Hedge funds specialize in buying up “distressed” companies and turning them around profitably, usually by cutting costs and selling off their assets. The bet they made on Canadian newspapers more than a decade ago has already paid off nicely, and it could pay even bigger and continuing dividends if things go their way in Ottawa. As this is National Newspaper Week, you have probably been hearing that these champions of truth and democracy have fallen on hard times and need federal assistance. You don’t often hear the other side of that story, which is that our newspapers have largely been captured by foreign interests that are milking them for all they are worth and more, truth be damned. That’s because the well-organized newspaper lobby has done a masterful job of controlling the narrative by using their not-inconsiderable power over the press.

The hedge fund bet on Canadian newspapers will pay off big if Ottawa passes Bill C-18, the Online News Act. Now before Parliament, it would force Google and Facebook to pay newspapers (and other media) for supposedly “stealing” their news stories by posting links to them. This argument is specious, as stealing entails taking something away, which is perhaps why the charge has changed subtly to “re-using” newspaper articles. Running a headline and a sentence of their content is well protected legally, however, under the Fair Use doctrine enshrined in copyright law.

Instead of stealing or re-using their content, Google and Facebook actually promote it by sending readers (and potential subscribers) to newspaper websites, where they are exposed to the ads that newspapers sell, which are ironically provided mostly by Google through its DoubleClick, adtech software the company acquired for $3.1 billion in 2008. Remember, the debate over Bill C-18 has less to do with truth than with power, of which newspapers already have plenty. They are literally asking Ottawa to give them more power—which they describe as “levelling the playing field”—to use in their negotiations with Google and Facebook.

If their power play works, it will be a triumph of propaganda for the newspaper bosses, but not their first. They cashed in big with a five-year $595 million bailout starting in 2019, which was on top of $50 million in funding Ottawa provided the year before and another $50 million provided by Québec. Then the pandemic hit and publishers began feasting off the federal Canada Emergency Wage Subsidy (CEWS) payroll subsidies, which drove their profits to the highest in years but somehow didn’t stop them from laying off swathes of workers or pleading poverty.

The passage of Bill C-18 would be like hitting the trifecta for New Jersey hedge fund Chatham Asset Management, which not only owns two-thirds of our country’s largest newspaper chain, Postmedia Network, but also holds much of its massive debt. That’s how they make their money, by skimming it off the top every month as debt payments. This has necessitated regular job cuts at the company that owns 15 of the country’s 22 largest dailies, including eight of the nine largest west of Winnipeg. All newspapers have had to make cuts recently with declining ad sales, but Postmedia has to make twice as many just to feed its master.

Chatham bought its interest in Postmedia in 2016 from Goldentree Asset Management, which pioneered hedge fund ownership of newspaper chains. It began buying up the debt of highly-leveraged Canwest Global Communications on the bond market at deep discounts after its advertising revenues fell off a cliff during the 2008-09 recession, making its bankruptcy inevitable. Canwest, the Winnipeg-based television company founded by Izzy Asper, had bought into the ill-fated “convergence” craze of the millennium, taking on massive debt to buy the former Southam chain from Conrad Black. Goldentree scooped it up out of bankruptcy, with the Shaw cable company buying the Global Television network to add to its Corus Entertainment division. Foreign ownership of newspapers is supposed to be limited to 25 percent, but Goldentree got around the law by forming a publicly-traded company in which is holds limited-voting shares to keep its “control” under the limit.

Hedge funds quickly discovered that not only is there lots of life left in newspapers, but they can be extremely useful in working a con. They knew that newspapers owned lots of assets, like real estate, and that they also continued to generate enough cash flow to service a considerable debt load. Goldentree began to buy up Canwest’s bank loans, which were secured by hard assets, for as little as 30 cents on the dollar. Its unsecured bonds, $450 million of which the desperate Aspers issued at rates as high as 13.5 percent to keep their company afloat, went for as little as 10 cents on the dollar. The hedge funds were even allowed to use this debt to bid for Canwest at auction rather than having to put up cash. Goldentree also invited a slew of their American brethren to get in on the deal—hedge funds with names like Halbis Distressed Opportunities Master Fund, Alden Global Distressed Opportunities Fund, and First Eagle Investment Management.

All they had to do to profit handsomely was keep the newspapers alive long enough to collect on the debt. A bond paying 13.5 percent bought for 10 cents on the dollar, after all, pays out at a whopping 135 percent. That way, company earnings have gone mostly to paying the bondholders instead of the shareholders, forget running the business. Manipulating bond markets is one thing, but manipulating public perceptions and politics for profit is not a business that newspapers should be engaged in, or even associated with.

It’s a scam that has taken off since Goldentree’s gambit proved so profitable. Hedge funds now own seven of the 10 largest US newspaper chains and have been gutting them ruthlessly in pursuit of ever-greater profits. Even Torstar, which owns Canada’s largest daily and the largest chain of Ontario newspapers, was taken over by a private equity partnership a couple of years ago. The partners are apparently feuding, however, with one wanting to strip the company while the other wants to invest in journalism, which after all is its product. A recent lawsuit might result in a forced sale of the company. Postmedia, which has already taken over Sun Media and the Irving newspapers, would no doubt love to scoop it up as well.

The ultimate long-shot bet the hedge funds have made is that newspapers may make a successful transition to profitable digital publications. My research suggests they are well on their way to doing just that since they began charging for online access to their content rather than giving it away. If so, the hedge funds will have acquired a media empire on the cheap. The vulture capitalists are working a profitable con already. All the federal bailout money has just been gravy. Allowing them to thrust their hands into the pockets of Google and Facebook with Bill C-18 would provide them a gift that keeps on giving.

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.