Myths muddy media ownership debate

Reprinted in The Tyee. 

“Media myths increasingly surround us in today’s ever more mediated world, few of which have proved more persistent than the well-worn canard about newspapers dying.” 

That’s the way I start the concluding chapter of my forthcoming book Greatly Exaggerated: The Myth of the Death of Newspapers, which is planned for publication next month by Vancouver’s New Star Books. The book is based on financial research I did for an article in the upcoming issue of the Newspaper Research Journal. It shows that none of the eleven publicly-traded newspaper companies in the U.S. or the five in Canada has shown an annual loss on an operating basis going back to 2006.

In fact, most are making double-digit profit margins, or more than twice the historical average of 4.7 percent for a Fortune 500 company. That’s a far cry from the 20-30 percent profit margins newspapers they routinely made before the double whammy of the Great Recession and the Internet reduced their revenues by more than half in the U.S. The decline in revenues in Canada, where the recession was not felt as badly due to more sensible banking regulations, has been about a quarter.

Just as we entered production this week, a deal went down between Postmedia Network and Quebecor Inc., two of Canada’s biggest media companies. It would give Postmedia the Sun Media chain of mostly tabloids, and with it newspaper monopolies in Calgary, Edmonton, and Ottawa, as well two dailies in Winnipeg and in the ultra-competitive Toronto market. I am still crunching the numbers on what this would mean for daily newspaper ownership concentration, but it would have to put Postmedia above 30 percent. Canada has had about the highest level of media ownership concentration in the free world, and this tightens it even further.

The most immediate effect would be to give Postmedia joint operations in four cities – Calgary, Edmonton, Toronto, and Ottawa – including monopolies in three of them. It could combine production, advertising, and circulation operations as it did in Vancouver 57 years ago, while hopefully keeping separate newsrooms. This will be subject to approval by the Competition Bureau, which will examine the extent to which Postmedia will dominate the market for print advertising in Calgary, Edmonton, and Ottawa.

The reaction has been predictably outraged among free press advocates. Some, however, have urged that Postmedia be allowed to swallow Sun Media because it is somehow challenged financially. Foremost in this effort has been Ivor Shapiro, chair of the school of journalism at Ryerson University in Toronto.

“What we’re talking about here is one threatened company . . . buying properties whose future was in doubt,” Shapiro told the Canadian Press when the deal went down last Monday. “That is way better at the end of the day than seeing both of those news organizations close down.” Shapiro repeated his position for the Saturday edition of the Toronto Star.

What we’re talking about here is two organizations that were on a death watch. I’d rather have one news organization that is not on death’s door, than two news organizations that are. Together they are stronger competitors than they were apart. 

No, together they are not competitors. Together they will be able to gouge advertisers and short-change readers in Calgary, Edmonton, and Ottawa, just like they have done in Vancouver for the past 57 years. These two organizations have hardly been “on death’s door,” as Shapiro puts it. They have been earning enviable profit margins. They just want to make more.

Here is a truncated version of my compilation of the financial results since 2010 for all five publicly-traded Canadian newspaper companies, which own about three quarters of newspapers north of the border.

How could the head of one of Canada’s largest journalism schools be so mistaken about the state of health of the country’s newspaper industry? Well, let’s just say that Professor Shapiro isn’t the only one laboring under the illusion that newspapers are on their last legs. That is the whole thrust of my book, and it’s a complicated tale. Ben Bagdikian called it “the myth of newspaper poverty,” and it has been used to advantage for decades by publishers looking to get around anti-trust laws that were designed to prevent anti-competitive behavior. Newspapers, after all, have considerable power over public perceptions, and they have used it to advantage for decades.

One of my favorite studies cited in my book examined how large U.S. dailies covered the short spate of newspaper closures during the Great Recession. It found their coverage contained “over-amped drama” and even “tabloidization,” with more than a quarter of all stories containing death imagery. “Newspaper journalists often fail to contextualize their reports with a comprehensive understanding of the economics of their industry,” noted the study. “They rely too heavily on the views of newspaper publishers and too little on empirical data.”

Toronto Star columnist Rosie DiManno also buys into the misconception that Postmedia is “bleeding money, staggering under accumulated debt and struggling to make its payments.” Even the usually-incisive Donald Gutstein bought into the myth that Postmedia is “hemorrhaging money” in his recent dissection of its ownership by U.S. hedge funds. Gutstein reported that the company lost $154 million in 2013, but that included extraordinary charges against income of $100 million for asset impairment, plus $34 million for restructuring costs, which means they laid off a whole bunch of people and had to pay them severance. Asset impairment is a classic “paper loss” that simply means the estimated value of the business went down. That has to come off the balance sheet of assets and liabilities somehow, and it does so in the annual profit and loss statement. Here is Postmedia’s for 2012 and 2013.

Note that interest expense eats up about half of Postmedia’s operating income, but that amount has been going down as the company pays off its debt with its positive cash flow. What I find most interesting, and which I wasn’t able to get into in my book, is that as a result of these financial gyrations it appears Postmedia paid no income tax in either 2012 or 2013. Suggestions for further research?

The Competition Bureau should not allow Postmedia more local monopolies

An edited version of the following appeared in today’s Tyee.

Canada’s three dominant newspaper chains will be reduced to only two if the federal Competition Bureau allows Postmedia Network’s proposed $316 million purchase of the Sun Media chain. The deal would create four more joint publishing operations – in Calgary, Edmonton, Ottawa, and Toronto – between supposedly “competing” dailies, similar to Postmedia’s partnership between the Vancouver Sun and Province. In three of those markets, Postmedia would own both daily newspapers and would thus dominate the market for print advertising as it has in Vancouver. (Toronto has four dailies – the Star, Sun, Globe and Mail and Postmedia’s National Post – although the latter two are published nationally.) In addition to Sun tabloids in five cities, including Winnipeg (where it competes with the Winnipeg Free Press), and the monopoly broadsheet London Free Press, the purchase would include 24 Hours commuter tabloids in Toronto and Vancouver and more than 160 community publications, mostly in Ontario, plus Sun Media’s news website Canoe.ca. 

