And so it is fitting that the National Observer observe "the Tawdry fall of the PostMedia newspaper empire."
Postmedia is ...a ship taking on water, due to both self-inflicted and industry-wide wounds.
Of the self-inflicted variety, Postmedia was pilloried last month in the run-up to the federal election after its Toronto executives ordered 16 of its major daily newspapers to run editorials endorsing Stephen Harper. (Postmedia did the same thing last spring during Alberta’s provincial election, forcing its papers there to back Jim Prentice’s Tories).
In a surprising move, John Honderich, chair of Torstar Corp., which publishes Canada’s largest daily paper, The Toronto Star, devoted an entire op-ed pagearticle two weeks ago heaping scorn on Postmedia’s decision, decrying “the negative impact this affair is having on the newspaper industry in general. At a time when the relevance and impact of newspapers are under attack, this doesn’t help.”
Then there was the stunning resignation of Andrew Coyne as the National Post’seditorials and comments editor. Coyne quit on the eve of the election – although he remains a columnist with the paper – when his superiors told him he was not allowed to publish a column dissenting with their endorsement of Harper. Coyne, who declines to discuss the matter, tweeted his disapproval of the censoring, saying “I don’t see public disagreement as confusing. I see it as honest.”
Meanwhile, last week, the editorial board of the Ottawa Citizen suddenly resigned without citing a reason.
The silencing of Coyne was not an isolated incident either. In August, acclaimed novelist Margaret Atwood watched as a column she wrote for the National Postcriticizing Harper was posted on-line, then removed, and then edited before being reposted with some of her criticisms deleted. “Um, did I just get censored?” Atwood asked afterwards.
...Postmedia’s reputational hits are stacking up. Last winter, two of its top business columnists, Terence Corcoran and Peter Foster, and the National Post, lost a defamation lawsuit brought by Andrew Weaver, an esteemed climatologist at the University of Victoria and a Green Party MLA in the BC legislature. Corcoran and Foster wrote false information about Weaver, suggesting he exaggerated the dangers of climate change. The judge awarded Weaver $50,000 in damages. The decision is being appealed and Weaver will not discuss the matter.
...Since being founded in 2010, Postmedia seems to have bled copious amounts of red ink. In its most recent financial statement, it posted net losses of $263-million for this year alone, on revenues of $750-million, while weighed down with $646-million in long-term debt.
Before it bought the Sun Media chain of newspapers this past year, Postmedia’s revenues had fallen from $899-million in 2011 to $674-million in fiscal 2014 – a plunge of 25 per cent in just three years. Meanwhile, its shares, which rose to $17 in 2011, are now penny stock and no longer actively trading.
...Ironically, though, the most serious threat Postmedia faces might be from its owners and debt-holders. The company is controlled primarily by two American hedge funds – GoldenTree Asset Management LP and Silver Point Capital LP. Hedge funds are pools of capital that hunt for investment opportunities, but also have a reputation for being destructive and remorseless sharks within the financial industry.
Indeed, the hedge funds controlling Postmedia specialize in buying so-called distressed-debt companies. For them to profit from faltering businesses, however, often means slashing costs to the bone, sucking out cash flow and selling off assets for scrap to recoup their investment. “Basically that's what they do,” says Martin Langeveld, a former American newspaper publisher and industry expert with Harvard University’s Nieman Journalism Lab. “They take a company, they have different ways of getting their money out even if they don't really fix it… You are cannibalizing, you’re consolidating.”
...Postmedia’s roots go back to the Southam Inc. newspaper chain that was founded more than a century ago. In 1996, Black bought the Southam papers and soon created the National Post as its flagship paper. His term as boss would be short-lived, however: pressed by his bankers to chop debt, Black sold the papers to the Asper family’s CanWest Global Communications Corp. in 2000.
Seven years later, the New York-based hedge fund GoldenTree—co-founded by Steven Shapiro, a former manager with CIBC World Markets—began buying up CanWest’s debt issues. As CanWest floundered, GoldenTree acquired more of its debt. Poorly managed by the Aspers, weighed down by $4-billion in debt and pummeled by the credit crisis, CanWest declared bankruptcy in 2009.
A year later, GoldenTree and 19 other foreign and domestic lenders, mostly hedge funds, paid $1.1-billion for the CanWest papers, created Postmedia and made Paul Godfrey its CEO.
...At Postmedia, as revenue and circulation declined, it has downsized staff, sold off assets, consolidated and outsourced operations, cut Sunday editions and shuttered bureaus. Now all of its dailies are copy-edited and laid out, and even stories selected, in offices located in a strip mall in Hamilton, Ontario.
Despite these cuts, Postmedia has never earned any net profit, suffering combined net losses of $624-million since 2010. For the hedge funds who control it, on the other hand, Postmedia is a profitable investment. Because the company’s debt is owed to them, they receive interest payments at rates ranging from 8.25 per cent to 12.5 per cent.
...As long as Postmedia is paying interest on its debts and generating cash flow, the hedge funds will remain happy. The problem, though, is that Postmedia’s revenues keep falling. “It’s very difficult to stay healthy when you have less money every year,” insists Toughill. “Last year alone print advertising dropped 18 percent. That's a huge amount of money to have disappear out of the budget in a single year.”
Thus, in order to keep interest payments flowing to their American owners, the chain must continue cutting costs. But at a certain point, that’s no longer an option either. “If they continue to record net losses they will ultimately consume themselves in order to pay down the debt – unless they can turn themselves around,” says Mitchell Weiss, a former American financial services executive. “So they are in a race against time.”
...So what’s the long-term prognosis for Postmedia? According to Doctor, the hedge funds have likely figured out how they can get their money back by “managing [Postmedia’s] decline profitably.” Which might mean returning it to receivership and selling off its assets, with the hedge funds first in line as creditors to collect.
...One victim of the fall of Postmedia has been its journalism.
A former National Post journalist, who spoke on condition of anonymity, recalls that by last year, reporters were being asked to produce more and shorter stories, with less in-depth coverage. Another former Post reporter said “they would look for a regional CBC stories, get that and put a Post spin on it. That's how they found stories.” (Back in the day, the CBC poached a lot of its evening news stories out of the morning papers. Times, it seems, do change.)
...Another victim of Postmedia’s crisis is the Chinese wall separating advertisers from editorial content.
Once upon a time, newspapers could afford to alienate the odd advertiser because there were so many others to pay the bills. No longer. Former National Post editor Ken Whyte says it’s now commonplace for advertisers to demand favourable editorial content in return for their money. “Before, [newspapers] might've stood up and said we will let that million dollars go, we won't prostitute ourselves,” he remarks. “Now they'll see they will be way short on their budget and need the money.”
Last year, Greenpeace stumbled across a Powerpoint presentation that someone had leaked on-line. Produced by the Canadian Association of Petroleum Producers (CAPP) for Postmedia’s board of directors in 2013, the presentation proposed a close alliance between the media company and the oil industry’s main lobby group. “We will work with CAPP to amplify our energy mandate and to be a part of the solution to keep Canada competitive in the global marketplace,” it said. “Postmedia will undertake to leverage all means editorially, technically and creatively – through the Financial Post, Postmedia market newspapers and affiliated media partners – to further this critical conversation.” It’s unclear if this alliance ever materialized, although Postmedia said it would never surrender editorial control.
From a century as Southam the once great newspaper chain fell into the hands of the likes of Black, the Aspers of CanWest and then the vulture capitalists and their PostMedia. It's like one long, drawn out wasting disease first contracted in 1996 that metastasized in 2000 and went terminal in 2009, taking its credibility and reputation down with it. Good riddance.