Source : Globe & Mail

News last week about privately held Craig Media Inc. hanging out a For Sale sign sent the media community atwitter, not to mention the deal-hungry investment dealers looking to represent the winning bidder.

After all, there's been quite a drought when it comes to mergers and acquisitions in the world of conventional television.

There hasn't been a deal since December, 2001, when Toronto-based Alliance Atlantis Communications Inc. bought 12 per cent of the History Channel and Toronto-based CTV Inc., a division of Montreal-based BCE Inc.'s Bell Globemedia, bought 29.9 per cent of the Comedy Network. Even then, those deals involved specialty channels, and were done at a time when the industry was at a low ebb as the North American economy faced huge uncertainty. In other words, valuations weren't as high as they might have been.

Since then, stocks of media companies have been on a rather rough ride, only recently netting respectable gains for investors as the companies lessen the debt burden amassed as a result of the big push for convergence. Why then, when virtually every analyst is suggesting 2004 will be good for media companies, is the Craig family selling its Calgary-based empire now? Not that a sale price of $200-million instead of $400-million will leave the Craig clan destitute.

The family seems to have committed a couple of strategic errors that have led to the current situation. The first problem is that Craig became a big believer in its own press. Craig Media was doing rather well in the ultra-competitive world of conventional television -- a market gradually being whittled away by the specialty channels. Craig was a great Prairies business story -- having successfully expanded westward into Edmonton and Calgary from its Manitoba roots, growing its market share with relative ease.

In 1997, Craig relocated its head office from Brandon to Calgary, taking over a heritage building in need of a facelift in the city's downtown core. These days, the morning show on Craig's A-Channel in Calgary rivals that of both CTV and Global Television -- bringing a fresh faced, if not all-out irreverent perspective. While the A-channel is not a station with the most cerebral offering, it works for this city known for its energy, thanks to a population that is the youngest in the country.

Craig scored a huge coup last summer in winning the English Canadian terrestrial rights to broadcast Monday Night National Football League games.

On the heels of the successful venture into Alberta, company president and chief executive officer Drew Craig misguidedly thought he could make just as big a splash in CITY-TV territory in Toronto. Instead of staying with the strategy of entering smaller markets, where it's easier to establish a presence and not blow the company's wallet in getting there, Mr. Craig, along with his brothers, believed they had grown well beyond their humble prairie roots.

But to succeed in Toronto, Craig's new entry had to offer something markedly different from the established CITY-TV. That clearly did not happen when Craig launched its Toronto 1 channel last fall. What could anyone expect, given that Toronto-based CHUM Ltd., which owns CITY-TV, supplies Craig's A-Channel in Calgary with at least 40 per cent of its programming?

Now Craig -- Canada's largest, privately held broadcasting company -- is about to become another one of those businesses school case studies about the consequences of overly exuberant expansion plans.

In addition to believing its own press, Craig also seems to be suffering a bit of the traditional tragic flaw of family-run companies not doing the right thing when it comes to succession planning.

The late liquor titan Sam Bronfman once said a family could go from rags to riches and back to rags in three generations. After all, being born into a family that has run a successful business doesn't, by itself, necessarily qualify an heir to successfully run the company.

What often tends to happen is that not enough respect is shown for the wealth built by the prior generation -- think the Bronfman family and the decision to sell Seagram's -- nor for investments from outsiders. In Craig's case, that would be the cash infusion from U.S. investment firm Providence Equity Partners Inc., which holds a 19.9-per-cent stake in Craig.

There is much criticism levelled at Canadian companies that persist in maintaining management-entrenching, dual-share structure in which the founding family controls most of the votes.

Among media examples are Shaw Communications Inc., Corus Entertainment Inc., CanWest Global Communications Corp. and Rogers Communications Inc.

While Craig Media is a private company, the situation isn't that much different, except that there are no regulatory filings available and no one really knows how much money was lost in launching the Toronto channel, nor how bad the cash crunch really is.

Craig's book value -- what the assets are worth -- is between $165-million and $240-million, according to Adam Shine of National Bank Financial. That number, he says, could fall as much as $50-million if CHUM wins broadcasting licences in Alberta, which are expected to be awarded within the next six months. Until then, it's unlikely that Craig will see a buyer step up to the plate because of the issues surrounding valuation.

But even if the sale price drops, it's not as though any of the Craigs will be destitute. It's just that the company their grandfather founded is about to become part of some other corporate structure because his grandkids forgot their roots and got a little too big for their britches.

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