Saturday, March 12, 2016

Canada’s chief media apologist sings the blues (to an American)

Ken Goldstein dropped by the Poynter Institute recently. Who knows what he was doing in St. Petersburg, Florida. Maybe he was on vacation. After all, it’s c-c-cold this time of year in Winnipeg, where Goldstein lives. Or maybe he was there at the behest of a client. His firm Communic@tions Management Inc., according to its website “provides consulting advice in media economics, media trends, and the impact of new technologies on the media.” FULL DISCLOSURE: Goldstein and I have locked horns before, on the letters page of the Vancouver Sun way back in 2002. He was then executive vice-president and chief strategy officer of Canwest Global Communications, which owned the Sun and most of the other major dailies in Canada. That was before its leadership ran Canwest into bankruptcy, forcing Goldstein to hang out his shingle as a consultant. Back then my complaint was about a Sun column Goldstein wrote headlined “Newspapers’ dwindling role belies fears about monopolies,” in which he argued that Canwest’s overweening influence was nothing to worry about. You can see from the correspondence that Goldstein made sure he got the last word back then. That won’t happen now that I have a blog.

Ken Goldstein -- Canada's media "expert"
Down in St. Petersburg, Goldstein got the ear of Rick Edmonds during his visit to Poynter’s campus. (Endowed by the late Nelson Poynter in the 1970s, the Poynter Institute runs journalism education programs, does much journalism research, and also publishes the St. Petersburg Times.) Edmonds is a media business analyst for Poynter and he co-authors its excellent annual State of the News Media report. So he’s fairly influential. You can see why Goldstein might want to tell him all about the woes of Canadian media, or at least his (or his latest client’s) version of them.

And what a tale of woe Goldstein spun. Postmedia Network, the consortium of mostly U.S. hedge funds that took over the former Southam dailies after Canwest went bankrupt, has been dealt a “nasty” hand. A faltering economy and falling Canadian dollar have made it tough on the company because its enormous debt is payable in U.S. dollars. No mention of that fact that much of its high-interest debt is held by those very same U.S. owners, plus a Canadian hedge fund that financed most of Postmedia’s $316-million purchase of 175 newspapers from Sun Media. These hedge funds are sucking the company dry as a result, all the while complaining about how tough times are.

According to the headline on Edmondsaccount of what Goldstein told him, “business model woes are running off the charts” up here as far as media companies are concerned. Things are so bad for Postmedia that it has been forced to implement “waves of layoffs and consolidations, some of the most draconian this January.” No mention of the contentious newsroom mergers at its dailies in Vancouver, Calgary, Edmonton, and Ottawa, which have now prompted federal hearings. No, the way Edmonds understood it from Goldstein, the newsrooms in those cities were “nearly halved and asked to produce separate reports for the two titles Postmedia owns in each market.” Well, that sounds a lot better than newsrooms being merged.

Government, according to what Goldstein told Edmonds, is a “complicating factor” in Canadian media, what with the state-owned broadcaster CBC providing competition for the private sector. “And a Competition Bureau regularly considers whether to rein in concentration at the biggest chains.” Yeah, then it lies down until the feeling passes. Some complication.

This promotion of the woes besetting newspapers in Canada is nothing new for Goldstein. Last summer, mere weeks before after Postmedia bought the Sun Media dailies (surely just a coincidence), Goldstein issued a dire warning. By simply projecting current trends to continue downward (which rarely happens), he predicted that within a decade “there will be few, if any, printed daily newspapers” left in Canada. Edmonds also picked up on that “expert” forecast. Except that such predictions were rampant in the U.S. following the collapse of newspaper classified advertising there during the 2007-09 recession. Among major dailies, only a flagging few folded. No major newspaper in North America has ceased publication since 2009 despite all the dire predictions, as I chronicle in my 2014 book Greatly Exaggerated: The Myth of the Death of Newspapers. The biggest threat is not so much to newspapers, which from the company financials I have examined are still profitable. The threat is to companies like Postmedia which own newspapers but are heavily loaded with debt which they may soon have problems paying off if their revenues keep falling. Newspapers are remarkably resilient, as has been amply demonstrated, because they can quickly downsize by cutting staff and other costs. They will thus continue publishing. They may have different owners, however. In the case of Postmedia, that would be a blessing.

