So how long can Postmedia, Canada’s largest newspaper chain, stay afloat?
A sign of the company’s fiscal crisis came in September when unionized journalists and sales staff at the Ottawa Citizen and Ottawa Sun voted 32 to 24 to accept a Postmedia contract that reduces sick pay, dental and other health benefits. The company had threatened to lock out the workers if they didn’t accept the deal.
“People were afraid for their jobs, they were afraid for the newspaper,” Deborah Cole, president of the Ottawa Newspaper Guild, said in an interview with National Observer.
In a letter sent to employees before the vote, Postmedia human resources director Chris Krygiel explicitly used the threat of undermining the newspapers as a consequence of refusing the contract. “Even though we will continue to publish during a labour dispute, do you want to face the uncertainty that advertisers and subscribers that leave during a disruption may be gone forever?” Krygiel wrote.
Anyone looking at Postmedia’s books could conclude such threats are not as empty as they often are in collective bargaining standoffs.
Postmedia is Canada’s largest media chain, with an estimated 200 newspapers, magazines and digital outlets — reaching more than 10 million Canadian readers daily.
Of late, Postmedia has been closing newspapers and laying off staff at a relentless pace: in June, it announced it would be closing six small papers in Ontario and Alberta, move three more to online-only publishing, reduce another from a bi-weekly to weekly publishing, and chop 10 per cent of staff across the entire chain.
In the latest round of cuts at the Citizen and Sun, four buyouts were approved, although another two were rejected because of the low staffing levels. At least 30 employees at other Postmedia papers left through buyouts.
All of this is also hanging over the heads of unionized members at the Montreal Gazette, whose leaders say were ready to strike if the company locked out their Ottawa counterparts. After the Ottawa employees backed down, the Gazette workers’ power at the bargaining table was reduced.
The head of the Montreal Newspaper Guild says his members won’t retreat. “The ratification of the employer’s offer in Ottawa was disappointing, particularly when Montreal was standing behind them to go on strike in the event Ottawa refused to vote on or rejected an unsavory contract,” Ron Carroll told National Observer.
Gazette employees returned to the bargaining table on October 9th and likely face a similar contract offer and threat of a lockout, he said.
The contract talks have highlighted Postmedia’s gutted state. “Our staffing levels are so low that departments aren't completely functional,” says Cole. For example, she says the entire business office at the Citizen and Sun was left without staff when one employee was on holiday and another was away because of a death in the family.
Despite crying poverty to its employees, Postmedia’s top executives continue to enrich themselves with growing amounts of compensation. A financial statement issued last year revealed that the company gave its top executives a 33 per cent pay raise in 2017 — from $3.9-million to $5.3-million. CEO Paul Godfrey’s compensation jumped from $1.66-million to $1.74-million, while COO Andrew MacLeod‘s increased from $721,000 to $841,000.
“I think it's clear from the way that they treat us that they don't respect us, that they don't respect the newspaper, that they don't respect journalism,” says Cole. “That's what we see.”
Under Godfrey, the Postmedia chain has also emerged as the country’s propaganda outlet for conservative parties and right-wing ideologues. And it’s never far from scandal and lawsuits, including the sudden departure of board member David Pecker for his role in keeping reports about Donald Trump out of the media.
Ultimately, though, the big question is how long can Postmedia continue until its American owners pull the plug on the whole enterprise?
Postmedia's books are unhealthy
While the company has total assets of $372-million, its liabilities amount to $452-million. In its most recent filing, the company had a net loss of $15.5-million for the third quarter, compared to $11.1-million profit from a year earlier. Overall, the company’s quarterly revenues fell $21-million from the same time last year. Print advertising and circulation revenues continued to plummet.
In 2017, Postmedia had revenues of $754.2-million — down from $860.3-million in 2016 — a loss of more than $100-million in one year alone. While the company stanched its net losses (which hit $99.4-million in 2016) and was boasting a net profit of $40.3-million, it seems the company’s flirtation with profitability was short-lived.
Postmedia is carrying a heavy debt load. The company owes its creditors $281-million. This is split into two tiers of debt repayment priority in the event the company can no longer pay its bills. All of it comes due by the summer of 2023.
The first group-lien notes is owed to a group headed by a Canadian firm, Canso Investment Counsel Ltd. They’re owed a total of $140-million with an 8.25 per cent interest rate, which comes due in July, 2021.
The second set of debt is held mostly by a group of investors led by Chatham Asset Management, a hedge fund based in New Jersey. That debt is $132-million at a 10.25 per cent interest rate and is due to creditors in July, 2023. The second group gets paid only after the first group does, and only if there’s money left to pay them. (Should Postmedia ever enter foreclosure the first-lien holders get paid first, then the second-lien holders are paid next, if there are remaining funds.)
