Source : Globe & Mail

CEO feels ownership laws stunting firms

Federal restrictions on radio and TV mergers are making it difficult for broadcasters to compete globally, and Canadian companies are increasingly seen as a collection of smaller players, the head of Corus Entertainment Inc. said yesterday.

Heading into what some analysts believe will be a crucial year for media consolidation in Canada, Corus chief executive officer John Cassaday called on Ottawa to loosen the reins on takeovers and partnerships for the survival of the sector.

Mr. Cassaday, who has long been an advocate of building larger Canadian media companies, said the government must "rethink" its approach to the industry after the upcoming federal election, much the same way it dealt with airline consolidation several years ago.

"Elephants walk with other elephants," Mr. Cassaday said after the broadcasting company's annual meeting in Toronto.

"The greater good is to allow for the creation of stronger Canadian-owned media companies to compete successfully against what we're seeing happening right now with the movement of content across all national boundaries."

The emergence of Internet TV is causing borders to fall in the broadcasting sector, while financial conditions placed on broadcast takeovers in Canada are preventing deals among smaller companies, he suggested.

Media consolidation has been a controversial subject in Canada, with critics suggesting less competition will limit independence in the sector. But Mr. Cassaday said companies such as Corus require more scale to be seen as viable enterprises when they compete for programming deals and partnerships with U.S. operations.

Analysts believe the sector could be heading towards another spate of consolidation next year after the recent move by telecom giant BCE Inc. to sell off nearly 50 per cent of Bell Globemedia, owner of CTV and The Globe and Mail, to a consortium of media buyers for $1.3-billion.

"That's the first step in the next wave of consolidation in my view," said one analyst who spoke on condition of anonymity. "I think everyone is probably dusting off their files and thinking about who they will choose as a dance partner."

Corus, which is controlled by the family that runs cable-television provider Shaw Communications Inc., has long been rumoured as a potential seller of assets.

Shaw Communications chairman JR Shaw acknowledged after yesterday's meeting that media consolidation may be a necessary "price of operating in Canada," since the country's players are dwarfed on the global stage.

However, the media sector has slumped on the markets this year and, until share prices rebound, it's unlikely the Shaw family would consider selling, one analyst said.

Corus is looking to buy back up to three million of its non-voting B-class shares. The shares closed at $30.93 yesterday on the Toronto Stock Exchange, up 93 cents. However, they are trading nearly 12 per cent below their 52-week high.

Corus also announced an offer to buy back $375-million (U.S.) worth of senior subordinated notes.

While Mr. Cassaday suggested the company may look to raise its dividend, one analyst speculated Corus may be cleaning up its financial house, perhaps readying itself for a potential deal.

"It gives them more financial flexibility. They're trying to hedge their bets and get ready for something," the analyst said.

A key impediment keeping smaller broadcasters from doing media deals, Mr. Cassaday said, is the requirement that companies pay a fee used to develop the Canadian radio and TV industry.

For television deals, companies must contribute an amount equal to 10 per cent of the deal, while the requirement for radio is 6 per cent. That pushes up the price tag of mergers and prevents operations like Corus from getting involved because "suddenly the numbers don't work," Mr. Cassaday said.

He also criticized the federal competition bureau for restricting the number of radio and TV assets a company can own in a single market. As well, Mr. Cassaday said taxes on the industry have reduced margins compared with the U.S. sector and have slowly chased away international investors.

© Globe & Mail