Saturday, June 2, 2018

Death by natural causes or premeditated murder? B.C. chains eliminate competition by buying, trading, and closing newspapers

The following was published online in The Future of Local News: Research and Reflections, Ryerson University.

ABSTRACT
The number of paid circulation daily newspapers in Canada fell between 2010 and 2016 mostly due to a series of closures and mergers by two British Columbia chains. Black Press and Glacier Media engaged in a number of transactions, including trades, which were usually followed by newspaper closures or mergers. Including non-daily community newspapers, Black Press and Glacier Media have closed or merged twenty-four of the thirty-three titles they exchanged from 2010-2014, or a competitor one of them already owned. While this would appear to be classic anti-competitive behaviour, these dealings have gone without challenge from the federal Competition Bureau. The earnings of both Black Press and Glacier Media increased in 2016 after several years of decline, which suggests the companies’ strategic trade-and-close strategy improved their bottom lines. This case study points up the laxity of Canada’s antitrust laws in dealing with newspaper mergers and takeovers.
Keywords: Newspapers, Black Press, Glacier Media, Competition Bureau, local news, media competition

Canada’s newspaper industry was convulsed yet again in late 2017 when the country’s two largest chains traded 41 titles in Ontario and closed almost all of them, creating dozens of local monopolies. The dealings by Postmedia Network and Torstar Corp. prompted the federal Competition Bureau to launch an investigation (Krashinsky Robertson, 2017). It had been criticized for allowing industry dominant Postmedia, which was owned mostly by U.S. hedge funds, to take over in 2014 Sun Media, then the country’s second-largest newspaper chain. Swaps and closures similar to the Postmedia-Torstar deal had gone without challenge in British Columbia since 2010, however, which may set a precedent preventing the Competition Bureau from rolling back the Ontario trade and closures. This chapter presents evidence suggesting that the closure of local dailies in B.C. after transactions between Glacier Media and Black Press amounted to collusion aimed at boosting the financial fortunes of those organizations. It analyses primary sources in the form of industry data and financial reports in an effort to explain the elimination of newspaper competition in B.C. since 2010. As such it hopes to provide some needed context for the Ontario dealings under federal review.

Literature Review


A seemingly inexorable trend toward local monopoly has defined the newspaper industry for the past half century due to its inherently large economies of scale and high barriers to entry (Bagdikian, 1983). Once a monopoly is achieved, advertising rates and circulation prices can be raised at will, resulting in increased profits (Lacy & Simon, 1993). As one economist who studied Canadian newspapers noted: “These price effects are so powerful that they provide ample motivation for the long and steady trend to newspaper mergers and takeovers” (Kerton, 1973, p. 605). Vigilant antitrust oversight is thus required to preserve competition in this industry, which is vital to political discourse. That has historically been lacking in Canada (Edge, 2016).

Recent newspaper industry consolidation in North America has been justified in large part by a persistent “death” narrative. Advertising revenues flowing to newspapers began to decline in the mid-2000s, and the trend accelerated with the 2008-09 recession. Print advertising revenues dropped by 63 percent at U.S. newspapers between 2006 and 2013, and by 36 percent at Canadian newspapers (Edge, 2014). Despite a steep decline in their earnings as a result, however, financial data showed that newspaper companies continued to enjoy healthy operating profit margins by making deep cost cuts (Edge, 2014; Edge, 2017; Herndon, 2015; Van der Burg & Van den Bulck, 2017). One 2012 study found that newspapers exaggerated the declines by creating “a false impression that the whole industry is ‘dying’ . . . when in fact they are doing well in small U.S. markets” (Chyi, Lewis, & Zheng, 2012, p. 316). The death of newspapers has nonetheless been assumed by many to be ongoing as a result of the closure of numerous titles and the bankruptcy of some major chains. The bankruptcies have invariably been a result of high levels of debt taken on in making pre-recession acquisitions, however, which owners were then unable to service with reduced earnings. The firms were otherwise profitable, and they continued to publish newspapers under reorganized, less indebted ownership (Edge, 2014).

Closures have often been attributed by owners to a lack of profitability, but such claims can rarely be verified because earnings for individual titles are not often available in company financial reports. Profitability can thus only be inferred from overall results, and it has undeniably been falling in what was once among the most lucrative of all industries. A pattern of closures of competing titles to create more profitable monopoly markets, however, suggests possible collusion between owners to boost their bottom lines. 

Newspaper closures in Canada


The number of paid daily newspapers in Canada was stable for decades at around 100 until the recession of 2008-09, when several minor titles fell by the wayside. The Halifax Daily News, that city’s second-place newspaper, was closed in 2008 but immediately resurrected as an edition of the free commuter tabloid Metro (Morrissy, 2008). In Manitoba, the Flin Flon Reminder reduced its publication frequency to thrice weekly in 2009, while in Ontario the Cobourg Star and the Port Hope Evening Guide merged as Northumberland Today. That brought the number of paid dailies in Canada to 96, and despite widespread predictions of the death of newspapers as a medium the number stabilized over the next few years. A series of closures by two B.C. chains since 2010, however, helped to drop the number into the low 80s by 2016. News Media Canada data show that of the thirteen paid daily newspapers that were closed, merged, or changed publication frequency in Canada between 2010 and 2016, nine were published in B.C. and owned by Black Press (six) or Glacier Media (three). (See Table 1)