Al Rosen, the dean of Canada's forensic accountants, and founder of Rosen & Associates Ltd., a Toronto-based accounting firm, examined Postmedia's books on behalf of the National Observer and says the cash from operations (such as money from selling ads) is increasingly going to the company's lenders, and not to keep Postmedia functioning. And he sees Postmedia selling off valuable assets to keep the operation afloat. "Your business is going to be successful in the long run only if you get positive cash flows from operations, which is sales and that type of stuff," explains Rosen, "and so far these guys have been losing on the operations side and that is always scary."
Media researcher Marc Edge says debt is Postmedia's biggest problem. “They’ve got their heads well above water on an operating basis,” he says. “The problem is all this interest (on the debt).”
But Edge says there is little haste to push Postmedia into bankruptcy. “They will not go into bankruptcy if they can avoid it,” he says. “The current arrangement is too lucrative for its hedge fund owners. This way they get to skim their take off the top every month as payments on the high-interest loans they hold, having bought the distressed debt of Canwest at pennies on the dollar before it defaulted in 2009.”
Interest payments of $6.34-million contributed to an overall loss in the most recent quarter.
But Rosen also says the financial statements suggest the lenders are going to benefit from Postmedia's demise by garnering tax benefits. "It looks like another tax-based gimmick," he says. "Clearly this thing is a multi-staged way of getting the cash out of the business and into the pockets of the lenders and two main sources are receiving the cash and the second is claiming losses for tax purposes to reduce taxes on successful operations outside of Postmedia." In other words, says Rosen, Chatham and Canso can use losses at Postmedia as a way to cut their tax bills on successful businesses they are operating outside of Postmedia.
Overall, Edge believes that the company no longer can pay off its debts and meet all of its other obligations, and therefore will continue to cut relentlessly.
This affects the quality of the newspapers, making them less appealing to readers and advertisers — therefore hastening the death spiral. In February of last year, Godfrey was asked by Toronto Life whether his strategy of cutting, and then cutting again, had affected the quality of Postmedia’s newspapers. “Are our papers as good as they used to be?” he asked. “No, but they haven’t become unacceptable.”
Despite the management, many Postmedia journalists continue to excel, earning multiple nominations and awards for their work, including several National Newspaper Awards in 2018.
Postmedia papers toil for Canada's political right
At the same time, the company is losing many paying customers.
Take the National Post, the chain’s flagship paper, as an example. Its paid weekday subscriptions fell from 93,000 in 2014 to 79,000 by 2016 (the most recent year such numbers are available). One would assume the figure is even lower today.
But is this decline also caused by Postmedia’s newspapers narrow ideological positioning? Godfrey, who is in late 70s, has been a stalwart champion of Canada’s conservative parties and politics his entire adult life. And Postmedia’s dailies have lashed themselves to the federal Conservative Party and their provincial iterations.
During the 2015 federal election, the company’s major dailies were ordered to run pro-Stephen Harper editorials and full-page, front-page ads from the Tories warning against a Liberal win, while killing or altering columns critical of Harper.
More recently, this political bias has been reflected in support of Doug Ford, the polarizing new premier of Ontario, who has received fawning coverage from the Toronto Sun, a Postmedia daily tabloid in Canada's most populous city.
Before the 2018 Ontario campaign began, the newspaper crafted an election strategy to boost Ford's Tories and advocate for change from the previous Liberal government, including "50 reasons to leave the Liberals," Canadaland reported in April.
How much is Postmedia support for the right-wing influenced by its American owner?
Edge says when Postmedia was formed with the assistance of U.S. investors, it had to offer two sets of shares, one set for Canadians, “class-A shares,” and another for foreign investors, “class-B.” The class-B shares are limited to 49.9 per cent of the voting power, no matter how many of the shares exist. Ensuring majority control by Canadians enables the company to take advantage of tax laws that favour Canadian media outlets. According to the company, as of July of this year, there were 93.7 million shares available to foreign investors, and only 61,687 reserved for Canadians. “So those variable [foreign-owned] shares, they can’t have much voting power,” Edge says. “And the few Canadians who hold the shares, their shares are of considerably greater voting power. But the whole thing is just a farce.”
Chatham, the hedge fund in New Jersey, has interests in multiple old-guard news publishers, including 80 per cent of American Media Inc. (AMI) headed by David Pecker, a friend of U.S. President Donald Trump.
