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UPDATE: CHUM buying Craig, will spin-off Toronto 1
4/12/2004

 
Companies in this story
CHUM Television
Craig Media Inc.
Articles in related categories
Mergers and acquisitions
TORONTO - It was a "tough day" according Craig Media CEO Drew Craig, announcing that he and his family have signed a deal to sell the company launched by his grandfather John in 1948 to CHUM Limited for $265 million in cash.

Craig's assets include the three A-Channel conventional television stations in Edmonton, Calgary and Winnipeg; CKX, a CBC-affiliate station in Brandon; the newly launched Toronto 1 broadcast station; as well as MTV, MTV2 and TV Land digital specialty channels.

Craig has been in the television business since 1955 when John Craig launched CKX-TV in Brandon, seven years after his purchase of CKX Radio from the provincial government. Drew's father Stuart was the TV station's first cameraman.

"On an emotional level, we're very disappointed we had to go this route," Craig told www.broadcastermagazine.com this afternoon. "On a practical level, I think ultimately, it's good for our company and our employees - and we really had to be objective, as objective as you can be as a family-owned entrepreneurial company, to do what's best for your company."

The deal is subject to CRTC and other approvals and other customary closing conditions.

"This transaction builds on our long history with the Craig family and shared commitment to reach out to local audiences," said Jay Switzer, president and CEO, CHUM Limited. "CHUM's aspirations to grow in Western Canada are well known and this acquisition provides us with not only an opportunity to reach Alberta and Manitoba audiences on a conventional television platform, but provides additional digital channels to complement CHUM's stable of specialty brands."

Switzer told a conference call following the announcement today that Craig's two Alberta stations "have in the past had revenues that have approached $50 million." and that he was looking forward to adding them to the CHUM stable.

Craig said that early in the new year, he and his family sat down to look at what must be done, since the company's channels out west were suffering through a dour ad market while Toronto 1 endured the cash-devouring growing pains of a start-up. "We're certainly consuming more capital than we had anticipated´┐Ż just on a day-to-day operating basis," said Craig.

But, he added, Toronto 1 isn't the sole reason for the company's pursuit of a suitor. "It's a part of it, but there are a number of factors out there - one of them is the ad market in general just being soft. And, the conventional television business is having its challenges these days across the board."

For example, according to the latest CRTC Broadcast Policy Monitoring Report, viewing of conventional broadcasters has dropped over 23% from 1993 to 2003 while specialty channel viewership has more than tripled.

And, said some of the Canadian publicly traded broadcasters (Craig is private), the ad market through the fall of 2003 was rather difficult. "(T)he company's airtime sales budgets to the end of the second quarter for fiscal 2004 are not expected to be as strong as a result of diminished growth industry-wide," said CHUM's own first quarter report, released in January.

"After relatively strong performance during the summer months the Canadian television industry experienced declining advertising sales in the quarter, and results from the company's broadcast operations reflect that overall market weakness, where revenues for the quarter were $191 million in the quarter," off 11.2% over last year's Q1, said CanWest's Q1 2004 press release in January. The decline in revenue had a direct impact on EBITDA, which plummeted 31% for that company.

So, if the large, established players faced trouble, family-owned Craig, with no analog specialties or newspapers or radio to help with results, felt the conventional TV ad downturn rather sharply.

CHUM Limited said it expects to be in a position to file an application with the CRTC for transfer of ownership and control of Craig Media's broadcasting assets by mid-May, 2004 and, "in light of CHUM's ownership of Citytv Toronto and The New VR (CKVR) Barrie, CHUM Limited will commit to the divestiture of Toronto 1," adds the press release (look for that channel to land in one of two places: Torstar, which failed to win the license in the first place, or Alliance Atlantis, which also wanted the license at the start).

Switzer indicated during the conference call that he is hoping for a swift Commission decision on the transaction and that a buyer for Toronto 1 will be found soon. "It's probably fair to say that this is an urgent situation - and that's probably a good word to use in terms of the pressures that Craig Media is facing - and I think there's a genuine desire between Craig and us to see this happen as quickly as is possible," he said. He also added it would be "disrespectful" to the Commission to try and predict a time frame on such a decision.

Going forward, given the fact CHUM owns the national rights to its foreign and domestic programming, the transition to that programming for its new operations should be seamless and result in immediate cost-savings, said Switzer, who made sure to say the company is totally committed to the news and other local programming the A-Channels already put out. "What they're doing locally and what we can provide nationally is just a perfect marriage," he said.

All that remains to be decided, one supposes, is whether the Craig broadcast channels will eventually be "Newnets" or "Citys", given the branding of the rest of its stations.

As for Craig's specialty channels, given a recent CRTC ruling on MTV Canada - in response to complaints by CHUM's MuchMusic - where the Commission determined MTV Canada does not compete that much with Much, Switzer also added he expects CRTC approval for the acquisition of Craig's digi-nets, despite CHUM's dominance in the music genre.

The sale marks the end of the line in broadcasting for Brandon's Craig family, although they still control Craig Wireless, which offers broadband communications, including digital television, to customers in Manitoba, Vancouver, California and Hawaii.

Stuart Craig, Drew's father, grew the company into a western broadcasting force, launching the TV stations in Calgary, Edmonton and Winnipeg. The company also owned a number of western radio stations, too. When Stuart died in 1999, his son Drew took control of the company. Craig brothers Myles and Boyd also play roles in the company.

The company's foray into Toronto last fall with Toronto 1, however, simply proved to be the tipping point. It was a move, however, that had to be made if its ambitions to be a national player were to be realized. Many said at the time the new station would either make or break the company. Toronto 1's low ratings and subsequent poor ad revenue (although its g.m. says she sees success) led to Craig signaling early this year it was for sale.

In January, a source told www.broadcastermagazine.com that Craig Media was forced into this situation by its American partner Providence Equity Partners which invested $110 million in the company in 2003 in exchange for 19.9% ownership. "They're off-side" on certain covenants of the agreement, said the source, which then triggered Providence's demand.

"(The decision to divest) was a decision that the family and the other shareholders of the company made," is all Craig would say of his partners.

"From the family's perspective, we feel comfortable that we've accomplished a lot," added Craig. "Most of the family businesses that started in small market television have been long gone, so we've been fortunate that we've been able to grow the company and build the company to what it's become and we've got a great team of people here that's really done a hell of a job."

 

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Craig Media CEO Drew Craig, from the cover of the September 2003 Broadcaster Magazine.

 
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