CanWest's Dominant Newspaper Ownership

When Leonard Asper sits down with his morning papers, he doesn't read them just for the news, or to pick up the latest sports scores. Not any more.

CanWest's Dominant Newspaper Ownership

When Leonard Asper sits down with his morning papers, he doesn't read them just for the news, or to pick up the latest sports scores. Not any more. These days, three of them land on the doorstep at his home on exclusive Wellington Crescent in Winnipeg: the National Post, his family's flagship, which he owns; Winnipeg's Free Press, the local broadsheet, which he wishes he owned but doesn't; and the archrival Globe and Mail, Canada's other national newspaper, owned by BCE Inc. As president and CEO of Canada's dominant newspaper owner, CANWEST GLOBAL COMMUNICATIONS CORP., Asper says he now studies these papers, and others, intently. He looks at how they are organized, what they are saying, how many sections they have and where everything is placed. "I scrutinize them now," he says. "Definitely."

The scrutiny is happening both ways. Journalists in newsrooms across CanWest's chain of newspapers and others outside it - indeed, much of the broader communications business, policymakers, regulators, not to mention everyday readers - are watching to see what Asper and his father Izzy, the founder and executive chairman of CanWest, will do with the assets. Bought in 2000 for $3.2 billion, they formed one of the last in a flurry of megadeals that completely overhauled the ownership base of English-language newspapers in Canada. Ever since tycoon Conrad BLACK gained control of the SOUTHAM chain of papers in 1996, there's been so much deal-making that almost all major newspapers and most minor ones have gone through at least one new set of owners. Ontario's Guelph Mercury, to cite an extreme example, changed hands five times in four years.

Curiously, Black has now almost completely exited the newspaper business in Canada, as has his erstwhile rival media baron, Ken THOMSON, the long-standing owner of the Globe. More recently, competitor BCE has been trampled in the markets, losing almost 20 per cent of its value in late March as investor confidence in its diversification strategy faltered. With parts of the conglomerate bleeding red ink, the telecom giant, now the majority owner of the Globe and CTV, may be forced to sell pieces of its media holdings, or other divisions. The Aspers, newcomers to the world of daily print, picked up the Southam holdings and the National Post from Black in a deal that has met with continuing skepticism in both the industry and the markets. That, and the tremendous power they wield as owners of Canada's largest stable of major dailies, has kept them under the microscope.

Leonard Asper is used to looking at the media differently from everyone else. Ever since his father responded to a call in 1974 for applications for a new television station in Winnipeg, CanWest has been a family enterprise, growing as the Asper family grew up. "I didn't watch TV the way most people watch TV," says Leonard. When he was in elementary school in 1975, Izzy's first independent station, CKND-TV, signed on. The business has grown into Global TV, a national network that, measured by numbers of viewers, is the country's second largest private operator. By revenues, it's the largest. There are also broadcast operations in other parts of the world: radio and television in New Zealand and television in Australia and Ireland. As adults, Izzy's three offspring joined him at corporate headquarters and on the board of directors. Gail, 41, manages the company's substantial, and generous, charitable foundation. David, 43, has some business outside the company but is still a key member of the family group that owns 89 per cent of CanWest's voting shares. Leonard, at 37 the youngest child, is heir apparent. Though Izzy still keeps a steady hand on the tiller even while wintering in Florida, Leonard runs the show.

The newspapers, including 14 major urban dailies from Victoria to St. John's, were acquired in the name of the communications industry's infamous buzzword, convergence. While the broadcast side of CanWest's business is still considered its core operation - "we view our best area of expertise as being television," says Leonard - the newspapers have catapulted the company from a mid-sized communications firm to the very top of the heap of media owners in Canada. The deal, something akin to a snake swallowing an elephant, almost quadrupled the number of CanWest employees and nearly tripled its revenues. Given some very public controversies over editorial policy in the last few months, it's probably also doubled the headaches that come with running a major communications concern.