But wait, it gets better . . . I mean worse. Things are just as bad in Canadian television, according to what Goldstein told Edmonds. “TV stations in Canada are in roughly the same bad shape as newspapers. . . . Canadian local stations don’t have the saving grace of huge political advertising revenues and rising retransmission fees, which have kept TV so prosperous here.” No, we actually didn’t have a federal election last fall, with lots of advertising on TV. And remember those retransmission fees, which the networks campaigned so hard a few years ago to get the government to force the cable and satellite companies to pay them? As I chronicle in this article, it took the networks several tries, and a barrage of “Save Local TV” commercials, to get the right to negotiate retransmission fees. They sang the blues, claiming they were losing hundreds of millions of dollars, except that they weren’t, as one enterprising blogger discovered. But almost as soon as they won the war, the networks were taken over by those very same cable and satellite companies that were making even more money than the networks. This is the disastrous legacy of convergence, which 16 years ago saw newspaper and television companies frantically partner in a fruitless quest for ever-greater profits. Since it all collapsed, CTV is now owned by Bell, Global by Shaw, and CITY by Rogers.

But here’s my favorite line from Edmonds’ account of his meeting with Canada’s media guru. “Goldstein told me that the four private stations in his home town of Winnipeg have collectively lost money each of the last nine years.” I think this one proves the old saw about how to lie with statistics. I am surprised to hear that there are four private stations in Winnipeg, as we only have three private networks, so I suspect there is a cable access channel in there bringing down the average. If you instead prefer hard data, as I do, luckily the CRTC keeps a close eye on broadcasting company financials. You will see from its latest annual monitoring report that the television networks are doing quite nicely.

So, keep it up Ken. You’re doing a great job of twisting the facts to the advantage of Canada’s bloated media companies. Good thing nobody’s watching.

Tuesday, February 23, 2016

A letter the National Post won't publish

Re: Government to the newspaper industry’s rescue? No thanks, Feb. 6

I have been nominated by Terence Corcoran for an award he calls the Most Pompously Wrongheaded Argument for a Government Bailout of the Newspaper Industry. My nomination cannot stand, however, because I am actually opposed to government subsidies for Canada's press. Mr. Corcoran quoted me from a CBC panel discussion as pointing out that Scandinavian countries are highly ranked for press freedom despite subsidizing their press, but he ignored the following quote: “I have to agree with Lorne [Gunter], that most self-respecting journalists would not want to see government funding.” Mr. Corcoran is also incorrect when he states that the 1969 Davey commission on the media proposed a Press Ownership Review Board that would have issued licences and guidelines. The Davey report made no mention of licensing, which is anathema to press freedom. The proposed Press Ownership Review Board, similar to one in the United Kingdom, was to approve – or, more likely, disapprove – newspaper sales or mergers. Such a board’s basic guideline, according to the report, would have been that “all transactions that increase concentration of ownership in the mass media are undesirable and contrary to the public interest – unless shown to be otherwise.” Mr. Corcoran’s opinions might carry more weight if he could get his facts straight.

Marc Edge
University Canada West
Vancouver

Postmedia’s promises prove practically worthless

As published on J-Source.ca and reprinted by World News Publishing Focus and Danielle magazine.

