Globalization of Media: How Canadian Companies Can Survive

Heather C. Devine, Associate, Gowling Lafleur Henderson LLP, and Director, The Empire Club of Canada; Sandy Do, Graduating Student, Westview Centennial High School; Rav Baruch Frydman-Kohl, Beth Tzedec Congregation, Toronto; John Hinds, CEO, Canadian Community Newspapers Association; Stanley H. Hartt, Chairman, Citigroup Global Markets Canada Inc.; Peter Viner, President and CEO, CanWest MediaWorks Inc.; Chuck Winograd, President and CEO, RBC Capital Markets; Lisa A. Baiton, Vice-President, Government Relations, Environics Communications Inc., and Director, The Empire Club of Canada; Gary Maavara, Vice-President and General Counsel, Corus Entertainment Inc.; Rita Cugini, Ontario Regional Commissioner, Canadian Radio-Television and Telecommunications Commission (CRTC); George L. Cooke, President and CEO, The Dominion of Canada General Insurance Company, and Past President, The Empire Club of Canada; and Kevin O'Brien, Partner, SECOR Consulting.

Introduction by William Whittaker

Leonard Asper is the fourth speaker in our luncheon series entitled "Canadian Industry in a Global Economy" which focuses on the challenges Canadian businesses face in a rapidly changing world. The series sponsor is Secor Consulting, the largest independent strategy-consulting firm in Canada, which is celebrating its 30th anniversary this year.

I must apologize to our speaker and audience today, as I do not have my usual articulate and incisive introduction given business pressures and another Empire Club luncheon earlier this week. I don't even have a good joke for you!

However, don't expect a reduction in your luncheon fee, as a shorter introduction will allow our guest to speak longer.

CanWest Global Communications Corp. is Canada's leading international media company. Its diversified holdings include Global Television, a coast-to-coast network reaching more than 90 per cent of English Canada; eight specialty TV channels including Prime TV and radio stations in Winnipeg, Kitchener and Halifax.

Its affiliate, CanWest MediaWorks Publications Inc., is Canada's largest newspaper publisher with 10 major metro dailies and 23 community newspapers and a growing interactive media business.

CanWest also has a significant television and radio broadcasting presence in Australia, New Zealand and Ireland.

Leonard Asper, a member of the Law Society of Upper Canada, joined CanWest in 1991, initially overseeing its international expansion. He became President of CanWest in 1999 and in 2001 was named CEO of the Year by Playback Magazine, a Canadian television and film production industry publication. In 2002, he was a recipient of the Top 40 Under 40 award, which recognizes achievement in Canada by individuals under 40 years of age.

Mr. Asper is a director of the University of Winnipeg Foundation, the Business Council of Manitoba and the Canadian Council of Chief Executives.

Please join me in welcoming Leonard Asper, the President and CEO of Canwest Global Communications Corp., to our podium today.

Leonard Asper

First let me say that it is a privilege to have this opportunity to speak to the Empire Club of Canada and I thank President Bill Whittaker for inviting me to be with you today.

My subject today is globalization of the media and what it means for Canadian media companies, for government regulators and lawmakers, and for consumers.

CanWest Global--A Brief Synopsis

Many people know CanWest by our most oft-discussed properties--the National Post and Global Television. But in fact those are far from the largest assets in our group.

In Canada, the Global Television group includes the 11-station Global Television network, the five-station CH network and eight so-called "specialty channels," from the newly branded Prime TV, now TVtropolis, to Mystery channel to Deja View to Xtreme Sports. We own two radio stations in Canada and a license to start a third.

Of the roughly 100 dailies in Canada we own 13, including the National Post, reaching approximately 15 per cent of the population. We own a cluster of community newspapers. We operate the canada.com portal here, and of course have dozens of Web sites associated with the various properties. Our publishing group also includes Infomart, a business-to-business reseller of ours and others' content.

We reach over five million Canadians every single day.

In New Zealand we own two national TV networks, 29 radio stations running on six networks and in Australia we own the Ten Network and Eye Corp., an out-of-home advertising company that has operations in Australia, New Zealand, Malaysia, Indonesia, Singapore, and the United Kingdom. We own one radio station in the U.K. and we were the first-ever foreign company to receive a license to broadcast in the U.K. We have applied for several more licenses.

As part of our emerging markets strategy, we acquired four top-rated radio stations in Turkey and are the first foreign investor in that country's media market.