The content flap, involving a series of protests by reporters and columnists, started when CanWest announced its plan to publish centrally written editorials in the major Southam papers. For Izzy ASPER, it's normal that a newspaper reflects the opinions of its owner. "That's what newspapers do," he says. "Otherwise they are just milquetoasts."

At Southam, that view has been a real departure. For more than a century, the formal Southam position was that total editorial control would reside with the local publisher and editor. According to Wilson Southam, a long-time Southam board member and a great-grandson of the company's founder, William SOUTHAM, the policy fortuitously fell into place in order to avoid family squabbles about editorial issues. The policy, Southam says, made for stronger newspapers - and he calls on the government to study the implications of media concentration not only in business terms but also in terms of diversity of voice. "Something precious appears to be slipping," he adds.

To Christopher Dornan, director of Carleton University's journalism program, the problem for the company is that readers, who tend to feel proprietary about their morning paper, may have less trust in what they read - and that may not be good for business. "CanWest Global," he says, "may discover they are in danger of sullying their own brand."

Still, argumentative as some of the staff may be, the newspapers were acquired for a reason. In fact, for a few reasons. Their editors and writers, who far outnumber the journalists at Global TV, can be - and already are - used to feed the maw of news television. Sales departments can sell space to advertisers for both print and broadcast. Each medium can be used to promote the other, which neatly cuts down on advertising costs and heightens exposure. But ultimately, the newspapers are there to feed the Aspers' ambition to create one of the world's largest media companies. Right now, CanWest regards itself as mid-sized. "I would contest that we are big," Leonard says, sitting on a sofa in his office on the 31st floor of Winnipeg's TD Centre at the corner of Portage and Main. "As I see us, we're peanuts." The goal is to be a serious global contender: "Our ambition is to be one of the top five media companies in the world within 10 years."

It's a huge ambition. Just to get into the club, CanWest's revenues (the equivalent of about US$1.6 billion last year) would have to swell nearly 13 times to about US$20 billion - and that assumes the giants, like Viacom Inc. or AOL Time Warner Inc., don't get any bigger. Asper says it's possible. He points out that between 1993 and 2002, Viacom's revenues grew roughly tenfold to US$23 billion. "I look at the last 25 years of where we've come," Asper says. "It's not inconceivable that we could keep the same growth rate." To get there, CanWest would have to make a major acquisition in the U.S., and Asper says he wants to, once the company digests the newspapers. "We have to take a breather, of course."

That's for sure. CanWest has one of the largest debt loads of any Canadian media company - and it has set off warning bells for investors. "It's not a situation that's totally out of control," says an equity analyst, who asked not to be named, "but it's running pretty hot." The debt sits at $4 billion, virtually unchanged since the Aspers bought the Southam papers in November, 2000. The debt is manageable, the Aspers say. The company, Leonard says, can still go out and borrow more money if needed. "I wouldn't call it an albatross," adds Izzy, on the phone from West Palm Beach, "but it's an impediment to be overcome - and we will." The debt was calculated, he says, as part of the Southam deal. "What we didn't calculate was the onslaught of the recession - and 9/11 did not advance things." The slump whacked advertising revenues for television and newspapers.

CanWest insists it has $200 million a year in free cash flow to ratchet the debt down. But Tim Casey, media analyst for BMO Nesbitt Burns, says that while the the company can cover the cost of carrying the debt, there isn't enough to chip away at it. Further, Casey says, he sees "little opportunity for improvement."

The heavy debt load has other costs. It makes CanWest's stock trade at a 20 to 25 per cent discount to its peers, according to Casey. The size means that convincing the banks or the markets to extend more credit would be a hard sell, essentially blocking new deals for CanWest. Witness the tale of the Winnipeg Free Press, the hometown daily that used to be owned by Thomson Corp. It was bought last fall by Ron Stern and Bob Silver, two independent businessmen who have collaborated on other deals and who, while personally wealthy, do not have a huge empire behind them. For $150 million, they were able to snatch the Free Press and the Brandon Sun away from the bigger guns of CanWest. "The downturn in the economy helped - the competition was more hobbled," says Stern. Leonard Asper freely admits that his family "would have loved to own the Free Press." But the decision was made to save the company's access to capital for higher-growth businesses, such as the Internet, call centres or investments in the United States. Still, Asper says, taking the pass was "very, very painful."

