Canwest News Service launched a series today (April 25) regarding the siege mentality in the newspaper industry.
The first article pointed out that many newspapers are profitable and that advertising in them is worthwhile; the problem is that big media companies are having trouble paying down huge debts.
For the benefit of the taxpayers, I hope that this series explores why this is the case.
Huge media conglomerates such as Canwest Global Communications Corp., CTVglobemedia, and Black Press went on acquisition sprees at precisely the wrong time.
In the current economic environment, it's not too tough to make the case that these companies' executives, who are sometimes lionized in their own publications, made stupid decisions by piling up huge debts just as the business cycle was heading into a downturn.
Now, newspaper companies with broadcasting assets (i.e. Canwest and CTVgm) want the Harper government to bail them out by creating new revenue streams paid for by consumers through their cable bills.
Here are some things that the Canwest series should highlight:
* Canwest announced the purchase of most of Conrad Black's Canadian newspaper empire on July 1, 2000--just as the dot-com bubble was bursting. If Canwest had waited a year, it probably could have bought these papers--including the Vancouver Sun, Province, Vancouver Courier and North Shore News--at a significantly lower price.
* The Communications, Energy and Paperworkers Union, which represents many media workers, declared it was horrified by the $3.5-billion deal.
* The people who should have been the most horrified, however, were Canwest shareholders, who've seen their asset shrink from $18.55 per share at the time of this deal to the 30-cent range today.
* CTVgm, which owns the CTV television network and the Globe and Mail, decided in 2007 to buy the assets of CHUM Ltd. in a reported $1.7-billion deal. CHUM owned 33 radio stations, 12 television stations, and 21 specialty channels, including MuchMusic and Bravo.
* Canwest responded to CTVgm's deal by forming a partnership with Goldman Sachs to buy Alliance Atlantis Communications, which owned 13 specialty channels. That piled more debt onto Canwest's balance sheet.
* Meanwhile, the Canadian Radio-television and Telecommunications Commission threw CTVgm a curveball by forcing it to sell the five CHUM Citytv stations. They were picked up by Rogers Communications.
* The advertising industry went into decline in the current recession, as it always does in recessions. And Canwest can't meet its debt obligations, raising the possibility that the company will seek court protection from its creditors. Canwest is carrying a $4-billion debt.
* CTVgm wrote down the value of its assets earlier this year by $1.7 billion--which happens to coincide with the reported value of the purchase of the CHUM assets in 2007. Earlier this month, Canwest wrote down the value of its assets by $1.2 billion.
* Black Press, which is based in Victoria, expanded its holdings in the U.S. just as the U.S. economy went into the tank. Black Press--which owns the WestEnder and many other local community papers--is partially owned by the Toronto-based media giant Torstar.
* Other newspaper companies, such as Glacier Media, are not going broke because they didn't make mammoth acquisitions at the wrong time in the business cycle.
Today's Canwest News Service article quotes a Toronto advertising executive, who explained why newspapers still have appeal to advertisers: "They're trusted. That's the key,"said Howard Chang, president of Top Drawer Creative Inc., a Toronto agency that designs advertising campaigns in print and online. "There are a lot of questionable editorial sources online so, if you're a major daily, I think you have a trust level that can't be matched."
If Canwest News Service wants to keep that trust, its series on the siege mentality in the newspaper industry will deal honestly with the role that the Aspers played in their company's current predicament.
I'm commenting specifically about the family's propensity for launching big purchases at the wrong time in the business cycle, which has contributed to the destruction in shareholder value and the loss of jobs in the Canadian newspaper industry.
The Aspers aren't alone in this regard. Other media executives also had grand visions of expansion, putting their employees' futures in peril. I wonder if they feel any guilt about that today?
Maybe Canwest can pose this question to Ivan Fecan, CEO of CTVgm. I'm sure that many CTVgm employees would like to hear his answer.