Ties that bind CanWest to the Conservatives.
Stephen Harper and Leonard Asper: Mutually assured ambition
[Editor's note: This is the first of four excerpts from Marc Edge's new book Asper Nation: Canada's Most Dangerous Media Company.]
Its final report on the news media in Canada was not released by the Standing Senate Committee on Transportation and Communications until June of 2006. It had been more than three years since the study was conceived. It had been disbanded twice while Parliament was dissolved for federal elections. In the end, the Senate report was released by a new committee chair, Lise Bacon, as the term of Senator Joan Fraser had expired. The political landscape onto which the report landed had also been radically altered by the federal election earlier that year.
After more than a dozen years of Liberal rule, a minority Conservative government came to power that February under Stephen Harper. A deregulationist regime in Ottawa meant that any prescription the senators might have had for legislative reform of Canada's news media ownership had little hope of being adopted. Perhaps that was why they proposed such modest measures to curb the growing power of Canada's media giants.
The likelihood of any limits on media ownership being enacted by the new ruling party in Ottawa also grew scant for another reason. The Asper heirs had moved almost as close to the Conservatives as their father had been to the Liberal party.
One senior editor at Global Television even ran in the 2006 election as a Conservative candidate in Toronto with Asper blessing. A new chairman of CanWest's corporate board came directly from Tory ranks and aligned the Aspers uncomfortably close for some with the new party in power. A CanWest executive was discovered helping to fundraise for the Conservative cabinet minister in charge of broadcasting. Parliament Hill reporters for CanWest News proved more co-operative than most with the media management tactics of the new Tory government.
Then, in early 2007, CanWest expanded its communication empire by another quantum leap amid protests over increased ownership concentration. The acquisition also flouted Canada's foreign ownership limits, which the Aspers had long opposed.
A revelation made during the 2004 election campaign should have set off alarm bells that a political sea change was under way with a new generation of Aspers. CanWest's corporate helicopter had been used to ferry a harried Harper above Toronto traffic on his way to an appearance in Hamilton. As Toronto Star media columnist Antonia Zerbisias noted, the favor was business as usual for broadcasters. Both CanWest and CTV contributed generously to the campaign funds of both the Liberal and Conservative parties, she pointed out. "Perhaps it's not so surprising that some very controversial media issues are not being discussed during this campaign."
Power of the press
The political problem of media regulation had been identified more than three decades earlier by Keith Davey, the first senator in Canada to take on Big Media. He became concerned in the late 1960s about increased control of Canada's press by large newspaper chains like Southam, Thomson, and FP Publications. Davey first considered Parliament the appropriate body to conduct an inquiry into press concentration. He soon realized, however, that appointed senators would be better insulated from editorial pressure brought by publishers. His concerns were confirmed, Davey noted, by the easy passage through an elected U.S. Senate of the Newspaper Preservation Act in 1969. The NPA exempted from U.S. anti-trust laws dozens of newspapers that had been illegally sharing production facilities, fixing advertising rates, and pooling profits in arrangements similar to Vancouver's Pacific Press.
President Richard Nixon's flip-flop on the issue, according to Davey, justified his concern. "Politicians looking to re-election," he noted, "must depend substantially upon the mass media in the very real world of practical politics." Nixon was re-elected with the highest modern level of newspaper endorsements despite his government's unprecedented press censorship in the Pentagon Papers case and a simmering Watergate scandal.
Davey struck a Special Senate Subcommittee on Mass Media that forced media companies to open their books. It described what it found as "astonishing." Media owners were making enormous profits, Davey's committee found. More delicious was the secrecy surrounding their financial success. "An industry that is supposed to abhor secrets is sitting on one of the best-kept, least-discussed secrets, one of the hottest scoops, in the entire field of Canadian business -- their own balance sheets." From 1958 to 1967, before-tax profits at Canadian newspapers ranged from 23.4 percent to 30.5 percent. After taxes, they were 12.3-17.5 percent, compared to 9.2-10.4 percent in other manufacturing and retailing industries. "Owning a newspaper, in other words, can be almost twice as profitable as owning a paper-box factory or a department store," observed the senators.
Davey's committee proposed several steps to remedy the problem of media concentration. A Press Ownership Review Board would have had the power to block newspaper sales or mergers that increased concentration. A system of subsidies would have encouraged the founding of alternative publications. Despite generating considerable debate for a number of years, however, neither proposal was enacted. It was disappointing for senators who had hoped to stem the tide of ownership concentration before economic forces overtook the media irreversibly. "We had to conclude that we have in this country not the press we need, but rather the press we deserve," Davey recalled in his memoirs. "The sad fact is that the media must self-regulate because most Canadians are not prepared to demand the press they need."
David Asper endorsed the candidacy of Global executive Peter Kent, who had taken a leave of absence to run in the 2006 federal election for the Conservatives in Toronto. Kent made headlines during the campaign with allegations of media bias in favor of the Liberals, for which he urged journalism schools to monitor election news. When he failed to win a seat, Kent returned to CanWest Global as its deputy editor-in-chief in charge of current affairs coverage and documentary development.