And so the Great Canadian Newspaper Roll-up has begun.
This was predictable once the Competition Bureau rubber-stamped Postmedia Network’s $316-million takeover of Sun Media last year. As a result, Postmedia now publishes 37.4 per cent of Canadian daily newspaper circulation, according to my calculations.
It is in the three westernmost provinces, however, where its grip is truly unprecedented. In B.C., Alberta and Saskatchewan, it now owns eight of the nine largest dailies and accounts for a whopping 75.4 per cent of daily newspaper circulation. It owns both daily newspapers in Calgary, Edmonton and Ottawa, as it already did in Vancouver.
In all four cities, newsrooms will be merged. Residents of these burghs should be outraged, as should all Canadians who cherish what little remains of journalistic independence in this country. Not to mention those who put any value on promises made.
The immediate angle that emanated from certain journalistic quarters in response to this news was a hand-wringing wail that it was only more evidence that newspapers are dying.
Nothing could be further from the truth, as I explain in my recent book, Greatly Exaggerated: The Myth of the Death of Newspapers. A quick glance at Postmedia’s latest financial statement shows it recorded operating income of $42.5 million on revenues of $251 million in the first quarter of its 2015-16 fiscal year, for a very healthy profit margin of 16.9 per cent.
The self-serving myth that newspapers are dying is one that publishers have promoted to advantage for decades. It was used with great success in the U.S. after the Supreme Court ruled illegal in 1965 the increasingly popular “joint operating agreements” between newspapers that went into business together, set advertising and subscription rates jointly and split the profits.
Newspapers lobbied furiously for an exemption from U.S. antitrust laws after the Supreme Court ruling, claiming that under the prevailing natural monopoly theory of newspapers there would otherwise be only one daily eventually left in each city. The result was the Newspaper Preservation Act of 1970, which sanctified newspaper marriages, but only if they maintained journalistic competition by keeping separate newsrooms.
In Canada, joint operating agreements sprang up on the west coast in the 1950s. The Victoria Times and The Colonist amalgamated mechanical operations in the early 1950s, but kept separate newsrooms until the newspapers were merged by Thomson in 1980. After the Vancouver Sun and the Daily Province combined non-editorial operations in 1957, however, the Restrictive Trade Practices Commission ruled the merger an illegal combination between competitors, as I document in my 2001 bookPacific Press: The Unauthorized Story of Vancouver’s Newspaper Monopoly.
The owners of the Sun and Province, however, pointed to the closure on both sides of the border of smaller, weaker newspapers as evidence that newspapers were dying, and they were allowed to go into business together. The Restrictive Trade Practices Commission made them promise to keep separate newsrooms forever, which now seems to have been officially forgotten.
The events of “Black Wednesday,” which saw the Ottawa Journal and the Winnipeg Tribune close on August 27, 1980, prompting a Royal Commission on Newspapers, was proof positive to many of the natural monopoly theory of newspapers.
The 1981 Royal Commission report pointed to the rising tide of ownership concentration, as had a 1970 Senate report on mass media. Both urged measures to stem the inexorable economic forces that drove industry consolidation, but nothing was ever done.
The Senate report recommended a Press Ownership Review Board to oversee changes in ownership, along with government subsidies to encourage a competing bare-bones “Volkswagen press.” The Royal Commission urged limits on chain ownership of newspapers, but none were enacted as the Liberal government of Pierre Trudeau was replaced by the Progressive Conservatives of Brian Mulroney.
But then a funny thing happened in those two cities and others where only one newspaper remained. Colorful tabloids, modeled after the wildly successful Toronto Sun, sprang up as competition to monopoly broadsheets in Ottawa, Winnipeg and Edmonton. Soon there was an entire chain of tabloids Suns across Canada. Even staid old Southam converted its dowdy old Vancouver Province to tabloid format in 1983 to stave off extinction, and it thrived with a younger readership, which in turn attracted advertisers trying to sell to that valued demographic.
When Postmedia bought the Sun Media chain in late 2014, CEO Paul Godfrey promised it would continue to operate independently with its own newsrooms and opinions. He repeated the promise after the Competition Bureau approved the purchase in early 2015. By the time the Sun Media takeover was completed a few weeks later, however, the promise had been softened. Postmedia’s senior vice president of content, Lou Clancy, said then that some writers may be shared between the chains, but that the “Suns and Postmedia broadsheets would compete with each other.”
I guess it just shows the value of promises where hedge funds are concerned.
Marc Edge is a professor of media and communication at University Canada West in Vancouver.

Thursday, January 28, 2016

Seeking a Villain for Postmedia's Crisis? Try the Competition Bureau

As published in The Tyee January 23, 2016

If you're looking for a villain in the latest crisis of Canadian journalism, don't blame Postmedia Network. It's just doing what comes naturally to a bottom-line corporation that is mostly owned by U.S. hedge funds that are bleeding it (and Canadian journalism) dry with high-interest loans, which they also largely hold. Postmedia is just trying to do what it thinks it can get away with to fatten the bottom line and feed its rapacious owners.

If you want to point fingers, look no farther than the federal Competition Bureau, the regulatory body that keeps letting them get away with it. The bureau, according to its website, is ''an independent law enforcement agency'' that is supposed to ensure that ''Canadian businesses and consumers prosper in a competitive and innovative marketplace.''