Table 1 – Daily Newspaper Closures in Canada 2010-16
 Title    Prov. Owner  Circulation* Notes
1. Prince Rupert Daily News BC Black Press      2,800 closed 7/10
2. Nelson Daily News   BC  Black Press      3,300 closed 7/10
3. Portage LaPrairie Graphic MB  Quebecor      2,088 weekly 3/13
4. Amherst Daily News  NS  Transcontinental  2,593 weekly 8/13
5. Kamloops Daily News BC Glacier Media      9,235 closed 1/14
6. Dawson Creek News   BC Glacier  Media      1,470 merged 2/14
7. Alberni Valley Times  BC  Black Press      3,088 closed 10/15
8. Guelph Mercury  ON  Torstar Corp.      9,371 closed 1/16
9. Nanaimo Daily News  BC  Black Press      3,898 closed 1/16
10. Alaska Highway News BC  Glacier Media      2,143 weekly 3/16
11. Cranbrook Daily Townsman BC  Black Press      2,485 3Xweek 4/16
12. Kimberley Daily Bulletin BC  Black Press      1,204 3Xweek 4/16
13. Fort McMurray Today  AB  Postmedia      1,722 weekly 11/16
* average paid daily circulation
Source: News Media Canada

These two companies have bought, sold, and traded newspapers back and forth in a series of transactions that were usually followed – immediately or eventually – by the closure of competing titles. All of the daily newspapers lost in B.C. this decade were owned either by Glacier Media or Black Press. Most of the dailies that have been closed in Canada since 2010 suffered that fate soon after Glacier Media or Black Press acquired it from the other.

Black Press


David Black began buying community newspapers in the Interior of B.C. in 1975 and then on Vancouver Island, where he soon owned twenty-one titles. His company Black Press bought a chain of thirty-three B.C. and Alberta newspapers in 1997 from UK-based Trinity International Holdings which doubled its annual revenues and made it for a time Canada’s largest publisher of non-daily newspapers (Verburg, 1998). In 2002, Black sold a 19.35 percent interest in his company for $20 million to Torstar, his former employer, with the understanding it could acquire the rest when the 57-year-old Black retired (Blackwell, 2003). Black broke into the major metropolitan daily newspaper business in 2001 by buying the Honolulu Star-Bulletin, then added the larger Honolulu Advertiser in 2010 and merged them as the Star-Advertiser (Wilson, 2010). Advertising rates soon soared in this monopoly, according to Hawaii Business magazine, with prices “sometimes doubling or tripling” (Burris & Creamer, 2011). Black Press was also controversial for its business practices in Canada. In 1998, it ordered its newspapers to editorially oppose a treaty between the B.C. government and the Nisga’a native band because Black claimed an advertising campaign urging its ratification was one-sided and misleading. The B.C. Press Council dismissed a complaint about the edict, however, ruling that “the right to direct editorial policy rests with the owner” (McCulloch, 1999). In 2007, Black Press fired a Victoria News reporter after local auto dealers complained about a story he wrote on how to buy a car in the U.S. (Holman, 2007). By 2017, Black Press was the largest publisher of non-daily newspapers in B.C., with 91 titles circulating almost two million copies a week. It ranked third nationally behind only Transcontinental and Torstar’s Metroland division (News Media Canada, 2017).

Glacier Media


This former bottled water company was bought by Vancouver real estate developer Sam Grippo in 1998 and initially owned a number of business publications, including the Western Investor and Business in Vancouver (Lazarus, 2006). Grippo’s company Madison Venture Corp. had partnered with Southam Inc. in 1990 to form a chain called Lower Mainland Publishing that bought fourteen Vancouver-area newspapers. It was unwound eight years later, however, when Southam reached an agreement with the Competition Bureau to lessen its dominance in the Vancouver market (Waldie, 1998). Glacier bought more than thirty B.C. newspapers and numerous business publications from Hollinger Inc. in a 2006 purchase that reportedly shocked the newspaper industry. Noted the Globe and Mail: “Glacier, a company with a paltry $141-million market value somehow outmanoeuvred multibillion-dollar rivals that coveted specific chunks of the Hollinger assets” (Robertson, 2006). A second major purchase of B.C. newspapers from Postmedia in 2011 established Glacier as a leading regional publisher. It included the province’s third-largest daily, the Victoria Times Colonist, along with twenty other titles, including two more dailies and the thrice-weekly Vancouver Courier. Glacier soon ranked as Canada’s largest publisher of trade publications, including in the agriculture, energy, and mining industries, when it bought fifteen such titles from Rogers Publishing (Lazarus, 2011). By 2017, it was the second largest publisher of non-daily newspapers in B.C. with 60 titles circulating a million copies a week (News Media Canada, 2017).

Daily newspaper closures


Glacier Media sold eleven newspapers to Black Press in 2010, including the 109-year-old Nelson Daily News and the 99-year-old Prince Rupert Daily News, both of which Black announced would be closed (Korstrom, 2010). Black Press already owned two non-daily newspapers in the Prince Rupert area and the weekly Star in Nelson, which it soon began publishing twice weekly. Its CEO claimed the closed papers had lost more than $1 million in 2009 and that Black Press had bought them only because Glacier insisted on selling the titles as a group (Hoggan, 2010; Korstrom, 2010). At the same time, former Black Press executive Don Kendall also purchased the Cranbrook Daily Townsman and the Kimberley Daily Bulletin from Glacier. Just over a year later, Black Press bought those titles from Kendall and converted them to thrice weekly publication. It already owned the Cranbrook-based Kootenay News Advertiser, which published twice weekly, and most of the other community newspapers in the Kootenay region of eastern B.C. (Trail Times, 2011).

In January 2014, Glacier closed the Kamloops Daily News, which it had acquired from Hollinger in 2006, saying it had been “unable to reduce expenses sufficiently for it to continue as a viable operation” (Kamloops Daily News, 2014). Black Press had sold its twice weekly Kamloops This Week in 2010 to Kelowna-based Aberdeen Publishing, with which Black had often co-operated, sharing presses and reportedly even content (B.C. Reporter, 2012). With the closure of the Daily News, Aberdeen increased publication of Kamloops This Week to thrice weekly (O’Connor, 2015). A spokesman for industry group Newspapers Canada insisted that its members were healthy despite the closure, as revenue had been stable in recent years (Lee, 2014).

