How to manage a bankruptcy profitably!
It was the morning of Friday, June 22, 2012. Murphy, The Province’s long-time staff cartoonist, was meeting with Moriarty in the editor’s office on the fifth floor of the paper’s headquarters on Granville Street in downtown Vancouver. The discussion between Murphy and Moriarty was heated; after all, Moriarty was informing Murphy that an animation the cartoonist had produced was being pulled off the web.
A few hours earlier, The Province had posted a satirical animation created by Murphy that lampooned Enbridge Inc., the Calgary-based oil pipeline company. Murphy had taken one of Enbridge’s commercials promoting the benefits of the Northern Gateway pipeline – with its Day-Glo bucolic depictions of nature and happy families – and altered it with splotches of black ink resembling oil spills and noise effects that sounded like breaking wind.
Animation by Dan Murphy satirizing Enbridge Northern Gateway ad
In his meeting with Moriarty, Murphy says he was told Enbridge had complained to the Toronto head office of The Province’s owner, Postmedia Network Canada Corp., Canada’s largest newspaper chain. He says the order had come down to pull Murphy’s satire off the paper’s website – and that $1-million in Enbridge advertising was at stake.
“I’m going to lose my job if we don’t take it down,” Murphy recalls Moriarty saying.
Moriarty, who is still editor of The Province, strongly disagrees with Murphy’s account, saying it was his decision alone to pull the animation due to worries of infringing on Enbridge’s copyright, and not because of orders from superiors. He says his reasons for pulling it include: “I didn’t like it… I didn’t like that Dan went ahead and [posted] it without any discussion prior to it going up with anybody… [And I didn't like] Dan’s reaction following my discussion with him. And I made a mistake. God Almighty if I could undo it, it was the darkest part of my career.”
Enbridge also says they never complained to Postmedia. But whatever happened in that meeting, no one disputes what followed: after the animation was pulled, the media was tipped off and soon stories appeared, including in The New York Times and on CBC, portraying it as a case of corporate censorship.
Murphy continued to work for the paper and even occasionally poke fun at Enbridge. But five months later, his position as staff cartoonist was eradicated as a cost-cutting measure. He was offered a job on the paper’s web desk. When Murphy asked if he could continue producing graphics, cartoons and animations, his bosses said no, claiming union rules.
Instead, Murphy took a severance package and left the paper – one of more than 2,500 employees who’ve been chopped from the payroll of Postmedia since 2010. Now Murphy believes his redundancy as The Province’s cartoonist – a job he’d held since 1984 – was not entirely accidental. “I think in part it was payback,” he maintains, “but in part there was a greater move to get rid of critical voices within the newspaper because that might piss off advertisers, in my opinion.
Postmedia: a sinking ship embroiled in controversy
Postmedia is a national media giant with nearly 200 papers, magazines and websites. Its dailies reach 6.3 million Canadian readers every week, with some of its best-known papers including the National Post, Vancouver Sun, Calgary Herald, Edmonton Journal, Regina Leader-Post, Winnipeg Sun, The London Free Press, Ottawa Citizen and Montreal Gazette.
But Postmedia is also a ship taking on water, due to both self-inflicted and industry-wide wounds.
Of the self-inflicted variety, Postmedia was pilloried last month in the run-up to the federal election after its Toronto executives ordered 16 of its major daily newspapers to run editorials endorsing Stephen Harper. (Postmedia did the same thing last spring during Alberta’s provincial election, forcing its papers there to back Jim Prentice’s Tories).
In a surprising move, John Honderich, chair of Torstar Corp., which publishes Canada’s largest daily paper, The Toronto Star, devoted an entire op-ed page article two weeks ago heaping scorn on Postmedia’s decision, decrying “the negative impact this affair is having on the newspaper industry in general. At a time when the relevance and impact of newspapers are under attack, this doesn’t help.”
Then there was the stunning resignation of Andrew Coyne as the National Post’s editorials and comments editor. Coyne quit on the eve of the election – although he remains a columnist with the paper – when his superiors told him he was not allowed to publish a column dissenting with their endorsement of Harper. Coyne, who declines to discuss the matter, tweeted his disapproval of the censoring, saying “I don’t see public disagreement as confusing. I see it as honest.”
Even supporters of the Post were shocked at how Coyne was treated. “[Postmedia’s] handling of the Andrew Coyne affair was disgraceful,” says Ken Whyte, the founding editor-in-chief of the National Post, former publisher of Maclean’s magazine and currently senior vice-president of public policy with Rogers Communications Inc. Whyte said that the former owners of the Post, the Asper family, “even in their worst moments would still have allowed Andrew to write a column stating his own views and the Aspers had some pretty bad moments.”
