Answering a misguided John Cruickshank

John Cruickshank has seen the decline of Canada’s newspaper industry from the inside as publisher of the Toronto Star from 2008 until 2016, when he became a founding member of what I call the newspaper lobby. Assembled by former Postmedia Network CEO Paul Godfrey, it successfully pressed Ottawa for the five-year $595-million media bailout that was supposed to run out next spring but has now been extended. As such, Cruickshank seems defensive about the bailout in reviewing my book while agreeing that Ottawa’s ongoing attempt to force Google and Facebook to subsidize our news media with the Online News Act is misguided. “He doesn’t believe there was or is a crisis that warrants government intervention,” Cruickshank states. “I think he is wrong.” What I believe is that our news media are slowly but steadily evolving to adapt to the digital age and that government should do as little as possible to hinder that and whatever is necessary to help it along.

Mr. Hidebound Thinker

Cruickshank first challenges my methodology, which is to examine company financial statements. “Edge must look beyond the balance sheets to appreciate fully what has happened to newsrooms. A profit statement speaks to the success of the previous quarter, not the health of a company.” I believe that how much profit or loss any company makes speaks directly to its health. Newspaper companies have been telling us for years that they have been losing millions of dollars a year and thus need government assistance. My research has found that those numbers bear little relation to reality and that newspapers continue to be profitable on an operating basis. Claims of newspaper poverty reached the height of absurdity in 2017 when The Shattered Mirror, a report by the Ottawa-based Public Policy Forum think tank, claimed that Postmedia Network had lost $352 million the previous year. That was only after deducting huge non-monetary losses mostly related to the company’s declining value on paper. On an operating basis, Postmedia instead recorded earnings of $82 million that year, $72 million of which went to making payments on the debt held mostly by its New Jersey hedge fund owners, which is the real problem. It defies logic that New Jersey hedge funds would subsidize Canada’s largest newspaper chain to the tune of $352 million in one year, but the implication was as inescapable as it was absurd. 

“Edge insists that papers will adjust to competition with the digital giants as they did with television,” notes Cruickshank. “Edge’s answer is to let the market take care of the bad players and hope for something else to emerge. . . . Again, I don’t share Edge’s optimism about the long-term fate of all but a few of Canada’s publications.” My research in the UK, which was published in my 2022 book Re-examining the UK Newspaper Industry, has shown that despite not receiving a government bailout – or perhaps because of it – newspapers there are making a successful transition to hybrid print/online publications since the widespread adoption of paywalls. Boosted by the pandemic, which accelerated a trend to online news consumption, some are recording their highest profits in years. 

Even in Canada, newspaper companies which are not overburdened with debt like Postmedia and have continued to invest in quality content seem to be making a successful transition to the digital world.  FP Newspapers, which publishes the Winnipeg Free Press and the Brandon Sun, made an operating profit of $1.6 million in the first six months of this year, down from $1.9 million in the same period last year. It is one of the few newspaper companies besides Postmedia whose shares are traded on the stock market and must thus report their earnings publicly. While the Globe and Mail is held privately, its outgoing publisher Phillip Crawley has said that it expects its revenues to rise by $30 million this year thanks to its more than 300,000 online subscribers, and that even its print edition makes an 18-percent profit margin. The new private equity owners of the Torstar Corp., which owns the Toronto Star, several other Ontario dailies and the Metroland community newspaper chain, recouped more than twice its purchase price by spinning off its VerticalScope digital division in 2021.

Cruickshank claims that I ignore the market failure that “is in the loss of publishers’ ability to finance reporting that’s socially and politically essential and to create broad, diverse, and loyal news audiences.” There is no such market failure. Publishers that instead continue to offer quality content are finding that it will attract paying audiences online if they only ask their readers to pay. “Newspapers bleeding advertising revenues can stay afloat only by slashing costs,” he continues. “Those savings must come from cutting editorial and letting audiences shrink.” That is a recipe for the kind of suicide that Postmedia is currently committing. “Competition for dollars with digital giants is only the newspaper industry’s second-gravest problem,” he adds. “The dramatic readership declines are even more threatening to their long-term survival.” Wrong again. While print circulation is way down, often by design, newspapers ironically have more readers than ever thanks to the Internet. Publishers have stubbornly insisted for years on providing them with news for free in the vain hope that advertising will follow the eyeballs as always before. Now that most of the online advertising is instead going to Google and Facebook because they have perfected target marketing, smart publishers are re-arranging their business models to rely more on reader revenues by erecting paywalls around their online content.

“Edge insists that papers will adjust to competition with the digital giants as they did with television.” That’s my story, and I’m sticking to it. Newspapers saw three new media emerge as competitors in the 20^th century – radio, TV, and the Internet – and they successfully adjusted to the first two by eventually playing to their strengths, which is in deeper reporting and analysis than broadcasting can provide. The mistake that publishers have always made initially in competing with a new medium has been trying to do so on its terms. They are finally again realizing what a mistake that is. 

“There is no evidence that ‘quality content,’ however that might be defined, will create its own audience and business case,” Cruickshank continues. “Competition with streaming services is a big reason why. Neither print nor TV news competes effectively anymore as a form of entertainment.” If a newspaper is trying to compete with streaming services as a form of entertainment, its management is misguided indeed. This helps to explain how Torstar was so poorly run for years that it fell into the hands of private equity.

“In his final pages, Edge writes, ‘Postmedia suddenly started sinking in 2022’ . . . There was nothing about Postmedia’s sinking that was sudden.” The data I present show that Postmedia’s profits fell from $67.7 million in 2020 to $37 million in 2021, then plunged to $13 million last year, of which $9.9 million came from government subsidies. That is a sudden drop, and significant since the company is now well under water on its $30 million a year in debt payments. Postmedia’s problem – and by extension the problem of those who read almost all of the largest newspapers in this country – is that it has followed the “harvesting” strategy favoured by hedge funds of cutting costs and stripping assets on the assumption that newspapers are dying. Publishers who have instead invested in quality content and asked readers to pay for it have found new life online.

As I state in opening Chapter 2 of The Postmedia Effect: “The worst thing that ever happened to newspapers was that they made so much money.” That made them ripe prey for hedge funds and private equity players that care nothing about journalism and only for reaping whatever profits remain. Now that there isn’t quite as much money to be made in newspapers, perhaps the vultures will finally flock off and we can pick up the pieces of what promises to be a less profitable but more sustainable future for quality journalism online, if done right.