I've patted my self on the back many times for pegging Canwest as a dog company with nowhere to go but down. I first started following it about six months ago, when I did a little research on how Canadian media convergence plays were doing. At that time, it had lost about half its value on the year and was down to about 1/4 its 3-year high. So my answer was: "not very well."
Why did I care? I teach journalism and media analysis to kids who want to work in media. Academics and media executives have been pushing convergence as the future of media. If it was the future, I thought, companies like Canwest that are well along in the process should be doing well. They should be making money, and that should be reflected in the value of their equities.
In Canada, where four media companies -- Canwest, BellGlobemedia, Quebecor and TorStar, control almost all of the media -- the results should be easy to see. Convergence of the country's blue-chip print media properties in English Canada outside Toronto, along with a major television network, and with Internet properties like Canada.com should make money, if convergence is a model that works.
But convergence doesn't seem to work. The papers are no better than they were. The TV network picks up some material from the papers, but they always could, through Canadian Press. Canada.com is not a busy web portal. Instead, "convergence" simply turned out to be a model for cost-cutting, with none of the savings plowed back into journalism. The money has been used for more leveraged buy-outs. It's the same in every Canadian convergence play.
And this is the result: Canwest has already fallen through $1.30.
On my most sceptical day, I would never have believed it. Six months ago, if someone offered me this stock at $1.30, I would have sold everything I had to buy as much as I could. This stock may be undervalued, but now I wouldn't touch it. The market these days is about de-leveraging. It sees Canwest as over-leveraged. And it's predicting the holders of Canwest stock will get little or nothing when the wheels come off the company.
So much for convergence. In my wildest dreams, I hope the newspapers get sold to a deep-pocketed company that understands print media.