Izzy Asper's sons were never as slavish in their support of the Liberals as their father had been. David Asper had even pointed out the "political diversity" within the family in 2001. "I happen to carry provincial and federal political party memberships which are not of the Liberal party," he told an audience in Calgary. "Not one of my critics cared, for example, to take note of my publicized endorsement of former Manitoba Conservative premier Gary Filmon." Asper noted that CanWest had spread its political contributions well beyond just the Liberals, following ideological rather than party lines. "We have provided significant financial support for both the Alliance federally and the Progressive Conservatives provincially," he said. "We are driven by policy ideas and innovation and not by some blind political loyalty."
As the 2006 federal election approached, David Asper dispelled any doubt that might have remained about his political leanings. At a campaign rally, he joined Harper onstage to endorse his candidacy. The open declaration of personal support for a politician was something new for media owners in Canada. "You have to wonder about the wisdom of Mr. Asper's endorsement of Mr. Harper," noted Christopher Dornan, director of Carleton University's journalism school. "Not from Mr. Asper's point of view, but from Mr. Harper's. Why invite accusations of having the press in your pocket?"
After the Conservatives came to power, the links between CanWest and the new ruling party became uncomfortably close for some. It was revealed that CanWest's vice-president of regulatory affairs, Charlotte Bell, helped organize a $250-a-plate dinner for Heritage Minister Bev Oda. A former CanWest executive, Oda's portfolio included responsibility for media. That August, CanWest named Derek Burney as its new chairman, finally filling the vacancy created by Izzy Asper's 2003 death. Burney had been Conservative prime minister Brian Mulroney's chief of staff in the 1980s and later his ambassador to the U.S. It was his most recent position, however, that some felt made Burney a bit too close to the new government.
As head of Harper's transition team to power, they pointed out, Burney provided the perfect conduit for CanWest to the new ruling party in Ottawa. "There is no question that his extensive experience and connections within government are exceptionally valuable," noted Maclean's. The political coziness was questionable, however, due to CanWest's reliance on federal regulators for the profitability of its billion-dollar business. "It ties the media companies into an existing social network of decision-makers that affect policy and government regulation in Canada," noted Carleton communication professor Dwayne Winseck. For some critics of CanWest, Burney's appointment was going too far. "I don't think that people prominently associated with one political party are appropriate people to chair the board of a media company," said Russell Mills. "It doesn't create the right climate for journalists to work in."
Senate report on news media
The 2006 Senate report on news media stopped short of urging the breakup of Big Media by recommending that a ban on cross ownership be re-instituted. Instead it suggested the Competition Bureau review future news media mergers to prevent dominance by one owner in any market. It recommended automatic review above a certain concentration threshold, mentioning an audience share of 35 percent. It also proposed allowing the federal Cabinet to review any news media merger that government ministers considered questionable. Press freedom provisions in the Charter of Rights and Freedoms, the senators reasoned, should only go so far. "The media's right to be free from government interference does not extend . . . to a conclusion that proprietors should be allowed to own an excessive proportion of media holdings in a particular market, let alone the national market."
The inquiry had declined to do what the Davey committee had done when it made media companies open their books and disclose their profits. Instead, the 21st century senators relied on published numbers, from annual reports of newspaper companies and from CRTC data for broadcasters. They showed, however, that media companies were still extremely lucrative. Owning newspapers was even more profitable than in Davey's day. In 2005, earnings for the major newspaper chains varied from 17-24 percent, with CanWest coming in at 20.7 percent. Radio profits ranged from 18.5-22.7 percent between 1999 and 2003, while in television they were 13.6-18.6 percent.
Before 2006 ended, Oda issued a response to the Senate report that confirmed there would be no government action even on its mild recommendations. "The government recognizes," it read, "that convergence has become an essential business strategy for media organizations to stay competitive in a highly competitive and diverse marketplace." The response quickly rendered moot both the Senate report and the Lincoln committee recommendations on reforming broadcasting.
Senator Jim Munson expressed frustration with the government's response. "I am very disappointed that they would have this attitude," he said. "We feel [the report] gives some creative ideas on how we should monitor massive media concentration."
A union official was more pointed on why the Senate report got such a cold shoulder. "Big media is in the driver's seat of big politics," said Peter Murdoch of the Communications, Energy and Paperworkers Union of Canada. "It's clear who the government is listening to. It's not just outrageous or appalling. It's scary." The only newspaper in Canada to even report Oda's response at the time was the Toronto Star. Its media critic Antonia Zerbisias noted the Heritage Minister's relationship with the broadcasting industry.
Last month, at a broadcasters' convention in Ottawa, Oda told her audience "I'm with you. I'm one of you." She also said she is "committed to more regulatory flexibility." Well, let me tell you, after covering this business for the better part of 17 years, I have learned that, when broadcasters talk about "flexibility," it's always Canadian artists, citizens, consumers who bend over.
