BCE to buy Astral and rewrite media landscape

It isn't quite a new era in Canadian broadcast history, but it's close. An already significant week in the evolution of Canada's telecomunications sector became even more so with BCE Inc.'s announcement Friday that it was buying Astral Media Inc., a television and radio broadcaster and outdoor media company, in a $3.38 billion cash and stock deal.

Coming on the heels of Industry Minister Christian Paradis loosening foreign investment rules in advance of the upcoming 700 MHz spectrum auction, the media megadeal confirms what observers have long suspected: The pace of change in the Canadian telecom space is accelerating, and shows no signs of backing off anytime soon.

The Astral deal continues a buying spree by Bell that includes the 2010 $1.3 billion deal to buy the remaining assets of CTV that it didn't already own, and its more recently announced $1.32 billion partnership with Rogers to snap up Maple Leaf Sports and Entertainment. The goal is clear: bulk up on content no matter the platform, then leverage distribution through broadcast and online networks better and faster than the competition.

The trend has been underway for years, with archrival Rogers making moves of its own — most notably the 2007 Citytv acquisition — and echoes similar consolidations in the U.S., such as Comcast/NBC.

Making Quebec inroads

The value-add for Bell is obvious, as the deal gives it access to a wider range of assets in Quebec, where it faces stiff competition from an increasingly aggressive Videotron. The Quebecor media subsidiary has been aggressively using its content advantage to add value to its broadband and wireless offerings.

Astral-sourced content had been one of Bell's largest content expenses, so bringing it in-house could easily be justified on a cost-containment basis alone. With 24 of Astral's 84 radio stations and half of its 2,800 employees located in Quebec, BCE will use the acquisition to boost its agility in Canada's only French-language market.

The deal means Canada's last major independent broadcaster is no longer independent. Astral, founded by the Greenberg brothers in 1961, had reached a point in its history where evolving beyond its broadcasting and outdoor advertising roots would have demanded investment well beyond its ability to absorb. Being acquired by Bell allows the current set of assets to evolve to reflect the new reality of broadcasting: Namely that it's no longer just about broadcasting.

Internet: The new reality of broadcasting

Internet-based distribution is forcing fundamental shifts in how consumers experience and pay for entertainment and sports content. BCE brings economies of scale to Astral's existing assets in ways that simply wouldn't have been possible had the company continued on an independent path. So-called over-the-top (OTT) services like Netflix are changing the calculus by which consumers engage with content. As OTT becomes more pervasive, consumers increasingly question why they need monthly cable or satellite subscriptions in the first place.

A wholesale shift to IP-based content distribution would collapse the carriers' revenue streams and simultaneously force them to invest billions in network upgrades to handle the spiking traffic.

BCE's challenge is to maintain value to consumers on traditional broadcast and distribution models — conventional channels on traditional cable and satellite networks, for example — while taking the same content and repurposing it on online and mobile platforms. Rogers finds itself in precisely the same boat, of course, but it's Bell that's moved more aggressively to bring live content to mobile devices. In a market where competitors bet big to back the next big thing in consumer experiences, Bell's Astral move is the biggest buy yet.

Not a done deal

It may be outsized, but it's far from a done deal, as BCE still has to run the regulatory gauntlet. The CRTC needs to sign off before Astral officially changes hands, and it's an easy bet that the government regulator won't simply pull out its rubber stamp.

At issue is concentration of ownership, which in some cases could result in the post-acquisition BCE owning virtually every radio station in a given market. CRTC rules limit any one owner to two AM and two FM operations in one market, which could mean potential selloffs in a number of cities, including Calgary, Montreal, Ottawa, Toronto, Vancouver and Winnipeg. Another sticking point could lie on the specialty channel front, where the combined entity's 41.4 per cent share would be twice as large as Shaw Media's.

Beyond regulatory hurdles is the simple issue of economics. BCE is making a $3.38 billion bet that it can turn conventional broadcast and distribution assets into multiplatform gold. But HBO Canada and The Movie Network, two of Astral's marquee holdings, represent a business model that may not be as valuable in the age of Netflix as it was before downloads, streaming, smartphones and tablets changed the way consumers watch movies and television. BCE may yet find the synergies it seeks, but will they be enough to offset the price it's offering to pay?

Carmi Levy is a London, Ont.-based independent technology analyst and journalist. the opinions expressed are his own. carmilevy@yahoo.ca