Next year will mark the 10th anniversary of Leonard Asper’s ascent to the top job at Canwest Global Communications, taking over the reins from his late father Izzy. But there might not be much of a celebration. It hasn’t been an easy ride. When the youngest Asper became president and CEO in 1999, Canwest was trading at close to $20 a share. As of early this week, it was treading water around 60 cents. What was once arguably Canada’s leading media company was kicked off the country’s main market index in September, and is now a struggling penny stock.
Asper himself seems more perplexed than anyone by his company’s rapid decline. After all, as he’s fond of pointing out, Canwest is not only making money, it’s making more money every year. Revenues have increased from $2.7 billion in fiscal 2006, to $2.9 billion in 2007, to $3.1 billion in 2008. Similarly, Canwest’s EBITDA (earnings before interest, taxes, depreciation and amortization)—a popular indicator of a company’s profitability—looks healthy. As of August, the end of Canwest’s latest fiscal year, its EBITDA hit a three-year high of $578 million—$91 million higher than the year before. Canwest’s various holdings, which include Global Television, Network Ten in Australia, various websites and 10 major daily newspapers (including the National Post), are as a whole still making money. And analysts say that from a strategic standpoint, the company’s decision to acquire Alliance Atlantis and its portfolio of top specialty TV channels last year made perfect sense.
And yet, the market is rebelling. One after another, major brokerages have slashed their projections for the company, and few are recommending clients buy the stock. At least one major institutional investor recently opted to cut his losses and bailed out completely. According to financial analysts and investors Maclean’s spoke to, Canwest’s stock price is now so low, it indicates that investors feel it could go bankrupt. The next three years may be the most crucial in the company’s history. If Canwest pulls through, it could once again surge back to health and recapture its former glory. If it doesn’t, Asper could find himself presiding over the collapse of his father’s empire.
Asper declined to be interviewed for this story, but he hasn’t gone completely silent. For the past several months he has been on a campaign to counter the perception that Canwest is a sinking ship. Back in July, before the worst of the market collapse hit, Canwest had already been reduced to a mere $2.50 a share from more than $7 at the start of the year. On a conference call with analysts that month, he practically begged them to look past the plunging stock and appreciate the true value of his company. “Let me start by saying that given our diversity and strength of our properties, I believe that Canwest stock is significantly undervalued,” he said. Later in the call he protested his company’s low valuation again, saying that his own reported earnings-per-share figures didn’t do Canwest justice. “I challenge the analysts and the media listening to not get caught in what are today’s accounting principles,” he said, “and to take the time and look at the underlying operating strength of our corporation line by line.”
The analysts participating in the call were evidently not impressed. As the summer and fall wore on, and the economy worsened, Canwest’s stock continued to swoon. According to Bloomberg, of the 11 analysts following the shares, five now rate it a “hold” and six rate it a “sell.” Moody’s has put Canwest’s credit rating under review, and just last week, Dominion Bond Rating Service reduced the issuer rating for Canwest Media from BB to B (high). That’s a serious tumble and it puts the company firmly in junk bond territory, meaning that Dominion now considers lending money to Canwest to be a “highly speculative” investment. According to Dominion’s rating scale, when a company receives a B-level grade, “there is a reasonably high level of uncertainty as to the ability of the entity to pay interest and principal on a continuing basis in the future, especially in periods of economic recession or industry adversity.” Which, of course, is exactly the sort of period Canada is entering now.
Despite Asper’s protests, analysts say Canwest is actually in dicey financial shape. One respected mutual fund manager with a large holding in the company’s stock (who spoke on the condition of anonymity) lists off the reasons why: “One, almost all media properties are selling at a depressed price,” he wrote in an email. “Two, media properties in general are facing huge challenges from Internet, cable, and new technology. Three, management have made several questionable acquisitions at high prices (looking with hindsight). Four, they compounded the problem with high leverage.” And finally: “Five, the Street does not think highly of current management.”
The first two reasons for Canwest’s plunge are no fault of its own. Readers and viewers are abandoning newspapers and conventional television for cable and Internet all over the world. In a conference call with analysts in mid-November, Asper himself went as far as saying, “The conventional television revenue model continues to be challenging, and I would dare say, broken.” Compound that with the current economic collapse, and you find that all media companies are getting hit hard. Corus Entertainment, for instance, which owns more than 50 radio stations and a slew of specialty channels, has seen its stock price slump from $25 a year ago to less than $13 today. Torstar Corp., which owns the Toronto Star, the Metroland community newspapers, Harlequin books, and a stake in CTVglobemedia, has seen its stock fall from $19 to $8 over the same period. Both represent declines of between 50 and 60 per cent. But over the same period, Canwest’s stock has dropped by a staggering 92 per cent. So the plunging market, it seems, is only part of the story.