Our strategy is as follows: to own and operate businesses in an integrated way in the publishing, television, radio, Internet and out-of-home advertising businesses. Our growth plan is based on three fundamental premises: optimize results from existing assets; invest in higher growth segments of the media business; and strengthen our balance sheet. Everything we do and will do fits into this rubric.

As you can see, we are highly diversified: 10 per cent of our profit comes from Canadian television, and even with Global's lower profits over the last few years, the normalized figure is only about 20 per cent. Another 50 per cent of our profit comes from the publishing business in Canada, and 40 per cent comes from Australasia.

What Is Going On Out There?

It is actually very simple to describe. It all starts with the word digital. In the late 1960s everybody thought putting humans on the moon was the piece de resistance defining how smart we were. But somewhere, somebody in a room was sending a broken down packet of information to somebody else in a room thousands of miles away. This was the predecessor to the first digital transmission. We went from space-hogging microwaves to space-friendly 1s and 0s.

What resulted from this? Everything. The Internet, the 1,000-channel universe, the Blackberry, wireless communications, voice over Internet, satellite radio, cds, dvds, iPods, Playstation, Digital Video Recorders, etc.

Think about how little space travel has progressed compared to the media and communications world since 1969.

Everybody is a producer, everybody is a publisher or writer, everybody is a broadcaster, narrowcaster, podcaster, bitcaster, wikipediac, or social networker.

The digital world is a highly fragmented one. There are no barriers to entry. The advertising pie is splintered into thousands of little pieces, because the audiences are splintered. Advertisers are scrambling because they don't have highly developed strategies for reaching this splintered audience. Exhibitors like TV and radio stations are struggling to maintain audiences. Distributors like cable, satellite and telcos are competing against each other for the pipe into your home, and we are all trying to avoid being disintermediated by the Internet and wireless providers. Who needs the broadcaster or the cable company when you can just download the latest big show or your favourite music?

Canadian media now compete against U.S. media companies like Google, MSN, CNN.com, NYTimes.com and Direct TV, not to mention the major U.S. and foreign media, plus of course millions of individual and community Web sites.

To sum up, digital technology means we are now operating in a global marketplace, in an on-demand world, with unlimited choice.

What Are We Doing About It?

Survival and growth is dependent on what we Canadian media companies do, but also what the government does from a policy, regulatory and statutory perspective.

There are seven major imperatives:

1. Own and Control Content;
2. Invest in Technology;
3. Find the Best People;
4. Develop New Sales Strategies;
5. Jump into the [Inter]Net;
6. Consolidate; and
7. Obtain Smart Regulation.

Content

Every Canadian media company must have a strategy to control as much content as possible, so that it can exploit the new ways to reach consumers wherever they are. Fox or Warner Brothers, not surprisingly, won't sell us the Internet and mobile rights to their shows. We have to exploit our advantages here; that means local news and information, and sports programming. To that end, we have made major investments in news from expanding the number of hours of programming right across the country, to creating Canada's #1 national newscast with Kevin Newman to creating shows like E.T. Canada. We are also trying to create Canadian hits, where we can develop the content with advertisers directly, as was the case with Falcon Beach and From the Ground Up with Debbie Travis, and share the new media rights. Even with foreign programming, such as Rock Star, we have been able to negotiate the video-on-demand rights with the producer, on a revenue-sharing basis.

We are well into the process of spreading our own television content to newer media. Kevin Newman's iPod broadcasts are in the top-20 in the country while his TV newscast is #1. And now our video news content is available on the Blackberry. Is this sending profits through the roof? No, but every day, our new media audiences grow, and ad revenue is starting to come. If yesterday one million people watched a national newscast, tomorrow 800,000 might watch it, 100,000 will download it after the fact, 50,000 might get it on their cell phones and 50,000 will get it on their iPods, Blackberries or whatever other devices are invented. Hundreds of thousands more will receive only segments of the newscast as part of a pre-selected customized news package.

Technology

Canadian media companies must invest in technology. This means starting with the basics, like moving to High Definition television, and digitizing all plants so that content can be edited, stored, distributed and archived instantaneously and seamlessly from property to property and across platforms.

