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Predatory owners suck the marrow from bones of Canada’s news media

Edge: Hedge funds, private equity firms have scooped up most of our largest newspapers and turned them into propaganda weapons

Media Canadian Business

The Toronto Star building is shown in Toronto, March 16, 2019. Photo by A Great Capture/Flickr.

Can’t anyone see what’s going on here? We’ve been had. We are being made monkeys of by the hedge funds and private equity firms which have scooped up most of our largest newspapers and turned these formidable weapons of mass propaganda on us. The vulture capitalists are laughing all the way to the bank while we shower them with bailout money and blame Google and Facebook for not sitting still to be similarly fleeced. Such is life in Justin Trudeau’s Canada, where he admits “people are angry.” You’re damn right we’re angry, and for good reason.

Just last week NordStar Capital, the private equity firm that owns Torstar Corp., publisher of Canada’s largest newspaper, the Toronto Star, folded the print editions of 70 community newspapers in Ontario published by its Metroland subsidiary, throwing 605 Canadians out of work. As if that wasn’t bad enough, the high-finance wizards cheated their workers out of $16 million in severance pay by declaring bankruptcy. NordStar is pulling a fast one, because the way they have fixed it, Torstar will continue to own Metroland, its six daily newspapers and 70 now online-only community newspapers. It will, however, shed a lot of financial obligations by filing for court-ordered protection from its creditors, who now have to line up to get paid. Guess who is first in line? None other than Torstar itself, which somehow holds $41.6 million of Metroland’s $74.2 million in debt. This defies reason, since NordStar paid only $51 million for all of Torstar in 2020 and has since made $150 million by floating its Verticalscope digital subsidiary on the stock market. It’s playing a self-serving shell game to milk every last dollar out of the company at the expense of journalism and communities.

A similar backstory emerges on examining the recent closure of Métro Média, which published 16 community newspapers in Québec, including the 110-year-old Le Messager de Verdun, and the daily Métro commuter tabloid in Montréal. CEO Andrew Mulé announced last month that the company had suspended operations and would declare bankruptcy despite what he described as “a healthy balance sheet” because it no longer had the liquidity to continue and could not find lenders. Its demise, which Métro Média blamed on Montréal banning the Publisac flyer bag in which its weekly editions were distributed, resulted in the layoff of 70 workers, including about 30 journalists. Le Journal de Montréal, however, discovered that the company’s financial woes began only after Métro Média founder Michael Raffoul paid himself a dividend of $2.57 million two years ago.

That was when the newspaper business was swimming in government money, as in addition to the federal bailout and generous pandemic payroll subsidies, Métro Média received more than $1 million from a provincial program designed to help print media adapt to the digital age. “It was done when there was a lot of money in the industry,” explained Mulé of the controversial dividend. “We had no reason, at the time, to think we were going to lose 80 percent of our revenues.”

The company asked for additional government assistance of $500,000, which the provincial opposition Liberals hiked to $1 million in order to help Métro Média complete its digital transition, but the dividend revelations “changed the narrative,” according to Mulé. Québec’s Minister of Culture and Communications closed the door on aid to Métro Média, calling its plight “a crisis inside the media rather than the crisis of the media,” according to the Montréal Gazette. Mathieu Lacombe, a former journalist, added that the province “is now ripe for reflection on media financing and on the level of mistrust it inspires.”

Which brings us to the US hedge funds that somehow own 98 percent of Postmedia Network, Canada’s largest newspaper chain, in spite of our country’s supposed 25-percent limit on foreign ownership in this cultural industry. Postmedia publishes 15 of our 21 largest dailies according to the latest count, including the National Post, Ottawa Citizen, Montréal Gazette, both Vancouver dailies, both Calgary dailies, both Edmonton dailies, both Saskatchewan dailies and… well, you get the picture. As I document in my new book, The Postmedia Effect, the hedge funds have taken more than $500 million out of the company in debt payments since taking it over in 2010. They acquired the former Southam newspaper chain by buying up the distressed debt of Canwest Global Communications, its previous owner, which carried interest rates as high as 12.5 percent. They reportedly paid as little as 5 cents on the dollar for Canwest’s bonds, which means they are now making a return of up to 250 percent on their investment.

Postmedia should have gone bankrupt in 2016, when its revenues fell to where they could no longer service its more than $600 million in debt. Then-CEO Paul Godfrey pulled a fast one, however, by replacing its majority hedge fund owner with one from New Jersey and axing about half of the company’s debt to keep the shell game going. Few in Canada noticed the change in ownership, noted the New York Times a few years later, because it “happened so quietly that Postmedia’s own financial news site described it as a debt restructuring.” Postmedia is again under water and facing bankruptcy if Ottawa doesn’t bail it out.

The biggest scandal of all is how Postmedia and Torstar, through their industry association News Media Canada, have been behind two self-serving propaganda campaigns to collect government subsidies. First it was the five-year $595 million bailout announced in 2018, then this year’s Online News Act, which was designed to force Google and Meta to subsidize them. The latter is backfiring badly, however, as Meta has instead dropped news from its Facebook and Instagram platforms in Canada and Google is almost sure to follow. The government bailout was supposed to expire next spring but is apparently being extended, with publishers demanding that the government double the “temporary” taxpayer aid. Worst of all, not being able to distribute their content via Facebook and Instagram has created a real problem for the country’s growing online-only news media.

Online news guru Jeff Jarvis saw this coming a few years ago. “Around the world, news industry trade associations are corruptly cashing in their political capital—which they have because their members are newspapers, and politicians are scared of them—in desperate acts of protectionism to attack platform companies.” Google and Facebook simply built a better mousetrap for ads and made newspapers yesterday’s news, but the publishers played their trump card of government influence, to the detriment of all Canadians and especially our evolving online news media.

The government gullibility is gobsmacking, as politicians have simply swallowed what publishers and their lobbyists have told them without doing any due diligence on behalf of Canadians. No wonder the vultures are laughing at us.

Marc Edge is a journalism researcher and author who lives in Ladysmith, BC. His books and articles can be found online at www.marcedge.com.

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