BCE, Thomson Create Media Colossus

BCE, Thomson Create Media Colossus

Over the past year, Jean Monty has been buying up properties and piling them on top of one another much like a winner at a blackjack table stacks his chips in multicoloured towers. In February, the chairman and chief executive of BCE Inc. dished out $6.8 billion for control of Teleglobe Inc. Then, later that month, came his surprising cash offer of $2.3 billion for CTV Inc. His latest deal, announced last Friday alongside Canada's richest man, Ken Thomson, will create a new media company that gives BCE, at one time just a phone company, control of Thomson Corp.'s The Globe and Mail.

Monty isn't the only one stacking his chips. Last week, Pierre-Karl Péladeau's Quebecor Inc. emerged the winner of a long, drawn-out battle over Groupe Vidéotron Ltée, the Montreal-based cable company. Péladeau, a newspaper owner whose company is the world's biggest printer, is paying $5.4 billion for Vidéotron, a serious chip he'll stack on top of tabloid chain Sun Media Corp., which was snagged by Quebecor last year.

Also solidly in the game is Ted Rogers, the cable magnate who was on the losing end of the Vidéotron battle. Rogers, president and CEO of Rogers Communications Inc., earlier this month bought the Toronto Blue Jays, and promises he will have more purchases to come. There's another important player: Izzy Asper, who with his son Leonard runs broadcaster CanWest Global Communications Corp. They picked up a string of major Canadian newspapers plus a half-interest in the Globe's archrival, the National Post, from Hollinger International Inc. in July.

What's going on? Why is a phone company buying TV stations and a newspaper? Why is Quebecor, a newspaper company, buying a cable company? Why is Rogers, the cable guy, buying a baseball team? And why is a television broadcaster buying newspapers? In a buzzword, it's all about convergence. The idea is that as all forms of media converge into one system, based on the Internet, the various pieces of these increasingly massive conglomerates will, like an army of ants, fare much better together than if each were on its own. The result? A rapid-fire series of big-dollar deals that draw together previously disparate companies - and completely remap the communications landscape. "There's almost a new secular religion that's emerging around the question of convergence," says David Spencer, a media professor at the University of Western Ontario in London. "It's going to be the technological equivalent of a jihad, a holy war out there."

With last week's deal, Monty is creating a new, yet-to-be-named media colossus worth, he said, about $4 billion. It will hold CTV, the Globe, a series of specialty TV channels (such as The Sports Network and Discovery Channel Canada), BCE's Sympatico-Lycos Web portal and the Globe's Internet properties. Monty's BCE will own 70.1 per cent of the new company. Thomson Corp., controlled by Thomson, will contribute its ownership of the Globe and hold 20 per cent, while Woodbridge Co. Ltd., the Thomson family's holding company, will ante up $385 million for a 9.9-per-cent ownership position.

The new entity will be the country's "première media company," Monty told reporters. "While others may be larger, at the moment," he said jauntily, "none can boast the suite of No. 1 brands." Monty stressed that cross-pollination will take place between the new enterprise's different parts and that content created on one platform will be refitted and used again on another. "Information and resources can ultimately be shared throughout," he said.

Monty knows the Internet is about to cause a shift in economic power - moving it further away from what used to be his company's exclusive territory. Deregulation of the telephone business had already cut into the affairs of what used to be called Bell Canada Enterprises Inc. Then, as the central Canadian telephone company expanded into other fields as a way of protecting its turf, the Net arrived. Monty's response has been to jump right into the online game. But as technology changes, so do the rules of play. That makes it increasingly difficult to predict what the contest will look like and what sort of player will have the best edge.

Monty envisions what he calls "a shift in the balance of value." He talks of three Cs: connectivity companies, which provide the pipelines, such as cable or phone links; commerce, which acts as the middleman selling the product to the consumer; and content, which is the stuff the consumer wants to receive, be it a piece of music or a train schedule.

Twenty years ago, the pipeline companies provided a much more highly valued service, Monty told Maclean's, holding his right hand high in the air - "much higher than the sum of the other two." Now, the value has shifted, he said, raising his left hand while dropping the right one. "Do we participate in that shift, from a strategic point of view? My answer, our answer is, yes, and that's why you're seeing us put together this media company."

Monty and the Thomson group first began talking about last week's deal in December, 1999. Early on, discussions touched on BCE and Thomson going after CTV together. "They were really thinking out their strategy," Monty said. "They had the newspaper business and so on. They were convinced there was something there, but they just weren't sure of the formula yet, so I said, 'Let's do it ourselves and we'll continue our dialogue.' And that's what we did." Why did it take another seven months? "These are big organizations." Finally, last Friday at 8 a.m., a scant three hours before the deal was officially announced, the papers were signed. One looming deadline was this week, when BCE will be in Ottawa defending its acquisition of CTV to the Canadian Radio-television and Telecommunications Commission. Monty didn't want to have to hide the pending Thomson deal from the CRTC, he said.

Ken Thomson also got busy. In February, the chairman of Thomson Corp. put all his remaining newspapers except the Globe up for sale. The plan followed a continuing strategy to focus on the firm's burgeoning electronic data and information businesses. Most of the papers found buyers, leaving the Globe and the Winnipeg Free Press as the only major Canadian dailies in the Thomson fold. The firm now is looking for a "good home" for the Free Press, Thomson said. The 77-year-old tycoon, who at each round of newspaper sell-offs had maintained he would hold on tight to the Globe, said there will continue to be a connection between Thomson Corp. and the national newspaper. "This is not a sale of The Globe and Mail," Thomson insisted. "This is a merger."