Very soon any one of our over 2,500 journalists and editors will be able to go into the vast content store and pick stories in whatever medium they were produced and use them for their own media, on a 24/7 continuous news service model. Five years ago I gave a speech wherein I predicted that today journalists would be doing stories for television, print, and the Internet. Some got mad at me. They thought that would mean they worked three times as hard. Now we can't supply enough cameras to print journalists and make enough room on our Web sites for their blogs and vlogs. Why? Because this new era is just plain more fun, and it expands audiences for journalists and puts them more directly in touch with those audiences. And journalism schools, rightly, are training multimedia reporters. We need to give these creative geniuses the tools.

The other area in drastic need of investment is customer-relationship tools, including audience research, customer interfaces, sales systems for our advertisers and better tools for our sales reps.

People

This is probably our greatest challenge in the conventional media business. For years we had licenses and franchises that were oligopoly positions in steadily growing markets. Every year the advertising market rose and since new competitors were limited, our business was to maximize yield in a world where demand outstripped supply. Today, we are in a dogfight. We are in trench warfare for advertisers' dollars and for peoples' attention.

Today, we are retraining and creating a hungry sales force, bringing in more marketing expertise and tools, hiring kids and any of their Moms and Dads who have Internet experience, hiring world class content creators for all media, revamping our legal department to become experts at rights-management issues, and developing an IT-based expertise for both print and television.

We are doing everything we can to make CanWest a place that attracts, retains and gets the best from the top talent there is. I am sure most CEOs in the world would tell you that their greatest issue is people, but if they get it right, their greatest advantage is people. And make no mistake we are in a global labour market too.

Sales Strategies

There is, despite media hype to the contrary, significant opportunity in traditional media.

We are doing product fusion now in our Canadian programming (for example, characters driving GM cars on Falcon Beach) and earning significant new sponsorship and virtual advertising revenue. That is why you see companies sponsoring closed captioning or the first quarter of a game, or why you see a digitally inserted Canadian Tire ad at Heinz Field in Pittsburgh. All of this is of course a response to Tivo and DVRs.

In print, we are breaking the mold with sponsored sections, pages and page segments of newspapers. Our editorial teams talk with our sales forces now. No, the sales reps don't tell the journalists what to write. But if sales staff know in advance we are doing a special section on gardening, they can actually go out and sell advertising for that section. We are using the online forum to develop direct contact with readers, so that we can better understand what they want on a daily basis. We are launching the same initiative in television this fall.

We distribute ringtones and sell sponsored e-mail alerts, we sell ads on our newspaper bags, and we generated 32,000 leads for GM selling a contest for a dinner with the cast of Falcon Beach. There are a multitude of new revenue streams available to us, and we are only limited by our imagination, creativity and the technology to deliver the goods.

Consolidation

People always confuse consolidation with concentration. There is no doubt there will be mergers in the media business. Traditional media have been losing audiences as a result of market fragmentation, and consolidation helps to recapture, or re-aggregate those audiences, although only partially. Consolidation creates the economies of scale that allow companies to develop the tools necessary to succeed on a global stage.

The Internet

I would argue the First Wave of the Internet is over, or within sight. We are migrating all of our businesses online, from print classifieds, to electronic editions of our newspapers, to streaming video and programming. It should be axiomatic that everything media companies do have an Internet component.

But the Second Wave for media companies, and the one with the most promise, is developing Web and mobile-based businesses, and where possible using offline assets to lever their success. An example of this is launching an IPTV channel on the Web only. And in that case, who says the audience is just Canada? The Web and wireless world is deregulated, which means no content quotas, ad limits, or geographical constraints.

Google and Monster.com should have been invented by media companies. Media companies must not miss the Second Wave. Some people call this Web 2.0 but when I ask anyone to define that term, I never get the same answer. And for all the talk about social networking sites and Wikipedia, they don't have business models, at least yet. But if Canadian media companies develop Web and mobile audiences and communities, and learn how to monetize them through advertising, referral, transaction, or subscription fees or other means, we can play on the world stage. To sum up the Internet, we have to fish where the fish are, and be nimble enough to ride each successive wave.

Smart Regulation

The challenge of globalization, just as in other industries, is in the business environment in which media companies operate.

Global Television in particular walks into the ring every day with one hand tied behind its back, due to outdated legislation and policies that reflect a time when there were three channels and no Internet or cell phones. Finally, some sort of reprieve appears in sight. I commend the Harper government and Heritage Minister Bev Oda, as well as CRTC Chairman Charles Dalfen, for this week's timely announcements that they will review the broadcast regulations this year. CanWest welcomes this open-minded approach.

