Carlton Communications Plc Business Information, Profile, and History

History of Carlton Communications Plc

Carlton Communications plc thrived for more than a decade in the cramped, highly regulated waters of the British market. In the 1990s it began buying companies, both smaller and larger than itself. Besides owning UK television networks, the company provides production facilities, tape duplicating services, and electronic video equipment, which are marketed primarily in Europe and the United States.

Michael Green, the man who brought Carlton from obscurity to the leagues of $1 billion companies, grew up in a business family. Rather than relying on higher education (he left public school at 17), he benefitted from contacts through the family of his wife, Janet Wolfson, whom he married in 1972. Those contacts included brother David, with whom Green established a printing and photo-processing company dubbed Tangent Industries; and Lord Wolfson, Green's father-in-law, who owned Great Universal Stores, which hired Tangent to reproduce its catalogs.

After 15 years with Tangent, Green bought Transvideo (Carlton Television Studios) in 1982. Fleet Street Letter soon became part of the fold, and the group of companies went public as Carlton Communications. The Moving Picture Company (MPC), Europe's largest video facilities provider, joined Carlton in a joint venture soon thereafter, acquiring the UK subsidiary of California's International Video Corporation for £400,000. Carlton acquired MPC itself in July 1983 for £13 million. MPC's Mike Luckwell remained as managing director in the new company and became Carlton's largest single shareholder.

Carlton acquired more than a dozen companies (at a cost of over £600 million) in the remainder of the decade, all related to either television and film or electronics. Importantly, Green valued cashflow and strict financial controls. When companies were acquired, existing managers were trained to practice strict accounting practices. The result was profits and success. By 1985, Carlton was producing projects as diverse as commercials, rock music clips, and corporate videos. The purchase (potentially worth £30 million) of Abekas Video Systems in 1985 made Carlton a manufacturer of video editing gadgets (the division was sold ten years later to Scitex Corporation for $52 million). Carlton grossed £38.1 million in 1985.

The goal of acquiring a broadcasting station took several years to develop to fruition and divided the partnership of Green and Luckwell. The two had different strategies for acquiring Thames after Britain's Independent Broadcasting Authority thwarted attempts to gain a controlling interest (Luckwell preferred to defy the IBA), and Luckwell left the company in 1986, selling his shares for £25 million. The IBA interfered with Green's bid for his next target, London Weekend Television, allowing him only a 10 percent share. In response, Green sold his existing 5 percent share for £1 million.

After failing in a group bid for a direct satellite broadcasting service, Green finally succeeded in acquiring a stake in a broadcast network, gaining 20 percent of Central Television in exchange for £18 million and stock. D.C. Thomson and Pergamon Holdings owned equal 20 percent shares. Green had previously hired Bob Phillis away from Central Television to replace Luckwell as Carlton's managing director; Phillis was able to return to his seat on the Central board of directors after the deal. Soon afterward, Carlton moved into film production with the £7.3 million acquisition of Zenith Productions; Carlton later had to sell much of Zenith so the company could stay independent.

Sometimes Carlton seemed a bit ahead of its time, as in the 1986 purchase of satellite dish manufacturer Skyscan, which was sold in 1988 due to poor sales. Carlton's biggest buy of the decade proved more fortuitous. The company paid $780 million for Ronald Perleman's US-based Technicolor, the world market leader in video cassette duplication and motion picture film processing. Despite the 1987 stock market crash, Green was able to raise the necessary funds. In five brisk years Green transformed Carlton from a relatively obscure company into an international corporation that garnered half its revenues (since the Technicolor purchase) from US operations.

In 1989 Carlton's stock took a serious fall, from a high of £9.60 a share to a low of £2.98 in the course of a year. Pre-tax profits grew just 13 percent in 1990, a lackluster performance for Carlton, and the market shuddered. Carlton won a 1991 bid for a London weekday broadcasting license, in spite of competition from Thames and a David Frost/Richard Branson coalition (CPV-TV), which outbid Carlton by £2 million but were denied the license as the ITC were unconvinced about the quality of their programming (Branson's Virgin Group later did outbid Carlton for MGM's British cinemas). The deal signaled a recovery for Carlton.

