Tuesday, June 9, 2020

What Torontonians are finally finding out about the news

Western Canadians cynically refer to Toronto as The Centre of the Universe. They deride TSN as the Toronto Sports Network. Torontonians seem puzzled by this, mystified as to why all Canadians wouldn’t want to know about the latest doings of their beloved Maple Leafs. But now they are finally starting to find out what Canadians both in the West and in the Maritimes have been complaining about for decades.

It was only a few years ago that Toronto had four daily newspapers with four different owners. That’s more than any other city in Canada or the U.S., at least if you don’t count the Wall Street Journal as a New York City newspaper. (I would say North America except that Mexico City has literally dozens of dailies.) This relative abundance of perspectives may have insulated Torontonians from complaints in other parts of the country about the ever-diminishing diversity of news media ownership.

Oil baron K.C. Irving bought almost all of New Brunswick’s media in the 1940s, and his descendants have controlled it ever since. The Victoria Times and the Daily Colonist at the other end of the country merged production facilities in 1950 and gradually morphed into one title. The Vancouver Sun and Province worked the same type of non-editorial merger in 1957, but pledged to keep separate newsrooms forever after a federal inquiry found Pacific Press to be an illegal monopoly. Competing newspapers gradually began dying across the country, usually leaving only one daily in every city except Toronto.

The Montreal Star closed in 1979, leaving the Gazette as that city’s only English-language daily. When the Ottawa Journal and the Winnipeg Tribune were folded on the same day in 1980 by the Thomson and Southam chains, however, the first prime minister Trudeau called a Royal Commission on Newspapers. It urged limits on chain ownership, but a proposed Canada Newspaper Act was never enacted before the Trudeau I era expired.

Toronto remained fairly immune to all of the newspaper consolidation across Canada. Even when the Telegram folded in 1970, its workers quickly put out the colourful Sun tabloid. It was so successful that it was cloned in cities like Edmonton, Ottawa, and Winnipeg which had been left with only one daily, and these clones eventually became the Sun Media chain.

Toronto even added another daily in 1998 when Conrad Black founded the National Post. Black, a long-time Torontonian, had recently taken over Southam, which despite being the country’s largest chain and having its headquarters in the GTA, did not publish in Canada’s largest market. He founded the National Post as a national daily in competition with the Globe and Mail, which had published nationally since the early 1980s.

This diversity of ownership began to unravel in 2014. Postmedia Network, a consortium of U.S. hedge funds that had taken over the former Southam dailies in 2010 despite a supposed 25-percent limit on foreign ownership in this important cultural industry, bought 175 of Sun Media’s newspapers for $315 million. Toronto still had four dailies, but now two of them were owned by so-called “vulture capitalists,” whose raison d’etre was not journalism but instead profit. Soon after its takeover was rubber stamped by the Competition Bureau, Postmedia merged the newsrooms of its duopoly dailies in Vancouver, Edmonton, Calgary and Ottawa, effectively turning them back into one-newspaper towns again.

Then just the other week private equity players shockingly took over Canada’s second-largest newspaper chain, Torstar, which publishes Canada’s largest daily, the Toronto Star. The hastily-assembled Nordstar Capital promised to invest in the newspaper’s digital future and to uphold its liberal ideals, but nothing that soulless private equity players say should be believed.

Residents of The Centre of the Universe are understandably nervous. Speculation has Postmedia and Torstar consolidating, perhaps under the control of private equity player Canso Investments, to which both are deeply in debt. That would be four Toronto dailies with two owners. Well, at least you’ll always have the Globe and Mail, except that it recently went cap in hand to Ottawa, pleading poverty and asking for a handout. What next? 

Saturday, June 6, 2020

What private equity firms do to newspaper chains like Torstar

What must be the world’s worst-run newspaper company made its final, fatal blunder last week when the Torstar board of directors inexplicably agreed to sell it to a private equity firm for less than its cash in hand, much less its asset value. Torstar owns not only the country’s largest daily in the Toronto Star, a long-time liberal bastion, but several other Ontario dailies and the huge Metroland chain of community newspapers. The only possible reason I can imagine for the sell-off is that the Torstar board figured the current downturn in their business brought by the pandemic will somehow be permanent. Instead, like the rest of the economy, it is bound to bounce back after a quarter that will admittedly resemble a black hole on their account books.

The federal government has been pumping money into a wide range of businesses recently to keep them afloat during the crisis, not least the newspaper industry. Torstar recently reported that it expects to receive $18 million from the $76-billion Canada Emergency Wage Subsidy. Ottawa earlier allocated $50 million in 2018 and $595 million in 2019 to assist the withering newspaper business. It’s somehow never enough for News Media Canada, the industry association whose largest member is Postmedia Network, which is somehow 92-percent owned by U.S. hedge funds despite a supposed 25-percent limit on foreign ownership of our press.

Private equity firms love government handouts, which may be what got Torstar’s new owners interested. The newly-formed NordStar Capital promises to inject new life into the country’s second-largest newspaper chain. The important thing to remember about private equity firms, however, is to not believe a word they say and instead pay attention to what they do. They are the end stage of newspaper ownership, which began with family ownership in the 19th Century and moved to corporate ownership in the 20th Century once capitalists realized how profitable (and influential) they are. Now it’s vulture capitalists who are feasting on their still-profitable remains.

