Following a brief lull, the ongoing transformation of the Canadian broadcast industry resumed on Wednesday with Corus Entertainment’s $2.65 billion acquisition of Shaw Media.
The transaction, which is subject to regulatory approval, creates a sizable broadcast entity comprised of 45 specialty TV channels, 15 conventional TV stations, 39 radio stations and associated digital assets.
It is the latest in a string of mergers and acquisitions that have seen numerous broadcast groups, including Alliance Atlantis, Astral Media, CHUM Limited, Craig Media and Standard Broadcasting, absorbed in recent years.
Despite the size of the deal, however, CRTC approval is being regarded as a formality. “They want to keep Canadian media companies strong,” a former broadcast sales executive familiar with the companies (and experienced in media mergers) told Marketing.
The transaction comes at a critical juncture for Corus and Shaw, as digital continues to siphon away viewers and advertisers, causing revenues to fall. Corus stocks have fallen dramatically in the past year, from $22.49 a share last year to $11.26 on Wednesday.
But, while media buyers and groups such as the Association of Canadian Advertisers (ACA) expressed the usual misgivings over increased consolidation and its potential impact on ad rates – particularly in the women and kids verticals in which Corus is poised to become the undisputed market leader – reaction to the deal seemed surprisingly muted.
In fact, most of the industry leaders who spoke with Marketing on Wednesday said scale is vital for Canadian companies to successfully compete against global media titans like Facebook and Google, as well as the inevitable arrival of foreign over-the-top services.
“I’m all for making Canadian broadcasters or digital players stronger in the market, because who knows when over-the-top streaming services are going to start spilling into this market,” said the former broadcast executive. “It’s open borders now, and they have to strengthen themselves.”
Judy Davey, the ACA’s vice-president of media policy and marketing capabilities said any concerns her organization has about potential ad rate increases are tempered by the rapidly changing media landscape.
“We are always concerned when competition decreases,” said Davey. “We already live in a small Canadian broadcast environment, and that environment just got smaller. However, we acknowledge that this is a necessary action given the global media world we now live in, and the very strong competitors.
“Coming together definitely makes the two companies stronger and allows the provision of more resources to compete against Googles, Facebooks, Netflix, Amazons and Apples of the world.”
Added OMD Canada CEO Cathy Collier: “We’re living in a global world and they have global competitors, so we think this gives them the scale to compete really well in the areas they’re good at: Kids, women and family.”
Media experts founder and CEO Mark Sherman said the deal creates a media company that is now “closely competitive” with Bell Media and Rogers Communications, but downplayed its significance to the Canadian media industry.
“I don’t think it’s the most exciting day in Canadian media,” said Sherman. “It’s another consolidation that’s reflective of the times and the realignment of media vendors in this country. On [the agency] side it’s a reflection of the times, not something controversial.”
While a common argument is that scale is necessary for broadcasters’ long-term survival, Sherman predicts TV is poised to enjoy a “resurgence” in coming years, particularly as data becomes more prevalent in buys – allowing agencies and advertisers to become more efficient and precise. “We think television remains important because it grows the grass that digital [advertising] harvests,” said Sherman.
Buyers would almost certainly have denounced the deal had it occurred even as recently as five years ago, underscoring the profoundly transformative effect global giants like Google – and the emergence of digital in general – have had on the broadcast industry.
“I think you would have heard all the comments you would have heard five years ago with whatever consolidation happened then – the worry and the Competition Bureau getting into it,” Collier agreed. “I’d be surprised if you hear a lot of that today.”
Consolidation and the potential impact on ad rates was “the last consideration” given to the deal by her agency, said Collier. She said media agencies are shrewd enough to continue to broker favourable deals with the new company, despite its additional scale.
However, industry watchers are not completely discounting the newfound clout a merged Corus/Shaw entity possesses, particularly when it comes to the advertiser-friendly female demographic. Noting that a combined Corus/Shaw entity would boast both greater leverage and significant reach, the ACA’s Davey cautioned it against being overly aggressive on rates.
