fp todayFINANCIAL POST
BCE loses interest in prized media assets
Monty's vision of media convergence has become Sabia's headache
Barbara Shecter
Financial Post
Saturday, January 10, 2004
FORMER BCE CEO JEAN MONTY: 'For BCE to claim a viable growth strategy in the Internet economy, content is key. After all, the Internet is where media intersect; increasingly, it's what broadcasting, print and communications have in common.'
CREDIT: Yvonne Berg, National Post
BCE CEO MICHAEL SABIA: Mr. Sabia said Bell Globemedia is not generating 'the holy grail' of extra advertising revenues once envisioned by BCE, and offers few synergies with its core telecom offerings. 'These are substantially separate businesses.'
CREDIT: Kevin Van Paassen, National Post
...Bell Globemedia chief executive Ivan Fecan are core members of a management group steering the convergence unit of BCE, which no longer has a formal board of directors.
CREDIT: Glenn Lowson, National Post
BCE Inc. is preparing to spin off control of its Bell Globemedia television and newspaper company this year, and the unit's diminished presence within the telecom giant is already coming into focus, according to sources close to BCE.
The nine-member board of directors of Bell Globemedia, created three years ago to house CTV Television Inc., the Globe and Mail newspaper and the Sympatico-Lycos Internet portal, has been disbanded, the sources say. In the absence of a clear commitment from its parent, the media unit is subject to rumours about potential spinoffs, job cuts and restructuring.
The Bell Globemedia board has been replaced by a management structure that includes CTV and Globe chief executives Ivan Fecan, Globe publisher Phillip Crawley, BCE chief executive Michael Sabia and two representatives of Bell Globemedia's minority partner, Toronto's Thomson family.
Nick Kaminaris, a spokesman for BCE, would neither confirm nor deny the dissolution of the Bell Globemedia board, which had included three members of BCE's own board of directors, saying he is not obliged to because it is a private company. The only board member who spoke to the Financial Post --Senator Marie Poulin, who is listed in the 2004 edition of the Directory of Directors -- confirmed through a spokeswoman this week that she is no longer on the board.
Further evidence that Bell Globemedia is drifting out of the BCE fold came last month when Mr. Fecan did not make his usual presentation at BCE's annual investor presentation in Toronto.
"We had to talk to what the vision of the company was with respect to its main asset [Bell Canada and not Bell Globemedia]," said Mr. Kaminaris.
Mr. Fecan, who also holds the title of CEO of Bell Globemedia, was on vacation and unavailable for comment, according to a spokesman.
Michael Sabia, who replaced Jean Monty as chief executive of BCE in April, 2002, made a few brief comments at the meeting about Bell Globemedia. After the presentation to investors, he told reporters that Bell Globemedia is performing well and opportunities for the unit will be looked at as they arise.
He declined to be interviewed for this story, citing a "quiet period" leading up to the reporting of BCE earnings next month.
But since he took over as CEO, it has been clear that Mr. Sabia is cooler toward Bell Globemedia than was his predecessor Mr. Monty.
Mr. Sabia has distanced himself from BCE's media convergence strategy and it is believed he is waiting for the most advantageous timing to dispose of CTV and the Globe.
Sources say several members of the BCE board now concur that merger and acquisition proposals should be considered later this year. Bell Globemedia's increasing distance from the power centre of BCE adds to speculation that the unit will be severed in some way.
And even though Bell Globemedia as a whole has been performing well financially, company watchers expect that some select cost-cutting will take place to entice the highest offers for most or all of BCE's 68.5% control stake, or for the assets individually.
"Whether or not they sell Bell Globemedia, I would not be surprised to see [BCE] looking at costs," said one Toronto-based analyst who said advertising in the fourth quarter of the year was weak.
At the Globe, production and distribution costs are perceived to be much higher than those of its closest rival, the National Post, which has less than half the staff and a chain of sister newspapers across the country to help with content, marketing and distribution.
According to one source close to BCE, the Globe's costs have ballooned during a five-year-old fight with the Post for readers and advertisers. While subscription and single copy prices have been raised over the past year, spending to attract and retain editorial staff has continued, he said.
Operating margins which were at one time around 15% slipped to 10% and will be closer to 3% this year, he said.
Among a newspaper's biggest cost is staff, but cuts at the Globe would be complicated by a union contract that makes layoffs difficult.
