The last piece of the Bell-Astral divestments was approved today by the CRTC: the sale of MusiMax and MusiquePlus to V Media, the owner of the network formerly known as TQS.
Even though the sale has only been approved now and hasn’t yet closed, the companies are already acting as if it’s a done deal. V and MusiquePlus/MusiMax are promoting each other, to the point where a new MusiquePlus show is a behind-the-scenes look at a show on V.
The purchase price is $15.52 million. In 2007, Astral bought a 50% of these two channels from CHUM Ltd. for $68 million, giving them a value of $136 million.
In order to raise money to pay for the channels, V itself will take on new investors: The Caisse de dépot et placement du Québec and the Fonds de solidarité FTQ will each take a 15% stake in V Media (which also includes the conventional TV network). A third “institutional investor” will take another 15% stake, and the Rémillard family will retain the other 55%, with the possibility of raising that stake up to 59% of the company performs well.
The board of directors of V would be composed of four representatives of Remstar and one representative each of the three 15% investors.
Licence changes — more flexibility, but not too much more
As part of the transaction, V had asked for some amendments to the licences for the channels. Some of them relate to the fact that they’re no longer owned by large media companies (particularly a requirement to spend a percentage of that group’s revenue on so-called “programs of national interest”). Others are meant to give them more flexibility in programming.
V had proposed that MusiquePlus and MusiMax have a minimum requirement of 75% of their programming be devoted to music-related programming. Currently MusiquePlus has a 90% requirement and MusiMax has no minimum. The CRTC didn’t like that number and imposed an 80% requirement for both services.
V wants to use comedy, a genre that isn’t being exploited much in French-language television (there’s no French equivalent to the Comedy Network), to draw audiences to MusiquePlus, particularly in its target demographic of people age 18-34. For MusiMax, it’s lifestyle and reality shows to draw women 35-54. But it also says it wants to have more live musical performances in studio, and more concert programs.
There were also proposals related to program categories. Both services can now include “music video programs” in the 30% of their programming month they have to devote to pure music video programs. This would allow them, I believe, to add a count a program like Cliptoman (MusiquePlus’s version of Much’s Video On Trial, where comedians make fun of music videos) toward that quota.
V also proposed to reduce the Canadian content exhibition requirement from 55% of the broadcast day and 55% of the evening (6pm to midnight) period to 45% for those two periods. The CRTC also felt this was too much, and decided on 50% for both periods for both services. This is still higher than services like Canal D and Historia, which have profit margins around 50%.
In terms of Canadian content spending, the CRTC agreed with a 31% level for the services combined, so that it must spend 31% of its revenue on Canadian programming, just slightly above what it was before.
Finally, MusiquePlus and MusiMax also have a special condition that requires them to pay 3.4% and 5% of their revenues respectively to MaxFACT, a fund that helps create and produce Canadian music videos. V proposed to create its own fund, the Rémillard Fund, that would take this money instead. The CRTC approved of this, provided it is satisfied with the new fund’s operations and independence.
Sale valued at $22.9 million, includes ad revenue guarantee
The sale price is $15.5 million, but comes with a guaranteed ad buy of up to $1.5 million (excluding commissions), which brings the net price down to $14 million. There’s also a guaranteed ad revenue floor for two years.
These guarantees make determining the actual value of the transaction difficult, because how much it will actually be depends on certain factors.
According to documents submitted in the application, the guarantee of at least 80% of 2013 revenues, or about $6.6 million a year, would last until August 2016. But this would be adjusted if viewership drops by more than 5%.
The contract also allows V to cancel the ad buy and get half of that, or $750,000.
On top of this, Bell Media would also sell third-party ads for these two services and V, for which it would earn a commission. That commission has minimums and maximums that put it in the high six-figures annually.
In fact, Bell Media would become the exclusive ad agency of MusiquePlus and MusiMax until August 31, 2016. V would be able to enter barter agreements and other exchanges, but actual ad sales would have to go through Bell.
As if that didn’t sweeten the deal enough for V to take over the money-losing services, Bell also agreed to pay off an outstanding debt imposed on Astral in 2007 when it bought the 50% of the company that owns the networks from CHUM Ltd. (which at the time also owned MuchMusic). This is $40,476 a month to be paid to the Harold Greenberg Fund. But since those payments ended Aug. 31, it’s a moot issue.