CanWest won't let the big ones get away, Izzy insists. "We will not allow an irreplaceable or a once-in-a-lifetime opportunity to go by unaddressed," he says. CanWest still has open credit of several hundred million dollars, he says. But he knows the stock market would likely pull down CanWest's share price if he taps into that credit. A more palatable route of raising capital - either for a new acquisition, or more likely, to put a dent in the existing debt - would be to sell something. The company is considering unloading some assets, possibly the community newspapers. Buyers have approached CanWest, Izzy says, but nothing has been decided.

One way out of the hole may be via the Internet, or more precisely, its potential. "Media companies are convinced that spectacular profits lie in store for the enterprise that can harness Web content and computerized classifieds," says Carleton's Dornan, who recently completed an in-depth analysis of CanWest's Southam acquisition for an upcoming book. While still minuscule, advertising revenues on the Web were up 1,000 per cent from 1997 to 2000. Newpaper ad sales rose only 12 per cent. While no one's yet figured out how to make money from a combination of traditional media and the Internet, one of the most natural marriages involves the classified section - a long-standing domain of newspapers. Looking for an apartment? Just type in the desired location, number of bedrooms, preferred rent level, and instead of scouring the papers, the Net can quickly organize the classifieds for you. "Yesterday's medium," says Dornan, "is the key to the future."

But the Aspers are also looking for areas where, right now, they can bridge their print and broadcast assets. Leonard would have noticed, probably with a smile, a moody picture of actor Robert De Niro a few weeks ago in the Saturday edition of the National Post. The photo, played large on the front page, accompanied a story about a TV documentary on Sept. 11 that was to be aired later in the weekend. Produced by CBS, the program was also being carried on Global in Canada - as the story made clear. The previous week, Global broadcast a special program about the conflict in Afghanistan. Nine journalists from the Post, Southam dailies and Global sat perched on stools, discussing their experiences in the wartorn country before a live audience at the University of British Columbia. Both events - the journalists on Global and the newspaper coverage of a TV documentary - are part of the new world of convergence, at least as Leonard Asper sees it.

For Asper, content is king. The National Post, the elegant broadsheet Black launched to great fanfare in 1998, is a case in point. Since day one, it's been a money loser, even after the Aspers' job cuts and budget-tightening. Nonetheless, it is "fundamental" to the company's strategy, says Leonard. Post journalists "play a major role in creating a better quality newscast for local news and the national news," he says. Asked if CanWest will carry the Post if its losses continue, Asper hems and haws, and talks about the resources the paper provides for the overall CanWest news strategy. Any judgment of success "has to factor in those dynamics," he says.

A new call centre is another key component of CanWest's convergence strategy. The centralized facility in Winnipeg will employ hundreds to collect much more detailed information about TV viewing habits than is now available to broadcasters. The idea, Asper explains, is that an operator will add a few cogent questions for newspaper subscribers who call in: "Did you see Friends last night? Did you see the L'Oréal ad?" Says Asper, "We're starting to build the database." The information about readers and viewers is crucial to CanWest's relationship with advertisers, who, in the multi-channel universe, have cut back on the spending that goes to traditional broadcasters like Global.

Analysts and other observers applaud many of the Aspers' convergence strategies - even if the jury is still out as to whether those plans will end up making money. The debt, though, gives pause to most analysts, just as the editorial policy gives pause to some readers. But Izzy Asper, a former columnist, loves owning print, financially and personally. "Newspapers are much closer to where I come from than television," he says. Still, Leonard Asper will want to keep scrutinizing the newspapers that land on his doorstep. He, and even his father, may still have a few things to learn about them.

The Canwest Empire

CanWest Global Communications Corp.