Besides the annual license fee, Carlton agreed to pay 15 percent of advertising revenue (estimated to be approximately £50 million per year) to the British government for the ten year duration of the contract. The Daily Telegraph and Italian publishers Rizzoli Corriere della Sera each bought five percent of Carlton's stock prior to the bid, worth £43.2 million. The Daybreak consortium, in which Carlton held a 20 percent share, lost the bid for the breakfast television license to the Sunrise consortium of LWT, Scottish Television, The Guardian newspaper company, and Walt Disney. Carlton, optimistic about the future of morning television, promptly bought a 20 percent share in Sunrise for £5.4 million.

At the end of 1993, Carlton announced it would buy Central Independent Television for £624 million ($925 million), thereby combining the first and third largest independent television companies in Britain. The timing could have helped both of them escape being consumed by European companies when ownership restrictions were relaxed in 1994. In 1995, Carlton was Britain's largest broadcaster, controlling 30 percent of ITV advertising revenues through its London and Midlands stations. The Economist reported Carlton's biggest challenge would be expanding into foreign broadcasting markets, in which Green expressed interest, as well as into newspapers and other types of media.

Although Carlton aborted a venture with the German station Vox, it invested in two other overseas ventures in 1995. France Télé Films, a cable channel launched in cooperation with France Télévision, would rely on programming from Carlton's CTE library (stocked with 4,000 hours as of 1995, including 200 films) as well as that of France Télévision. Carlton also entered a partnership with Singapore's Channel KTV, also cable-based, which prepared to add two karaoke channels to its existing services.

Almost half of Carlton's profits came from broadcast television in 1995. In spite of the growth of satellite and cable services, Carlton remained optimistic about the importance of free-to-air broadcasting. Nigel Walmsley, Carlton's Director for Broadcasting, told shareholders in a 1995 annual report that only terrestrial broadcasting reached mass audiences since cable and satellite channels "tend to take audience share from existing minority channels, thus fragmenting the total cable and satellite audience."

Technicolor benefitted in the 1990s as Hollywood studios issued large-scale releases (for example, Batman Forever opened simultaneously on 4,500 screens), which required many duplicates. Declining currency values brought Film and Television Services turnover down to £251.8 million in 1995, although operating profit increased nine percent to £41.6 million. Beside Technicolor, the division boasted some of the largest post-production facilities in the world, such as The Moving Picture Company in London and Complete Post in Los Angeles. In 1995, when sales for the Video Production and Duplication division (including Technicolor and Carlton Home Entertainment) were £474.2 million, (profits down 9 percent to £60.7 million), a new one-million-unit-per-day videocassette facility was under construction in Michigan. Digital video discs offered Technicolor a newly format to master beginning in 1996. It also produced CDs and CD-ROMs through Technicolor Optical Media Services.

A one percent increase in turnover (to £169.1 million) boosted operating profits for the Video and Sound Products division by 43 percent in 1995 to £32.5 million. Its primary components, Quantel and Solid State Logic, produced equipment for making special effects. Both companies were market leaders based on such state-of-the-art technologies as Quantel's digital visual effects editing systems ("Henry" for television and "Domino" for film) and Solid State Logic's "Axiom" and "9000-J Series" digital audio consoles. Quantel supplied the printing industry with its Graphics Paintbox system.

Increasing sales and profits supported observations that the company, in spite of (or because of) its enormous growth, was still on the way up. Pending British legislation, which would allow Carlton to control more of the UK broadcast television market, made Carlton's future outlook bright.

Principal Subsidiaries: Carlton Television Limited; Carlton UK Television Limited; Carlton Home Entertainment; Central Broadcasting; CTE; Carlton 021 Limited; The Television House; Meridian Broadcasting Limited (20%); GMTV Limited (20%); Independent Television News Limited (36%); London News Network Limited (50%); France Télé Films (France; 28%); Channel KTV (Singapore; 31%); Technicolor; Technicolor Optical Media Services; Euphon Technicolor S.p.A. (Italy; 50%); Technicolor Videocassette B.V. (Holland); Carlton Home Entertainment Limited; The Moving Picture Company Limited; Complete Post, Inc. (USA); TVI; Quantel Limited; Solid State Logic Limited; Carlton Cabletime Limited; Carlton Books Limited; Carlton Cromelim Circuits Limited; Westport Group plc (27.1%).

Principal Divisions: Broadcast Television; Video Production and Distribution; Film and Television Services; Video and Sound Products