The bigger problem falls under the heading of “questionable acquisitions at high prices,” and the piles of borrowed money required to close those deals. Since taking over, Asper has bought up a grab bag of properties. He has launched three radio stations in the U.K., acquired four radio stations in Turkey, and bought the New Republic magazine in the U.S. Then, just a few months ago, he turned around and sold the U.K. stations for an undisclosed price, less than three years after launching them. Such flip-flops have helped contribute to a perception that management doesn’t have a long-term plan. “What can I say?” says Robert Floyd, president of R.A. Floyd Capital Management in Mississauga, Ont. “They’re not the brightest bunch of boys when it comes to buying assets.”
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As someone who works in media, I can’t help but find many of the responses to this somewhat delusional.
Yes, the quality of newspapers and their level of impartiality have quietly, over the last 20 years, gone into the crapper. It’s NOWHERE near the level of hyberbole you see here on blogs.
But this is about leveraging too much debt against not enough revenue, then being hit with even less revenue. It has NOTHING to do with readership levels.
Circulation is not the same thing as readership. Circulation is the number of paid copies you sell; readership is just an aggragate for how many people actually read the thing. But the difference has become vitally important in the wake of every paper, including those in CanWest, choosing to give their product away for free online.
Why? Because if you total their online readership with their paid readership, you see the number of people consuming the product has risen, but the fact that they’re getting it for free a tenth of the time has hurt advertising revenue.
In point of fact, if their leveraged debt for expansion (and for write downs on other properties) is removed from the equation, newspapers actually still make lots of money. But their owners believe the end is nigh, due to the prevalence of the internet, so they’re accelerating the process via layoffs, cutbacks and by switching to the cheapest news package they can….accelerating the death of newspapers from a process that should take decades (and dovetail nicely with internet portability improvements) into one that takes just years.
“Why? Because if you total their online readership with their paid readership, you see the number of people consuming the product has risen, but the fact that they’re getting it for free a tenth of the time has hurt advertising revenue.”
That doesn’t make any sense as advertisers do not care where there ads are being shows, as long as they get viewed advertisers are willing to pay.
What’s really at issue here (and you don’t have to work for the media to see it) is three-fold:
1. Newspapers in North America have continuously moved from a mixed revenue stream (advertisers+subscriber) to advertisers only revenue; yes, to opposite from diversification.
2. This move has often led to crappy, right-wing journalism (to please the generally more conservative advertisers)
3. Bad journalism has lead to a drop in subscribers’ revenue; less people want to subscribe to a crappy paper and definitely don’t want to pay much for it (many papers still only cost a dollar)
The credit crunch is speeding up the demise of the right-wing media, but who really cares? I don’t.
I’ve observed Canwest’s Nanaimo’s Daily News for years ( mostly as a freelancer). This industry is so top heavy with management it’s unbelievable. There is no private sector enterprise with so many levels of management per employee. There is a guy called the Publisher, who has no apparent fuction and strangely, has time to operate an advertising business that some would say competes with Canwest. Then there is a managing editor, then there is a city editor, and we still haven’t hit the workers. This outfit makes the armed forces look like japanese style mananagment (the worker manages himself). It makes GM look lean and mean. Sure GM has managers, but not three levels to manage fifty workers.
Hasn’t Asper read business 101? The place to cut is management.
[...] being on the verge of bankruptcy. It follows several similar stories in recent months, including a good one in Maclean’s by Duncan Hood that helpfully explains the different reasons for the company’s decline. One [...]
Good riddance to Crapwest Globull. Then we won’t have to put up with the hijackings of American networks.
It’s always sad to see large companies go bankrupt, but I will shed no tears for Canwest. They manipulated journalism for their own agendas. Their newspapers became unreliable news deliverers, their editorials doubtful and their writers, unfortunately unbelievable in their views. It was the disappearance of journalism as we knew it. Most readers and viewers were aware but could do little to undo it. I found myself second guessing everything I read to the point of stopping my subscription. The newspapers went to the recycle bin unopened. I looked for information from other sources, like everybody else. We need a guarantor for press integrity, and our government has not provided it. Would market forces do it? I hope so.
You are right!! I will shed no tears but CanWest will!! What goes around, comes around!! Karma!!
Are they off the air yet? Today is March 11, their last day. Hopefully they are gone and no more annoying interruptions from them when watching CBS, NBC, ABC, and FOX.
CanWest – ReachCanada – all one in the same – spells trouble because of poor management – the way they treat the employees and allow their employees to be treated is disgusting!!! Do they deserve a bailout or extensions? NO!! And why is there a Human Rights Museum when CanWest – Aspers have no idea how to treat or expect their employees to be treated humanely. That is so third world!! Andwhy are/did our military fighting for humanity, fredom and equal rights? Tell me.
With them in protection now, does that mean no more simsubbing?