Worried about the future of Canadian media?
Understand who's made the decisions.
It is knee-deep in complicity when it comes to the sorry state of Canada's news media, in particular for ''foolishly'' rubber-stamping Postmedia's $316-million purchase of 175 Sun Media newspapers last year without even the need for hearings. This was effectively the takeover of the country's second-largest newspaper chain by its largest (seller Quebecor retained three French-language tabloids), yet it was adjudicated in secret by the Competition Bureau. Not only that, but after it announced that its economic analysis absurdly concluded that the two newspapers Postmedia now owns in Calgary, Edmonton, and Ottawa didn't compete anyway, the bureau refused my request for a copy of this taxpayer-funded research.

Once it got the green light for its takeover, Postmedia's announcement on Tuesday that it was merging its newsrooms and eliminating 90 jobs in those cities was predictable. The shocker is that it would try the same thing in Vancouver. When the Vancouver Sun and theDaily Province formed a partnership in 1957, the Competition Bureau's predecessor, the Restrictive Trade Practices Commission, held hearings in both Ottawa and Vancouver.

As I document in my 2001 book Pacific Press: The Unauthorized Story of Vancouver's Newspaper Monopoly, the RTPC declared the merger an illegal combination between competitors. The Sun and Province argued that if they weren't allowed to go into business together, under the peculiar economics of the industry there would eventually be only one newspaper left in Vancouver. That ignored the fact there were then three, but Pacific Press bought the morning Herald from Thomson Newspapers and quickly folded it. Oh, all right then, responded the RTPC, go ahead and merge, but make sure you keep separate newsrooms forever and ever. It was a small price Pacific Press was forced to pay for its lucrative new monopoly. Well, so much for that.

Competition 'virtually dead'

The Restrictive Trade Practices Commission published its findings in book form in 1960. A Special Senate Committee on Mass Media held hearings and published three thick volumes a decade later. ''There are only five cities in the country where genuine competition between newspapers exists,'' it noted in fruitlessly recommending a Press Ownership Review Board to slow consolidation.

A decade after that, when dailies folded in Ottawa and Winnipeg on the same day, the first Prime Minister Trudeau quickly convened a Royal Commission on Newspapers to investigate. It held hearings across the country and published a report that was accompanied by no fewer than eight book-length research studies. ''Newspaper competition, of the kind that used to be, is virtually dead in Canada,'' its report noted. ''This ought not to have been allowed to happen.'' It recommended limiting newspaper ownership to five dailies per chain, but a proposed Canada Newspaper Act was never tabled in Parliament as the government changed from Liberal to Progressive Conservative.

A 2006 Senate report on Canadian news media was sharply critical of the Competition Bureau, which succeeded the RTPC in the mid-1980s, for failing to prevent our stratospheric level of press ownership concentration. It accused the Competition Bureau of nothing short of ''neglect'' for failing to halt press consolidation. ''One challenge is the complete absence of a review mechanism to consider the public interest in news media mergers,'' it noted. ''The result has been extremely high levels of news media concentration in particular cities or regions.''

It recommended a new section for the Competition Act to deal with news media mergers and prevent corporate dominance in any market. As the Competition Bureau was unlikely to have the expertise to deal with such mergers, it recommended an expert panel conduct the review. Election of an ardently deregulationist Harper government that year, however, doomed the recommendations.

Still profitable, but for whom?

Postmedia, of course, argues that it now has to compete with the Internet. Yes, and it now owns Sun Media's canoe.ca news website in addition to its own Canada.com, giving it two of the country's largest online news operations. That is in addition to its 37.6 per cent share of paid daily newspaper circulation in Canada, by my calculations, including 75.4 per cent in the three westernmost provinces, where it now owns eight of the nine largest dailies.

But newspapers, they will add, are facing tough times. Sure, but as I document in my 2014 book Greatly Exaggerated: The Myth of the Death of Newspapers, they are still mostly making double-digit profit margins. Its latest quarterly report shows that Postmedia made a healthy 16.9 per cent return on revenue from September to November, with earnings of $42.5 million on revenues of $251 million.

But it's funny how things change. The incoming Trudeau government now has the opportunity to halt the madness. Or it can sit back and watch as one giant media corporation consolidates almost all of the country's remaining press competition.