In December 2014, Black Press and Glacier Media traded fourteen titles, with Black acquiring every newspaper it did not already own on Vancouver Island (pop. 750,000), except for Glacier’s Times Colonist (Bradshaw, 2014). Included were two dailies, the Alberni Valley Times and the Nanaimo Daily News, both of which were soon closed. Black Press already published the twice-weekly Alberni Valley News and it closed the Alberni Valley Times the following October. In Nanaimo, Black Press thus owned all three newspapers: the weekly Harbour City Star, which it also acquired from Glacier and closed immediately; its own twice-weekly News Bulletin; and the Daily News, which it closed in early 2016 (Wilson, 2014). Glacier received three suburban Vancouver titles in exchange plus an undisclosed amount of cash (Bradshaw, 2014). The Vancouver alt-weekly Georgia Straight noted the monopolistic nature of the deal.
In effect, it appears as though the two publishing giants are dividing up the southwestern B.C. market, with Glacier taking control over the western section of the Lower Mainland and Black Press being left with most of Vancouver Island and the Fraser Valley (Smith, 2014).
Community newspaper closures


Their 2014 swap of newspapers was not the first time Black Press and Glacier Media had exchanged titles. They made their first trade in October 2013 when Black Press acquired the Fraser Valley community newspapers Abbotsford/Mission Times and Chilliwack Times, which it soon closed to create monopolies for its News titles in both markets. Glacier received four newspapers in return, including the North Shore Outlook in North Vancouver, where it also owned the North Shore News (Do, 2013). It closed the Outlook the following March, but not before turning it, according to the Langara Journalism Review, “into a vehicle heavy on ads and light on anything that resembles journalism” (Jonca, 2015). Glacier also closed several long-publishing community newspaper competitors it acquired from Black Press in the Vancouver suburbs. Noted B.C. Business magazine:
“It is by now a familiar script. Through horse-trading, Glacier Media or Black Press . . . become the sole owners of a community’s weeklies. And then one of those papers shuts down” (Parry, 2015). 
In April 2017, Black Press created one of Western Canada’s largest non-daily newspapers when it merged the 117,000 circulation Surrey Now, which it had acquired from Glacier in late 2014, with its 82,000 circulation Surrey Leader as the twice-weekly Surrey Now-Leader (Tri-Cities Now, 2017). In December, Glacier closed the weekly Westender it had bought from Black Press in Vancouver, where it already owned the Courier. That brought to twenty the number of newspapers lost to closure or merger from the thirty-three which Glacier Media and Black Press had exchanged, either directly or through related parties. Four other newspapers one of them already owned were also closed after it acquired a competitor in the same market, for a total of twenty-four newspapers lost via closure or merger following their dealings. (See Table 2)

Table 2
Black Press and Glacier Media acquisitions
    newspaper type region     year   acquirer     circulation     notes
1. Trail Daily Times  paid daily  Kootenay      2010    Black 5,002
2. Creston Valley Advance  paid weekly Kootenay      2010    Black 2,869
3. Fernie Free Press   paid weekly   Kootenay      2010    Black 1,775
4. Grand Forks Gazette  weekly   Kootenay      2010    Black 2,479
5. Nelson Daily News  paid daily    Kootenay      2010    Black 3,300         closed 9/10
6. Prince Rupert Daily News  paid daily  North Coast  2010    Black 2,800         closed 7/10
7. Quesnel Advisor  free weekly Interior     2010    Black         8,156         closed 7/10
8. Cariboo Observer  free weekly   Interior     2010    Black 9,940
9. 100 Mile House Advisor free weekly Interior     2010    Black 7,426         closed 7/10
10. Coast Mountain News  free weekly North Coast   2010   Black        1,200
11. Cranbrook Townsman         paid daily  Kootenay      2011   Black*        3,280        went 3X weekly 4/16
12. Kimberley Daily Bulletin paid daily  Kootenay      2011   Black*        1,660        went 3X weekly 4/16
13. North Shore Outlook   free weekly   Vancouver     2013   Glacier      56,076      closed 3/14
14. Vancouver Westender                   free weekly   Vancouver     2013   Glacier      39,730     closed 12/17
15. South Delta Leader   free weekly   Vancouver     2013   Glacier      16,600     closed 2014
16. Bowen Island Undercurrent  paid weekly Vancouver     2013   Glacier         926
17. Abbotsford-Mission Times free twice weekly Fraser Valley 2013   Black         45,409     closed 11/13
18. Chilliwack Times   free twice weekly Fraser Valley 2013   Black         30,550     closed 12/16
19. Tri-City News  free twice weekly Vancouver     2014   Glacier     53,062  
20. Burnaby NewsLeader  free twice weekly Vancouver     2014   Glacier     45,596     closed 9/15
21. Richmond Review  free twice weekly Vancouver     2014   Glacier     46,754     closed 7/15
22. New Westminster NewsLeader    free twice weekly Vancouver     2014   Glacier     15,703     closed 9/15
23. Nanaimo Daily News   paid daily  Vancouver I.  2014   Black          3,918     closed 1/16
24. Alberni Valley Times  paid daily  Vancouver I.  2014   Black          3,088     closed10/15
25. Surrey Now  free twice weekly Vancouver      2014  Black      117,579    merged 3/17
26. Langley Advance  free twice weekly Vancouver      2014  Black        40,122    went weekly 3/15
27. Maple Ridge Times  free twice weekly Vancouver      2014  Black        30,387    merged 9/16
28. Nanaimo Harbour Star  free weekly   Vancouver I.   2014  Black        27,795    closed 4/15
29. Cowichan Valley Citizen free twice weekly Vancouver I.   2014  Black        23,679
30. Comox Valley Echo  free twice weekly Vancouver I.   2014  Black        22,285   merged 4/17
31. Campbell River Courier-Islander free twice weekly Vancouver I.   2014  Black        17,127    closed 4/15
32. Parksville Oceanside Star free weekly   Vancouver I.   2014  Black        16,243    closed 4/15
33. Tofino-Ucluelet News   free weekly   Vancouver I.   2014  Black            987
Source: News Media Canada
* from Don Kendall

A 2017 report on Canada’s local news media by a Parliamentary committee which studied it for sixteen months noted that the number of community newspapers in Canada had been stable since 2011 at just over 1,000, which makes the disappearance of B.C. titles even more stark (Canada, 2017).

