CanWest Bleeding Its Newspapers Dry
Working for any big public company has its downside. With all those quarterly profit reports and the relentless scrutiny of shareholders, most employees operate under a generalized sense of unease, with the knowledge that they're always just a couple of bad moves away from an unplanned career change.
But some are worse than others.
If you're among the lucky few who fall in with an up-and-coming firm charting out some new market niche, you may experience a temporary period of grace in which the normal laws of market economics are suspended. So long as your CEO can construct a somewhat plausible (and flexible) definition of "progress" or "improvement," you're in the clear. This quarter maybe it's an 18 per cent rise in sales, next quarter it's an improvement in operating cash flow excluding amortization. This keeps those pesky analysts and shareholders at bay, so the unwashed labour force can keep collecting paycheques in an atmosphere of temporary stability.
If, on the other hand, you work for an established company in a mature industry with uncertain prospects, you are not so lucky. You might consider yourself a model of productivity, a font of clever ideas, and a heck of a guy to have around at the Christmas party, but to the accounting department you are a cost centre and nothing more. You're doomed to feel forever threatened, no matter what those quarterly reports say, because profits can always be higher, costs can always be lower.
Such is life for the poor ink-stained wretches toiling away for CanWest MediaWorks - the income trust launched last year, and comprised of the big city NEWSPAPERS like the Vancouver Sun, Calgary Herald and Ottawa Citizen, formerly known as the SOUTHAM chain. A couple of weeks ago, the trust reported its first set of quarterly results and a new era of anxiety began. On first blush, they looked pretty good: revenue up five per cent, cash flow of $47 million, good for a margin of around 15 per cent. Naturally, this wasn't good enough.
The analysts saw only rising costs, and results that didn't live up to their lofty expectations. MediaWorks CEO Peter Viner dutifully promised to do better, invoking the accountant's favourite euphemism for blood on the floor. "We will increase our focus on cost containment," he told analysts, and staff across the chain immediately began reviewing the layoff provisions in their union contracts. But don't blame Viner. He's caught between an irresistible force and an immovable object.
On one side he has CanWest's controlling Asper family, which has never met a cost that couldn't benefit from a little more "containment." No matter what the question, less money is always the preferred answer at CanWest. You'd think the company might have learned from its pain-threshold experiments at the National Post, but no. A few years back, the Aspers decided that the only way to improve the Post was to diminish its resources. They figured readers and advertisers loved the paper so much, they'd pay even more to get less of it. Every penny is now stretched until it screams, but profit remains elusive.
A similar approach has now scuppered CanWest's once-dominant position in prime time television. A few years back, rival CTV seized the advantage over Global, and shows no signs of giving it back. The legacy of CanWest's parsimony was reflected in a 48 per cent drop in its Canadian TV profits in 2005, and CanWest CEO Leonard Asper now figures it'll take as long as five years to rebuild the shattered TV franchise.
And where is the runaway spending that CanWest is now so determined to contain? Well, operating costs at the papers rose 10 per cent, while revenue rose just four. But more than a quarter of the increase was due to the start-up of two new publications: Dose and Metro. The company also launched new online classified sites and, like everybody, had to cope with higher fuel prices. Excluding those items, costs increased by less than seven per cent - hardly an alarming number for a company investing in its future and fending off a host of new technological competitors. But, as far as Bay Street is concerned, the game has changed and so have the expectations.
The day CanWest assembled its most stable properties into a trust, nurturing and investment went out the window. They are now assets to be drained of value, like oil wells on the downside of their productive life, and quality is a luxury to be sacrificed on the altar of immediate cash flow. It's not like we weren't warned. Critics said the real danger of the income trust boom was not lost tax revenue, but the distortion of long-term business incentives, and now we have a case in point.
That has all sorts of sad implications for journalism, society, democracy, etc. - stuff that just isn't in your average money manager's vocabulary. Still, even if your only concern is getting a healthy return on capital, CanWest's track record ought to give pause. In an industry changing as fast as the media business, an overriding fixation on quarterly cash flow is a recipe for slow death. It has never been easier to get, for free, the kind of material newspapers sell, and advertisers are following the readers to the Internet. Papers have only one competitive advantage with which to fight back against Google, Yahoo, Craigslist and a thousand other online services: real journalists, digging out exclusive information. In the end, the method of delivery is irrelevant, the best information wins.
Those who lose sight of this, by regarding reporters and editors as costs as opposed to assets, seal their own fate. Perhaps the suits on Bay Street have already written off the print business. That's their prerogative. But newspaper proprietors ought to know better.
Maclean's January 30, 2006