To The Lifeboats! Rupert Murdoch and the Canadians First!

Michael Hedges August 18, 2008

Three years after becoming the first foreign owner in UK broadcasting the venerable Canadian CanWest packed up the hockey sticks and headed back to land-locked Winnipeg. Is this a trend, a wave or a ripple?

Investment in UK commercial radio didn’t pay off, the CanWest statement (August 11) made fairly clear. Saying that the company’s bottom line would benefit from a CA$7 million (€4.4 million) savings also made clear that the three small market stations operating under the Original FM brand name were a cash sink hole. The buyers are all local UK broadcasters, including “Who Wants To Be A Millionaire?” creator Paul Smith. Terms were not disclosed.

CanWest Global Communications is Canada’s largest media company, owner of big newspapers and television networks. The company hoped, according to statements at the time of the acquisitions, the three local UK radio licenses would provide ‘synergies’ with Irish network TV3.

In September 2006 CanWest sold the TV3 franchise to London private equity fund manager Doughty Hanson, 45% of the Irish TV license plus 100% of the sales house, for about €132 million. CanWest CEO Leonard Asper said he’d use the money to “invest in growing our existing core operations.” ITV held 45% of TV3, U2 manager Paul McGuinness holding the remaining 10%.

Doughty Hanson, through TV3, acquired a stake in sports pay TV broadcaster Sentana in February 2007. TV3 acquired, subject to regulatory approvals, Irish DTT Channel 6 in July.

CanWest is the largest shareholder in Australian TV broadcaster Ten Network. In the late 1990’s the company acquired majority stakes in radio and TV in New Zealand, most sold to private equity firm Ironbridge Capital in mid-2007. In 2006, with partner Turkcom, CanWest acquired four radio stations in Turkey.

Media companies invest outside the home borders for a variety of reasons, all of which involve profit seeking. One of the most prevalent reasons is growth restrictions at home. Anti-trust and media concentration rules combined with market maturity virtually force the successful to look far and wide. Where growth potential is high and barriers to entry are low the inward flow of investment capital is a torrent.

CanWest, like so many other big media companies, has been taking a beating from stock traders and a rapidly changing advertising and media markets on the home front. Selling off obscure – and distant - assets has the appearance of cleaning up the spreadsheet prior to sale. Bloomberg (August 6) reported that the Asper family has proposed a privatization plan to Fairfax Financial Holdings. Others suggest the idea might be coming from Fairfax, which raised its minority stake in CanWest in March even with the rapidly deteriorating CanWest share price.

Foreign ownership rules in the UK were changed in order to attract foreign capital and diversify a moribund investment climate. The rule change brought the UK in line with other liberalized media markets in Eastern Europe, which had become investment magnets. CanWest was first to take advantage, then investors from India, most recently the German media house Bauer Media. Several big American media houses (CBS, Clear Channel, Emmis Communications) visited, glanced around the showroom, laughed heartily at the asking prices and repaired gingerly to safer climates. Unfortunately for UK media, ownership rules were liberalized about five years late.

CanWest’s retrenchment is hardly the cutting edge of corporate media strategy. The company faces tough times on the home front. And that’s where it lives.

But when one of the biggest international media groups decamps markets previously considered safe and secure it leaves little doubt that internationalization of media may have reached its peak.

News Corporation has made so many international investments it’s difficult to pin-point a home port. Like Bertelsmann, CBS/Viacom and NBC Universal it is vertically and horizontally integrated. And, likewise, News Corporation is, more often than not, an operator rather than a financial investor. Its announced intention to sell several Eastern European television stations, including the very successful bTV in Bulgaria, is less about Eastern Europe (still growing) and more about an evolving strategy limiting operating units to long term, high quality platforms and peppering the balance sheet with high potential financial investments that can be safely spun off at will.

A maritime saying that has entered management thinking says when the captain can’t see both ends of the ship you’re in trouble.  Dogan Yagan Media Group sold its Bulgarian television station intending to invest the proceeds closer to home. Seamen also know that when waves lift the bow and stern above the center the boat cracks in two and sinks…quickly.

The BRIC’s – Brazil, Russia, India and China – are investors and developers most sought after markets. News Corporation’s Chairman Rupert Murdoch gleefully announced earlier this month a $100 million investment in six regional television stations in India, adding to the Star network. NBC Universal took a 26% stake in India’s NDTV in January. The Walt Disney Company took minority stakes in UTV Global Broadcasting.

So much attention by big media companies to India’s media sector that VOILA! India’s media regulator liberalized caps on foreign direct investment.  Cable TV channels that broadcast news and FM radio stations can have foreign investment up to 49%…still minority…if the Telecom Regulatory Authority of India (TRAI) recommendations are approved. But India’s media sector is growing so fast minority stakes are better than none.

Various Chinese administrative agencies have issued ‘guidelines’ restricting foreign investment in ‘cultural industries.’ Brazilian law limits foreign ownership in media outlets to 30%. And, of course, Mr. Murdoch had the last word on investing in Russia: “…the more I read about investments in Russia, the less I like the feel of it.”

Protecting national media outlets and “cultural industries” has become the norm. Two generations of consumers have benefited from the free flow of ideas, skill and – of course – money. There’s a reason broadcasters in Hungary, Slovakia and Bulgaria – owned and operated by multinational companies – have double digit market shares. 

Minority investments in foreign media are always tricky and sometimes scary. Big international media companies will take minority positions for two reasons. First and foremost, it is a means to have a seat at the table, hopefully in the boardroom, and get to know the market and its key players. With that, again hopefully, comes influencing decisions. News Corporations minority stake in the German TV channel Premiere is an example. Most hopefully, often blind faith, is the chance regulations will one day change and minority stakes can be turned into majorities.  

Holding a majority means never having to face endless debates in the boardroom over trivia. Bauer Media terminated several local programs as stations across Britain and Scotland, announced Friday (August 15). No debate: fire the DJs!

This is a ripple, hardly a wave. A couple of anecdotes do not a trend make. The stalking killers of multinational media are protectionism and nationalism. It is ironic that the foremost promoter of international media markets has been the European Commission (EC). In the interest of supporting European media and content production the EC’s Television Without Frontiers directive – now replaced by the Audiovisual Services Directive – forced open television markets throughout the European Union. The irony, of course, is that the intention is, was and always will be to protect European media markets from the most prolific and successful media producers. Quotas imposed by EC directives benefited “Big Brother,” inexpensive – when it first appeared – European content.

Critics of multinational media companies, often hand in wringing hand with ‘globalization’, are skeptical – correctly – of pure market forces. But pushing the most talented and skilled from media markets does not serve the cause of media diversity and pluralism. Even the harshest critics of big international media – the journalists’ unions – grudgingly admit the benefits, from training to higher salaries and technical development. This ripple could become a wave, two actually. The twin waves of protectionism and nationalism rising will crack the ship. Economic uncertainty is the third wave, the ‘perfect storm’. This ship sinks.