BCE has poor diversification past

BCE Inc.’s valiant defence of the argument that content is king fails to erase the perception held by skeptics that the conglomerate’s recent multimedia acquisitions are little more than disturbing distractions.

Jean Monty, BCE’s chairman and CEO, recently challenged his detractors by maintaining that BCE can’t wait for others to cross the convergence finish line. But his appropriation of the Olympic motto is a reach. The acquisitions of broadcasters CTV Inc. and TSN, and 70 per cent control of national newspaper The Globe and Mail, Monty believes, will make BCE “swifter, higher, stronger.”

However, skeptics may be excused for casting doubts on yet another BCE foray, given its spotty acquisition record in the past. This is the same corporation, after all, that

proclaimed that its moves into real estate, gas pipelines, financial services and computer integration would also produce great synergies and higher returns for shareholders of Canada’s most widely owned corporation. Instead, each of those costly attempts at diversification over the past two decades failed.

Failure is even less affordable for BCE following Monty’s decision last spring to sell off the company’s stake in high-tech giant Nortel Networks Corp. BCE is now gambling on multimedia convergence to replace the future earnings potential that it has given up from Nortel.

But size does matter. To this observer, at least, the content industry players picked up by BCE pale in comparison to the Nortel juggernaut. As viable as CTV and The Globe are as independent businesses, their current growth is nowhere near the dizzying double-digit rates enjoyed by Nortel. At the risk of saying the Emperor has no clothes, it appears that BCE has traded in a sleek, powerful roadster for a used, maybe rusting, sedan.

BCE’s proclamation that there are obvious synergies between print, broadcast and Internet media is at variance with reality that those are stubbornly distinct businesses. Media are also distinct, each possessing a different nature and their own advantages and disadvantages. Just try to get your morning news by browsing through your laptop while standing up in a crowded subway!

And that explains why the advent of New Media, at least since the invention of the printing press, has not led to the extinction of old media. And it is the distinctive nature of each medium that best explains why each media has operated as a distinct business.

Yet BCE’s desire to integrate its various media holdings in pursuit of illusive synergies not only points to operational problems looming on the horizon, but shows a disregard of the very essence of those businesses. Seen through that light, there appears to be little more behind BCE’s strategy than old-fashioned acquisitions. In addition to asking BCE, Where’s the fit?, skeptics may also throw out the question, Where’s the strategy?

Other architects of earlier multimedia convergence deals have also disregarded those questions, to their peril. America OnLine’s purchase of Time Warner and Disney’s acquisition of ABC are just two examples of industry leaders who have had their initial euphoria tempered by subsequent troubles. Rupert Murdoch, Ted Turner and Canada’s Edgar Bronfman Jr. have also walked away from earlier convergence deals.

It would be of comfort to BCE’s shareholders to presume that BCE is more astute or better able to mitigate the difficulties inherent in pulling off convergence acquisitions. Instead, it seems that BCE must stumble through the maze and learn those lessons for itself.

Hopefully it won’t be too late by then for Canada’s biggest phone company to realize that while some think content may be king, pipes rule.

Despite recent regulatory rulings that decree that it’s okay for a phone company to own a broadcaster, there is a compelling business logic that dictates that pipes should be divorced from content. Owning a content provider actually limits a carrier because of the constraints of cross-ownership. It’s an immutable law of what George Gilder terms the Telecosm that, “The dumber the network the more intelligence it can carry.”

No less an authority than Charles Sirois – a good friend of Jean Monty – also views content ownership as immicable to a carrier’s best interest, a point he argued in his 1995 work, The Medium and the Muse.

But Bell’s pipes will only rule if Monty applies the same Olympic credo to the network that he so earnestly is applying to content and makes Bell’s network “swifter, higher, stronger.”