Mutual back scratching
Another area of Asper family interest Oda oversaw was the government's relationship with the long-planned Canadian Museum for Human Rights in Winnipeg. By 2006, the federal funding commitment to completing the project had grown to $100 million. The Winnipeg and Manitoba governments had pledged $20 million each to supplement $61 million raised from the private sector, including the Asper family. Gail Asper, who spearheaded the fundraising drive, asked Ottawa to also provide $12 million a year in operating expenses. The Liberals had balked at that while they were in power. After the Conservatives were elected, however, the Aspers found that their entreaties to the federal government received a more favorable hearing. By designating the museum a national institution, Oda was prepared to provide the $12 million annually. The sticking point was who would control the museum's operations, noted the Globe and Mail.
The tricky part of the public-private relationship is the question of who dominates the museum board (and therefore who determines such ticklish issues as how the "national" human-rights museum might treat, say, Palestinian rights). Clearly, the board would include Asper family representatives -- but would the government let them control it?
The mutual back-scratching also saw CanWest come to the prime minister's aid in a long-running dispute with the parliamentary press gallery. His election platform had included promises of more government openness, but instead Harper tightly restricted press access to himself and other ministers.
The strategy reminded some of the perception management tactics employed in the U.S. by the White House. In Ottawa, the prime minister's office announced Harper would only take questions at Parliament Hill press conferences from reporters who put their names on a list. He would call on selected reporters to ask questions instead of answering them as before from those lined up at microphones. Reporters boycotted the new rules because they claimed they would allow Harper to "cherry pick" favorite journalists and freeze out those who might ask tough questions.
The dispute went unresolved for months until the CanWest News Service broke ranks and obtained exclusive interviews with the prime minister for two of its reporters after agreeing to go on his list.
A global alliance
The new Conservative government's laissez-faire approach to the continuing consolidation of Canadian media opened the door for an expansion of CanWest. It was an opportunity the Aspers seized on in early 2007 despite being deeply in debt. The strategy they employed, however, flouted Canada's restrictions on foreign ownership of media. It also gambled control of the firm their father had built.
"They're betting the personal farm," offered one unnamed analyst when details of the Aspers' bold venture emerged. "It's a risky move."
It was an ingeniously-financed expansion. Alliance Atlantis was the largest production company in Canada, and one of the most successful in the world. It was a classic example of "vertical integration," not only producing content but also owning multiple avenues of distribution. It held CRTC licenses for thirteen specialty television channels, including Showcase and History Television, and it owned the movie distribution company Odeon Films. Alliance Atlantis also enjoyed a certified hit in the television show CSI: Crime Scene Investigation and its spin-off series, a billion-dollar franchise in partnership with CBS.
The value of Alliance Atlantis to CanWest Global was obvious, but its debt load left the firm unable to make a play for it alone. Alliance Atlantis had been put on the market in late 2006 by its controlling shareholders, and several contenders lined up to bid. Included were Rogers, Quebecor, Montreal-based Astral Media, and the Shaw family's Corus Entertainment. CanWest was considered a long shot suitor due to its debt burden. It was able to work out an ingenious partnership, however, with New York-based investment bank Goldman Sachs. Their winning bid for Alliance Atlantis was $2.3 billion. In an innovative arrangement, CanWest contributed only $262 million in return for a 36-percent stake in a new subsidiary that would own the specialty channels. Goldman Sachs took the CSI franchise, the Odeon division, and the rest of the new specialty channel company.
The twist came in a deal to merge that company with Global's television holdings, including its specialty channels and the CH network, in 2011. Its final division of ownership would depend on the relative earnings of each component at that time. Global was forecast to earn $57 million in 2007, compared to $151 million for the Alliance Atlantis specialty channels. At those revenue levels, CanWest Global would account for 53.5 percent ($57 million + 36% of $151 million = $111.4 million) of the combined revenues of $208 million. The prospect thus loomed of the Aspers being minority owners in 2011. "The risk is really just performance," said Leonard Asper. "We've put it all on our own shoulders to perform."
The financial peril CanWest faced with the clock ticking toward 2011 was significant in the minds of some. The 33-percent profit margin that Global's television operations had enjoyed in their heyday of 2001 had dwindled to a mere 5 percent in 2006. With three hit shows in the fall of 2006, however, Global's financial fortunes blipped upward. Revenues increased by 11 percent in the first quarter of the company's 2006-07 fiscal year and earnings rose 30 percent. The improvement was cause for optimism that CanWest would ultimately emerge as majority owner of its new Global Alliance, according to Leonard Asper. Even if it didn't, he claimed CanWest would still be ahead of the game. "Whether it's 45 per cent or 55 per cent, we're still going to have a stronger net asset value, even on a present value basis, than we have today."
Their bold move to expand against all odds left the Asper heirs more dependent than ever on federal regulators. Their innovative acquisition of Alliance Atlantis would first need the blessing of the CRTC. Their Global television operations would then need every advantage they could get from Ottawa to keep them mostly Canadian. The bridges they had been building to the new Conservative government would thus be more important than ever to CanWest. That in turn suggested mutual admiration would continue to be expressed between the federal government and Canada's largest news media company. Whether the result would be the news coverage Canadians needed seemed less likely than Davey's prediction it would be the press they deserved for failing to demand better.
On Friday: The roots and rise of Israel Asper, founder of CanWest Global.