There is a cancer on Canadian journalism.
The malignancy is Postmedia Network Canada Corp., a foreign-controlled, debt-burdened contrivance flirting with insolvency that nonetheless is relied upon by about 21 million Canadian readers. Postmedia’s 200-plus media outlets, mostly newspapers, including some of the biggest dailies in the country, represent a far greater concentration of news media ownership than exists in any other major economy. And a degree of foreign ownership of the free press that would not be tolerated in the U.S., France, Japan or Germany.
The good news is that the Postmedia abomination, which has never turned a profit, is in such wretched condition that it’s not long for this world. The bad news is that as long as the biggest newspaper publisher in the country clings to life, it is a blight on all the communities it underserves.
Postmedia is controlled by quick-buck hedge funds in the U.S. Leading this group is New York-based GoldenTree Asset Management, which alone controls 35 per cent of Postmedia. Indeed, it was GoldenTree that created Postmedia, just five years ago, by salvaging proud, venerable newspapers like the Vancouver Sun, The Calgary Herald, the Ottawa Citizen and the Montreal Gazette from the ruins of the Asper family’s bankrupt Canwest empire.
For generations, Canadian law has forbidden foreign ownership or control of Canadian cultural assets. But after permitting the sale to non-Canadians of practically the entire Canadian-owned steel and mining industries, then PM Stephen Harper’s government signed off on Postmedia’s creation as well. The Americans put a Canadian face on the deal by selecting Paul Godfrey, 77, as Postmedia’s CEO. Not by coincidence, Harper and Godfrey, a diehard Tory, are kindred spirits.
Though it was a thinly disguised foreign takeover, Ottawa didn’t object that Postmedia’s advent showed no sign of complying with Investment Canada’s one basic demand of foreign takeovers — that they be of “net benefit” to Canada.
Five years later, no one can credibly argue that Postmedia has been of net benefit to Canada. The most Godfrey can do, as he did recently, is insist that Canada is lucky that someone plucked the National Post, the Edmonton Journal and the Regina Leader-Post from the Canwest ruins, since no Canadian bidders stepped forward to do so.
That is a lie. There were at least two credible bids by Canadian interests, as Godfrey well knows. And the Canwest papers would not have perished in any case. They would have been auctioned, individually and as regional groups. That would have served readers better than the monstrosity of Postmedia. It’s Postmedia that is in financial extremis, not Postmedia’s papers.
Postmedia has laid off more than half of its employees. And the staff reduction continues, as recently as another round of layoffs this month. Which means that countless news stories are no longer reported, and costly investigative and “enterprise” journalism is now an unaffordable luxury.
Rather than invest to improve this country’s journalism, Godfrey has been channelling William Randolph Hearst, ordering all Postmedia publications to endorse the Harper government’s bid for re-election in October. So much for the local editorial autonomy long enjoyed by certain of the larger Postmedia papers when they were owned by the Southam family, which prided itself on their papers’ independence. Then again, when you’re publishing local papers, it’s only common (and commercial) sense that your papers reflect the views of the community and not Toronto head office.
In the same election, Godfrey also sold the front pages of some major Postmedia papers to the Tories for full-page ads. Which rendered the paper’s entire contents suspect.
This month, Godfrey announced that newsrooms will be merged in cities where Postmedia publishes a broadsheet paper and a tabloid. In doing so, Godfrey is crossing a bright red line, since editorial is what gives a media operation the unique voice with which it attracts readers, and thus advertisers.
The savage non-stop cost-cutting at Postmedia has turned out to be a fool’s errand. Postmedia’s circulation and print and online ad revenues continue to fall — as confirmed in the company’s latest quarterly results released Jan. 13 — in part because the cutbacks have so degraded the product. Despite the cost-cutting, Postmedia has managed to lose more than half a billion dollars since 2012. (Just over $554 million, to be precise.)
Unable to arrest the decline in its revenues, Postmedia took the drastic step last year of buying someone else’s revenues with its debt-financed acquisition of the Sun Media tabloid chain. With that 2015 deal, Postmedia doubled down on the dubious bet it made with its similarly high-risk purchase of the Canwest papers.