Meanwhile, last week, the editorial board of the Ottawa Citizen suddenly resigned without citing a reason.
The silencing of Coyne was not an isolated incident either. In August, acclaimed novelist Margaret Atwood watched as a column she wrote for the National Post criticizing Harper was posted on-line, then removed, and then edited before being reposted with some of her criticisms deleted. “Um, did I just get censored?” Atwood asked afterwards.
Three days before the election, Postmedia also permitted the Conservative Party to buy yellow ads that covered the entire front pages of most of the company’s major daily newspapers, direly warning about voting for the Liberals. This action, says Marc Edge, a Richmond, B.C.-based journalism professor and author of the 2014 book, Greatly Exaggerated: The Myth of the Death of Newspapers, suggests Postmedia is “poisoning their brand.”
Indeed, a report released two weeks ago by the Canadian Media Concentration Research Project shows that during both the 2011 and 2015 elections, all of Postmedia’s major dailies endorsed the Tories. “My desk was right beside [The Province’s] editorial page editor's desk and he’d done a number of editorials critical of different aspects of the Harper government,” says Murphy. “I was there [in 2011] when he got word he had to write an editorial in favor of re-electing Harper and getting his majority.”
Postmedia’s reputational hits are stacking up. Last winter, two of its top business columnists, Terence Corcoran and Peter Foster, and the National Post, lost a defamation lawsuit brought by Andrew Weaver, an esteemed climatologist at the University of Victoria and a Green Party MLA in the BC legislature. Corcoran and Foster wrote false information about Weaver, suggesting he exaggerated the dangers of climate change. The judge awarded Weaver $50,000 in damages. The decision is being appealed and Weaver will not discuss the matter.
Meanwhile, last week in a Calgary courtroom – after a seven-year odyssey through the legal system – a defamation lawsuit against Postmedia got underway, scheduled to unfold over the next month. The lawsuit was launched by the journalist and war correspondent Arthur Kent, 61, brother of former Harper cabinet minister Peter Kent. The suit claims that former columnist Don Martin defamed Kent, that Kent was prevented from responding to accusations leveled at him, and that Postmedia failed to preserve evidence and dragged out proceedings. Kent is seeking $4-million in damages, and the case could prove embarrassing for Postmedia’s top brass.
Postmedia’s editorial woes are occurring against the backdrop of gruesome economic realities facing the entire newspaper industry – caused by the web’s omnivorous appetite for advertising dollars, and by a host of innovative digital media competitors.
Since being founded in 2010, Postmedia seems to have bled copious amounts of red ink. In its most recent financial statement, it posted net losses of $263-million for this year alone, on revenues of $750-million, while weighed down with $646-million in long-term debt.
Before it bought the Sun Media chain of newspapers this past year, Postmedia’s revenues had fallen from $899-million in 2011 to $674-million in fiscal 2014 – a plunge of 25 per cent in just three years. Meanwhile, its shares, which rose to $17 in 2011, are now penny stock and no longer actively trading.
This summer the company said it planned to chop $50-million in costs over the next two years; but in its most recent conference call with analysts, management said most of this would be cut in 12 months. Prior to the purchase of Sun Media, the company’s workforce had shrunk to 2,500 employees – from 5,400 five years ago.
Meanwhile, according to the Alliance for Audited Media, the circulation of its papers continues to hemorrhage. Among its 12 leading dailies, paid circulation dropped 179,868 from 2011 to the end of 2014 – from 1.1 million readers down to 964,341, a loss of more than 15 per cent. Now, some experts believe Postmedia is in a death spiral.
“They are basically built on the mass media model of advertising-supported journalism and that's in crisis everywhere,” says Kelly Toughill, a former Deputy Executive Editor of The Toronto Star and Director of Journalism at University of King’s College in Halifax. “I think it's going to be difficult for them to survive.”
Ironically, though, the most serious threat Postmedia faces might be from its owners and debt-holders. The company is controlled primarily by two American hedge funds – GoldenTree Asset Management LP and Silver Point Capital LP. Hedge funds are pools of capital that hunt for investment opportunities, but also have a reputation for being destructive and remorseless sharks within the financial industry.
Indeed, the hedge funds controlling Postmedia specialize in buying so-called distressed-debt companies. For them to profit from faltering businesses, however, often means slashing costs to the bone, sucking out cash flow and selling off assets for scrap to recoup their investment. “Basically that's what they do,” says Martin Langeveld, a former American newspaper publisher and industry expert with Harvard University’s Nieman Journalism Lab. “They take a company, they have different ways of getting their money out even if they don't really fix it… You are cannibalizing, you’re consolidating.”