Tuesday, May 5, 2015

My reply to Christopher Waddell

The Literary Review of Canada has published a review by Carleton University professor Christopher Waddell of my book that is complimentary but disagrees with my conclusion that newspapers will survive their current downsizing. “Greatly Exaggerated is a well-researched and well-explained story of how the newspaper business changed in the second half of the 20th and into the 21st century,” he writes. “Edge is correct that newspapers have survived and, despite the predictions of their imminent demise, have made a profit on their operations.” While agreeing with my findings of fact, however, Waddell comes to the opposite conclusion. Their ability to consistently generate profits despite plummeting revenues, he writes, does not necessarily ensure the survival of newspapers.
That hardly guarantees them a long future. Complacently extending Edge’s story into the near future is a recipe for disillusionment. In fact, what is greatly exaggerated is just the short time frame for the death of newspapers, not the end result.
While Waddell’s review, which is the LRC’s cover story for its May issue, is available on its website, the reply its editor Mark Lovewell invited me to write is not. [Edit: It now is.] That’s why I am posting it on this blog.
The past, as Christopher Waddell observes, is an imperfect guide to the future. Understanding what happened in the past and why, however, is the best guide we have to what will happen in the future, because it aids in understanding the present and the processes that shaped it and will likely continue to shape the future. The economics of newspapers, which are incredibly arcane, must also be understood before their fate can be foreseen. Because of their unique “dual market” nature, they sell their product to consumers at a fraction of its cost to produce, which is subsidized by advertisers. With the enormous post-war bubble in advertising, newspapers came to rely disproportionately on advertising revenue, which by the recent financial crisis comprised 87 percent of their total revenues in the U.S. and 77 percent in Canada. As newspapers rearrange their business model, readers are finding they now have to pay higher hard copy prices and increasingly also have to pay for online access. 
Professor Waddell argues that recent job cuts have led to an emaciated print product for which many do not care to pay more. A vicious circle caused by cuts, he argues, leads to defections by both readers and advertisers. This seems a chicken-egg argument, as it was the defection of readers and advertisers that first prompted cuts. Their demonstrated ability to downsize, however, is one of the things that will save newspapers. In the lingo of techies, they are scalable, or easily made larger or smaller. Luckily, as Professor Waddell notes, newspapers seem to have finally caught on to what it is that readers want and cannot get elsewhere, which is local news coverage. 
His other argument is that young people don’t read newspapers and have found other online sources of news, so the supply of newspaper readers will eventually dry up. Young people have never taken much interest in the news, however, at least not in the type of news that newspapers tend to cover. It is only when they grow up, get married, take out mortgages, and start families that they start to wonder about things like schools, taxes, politics, and the economy. Newspapers are still by far the largest newsgathering organizations in their communities. The widespread implementation of paywalls, which is the other thing that will save newspapers, means that if people want the news that newspapers provide (and they do), they will have to pay for it, one way or the other.

Tuesday, February 3, 2015

From two newspapers to none in Vancouver?

Reprinted in The Tyee.

Paul Willcocks takes issue with my prognosis for the continued survival of newspapers and thinks Vancouver is on its way from two dailies to none. “What will life in Vancouver be like without a daily local newspaper?” asks Willcocks in today’s Tyee. “It’s an important question, given the gloomy outlook for Postmedia.” The headline, which Willcocks doubtless did not write, was even more alarmist: “As Postmedia Withers, Is a Newspaper-less Vancouver Imminent?”

An endangered species?
This sort of hysteria was widespread six years ago in the wake of closures of the long-publishing Rocky Mountain News and, closer to home, the Seattle Post-Intelligencer. The American Journalism Review emblazoned “Cities without Newspapers” across its cover in mid-2009. The New York Times, which one study found to be the worst culprit behind the newspapers-are-dying alarmism, quoted one analyst as predicting an imminent extinction.
“In 2009 and 2010, all the two-newspaper markets will become one-newspaper markets, and you will start to see one-newspaper markets become no-newspaper markets,” said Mike Simonton, a senior director at Fitch Ratings, who analyzes the industry.
USA Today printed a short list of cities that were candidates to see their only remaining daily close. “At least one city — possibly San Francisco, Miami, Minneapolis or Cleveland — likely will soon lose its last daily newspaper, analysts say.” Time magazine even handicapped the field, running a list of The 10 Most Endangered Newspapers in America on its website. “It’s possible that eight of the nation’s 50 largest daily newspapers could cease publication in the next 18 months,” writer Douglas McIntyre predicted, citing an analysis of financial and market data. Then-Vanity Fair and now-USA Today columnist Michael Wolff had an even more dire prediction. “About 18 months from now, 80 percent of newspapers will be gone,” he told one of the many panels convened to debate the future of news.

