Deja vu: Bell and CTV
Among the stories that stood out in yesterday’s financial press were the imminent bankruptcy of Borders, a large bookstore chain in the US, and BCE’s business model for CTV. Borders, like Barnes and Noble, has been overtaken by technology and a new business model for selling books. First Amazon, and then e-readers, have made the classic bookstore model obsolete. Like the record companies, the bookstore chains have been very slow to recognize the seismic changes in their industries, and they have been even slower to adjust.
About a decade ago, BCE, caught up in the convergence whirlwind that followed the Time Warner-AOL merger, bought CTV for the first time. BCE paid about $2.3 billion. While convergence was a hot buzzword in the late 1990s, few of the companies really understood what it meant and what the implications were for their existing business models. The herd mentality took hold and several, very expensive mergers and acquisitions were undertaken.
BCE never really understood how the convergence of content, CTV, and distribution, BCE’s properties, could enhance the competitive position of BCE and create sufficient value to cover the large premium paid for CTV. Five years after the acquisition, BCE sold off 85% of its stake in CTV and took approximately a $1 billion loss on its first attempt at convergence.
In 2010, five years after the end of the first CTV fiasco, BCE, with a new CEO, is back in the convergence game. This time BCE only had to pay $1.3 billion for CTV. The justification for the acquisition this time round is the value of content in a world of new distribution platforms, particularly mobile video.
Convergence only makes sense if, by acquiring content, a distribution company is able to differentiate its offerings from those of its competitors. In 2000, the CRTC was not going to allow BCE to exclude other content providers from access to BCE’s distribution properties, primarily satellite. Neither would it have been profitable at that time for BCE to prevent CTV’s content from being made available to rival distribution companies. Convergence 1.0 went down in flames.
This time, BCE believes that either it can offer exclusive access to CTV content to its internet and wireless phone subscribers, thus differentiating its services; or it can sell CTV content to its competitors who also offer internet and wireless services, replicating the specialty channel model on cable, satellite and fiber optic distribution networks.
There at least two problems with BCE’s convergence 2.0 model. First, CTV has limited proprietary content, other than some sports, business, entertainment and news programs. Most everything else is purchased from third parties. The actual content producers are able to sell the mobile video rights to other companies, and with the existing technology, most of this content can be found through other channels and streamed directly to mobile devices, usually for free. CTV likely does not have exclusive rights for other distribution platforms. Or if it is to acquire such rights, it will have to pay a high price, which together with the premium BCE paid for CTV, likely will make the entire venture unprofitable.
Second, there is much existing competition for the limited proprietary content that CTV does produce. Thus, the value of the CTV content to other distribution companies likely is extremely small.
BCE will not lose as much this time on its investment in CTV. However, BCE will find once more that convergence 2.0 is no more successful than convergence 1.0 was. Maybe one day, BCE will have a CEO and senior management team that will figure out a new business model that makes sense.
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.