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A half-billion reasons

by Richard Morgan  |  Published January 4, 2013 at 2:08 PM
Don't take it personally, Glenn Beck. Current TV refused Rupert Murdoch, too.

But it wasn't about the political issues you claim. No, you and Murdoch were denied a seat at the Current TV bargaining table for reasons much more pedestrian -- namely, indifference and miserliness.

Or, to quote a source close to the just-shy-of-$500 million transaction that delivered cable news channel Current TV to Al Jazeera last week: "There wasn't anyone who had both the interest and the means that was philosophically unacceptable, so it never really came up. Thinking whether they would have sold to someone 'philosophically challenging' because that party would have paid a big price is purely hypothetical."

Far from hypothetical, in contrast, was Al Jazeera's desire to penetrate the U.S. news market. Indeed, if there's an uncovered aspect to the decision of left-leaning Al Gore and Joel Hyatt to sell Current TV, it's the serendipitous sympathy between these two sellers and the Pan-Arabian news-gathering operation that ultimately won an auction featuring, at one point, 40 prospects.

As Hyatt himself wrote in a staff memo about the Qatar-funded news network with more than 80 bureaus, "Al Jazeera was founded with the same goals we had for Current: To give voice to those whose voices are not typically heard; to speak truth to power; to provide independent and diverse points of view; and to tell the important stories that no one else is telling." And so the mission set forth by Gore and Hyatt on launching Current TV in 2005 has the promise, at least, to outlive their ownership.

This wasn't at all clear when, in September, Current TV retained Raine Group LLC and JPMorgan Chase & Co. to explore strategic options. The investment banks, after canvassing the usual suspects, eventually narrowed the field to a dozen and then to a handful. Throughout it all, though, the bidding group maintained representation from new and old media.

That deep-pocketed new media failed to go the distance struck some observers as surprising. After all, they note, Google Inc. co-founder Sergey Brin not only appeared at Current TV's San Francisco launch party but called the two companies' Google Current partnership, which provided the cable channel twice-an-hour updates on top Internet searches, "an extraordinary opportunity."

Yahoo! Inc. also partnered with Current TV, setting up a so-called Yahoo! Current Network on the new media company's website in 2006. The effort was disbanded after several months but not before the partnership's first four channels -- Current Buzz, Current Traveler, Current Action and Current Driver -- established themselves as Yahoo Video's most popular offerings.

As for old media, the issue appears to have been valuation. What's a cable channel worth that's barely breaking even, if that, when traditional metrics confer a value of 13-to 16-times Ebitda? Or how do you get to $500 million when an alternative metric places a limit of $2 per subscriber on Current TV's 40 million subscription base?

Then again, as Macquarie Capital (USA) Inc. analyst Amy Yong explains, the appetite of old media for new assets appears to be relatively sated: "The traditional players already have real estate on cable networks and don't feel they have to bulk up that much."

That was hardly the case with Al Jazeera, which the cable analyst goes on to describe as deep-pocketed, politically motivated and almost desperate for a U.S. entry point. But Current TV, which had 51 million subscriptions before losing carriage from Time Warner Cable Inc. due to the channel's change of control, offers much more than the fully distributed channel so coveted by Al Jazeera. It also offers what a source close to the sale calls "content definitions in its distribution arrangements that specify news and information."

These definitions fit perfectly with Al Jazeera's intentions of "bringing large-scale resources to journalism," according to Hyatt in his staff memo, "something which we have not been able to do." Even more important is the minimal wiggle room the definitions leave for distributors inclined to drop the channel many Americans know best for airing post 9/11 videos of Osama bin Laden. "It was a real bull's eye," the source close to the sale says of the match between Al Jazeera's needs and Current TV's specs.

This bull's eye is what motivated Al Jazeera to pay 7 times the $70 million that an investment team led by Gore and Hyatt forked over for the channel rebranded Current TV less than eight years ago. It's also what produced an auction price that not only made the former vice president and his serial entrepreneur sidekick seem like savvy investors -- hardly a foregone conclusion based on the loss-making operation Current TV became -- but allowed the sellers to deflect interest from such right-wing outlets as Murdoch's Fox News and Beck's TheBlaze LLC. (Beck, for example, contends the price he had in mind for Current TV was $250 million.)

The question now, of course, is whether Al Jazeera can deliver content in the U.S. of the sort that has it the No. 3 news network in the U.K., after the BBC and Sky News, and has former U.S. Secretary of State Colin Powell declaring it's the only cable news network he watches. As Gore and Hyatt know all too well, winning an auction is one thing, winning an audience another.

Tags: Al Gore | Al Jazeera | BBC | Colin Powell | Current Action | Current Buzz | Current Driver | Current Traveler | Current TV | Google Inc. | Joel Hyatt | JPMorgan Chase & Co. | Raine Group LLC | Rupert Murdoch | Sergey Brin | Sky News | Yahoo Video | Yahoo! Inc.

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