Eighteen months later, all and sundry had egg all over their faces as newspapers stubbornly continued to publish on. The closest thing to the closure of a major daily was the merger in June 2010 by Victoria-based Black Press (no relation to Conrad) of the dominant Honolulu Advertiser and its joint publishing partner, the Star-Bulletin, a struggling tabloid with a circulation of just 37,000. When Advance Publications reduced its New Orleans Times-Picayune to thrice-weekly publication in 2012, it was met with a revolt by both readers and advertisers. After the nearby Baton Rouge Advocate entered the market with a daily New Orleans edition, Advance started a street tabloid to be circulated on the days its Times-Picayune didn’t.

So much for the death of newspapers.

Willcocks, a retired former publisher of newspapers in Red Deer, Saint John, Peterborough and Victoria who now resides in Central America, was one of the first to request a copy of my latest book, Greatly Exaggerated: The Myth of the Death of Newspapers, which was published in November by Vancouver’s New Star Books. He seems to accept its central finding — newspapers are still making money, just not as much as they used to make — but disagrees with my conclusion that newspapers will thus continue to endure. “I am rooting for the newspapers’ reinvention and survival,” he writes, pointing out Postmedia’s plummeting revenues. “But with each quarterly report, that seems less likely.” Sure, Postmedia made $110 million in its last fiscal year, Willcocks admits, but that was down from $190 million a few years ago. “Who really wants to think about owning a business on that trajectory?” He is not optimistic about the future of newspapers. “I’m not hopeful that they will survive in any form,” he writes.

The income they have added from paywalls, he insists, cannot save newspapers. “Postmedia doesn’t share the information, but the actual revenue from online subscriptions is likely to provide about $1.2 million per paper.” Well, that’s $1.2 million more than without paywalls. As the old saying goes, every little bit helps. Newspapers have shown an entrepreneurial spirit in diversifying their revenue streams and now pull in almost as much from events and other income as they do from digital advertising, which stubbornly refuses to grow. But most of all, it is their ability to downsize effectively that will save them. As long as they can keep their expenses below the level of their plummeting revenues, they will remain profitable. Why would anyone close a profitable business? Newspapers started out as small businesses, typically published by a one-man gang of writer/editor/publisher, and they are simply on a trajectory back to that status.

But Willcocks’ dire prediction, or at least one of the comments on it, has forced me to revise a long-standing prediction. For the past 30 years, ever since I was a Province reporter and a member of the Newspaper Guild union executive, I have pooh-poohed any talk of folding one of the Vancouver dailies or of merging them. I predicted that if that happened, presumably closure of the smaller Province, the Sun Media chain would be in Vancouver publishing a tabloid before you could blink. After all, Southam had proved the tabloid format wildly successful with the Province, and that was what Sun Media specialized in. But with the announcement in October, just as my book was going into production, that Postmedia had bought the Sun Media chain from Quebecor, that option is likely off the table. The deal is still subject to approval by the Competition Bureau, but I expect it to be rubber stamped soon. Quebecor still publishes a few tabloids, but now they are confined to Quebec. The country’s other major chain, Torstar, publishes exclusively in Ontario. “With the Postmedia takeover of Sun papers, either Sun or Province will go for sure as there’s no longer competition,” pointed out Tyee commenter Dave Shirlaw. I fear he may be right. After all, as my book chronicles, it has long been shown that one monopoly newspaper can be as profitable, if not more profitable, than two.

Sunday, October 12, 2014

Myths muddy media ownership debate

Reprinted in The Tyee. 
“Media myths increasingly surround us in today’s ever more mediated world, few of which have proved more persistent than the well-worn canard about newspapers dying.” 
That’s the way I start the concluding chapter of my forthcoming book Greatly Exaggerated: The Myth of the Death of Newspapers, which is planned for publication next month by Vancouver’s New Star Books. The book is based on financial research I did for an article in the upcoming issue of the Newspaper Research Journal. It shows that none of the eleven publicly-traded newspaper companies in the U.S. or the five in Canada has shown an annual loss on an operating basis going back to 2006.

