Understanding the ABS-CBN-TV5 Deal: What Exactly Happened?

It’s a deal that’s been over a year in the making: on Thursday (August 11), it was announced that media giants ABS-CBN and TV5 have signed a groundbreaking agreement that will signal closer ties between both broadcast networks. 

What exactly are the terms of the deal? And what does this mean in the landscape of local broadcasting?

We break down the announcement here and answer your most pressing questions:

ALSO READ

Antitrust Body Issues Statement on Brewing ABS-CBN-TV5 Joint Venture

Defying the Odds, ABS-CBN Sees Return to Profitability in 'Near Term' 

What exactly happened?

In a nutshell, ABS-CBN is buying into TV5.

According to a disclosure to the Philippine Stock Exchange, ABS-CBN will shell out about P2.16 billion to acquire a total of 6,459,393 primary common shares in TV5. That represents about 34.99 percent ownership in the Manny Pangilinan-owned and controlled network. That would effectively reduce MediaQuest’s—the company within the MVP Group—ownership of TV5 to just 64.79 percent. 

However, ABS-CBN has the option to increase its ownership of TV5 through a Convertible Note Agreement. Essentially, TV5 will issue a Convertible Note (a type of bond equivalent to a specific number of shares of stock) that ABS-CBN can invest in and which the Kapamilya Network can use to acquire additional shares to increase its equity in TV5—but only after eight years—to as much as 49.92 percent.

TV5 stands to make a total of P4 billion in both the sale of the primary common shares and the Convertible Note deal.

How will that money be spent?

According to ABS-CBN, the P4 billion will be used to “fund the capital expenditures and operating expenses of TV5 in pursuing the enhancements of its content and programming and public service offerings.”

This is important because TV5 will now be able to benefit from the vast creative and operational resources of ABS-CBN, which, as we all know, has been off free-to-air channel after its application for a renewal of its broadcast license was denied by Congress.

And, of course, that could mean that TV5 may finally be able to rise out of its earnings rut. Asked whether the partnership could finally mean TV5 could see profits, Pangilinan said, “That’s part of the motivation. You’re not marrying somebody to lose money, right?”

Pangilinan had earlier been quoted as saying that he expects TV5 to reach profitability by 2024. However, with this deal, that timeline could be moved up.

“We welcome the entry and investment of ABS-CBN in TV5, as ABS-CBN has always been the leading developer and provider of Filipino-related entertainment content not only in the Philippines but overseas as well,” Pangilinan said in the disclosure statement. “Our companies have always had these cherished values of providing top and quality programs in the service of the Filipino people and together we believe we can achieve this in greater measure and success.”

How will this affect the operations of ABS-CBN and TV5?

The deal does raise some interesting questions about what exactly will happen with the combined forces of two of the country’s biggest broadcast networks. Will TV5 shows be taped on the ABS-CBN lot? Will there be a shakeup in the lineup of shows currently airing on TV5 in consideration of the talents of ABS-CBN? What about the news teams of both networks? Will Kapamilya stars now be also called Kapatids?

There have been no immediate answers to these questions. However, in the Businessworld story, Pangilinan did say something about the fate of the two networks’ news teams.

“There is discussion and agreement that News should also be combined in some shape or form,” he said. 

The top-level execs of ABS-CBN did provide some broad ideas about what the deal means for the network.

“We are excited with this partnership as we see the opportunity to help TV5 grow and strengthen its free to air network,” said Mark Lopez, chairman of ABS--CBN. “For ABS, it presents a fantastic platform for us to achieve synergies in production content and talent management as well as maximizing our content delivery. We look forward to be of greater service to the public as we come together in taking TV5 to the next level.”

“This partnership is consistent with the strategic intention of ABS-CBN to evolve into a storytelling company whose goal is to reach as wide an audience as possible,” added Carlo Katigbak, president and CEO of ABS-CBN. “In partnership with TV5, we look forward to reaching viewers both on owned platforms and through other broadcast partners, thereby enriching the Philippine creative industry. We hope the industry evolves from being highly competitive to increasingly collaborative, which benefits all stakeholders in the long run.”

What else is part of the deal?

Besides ABS-CBN’s acquisition of shares, the deal also involves Cignal Cable Corp, which is a unit of the MVP Group’s MediaQuest Holdings Inc, acquiring a minority stake of 38.88 percent of Lopez-owned Sky Cable Corp. for P2.862 billion.

Similar to the main ABS-CBN-TV5 deal, Cignal Cable will also have the option to acquire additional shares of up to 61.12 percent of Sky Cable after eight years through an Exchangeable Debt Instrument worth P4.388 billion. Under this Debt Instruments Agreement, Cignal Cable will also acquire a Convertible Note issued by Sky Cable with a face value of P250 million and convertible into primary shares of Sky Cable representing about 1.84 percent of its outstanding capital stock.

Cignal says the deal would expand Sky Cable’s customer base, which is now at 300,000 cable subscribers and about 350,000 broadband subscribers. It will also help enhance its public service offerings, particularly its delivery of educational programs to viewers in remote areas across the country.

However, this partnership also means that what was once the two dominant competing cable providers in the Philippines is now effectively under one company. 

Interestingly, the acquisition announcement says proceeds of the sale “will be used to repay certain obligations of ABS-CBN and Sky Vision and to fund the investment of ABS-CBN in TV5.” Which means part of the funds Cignal will use to pay for the shares in Sky Cable will, in turn, be used in ABS-CBN’s acquisition of shares in TV5. Round and round the money goes. 

Will ABS-CBN still seek a new broadcasting franchise?

In early July, lawmakers said they refiled a bill seeking to grant a new 25-year broadcasting franchise to ABS-CBN. In the meantime, ABS-CBN’s old broadcasting frequency is now in the hands of Advanced Media Broadcasting System (AMBS), which is owned and controlled by billionaire Manny Villar.

With this new partnership between ABS-CBN and TV5, one wonders whether ABS-CBN is still interested in being given a new congressional franchise. But, if Katigbak’s statement about the issue is anything to go by, it doesn’t seem like the network is in a hurry to be granted a new broadcasting license.

‘At this time we have yet to decide whether a new franchise is aligned with our strategic plans,’ Katigbak said during the company’s annual shareholders meeting last July 28. 

Won’t the ABS-CBN-TV5 deal lessen competition in the industry?

ABS-CBN and TV5 used to be competitors in a relatively small local broadcasting industry. The other major player is, of course, GMA Network. But now, with the coming together of ABS-CBN and TV5, that’s one less network for viewers to choose from (although some may argue that competition was effectively lessened when ABS-CBN’s extension of its congressional franchise was denied in 2020).

However, this is a question that is now up to the country’s antitrust body, the Philippine Competition Commission, to decide. Last week, the PCC issued a statement about the ABS-CBN-TV5 deal. 

“The Philippine Competition Commission (PCC) trusts that firms undertaking sizeable mergers or acquisitions conduct due diligence to ensure compliance with our antitrust law and engage in consultation with the Commission, where necessary, it said. “This includes M&A or joint venture transactions with considerable share in the markets they operate in—such as the reported transaction between TV5 and ABS-CBN, two of the top media firms in the country.”

The PCC says it is already reviewing the transaction in order to determine whether there is a substantial lessening of competition in the industry.

However, pending the final closing of both transactions this August 2022, the partnership between ABS-CBN and TV5 seems like a done deal.