CEO Paul Godfrey, a Tory powerbroker
“I have nothing but high regard for you and your colleagues, but I’m very concerned we’ve got our feet stuck in cement here,” Conrad Black was saying. It was this past July 9th and Black was participating in a conference call with Postmedia’s top management and Bay Street analysts. But Black was irritated with Postmedia’s executives. As a shareholder and the newspaper chain’s former proprietor, he was unhappy with where it was heading.
“Some of those newspapers have deteriorated a long way from what I remember,” said Black. “Some of it you can’t avoid; some of it, you can. But please build the quality. Otherwise, you’re going to retreat right into your own end zone.”
On one hand, Black’s concerns about the deterioration of Postmedia are ironic, given his notorious disdain for the journalism profession. But few could deny Black had a point: Postmedia had fallen far from its origins.
Postmedia’s roots go back to the Southam Inc. newspaper chain that was founded more than a century ago. In 1996, Black bought the Southam papers and soon created the National Post as its flagship paper. His term as boss would be short-lived, however: pressed by his bankers to chop debt, Black sold the papers to the Asper family’s CanWest Global Communications Corp. in 2000.
Seven years later, the New York-based hedge fund GoldenTree—co-founded by Steven Shapiro, a former manager with CIBC World Markets—began buying up CanWest’s debt issues. As CanWest floundered, GoldenTree acquired more of its debt. Poorly managed by the Aspers, weighed down by $4-billion in debt and pummeled by the credit crisis, CanWest declared bankruptcy in 2009.
A year later, GoldenTree and 19 other foreign and domestic lenders, mostly hedge funds, paid $1.1-billion for the CanWest papers, created Postmedia and made Paul Godfrey its CEO.
Godfrey was a curious choice to run an ailing newspaper chain facing its worst crisis in generations. By then he was in his 70s—today he is 76—and his reputation was as a Tory political operative, not a digital-age business wunderkind.
However, Godfrey is a powerful backroom wheeler-dealer. “Godfrey’s influence has touched almost everything in politics and economics in this country,” notes a former reporter who once worked under him.
“In my time in politics he was very much behind the scenes,” adds David Miller, Toronto’s mayor from 2003 to 2010, “and it's fair to say he's been very influential on the conservative side of politics in Toronto for a very long time.”
Son of a prominent Tory activist, Godfrey rose from city alderman in one of Toronto’s northern suburbs to the post of Metro chairman, a role that allowed him to direct development and infrastructure among Toronto’s municipalities. Sociable, diligent and intelligent, Godfrey built a network of movers and shakers in politics and business, helping land the Toronto Blue Jays baseball franchise and get the SkyDome stadium built. He also formed close ties to the development industry: today he is chairman of RioCan, Canada’s largest real estate investment trust company. “It’s all about profit with him,” says a former Toronto Sun journalist.
In 1984, Godfrey became publisher of the Toronto Sun, a right-wing cheeky tabloid notorious for its scantily clad “Sunshine Girls.” Eight years later, he was CEO of the Toronto Sun Publishing Group that controlled a small chain of papers.
It was during his stint as publisher of the Sun chain that Godfrey first demonstrated his willingness to use his newspapers to further his political ambitions, as he’s currently doing at Postmedia.
First, he pressed the Tory provincial government of Mike Harris to amalgamate Toronto’s various boroughs into one big city. Then he helped engineer the election of his friend Mel Lastman as mayor of the new mega-city. During the 1997 Toronto election, Godfrey ensured that only favourable stories or photos about Lastman appeared in the Toronto Sun. When reporter Don Wanagas wrote couple of unflattering pieces about Lastman, Godfrey had him removed as a municipal columnist.
Lastman would go on to preside over one of the most corrupt regimes in Toronto’s history,
highlighted by the MFP Financial Services Ltd. computer leasing and bribery scandal, where a group of city insiders arranged to lease computers to the city that was supposed to cost $43-million - before being inflated to $85-million. Most of the key people in the scandal were Godfrey’s acquaintances or close friends. “There's no question he was very influential with Mayor Lastman,” says Miller, who was elected mayor in 2003 on a platform of cleaning up Toronto’s city hall after Lastman. “I certainly knew as a city councillor that Lastman’s office was in touch with Mr. Godfrey all the time.”
In 1999, Godfrey arranged the sale of the Sun media assets to Quebecor Inc., pocketing a personal fortune of $28-million. He left the following year to work for Rogers, taking over as president of the Toronto Blue Jays. In 2009, Godfrey was asked by the Aspers to become publisher of the National Post. After CanWest went into receivership that year, he helped assemble the consortium of American hedge funds and other lenders to buy the newspapers and create Postmedia.