The CRTC didn’t agree that the guaranteed ads should be deducted from the purchase price, calling it “the normal course of business”. Adding in things like assumed leases, the CRTC evaluated the total value of the transaction at $22,872,086.
Hope for a turnaround
Because of the tangible benefits policy that requires that 10% of the value of the transaction goes to funds and projects that benefit the broadcasting system, V now has to propose a new tangible benefits plan. The CRTC has given them 30 days to do so. (It notes that it recently changed some policies relating to tangible benefits, and this proposal should follow those new guidelines.)
The acquisition makes sense both for V and for the two struggling music channels. The Rémillard family bought TQS out of bankruptcy in 2008, and while the decision to effectively abandon all news programming was very controversial at the time, it also helped them bring the network into the black after decades of bleeding money.
Now, people are hoping that they can do a similar turnaround with MusiquePlus and MusiMax. MusiquePlus made $867,851 in pre-tax profit in 2012-13, but lost almost $6.5 million in the four previous years. MusiMax is in the black, but has had a pre-tax profit margin of under 1% over the past three years.
The drop in revenue has come with a drop in ratings. MusiquePlus went from a 1.1% rating overall in 2006 to a 0.7% share in 2012. Both services have seen drops in subscriptions as well, of 10% for MusiquePlus and 13% for MusiMax in only three years.
With rating being this low, these are the sorts of channels that would likely suffer (and possibly die off) if the CRTC goes ahead with revisions to the way cable and sat companies sell packages, especially with a skinny basic package. Ratings of 0.7 means that the vast majority of their “subscribers” probably never even turn the channel on.
It will be interesting to see how they fare.
Not really. Videotron doesn’t carry MusiquePlus on basic, and it already offers it à la carte. So its packaging wouldn’t change at all there. They might lose some Bell subscribers, but I don’t think it would be that much of a difference.
While MP isn’t on their basic tier, it’s part of every standard package except the “anglo” package. You can bet that the market penetration is pretty high for the channels, all considered. You can take their subscriber revenue, divide it by the approximate monthly rate to the cable companies, and then divide by 12 to see how many approximate subscribers are paying for the service. Then you can figure out how that compares to a 0.7% market share to understand that they are absolutely living off of the cable subscription money.
The more that cable systems move to full “choose your own”, combined with skinnier and skinnier basic services will mean a world of hurt for channels with very low viewership. You can bet right now that MP owes a good chunk of it’s revenue to people who are on older packages or who have not yet done a “choose your own” change. Even a 10-20% drop is subscriber revenue would be effectively fatal.
MusiquePlus has 2,264,746 subscribers as of August 2013. MusiMax has 1,826,706. Most of the older French-language entertainment specialty channels has subscriber numbers in the 2-3 million range.
MusiquePlus gets 68% of its revenue from subscriptions. MusiMax gets 76%. For most of the big French-language specialties, it’s about 50-75%.
Those numbers pretty much support the concept that the vast majority of subscribers are those who were already signed up back in the “it’s a package” days. There is little chance (read that as none) that they will increase their subscriber percentage levels, and normally that number should drop off precipitously as people pick their own packages and only select channels that they actually watch. With 68% of it’s revenue from subscribers and meager profits to be had, the future for these channels (and many others) looks fairly grim.
It’s important to realize that based on the ratings, it appears that few of the subscribers actually tune into the channels very often. 0.7 viewership is basically a low thousands of viewers, so you can see where there is a huge space for them to lose subscribers, not gain them. They perhaps may hold onto them only if the subscription cost is low, or if the channels are packaged in a way to offset non-Canadian channels to meet the CRTC requirements. It has little to do with the channels being desirable, and all about artificially making a number.
As much, I suppose, as the same applies to just about every other French-language entertainment specialty channel.
Clearly MusiquePlus has to work hard to appeal to a young audience that increasingly abandons cable TV or goes for custom packages. And it’s very much aware of this. This is also why the two channels were sold for a fraction of the price they were worth less than a decade ago.
Both channels are currently part of the basic package on both Bell TV (satellite) and Bell Fibe. That has been the case since last October.