TORONTO – Bell Media’s move to lock up HBO content and squeeze Corus out of the pay-TV market in Canada is being described as a win-win for both companies by at least two industry analysts.
In a note to clients early Friday morning, Canaccord Genuity’s Aravinda Galappatthige described the move as positive for Corus, as it exits what he labelled a “declining business”.
“We have always had a negative view of the PayTV business, which was showing significant stress with heightened competition from OTT platforms like Netflix”, he wrote. “We also worried about the upcoming expiry of the HBO license in 2017/2018. While the 6.7x multiple may not be overwhelmingly attractive, it is still higher than the 6.2x trailing EV/EBITDA valuation of Corus.”
He further opined that the transaction “avoids any potential balance sheet issues Corus could have faced due to its declining EBITDA”, and suggests that it offers Corus “some flexibility in terms of executing some tuck-in M&A to strengthen its content business”.
Scotiabank analyst Jeff Fan said that while not material to BCE, the transaction “solidifies BCE's media and TV leadership position.”
“Securing comprehensive multi-platform rights protects the TV ecosystem and gives BCE the flexibility to gradually shift the content to OTT when/if necessary. Furthermore, it also removes any risk of HBO expanding into Canada with a direct model”, he wrote in a note Friday. “This deal will allow BCE national scale to create, negotiate and deliver more premium TV programming across platforms and possibly improve their competitive positioning against other OTT providers for content renewals”.
Noting that Bell did not disclose the details of the new HBO agreement, Fan told Cartt.ca via email that he believes that “BCE structured this deal to provide it with potential synergies that can offset some of the higher content cost related to the additional and comprehensive multi-platform rights. We think this provides some support for delivering its mid-single digit dividend growth in 2016.”
Galappatthige concurred that locking up the HBO programming rights offers “BCE substantial flexibility in developing its OTT strategies.”
“Essentially, BCE can use this content to further enrich its CraveTV offering and make it more competitive against shomi and Netflix”, he continued. “Secondly, the ‘acquisition’ multiple falls to 5.6x when the operational synergies and tax benefits are factored in, which is adequately attractive for BCE even if the EBITDA contribution sees some downside in the upcoming years.”
