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Nov. 28, 2016, 2:51 p.m.
Business Models

Newsonomics: Canada’s government imagines what a news-less future might look like

Canada’s press woes are bad enough unto themselves, but they also serve as a sign of earlier winter for the U.S. press.

Given our stunning recent news weeks here in the U.S., you may have missed a little story from up north in mid-November. In what was truly an extraordinary statement, the government of Canada is now considering “what the media landscape would look like without the country’s two largest newspaper companies.”

Yes, you read that right. Prime Minister Justin Trudeau has his Department of Canadian Heritage studying what a post-press future might look like — and what its implications might be for one of the most civil democracies in the world. Canada’s two largest newspaper companies are Postmedia, with 44 dailies, and Torstar, which owns the largest circulation daily The Star. Together, they account for nearly half of the roughly 100 remaining dailies serving Canada’s 35 million people. Likewise, they employ about half the number of the nation’s daily journalists.

In the past year, Postmedia Network Canada Corp. has shed the equivalent of 800 full-time jobs. Last Thursday, the company said the job losses will deepen, announcing a target of a further 20 percent saving on salary costs.

The stark numbers: Canada, like the U.S., has lost about half its journalists in the last decade, sources tell me, though no official count is available there, either. Canada has also lost 20 out of 122 daily newspapers in the last five years.

Canada’s press woes are bad enough unto themselves, but they also serve as a sign of earlier winter for the U.S. press. We find the same conditions — accelerating print revenue loss and increasing private equity ownership — on both sides of the border. Combine a Trump presidency with further reduction in journalistic capacity and, by 2020, the press — which fairly and unfairly came in for much criticism in this election — will likely be much smaller and weaker.

Postmedia’s downward spiral

Canada’s press has been cratering faster than ours. For the most part, that’s a reflection of the ongoing mess that Postmedia, the country’s largest newspaper company, has become. The company emerged out of a bankruptcy and as its private equity owners “rolled up” other dailies, it took on debt that’s been unsupportable.

The result: it’s embarked on one poorly executed strategy after another and serially shed staff. Now those papers — dominant in large cities from Vancouver to Calgary to Ottawa to Montreal— may not be able to publish at all in the next few years.

Toronto star columnist David Olive described the company as “a foreign-controlled, debt-burdened contrivance flirting with insolvency that nonetheless is relied upon by about 21 million Canadian readers.” Just last week, Postmedia made more news after one of its top executives exited the company, taking with him a six-figure “retention” bonus.

Like their U.S. counterparts, Canadian daily newspapers saw the long decline of print advertising speed up in the middle of 2016. The third-quarter numbers were stunning: In Canada, both Postmedia and Torstar were down 16 percent in print ad revenues. (In the U.S., Gannett, the largest company, saw print ad revenues down 14.8 percent, McClatchy newspapers down 17 percent, and The New York Times down 18 percent.)

“Until now, [Postmedia] had been able to cut their way to a kind of profitability, or at least an ability to pay debt, but at a terrible cost,” John Cruickshank, chairman of the Canadian Journalism Foundation and co-chairman of Canadian Press, told me. “There are already signs of just how threadbare the situation is. We have provincial legislatures that have virtually no full-time reporters any longer. It’s just a really bad situation.”

Cruickshank, who stepped down in May as publisher of the Toronto Star after seven years, says the situation is worsening rapidly. He calls the government reviews “disaster planning.”

“With the last six months or 12 months of results, you’re beginning to see that [Postmedia] is now hitting the cliff, and it’s going to be very difficult for them to produce even the money required to deal with the debt.”

Cruickshank says that remedies for the evolving press emergency may be financial.

“One of the things that people have chatted about is that digital is not treated in the same way that print is in tax terms. In print, if you’re advertising in a non-Canadian publication, you don’t get a cost advantage from that. In digital, you do. There is some sense they need to change that legislation, although it’s not clear how it would apply.

