In October 2009 CanWest Global Communications Corp. was declared insolvent and began selling media assets by announcing the sale of Global Television. 

CanWest also owned many major Canadian newspapers, including The National Post, Montreal Gazette, Vancouver Sun, and Calgary Herald. CanWest was founded by Izzy Asper, who obtained a licence for an independent TV station, CKND-TV, in Winnipeg in 1974. He later created a media empire through acquisitions, notably the purchase of Southam Newspapers and Internet properties in 2000 from Conrad Black at a cost of $3.2 billion. Radio stations were acquired, as well as television stations from Australia to Ireland. After Asper died in 2003, and wanting to expand into specialty television channels, Asper’s son Leonard acquired Alliance Atlantis Communications Inc. in 2007 for roughly the same amount, $3.2 billion. 

Unfortunately, amid a global recession, CanWest’s debt reached $4 billion in 2009 and it became necessary to file for bankruptcy protection. CanWest’s strategy, known as media convergence, was to create multiple media platforms for content, which the holding company would also control. This is meant to create synergies in which the whole is greater than the sum of the parts. Thus the combined value of a content division and media distribution division, for example, would be greater than independent valuations of each division separately. The purpose of this collaborative learning exercise is to investigate, in groups, the relationship between the theory of media convergence and measures of segment performance presented in this chapter.

Required 

1. As a group, research the strategy of media convergence as practised internationally from the 1980s to the present, using Internet and library resources. In general, has this strategy been successful? Why or why not? Prepare a report summarizing your findings. In your report, state whether return on investment calculations could have been used successfully by companies following this strategy. 

2. Suppose that two of a media holding company’s divisions are Newspapers and Internet. They are evaluated on the basis of reaching residual income targets that are set prior to the beginning of each fiscal year. Targets and results for these two divisions in 2009 were (in millions):  

1. Newspapers fell short of its residual income target by $19.6 million and Internet earned $5.6 million less than its goal for 2009, so performance of both divisions was rated unsatisfactory. Compute the interest rate that was imputed to each division in residual income calculations. 

2. Groups will be assigned the roles of management of Newspaper division, Internet division, or central administration. Pairs of groups, Newspaper division and central administration, or Internet division and central administration, will debate the fairness of the performance evaluation system based on residual income. Groups assigned Newspaper or Internet division roles will argue that the system is unfair to them, whereas groups taking the role of central administration will argue that it is fair. (If each group participates once, there must be twice as many central administration groups as Division groups.) Groups should use their research from parts 1 and 2a, and relevant arguments from this chapter.

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Newspapers Internet $ 20 Target residual income Income Average invested capital 1,120 $ 150 220 120 880