In fact, most are making double-digit profit margins, or more than twice the historical average of 4.7 percent for a Fortune 500 company. That’s a far cry from the 20-30 percent profit margins newspapers they routinely made before the double whammy of the Great Recession and the Internet reduced their revenues by more than half in the U.S. The decline in revenues in Canada, where the recession was not felt as badly due to more sensible banking regulations, has been about a quarter.

Just as we entered production this week, a deal went down between Postmedia Network and Quebecor Inc., two of Canada’s biggest media companies. It would give Postmedia the Sun Media chain of mostly tabloids, and with it newspaper monopolies in Calgary, Edmonton, and Ottawa, as well two dailies in Winnipeg and in the ultra-competitive Toronto market. I am still crunching the numbers on what this would mean for daily newspaper ownership concentration, but it would have to put Postmedia above 30 percent. Canada has had about the highest level of media ownership concentration in the free world, and this tightens it even further.

The most immediate effect would be to give Postmedia joint operations in four cities – Calgary, Edmonton, Toronto, and Ottawa – including monopolies in three of them. It could combine production, advertising, and circulation operations as it did in Vancouver 57 years ago, while hopefully keeping separate newsrooms. This will be subject to approval by the Competition Bureau, which will examine the extent to which Postmedia will dominate the market for print advertising in Calgary, Edmonton, and Ottawa.

The reaction has been predictably outraged among free press advocates. Some, however, have urged that Postmedia be allowed to swallow Sun Media because it is somehow challenged financially. Foremost in this effort has been Ivor Shapiro, chair of the school of journalism at Ryerson University in Toronto.

“What we’re talking about here is one threatened company . . . buying properties whose future was in doubt,” Shapiro told the Canadian Press when the deal went down last Monday. “That is way better at the end of the day than seeing both of those news organizations close down.” Shapiro repeated his position for the Saturday edition of the Toronto Star.
What we’re talking about here is two organizations that were on a death watch. I’d rather have one news organization that is not on death’s door, than two news organizations that are. Together they are stronger competitors than they were apart. 
No, together they are not competitors. Together they will be able to gouge advertisers and short-change readers in Calgary, Edmonton, and Ottawa, just like they have done in Vancouver for the past 57 years. These two organizations have hardly been “on death’s door,” as Shapiro puts it. They have been earning enviable profit margins. They just want to make more.

Here is a truncated version of my compilation of the financial results since 2010 for all five publicly-traded Canadian newspaper companies, which own about three quarters of newspapers north of the border.

How could the head of one of Canada’s largest journalism schools be so mistaken about the state of health of the country’s newspaper industry? Well, let’s just say that Professor Shapiro isn’t the only one laboring under the illusion that newspapers are on their last legs. That is the whole thrust of my book, and it’s a complicated tale. Ben Bagdikian called it “the myth of newspaper poverty,” and it has been used to advantage for decades by publishers looking to get around anti-trust laws that were designed to prevent anti-competitive behavior. Newspapers, after all, have considerable power over public perceptions, and they have used it to advantage for decades.

One of my favorite studies cited in my book examined how large U.S. dailies covered the short spate of newspaper closures during the Great Recession. It found their coverage contained “over-amped drama” and even “tabloidization,” with more than a quarter of all stories containing death imagery. “Newspaper journalists often fail to contextualize their reports with a comprehensive understanding of the economics of their industry,” noted the study. “They rely too heavily on the views of newspaper publishers and too little on empirical data.”

Toronto Star columnist Rosie DiManno also buys into the misconception that Postmedia is “bleeding money, staggering under accumulated debt and struggling to make its payments.” Even the usually-incisive Donald Gutstein bought into the myth that Postmedia is “hemorrhaging money” in his recent dissection of its ownership by U.S. hedge funds. Gutstein reported that the company lost $154 million in 2013, but that included extraordinary charges against income of $100 million for asset impairment, plus $34 million for restructuring costs, which means they laid off a whole bunch of people and had to pay them severance. Asset impairment is a classic “paper loss” that simply means the estimated value of the business went down. That has to come off the balance sheet of assets and liabilities somehow, and it does so in the annual profit and loss statement. Here is Postmedia’s for 2012 and 2013.

Note that interest expense eats up about half of Postmedia’s operating income, but that amount has been going down as the company pays off its debt with its positive cash flow. What I find most interesting, and which I wasn’t able to get into in my book, is that as a result of these financial gyrations it appears Postmedia paid no income tax in either 2012 or 2013. Suggestions for further research?