Granada Group Plc Business Information, Profile, and History

History of Granada Group Plc

Granada Group PLC is a leading U.K. player in media and hospitality. The company's media operations include broadcast licenses in London and northern England for the Independent Television Network; a television production unit that is the largest commercial television production company in the United Kingdom (the state-owned British Broadcasting Corporation is number one overall); various channels available through satellite and digital broadcasting; and part ownership of pay television joint ventures Granada Sky Broadcasting and British Sky Broadcasting (both satellite-based) and British Digital Broadcasting, a digital terrestrial television operation. Through its hospitality operations, Granada maintains 42 motorway service areas offering fuel, catering, retail, and budget accommodations; a chain of 400 Little Chef roadside family restaurants; the second largest contract catering business in the United Kingdom; and the U.K. market-leading hotel group, consisting of 162 Travelodge budget hotels throughout the country, 18 hotels in London, 147 Posthouse and Heritage hotels outside of London, and 88 hotels overseas. In addition to its two core areas, Granada owns nearly 500 shops that rent and sell consumer electronics and maintains a commercial rental operation that supplies television and communications products.

Founded As Small Theater Operator in the Early 20th Century

Granada traces its roots to the early 1900s when, shortly after the turn of the century, Alexander Bernstein opened the Edmonton Empire music hall. During the 1920s his sons Sidney and Cecil started up a chain of movie theaters. The Bernstein brothers approached their business with an innovative spirit and a desire to bring their deep appreciation of cinema to larger audiences. They actively promoted many kinds of films, conducted surveys to determine the kinds of films people most wanted to see, and initiated children's matinees.

The theater chain adopted the name Granada in 1930. The name was chosen by the well-traveled Sidney Bernstein, who felt that its exotic connotation fit with the image he wanted for the theaters. Following the formation of Granada Theatres Limited in 1934, which consolidated all activities into one group, the company made its first public stock offering in 1935 on the London Stock Exchange.

Over the next three years, Granada opened a new theater almost every three months, including "super cinemas" with seating capacity for as many as 3,000 patrons. Created by leading architects, artists, and theatrical designers of the period, the super cinemas offered live programming as well as films in elegantly appointed surroundings. As theatergoing habits changed with the times, however, Granada gradually phased out this concept in favor of theaters with either single or multiple screens and converted others into bingo and social clubs. The firm moved cautiously into bingo, even though it was lucrative, maintaining a low profile until the 1968 Gaming Act legalized bingo and permitted the company to feel more comfortable about its business involvement and the longevity of the game's consumer appeal.

Turned to Television in Late 1940s

By the late 1940s, Granada's attention gradually had turned away from theatrical entertainment toward the fledgling television industry. After requesting a license to operate an independent television station in 1948, the company finally received the contract in 1954 to broadcast five days a week in all of northern England, becoming one of the four founders of Britain's Independent Television Network. Granada subsequently made its first black-and-white transmission on May 3, 1956, with a program called "Meet the People." This development was particularly well-timed, since it offered Granada a new growth area to offset continuing declines in its theatrical operation. In November 1956 the company introduced a new show, "What the Papers Say," which later became the country's longest-running weekly program on current events. Two years later, Granada became the first network to provide live coverage of a local election, despite strong official opposition, and later it pioneered broadcasts of the annual meetings of the country's major political parties and trade unions.

As the first television company in the country to construct its own studio rather than to use existing facilities built for other purposes, Granada also brought widely acclaimed plays to audiences who had never before had such viewing opportunities. Another program, "Coronation Street," whose characters captured the regional flavor of northern England, began production in 1960 and continues as one of the country's longest-running series.

To reflect its evolving focus, the company changed its name in 1957 to Granada Group Limited. Management remained under the tight control of the Bernstein family, with Sidney's eye for opportunities and insistence on quality and creativity to drive the company's business operations.