“This development further reduces competition in both the Canadian print and online worlds which are already among the most heavily concentrated in the world,” noted Vincent Mosco, a Professor Emeritus at Queen’s University and author of The Political Economy of Communication. “A primary reason for the takeover is to entrench Postmedia’s monopoly power. This will slash journalism jobs and reduce the number of voices providing the variety of views essential for a thriving democracy.”

Some academics have argued that concentration of newspaper ownership isn’t a concern in the digital age, because online publications such as The Tyee and even amateur blogs provide more competition than ever for news and opinion. Not so, according to Professor Robert Hackett of Simon Fraser University, co-author of The Missing News. “This merger will mean more cutbacks and resource rationalization, less diversity,” said Hackett. “Unfortunately, volunteer-based citizen journalism probably won’t fill the growing shortfall in original general interest newsgathering.”

The Competition Bureauis only allowed to examine the effect of newspaper mergers and takeovers on the market for advertising, however, not for news and opinion. Its predecessor, the Combines Investigation Branch of the federal Department of Justice, held hearings into the 1957 Pacific Press merger between the Vancouver Sun and Province and found it to be an illegal combination between competitors. The arrangement was allowed to stand on the basis of “economic necessity,” however, after the parties argued that under the prevailing Natural Monopoly Theory of Newspapers eventually only one daily would be left in Vancouver. (A third daily, the News-Herald, was actually published in Vancouver until it was bought and folded by the new Pacific Press partnership.) The Vancouver Sun was then owned by the local Cromie family, while the Province was owned by the Toronto-based Southam chain. The Cromies sold the Sun to FP Publications in 1963, which started a succession of Eastern corporate ownership of Vancouver’s largest newspaper. FP was taken over in 1980 by Thomson Newspapers, owner of the Globe and Mail, which quickly flipped the Sun to Southam, giving it both Vancouver dailies. That day, August 27, 1980, became known as “Black Wednesday” because it also saw the closing of Thomson’s Ottawa Journal and Southam’s Winnipeg Tribune. A Royal Commission on Newspapers was called to investigate the disappearance of newspaper competition in Canada, while criminal charges of conspiracy and monopoly were laid against the chains, which were found not guilty after a trial.

Tabloids soon replaced the closed dailies in Ottawa and Winnipeg, however, modeled after the Toronto Sun that arose from the ashes of the folded Toronto Telegram in 1971. Sun tabloids proved so successful across Canada that Southam converted its Vancouver Province to tabloid format in 1983, which revived the flagging daily because it attracted a younger readership prized by advertisers. Southam was taken over in 1996 by Conrad Black, who sold it in 2000 to Canwest Global Communications, which renamed Pacific Press the Pacific Newspaper Group. The Sun Media chain was taken over in 1998 by Quebecor, which also publishes the French-language tabloids Le Journal de Montreal and Le Journal de Quebec.

The Competition Bureau held hearings into the acquisition by Southam in the late 1980s of most of the Lower Mainland’s community newspapers, including the North Shore News, Vancouver Courier and Now newspapers. It ordered the sale of some that competed with the Pacific Press dailies for advertising, but Southam successfully appealed the ruling to the Supreme Court of Canada. With the 2000 sale of Southam to Canwest, which owned BCTV, Vancouver came to have possibly the highest level of media ownership concentration in the free world. This eased considerably with Canwest’s 2009 bankruptcy, after which its newspapers and Global Television network were sold off separately. Its newspapers were bought by a consortium of their creditors headed by U.S.-basedhedge funds. That put Postmedia over the foreign ownership limit for newspapers set by the federal government, which the company got around by creating two classes of shares that ensured voting control would remain with Canadian shareholders. Postmedia sold its Lower Mainland community newspapers and the daily Victoria Times Colonist to Vancouver-based Glacier Media in 2011, further easing newspaper ownership concentration on the West Coast.

Postmedia’s purchase of Sun Media would raise the national level of newspaper ownership concentration considerably, however. The Canadian newspaper industry has been dominated recently by Quebecor, Postmedia and Torstar, publisher of the Toronto Star, the Metro chain of commuters tabloids in seven Canadian cities, plus three dailies and more than 100 community newspapers in Ontario. Each controlled about 20 percent of Canadian dailies, but adding the Sun Media chain would give Postmedia well over a third of the industry and create local monopolies in Calgary, Edmonton, and Ottawa. Postmedia claims the purchase would provide “cost synergies” of up to $10 million a year, which means that it plans to combine operations where it publishes more than one daily and to cut jobs and production costs by sharing office space and printing presses. For that, however, it would need Competition Bureau approval but could rely on the Pacific Press partnership as a precedent. It might argue that one of the newspapers in each market would fail unless it is allowed to go into business with the other and carve up the local market for print advertising. That would undoubtedly see advertising rates go up, however, to the detriment of advertisers and consumers. The Competition Bureau should look askance at that argument, as the success of tabloids has proved that a second newspaper that appeals to a different demographic can be financially viable. This has effectively repealed the Natural Monopoly Theory of Newspapers upon which the Pacific Press monopoly was allowed to stand more than a half century ago, to the everlasting detriment of Vancouverites. Postmedia executives did not immediately respond to requests for comment on this story.