Financial considerations


Glacier Media was a public company whose shares traded on the Toronto Stock Exchange, so it was required to issue quarterly financial reports. Like all publicly-traded newspaper companies, its share price plunged during the 2008-09 recession amid fears of extinction, from more than $4 to less than $1.50, and its share price stagnated despite a rebound in its earnings when the economy recovered. “Glacier Media’s stock has basically been given up for dead,” quipped a Globe and Mail analyst in early 2013, who noted the company had even started paying dividends in 2011 (Rothery, 2013). Glacier announced a program of “value enhancement initiatives” in November 2013 which included outsourcing advertising production to India and the Philippines, and the moves helped Glacier’s share price rebound (Bouw, 2014). While it topped $1.50 in late 2014 and early 2015, however, its share price crashed in mid-2015 to below 75 cents, where it languished.

One former publisher read a 2015 Glacier Media quarterly report to mean it had “pretty much given up on a long-term future for its 30 newspapers across B.C.,” and intended to shift into more lucrative areas of investment. “Newspapers are in decline,” noted blogger Paul Willcocks (2015). “The company’s plan is to extract cash during their remaining time and invest it in businesses with growth prospects.” Willcocks pointed out that Glacier was making a greater return from its business information division. “Newspaper profit margins are shrinking. On an operating basis, the business information division produced earnings equal to 27 per cent of revenue; for newspapers the return is nine per cent” (Willcocks, 2015). Glacier Media’s second quarter earnings report for 2015, he noted, made it clear that the company intended to “harvest” the assets of its community newspapers. “These operations generate significant cash flow and provide scale for the Company,” it stated. “Efforts will be made to restructure community media assets to create greater direct value and simplicity for Glacier, or monetize where appropriate value can be realized” (Glacier Media, 2015, p. 2).
The Company’s objective is to grow its business information assets and the portion of cash flow generated by these operations, which have higher growth profiles and valuations, and harvest the cash flow from community media assets and reduce the related financial and operating exposure (Glacier Media, 2015, p. 2).
Glacier Media stopped paying dividends in mid-2015, saving it about $7 million a year (Canadian Press, 2015). The company was still profitable, but it never regained its high profit levels from before the recession. In 2007 and 2008, its return on revenue had been greater than 20 percent, but by 2015 it had fallen into the single digits before rebounding slightly in 2016. (See Table 3)

Table 3 – Glacier Media earnings
 Revenues
(millions) Earnings*
(millions) Profit
Margin (%)
2016 199 19 9.4
2015 221 17 7.8
2014 248 29 11.7
2013 295 33 11.1
2012 330 50 15.3
2011 267 49 18.4
2010 242 44 18.1
2009 229 36 15.6
2008 249 52 20.8
2007 216 47 21.9
* before interest, taxes, depreciation, and amortization
Source: Company annual reports

Black Press, by contrast, was a private company that did not sell shares publicly and thus was not required to disclose its financial performance. Because it was partly owned by publicly-traded Torstar, however, its earnings could be inferred from Torstar’s financial reports. Torstar reported in its annual reports the earnings it received from its 19.35 percent ownership in Black Press. The total earnings of Black Press could thus be calculated by multiplying Torstar’s share by 19.35 percent. (See Table 4)
Table 4 – Black Press earnings*
(millions)
2016 $28.9
2015 $15.5
2014 $20.1
2013 $28.3
2012 $20.1
2011  $17.0
2010 $17.0
2009 $12.9
* before interest, taxes, depreciation, and amortization
Source: Calculated from Torstar Corp. annual reports

Conclusions

Newspaper companies have had to take drastic measures in order to keep their heads above water, including cost cutting and consolidation, but they have proved remarkably resilient. One fatalistic strategy adopted by some publishers in the face of a feared extinction, however, has been harvesting, as Glacier is speculated to have done. “This is the ‘take-the-money-and-run’ plan,” noted Meyer (2009, p. 37).
It means raising prices, reducing quality, and taking as much money of the firm as possible. . . . There are very strong indications that [newspaper companies] are drifting in that direction, egged on by short-term investors.
Publicly-traded newspaper companies have been found to engage in short-term decision making because investors tend to focus on stock price movement and quarterly earnings (Cranberg, Bezanson, & Soloski, 2001). Because Glacier Media was a publicly-traded company, the drop in its profit margin from more than 20 percent in 2008 to less than 10 percent in 2013 likely subject it to the kind of short-term pressure found to characterize companies that sell shares on the stock market. This could have provided sufficient incentive for it to engage in the 2013 and 2014 trades and subsequent closures, especially after the closures following its 2010 sales to Black Press had gone unchallenged by the Competition Bureau. While Black Press was not publicly traded, it also had a partner whose financial expectations it had to consider. The earnings of both Black Press and Glacier Media increased in 2016 after several years of decline, which suggests the companies’ strategic trade-and-close strategy improved their bottom lines. It would not be the first time collusion had been seen in Canadian newspapers. Sotiron (1992, p. 26) chronicled industry such behaviour a century earlier. “The economic realities of competition forced key publishers . . . to adopt alternative strategies of predatory competition and that of cooperation or collusion which resulted in an increasingly concentrated industry.”

