CanWest Rising

[Editor's note: This is the third of four excerpts from Marc Edge's new book 'Asper Nation: Canada's Most Dangerous Media Company.']

After his Manitoba Liberal party's defeat at the polls in 1973, Izzy Asper cast about for a more suitable -- and profitable -- career. He could have returned to law, but his practice had atrophied from years of neglect during his foray into politics. Besides, Asper longed for the larger stage that had been denied him as a politician. A career in business seemed ideal. It would allow Asper to combine his legal and tax expertise with the knowledge of government he had gained from his time in politics.

Asper already had experience as a capitalist, having founded the Manitoba Distillery in his home town of Minnedosa in 1965. Asper had big plans for the small company, installing himself as CEO and his young tax law protégé, Gerald Schwartz, as president. As if to foreshadow Asper's subsequent partnerships, however, the business was sold when investors got a buyout offer they couldn't refuse. Schwartz left to do a Harvard MBA and then honed his takeover skills on Wall Street, but their first business experience together would come in handy.

There was only one problem with Asper's plan -- he was broke. His six-figure income as a tax lawyer had turned into $14,000 a year in politics, draining his savings through five years of personal deficit financing. He still had his lavish home, on which he could borrow, but otherwise Asper's career in business would have to be launched using OPM -- other people's money. The ardent critic of public enterprise would even avail his new business liberally of federal government financing. At one point, Ottawa would be invested in almost half of Asper's entrepreneurial enterprise through its new Canada Development Corporation.

Asper's quest for business opportunities began while he was still a Manitoba MLA, and his political connections proved useful in getting him started. His executive assistant, Peter Liba, drew the Liberal leader's attention to a call issued by Ottawa in 1973 for licence applications to operate independent television stations. The federal government's aim was to supplement the programming offered by the CBC and CTV networks. It was also prompted in part by the fact that U.S. television stations close to the border were siphoning off advertising dollars from Canadian broadcasters. Southern Ontario merchants were buying ads on TV stations in Buffalo, New York, which carried about 40 percent Canadian advertising. On the west coast, KVOS-TV in Bellingham, Washington, was the most profitable station of its size in the U.S. It sold 90 percent of its advertising through an office in Vancouver.

Asper and Liba decided to form a company to bid for the Winnipeg licence, but they had little capital of their own to invest. "We started off making long lists of people who had money," Liba told CanWest historian Allan Levine. Their major investor was Paul Morton, who like Asper hailed from a local Jewish theatre-owning family. Seymour Epstein, a broadcast engineer and former CRTC policy official, was hired and became a minor investor. According to the Globe and Mail, their application was submitted in Morton's name. That was because it would have caused "a political stink for Liberal Ottawa to be seen handing the station to one of the party's provincial leaders." Their main competition for the Winnipeg licence came from Craig Broadcasting, which operated radio and TV stations in nearby Brandon, Manitoba. Despite having no previous broadcasting experience, Asper and company were named the winning bid. According to Gordon Pitts, rejected applicant Stuart Craig was "convinced to his dying day that he had been snookered by the politically connected Asper." The future media mogul, after all, was "still leader of the Liberal Party in Manitoba -- even while he was seeking a broadcast licence." The next hurdle -- coming up with a television station -- was cleared ingeniously. The strategy CanWest used would provide the template for much of CanWest's subsequent success. Instead of creating a Canadian television station from scratch, Asper's company bought one in the U.S. and imported it.

The cross-border television competition in the Winnipeg market came from KCND-TV in Pembina, North Dakota, 100 kilometres to the south. CanWest planned to set up its transmitter between Winnipeg and Pembina, blocking the KCND signal. That greatly lessened KCND's value, which prompted its owner to sell for a bargain price. Over the 1975 Labour Day long weekend CanWest hired a fleet of trucks and shipped the station across the border lock, stock, and transmitter. It was reassembled inside a vacant Winnipeg supermarket and the first two letters of the station's call sign were reversed to conform with CRTC protocol. Vancouver broadcasting critic Herschel Hardin considered the CRTC's licensing of CKND as "against everything the commission was supposed to stand for." Instead of staving off creeping American influence on Canadian cultural life, according to Hardin, it opened the border to Hollywood programming.

