Wednesday, February 25, 2009

Thinkless Wells

Here, Paul Wells suspends his usual analytic depth when applying his time to discussing the crisis facing the print media in Canada.
Yes, Paul, I do blame the Aspers. As Leonard Asper points out, the newspaper chain and TV network make $500 million a year in profits. That's more than 10% on invested capital, which is a damn fine number. Even the National Post made a profit in the last quarter.
This is not a crisis about profit. It is a crisis about debt and bad management. Through the good years, the Aspers used the profits of their media empire to make down payments for more leveraged buyouts, and to enrich themselves. Instead, they should have been laying in a cash reserve to get through the recession that was bound to come. Now times aren't so good, and working journalists are among the people who are being forced to pay. So, yes, I blame the Aspers.
The situtation is far different in Canada than the States. Wells' little list is mainly made up of papers in cities with competition. The Aspers own the monopoly broadsheet newspapers in every major English-language market in Canada except Toronto, Halifax and the Kitchener-Windsor corridor.
(In southwestern Ontario, the papers are in trouble because they've been flipped so many times between the Aspers, TorStar, and Quebecor.)
The Aspers did what so many American corporations did: loaded themselves with debt at a time when they should have been paying down what debt they had. They're in the same boat as GM and the banks. It was reverse Keynsian economics. There was no way they could make it through a recession.
So, yes, I blame the Aspers. I also blame the journalists who should have been part of the whistle-blowing process.

Meanwhile, in its "toss the saloon chairs and tables behind yau as you race to the doors ahead of your pursuers" business strategy, Canwest is selling its share in Score Media for $8.1 million.

Economic historian Niall Ferguson nailed the whole thing in an interview the Globe was silly enough to publish online, thereby saving me $1.50:

The potential returns from buying distressed assets or from buying companies that can't roll over their debt, are double digit. So any individual institution liquid enough and not leveraged can start playing this game, and will play this game. This is going to be the beginning of a whole new investment strategy in which companies that can't roll their debt over end up being sold at bargain basement prices, or broken up and their assets sold at bargain-basement prices, in very, very large numbers.

That's exactly what Prem Watsa is planning for Canwest.

When you need something done right, call in a historian.

(HT on the Wells posting to Warren Kinsella).

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