Collusion with a corporate competitor is supposed to be illegal, yet the behaviour outlined in this case study did not result in enforcement action by the Competition Bureau despite a pattern of behaviour by the chains that suggests they colluded on a trade-and-close strategy. A 2006 Senate report on news media accused the Competition Bureau of nothing less than “neglect” for failing to curb concentration of its ownership (Canada, 2006, p. 15). It recommended changes to the Competition Act to treat mergers and acquisitions of media firms differently than those in other industries, and the 2017 Heritage ministry report on local news provision renewed that recommendation (Canada, 2017). According to a Competition Bureau spokesman, the period during which the Black Press-Glacier Media dealings could be reviewed expired after one year (D. Corriveau, personal communication, September 26, 2017). As part of its investigation into the Postmedia-Torstar trade and closures, however, it would behoove the Competition Bureau to at least examine the B.C. deals to better understand the subsequent closure and merger of many local news sources and determine whether there was any quid pro quo involved.

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Saturday, January 27, 2018

Supreme Court ruling makes need for Competition Act reform urgent

The following originally appeared in The Conversation and was reprinted on the National Post website, on Cartt.ca (subscription), and on J-source.ca.

History’s habit of repeating itself has once again hamstrung Canadian antitrust law when it comes to preventing media monopolies. This time, however, the Supreme Court of Canada has left the door wide open to once again increasing our already world-leading levels of media ownership concentration.

The decision to allow a hazardous waste landfill monopoly in northern B.C. went little noticed at the time outside the competition law community. It triggered long dormant provisions in the Competition Act, however, that make preventing monopolies much more difficult, especially in vulnerable media industries. It set a precedent that prioritized cost-cutting “efficiencies” and, in some very poor timing, was soon followed by federal approval of yet another “devastating” news media merger, as a parliamentary report would describe it..
This points up once again the need for reform of the Competition Act, as has been urged by successive federal media inquiries dating back a dozen years. After all, covering the news more “efficiently” with fewer and fewer journalists employed by bigger and bigger media monopolies can’t be good for democracy.
When the Competition Act was enacted in 1986, it aim was to use civil procedures such as court orders to prevent monopolies better than the old antitrust law had by using criminal charges. Not a single merger case had been successfully prosecuted under the Combines Investigation Act in its 76-year life due to the higher criminal burden of proof beyond a reasonable doubt.
The Combines Investigation Act had been rendered ineffective against media monopolies in particular by a 1972 Supreme Court of Canada ruling. Prosecutors initially won a conviction on charges of monopoly against the Irving Oil family, which had acquired all five daily newspapers in New Brunswick. It was overturned on appeal, however, after the Supreme Court ruled the crown must prove not only a lessening of competition but also a detriment to the public.
The Irving press monopoly persists to this day as a result, allowing little news coverage of the family’s economic dominance of that province.
The Competition Act, according to one legal scholar, “literally rewrote the book on competition law in Canada, particularly with regard to merger control and the review of the activities of dominant firms.” It has unfortunately proved just as incapable of preventing media monopolies, and now the Supreme Court has made its job even more difficult, if not impossible.
As a 2006 Senate report on news media pointed out, the Competition Act allows only economic factors, such as advertising revenues, to be considered in adjudicating mergers and takeovers. “The result,” the Senators noted, “has been extremely high levels of news media concentration in particular cities or regions.” They recommended allowing a panel of experts to review media mergers and take the public interest into account.
It didn’t happen because a deregulationist Conservative government led by Stephen Harper had already gained power in Ottawa and would hold it for almost a decade. It presided over even more consolidation of Canada’s newspaper industry, including the takeover of our largest and then second-largest chain by U.S. hedge funds, despite supposed limits on foreign ownership.
The Competition Bureau, which enforces the Competition Act, approved the 2014 takeover of Sun Media by Postmedia Network without holding hearings. It oddly concluded the sale was “unlikely to substantially lessen or prevent competition” despite it giving Postmedia 21 of the country’s 25 largest newspapers, including eight of the nine largest in Western Canada and both dailies in four of our six largest cities.
Postmedia said it expected to save $6-10 million in cost cutting efficiencies from the takeover. It promised, however, that the competing newspapers it acquired in Calgary, Edmonton, and Ottawa would maintain separate newsrooms, as its dailies in Vancouver had for decades, by government order.
Falling ad revenues, however, soon forced Postmedia to seek another $50 million in efficiencies, mostly to service the company’s massive high-interest debt held by its own hedge fund masters. It thus announced in early 2016 that, despite promising not to, it would merge the newsrooms of its four newspaper duopolies, including in Vancouver.
A parliamentary committee chaired by Vancouver MP Hedy Fry quickly convened hearings into media and local communities, at which Competition Bureau officials testified they were powerless to stop the consolidation. The Fry committee’s report issued in mid-2017 renewed the call made by senators for reform of the Competition Act.
My research has found that the Supreme Court of Canada ruling in the case of Tervita v. Canada, set a precedent against preventing what the Fry report called a “devastating” news media merger. Even worse, the ruling enables even more mergers by badly hobbling the Competition Bureau.
The judgment was delivered in early 2015, even as Postmedia’s takeover of Sun Media was under federal review. In allowing the hazardous waste monopoly the Competition Bureau had blocked, the Supreme Court required the feds to quantify the anti-competitive effects of a merger or takeover. If their calculated dollar value does not outweigh the efficiencies that acquiring companies show will result from the deal, it must be allowed despite otherwise amounting to an illegal monopoly.
The so-called “efficiencies defence” had always been in the Competition Act, but it went untested for almost 40 years before the Supreme Court ruling gave it life. The defence was “unique among competition/antitrust statutes around the world,” according to one analysis.
It was included because the then-Conservative government “had high hopes that it would play a significant role in facilitating efficient restructuring in Canada.” Those hopes went unrealized, however, and with the Tervita ruling the provision seems to have now backfired.
The effect of the ruling, lawyers noted, was to raise the bar for the Competition Bureau to prevent monopolies. It put Canadian merger law, according to a pair of economists, “far out in front of the wave” of integrating economic principles into merger law. It prompted Competition Bureau head John Pecman to boast in a speech to lawyers that economists are now the “rock stars of competition law enforcement.”
The Competition Bureau, however, did not quantify the anti-competitive effects of the Sun Media takeover to weigh them against Postmedia’s planned corporate efficiencies. It simply rubber stamped the deal using some very questionable logic.
The savings available from mergers of news media companies are considerable, but they invariably involve cuts to expensive journalism. The cost to the public of a reduction in news coverage is arguably the impairment of democracy, but how do you put a dollar figure on that?