According to a Southern Ontario Newspaper Guild contract ratified last year and in place until 2005, the Globe cannot dismiss employees for economic reasons unless "failure to reduce the staff would impair the financial stability of The Globe and Mail" or if "efficient production of The Globe and Mail would be impaired if such dismissals did not occur."
Before any such layoffs can be carried out, the union and the paper's management must be given the opportunity to discuss other ways of reaching the same financial goals, the Guild contract says.
A union representative, who spoke on condition that his name not be used, said one of the drawbacks to making the case for layoffs would be that the union --and possibly the public -- would be given access to details of the Globe's finances.
Phillip Crawley, publisher and chief executive of the Globe did not return a phone call seeking comment.
The union representative said anyone who bought the Globe would be subject to the same terms and conditions regarding cost cuts.
"Under the law, whoever buys it buys it with the contract," he said.
The Globe's sister media company, the CTV network, is also believed to be cost-heavy -- with big spending on U.S. programming in recent years to boost prime-time ratings.
"You buy ratings. It's a question of whether they want to do that every year," said one Toronto-based analyst who spoke on condition that his name not be used.
Another media analyst based in Toronto said the 20% operating margin of CTV's conventional stations continue to lag that of its nearest competitor Global TV, the country's other private national broadcaster whose operating margin is in the low thirties.
CTV operates more stations and has slightly higher reach across the country, but there remains a perception that the operations are not as efficient as Global's, the analyst said.
Global is owned by CanWest Global Communications Corp., which also owns the National Post.
The acquisition of Bell Globemedia's television and newspaper assets was engineered in late 2000 by Mr. Monty, less than two years before his tenure as CEO came to an abrupt end. Mr. Monty was guided by the merger of AOL and Time Warner Inc., which turned out to be a disastrous attempt to marry media businesses with the technological "pipes" that would carry their products into people's homes.
Bell Globemedia attempted to use CTV and Globe and Mail content to generate new revenue with interactive properties such as a pay-for-service sports Web site. Many ventures were disbanded when they failed to cover their costs.
Last February, the Sympatico portal was removed from Bell Globemedia and returned to Bell Canada as a wholly-owned subsidiary.
When Bell Globemedia was created, the value was pegged at $4-billion, but BCE subsequently took at $545-million writedown.
Industry watchers and players in comparable businesses say that with Bell Globemedia's cash flow projected to be in the neighbourhood of $170-million this year, its current valuation would be roughly $2-billion -- or about half the original value, based on an earnings multiple of 12.
During the first nine months of this year, Bell Globemedia earned $150-million, up from $108-million in the comparable period last year.
A $2-billion price tag would be less than the $2.3-billion BCE paid, under Mr. Monty's guidance, for CTV alone. That transaction price in 2000 was some 40% higher than analysts said the company was worth.
For the purposes of the creation of Bell Globemedia, a $770-million value was placed on the Globe by BCE. Analysts say the now anemic cash flow makes valuing the paper very difficult today.
Bell Globemedia also controls business channel ROBtv which lost $5.5-million in 2002 -- deepening the previous year's loss by 38%, according to figures provided by the Canadian Radio-television and Telecommunications Commission.
To some observers, the inability to transform Mr. Monty's vision into a reality -- Bell Globemedia adding up to more than the sum of its individual parts -- was not a surprise.
According to one person familiar with a presentation that took place shortly after the purchase of CTV, some BCE board members were surprised to learn that information from news items originating from U.S. networks could not be sold to BCE customers through online subscription services without additional payments being made by BCE to the U.S. networks.
Jettisoning Bell Globemedia is expected to be an easier pill for Mr. Sabia to swallow than it would have been for Mr. Monty, company watchers have said.
"For Sabia, this is not his baby, he doesn't have to worry about what it looks like optically. He could gas it tomorrow," said one observer.
Still, other suggest Mr. Sabia is being cautious about disposing of Bell Globemedia after a recent disappointing experience with the divestiture of the Yellow Pages business.
The dissolution of the board of Bell Globemedia leads some observers to predict that its assets will ultimately be sold separately.
CTV, which has been performing well - industry players estimate that $80-million in earnings from conventional television will be boosted by almost as much from a stable of well-watched specialty channels -- could be spun off to the public, possibly with a large stake being taken by a large institutional investor or private equity firm.
The Globe and Mail could also be spun to the public, but its recent declining performance -- and its roots -- suggest that it is more likely to be returned to the Thomson family, on its own or with a media partner.