Cogeco must go local to increase profits with Corus Quebec stations, experts say

Cogeco Inc. can turn around its newly-acquired Corus Entertainment Inc. radio stations by making more efficient use of resources and focusing on local markets, experts say. The companies reached an agreement late last month that will see Cogeco acquire Corus’s 11 Quebec FM radio stations. Corus and Cogeco didn’t respond to interview requests, but in a release the companies said the deal is valued at $80 million. The deal involves stations CKOI 96.9, 98.5, CKAC Sports, and The Q 92.5 in Montreal; Souvenirs Garantis 102.9 and CKOI 102.1 in Quebec City; Souvenirs Garantis 104.7 in Gatineau; Souvenirs Garantis 107.7 and CKOI 104.5 in Sherbrooke; Souvenirs Garantis 106.9 in Trois-Rivières; and CIME 103.9 in St-Jérôme. Industry watchers say Cogeco’s success with the new stations rests on local. “Radio has that local feel—not just as far as audience reception, but also in advertising potential,” said Gregory Taylor, a broadcasting policy expert at McGill University in Montreal. “The local advertising base really looks to the captured local audience, which radio can provide.” “If there’s a formula for success, it’s the appeal that radio stations have to any identification with the local audience,” added Bob Reaume, vice-president of policy and research at the Association of Canadian Advertisers (ACA), a trade organization representing advertising buyers. Taylor said Corus may have hurt its Quebec prospects by failing to invest in local content. “I think part of the problem with Corus was that, right from the beginning when it launched in Quebec, it tried to centralize its news centres. I think this might have brought them more trouble than savings in the long run,” he said. “A lot of the local suffered because of it, and that can be the kiss of death in radio.” Tim Casey, an analyst at BMO Nesbitt Burns Inc., said Cogeco might be able to use its existing Quebec resources to help bolster the new acquisitions. “One of the easier things they could do is share facilities. When you buy a radio station and you’re an in-market operator, you buy all of the revenues, but only half the costs. You don’t need two locations. You don’t need two sales forces. You don’t need two engineers. You don’t need two station managers. It’s a tried and true formula in the radio business.” But Taylor cautioned that a resource-sharing strategy might not work if taken too far. “ must be very careful, particularly in Quebec. Radio still has that localized context to it,” he said. “You can’t do a national news desk if you’re doing radio in Quebec.” Taylor added that Cogeco seems to be following a trend among communications service providers to grow their content. Shaw Communications Inc., Rogers Communications Inc., and Bell Canada Enterprises Inc., for example, are acquiring TV stations, radio stations and other media. Shaw announced plans this month to acquire the over-the-air and specialty TV channels of Canwest Global Communications Corp. In a recent BMO research note, Casey said the agreement is good for Corus, “despite some awkward optics.” In a series of deals between 1999 and 2004 involving Power Corp. and Astral Media Inc., Corus invested more than $200 million in the Quebec market. Today, those assets have a book value of $75 million. “The (Cogeco) transaction allows Corus to rid itself of chronically underperforming assets at an attractive valuation multiple, given the assets’ current profitability,” Casey said. The Quebec stations reportedly failed to provide margins high enough to meet Corus’ standards. “Corus was making money. It just wasn’t making enough,” Taylor said. On Monday, the CRTC is holding a hearing concerning a licence renewal for The Q, one of the Montreal stations Cogeco is acquiring. The hearing will look at the level of Canadian music being played on the station. The agenda says the commission expects the station to demonstrate “why a mandatory order should not be issued requiring the licensee to comply with the Regulations relating to level of Canadian musical selections ... that must be broadcast during the broadcast week.” news@thewirereport.ca

Cogeco must go local to increase profits with Corus Quebec stations, experts say

Broadcast | May 7, 2010

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