Thursday, January 4, 2018

Year of reckoning looms for Canada’s newspapers

The following originally appeared in The Conversation and was reprinted by National Newswatch, the National Post, the Toronto Star, the Winnipeg Free Press, The Tyee, Friends.ca, J-source.ca and the WAN blog. That's a record!

As 2018 dawns, Canada’s news media are in danger of lurching into the abyss unless Ottawa takes action soon.

Enforcing our country’s anti-trust laws to stop the corporate consolidation and cutbacks in local news coverage would help to stanch the bleeding in the short term, but Canada’s Competition Bureau has shown little interest in taking such action.

More long-term measures, similar to those taken in other countries, are also needed to strengthen media policy in Canada to help protect news from the depredations of Darwinian capitalism and encourage the growth of digital journalism as old media fade away.

Whether our government has the foresight needed for this kind of bold action should become clear in 2018. More likely is continued inaction given Ottawa’s demonstrable blind spot when it comes to journalism.

When the country’s two largest chains swapped 41 newspapers in Ontario a few weeks ago and announced that almost all would be closed, they basically thumbed their noses at Canada’s competition laws.

Why wouldn’t they?

Tuesday, December 12, 2017

A letter to the Toronto Star (unpublished)

Re: Closing tax loophole needed to save local media, Dec. 4

Ian Morrison’s review of the tax measures designed to stem the flow of advertising dollars to U.S. media was conveniently incomplete. Section 19 of the Income Tax Act disallowed as a deductible business expense the cost of advertising in foreign-owned publications to protect magazines in the 1960s because U.S. titles like Time were publishing Canadian editions. Bill C-58 similarly shielded television in 1976 because American stations close to the border were selling ads in Canada. That set off a trade dispute in which the U.S. disallowed as a business expense the cost of attending conventions in Canada. More than 100 were cancelled the following year as a result. A ceasefire in this cross-border business war was only negotiated with the 1988 Free Trade Agreement. This might prove a cautionary tale about the perils of scheming to redistribute cross-border commerce, especially in the current era of “America First.”

Marc Edge
University of Malta

Tuesday, November 28, 2017

Newspaper closures show need for media reform

An edited version of the following was published on The Tyee.

Postmedia Network’s recent trade with Torstar of 41 community newspapers – with 36 of them reportedly to be closed, throwing 290 out of work – has prompted much Eastern media outrage. That’s because it went down in Ontario, which is the centre of the Canadian media universe. The same sorts of community newspaper trades and closures have been going on for years in BC almost unnoticed nationally, resulting in dozens of lucrative local monopolies for Black Press and Glacier Media.

Postmedia’s observation that its trade with Torstar is “not subject to the merger notification provisions of the Competition Act and no regulatory clearance is required to close the transaction” points up the weakness in federal oversight of media takeovers, which is practically nil. But since when is such brazenly anti-competitive behaviour not subject to regulatory review? Maybe not in advance, but surely it can be reviewed. Buying and then closing your competition used to be illegal. Postmedia, which is 98 percent owned by U.S. hedge funds, may have finally overplayed its hand in exploiting Canadian regulatory laxity and then bragging about it.

And while they aren’t as lucrative as they used to be, Postmedia and Torstar’s community newspaper arm Metroland Media Group are hardly losing money. MMG recorded earnings before interest, taxes, depreciation and amortization (EBITDA) for the first nine months of 2017 of $21.3 million on revenues of $272 million, for a profit margin of 7.8 percent. Postmedia had operating earnings for its fiscal year ended August 31 of $12.35 million on revenues of $178.8 million, for a profit margin of 6.9 percent. The earnings of both companies have undeniably fallen recently in step with plunging print advertising revenues, however, and both companies have been forced to take drastic measures to boost their bottom lines. Monopoly is indisputably more profitable than competition, but will such anti-competitive measures – which greatly diminish local news provisions, to the great detriment of democracy – finally push Ottawa too far?

The closures and layoffs point up the urgent need for media ownership reform in Canada. Changes to the Competition Act to review mergers and takeovers of media outlets on non-economic grounds were called for by a 2006 Senate report on news media. That call was renewed in June by a Parliamentary committee on media and local communities chaired by Vancouver Centre MP Hedy Fry, which held hearings for 16 months and issued a report urging measures to ease the ongoing crisis in Canadian journalism. Those also included boosting digital media, which are struggling to fill the growing gap in news coverage, by making charitable donations to non-profit news media tax deductible, as they are under Section 501(c)(3) of the U.S. tax code. This has buoyed investigative journalism south of the border by startups such as Pro Publica and the online-only Texas Tribune, along with increased local news coverage by websites like MinnPost and Voice of San Diego. 

Instead of these measures, however, news coverage of the Fry committee report focused on a “Netflix tax” it supposedly recommended to help boost Canadian journalism, which Prime Minister Justin Trudeau immediately distanced himself from under questioning by reporters. The report recommended nothing of the kind, however. It instead suggested extending the 5 percent levy on cable and satellite TV revenues, which helps to fund Canadian content, to the rich profits the monopoly cablecos rake in on internet service provision. They make about a 45 percent return on those revenues, which has helped them to quietly buy up all of the major private TV networks in Canada over the past decade. (Bell owns CTV, Rogers owns the City network, and Shaw owns the Global Television Network.)

