What the Sale of Astral Means for Canadian Radio?

 
Astral has agreed to sell its media empire for $3.38 billion dollars. BCE really wanted Astral’s pay and specialty television services, as well as Astral’s content which it plans to deliver across its four screen platform – television, mobile phones, computers and tablets.. It also wanted to level the playing field in Quebec where rival Quebecor was and still is dominant.
 
 Bell also picked up 84 radio stations in 50 markets as part of the deal which will make Bell the largest player in the Canadian commercial radio market. It also means the top three players in the radio market in Canada combined now control 61 per cent of the market, based on 2010 revenues.
 
 
This is the 3rd major purchase by Bell in the past 18 months. BCE’s chief financial officer Siim Vanaselja feels “We see it being a pretty straightforward process,” but it is unlikely the CTRC will approve the deal unless Bell can divest itself of stations in markets where it is already owns the maximum number of radio stations which includes Toronto, Vancouver, Calgary , Ottawa and Winnipeg.
 
It’s likely that we’re going to have to divest a small number of radio stations,” says Vanaselja. “If we’re required to make divestitures, we’d look to divest the smallest of those. The radio business is a great business. There would be a very, very high level of demand and interest in those assets.”
And given the applicants for the recent licence call in Calgary where 12 companies applied,  and the 27 applicants for the impaired 88.1 Toronto frequency (which will be heard starting May 7th in Toronto) it appears there will be no shortage of companies lining up to buy the stations from BCE that they cannot own in these markets. Likely contenders will be Newcap who owns 83 licenses, Pattison, Havard Broadcasting and Golden West, but will they be prepared to pay a similar premium that Bell paid? We may also see other cash rich companies take a look and perhaps some of the smaller broadcasters such as Evanov, Blackburn or Haliburton may look to get into the bigger markets.
 
The FM stations BCE is most likely to divest following the purchase of Astral Media based on performace are as follows:
City Call letters/freq. Station name and format Share/Rating
Vancouver  CHHR/104.3 Shore-FM, in transition 1.6/16th
Vancouver  CKZZ/95.3 Virgin Radio, adult contemp. 7.2/5th
Ottawa CJOT/99.7 Boom, classic hits 1.5/14th
Ottawa CKQB/106.9 The Bear, active rock 3.5/11th
Calgary CKCE/101.5 Kool, adult contemporary 3.4/13th
Winnipeg CHIQ/94.3 FAB, ’60s/’70s hits 4.9/10th
Toronto CHBM/97.3 Bloom, classic rock 5.7/7th
Toronto CFXJ/93.5 Flow, hip-hop 1.4/19th
 
And while Astral Media saw its profits grow in the first quarter with stronger revenues in its television and outdoor advertising divisions, radio revenue actually fell 4 per cent.
 
This purchase was all about protesting the television and specialty channel markets. A combined Bell Media-Astral will hold more than 40 per cent of specialty-channel viewing share among English-language viewers. Total commercial television revenues of the combined entity would amount to 40 per cent of the market, or more than double its closest competitor in Shaw Communications Inc., which owns the former television assets of Canwest Global.
 
While the deal will expand Bell’s media presence nationally, another major strategic rationale was to even up the fight in the company’s French-language media assets as Bell competes headto-head with Quebecor Inc. in Quebec for advertising dollars as well as subscribers to Internet, wireless and television services. Astral owns several French-language television and radio assets that will enhance the telecom giant’s appeal in the Montreal-based company’s home province across all those categories, denting a significant cultural advantage held by Quebecor.
 
“We thought [at the time] that there’s a hole in our strategy in the Quebec market and in French-language content … we began thinking, wow, if we could combine Astral with CTV, then Bell Media truly becomes a powerful, integrated company with French-language-leading platforms across all of our markets.” Beefing up Bell’s Quebec television presence was one of the main drives for this deal. Combined, Bell and Astral will have a 32 per cent market share in French language television, only slightly behind Quebecor, which has a 35 per cent share.
 
If this deal is approved it will mean the vast majority of the country’s television and radio assets would be controlled by four telecommunications companies – BCE, Quebecor, Rogers Communications Inc., and Shaw Communications Inc. – after the disappearance of large, family-controlled media firms like Standard Broadcasting, Astral and CanWest.
BCE began considering the purchase as early as September, 2010, when it announced the plan to buy the CTV network and its stable of radio and specialty channels, chief financial officer Siim Vanaselja said in an interview. Time will tell just how interested BCE are in owning and operating radio and outdoor advertising. “There are no assets at the moment that we consider here non-core,” George Cope CEO of Bell Media parent company BCE said, adding: “One of the areas where we see media growth is in the outside asset.” BCE have done a good job of cross promoting some of their radio properties on television for example.
 
Astral shares had traded around the $35 range over the past year but BCE will pay a premium of between $50 and $54.83 a share which means they are paying a 39% premium or 10 times EBITA which is the same multiple they applied to the CTV deal. The average price paid for Canadian radio stations over the past 12 months has averaged between 7 and 8 times EBITA.
 
Now we know why Astral was slashing positions across the country over the past few months in order to make the balance sheet look even healthier. Currently Astral employs 2,800 people while Bell has about 58,000 employees. Bell will no doubt look closely at reducing costs by eliminating duplicated positions where possible.  Bell will also be required to spend 6% of the final purchase price on Canadian talent development, most of which will go to FACTOR.
 
Without doubt the next chapter in Canadian radio will be interesting to watch. I am reminded of the proverb of a Kenyan tribe which says “When the elephants fight, it is the grass that suffers.”