This is fake news about the news. Sad!

Dear Editor & Publisher,

Your article “The Canadian Newspaper Industry is Getting a New Jolt of Life” (March 6) was well written by H.G. Watson, but its presentation on your pages was misleading in several ways, starting with the headline. After reciting the litany of woes that have beset the industry over the past decade or so, Ms. Watson mentioned a few digital initiatives that are attempting to help fill the growing news gap in Canada. These hardly qualify as the “jolt of life” somehow seen by your headline writer. The accompanying graphic was even more misleading, claiming that 171 local news outlets have closed in Canada since 2008. This does not jibe with data gathered scrupulously by Newspapers Canada, which actually show an increase over the past five years. It does, however, fit in well with the rampant myth-making I found in researching my 2014 book Greatly Exaggerated: The Myth of the Death of Newspapers. (PDF | reviews)

As mentioned in your article, the Canadian newspaper industry  suffered less severely during the Great Recession than in the U.S. That was because the economy north of the border did not decline as steeply due to more sensible banking regulations. Only one daily was closed, but it was immediately reincarnated as a local version of the free commuter tabloid Metro. By my count, eight daily newspapers have been closed in Canada since 2010 (seven others have moved to non-daily publication), but the vast majority of the closures have occurred under questionable circumstances that warrant federal investigation. The largest newspaper closed was the Guelph Mercury, which ranked about 50th in circulation among Canada’s then 90-odd paid dailies. The others were among Canada’s smallest. Six were closed and three were rendered non-dailies by two chains in the far western province of British Columbia that have been buying, selling, and even trading newspapers back and forth since 2010, then often closing them to eliminate competition. By my count, Black Press and Glacier Media have closed 19 of the newspapers they have exchanged, including non-dailies. More than half of the 15 newspapers the chains traded in one 2014 deal were subsequently shuttered, creating numerous local monopolies. The federal Competition Bureau seems not to have noticed. The chains have claimed that some of the closed titles were unprofitable, but financial statements filed by Glacier Media, which is publicly traded, show that it recorded a profit margin for the first nine months of 2016 in excess of 30 percent. Black Press is privately owned and is thus not required to disclose its finances, but it is partly owned by publicly-traded Torstar Corp., whose annual reports show that between 2011 and 2015 Black Press recorded earnings ranging from $15 million to $28 million, peaking in 2013. As for non-daily newspapers, according to Newspapers Canada data, there were 1,060 in Canada last year, or 18 more than in 2011.

As I show in Greatly Exaggerated, no publicly-traded newspaper company in North America suffered an annual loss on an operating basis between 2006 and 2013, a period which included the greatest-ever decline in newspaper advertising revenues, a stupefying drop of about half in the U.S. and a quarter in Canada. Most newspaper companies emerged from the recession making double-digit profit margins. Some barely dipped below 20 percent return on revenue. Even the dozen or so chains that declared bankruptcy during this period were profitable, some enviably so. Their problem was the enormous debt they had taken on in making acquisitions, which could not be serviced with their reduced revenues. Their newspapers were profitable. The debt-laden chains were not.

Hayley Watson poignantly asks in her article “What the hell happened to the Canadian newspaper industry?” The answer is simple – unhindered corporate financial engineering and inexcusable federal regulatory failure. My 2016 book The News We Deserve: The Transformation of Canada’s Media Landscape (PDF | reviews), chronicles how Canada’s largest newspaper company, Canwest Publications, was taken over following its 2009 bankruptcy by U.S. hedge funds despite a supposed limit on foreign ownership of 25 percent. The hedge funds bought up a large portion of Canwest’s massive debt at pennies on the dollar, then used part of it in making a so-called “credit bid” that won the company at auction. The real stroke of financial engineering genius came when the hedge funds kept the rest of this high-interest debt on the company’s books, meaning that the renamed Postmedia Network had to pay them first every month. As a result, of the $82 million in operating earnings Postmedia recorded in its most recent fiscal year (on revenues of $877 million, for a profit margin of 9.3 percent), it was forced to make $72 million in payments on debt bizarrely held mostly by its foreign owners. The result has been non-stop cost cutting to service this debt as Postmedia revenues fall.

But wait, it gets worse. The hedge funds doubled down in 2014, buying 175 of the 178 dailies owned by Canada’s second-largest newspaper chain, Sun Media. That gave it both dailies in three more cities – Ottawa, Calgary and Edmonton – in addition to Vancouver, where it already owned both. It promised it wouldn’t merge the newsrooms in those cities and the acquisition was approved by the Competition Bureau. By my count, that gave Postmedia 37.6 percent of paid daily circulation nationwide, and 75.4 percent in the three westernmost provinces, where it owns eight of the nine largest dailies. Despite its promises, in early 2016 Postmedia merged the newsrooms of its dual dailies in Ottawa, Edmonton, Calgary, and even Vancouver, where its corporate progenitor promised the Competition Bureau’s predecessor more than a half century ago that would never happen.

That’s when I decided to try and do something about this instead of simply researching and writing about it, as I have for the past 20 years. I presented some of the above facts to Dr. Hedy Fry, who is the longest-serving Member of Parliament in the federal Liberal government that was elected in late 2015 following almost a decade of Conservative rule. Hearings were convened in Ottawa by a Heritage ministry committee on Media and Local Communities several weeks later and have been ongoing for more than a year. A report by a think tank was commissioned, but it ignored the problems of ownership concentration and foreign ownership, instead laying most of the blame for Canada's local news disaster on the U.S. online giants Facebook and Google, which it suggested taxing to subsidize shrinking news outlets. It similarly promoted the newspaper death myth and was accused of "goosing the numbers" in doing so. The committee's recommendations to alleviate the ever-worsening journalism crisis in Canada are expected by spring.

A real jolt of life is badly needed for Canada’s decimated news media. It will hopefully come soon. In the meantime, can we please stick to the facts about what is undeniably a crisis and paint a picture that better conforms to reality?

Marc Edge, Ph.D.

Associate Professor

Department of Media and Communication

University of Malta