Public perceptions were also not aided by the almost immediate bid by the newspaper industry for a bailout of $275 million a year, which Heritage Minister Mélanie Joly slapped down in September. Lost in these kerfuffles, however, have been the Fry committee’s suggestions for both slowing media ownership consolidation and fostering Canadian digital journalism. Changes to the Competition Act to better deal with media mergers are long overdue, having been called for by two federal inquiries going back more than a decade. And if the Liberal government wants to help grow digital media in Canada, leveling the playing field with U.S. media by helping to fund non-profit startups with charitable donations should be another priority. 

If nothing is done soon, the Fry report will almost certainly join its predecessors in history’s dustbin. In addition to the 2006 Senate report on news media, those also include the 1970 Senate report on mass media that proposed review of media mergers and takeovers, the 1981 report of the Royal Commission on Newspapers that called for limits on chain ownership of newspapers, and the 2003 Lincoln parliamentary report on broadcasting policy that questioned convergence, which proceeded to decimate Canadian media. Had the warnings of any of these inquiries been heeded, we likely wouldn’t be in the media mess we face today. This is likely our last best chance to finally act on media ownership reform.

Sunday, October 15, 2017

Newspaper bailout rightly rejected, but for wrong reasons

A poorly edited version of the following was published on the website of Policy Options. Note how my meaning was changed at the end of the first paragraph. This passage was altered post-publication without my knowledge after the apparent intervention of Edward Greenspon. I have protested the inaccuracy of her rewrite to the editor, who has refused to change it.

Edward Greenspon isn’t giving up on a bailout for Canadian newspapers. “It is a good thing more thinking time has been allowed around the policy framework,” he wrote in response to Ottawa’s recent rejection of a proposal for giving $275 million in annual assistance to the country’s troubled dailies. (Unfinished business for Canadian journalism, Policy Options, Oct. 2) Greenspon somehow sees in background documents filed with the policy pronouncement a door left open just a crack for the ailing newspaper business. That means more work for his think tank, the Public Policy Forum, which has been pushing a bailout since Hedy Fry’s committee on Media and Local Communities released its report calling for government action in June. 

Greenspon laid the groundwork for a bailout in the PPF’s report The Shattered Mirror, which was released in February late January and paid for mostly by the Heritage Ministry, with a half dozen major corporations also contributing. It so exaggerated the plight of newspapers, however, that it brought howls of derision from Canadian media economists, myself included. He quickly switched hats and began officially working on a bailout in conjunction with News Media Canada, an industry group formed by the recent merger of the Canadian Newspaper Association and the Canadian Community Newspaper Association. Community newspapers already get assistance, as do magazines, from the Canadian Periodical Fund, which doles out $75 million annually. 

Greenspon’s proposal was simple, but expensive – extend CPF assistance to dailies and boost the fund by $275 million a year. That fell flat with the federal government, no doubt due in part to the fact that Postmedia Network, by far the country’s largest newspaper chain, is 98 percent owned by U.S. hedge funds. They are bleeding it dry by siphoning off most of Postmedia’s annual earnings as payments on the company’s massive debt, the majority of which the hedge funds also hold. This arrangement was allowed to stand by the Harper government despite a supposed limit of 25 percent on foreign ownership in this culturally sensitive industry. It then looked the other way in 2014 as Postmedia took over Sun Media, the country’s second-largest chain, which gave it 21 of the 25 largest Canadian dailies, including eight of the nine largest in the three westernmost provinces. Soon after that deal got Competition Bureau approval, and despite promises not to, Postmedia merged the newsrooms of duplicate dailies it thus owned in Vancouver, Calgary, Edmonton, and Ottawa. It shamelessly pushed the Conservatives for re-election in 2015, ordering its editors to endorse Harper and running full-page, front page ads warning that voting Liberal or NDP would “cost” Canadians. It even spiked an election day column by the National Post’s Andrew Coyne because it endorsed a party other than the Conservatives. Then it turns around and sticks its hand out to the newly-elected Liberal government, asking for a bailout? Puh-lease.

Heritage Minister Melanie Joly made the right decision but for the wrong reason in her nixing of assistance for Canada’s dailies. “Our approach will not be to bail out industry models that are no longer viable,” she said in setting out her vision for the government’s relationship with Canadian media. “Rather, we will focus our efforts on supporting innovation, experimentation and transition to digital.” Ironically, and contrary to widespread misconception, newspapers remain viable, as I chronicled in my 2014 book Greatly Exaggerated: The Myth of the Death of Newspapers (Vancouver: New Star Books). Despite an historic downturn in advertising revenues as a result of the Great Recession and a sharp pivot to cheaper digital advertising, no publicly-traded newspaper company in the U.S. or Canada (ie. the ones for which earnings reports are available) lost money on an operating basis between 2006 and 2013. Postmedia made $82 million in its most recent fiscal year, but $72 million of that went on debt payments to the hedge funds. The result has been massive cuts to news coverage, which fledgling digital media have been unable to make up for because few, notably subscription-based outlets such as allnovascotia.com, have figured out how to make money online. 

Greenspon, whose Shattered Mirror report was largely silent on the sticking points of ownership concentration and foreign ownership, protests that denying daily newspapers a spot at the media trough is wrong. “Excluding the major originators of the country’s news, including local news, from a scheme based on original editorial content would make no sense.” He has a new idea, however, which smacks of a Hail Mary pass on behalf of Canada’s dailies whose bailout ambitions he is quarterbacking. But it’s not that crazy an idea. If the government is queasy about bailing out foreign hedge funds, he writes, “there would be less static if, as part of a future support package, these enterprises agreed to become (officially) nonprofits.” The notion of converting legacy media to non-profit status has been bruited by some, such as French economist Julia Cagé, in order to free them from the money-making imperative that has run them into the ground. “In the case of newspaper chains,” writes Greenspon, “each individual newspaper could be sold to owners based in the local communities.” 