Entered Television Rental in the Early 1960s

One of Granada's major areas of growth in the early 1960s was the television rental business. Granada first opened showrooms under the name Red Arrow to handle rentals of televisions and other merchandise such as record players, washing machines, refrigerators, and vacuum cleaners. Granada also expanded into book publishing, in 1961, as an extension of its involvement in the visual media. This business was sold eventually to William Collins & Sons in 1983, since it no longer fit the company's business focus.

In 1963 Granada Television introduced "World in Action," a weekly program that broke with broadcasting tradition by addressing the subject of current events without a host or moderator. Later that year, the company expanded its activities into furniture rental with the formation of Black Arrow Leasing, a business that was sold in 1971.

In 1964 Granada began to export television programming through Granada Overseas Limited (later changed to Granada Television International and then to British Independent Television Enterprises Ltd. [BRITE] in 1995). That year Granada also acquired Barranquilla Investments, a real estate developer, and formed Granada Motorway Services to sell food and fuel to highway travelers across Britain. This business stood in marked contrast to Granada's other ventures in the media area and almost folded within its first six years because of high leasing costs and low profits.

Seven years after the introduction of its domestic television rental business, Granada expanded into the West German market under the name Telerent Europe. Additional showrooms were opened in France, Spain, Italy, Sweden, Switzerland, and North America as Granada looked to establish a television rental market in areas where the concept had never before been introduced.

Granada Group Services also was formed in 1968, initially to provide computerized support to the firm's own businesses, but later to develop systems for outside clients as well. In the meantime, Granada Television continued to prosper and grow technologically. Having been awarded a new seven-days-a-week contract for Great Britain's northwest region, the company began broadcasting programming in color for the first time in September 1969.

The 1970s brought two additional businesses into the Granada fold. Novello and Company, a music publisher founded in 1811, and L'Etoile, a 70-year-old Belgian insurance company, were acquired in 1973 and 1974, respectively, followed by the 1981 purchase of a second Belgian insurance company, Eurobel, which was merged with L'Etoile. The insurance business was sold a decade later after incurring consistent losses; Novello was sold in 1988 because it no longer fit with the company's core businesses.

In 1979 Sidney Bernstein retired as chairman of Granada and turned over leadership of the company to his nephew Alex. Alex Bernstein inherited an organization whose television rental operation had grown to represent more than 60 percent of the company's profits by 1979, but was now threatened by a marked decline in business. The company's overall long-range planning system was erratic and informal at best. He gradually instituted a more decentralized management structure to give Granada's subsidiaries greater operating autonomy.

Continued expansion in the motorway services business in the early 1980s was accompanied by similar success in the television production area. Granada's programming franchise was renewed in 1982 for another eight years--it was the only independent TV contractor in Great Britain to hold onto its license. Its critically acclaimed dramatic series "Brideshead Revisited" was broadcast with resounding success in the United States, and Granada Cable and Satellite was formed in 1983 to capitalize on new broadcasting technology.

Continued Diversification in the 1980s

The firm also embarked upon another new venture in 1983, Granada Microcomputer Services, to market computer hardware to businesses through retail outlets. Granada Microcomputer Services began with a single store and from the start met heavy competition from a number of other retailers, making the undertaking less lucrative than it first promised. Granada decided to reposition its shops as business centers that could package microcomputer hardware and software programs into customized systems for small businesses. This operation, however, was sold in 1987 as Granada reorganized and shifted away from computer retailing toward providing computer maintenance services for businesses through Granada Computer Services.

In 1984 Granada made a major move to consolidate its position in the rental business with the acquisition of Rediffusion, a major rental competitor. Although the television rental market had been declining for several years, the Rediffusion purchase increased Granada's cash flow, market share, and profits and also gave it a stronger position in VCR and movie rentals. After the Rediffusion outlets had been consolidated and integrated with its own, Granada made a second major decision: to begin selling TVs and video recorders to offset declines in the rental area. That same year Granada Television scored a major programming success in the production area with the premiere of the award-winning series "The Jewel in the Crown."

