BCE Bids for CTV

BCE Bids for CTV

Watch what I do, not what I say. That, in effect, is how BCE Inc. chief executive Jean Monty explained the latest and boldest step in his campaign to reinvent the Montreal-based telecommunications giant as the dominant provider of Canadian content on the Internet. As recently as last month, Monty was brushing aside rumours that BCE intended to launch a takeover bid for CTV Inc., the country's biggest private broadcaster. Yet on Friday, BCE did just that, announcing a cash offer worth $2.3 billion for the Toronto-based television network and its family of television stations, specialty channels and pay-per-view services. If the deal goes through, Monty said, it will position BCE as "a leading player in the converging broadcasting and new media industries."

For now, however, that remains a very big if. In the immediate aftermath of Monty's announcement, CTV's shares traded as high as $39.45, $1.45 more than BCE has put on the table. Although Monty described his offer as "very aggressive," some investors are clearly betting that a bidding war will break out between BCE and one or more of Canada's other major communications companies, among them Quebecor Inc. of Montreal, Rogers Communications Inc. of Toronto (which also owns Maclean's) and Corus Entertainment Inc. of Toronto. Corus, a spinoff of cable giant Shaw Communications Inc., is headed by a former CTV president, John Cassaday, and already owns nearly 10 per cent of the network. (The rest of CTV is widely held, with Electrohome Broadcasting of Kitchener, Ont., taking 12 per cent.)

Another uncertainty surrounds the reaction of Canada's broadcast regulators. The Canadian Radio-television and Telecommunications Commission has traditionally discouraged efforts by the distributors of broadcasting signals to get into the content business by, for example, acquiring control of television stations or networks. The fear has always been that such companies might use their control over distribution to favour their own networks and programming over content from independent providers. As a result of the policy, Shaw recently agreed to transfer its collection of specialty channels to Corus, a separate company even though it, too, is controlled by Calgary's Shaw family. In 1986, the CRTC allowed Rogers Communications to buy Toronto's multilingual CFMT, but only because that station was in financial trouble and might otherwise have shut down.

By making a play for CTV, Monty is in effect arguing that those ownership distinctions need no longer apply in the era of the Internet. BCE is currently a distributor of television through its Bell ExpressVu satellite service; it is also conducting tests in Toronto and New Brunswick of two different methods by which TV programming could be delivered over conventional telephone wires. But like most of its competitors, BCE is convinced that the coming convergence of television and the Internet will render irrelevant many of the regulations that now govern the broadcasting industry. "On the Internet this is a new world and an unregulated world, and in that world we believe we can have a different approach," he said after announcing the CTV offer.

Monty's approach certainly is different. Around the world, giant telecommunications companies are racing to redefine themselves in the face of the Internet revolution. Some hope to make money by building the massive fibre-optic networks that are needed to carry the rapidly growing volume of global data traffic. Others are focusing on the services that will run over those networks, such as the complex systems needed to handle business-to-business e-commerce.

Monty, however, is aiming to do both those things, and more besides. In late January, he announced plans to spin off BCE's 39.2-per-cent stake in Nortel Networks Corp., a move that gave the former parent company a fat war chest to pursue other deals. Not long after that, BCE tabled a $9.7-billion offer for Teleglobe Inc., a long-distance carrier that is constructing a worldwide fibre-optic network linking corporations in major cities. Meanwhile, he also struck an alliance with Lycos, a U.S. Internet portal, to provide software and content for BCE's Sympatico service, already Canada's largest Internet service provider. Those two announcements illustrate the twin prongs of Monty's strategy: to focus on business customers internationally while, at home, offering the full range of communications services to consumers as well as companies.

How does CTV fit into that picture? From Monty's perspective, the network is mainly valuable as a supplier of domestic news and sports programming, both of which can be used to attract visitors to the Sympatico-Lycos Web site. "News and sports are really the two things that people go to an Internet site to get continuously," he says. "It's how we can catch the eyeballs to come to a Canadian site as opposed to a U.S. site. The local content is really what makes the difference here."

At the same time, BCE is hoping that its proposed takeover of CTV will accelerate the development of new forms of interactive programming aimed at consumers. BCE already owns a large piece of Toronto-based ExtendMedia Inc., the company that produces Web-based interactive content for the CBC show Drop the Beat, which revolves around a group of black youths who work at a campus radio station. Using the interactive service, viewers can summon up additional information about the show's cast, place orders for sound track CDs or find out which brands of clothing the show's characters are wearing. ExtendMedia is also involved in a Web site and companion TV program called Dish It Out, essentially a cooking show whose viewers are encouraged to go online (www.dish-it-out.com) to order kitchen implements and other goods. "The convergence of TV and the Web opens up unlimited opportunities for e-commerce," Monty said.

If there is a problem with all this, it may be that BCE is trying to do too many things at once - all the way from managing complex business data networks in Singapore to flogging pots and pans to homemakers in rural Saskatchewan. "There's no question it's going to be a management challenge to be able to pull this off," Monty said. "What we've put together over the last couple of years will put a strain on our management structure." He added that a major reorganization of BCE will likely occur at some point during the next year, "but I'm not ready to give an answer at this stage."

Given the flurry of deals in the past two months, that delay will come as little surprise to BCE's shareholders. It will take months for the company's executives to come up with a plan to integrate BCE's new properties, and months more before regulators decide whether to approve all of the changes. In the meantime, Monty can at least feel confident that he has answered one long-standing complaint about his leadership - that he wasn't acting quickly enough to spell out BCE's Internet strategy. "I've been criticized for moving too slow," he said. "Now, I suspect I'll be criticized for moving too fast."

BCE Inc

MARKET CAPITALIZATION: $108.3 billion

1999 REVENUES: (excluding Nortel Networks) $14.2 billion

1999 PROFITS: $5.4 billion (includes one-time income of $3.4 billion for selling 20% of Bell Canada to Ameritech)

KEY ASSETS (% OWNED):

- Bell Canada (80%)

- Nortel Networks (39.2%)

- BCE Emergis (65.1%)

- Sympatico-Lycos Web portal (71%)

- Teleglobe (23%; 100% pending)

CTV INC.

MARKET CAPITALIZATION: $1.8 billion

1999 REVENUES: $528 million

1999 PROFITS: $7.7 million

KEY ASSETS (% OWNED):

- 25 television stations (various)

- CTV Newsnet (100%)

- CTV Sportsnet (40%)

- The Comedy Network (65%)

- NetStar Communications (68.5% if approved), which owns The Sports Network (100%), Discovery Channel Canada (80%) and Viewers Choice Canada (25%)

Maclean's March 6, 2000