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May 28, 2020, 11:13 a.m.
Business Models

The Toronto Star’s owner once dreamed that it would be a nonprofit. Now it’s being sold to a private equity firm.

The buyers say a lot of the right things. But since they seem to have no publishing experience, there’s no way to know what their plans are for the corporation, or for the newspaper.

There’s a major irony behind this week’s sale of the Canadian newspaper publisher Torstar. Fabled owner Joseph Atkinson left Torstar’s flagship newspaper, the Toronto Star, to his foundation upon his death in 1948. If that arrangement had gone ahead, the paper would have been an early example of the ownership model of the Tampa Bay Times and the Philadelphia Inquirer. Foundations certainly don’t solve all of journalism’s problems, but they do ensure local, stable ownership and perhaps greater support for producing public service journalism.

Instead, Atkinson’s plan faced a decade of legal challenges. In the end, his trustees bought the paper and pledged to uphold its principles, including a focus on social justice, civil liberties, and civic engagement.

This week, Torstar, the corporation that owns the newspaper, agreed to be sold for $52 million Canadian dollars, though the final sale still depends on shareholder approval. This would put an end to Atkinson’s hopes for an innovative ownership structure of the Star, just as the pandemic drives what certainly may be the last nail in the coffin for advertising-supported news.

What’s ironic here is that the sale comes just two years after the Canadian government finally and belatedly made nonprofit status available to news organizations, along with pledging government funding — $595 million Canadian dollars over five years — to support journalism. Canada’s finance minister at the time noted that this represented “investments to ensure that we continue to have an important free press to ensure that we have a strong and healthy democracy.” This two-pronged approach, offering both a legal entity and the funding to support it, differentiates Canada’s response to the journalism crisis from the American one. In the U.S., for-profit startups play a larger role, and philanthropy and audience donations support nonprofit news.

Nonprofit status isn’t exactly the structure that Atkinson imagined — instead, he intended the for-profit paper to be owned by the nonprofit foundation. Still, it’s certainly in Atkinson’s spirit. But this week’s sale means the Star won’t get a chance at life as a nonprofit.

In other words, the change in the law was too little, too late for the Star. The Torstar sale comes after a decade of financial trouble in Canadian journalism. An overreliance on advertising, which at Canadian newspapers plummeted by almost half between 2006 and 2015, has led to problems across the industry. One study found that over 250 news outlets had closed in the country between 2008 and 2018, and another that a third of journalism jobs had disappeared between 2010 and 2017.

And the pandemic has exacerbated the problem by decimating the advertising market nearly overnight. Torstar’s print advertising revenue for the first quarter of this year was down almost 40%, and digital ad revenue had fallen 13%, the company reported. Traffic and subscribers grew rapidly at the same time, as people scrambled to learn about COVID-19. For Torstar, though, growth in low-cost digital subscriptions was offset by the loss of more valuable print subscribers, leaving subscription revenue down almost 4% over 2019. As a result, Torstar cut 85 positions in early April, and it’s likely the pandemic’s impacts will continue to cause financial trouble for the newspaper.

But Torstar’s woes long pre-date the pandemic. In February, the company sold the headquarters of another of its major dailies, the Hamilton Spectator, for $25.5 million (Canadian). And, like most newspapers, the Star has weathered many rounds of layoffs, a sign of how deep the trouble has been.

Now, the sale leaves Canada’s largest newspaper in uncertain territory. The buyers, entrepreneurs Jordan Bitove and Paul Rivett, and their firm, NordStar Capital, may well turn out to be good owners. They certainly say a lot of the right things (“Our focus is on the long-term viability of the business,” “High-quality journalism is not cheap,” and “There’s no question it’s been a difficult time for Torstar, but the need for reliable journalism has never been greater”). And they’ve been emphasizing the fact that they’ll make Torstar private to protect it from shareholders, whose expectation for dividends can be incompatible with investing in newsrooms.

But since they seem to have no publishing experience, there’s no way to know what their plans are for the corporation, or for the newspaper. This uncertainty stands in sharp contrast to Atkinson’s vision, in which the newspaper would explicitly uphold a set of principles — and be spared the kind of rapid-fire ownership changes that have destabilized corporate-owned newspapers in Canada and the U.S.

In the U.S., the erosion of the news business model has led journalists to create hundreds of nonprofit news organizations, including, late last year, the first conversion of an existing paper to a nonprofit. For-profit startups like BuzzFeed have become mainstays of the news ecosystem, and everyone from universities to public media stations is experimenting with new models.

Canada for the most part hasn’t experienced this kind of innovation in the sector, though there are a few successful news startups, including Discourse, which focuses on underreported communities, and The Logic, which reports on the innovation economy. Instead, Canada’s major advantage is greater appetite for government involvement and support than we have here in the U.S. The Canadian Broadcasting Corporation, though woefully underfunded by the standards of most developed countries, provides coast to coast coverage. And the 2018 change that allowed for nonprofit status for news organizations and pledged $595 million to support them – including a $50 million fund for local news that raised some controversy — shows the hybrid path Canada plans to follow. This change lets news organizations accept tax-deductible donations, which the government hopes will spur the kind of foundation support for news we’ve seen here in the U.S. And in case it doesn’t, the government funds act as a backstop.

Despite these changes, the Star faces the future as a corporate-owned newspaper. It’s impossible to know what would have happened had the Star successfully become nonprofit-owned in 1948. And there’s still a lot to be worked out about the impact of the new nonprofit law on Canadian journalism. But this week’s sale means we’ll never find out.

A previous version of this story implied that The Logic and The Discourse is a nonprofit. They are for-profit companies.

Magda Konieczna is a journalism professor at Temple University, and a former city hall reporter at the now defunct Guelph Mercury, which was owned by Torstar. She is also the author of Journalism Without Profit: Making News When the Market Fails (Oxford University Press, 2018).

Photo of Toronto Star building by petmutt used under a Creative Commons license.

POSTED     May 28, 2020, 11:13 a.m.
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