In February 1986 Granada received an unwelcome merger offer from the Rank Organisation, a British company with similar interests in the television, entertainment, and leisure industries. At the time, Granada had broken off merger negotiations with the Ladbroke Group because of a difference in opinion over Granada's net worth. The Independent Broadcasting Authority, Britain's regulator of broadcasting licenses, blocked the takeover, much to Granada's relief, by ruling that Rank's offer would illegally shift ownership of Granada's television franchise. Rank withdrew its bid a month later, after exhausting its legal appeals.

This incident appeared to sharpen the company's outlook on the future. Shortly thereafter, Granada began refining its planning systems with an eye toward growing in several directions at the same time. This approach contrasted with the Bernsteins' original managerial style, which had focused on personal pet projects, whether or not they fit with the company's strengths and resources.

The new strategy backfired to a certain degree in July 1986 when Granada's plan to acquire Comet, an electrical appliance retailer, fell through. This purchase was part of an intricate arrangement in which Dixons Group sought to acquire Woolworth Holdings and then sell Woolworth's Comet subsidiary to Granada. When the Dixons takeover attempt failed, Granada was prevented from making a major move into electrical retailing.

Granada overcame this setback the following year, when it made the largest single acquisition in its history. In November 1987 Granada launched and successfully completed a $450 million bid for Electronic Rentals Group PLC. This purchase gave Granada a stronger presence in the consumer rental and retail markets in the United Kingdom, with two chains, and also served as a springboard for renewed growth in the European rental business. The 1987 acquisitions of NASA in France and Kapy in Spain provided additional retailing strength in those countries. The Granada Hospital Group also was formed during the year to oversee the company's television rentals to hospitals in Canada and the United States.

Granada made another significant purchase in June 1988 when it bought DPCE, a European-based computer maintenance company. Integrated with the company's existing maintenance businesses under the Granada Computer Services International umbrella, DPCE gave the company a larger customer base and a wider range of services to make it a more competitive player in the industry.

By the late 1980s, Granada defined its overall business in terms of four major areas: rental and retail, television, computer services, and leisure. This latter area encompassed not only the original motorway services operation and bingo clubs, but also bowling centers, travel and tour activities, and theme parks and holiday villages managed by Park Hall Leisure, a 1986 acquisition.

Transformed into Media and Hospitality Group in the 1990s

The 1990s brought a host of changes to Granada, dramatically transforming it once more. The decade began inauspiciously with the company in dire straits largely because of the expansion into computer maintenance. This unit was losing money and its growth through acquisition had burdened Granada with a heavy debt load. The company was forced to make a £163 million stock offering in May 1991 to stay afloat. Granada also sold its bingo clubs to Bass PLC for £147 million. To mollify its stockholders, the company forced Derek Lewis out as chief executive. In October 1991 Gerry Robinson, who had been chief executive of catering specialist Compass Group, was brought in to replace Lewis. Robinson, who has been credited in large part with the quick turnaround that followed his appointment, brought with him from Compass his right-hand man, Charles Allen, to run Granada's television and leisure sectors--the two sectors that within a matter of a few years would become the company's core areas. In March 1996, Alex Bernstein retired as chairman, Robinson replaced him, and Allen took over the chief executive slot.

During the 1990s Granada's television sector continued to develop its satellite pay television operations through the company's involvement in Granada Sky Broadcasting and British Sky Broadcasting. The company was also in the forefront of the nascent digital television industry, through British Digital Broadcasting plc (BDB), a 50-50 joint venture of Granada and Carlton Communications. BDB launched a digital television service in late 1998 requiring only a set-top box and receiving digital signals for a maximum of 30 channels through existing television antennae. Meanwhile, in August 1997 the company's independent television and television programming operations received a boost through the acquisition of Yorkshire-Tyne Tees Television (YTT) for about £700 million. The addition of YTT's independent television licenses gave Granada a dominant position in independent television in northern England, while YTT's programming arm bolstered Granada's standing as the largest commercial television production company in the United Kingdom.

