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).

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?

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?

Monopoly is much better for business than competition, and for years the Competition Bureau has proved powerless — or unwilling — to stop Big Media from growing even bigger.

In the November deal, Postmedia Network and the Torstar Corp. divided up large swaths of the southern Ontario community newspaper market and dared the Competition Bureau to do something about it.

Postmedia, 98 per cent owned by U.S. hedge funds despite supposed limits on foreign ownership of Canadian newspapers, pointed out the deal was “not subject to the merger notification provisions of the Competition Act and no regulatory clearance is required to close the transaction.”

That is technically correct given the dollar value of the deal (although no money actually changed hands), but it doesn’t mean the Competition Bureau can’t review matters after the fact, which it promisedto do when pressed by reporters.

It could even roll the deal back, but don’t hold your breath, because Postmedia and Torstar have the precedent of regulatory inaction on their side.

The same thing, after all, has been going on for years mostly unnoticed in B.C., well out of the national media glare. The two largest provincial chains, Black Press (no relation to Conrad Black) and Glacier Media, have been buying, selling and trading titles since 2010 and then often closing them to create more lucrative local monopolies.

The Competition Bureau has not lifted a finger to stop them.

By my count, these two chains exchanged 33 community newspapers over a four-year period and immediately or eventually closed 24 of them, or a competitor in the same market.

The latest casualty came last month when Glacier Media closed the Westender, a Vancouver weekly it acquired from Black Press as part of a six-newspaper trade in 2013.

Glacier already owned the twice-weekly Vancouver Courier, which is Canada’s largest community newspaper, and the weekly Business in Vancouver. A 14-newspaper trade between the chains the following year has since seen 10 of them closed or merged.

Of the 14 paid circulation dailies that have been lost in Canada this decade — the latest being the Moose Jaw Times-Herald last month — nine were published in B.C. by Black Press (six) or Glacier Media (three).

As a result of these dealings, Black Press now owns every newspaper on Vancouver Island, which has a size and population similar to New Brunswick, except for Glacier Media’s daily Victoria Times Colonist. Glacier similarly now controls the community newspaper market in Vancouver’s booming eastern suburbs.
 

You might think that newspapers are dying and should be allowed to do these kinds of competition-killing deals in order to survive.

My research suggests otherwise.

I studied the annual reports of all publicly traded newspaper companies in Canada and the United States from 2006 to 2013 for my 2014 book Greatly Exaggerated: The Myth of the Death of Newspapers and found that not one recorded an annual loss on an operating basis during that time, despite an historic downturn in advertising revenues.

Postmedia had operating earnings of $54.6 million on revenues of $754 million in its 2017 fiscal year ended Aug. 31, for a profit margin of 7.2 per cent.

Fully 60 per cent of its earnings, however, went to pay the interest on Postmedia’s massive debt, most of which is held by its own hedge fund overlords, which are skimming their take right off the top in a nifty piece of financial engineering.

Torstar’s community newspaper division, Metroland, reported earnings of $21.2 million on revenue of $272 million in the first nine months of 2017 for a profit margin of 7.8 per cent.

Its flagship daily the Toronto Star, however, suffered a loss of $2 million over the same period. Torstar’s deal with Postmedia may help to subsidize the Star’s losses, but only by short-changing readers of its closed community newspapers.

A succession of media inquiries over the past half century — the 1970 Senate report on mass media, the 1981 Royal Commission on Newspapers report and the 2006 Senate report on news media — urged measures to slow Canada’s ever-increasing levels of media ownership concentration. All were ignored, however, and we are now left to deal with the consequences.

The Liberal government ordered hearings into media and local communities in 2016 after Postmedia merged the newsrooms of its duplicate dailies in four of Canada’s six largest cities.

It had promised to maintain separate newsrooms before it got Competition Bureau approval for its 2014 takeover of the Sun Media chain.

The hearings, chaired by B.C. MP Hedy Fry, resulted in a report in June calling for the Competition Bureau to be given more power to stop news media mergers and takeovers, as well as other measures to boost local journalism.

So far its recommendations have also been ignored.

The Trudeau government’s continued fiddling while the country’s news media disappear will soon constitute negligence of the highest order.