Oh Canada — where business model woes are running off the charts
"Canada is the canary in the media coal mine," Ken Goldstein, one of that nation's leading publishing consultants and analysts told me during a recent visit to Poynter.
If so, the air from up North is getting pretty toxic. Deciding how predictive that is for U.S media is trickier, though, because typical financial pressures are compounded by circumstances peculiar to Canada.
The troubles have been chronicled elsewhere, but some highlights:
- Newspaper ad revenues and circulation, which for a time held up better than in the U.S, are now in free fall. Postmedia, Canada's largest chain, has had waves of layoffs and consolidations, some of the most draconian this January.
- A few titles have taken or are contemplating radical life-saving measures. Most dramatic is the move at Le Presse of Montreal to shut down daily print and pin its hopes on a tablet edition (also de-emphasizing smart-phone apps, the company announced this week). The Toronto Star is moving that same direction.
- Unlike the U.S., where local broadcast remains a robust business, TV stations in Canada are in roughly the same bad shape as newspapers.
From my conversation with Goldstein and others, I have gleaned a number of factors that make the Canadian crisis especially threatening.
- The huge country has a population of only 36 million, about a ninth of the U.S.. And those people are bunched by the border where they have easy access to United States broadcast, print and digital affiliates. The dual-language culture of Quebec furthers the geographical challenge.
- Canadian local stations don't have the saving grace of huge political advertising revenues and rising retransmission fees, which have kept TV so prosperous here. Goldstein told me that the four private stations in his home town of Winnipeg have collectively lost money each of the last nine years.
- Government is a complicating factor. Like Great Britain the country has a big government-supported radio and TV news presence in the Canadian Broadcasting system. And a Competition Bureau regularly considers whether to rein in concentration at the biggest chains.
- Postmedia — like U.S. chains Digital First and New Media Investment — has been put together with hedge fund and private equity capital. Weak oil prices, a faltering economy and the much lower value of the Canadian dollar have dealt the company a nasty hand: while earning in Canadian dollars it must finance a large part of its debt with interest payments in U.S. currency.
I wrote six months ago about Goldstein's bearish forecast that most print newspapers and local broadcast outlets will be out of business by 2025. He noted that newspaper penetration was down to about 20 percent of households and continues to fall.
Events since don't provide much encouragement, though Goldstein said that the Toronto Globe and Mail, while different in many respects from the New York Times, has the combination of strong journalism and presence in print and on multiple digital platforms to be a survivor.
While Postmedia has made cuts in the thousands through the years, the January round of 90 had a cruel twist. Newsrooms in Calgary, Vancouver, Ottawa and Edmonton were nearly halved and asked to produce separate reports for the two titles Postmedia owns in each market.
Deposed Edmonton Journal editor Margo Goodhand wrote an especially eloquent decline-and-fall essay that detailed a succession of strategies — a shared copy/design center, a common national news report, and, yes, tablets — that failed to turn things around.
"Many old and once solid community institutions—most recently the Guelph Mercury and the Nanaimo Daily News—have died. And the once-mighty Southam newsrooms (forerunner to Postmedia) are all now breathing on the same respirator.
People may not notice. How do you measure the slow gutting of a metro newspaper, the largest newsroom in town?
Court and crime and car crashes stay in the headlines because they are cheap and easy to cover. What disappears is the substantive stories that contribute to a community’s sense of self and worth; programs that require a spotlight, business and arts trends, political coverage and context."
Because Postmedia and its individual papers remain profitable, some see corporate greed as the root cause of the troubles.
Goldstein, who has done a good bit of corporate consulting, says the blame game is off target and that asking whether there is too much concentration is posing the wrong question.
Paul Godfrey, Postmedia's CEO, defended the recent moves and the company's hedge fund ties in a January interview, but he also conceded that the turnaround timetable is tight:
"The buck stops with me and I recognize that...Four months from now you've got every right to dump on me if the product has decayed."
As for exportable lessons, I would be surprised to see a tablet-first strategy widely adopted in the United States. La Presse committed early and spent three years developing an elegant tablet presentation. Substituting a tablet for print makes more business sense if the audience is dispersed (as was the Christian Science Monitor's when it shifted to a digital daily strategy in 2008).
But even with financial results still a work in progress, perhaps La Presse makes the case for a bold digital transformation bet rather than pursuing incremental improvements on many fronts.
The Canadian case also raises the question of what would happen here in a broad economic reversal. A nice break on newsprint prices in 2015 won't be repeated this year. What if the economy were to turn to recession in late 2016 or early 2017?
For companies carrying a lot of debt, and even for the rest, that could stop any forward momentum in earnings and news capacity in a hurry.