By the time of this acquisition, Granada had made some critical divestments. The company's near-disastrous foray into computer services came to an end when that unit was jettisoned through an £89 million management buyout. In rental, Granada during fiscal 1997 decided to focus its resources on its core U.K. operation, and thereby sold off its North American and German (Telerent) rental businesses.

But it was Granada's leisure sector that underwent the most dramatic transformation of all in the 1990s. By mid-decade the core of this sector was the motorway service areas (the market leader in the United Kingdom), a chain of Granada Lodges with a total of 1,400 rooms, and a contract catering operation (the bowling centers and travel unit having been divested in 1995). In January 1996 Granada boldly paid £3.9 billion (US $6 billion) for Forte PLC, the second largest hotel group in Europe, in a fierce hostile takeover. Gained thereby were the Travelodge chain of budget hotels in the United Kingdom (to which were added the Granada Lodges, converted to the new brand); 147 "provincial" hotels located outside of London, under the business-traveler-oriented Posthouse and the more historic Heritage brands; 17 London "trophy" hotels in the Savoy Hotel group, in which Granada now owned a 68 percent stake; and 103 Meridien and Exclusive luxury hotels, mainly located overseas. Also added through the Forte purchase were a chain of 400 Little Chef roadside family restaurants and 21 Welcome Break motorway service areas in the United Kingdom, which were sold for antitrust reasons in February 1997 for £473 million to Investcorp, a Bahrain-based investment group. In December 1997 Granada sold the French motorway service areas, also included in Forte, for FFr 820 million (£83 million) to Autogrill, an Italian roadside restaurant chain. In April 1998 Blackstone Hotel Acquisition Co., a U.S. investment company, agreed to buy the Savoy Group for £520 million (US $866.5 million).

The Exclusive hotels were also divested, leaving Granada with four core lodging brands: Travelodge, Posthouse, Heritage, and Meridien. With such a strong presence in what was now called the hospitality sector (instead of leisure), Granada in mid-1997 considered demerging its media operations, but decided not to for the time being. Such a move likely would have led also to the divestment of the rental operation. In any case, Robinson and Allen had changed Granada into a company that in fiscal 1997 generated only 17 percent of its revenues and 21 percent of its profits from media, while hospitality operations generated 69 percent of revenues and 64 percent of profits (with rental responsible for nearly all of the remaining 14 percent of revenues and 15 percent of profits). Having already progressed through its history from film to television to rental, Granada Group had now clearly staked its future to hospitality.

Principal Subsidiaries: Granada Media Group Ltd.; Granada Television Ltd.; LWT (Holdings) Ltd.; London Weekend Television Ltd.; Yorkshire-Tyne Television Holdings plc; Forte (UK) Ltd.; Granada Food Services Ltd.; Granada Hospitality Ltd; Granada Purchasing Ltd.; Granada Services Group Ltd.; Granada Entertainments Ltd.; Forte France S.A.; Forte Hotels (Deutschland) GmbH (Germany); Forte USA Inc.; Forte Hotels (UK) Ltd.; Forte Holdings Ireland Ltd.; Forte International B.V. (Netherlands); Forte Italia S.p.A. (Italy); Granada Travel PLC; Heritage Hotels Ltd.; Lusotel Industria Hoteleira Ltda. (Portugal); Meridien Hotels Ltd.; Posthouse Hotels Ltd.; Société des Hotels Méridien S.A. (France); Granada UK Rental and Retail Ltd.; UK Consumer Electronics Ltd.; UK Retail Ltd.; GIL Insurance Ltd.; Direct Vision Rentals Ltd.; AFI Hotels Ltd. (Italy; 50%); British Digital Broadcasting plc (50%); Granada Sky Broadcasting Ltd. (50.5%).