BCE, Canada’s largest telecommunications company, has offered to buy the 85% of CTV, Canada’s largest private television broadcaster, which it does not already own. George Cope, BCE’s CEO, explained the reason for the acquisition, which would combine Bell’s distribution networks with CTV’s content, as follows: “Don’t think of Bell as the old phone company any more. Our goal is that by 2015, we’ll be the largest provider of TV in Canada.”

Convergence, and its promised land of synergies and other value creating benefits, once more stalks the land.

Ten years ago, the convergence 1.0 wave started in earnest with AOL’s takeover of Time Warner. AOL acquired Time Warner for approximately US$180 billion in stock (funny money in those days), creating a new company with a market value of US$350 billion. This merger is now viewed as the greatest failure in history and the largest value destruction merger ever. The combined market value today of the remaining entities – Time Warner, Time Warner Cable and AOL – is just US$58 billion. Almost US$300 billion in value has vanished.

Steve Case, the CEO of AOL in 2000, understood fully what he was doing. Gerald Levin, the CEO of Time Warner, was like a deer caught in the headlights – he had no idea what was happening. But he could not reject an offer that doubled the value of the company.

AOL was the largest Internet Service Provider with a modest number of content properties. Subscribers had to dial up a number to be connected to the Internet via AOL. Case saw that his business model was going to die as more cable companies were able to offer high-speed broadband connectivity directly to the Internet. Why would anyone pay AOL a separate fee to connect? AOL needed to gain access to Time Warner’s vast cable distribution network.

The merger made perfect sense for AOL, but it had nothing to do with using content to enhance the value of distribution or vice versa. By the way, BCE got swept up in the first convergence wave and bought CTV in 2000 for $2.3 billion. Several years later, BCE sold 85% of its stake and took a loss of almost $1 billion.

If at first you don’t succeed because you have no idea what you are doing, try, try again, even though you still do not know what you are doing.

What is the rational for convergence? A distribution company might create a competitive advantage in selling its services (reflected in higher prices than its competitors) by offering proprietary content. There are several problems with this explanation.

Competitors can imitate this strategy, greatly limiting the differentiation advantage. Second, content providers want to reach the largest audiences possible because their business model (i.e. revenues) depends on attracting the largest number of eyeballs, especially younger ones. Restricting access to content limits the number of eyeballs and reduces the revenues of the content providers.

Third, the regulators might not allow preferential access agreements between distribution companies and content companies, even if the latter are wholly-owned subsidiaries of the former. This appears to be the case in Canada.

Fourth, traditional broadcast programming might not be appealing to the younger eyeballs on any platform. YouTube, games and apps seem to have the most appeal on the wireless platforms. Further, the pricing strategies of distribution companies might make it even more unattractive to watch traditional broadcast content on cell phones or iPads.

Finally, CTV and the other private Canadian broadcasters have very little proprietary content. They do get exclusive Canadian rights to US content. Eventually, the suppliers of the US content might start charging exorbitant prices for the Canadian Internet and wireless rights, or they might retain these rights. Even if neither happens, some enterprising group of young individuals will figure out a way to stream US programming to Canadian laptops and other wireless devices, thus circumventing the Canadian broadcasters, but not the distribution companies.

The leading players in the music industry today are Apple and Ticketmaster/Live Nation – not the major music studios. Traditional publishing and bookstores, and companies like Blockbuster have been overtaken by technology. Newspapers are looking for their new model.

Convergence makes no business sense! If BCE wants to be the largest provider of TV in Canada (whatever happened to profits?), all the company has to do is expand and improve its distribution platforms and reduce its prices.

What the current action of BCE shows is that lifers in an industry simply cannot keep up with technology and rapidly changing market environments. Having a twitter account and trying to dress like 20 year-olds will never make a lifer cool or knowledgeable.

The opinions expressed in this blog are personal and do not reflect the views of either Global Brief or the Glendon School of Public and International Affairs.