The CKND licence should never have been handed out. . . . It had none of the promises, fantasy as they were, that had induced the commission to licence Global. When the CanWest application was filed early in 1974, it referred glowingly to the unqualified success of Global; by the time the application was heard only a few months later, Global had gone belly up.

Rescuing Global

Global Television had started up in 1974 as a regional network of six stations in southern Ontario broadcasting from Windsor to Ottawa. Radio pioneer Al Bruner chose the name, according to Peter Desbarats, because he envisioned it some day spreading worldwide. "He would talk about broadcasting to India with the same enthusiasm that had hypnotized the CRTC into giving him what should have been the most lucrative TV licence ever granted," recalled Desbarats, a Global news anchor. The CRTC granted Bruner "an incredibly generous franchise," according to Desbarats, "that gave him access to the largest and wealthiest television audience in Canada." It failed, he claimed, because Bruner and Frank Buckley, the cough medicine mogul who handled Global's finances, were "better visionaries than executives." Their biggest mistake, according to Desbarats, was the rich diet of indigenous programming they promised the CRTC, which proved unpalatable to viewers. "Overly ambitious Canadian productions sank the network before it was fairly launched," he claimed. "Global became the first Canadian TV franchise to go bankrupt."

According to Edward Greenspon, Global failed due to a series of mishaps that resulted in it becoming "the biggest embarrassment in Canadian broadcasting history." Its first mistake was in choosing January 6, 1974 to go on the air. "Since the television season starts in September," noted the Globe and Mail reporter, "most U.S. programs had already been bought up and most of the advertising budgets committed." Bad luck added to Global's woes. An Arab oil embargo against the U.S., imposed due to its support for Israel in the Yom Kippur War, led to an energy crisis there. The U.S. switched unseasonably to daylight savings time to save power. The time change was made the very day Global began broadcasting. It put Ontario temporarily an hour behind the time in eastern U.S. states, ruining some of Global's best-laid plans. "Global had devised a schedule that would put its foreign programs on the air at the same time they were showing on the U.S. network," noted Greenspon. "Under Canadian broadcast regulations, that meant cable systems would have to give preference to Global's signal." Global's late-night variety show, which was scheduled to start 30 minutes before NBC's popular Tonight Show Starring Johnny Carson, instead started a half hour after Carson.

Billboards promoting Global's programs couldn't be changed. Viewers switched on expecting comedy and got drama or vice versa. They quickly went back to the stations they knew. Even before winter melted away, the runoff from Global had reached $50,000 a day and the bank was unwilling to extend more credit.

Global soon became insolvent after investors Odeon Theatres and Maclean Hunter pulled the plug only three months into operations. Asper and Morton helped rescue Global, partnering with Toronto radio veteran Allan Slaight in an $11.2 million bailout. Their takeover bid, noted Greenspon, "won regulatory approval in record time." According to Ryerson University communication professor Matthew Fraser, the CRTC "gratefully" approved Asper's partnership in Global. "At first blush, the rescue seemed like an ideal solution," observed Fraser. "The CRTC failed to understand, however, that Izzy Asper was above all a shrewd tax lawyer. Patriotism came after profits." The Global partnership was problematic from the start due to Asper's controlling nature, according to Greenspon. A 1976 restaurant argument led Slaight to invoke the "shotgun" clause of their partnership agreement to end the association. He pulled the trigger with a $6.8-million offer just before Christmas, thinking the holiday season would make it difficult to raise the money to match it. Asper and Morton, however, had the last laugh when they did just that.

Asper was not about to repeat Global's mistake of spending heavily on Canadian programming. Instead, CanWest favored tried and tested Hollywood programming, running cheap favorites such as The Honeymooners, I Love Lucy, and Gilligan's Island. The Canadian content requirements set down by the CRTC for third television stations were not as strict as the 60 percent required of the CBC and CTV networks. By the time CKND's licence came up for renewal in 1977, local content made up only 20 percent of its programming, compared to the 50 percent it had promised. "Except for sports and the regular news slots, CKND had junked most of its provincial local programs, many of which had not got on the air at all," noted Hardin. "CKND was also packing more American content into the high-revenue fall period and balancing it off with more Canadian content in the low-viewing summer period -- an old trick."