Now we’re talking. Instead of cutting back on journalism to feed their owning vulture funds, the country’s largest dailies would be legally obligated to reinvest any profits in reporting. The advantage to the government would be that the money to pay the vultures to flock off would come not from the public purse but instead from new, hopefully more civic-minded local owners. The only remaining matter would seem to be price. How much would it cost us to pay off the hedge funds and be rid of their malign neglect? The devil, as always, will be in the details.

Friday, September 1, 2017

The “Netflix Tax” and other brilliant cableco propaganda

The following was published in the September/October issue of the Canadian Centre for Policy Alternatives magazine The Monitor and reprinted in The Tyee.

No sooner had Liberal MP Hedy Fry’s parliamentary heritage committee handed down its report on Canada’s news media crisis in June (after 16 months of hearings in Ottawa) than the newspaper industry bellied up to the trough and put in for a bailout worth $275 million a year. The timing was poor, as it appeared the other shoe had dropped a bit too quickly.
When it comes to money grabs, however, the press proved bumbling amateurs compared with Canada’s electronic media.
Titled Disruption: Change and Churning in Canada’s Media Landscape, the Fry report made many sensible recommendations. Some are long overdue, like changes to our charitable giving laws that would allow tax-deductible donations to fund journalism, as they can in the U.S. and elsewhere. Other recommendations repeat pleas made by previous inquiries, such as for a diversity test to prevent market dominance by any media owner, and changes to the Competition Act that would treat news media takeovers differently than those in other industries. The same measures were suggested in 2006 by a Senate committee on news media, but they were ignored by a newly installed Harper government that looked the other way for a decade as the country’s media instead consolidated into unprecedented power centres.
Internet Service Provision (ISP) profit margins, 2012-15
Our largest newspaper chain (Postmedia) was taken over on Harper’s watch by U.S. hedge funds, which now own 98% of the company—despite a supposed 25% limit on foreign ownership in this culturally sensitive industry. Postmedia in turn took over Sun Media, our second-largest newspaper chain, giving it 15 of the country’s 21 largest dailies, including eight of the nine largest in Western Canada.
CEO Paul Godfrey promised to preserve competition in cities where Postmedia thus owned both dailies and the Competition Bureau signed off on the deal in 2015. The double-cross came last year, when Postmedia merged the newsrooms of its duplicate dailies in Vancouver, Edmonton, Calgary and Ottawa, prompting Fry’s inquiry. (See “Can Canada’s Media Be Fixed?” in the July-August 2016 Monitor.)
The Fry report left vague any process for subsidizing news media in its first of 20 recommendations, urging only that the heritage minister “explore the existing structures to create a new funding model that is platform agnostic and would support Canadian journalistic content.” Within hours, however, the newspaper industry weighed in with a detailed—and self-serving—proposal that was hardly agnostic with respect to platforms.
The industry suggested the Canadian Periodical Fund, which currently subsidizes magazines and non-daily newspapers to the tune of $75 million a year, offered a suitable model. News Media Canada, an industry group created by a recent merger between Newspapers Canada and the Canadian Community Newspaper Association, proposed extending the CPF to daily newspapers. It asked the government to simply underwrite 35% of their editorial expenses, but to not give such assistance to regulated broadcasters, who already benefit from the CRTC’s largesse, or to digital media like upstart blogs.
“No one wants to fund personal rants or political agendas,” argued Bob Cox, publisher of the independent Winnipeg Free Press, who heads News Media Canada (despite Postmedia’s dominance of the industry). Connecting the dots in all of this, we find some unsettling connections.
A draft of News Media Canada’s proposal that was circulated to groups for endorsement came on letterhead of the Public Policy Forum, but the final version made no mention of involvement by the think-tank. Headed by former Globe and Mail editor Edward Greenspon, the PPF was paid $200,000 by the Heritage ministry in 2016 to research Canada’s media malaise.

Greenspon’s report The Shattered Mirror, handed down early this year, took up with vigour the newspaper industry’s escalating beef against Facebook and Google, which circulate news online and dominate the digital ad market. But it so exaggerated the plight of newspapers and the threat of the foreign internet giants that Carleton University media economist Dwayne Winseck accused Greenspon and his scholarly research team of “goosing the numbers” to make their overstated case. The PPF’s media projects may have been separate and unconnected, but the optics are nonetheless poor.
The Harper decade also saw the consolidation of even more worrying power centres in Canada’s electronic media. The Fry report’s most contentious suggestion was for where the money to fund flagging Canadian journalism should come from, and the country’s media seemingly circled the wagons on this one.
The report proposed a levy on internet service providers (ISPs), which was immediately framed as a “Netflix tax” by some journalists. Reporters who had received leaked copies of the Fry report grilled Prime Minister Justin Trudeau on the proposal almost before the ink was dry. He disowned any such idea, saying “we’re not raising taxes on the middle class.”
What the report really suggested, however, was extending to internet service provision the 5% levy that cablecos already pay on their television revenues to fund Canadian broadcast content. It makes sense, after all, that those who are cashing in fastest on the digital revolution should help fix the mess the internet has made of media.
The CRTC’s latest Communications Monitoring Report shows the cabelcos make profit margins on their unregulated ISP rates in the range of 45%. So rich have they grown, first through lucrative cable TV monopolies, then with broadband internet access, that they have all bought TV networks. (CTV is owned by Bell, Global by Shaw, and CITY by Rogers.) That gives the vertically integrated content/carrier TV giants tremendous power over national perceptions.
If they say Fry is angling for a new tax on Netflix-watching Canadians, who will believe her report in fact urged a levy to claw back excess profits from the corpulent cabelcos?
Marc Edge teaches media and communication at University Canada West and the University of Malta. His latest book is The News We Deserve: The Transformation of Canada’s Media. (Vancouver: New Star Books, 2016).