Media: The fall of an empire

Bad luck and debt crushed Canwest. Now comes the effort to salvage something from the wreckage.

When Israel Harold Asper was in his prime, he enjoyed nothing better than being lectured to by one of those Brassy Bay Street Boys who had somehow conjured himself into believing he was a Master of the Universe. The big-money broker figured that the Winnipeg media meddler, having just descended from his turnip truck, deserved some sophisticated advice. “Goddamn it, Izzy,” pleaded the exasperated financier, brushing non-existent lint from his latest Harry Rosen creation. “You can’t do this deal — gravity won’t stand still even for you, and at the moment gravity is about all you got going for you. This time you’ve gone too far.”

Izzy — the surname he turned into a brand — pretended to listen. But he had so often been warned off the risky birds-on-a-wire deals he just finished signing, that he winked and told a story he felt might make a point.

Izzy’s tale had to do with Shelley Winters, then a blond bombshell who had just arrived in Hollywood. She had been amply lectured by friends about the notorious director due to do her screen test for a minor Warner Bros. epic. “He’s the type who’ll audition you on his casting couch and tear your dress off,” they cautioned.

“Oh, I’m so glad you warned me,” shot back the gutsy Miss Winters. “I’ll wear an old dress.”

This was the operational code of the Asper empire: you got well briefed, harboured few illusions, and retained your integrity. During the nearly four decades of his run for gold, Izzy turned himself into a multi-billionaire and became an epicentre of editorial controversy that tested his temper and his resolve. Neither buckled in his lifetime, but without him, his company lost its mojo.

Now that Canwest is officially on life support, it’s as if Izzy Asper had died twice: once when he had a fatal heart attack on Oct. 7, 2003, on the first morning he woke up in his new condo, the one with the sound stage for jazz concerts in his living room. And now, in the fall of 2009, the media empire that he had bullied into existence and turned into a capital pool once worth nearly $3 billion has had to pay allegiance to alien bond holders who have never lived through a Winnipeg winter — which is enough to disqualify them right there.

Armed by the gene that endows entrepreneurs with the inability (or unwillingness) to distinguish the possible from the impossible, Izzy’s motto reproduced on his family crest (“Reach for the Stars”) accurately reflected the limits of his ambitions. There were none. A posthumous survey posted on the website Canadian Entrepreneur named him as equal to such titans of free enterprise as K. C. Irving and the BlackBerry team of Jim Balsillie & Mike Lazaridis. He was voted as ranking ahead of such business luminaries as Ted Rogers, Frank Stronach, Paul Desmarais, Joseph-Armand Bombardier, Galen Weston, Timothy Eaton, Samuel Bronfman and Conrad Black.

In assessing Asper’s life and career, his record must be set against his modest formative circumstances. The son of a local movie-house owner in tiny Minnedosa, Man., a frontier settlement that was once a departure point for the great buffalo hunts, young Israel simmered up in a good place to start from. The town’s limited horizons instilled urgency in its young to leave — at any cost. If you were one of the two Jewish families in town, you had twice the motivation.

His impressive achievements that followed were not based on his knowledge of the media, or any readily apparent genius. His career was built not on privilege or influential contacts, nor was it motivated by any Pavlovian quest for money or power. The series of commercial triumphs that marked his passage grew out of one unusual source: his good fortune of having been armed with the balls of a canal horse. “We’ve never been able to say exactly where we think Canwest will wind up,” he once told me. “If we did, people would put us in a straitjacket.”

What hardly anybody understood is that this was not a joke. It was his mantra. And that iconoclastic operational code was the first of the many peculiarities that eventually drove his heirs to the wall. Since the future could not be predicted, it had to be invented, and that meant breaking all the usual rules.

Canada’s business community was awed by Asper’s show of supreme self-confidence. It was an act. His intimates who had been with him during the sturm und drang of his early days realized he was far too Jewish and much too Canadian to feel smug about what he had done. If his religion sprinkled him with guilt, his citizenship and his choice of fields to conquer — the media world that was as quixotic as the man himself — bestowed upon him the potential to realize impossible dreams.

He created the country’s largest communications empire while remaining a certified outsider, more feared than loved for besting his peers at their paper games. Canwest’s growth and profits were initially limited by the daring of its financiers, the faith of its directors and the patience of its shareholders, but never by the considerable energy of its CEO. Asper resolved the inevitable tension between cold-blooded analysis and hot-blooded passion by granting both extremes equal time. From a modest beginning — running a mom-and-pop TV station out of a converted Winnipeg supermarket back in 1975 — Canwest’s international networks eventually generated $5 billion annually in advertising revenues. At its peak, the Asper newspaper chain, radio and television networks reached 30 million readers, viewers and listeners on four continents. Every day.