Market value: $1.3 billion

'We're Very Happy'

With jazz playing lightly in the background, Israel (Izzy) Asper, executive chairman of CanWest Global Communications Corp., spoke to Maclean's National Business Correspondent Katherine Macklem from his winter home in West Palm Beach, Fla.

Maclean's: With the benefit of hindsight, how do you now view CanWest's $3.2 billion acquisition of the Southam papers and the National Post from Conrad Black's Hollinger International Inc.?

Asper: We're very, very happy we did it. I'm much happier in the newspaper content side than I was in television. Television is principally entertainment, some information. I've been a self-confessed news, information, documentary nut all my life. I've never even seen most of our big TV hits. The first time I saw Cheers was when it was off the air. I look at ratings, not programming.

Maclean's: Are the newspapers a source to feed the broadcast side of the business?

Asper: Yes, we will be able to draw more and more on the journalist side. And as we move more and more into the digital world, there will be more opportunity. The same thing on the entertainment side. For example, we applied for and we've got a jazz channel. We're calling it Cool TV. That's my epitaph.

Maclean's: Your son, Leonard, says the company's goal is to be among the top five media firms in the world.

Asper: He can say that. He's 37, I'm 69. I can only hope. You know, the day my first grandchild was born, I remember being more elated than when my own kids were born - life was too hectic then. My kids had created a life. You've got to really celebrate that. Then you sit back and become sad because you won't be there to see how it all turns out. And that's the same thing with CanWest. No one should fall in love with a business, but it becomes your way of life.

One of my hopefully last major moves, when I was guiding CanWest more, was to handle the Hollinger thing. That was an irreplaceable opportunity. It took me 25 years to build a national television network, 25 years of being turned down, of being sued, of being thwarted by every possible hurdle and roadblock you can imagine. Here, in one fell swoop, in a six-to-eight-week negotiation, we were able to do exactly the same thing in the newspaper business.

Maclean's: What is your relationship with Conrad Black like now? He's sold his CanWest holdings at a significant loss.

Asper: Conrad is still on our board and has made no noises about wanting to leave. We know each other well and respect each other. It was always understood that they weren't in the business of minority interests in companies. They decided to sell sooner rather than later, but selling was always part of the plan.

Maclean's: Given your background as a Manitoba Liberal, and your centralized editorials, some people expect to see a Liberal bias in your papers.

Asper: Have you read our newspapers? Have you read the National Post? Have you heard a happy syllable about the Liberal government or any minister thereof? Paul Martin brings in the only balanced budget in the western world after 9/11, and I tell you, Martin will produce a surplus even in this lousy year, and what does the National Post do? It does the usual number, you didn't cut taxes enough, you didn't do this and that. So where is this big Liberal brainwashing that's going on? It's just bullshit. And the authors of that bilge know it.

Maclean's: Is there a big deal on the horizon?

Asper: No, nothing irresistible or irreplaceable is on the horizon. People are going to find us, in corporate terms, quite boring.

The View from the Centre

When Michelle Lang, a reporter at the Regina Leader-Post, sat down on the evening of March 4 to write about a speech she'd just attended, she must have known the story would be touchy. Haroon Siddiqui, a veteran commentator for the Toronto Star, had been highly critical of the Leader-Post's proprietor, CanWest Global Communications Corp. - owner of the Southam Publications Inc. chain. As Lang wrote in her opening paragraph, Siddiqui accused the company of performing "'chilling' acts of censorship." The following day, though, a different version appeared in the paper: "A Toronto Star columnist says it's OK for CanWest Global to publish its own views ..." Lang's byline was not on the story - she'd pulled her name in protest.

So did nine other Leader-Post reporters the next day, echoing a move in December at the Southam-owned Montreal Gazette, where reporters held their bylines two days running. At issue for both sets of journalists - and Siddiqui - was the fallout from CanWest's policy, launched in December, to publish centrally written editorials in its major urban dailies. Some commentators said the centralized policy would crimp expression of local views. The journalists fear it is affecting the way topics from national politics to the Middle East are presented - not only in editorials, but also on the news pages. CanWest says its intention is to present "informed opinion on matters of public interest, to stimulate discussion." Instead, that august ambition - which company executives accuse detractors of distorting - has turned into a continuing controversy pitting Southam journalists against their corporate bosses.

