Iceberg, Bonzaroo merge to create near-dominant Canadian Internet radio force

Two of Canada’s largest Internet radio organizations have merged in a move that could create a dominant player on the country’s virtual airwaves. On November 19, Iceberg Media.com Inc., Toronto, announced that it had bought the assets of CHUM Ltd.’s Bonzaroo.com in an all-share deal that puts that initiative’s significant resources and technology under the same corporate umbrella as Iceberg and its investors Standard Broadcasting Corp. and Newfoundland Capital Corp. (NewCap). While some observers have noted that the deal seems particularly advantageous to Iceberg, that company’s president says analysts should look beyond the terms of the deal itself and concentrate on the real partnership being built by the companies involved. The deal was accomplished through the issue of 5.25 million shares in Iceberg to CHUM. When approved by regulators, that will give the broadcaster a 16.5 per cent share of Iceberg – the same as that owned by Standard and NewCap. In return, Iceberg acquires the Bonzaroo asset, along with $1.5 million of advertising on CHUM stations spread over three years. The shares, worth about $850,000 before the deal was announced, have since skyrocketed to be worth approximately $1.7 million, somewhat closing the gap between the value of what Iceberg acquired, and what it paid. Share value, however, wasn’t a priority when the partners sat down to hammer out the deal, says president/CEO Ted Boyd. "I guess we didn’t look at it that way," he tells Canadian NEW MEDIA. "We really looked at it saying the market is probably artificially depressed right now versus where it was a year ago, and so the number of shares was selected, really, to represent the same number of shares that the other partners have…to make it a real partnership. So, we didn’t look at price. We looked at units and we looked at stockholdings and we said we wanted everybody to be an equal. We’re going to build this thing together and really try to build a first-class company over the next five years." Existing shareholders are clearly not upset with the dilution of shares, which have more than doubled in value since the deal was announced in an otherwise relatively flat market. "We’re building a company and I think that shareholders understand that rather than spending money, shares are a currency that, today, make sense. I think the dilution versus the upside for the business in obtaining these assets and the proprietary technology and some key staff definitely outweighs the dilution." Besides the over 300 different Internet music channels now owned by Iceberg, the company has also obtained Bonzaroo’s back-end programming software that Boyd says greatly simplifies the process of streaming hundreds of channels. "That’s a proprietary system that greatly reduces the cost of managing the overall process. That’s the first thing. The second thing is an advertising targeting system that will enable us to precisely target who an ad goes to via a database of information. That’s an exciting development in audio advertising on the web… The reality is that, if anything, there will be some integration costs in the short term – not substantial – but in the long term our burn rate will actually be reduced as a result of this deal," says cost-conscious Boyd. The ad inventory, $500,000 a year over three years, will be used to build brand awareness on CHUM’s stations. "We would buy what’s called a reach plan, which will be an efficient way of optimizing our reach across their different networks," Boyd says. "We will probably do it in bursts, through peak Internet periods. For example, two or three times a year will be heavy advertising and the rest of it will be kind of lighter. So, I would argue that’s a significant enough number that we will have a dominant share voice vis-à-vis Internet radio in this country." The company is now putting together a converged product combining Iceberg’s four well-known channels with the additional Bonzaroo channels for introduction sometime in the next few weeks.

Iceberg, Bonzaroo merge to create near-dominant Canadian Internet radio force

Broadcast | November 29, 2001

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