We don't ask for subsidies but we do need a level regulatory playing field. Traditional free-to-air stations and networks are the most disadvantaged by the current regulations and that has to change.

I will mention just a few of the changes that are required.

First, and most important, Canadian conventional television stations need to be treated in the same way as Canadian specialty and U.S. cable channels in the sharing of subscription fees collected by the cable and satellite distributors. You pay $1.40 per month for TSN, you pay nothing for CTV or Global. You pay for CNBC, and CNN, and they collectively receive close to $300 million in fees, while creating no jobs, paying no taxes in Canada, and producing little if any programming. Four conventional networks spend the same amount on Canadian programming as the 60 specialty channels, which receive subscription fees.

Why do you think TSN outbid Global for the rights to Leafs Hockey years ago? They receive close to $150 million in subscription fees. That's quite an allowance.

Prescription drug advertisements appear unrestricted in U.S. newspapers and magazines available on Canadian newsstands and in television commercials beamed into Canada by U.S. TV channels carried on CRTC-licensed cable and satellite distributors, but Canadian media are prohibited from selling prescription drug ads.

This hypocrisy costs Canadian media annual revenues in the hundreds of millions of dollars.

Then there are the advertising limits in general. We are limited to 12 minutes per each hour, while our American counterparts are unlimited. This is another cost of potentially hundreds of millions. Would we be smart about clutter? Of course we would. But at least let our marketing departments, not the government, make that decision.

In the Ripley's Believe It or Not exhibit, you will find that the CRTC requires the purchaser in any transaction for the acquisition of a licensed television broadcasting operation, to commit to industrial benefits expenditures equivalent to at least 10 per cent of the transaction value.

Clearly this policy is nothing more than a tax on transactions and is not designed to encourage a stronger Canadian media industry facing intense global competition. It had its time and place but that is long gone.

Finally, we call upon the government to ensure that its competition laws take into account global competition, not just local players. Google, AOL, MSN and Yahoo are in this market. Yahoo and MSN are by far the leading portals in this country. When the inevitable consolidation comes, the government must allow Canadian media companies to become large enough to invest in the capital to grow and compete, if they want to maintain jobs, head offices, tax revenue and the like in this country.

Wrap Up

I must remind people that we are dealing with what I call "rapolution" (rapid evolution) not revolution. Global Television and CTV each earn more revenue than the entire Internet spent in Canada last year. There are 11 million TV homes, over 50 per cent of which have at least two TVs, but only 250,000 video iPods. DVR penetration is under 4 per cent. That picture will change rapidly, but we have time to adjust. Bandwidth, technology, consumer behaviour, and incompatible software are still major impediments to the arrival of this new paradigm. People still sit on their couch and watch a TV show, read a newspaper or tune into their local radio station in their car. DVR homes watch more TV. Content may ultimately look more like a playlist on an iPod, your TV may become a computer, and you may be able to watch a movie on your cell phone. But people will still need places to sample, and rely on others' judgment to separate the wheat from the chaff. The media company of the future will do what we do today--generate and organize content, promote it, aggregate and then monetize the audiences. There is time to build the new media company, but we traditional media companies have to act decisively, be willing to try new things, and do it now.

We started off nearly 30 years ago as a single television station in Winnipeg. Unlike other Canadian broadcasters, when growth was not available to us in Canada we went offshore or entered new businesses in Canada.

Six years ago we acquired our Canadian newspaper interests as one way to grow our share of the Canadian advertising market in an unregulated business, which is a significant owner and creator of content.

Since then we launched seven new TV channels and two radio stations in Canada, paid down $2.5 billion of debt, developed a new business unit in Australia in Eye Corp., and started a European arm of the company entering two higher growth markets.

Five years from now, you will probably not recognize CanWest. We have survived and grown by reinventing ourselves, constantly shedding our skin and adapting to the environment. We expect to continue to grow both domestically and internationally, develop a serious presence on the Web over and above the natural Web migration of our current businesses and to broaden our footprint in parts of the media industry where we are not currently focused.

And that should keep us busy. The challenge is not the strategy; it is execution. The story line is there; we just have to go out and write the book.

The appreciation of the meeting was expressed by Lisa A. Baiton, Vice-President, Government Relations, Environics Communications Inc., and Director, The Empire Club of Canada.