“There are market forces at play and there are choices that advertisers and agencies could make, and they would need to tread carefully,” she said. “I’m hopeful they will be reasonable and sensible and continue to invest in the things that make TV the wonderful medium it is.”
However, the unnamed executive said it’s wrong to assume Corus would attempt to immediately hike rates in the wake of regulatory approval. “That’s not the way the system operates,” he said.
A more probable scenario would be the newly merged company picks its advertising partners with far more scrutiny. “They want partners that understand the power of everything in one,” he said.
The only overtly negative reaction to the deal came late Wednesday, when the Canadian Association of Journalists issued a statement cautioning it could lay the foundation for a series of “negative changes” to the broadcast industry.
CAJ president Nick Taylor-Vaisey said such deals can lead to fewer options for original Canadian content and fewer jobs for content creators. “We urge Corus, should it choose to consolidate any of its properties, to preserve Canadian content and jobs in its newsrooms and production studios,” said Taylor-Vaisey.
While acknowledging its post-merger strength in female-focused specialty TV is an “awesome position” for Corus to be in, Cairns O’Neil principal Sherry O’Neil said the deal could pose problems for TV advertisers.
It has significant implications for advertisers targeting a female demographic, said O’Neil, since Corus would have a virtual lock on those audiences thanks to a broad array of specialty channels that includes W Network, OWN, Slice, Food Network Canada and HGTV.
A seasoned broadcast buyer, O’Neil said it is common practice for agencies to pit rival broadcasters against each other in order to drive down prices on commercial inventory. “I know that I can get a proposal in from Shaw and use it to negotiate back and forth and get a better deal on behalf of my clients,” she said. “That will be gone.”
There has traditionally been a “dramatic difference,” between the prices Shaw and Corus charge for commercial inventory, said O’Neil. “It may be that they’re very close when you come out of the negotiation, but they’re different [going in],” she said. “That’s gone, so it’s a big concern for female-oriented advertisers.”
Collier, meanwhile, said the deal finalizes the positioning of the country’s three major English-language broadcast groups, with each now dominating key audience segments: Corus/Shaw is strong against women, kids and family; Rogers has a lock on hockey and young males, and Bell dominates adult audiences. “It really does give them ownership of those areas,” she said.
O’Neil also noted both broadcast groups excel at brand integration, another key advertising function they will now “own” – likely at a significant cost to advertisers. “If they own it, they can price it,” she said.
Buyers also speculated the transaction was a way for the two specialty channel-heavy groups to safeguard against the anticipated fallout of the CRTC’s impending policy changes regarding cable packages, most notably the introduction of the so-called “skinny basic” package and consumers’ ability to purchase channels on a pick-and-pay basis.
“I think that everyone is very bullish right now on what is going to survive, but they’re putting on a good public face,” said O’Neil, who predicted many of the companies’ niche services wouldn’t survive the transition.
The Corus/Shaw specialty portfolio is “for sure” destined to decrease in size, said O’Neil. “There are lots of very marginal stations that might be very efficient to run, but they’re not going to have the subscriptions. They’re just not must-have stations, and in this particular economy, it’s a tough time for them to do the pick-and-pay.”
But, Collier predicted it would take some time for the true impact of pick-and-pay to manifest itself. “Consumers don’t act as fast as we think they will,” she said.
Corus’ stated goal is to create between $40-50 million in annual cost savings within 24 months, which likely signals substantial staff cuts at the newly combined entity.
While sources euphemistically said Shaw was currently running “very efficiently” from a staffing standpoint (“There’s very little room to move. They’re pretty bare-bones when it comes to content, when it comes to marketing and sales,” said the former sales executive), many of those interviewed by Marketing suggested layoffs are inevitable.
“When two companies come together, there are going to be synergies,” said the executive, who predicted layoffs could account for as much as 10% of the projected annual cost savings. “That’s not a crazy number to think about.”
Also unclear is the impact the deal will have on Shomi, the streaming video-on-demand service co-owned owned by Shaw and Rogers. “Shomi has no comment at this time,” said spokesperson Julie MacFarlane when contacted by Marketing.