With these roll-all-the-dice gambits, Postmedia has installed a time bomb on its balance sheet of $672 million in debt owed to the U.S. hedge funds, which financed Postmedia’s creation and its ill-considered Sun Media expansion. All that debt must be paid or refinanced by July 2018. Roughly half of it comes due in August 2017, just 19 months from now.
It’s very difficult to see where Postmedia will get the money to do this. Postmedia is worth more dead than alive, with its current negative net equity of $89.3 million.
Moody’s Investor Services this month warned it is poised to further downgrade the rating on Postmedia’s debt if “it is highly likely the company will default on its debt obligations.” And RBC Dominion Securities took the unusual step of cutting its price target on Postmedia’s stock to zero, for which the rare precedents include the now defunct RadioShack.com LLC and General Motors Corp. just before its 2009 bankruptcy filing.
That Postmedia debt, by the way, carries a lofty 8 per cent interest rate. Which means the U.S. hedge funds are doing just fine as long as Godfrey can make those payments from an eroding revenue base. The interest payments have become downright asphyxiating — “a noose around your neck,” Godfrey said this month — with the collapse of the loonie, given that every dime of the debt is U.S.-dominated.
Bottom line: Postmedia has erased about $503 million dollars in shareholder value, a record in the 264-year history of Canadian newspapers. The company’s shares have lost more than 98 per cent of their value from their 2011 peak, and currently trade at 23 cents.
Godfrey’s stated business plan included an ambitious sale of assets. But Godfrey has sold just one significant asset, the Victoria Times Colonist. Net proceeds from Postmedia asset sales over the past four years amount to a piddling $2.2 million of the firm’s stated assets of $874.1 million. (That last figure is mostly matched by debt; the rest is largely “goodwill,” an ephemeral accounting term.)
Godfrey said recently that most of Postmedia’s papers are making money. That’s almost certainly true. It’s North America’s largest metropolitan dailies that are taking the biggest hit from the transformation to the Information Age. Postmedia’s many small, mid-size and community papers continue to profit from their monopoly status.
The paucity of Postmedia asset sales, combined with the continued profitability of most of Postmedia’s papers, lends credibility to the current rumours that Postmedia is on a deliberate path to self-destruction.
That way, the U.S. hedge funds that have already reaped tens of millions of dollars from Postmedia in interest payments can get their hands on a bankrupt Postmedia’s real estate and other assets at fire-sale prices. As debt-holders, the hedgies will be at or near the front of the line of creditors in a bankruptcy proceeding.
To assist the asset-flipping Yanks, Postmedia is said to be lobbying Ottawa for a relaxation of Canadian ownership rules on cultural assets, since some of the deepest-pocketed bidders on a bankrupt Postmedia’s assets are likely to be foreigners.
There are alternatives more honourable than that outcome, by which genuine Canadian ownership is restored to newspapers that no longer have money sucked out of them but are reinvesting for a promising digital future.
• Charitable or non-profit trust. Two of the world’s most-respected newspapers, the London-based sister national papers The Guardian and the Observer, are owned by a non-profit trust. This is also the model for the Tampa Bay Times, owned by the Poynter Institute for Media Studies, a non-profit journalism school. The Times tops its rival, The Tampa Tribune, in readership. And it has won 10 Pulitzer Prizes since 1964.
• Government backstop. Ottawa (CBC), Ontario (TVO) and Alberta (Knowledge Network) have each launched public broadcasters, all of them in the front rank of journalistic quality. The federal and subnational governments have a role to play in funding non-profit trusts like those described above should any of the country’s 100-plus daily newspapers hit the wall.
• Community ownership: As noted, many if not most small and mid-sized papers in Canada continue to be profitable. With the backing of Canada’s enormous pension funds, they could be acquired by local interests. Or perhaps by the entire community. The Super Bowl-winning Green Bay Packers (three championships) are owned by thousands of investor residents in Wisconsin, each permitted to hold just one share so that the team is assuredly community owned and can’t be sold to become a tycoon’s plaything.
Postmedia is giving private ownership of an essential public service a bad name. Its charade of pretending to operate its papers in the public interest cannot end soon enough.