“I’m the Son of Sam — I can’t stop myself from making deals,” Izzy confessed to Cameron Millikin, a Calgary political adviser, adopting as his metaphor David Berkowitz, the compulsive serial killer who terrorized New York City during the late 1970s. This was while Asper and Millikin were in the midst of the Winnipeg media tycoon’s most daunting quest: creation of Canada’s third television network. That endeavour took most of 30 years and cost $800 million. His epic struggle to hammer together that cross-country link; his mulish determination to view Winnipeg as being possessed by the unrestrained mandate of heaven; the fervour he poured into fostering the survival of Israel as his spiritual home, these obsessions were in many ways interchangeable. Each fed on the other.

Asper didn’t so much challenge the status quo as ignore it. Instead of trying to alter existing realities, he created his own. His legal training enabled him to use the law as a weapon. His search-and-destroy tactics against pesky competitors and uncooperative partners became legendary. He seemed to enjoy the legal wrangling that drove his antagonists to distraction. If acquiring CKVU from its former owners took nine years of trials by fire that cost nearly as much as the Vancouver television station was then worth, so be it. If taking over ultimate control of Global TV from his combative former partners took fourteen years of soul-wrenching mayhem and enough lawyers’ fees to finance their children and grandchildren through university in perpetuity, that was the going price, and Izzy gladly paid it.

But his daily Jamaican bobsled run came at a cost. The tensions involved kept him off balance so that he was constantly trying to avoid a dangerous spill, instead of evolving commercially sensible formulas that might have allowed him (and his conglomerate) to enjoy a less-frantic existence. The Mach 5 stress was relieved by his self-confessed “intravenous martini drinking” and chain smoking. (When his kids collected the money to send him to a hypnotist who guaranteed he could stop patients from smoking, Izzy went faithfully for six months until he reappeared, puffing a Craven ‘A,’ to announce he was done with the hypnotist. “But Dad,” one of the kids protested, “you’re still smoking.” Izzy took another puff and proudly announced: “Yeah, but so is the hypnotist!”)

“He truly believed he was immortal,” lamented his wife, Babs. One morning in 1998, when he phoned me to report that he had just had a pacemaker implanted into his chest to tame his runaway heart, I made the appropriate sympathetic noises. “Oh no,” he interrupted, “it’s great. I can now broadcast as a stand-alone transmitter — and besides, the damn thing opens my garage door!” He never exercised except when he was in his manic stationary bicycle phase and did little else. “I get enough exercise, just pushing my luck,” he once seriously explained to me, and I believed him.

Izzy navigated by sheer nerve. He was the personification of Jewish chutzpah, but he did his homework. “Izzy moved by recognizing opportunities and being prepared to capitalize on them,” Babs explained. “His sweat equity took the form of massive homework and grinding preparation.”

His protective coloration to all but his close personal circle was that business was just another gig, and that he didn’t care which deals flew and which didn’t. In fact, he cared too much. There was a tough carpet-trader side to the man that brooked no opposition. He was the most loyal of friends and the most toxic of enemies. He took everything personally, even weather forecasts, and defended his turf with the savagery of a cornered tiger in heat.

When he grabbed control of the Southam newspaper chain in 2000, it included publishers, editors and columnists not willing to toe his party line. That he could not tolerate. He recognized no reason for owning publications unless they reflected his personal points of view. “Every Southam editor, reporter, columnist, etc. is now on notice and will be fired for provable causes if there is a deviation. The Jews of Silence, the Don’t-Make-Wavers are howling that I am destroying our ‘goodwill’ with these hysterical diatribes. While the Jews of Vigour are chanting, ‘Go get ’em Rover. Woof! Woof!’” (From a private e-mail sent after Izzy laid down the line his publications had to follow on Israel.)

At the same time, Asper was a genuine mensch, the Jewish accolade that best describes those rare people who are not only possessed by generous instincts, but act on them. His personal and public philanthropy had few equals. What made him so special (and the main reason his friends and allies so passionately mourned his passing) was that he could create and share electric moments in his life that became glowing embers of his legacy. Not only was he unique, but he can never be again. He fit a time and place of his own making that cannot be replicated. The sum of all his contradictions, he was always the young stranger in a world he never made, yet ruled his domain with charm, courage, despotism and a healthy dose of luck.

Over the final months of Asper’s life, the tone of his e-mails changed. I had no idea how ill he was, but knew something was very wrong from his electronic missives. Typical was his final message to me in the summer of 2003, a cry from the heart that arrived from his New York condo: “Suddenly, sitting in my apt in NY, ready to face tomorrow’s corporate onslaught, I feel lonely. Utterly alone! I’m here for a meeting on serious Jewish international concerns but being a Canadian, in a country that doesn’t really count, one feels like a pygmy beside my American counterparts. I am so alone and lonely….But happily the music keeps playing….Am listening to Brubeck who makes my mind soar to unimaginable, impossible heights….Old Izz.” (That despondent sign-off was a new addition to his usual nocturnal transmissions.) Another 2003 e-mail forecast the Great Recession we have just lived through. “Tonight I am so sad, so full of despair — on the brink of Depression — no one is listening…no one sees it, no one cares. It’s 1933!” (That year was the low point of the Great Depression of the thirties, a time of massive business failures, horrific job layoffs and universal misery.)

