the next round of consolidation. However, Craig will be looking for partners, so expect the opportunistic Alliance Atlantis to offer access to its film and TV library. Stronger ties between the two companies cannot be ruled out. Bell Globemedia, Toronto
Where it's at: The fortunes of BCE Inc.'s media convergence play have sunk over the past year as a result of a downturn in the national advertising market. The struggle by CTV and The Globe and Mail to make money in an advertising downturn has been overshadowed by the parent company's woes with Teleglobe Inc. and BCE Emergis Inc.
What it needs: A profitable media convergence business plan. The company must figure out how to boost cash flow by leveraging content via BCE's infrastructure. Deriving meaningful revenue from Internet-based services is a key focus.
Scenarios: The company will continue fine-tuning operations, including its new digital channels and its cross-media sales teams. Deal making seems to be off the agenda for the moment, but a CTV partnership with Craig makes sense. For Bell Globemedia, Craig's four conventional TV stations represent a competitive foil to archrival CanWest Global. CanWest Global Communications Corp., Winnipeg
Where it's at: CanWest applied for a Toronto TV licence but didn't expect to win -- in fact, it opposed the licensing of a conventional station at this time. It still has lots on its plate, such as dealing with nearly $3-billion in debt, trying to turn around the National Post, and forging a convergence of its television, Internet and newspaper assets.
What it needs: There are missing pieces -- radio and billboards in Canada -- and it doesn't have as many analog specialty TV channels as it would like. A stronger Toronto print presence would be nice. The recent writedown on Australian billboard assets adds pressure to sell non-core assets, such as community papers.
Scenarios: In what would qualify as Bell Globemedia's worst nightmare, CanWest could buy Torstar if it can win over Torstar's family trust -- and assuming it can bolster its balance sheet and qualify as suitably liberal (as well as Liberal) to meet The Toronto Star's ownership taste test. It might also team up with Rogers Media, which includes a strong radio component. CHUM Ltd., Toronto
Where it's at: The low-cost broadcaster was the most vocal opponent of the licensing of a new Toronto TV station, predicting higher U.S. programming costs and more competition for ad dollars. The one-two punch from new Craig and Rogers stations will mean a $10-million revenue hit by 2004.
What it needs: Over the next few weeks, CHUM will ask for more regulatory flexibility on local programming and push for long-term contracts locking up hit U.S. shows. In the long term, CHUM needs to build its national presence if it is to compete with the big boys -- Bell Globemedia's CTV and CanWest's Global network.
Scenarios: Don't expect a blockbuster deal any time soon. The controlling Waters family is penny pinching and has shown no hint it wishes to surrender control. Instead, watch for a low-cost expansion play à la Torstar: an application to launch a conventional TV station in Craig's own backyard, Calgary. Corus Entertainment Inc., Toronto
Where it's at: In its short 2½-year lifetime, the media spinoff of Shaw Communications Inc. -- which owns a cable television empire -- has accumulated a big broadcasting portfolio that includes 52 radio stations, a bunch of specialty TV assets, including YTV and the W women's channel, and Nelvana, the animation production house. Target audiences are kids, young men and middle-aged women.
What it needs: After a period of rapid expansion, Corus aspires to show investors that it can manage its assets to generate strong margins, while at the same time, whittling down debt accumulated during the aggressive takeover period.
Scenarios: While Corus's priority is to extract higher margins from its current portfolio, the company says smaller acquisitions remain on the agenda, hinting that at least one deal is in the works. A partnership with Craig can't be ruled out entirely -- the Shaws are opportunistic and Corus owns a handful of conventional TV stations. Craig Broadcast Systems Inc.,
Calgary
Where it's at: The family-owned TV broadcaster made the big breakthrough in Ontario, adding a Toronto station to its outlets in Calgary, Edmonton, Winnipeg and Brandon, Man. It now has the ingredients of a national system, plus a partnership with U.S. giant Viacom Inc. in two digital channels based on the MTV rock video franchise.
What it needs: Rumours are circulating that the Craigs need cash, but TD Capital is a well-heeled 33-per-cent investor in the new licence. President Drew Craig says the family is determined to stay independent, but the industry thinking is he could use a partner to share the additional costs.
Scenarios: Mr. Craig will be talking to everybody, and the new station has added at least $100-million to his firm's potential value. Look for a big player to pony up for a minority stake, perhaps buying out TD. Top candidates are Alliance Atlantis, Viacom, even CHUM, and CTV would love another friendly Toronto "stick." Quebecor Inc., Montreal
Where it's at: Debt-strapped Quebecor owns Sun Media, the publisher of the flagship Toronto Sun and other English-language newspapers across the country. But the core of its operation is its Quebec communications empire, which contains the province's largest private television network TVA, its largest-circulation newspaper Le Journal de Montréal, and its major cable provider Vidéotron.