A license to print money

CanWest had hit on the formula that would soon make it the most profitable television company in Canada and turn it into an international giant. They would prove the truth of Roy Thomson's observation about the television business as owner of the first private TV broadcaster in Scotland. It was, said Lord Thomson of Fleet, "just like having a license to print your own money." The CanWest Global formula was to pack as much Hollywood programming into its schedule as it could get away with, rather than invest in costly original content. The mounting profits were used to add more Canadian stations, expand overseas, and ultimately acquire the Southam newspaper chain.

CanWest Global's financial success came in large part as a result of two broadcasting rules made by the federal government in the mid-1970s. The first was the CRTC's 1973 "simultaneous substitution" rule that Global had hoped to cash in on. It allowed Canadian television stations to cut into U.S. network shows carried at the same time on local cable systems and substitute their own commercials. The other was Bill C-58, which discouraged Canadian businesses from advertising on U.S. stations by making it not a tax-deductible expense. The bill was designed to protect the Canadian magazine industry, which was suffering at the hands of U.S. competition, but it was expanded to cover broadcast media as well. That led to a cross-border business war which ran until the 1988 Free Trade Agreement.

The "television border war" saw the U.S. Congress retaliate by prohibiting American companies from claiming the cost of attending conventions held in Canada. More than 100 conventions planned for Canada in 1976 were cancelled as a result. The value of Canadian advertising flowing south to American broadcasters in 1977 was cut in half, to $9 million. The U.S. television networks launched legal action against the CRTC and Toronto's Rogers Cablevision, charging them with piracy. Despite high-level government talks, the dispute could not be resolved diplomatically and it went to court in 1977. The Supreme Court of Canada upheld the CRTC's right to allow interception of cross-border broadcasting signals, but the ruling proved a mixed blessing. While a victory for Canadian sovereignty and a boon economically, the result was a cultural "Trojan Horse," according to communication professor Barry Berlin. The bulk of the revenue that stayed in Canada was unfortunately used to purchase more U.S. programming. "Ironically," noted Berlin of Canisius College in border town Buffalo, "the problem of the extensive amount of American fare on Canadian television worsened thereby."

Big profits from TV

Ottawa's simultaneous substitution rule proved the key to quickly making CanWest the country's most profitable broadcaster. By 1984, a federal Task Force on Broadcasting Policy estimated the rule had provided between $36 million and $42 million in revenue annually for Canadian broadcasters. By 1997, that figure was estimated to have risen to $100 million. A decade later, it had at least doubled. According to Fraser, simulcasting was nothing short of a "bonanza" for Canadian broadcasters but a cultural net loss for viewers.

The simulcasting twist meant that Canadian TV stations now had a powerful incentive to fill up their prime-time schedules with popular American shows procured at a marginal cost and air them against U.S. border station slots. The result was the rapid colonization of Canadian prime-time schedules by simulcasted American shows.

CanWest led the simulcasting charge, buying large amounts of U.S. network programming for broadcast not only in Canada but soon in other countries as well. In addition to CKND and Global's string of southern Ontario rebroadcasters, CanWest's Canadian holdings soon included new outlets in Regina and Saskatoon, which were licensed by the CRTC in the mid-1980s. CanWest also acquired existing stations in Vancouver and Halifax in the late 1980s. The takeover of CKVU in Vancouver came after a lengthy legal battle that started when Asper sued the station's local ownership in 1984 for refusing to sell it to him. Asper had lent them $12 million in 1979 to help thwart a takeover bid by Charles Allard of Edmonton. In return, he got an option to buy their station if they couldn't pay him back. They couldn't, but they wouldn't sell either, so Asper took them to court. The dispute ran for three years and reportedly cost Asper more in legal fees than CKVU was worth before it was finally his.