The Asper story took a decisive turn in the spring of 1999 when Izzy’s youngest son, Leonard, took over as CEO and president. He later acknowledged the limited scope of his new responsibilities at a family dinner: ”Obviously, Dad didn’t think we were very good deal makers. Because what he did was saddle us with so much debt that we couldn’t make another deal in our lifetimes — an incredible estate plan.” Leonard, who was the most studious and least extroverted of the Asper children found himself with $3.2 billion in debt from Izzy’s Hollinger deal plus $800 million that was the cost of the Aspers’ hostile takeover of the WIC television stations.

To help reduce the debit side of the ledger, Leonard sold, for $500 million, Global’s operations in New Zealand and Ireland at the peak of the market, plus a few subsidiaries, only to find himself facing the worst recession since the 1930s. As his sister Gail remarked, ”Advertisers saw no reason to buy space, when nothing was selling.” That meant he was forced to cut operating costs by $150 million, which involved firing 1,400 employees — an agonizing bloodbath the size of which Izzy never had to face.

What brought on the present crisis was that the dividends to the parent company from the once highly profitable Australian TV operation and Canwest’s dominant Canadian newspaper chain had dried up amid the market crash and advertising recession.

Canwest’s actual assets have retained — or regained — much of their values, and even the recession-motivated drop in revenues and earnings was sustainable. Servicing Canwest’s debt was not. Izzy’s deal with Conrad Black for what had been the Southam chain — plus the National Post, which at one point was losing $5 million a month — buried the Canwest operation in a catacomb of debt. The detour into print had been financed with too much credit, mostly based on a 12% loan — a rate that signalled even the friendly Scotiabank’s doubts about the deal. It turned the Asper balance sheets into a black hole that became an eventual $4-billion obligation on which daily interest had to be paid. Having to service that burden reduced the company’s shares to a penny stock — its final surge turned out to be an uptick of only 3¢ — and that was why Leonard decided to stave off bankruptcy by seeking temporary protection from creditors for the best of his assets. Whatever Canwest’s final incarnation, its reputation will suffer by having paid out bonuses of $9.8 million to directors and senior staff — in its worst year ever.

Indications are that Canwest will continue, and the Aspers will remain significant shareholders. The company expects to emerge out of bankruptcy protection with $1.6 billion less in debt. Its conversion of debt for equity will allow the company to shed other possible liabilities, so that even as the Aspers’ holdings are reduced, they will be partners in a less-indebted, pure television play, like Corus Entertainment or Astral Media.

After posting a loss of $1.4 billion in the last quarter of 2008 (and writing down the value of its newspaper assets by $1.2 million), the avalanche that buried Canada’s mightiest media empire became unstoppable without a major refinancing. Leonard’s tactic of postponing the day of reckoning was effective, in that it allowed the final crisis negotiations to be carried out in a climate still far from healthy, but at least in an economy that had that returned to some semblance of sanity.

Leonard’s most significant move was his $2.3-billion purchase (along with New York’s Goldman Sachs) in January 2007, of Alliance Atlantis’s 13 specialty channels to make up for Izzy’s neglect of this profitable field. That was desirable, even necessary, except that it created even more debt — another $1 billion. Canwest’s down payment was only $262 million (for 36% of Alliance) while Goldman agreed to buy the lower-revenue-producing assets, like Alliance’s rights to the CSI series and the film distribution company. That was a remarkable bit of negotiating by Leonard, but there was a catch. If corporate earnings sagged low enough, the complex deal could force Canwest to buy out Goldman’s stake, at a price that it could no longer afford. Though no one is talking, the partnership between the New York investment bank and the Asper family is not as cool as it might be under the circumstances. There is even the possibility that Global and the Goldman Sachs holdings could be combined into a Canadian-controlled super-network — though that’s strictly conjecture at this point. At the moment, it is a separate operation, and it’s doing fine.

Individuals die; family dynasties abide — or so the theory went. The odds of success by inheritance in today’s globalized economy — even before the recent crash — have been sharply reduced. Canada was once run by a self-perpetuating clique of moneyed clans who may have been feudal at heart but were central to the country’s evolution, because their philanthropy helped finance local educational and medical facilities as rudimentary forms of social welfare and the creative arts in the communities where they lived. Through his family foundation, Izzy gave away something like $200 million to local facilities and charities. With the help of the three levels of government, the family took the initiative, and daughter Gail collected more than $100 million in private gifts to build the Canadian Museum for Human Rights, for which the Asper Foundation donated another $20 million. The Aspers’ philanthropy will survive through the impressive museum taking shape at the historic Forks, where Winnipeg was born.

As for Canwest, flinty-eyed vulture capitalists are currently lined up in the anterooms to the fiscal purgatory where corporate empires go to seek a second life, vying for viable parts of the business that will survive, and perhaps even thrive. But the mighty Asper empire as it once existed is history, Izzy’s fondest fantasies unrealized. The hot-headed dreamer with the soulful eyes and the hyper ego spent most of his life trying to catch up with himself. He never did. Now, it’s Leonard’s turn.