U.S. hedge funds behind Postmedia squeezing PNG

The following was published on The Tyee.

Faceless foreign ownership is behind newspaper publisher Postmedia’s push to cut costs at Vancouver’s duopoly dailies, according to the head of the union that represents workers at the Sun and Province. “One of the big problems with Postmedia is it’s controlled by U.S. hedge funds,” said Mike Bocking, president of Unifor Local 2000. The latest move to trim expenses came with last week’s announcement that Postmedia will sell its Surrey printing plant and either contract out printing of the dailies or build a more efficient plant that would cost 70-75 percent less to operate. “The essential promise of hedge funds to their investors is better-than-market returns,” noted Bocking. “Many hedge funds are not really creators of value, but extractors of value.”

Hedge funds that specialize in buying up the debt of distressed companies at pennies on the dollar jumped into the newspaper business in a big way during the recent recession. A pair of American hedge funds are now major owners of the former Southam newspaper chain, which was sold at auction to a group of its creditors in 2010 following the bankruptcy of Canwest Global Communications. The new company’s share structure had to be altered to stay within Canada’s foreign ownership limits by giving the U.S. hedge funds shares with less voting control. Golden Tree Asset Management and Alden Global Capital both have directors on the Postmedia board, but Postmedia’s new head man in Vancouver insists their influence is not what is behind the company’s downsizing. “I don’t take instructions from Golden Tree or Alden,” said Gordon Fisher, president of the Postmedia subsidiary Pacific Newspaper Group. “They are investors. They are in for the long haul.”

Instead, Fisher says the problem at PNG is a cost structure that is out of line with other Postmedia newspapers, along with declining revenues from print advertising. “We have to cut our costs where we can,” he said. “I think our employees understand that reality.” Fisher was sent to Vancouver in January from Postmedia headquarters near Toronto, where he was president of the flagship National Post, with an apparent mandate to cut costs. He should be familiar with the labor situation at the former PacificPress dailies, because he spent some time at the Sun in the 1970s and ’80s, rising to managing editor. Fisher shocked PNG workers shortly after his return to Vancouver with what the HuffingtonPost described as “one of the bluntest newsroom memos ever seen.” Fisher told PNG staff that “if we don't find ways to dramatically reduce costs, the answer is clear. The business is unsustainable.” The alarming memo was quickly leaked and posted online. “We are all fighting not only for the future of the Vancouver Sun and the Province but for the lives and well-being of our families,” it concluded. 

The first result of the cost-cutting program was the departure of about 110 employees through buyouts and early retirement. In June, PNG put two entire floors of the Granville Square office tower it leases up for sublet at below market rates. Then in July, the company announced stiff hikes in subscription rates. Fisher cited “significant declines in advertising revenues” in a full-page letter to readers explaining the increase, yet promised them“we will be investing in and improving all our news platforms.” That appeared at odds with the wholesale departures, including high-profile columnists like David Baines and Jonathan Manthorpe, but Fisher said that only about 15 of the severed staff came from Sun and Province newsrooms. “We didn’t lose a lot of producing, creative, hard-nosed reporters. We had a couple of high-profile columnists who decided to retire. We’ve always had really good people come and then decide it was time to retire. There was nothing we could have done about that anyways.” A paywall erected around Sun and Province online content that was announced at the same time has been a huge success so far, according to Fisher. “We are exceeding our targets significantly,” he said.

According to John Miller, the author of Yesterday's New: Why Canada's Daily Newspapers are Failing Us, Fisher “has a reputation as a corporate hatchet man, having presided over many staff-reduction programs starting with the mass firing he carried out as new publisher of the Kingston Whig-Standard in 1994.” Fisher defended those cuts as necessary, as were subsequent staff reductions he made at the National Post and the recent downsizing at PNG. “The restructuring we have done has taken out of the newsrooms production work,” he said. “It’s not work that journalists do. There’s a digital evolution under way, and we’d be crazy to ignore it.” He insisted that both the Sun and Province will continue to publish in print and added there are no plans to close one newspaper or to merge them into one publication. “I didn’t come here to do that,” he said.

            

While hard times have definitely visited the newspaper business with the advent of the Internet and the recent recession, there’s only one small problem with Postmedia pleading poverty. It is actually making very healthy profits. Its latest quarterly report shows that it made $32.8 million in its third quarter on $191.8 million in revenues, for a tidy profit margin of 17 percent. It’s right there on page 2. That’s an enviable rate of return, given that the average profit margin of a Fortune 500 company is 4.7 percent. But it’s not quite as good as Postmedia did last year, when its return on revenue was 17.3 percent, and not nearly as good as in 2011, when it raked in profits at a rate of 19.7 percent. Postmedia reported that it suffered an operating loss of $95 million last quarter, but that figure is only arrived at by subtracting from its earnings some extraordinary and even imaginary expenses. Restructuring costs of $16.8 million included severance packages incurred in jettisoning staff, which will save the company money in the long term.  Most of Postmedia’s supposed operating loss, however, comes from a $93.9 million “impairment” charge that resulted from a reduced valuation of the company’s worth. Far from bleeding red ink, the company turns out to be well into the black, just not farenough for some. 

That could prove problematic in convincing Sun and Province press operators to make the kinds of concessions PNG is apparently looking for. The company has given Unifor, the new union created by the recent merger of the Communication, Energy and Paperworkers Union and the Canadian Auto Workers, until November 18 to come up with agreement that would see construction of a new, more efficient printing plant that reduces costs by up to three quarters. The company has already entered into a contract with an outside company to print the Sun and Province starting in early 2015, but it will not go into effect if the company and union reach a deal.

Press operators once had one of the most militant of the unions at the dailies, which were shut down by strikes and lockouts seven times between 1967 and 1994. Restrictive manning clauses often required staffing levels on the presses that were well above what were required by advances in printing technology. The multitude of powerful unions at the Sun and Province were consolidated into one as the result of a company initiative in 1996. Work stoppages have been infrequent ever since, perhaps because a large, diverse union tends to be less militant than a small one with greater solidarity. It looks like Unifor might get its first big test fighting for the jobs of its 260 press operators at PNG.