Companies & Industries

Leonard Asper blames sneaky hedge funds for Canwest's downfall

But falling newspaper revenue is more to blame

Leonard Asper speaking at the Winnipeg Free Press on February 19, 2013.

Leonard Asper speaking at the Winnipeg Free Press on February 19, 2013.

Leonard Asper, erstwhile media baron and budding fight promoter, gave this interview to the Winnipeg Free Press last week about the downfall of Canwest, the television and newspaper empire his father built and he lost after the financial crisis in 2008.

In the interview, Asper blamed his company’s collapse on two things. First, after Lehman Brothers went bankrupt, the newspaper ad business cratered. Overall, ad spending in Canadian papers fell more than 18% between 2008 and 2009, according to ZenithOptimedia. And at Canwest, revenues from the newspaper division dropped from $300 million to $200 million over the same stretch.

But more importantly than ad spends, according to Asper,  were the vulturous hedge funds. Canwest had about $3.5 billion in debt heading into the financial crisis and was paying about $350 million a year to service it. Even after the crisis hit, though, the company was still able to pay its bills The problem was the debt holders were able to call in their loans when revenue at the company fell past a certain point, which they did.

Asper paints this all as a kind of unexpected corporate piracy: “The lesson here is, who are the banks,” he said. ‘The banks were not the banks anymore.”

In the world of high finance, these banks sell off your loans to a bunch of guys called hedge funds. And these hedge funds, their business is to take your company from you. They don’t want to loan you money. They want to call your loan, push you out and take your company, because they believe it’s a good company.

This is both technically true and kind of beside the point. Canwest took on a lot of debt when it bought the Southam newspaper chain. That debt was structured in a way that made the company vulnerable to a sudden drop in revenue. Revenue dropped. And, yada, yada, yada, now Paul Godfrey runs Asper’s newspapers and Jim Shaw owns his TV network. There’s nothing nefarious there. That’s just business.

More interesting, to me at least, is what’s happened in the rest of the industry since. Print newspaper ad revenue never came back after the crisis, not in any serious way. Ad spends in Canada topped $2.5 billion in 2008, dropped to $2 billion in 2009, perked up slightly to $2.1 billion in 2010 and then, even as the economy grew, fell to $1.97 billion in 2011 and again to $1.89 billion in 2012.

Today, there’s a growing acceptance in the industry that that money is never coming back, which is a big reason why so many Canadian papers are now looking to the web for more revenue. When I spoke to Godfrey for my story on paywalls in the current Canadian Business, he told me his hope was that, at best, print advertising would level out at some point. To thrive, he told me, his papers need more money from online.

“You don’t need a dollar for dollar,” he said. “Because you don’t have the costs—newsprint, ink, distribution—on the net. So my guess is for every dollar lost you need about 40 cents, because your expense line is much less.”

Anyway, for more on that, buy our print magazine and read my story (update: it’s now online). And for a preview on how the Globe and Mail‘s paywall is working, check out this hit from Marketing Magazine. And for more on Asper… I don’t know. Subscribe to The Fight Network, maybe? (Or just watch the whole interview. If you’re into newspapers, it’s an interesting watch).

(Full disclosure: I worked for Canwest—first at the now defunct Canwest News Service and later the Edmonton Journal—between 2007 and 2010, which means I was at the company through the entire crisis. For most of it, I had no idea what was going on.)