Chatham’s stake in Postmedia gives it enough power to appoint a maximum of one third of the company’s board of directors. Until this past August, Pecker sat in one of those two seats (he joined in 2016). While Pecker was there, he was paid $117,550 during his first term, according to a 2017 Postmedia investment document. In that time, he was also part of the compensation committee, which determines executive salaries and bonuses.
Pecker resigned from the board months after it was revealed he helped pay off some of Trump’s alleged mistresses, and weeks after it was reported he was granted immunity for agreeing to speak with authorities about the payments.
Pecker and AMI did not respond to a request for comment.
The other Chatham appointee on the Postmedia board is Daniel Rotstein, a former vice-president of HR at AMI. (Rotstein directed all questions from the National Observer to Postmedia.)
National Observer sent a list of questions to a Postmedia spokeswoman about the company’s labour negotiations, an ongoing Competition Bureau investigation into a recent deal between the company and Torstar, Pecker’s resignation, and other topics. Multiple requests for comment received no response. A request for an interview with Godfrey through Postmedia's communications department, as well as directly to his email also met with no reply.
Postmedia's journalistic ethics under scrutiny
The choice of Pecker to be on the board of Postmedia has prompted serious questions about the company's ethical bearings as a journalistic enterprise. Pecker turned the National Enquirer into a propaganda organ for Trump. Prior to the 2016 election, it ran misleading stories on Hillary Clinton, with headlines such as “‘Sociopath’ Hillary Clinton’s Secret Psych Files Exposed!” and a special nine-page investigation under the headline “Hillary: Corrupt! Racist! Criminal!”
But Pecker’s payments to a former Playboy model whom Trump slept with was designed to ensure her story never saw the light of day prior to the 2016 election. She (and others) signed non-disclosure agreements in return for payments. Pecker even had a safe filled with documents detailing hush money paid to kill damaging stories about Trump.
That Chatham and Postmedia thought that Pecker should be on the board is also puzzling given AMI is in financial trouble, losing huge sums.
But it also suggests that ethical journalism may not be a priority to the company's owners, as revealed in Arthur Kent’s defamation lawsuit against the company.
The former war correspondent and TV producer sued columnist Don Martin and Postmedia over a column Martin had written about Kent in 2008 when the journalist was running for a seat in Alberta’s legislature. Martin’s column painted Kent as an out-of-control egomaniac and “dud” who was running a disorganized campaign.
During the four-week defamation trial in 2015, Martin admitted on the stand that the lede of his story was “not true.” In fact, the court found at least 10 factual errors with the piece. He’d been fed uncorroborated information by some unhappy Conservatives.
Moreover, the lawsuit could likely have been avoided if Postmedia had simply published Kent’s rebuttal to Martin’s column, which they refused to do.
Kent also discovered Postmedia withheld key internal emails during the discovery process, one of which had Martin asking his source whether there was “Any more dirt?” on Kent.
In 2016, an Alberta judge found that Martin and Postmedia had indeed defamed Kent, and awarded him $260,000 in damages and $250,000 in costs. This winter, an appeal court increased his award for costs by another $200,000.
“A news organization, intentionally concealing records and giving false evidence? Postmedia’s credibility is in tatters,” says Kent. “Only they hold the key to restoring that credibility. It will require candour and honesty, qualities they appear to have abandoned.”
A reporter who started his career at the Calgary Herald in the 1980s, well before Postmedia existed, Kent says the paper could come back from the brink, but changes in leadership are required.
“Nearly all of my memories of the Herald are fond ones, from the time my father served as associate editor, through my own reporting to the paper after 9/11 and from Afghanistan,” observes Kent. “Let’s remember the Herald’s journalists were locked out in 1999, merely for trying to form a union. That paper had heart. It could find heart again, free of Paul Godfrey and his hedge fund patrons.”
Meanwhile, back at the contract talks between Postmedia and the employees at The Gazette in Montreal, union leader Ron Carroll pointed to some of the company’s executive bonuses as one of the reasons they’re going to fight when it comes their turn to bargain.
“My members are more united than before after seeing the folks at the Ottawa Newspaper Guild capitulate to brazen intimidation tactics by the greedy hedge fund managers who are squeezing every last drop of blood of hard working and dedicated employees of Postmedia in order to give senior executives millions in bonuses and 30 per cent raises in salary while demanding severe reductions in pensions, benefits, vacation, sick pay and wage freezes for up to four years,” Carroll says.
As for Deborah Cole at the Ottawa Newspaper Guild, she feels discouraged by what’s happened. “I feel bad for everyone. You know, I'm 61-years-old and the next time we're in bargaining, I won't be there, it’ll be somebody else, but I think that it’s going to be worse,” she says. “Once you let them get away with it, they just going to want more.
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