Scheduling popular American programs at the same time as U.S. networks and selling their own advertising for both soon saw CanWest turning advertisers away. The CTV and CBC networks also aired U.S. programming, but they were at a disadvantage competing for it because of their stricter Canadian content requirements. CTV was a network of local affiliates operated by different owners, so it had only 40 hours of national programming to fill per week. CanWest Global had 126 hours a week to work with, which soon made it the largest importer of American television programming in the world. CanWest also did not have the expense of transmitting its signal to remote locations because it was not a national network. Until the late 1990s, it lacked stations in several provinces, including Alberta and Quebec. As a result, CanWest avoided the costly re-broadcasting expenses incurred by CTV. By confining itself to the more lucrative larger markets, CanWest could skim the cream of advertising dollars without the expense of providing network service. As far as the CRTC was concerned, CanWest was not a network but instead a "system." It was a distinction exploited for decades by Asper, which brought constant complaints from CTV executives. One of the few scholarly studies of CanWest Global concluded it was "invisible to researchers" because it did not fit the dominant network form. CanWest was nonetheless "changing the nature of television in Canada" by the early 1990s, according to Paul Taylor of the University of Washington. Its success, noted Taylor, was due to the "unique and carefully crafted regulatory position" devised by its owners.

The CanWest Global System (CGS) is part of a fundamental shift in Canadian television yet it has been largely ignored in scholarly discussions of the country's broadcasting system and its future. . . . CGS has no national network obligations because each owned and operated station is licensed as an independent entity. This degree of carefully constructed and fiercely defended regulatory freedom has allowed CGS to become the most profitable television broadcasting entity in Canada.

Not being a network, CanWest Global was only required to invest $44 million in Canadian content for the 1990-91 programming season. That was half of CTV's $88 million Cancon commitment. "As a result," noted Taylor, "American programming dominates the prime-time schedules of CGS stations, which tend to take full advantage of simultaneous substitution regulations to maximize audience size and revenues." Airing more American content, which could often be purchased for 10 percent of its production cost, made CanWest more profitable than the larger CTV. By counting its divisions separately, the CRTC even ranked CanWest Global as the first and second most profitable broadcaster in Canada. A report by the accounting firm Coopers & Lybrand set out the vast difference in profitability between airing U.S. programming and original Canadian content. A popular American program bought for $80,000 an episode might attract $200,000 in advertising revenue, for a profit of $120,000. A Canadian drama might cost $200,000 an episode to produce but attract only $125,000 in advertising for a loss of $75,000. The difference, or "opportunity cost," between airing a cheap, popular U.S. show and an expensive Canadian production was therefore about $195,000 per episode. Over a season of 22-26 episodes, that amounted to about $5 million.

A Belgian buyout

When Conrad Black announced in 2000 he was selling the Southam newspaper chain he had taken over a few years earlier, one of the first calls he got came from Asper. He found Black one of the few people whose word he trusted on a handshake, while Asper had ended up in a lawsuit with almost everyone else. Asper and Black had done business once before, when Black was piecing off the giant Argus Corp. holding company he had taken over in 1978. Black sold Crown Trust to Asper on a handshake for $17.7 million. According to Gordon Pitts, Asper considered Black the "perfect partner . . . that rare person who could be trusted."

As Black and Asper were negotiating the sale of Southam, the annual meeting of the Bilderberg Group was set for the luxurious Chateau du Lac Hotel just outside Brussels. Black added Asper to the guest list of the secretive trans-Atlantic society thought by some to actually run the world as a kind of private government. Also there were Henry Kissinger and Richard Perle, a former assistant U.S. secretary of defense who headed Hollinger's online arm. So was National Post columnist David Frum, who would soon leave to become a speech writer for U.S. President George W. Bush. Asper, who was vacationing in Israel, flew to Brussels. Late at night, after hours at Bilderberg, he and Black put the finishing touches on the deal to pass Southam to CanWest. To acquire such a newspaper empire in one move was almost too good to be true. Building a similar television company had taken Asper a quarter of a century. Southam would command a steep price, however -- $3.2 billion.

In return, CanWest Global became the first major television company in the world to own a large national newspaper chain. It included a dozen major dailies, 126 smaller newspapers, 85 other publications (mostly trade magazines), and even half-ownership of Black's start-up National Post. It was a deal that would not have been legal in Canada in the early 1980s, when cross-ownership of media, also known as "convergence," was prohibited. The sheer magnitude of CanWest's move stunned many in Canada. They began questioning anew the wisdom of allowing such a monolithic force to dominate the media landscape.

Related Tyee stories:

• The rest of this series
  .
• How Black and Asper Plotted to Control Canadian News Biz
  Lusting for 'awesome and infinite' deals with Thomson, Rogers, Shaw.
• CanWest's Clumsy Vendetta against CBC
  The more the National Post cries bias, the more oddly obsessed it appears.