Editorials have come out in favour of tax cuts, greater immigration levels and the Triple-E Senate. And on the Middle East, CanWest is "unabashedly" pro-Israel, says Murdoch Davis, Southam's editor-in-chief and the person responsible for the national editorials. CanWest's policy bars the newspapers from publishing an unsigned editorial contradicting the centrally written message, but it doesn't stop signed op-ed pieces or columns from taking differing views, Davis says. Still, at the Gazette, where editorial page editor Peter Hadekel asked to be reassigned (he was), an Aislin cartoon spoofing CanWest's policy was spiked, and two veteran writers had to rework their columns. In his speech, Siddiqui listed five other writers at papers from Saskatoon to Halifax whose signed columns had been killed for either contradicting CanWest views or for criticizing the company's policy. Two quit; two were "canned," Siddiqui said. "This is chilling," he declared.

"To those journalists who say they've been chilled," Davis advises, "I say: grow a backbone." Editing to address flaws in a story, as was done with Lang's, he maintains, is not censorship. And, he adds, editorial decisions - to rewrite copy or spike columns or even discipline journalists - are made at the local level, not at head office.

Not exactly, says the editor of the Halifax Daily News, Bill Turpin. In an extraordinary letter to the editor of the Leader-Post in March, Turpin admitted he was the one to kill a column by Stephen Kimber about the Aspers' editorial policy, prompting Kimber's resignation. But he made the call, he wrote, after a conversation with Davis, who "told me in colourful terms that publishing the piece would be a career disaster, at least as far as Southam was concerned." The letter, never published, was pinned on a bulletin board at the Daily News and eventually posted on the Web. In response, Davis told Maclean's Turpin had solicited his advice. The colourful language, Davis recalled, was, "unless you're looking for a hill to die on ..."

CanWest CEO Leonard Asper calls the controversy a tempest in a teapot. Following the Montreal protest, he blamed "some martyrs" for kicking up the dust. When told some Southam journalists fear for their jobs, Asper is unsympathetic. "There's only so much time and effort we can spend trying to comfort people," he told Maclean's. CanWest had simply cautioned the Montreal journalists not to criticize their employer, a call that only makes solid business sense, he says. "What's so heavy-handed about that?" Asper asks. "It was fair to stop it."

Except it didn't stop. So, in Regina, the response was harsher. "The Leader-Post already had the experience - they knew this was a no-no," says CanWest executive chairman Izzy Asper. The 10 journalists who pulled their bylines were reprimanded; four who'd spoken out publicly were suspended for a week without pay. "I will not tolerate an employee who is not loyal to his employer," says Asper. "I happen to think the sanction should be much more strong." The journalists, at least, know where they stand.

See also MEDIA OWNERSHIP.

Maclean's April 8, 2002

Publishing

-- National Post

Paid circulation (weekdays): 332,188

-- Southam Publications Inc.

14 major dailies, including the Halifax Daily News, Montreal Gazette, Ottawa Citizen, Calgary Herald, Edmonton Journal and Vancouver Sun, and more than 120 daily and weekly community papers

Television

-- Global Television Network

10 stations across Canada

-- Five other Canadian TV stations

-- Seven specialty channels, including Prime, Mystery, Lonestar and Fox Sportsworld Canada

Production and Distribution

-- CanWest Entertainment

Produces TV's Relic Hunter and distributes movies such as Rat Race internationally

The Internet

-- Canada.com

Web portal for all CanWest content

International Holdings

-- Network TEN

Australian TV, Asia-Pacific advertising

-- TV3 & TV4

New Zealand commercial channels

-- CanWest New Zealand Radio

More than 30 radio stations

-- TV3 (45%)

Irish Republic commercial channel

-- UTV (30%)

Belfast-based Ulster TV, part of Britain's private ITV system