Postmedia promised in 2014 to preserve competition and even boost newsgathering when it bought Sun Media, then Canada’s second-largest chain. Soon after its takeover was inexplicably allowed by the federal competition Bureau, Postmedia merged the newsrooms of its duopoly dailies in Vancouver, Calgary, Edmonton, and Ottawa. So much for preserving competition. Then there was that naughty business in 2017 when Postmedia and Torstar traded 41 newspapers and immediately closed almost all of them, creating dozens of lucrative local monopolies for each other. Both swore up and down they had no idea that the other would do such a thing.
“We did not have any idea what they were going to do and they didn’t have any idea,” said Paul Godfrey, who was then CEO of Postmedia. “We understand the . . . legal rules involving collusion and you can ask anybody from Torstar, you can ask anybody from Postmedia.”
At least the Competition Bureau seems to have had its fill of Postmedia’s perfidy, raiding its offices and those of Torstar to find a paper trail which reportedly included agreements not to compete for years in the markets they vacated and even on which employees would be axed. The chains and their executives now face fines of $25 million and prison sentences of 14 years on possible criminal charges of conspiracy and monopoly. The whole thing has been mired in court ever since

It was only one of a series of blunders in recent years by Torstar, which is quickly slipping under the waves as a result. It spent a reported $40 million in developing a tablet app that failed to attract subscribers and was finally ditched in 2017. Strike two. It then embarked on a national expansion by hiring 20 new staff for its Metro chain of free commuter tabloids. It rebranded the dailies StarMetro and boosted their bureaus in Vancouver, Edmonton, Calgary, and Halifax. The strategy lasted less than two years and was scrubbed last fall. Strike three.

Torstar’s profits fell to $29.2 million in 2019, down from $34.8 million the previous year in earnings before interest, taxes, depreciation and amortization (EBITDA). Its 2020 first quarter report curiously did not include the EBITDA metric, leaving me to calculate it at a shockingly low $2.7 million, down from $6.7 million in the same period a year earlier. Well, the first quarter is always the slowest. Except for hehe this year. Did the sudden sight of freefall panic John Honderich and other members of the families that control debt-free Torstar into selling their heritage? The price tag seems a bargain at $51 million. That’s less than the company’s last two years of earnings. It’s less than Torstar’s $69.5 million in cash. One wonders what the minority shareholders might have to say. 

Even curiouser was a revelation by the Globe and Mail that NordStar was borrowing $50 million to finance the acquisition. Now it starts to make a bit more sense. The lender is hedge fund Canso Investments, which also financed Postmedia’s $315-million purchase of Sun Media and stands to inherit both chains if they go bust. At least it’s Canadian. Postmedia still makes north of $50 million in operating profit a year, however, so Canso could be waiting for a while. It made $54.6 million in its 2016-17 fiscal year, $65.4 million the following year, and $49.3 million in 2018-19, of which $28.5 million went to service its massive debt. It is also held mostly by its hedge fund owners, which bought it at deep discounts on the bond market when Canwest Global Communications was facing bankruptcy a decade ago.

This is how the hedge funds make their money, by skimming it off the top every month. As its revenues steadily decline, Postmedia has to cut costs – mostly by axing journalists – just to keep paying its loans. It did that well enough to make $26.8 million in the six months ended Feb. 29, which was actually up slightly from the same period a year earlier. That’s a 9.2 percent profit margin, yet they somehow have everyone bamboozled into thinking they are losing money and need to be bailed out. They will be getting a big surprise if a petition I helped author, which would limit bailout money to Canadian-owned firms, passes Parliament soon. I figure that would solve the problem of foreign ownership fast enough, as the bandits would likely beat a hasty retreat to the border.

The $50 million that NordStar is borrowing is supposed to go to finance some sort of digital makeover (remember, don’t listen to what they say) but it is curious that the amount is almost exactly the purchase price of Torstar. This is what the hedge fund New Media Investments did last year when it paid US$1.4 billion (C$1.9 billion) for Gannett, the largest U.S. newspaper chain. It borrowed the entire amount and more from another hedge fund at 11.5 percent interest. Now Gannett is laden with high-interest debt, just like Postmedia, and will continually have to cut costs as its revenues inevitably fall. If it goes under, the hedge funds will be first in line with their debt to take it over without some pesky legal obligations, such as leases, pensions, taxes, and union contracts, which bankruptcy allows them to escape. The Journal Register chain in the U.S. did this twice

Hedge funds now own seven of the ten largest U.S. chains. “The large investment groups tend to employ a standard formula in managing their newspapers – aggressive cost cutting paired with revenue increases and financial restructuring, including bankruptcy,” noted Penelope Muse Abernathy of the University of North Carolina.  A 2018 takedown of the trend in the magazine American Prospect laid bare the “malign genius” of the private equity business model.
It allows the absentee owner to drive a paper into the ground, but extract exorbitant profits along the way from management fees, dividends, and tax breaks. By the time the paper is a hollow shell, the private equity company can exit and move on, having more than made back its investment.
The hedge funds even have their hooks into UK newspaper chains now. Johnston Press, one of the largest provincial chains, was taken over by its lenders in 2018 when it could no longer service its massive debt despite making a 20-percent profit margin. Newsquest, another provincial chain which is even more profitable, is owned by Gannett. The most brilliant tactic of all enabling this trend has been bamboozling people into believing that newspapers are instead losing money and deserve public handouts. Must be the influence.

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.

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).

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.