Thomson, who stays on as the Globe's chairman, may end up busier than ever at the newspaper. Monty, who joked with reporters that a front-page Globe scoop on the merger details set off "cardiac arrests" in BCE's legal department, said his company wants to learn from Thomson how to protect the independence of the newsroom. Overseeing the new venture as CEO, under Monty as chairman, will be CTV's current president, Ivan Fecan.

Rumours - published most notably in the Globe itself - had it that BCE and Thomson also tried to take a run at the holding company of the Toronto Maple Leafs hockey team. The only thing Monty would say was the team wasn't involved in the current deal with Thomson. "It could be looked at later," he said.

If BCE does go for a sports team, it will not surprise Charles Sirois. As the entrepreneur who built up and then sold long-distance carrier Teleglobe to BCE and who now heads privately held Telesystem Ltd., he is both a keen observer of the convergence mania, and a sometime player. Through Microcell Telecommunications Inc., a Telesystem holding that operates the Fido cellphone network, he is a competitor to BCE's Bell Mobility and Rogers AT&T Wireless on the mobile side of the business.

Traditionally, Sirois notes, the players that control the physical bottleneck on information - television networks, cable companies, newspaper publishers - are the ones who get rich. But he predicts that in 10 years, 70 per cent of Canadian homes will have high-speed Internet access via several competing systems, be it wireless or high-speed phone lines or cable. That means the method of delivery will become much less important and far less lucrative than the product. And that's why the telecommunications companies are buying the so-called content providers - and surefire draws such as sports franchises. Content is becoming king. The plan to control such sources, though, is not necessarily going to work, Sirois adds. "If I am a content producer, why should I limit myself to one pipe?" he says. "If I'm a pipe producer, do you really believe society will allow you to block content?"

Monty admits his plan is not foolproof, but he says intuitively he believes convergence is the way to go. "There's been much debate about what the ideal media company of the Internet economy should look like," he says. "I believe we have the right recipe. What is not known is whether with these pieces together, will the sum be greater than the parts? At the end of the day, we'll prove it by doing it."

Still, even though all the major telecom companies are bulking up, the convergence strategy is unproven. Monty remembers the mid-1980s, when BCE Commcor, a subsidiary he headed at the time, was involved in a U.S.-based service called iNet. It was a rudimentary precursor to the Web, providing access to almost 3,000 databases. But the project was a bust and cost BCE $30 million. Monty now says it was ahead of its time. This time around, as BCE again steps into unknown territory, the company is hedging its bets, he says. "We'll put properties that are well-known brands - No. 1 brands - together and see whether we can manage a convergence environment, but not blow our brains out while we're doing it."

Still, Monty balks at the comparison to a blackjack player. "I wouldn't say a gambler, but a business trying to build," he says. "Calculated bets," he adds. Yet even Monty knows he's playing in a high-stakes game where the outcome is unpredictable. Had he been told, even just a decade ago, that BCE would end up owning a newspaper and a television network, he says, "I would have said, 'No way.' So we'll see what 10 years from now brings." And who is left at the table.

The Titans of Convergence

The BCE-Thomson deal has created a giant, with three major challengers. Key enterprises owned or controlled by Canada's four major media companies (with non-majority holdings and deals not completed in brackets)

BCE Inc.

Chairman: Jean Monty

Market value: $23.6 billion

Bell Canada

Telephone and Internet services

Bell Mobility

Mobile phones

Bell ExpressVu

Satellite TV

BCE Emergis

E-commerce software and services

Teleglobe (23%; 100% pending)

Long-distance carrier

BCE-Thomson

New company to contain:

CTV Inc. (pending)

18 CTV stations, seven others, plus:

- CTV Newsnet

- The Sports Network

- Comedy Network

- Sportsnet (40%)

- Outdoor Life Network

- Discovery Channel Canada

- Talk TV

Sympatico-Lycos

Web portal

The Globe and Mail

National newspaper

ROBTv

Business TV channel (50%)

Globe Interactive

Nine Web sites, including Globeandmail.com, Globeinvestor.com, Workopolis.com (jobs)

Rogers Communications Inc.

President and CEO: Ted Rogers

Market value: $7.4 billion

Rogers Cable Inc.

Cable TV and video rentals

Rogers AT&T Wireless

Mobile phones

Toronto Blue Jays (pending)

Baseball team

Rogers Media Inc.

Properties including:

- 28 radio stations

- The Shopping Channel

- CFMT TV, Toronto

- 55 publications, including Maclean's, Chatelaine, Flare, Canadian Business, MoneySense, The Medical Post

- Web sites, including Excite Canada, Quicken Financial Network and Electric Library Canada

Alliances:

At Home Corp.

High-speed Internet service

AT&T Canada Corp.

Telecommunications

Canwest Global Communications Corp.

Executive chairman: Izzy Asper

President and CEO: Leonard Asper

Market value: $1.5 billion

Global Television Network

10 TV stations across Canada

Five other Canadian TV stations

Prime

Entertainment TV channel

ROBTv

Business TV channel (50%)

Southam Newspaper Group (pending)

13 major dailies and 136 smaller papers

National Post (50%, pending)

National newspaper

Network TEN

Australian TV

TV3 & TV4

New Zealand

CanWest New Zealand Radio

More than 30 radio stations

TV3 (45%)

Irish Republic

UTV (30%)

Northern Ireland

Canada.com

Web portal

Quebecor Inc.

President and CEO: Pierre-Karl Péladeau

Market value: $2.5 billion

Quebecor World Inc.

Printing plants in North America, South America and Europe

Groupe Vidéotron Ltée (pending)

Cable TV

TVA (pending)

French-language TV network

Sun Media Corp.

Newspapers including the Sun tabloids, The London Free Press and Le Journal de Montréal

Canoe.ca

Web portal

Maclean's September 25, 2000