What it needs: Chief executive officer Pierre Karl Péladeau is not in any mood for acquisitions. With $8-billion in consolidated debt and massive writedowns coming off the Vidéotron takeover, he desperately needs a stronger balance sheet and, like everyone, a rebound in advertising.
Scenarios: Expect restructuring and asset selloffs, including all or parts of Sun Media, which seems like an orphan within Quebecor. Mr. Péladeau would be loath to give up Vidéotron, but Ted Rogers is always open to suggestions, and TVA seems untouchable, for now. Rogers Communications Inc.,
Toronto
Where it's at: The cable TV and cellphone giant has a mishmash of media assets under its roof, including the Toronto Blue Jays baseball club, Maclean's magazine and a strong radio group that enjoys a commanding presence in the Toronto market.
What it needs: Ted Rogers would like to boost the media group's size to parallel its larger wireless and cable holdings. Two potential strategies, however, are on hold. The company would love to augment its sports holdings through a takeover of the Toronto Maple Leafs and the Toronto Raptors but Maple Leaf Sports and Entertainment Ltd.'s complex ownership structure makes a deal unlikely soon. The CRTC may have embraced a second multicultural TV licence in Toronto, but it continues to thwart Rogers' dreams of a national network, saying no again in February to a Vancouver ethnic TV licence.
Scenarios: Expect Rogers to play little or no role in Craig's Toronto future. Rogers will save the bulk of its energy for the eternal cable-versus-telco battle with rival BCE. Torstar Corp., Toronto
Where it's at: The CRTC decision was a tremendous disappointment for CEO-in-waiting and the very public face of Hometown TV, Robert Prichard. The low-risk convergence play, however, does not detract from the publishing giant's powerful reach across Southern Ontario via its daily and community papers.
What it needs: The company needs to articulate its growth strategy. In the long term, leveraging print content with broadcasting assets is essential if the company is to compete with Bell Globemedia and CanWest. But Torstar's dysfunctional family trust that holds voting control makes major transactions unlikely.
Scenarios: With its strong balance sheet, Torstar is well positioned for minor deal making. But the failed TV play and a string of poor investments have reinforced its conservative, risk-averse nature. Expect the company to stick to its knitting and pursue opportunities in Southern Ontario, especially with smaller, orphaned Quebecor and CanWest newspapers. Time is on Torstar's side. The balance sheets of both potential sellers may only get worse.
Battleground Ontario
Canada's media titans are crossing swords over the country's most lucrative territory, Toronto and Southwetern Ontario.
Rogers Communications
Winner of new TV licence; CFMT Too.
Assets include:
-*Multicultural service CFMT.
-*The Shopping Channel
-*Radio stations KISS-FM, 680 News, CHFI and Y105
-*About 65 magazines, including Maclean's, Chatelaine, Flare and Canadian Business
Craig Broadcas Systems
Scored a huge win by being awarded a licence for a new Toronto TV channel.
Assets include:
-*New licence for Toronto One, a local channel to be launched this fall.
-*Three A-Channel outlets in Calgary, Edmonton and Winnipeg. One other station in Brandon, Man.
-*Digital channel MTV
Torstar
Had been the odds-on favourite to win the new TV station licences.
Assets include:
-*The Toronto Star, Hamilton Spectator, Kitchener-Waterloo Record, Guelph Mercury, Sing Tao.
-*About 75 community papers
-*Book publisher Harlequin Enterprises
-*Toronto Star Television
-*About 40 Web sites
Quebecor
Took a pass on the Toronto licensing bid. French-language TV is the company's focus.
Assets include:
-*The Ottawa Sun, The Toronto Sun and The London Free Press
-*Dozens of community papers
-*Quebec media empire
Alliance Atlantis Communications
Its bid to create "Greater Toronto Television" was a non-starter.
Assets include:
-*Interests in 18 specialty and digital channels, including Showcase, HGTV and History Televison
CHUM
Said it was "very unhappy," claiming the new channels will cause it to lose millions.
Assets include:
-*CHUM and other radio stations in London, Kitchener-Waterloo and Windsor, Ont.
-*CITY-TV, Bravo, MuchMusic, MuchMoreMusic
Bell Globemedia
Did not bid for licences.
Assets include:
-*CTV television network
-*The Globe and Mail newspaper
-*Globe Interactive Web sites
-*Sympatico-Lycos Web sites
Corus Entertainment
An early exit from the Toronto licensing race.
Assets include:
-*25 Ontario radio stations
-*Specialty and digital TV channels, including women's channel W and YTV
-*Animation powerhouse Nelvana
CanWest Global Communications
Long-shot bid for licences failed.
Assets include:
-*National Post, St. Catharines Standard, Windsor Star Global Television, CHTV Hamilton, Canada.com Web site