“The other thing that has been chatted about is at some level of government there have been tax credits for digital spending and they could be made quite substantial. That’s something that’s high on some lists.”

Cruickshank says a tax credit might even be available to papers no longer making a profit, in the form of cash payment.

Paying subsidies, though, to Postmedia — which may be operationally profitable, but unprofitable due to all the debt it took on in consolidating Canada’s properties — might be a tough sell.

“There’s a feeling that would just be rewarding perceived rapaciousness,” Cruickshank said. “Nobody has that [feeling] about the Globe and Mail or the [Toronto] Star, I don’t think. To my knowledge, the government is still a fair ways from having made any decision around that.”

“At this point, what [newspapers] need is runway, more time to change their cost basis.”

He anticipates that a report will be issued in mid-2017.

An inquiry into press conditions

A parallel House of Commons inquiry into press conditions has been underway for months. In mid-November, it heard a frank talk from Ken Waddell, publisher of the Neepawa Banner, Neepawa Press, River Banner weeklies in southern Manitoba.

“If information is not reliable and verifiable, it is at best useless and at worst dangerous,” said Waddell, who’s been in the news business for 50 years. “In the newspaper business, that means that the role of publisher has to be locally based. Regardless of the size of the community, the publisher has to be local.”

Responding to the testimony given by Facebook and Google representatives — who spoke of the abundance of Canadian news, and U.S. news they carry into Canada — Waddell responded, “I’m talking about boots on the ground. I’m talking about local commitment.”

The private equity connection

It’s hard to imagine a similar government commission or study in the U.S.

While Canadian journalists enjoy similar free press liberties as Americans do, our First Amendment has provided an all-but-absolute separation between state and press. And we’ve liked it that way. Certainly, a government report looking into the newspaper industry would raise tall red flags in the U.S. However, this report may do more to spur public discussion of the press’s demise than to find a specific government remedy.

Canada and the United States are connected at the hip in newspaper economics. As the Toronto Star’s David Olive pointed to “foreign” ownership of Postmedia as one culprit, we can consider that Postmedia’s controlling owner, Golden Tree Asset Management, is based in New York City. Just blocks away are the offices of the controlling owners of two of the three largest U.S. newspaper companies. Fortress Investment Group controls Gatehouse, which continues on its buying spree. Alden Global Capital controls Digital First Media, which is in midst of its own next round of newsroom cuts.

Both of those companies continue to cut staff, reporting, and content creation as they meet the profit objectives of their owners. Their plan is to milk these down-spiraling business enterprises as long as they can.

To be clear, though, almost all daily publishers have found them themselves forced to cut, given the cascading losses of their broken print business. The question is the degree to which they’ve cut. We’re not mourning the death of printed newspapers, but of all the reporting — pixels or paper — that’s been disappearing for a decade.

So who will bring us the news? Local TV is making an effort — and just starting to feel more intense digital competition in its advertising sales. Public radio amasses a large audience, but only offers significant local reporting at some of its larger metro stations.

Just last week, the internet exploded over Facebook’s role in spreading “fake news”. Plenty of editorial chop shops and political manipulators have stepped in to provide election “news,” offering what might be a sneak preview of our dystopian news future.

The questions posed by this decline across the continent certainly aren’t new ones, but they now become more urgent:

  • Is local journalism a public good?
  • Can we entrust the local journalism business to private equity ownership?
  • What’s the role of Google and Facebook, whose digital ad duopoly has unmistakably caused great collateral damage to the press?
  • What are the models, new and legacy, that may propel us into the third decade of this difficult century?

So far, the “remedies” more publicly discussed in Canada seem fairly tame and underpowered — but at least they have been forced into the public discussion. In the U.S, it’s still largely a within-the-trade debate. Our new first step in the U.S. may be seeing that Canadian report on a press-less future as something newsworthy enough to write about.

Photo by Samuel Augusts used under a Creative Commons license.

POSTED     Nov. 28, 2016, 2:51 p.m.
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