Despite the rise of social media and the Internet, what gets covered in the main papers and broadcast media still has a major influence on public opinion, democracy, and society. Postmedia is a major player in mainstream media, so we think it’s important to understand what goes on “under the hood.”
We recently wrote “Postmedia to buy 24 Hours as part of 175 paper deal with Sun Media. Is there too much media concentration in Canada?” Today, we direct readers to this fascinating analysis that appeared recently in “The Star” (Toronto). We just carry some excerpts, and encourage you to go to the actual article. Seeing this, some people might wonder: “With the corporate owners looming over them like this, how can editors and reporters focus on covering the news?” And with the bottom line being so important, how does this affect the selection and portrayal of news and information?
“In the looking-glass world of financial engineering, you can profit handsomely from an asset of steadily declining value. That is, from picking the carcass clean.” (David Olive, The Star)
Postmedia and the heavy price it pays to survive
(by David Olive, The Star, 23-Jan-2015)
Postmedia’s newspapers, with their depopulated newsrooms, run the risk of becoming irrelevant as a bulwark of democracy as they generate just enough cash to further enrich mostly U.S. absentee owners.
Caption: Postmedia President and Chief Executive Officer Paul Godfrey attends a press conference in Toronto Monday, Oct. 6, 2014 announcing Postmedia’s purchase of Sun Media Corp.’s English-language operations.
- Canada’s free press and the citizens it serves are paying a heavy price to satisfy the short-term profit-seeking of U.S. financiers who now control many of the leading originators of news in Canada’s largest communities.
- Postmedia Network Canada Corp., 35-per-cent owned by the Manhattan-based hedge fund GoldenTree Asset Management, Postmedia’s largest shareholder, was already Canada’s biggest newspaper chain when it announced last October it was buying the Sun Media chain of tabloid dailies and more than 150 other titles from Quebecor Media Inc.
- GoldenTree and its fellow hedge-fund investors in Postmedia thrive on acquiring distressed properties on the cheap and milking their remaining assets. GoldenTree took the lead in 2010 in creating the Postmedia agglomeration, which it salvaged from the wreckage of the Asper family’s bankrupt CanWest empire. It put a Canadian face on the largely U.S.-owned Postmedia appointing Paul Godfrey, 75, as its CEO.
- One would think that Godfrey’s slash-and-burn tactics at some of Canada’s most important media outlets — the Vancouver Sun, the Calgary Herald, the Ottawa Citizen, the Montreal Gazette, the National Post and many others — in large part to make debt payments to Greentree and Postmedia’s other offshore debt-holders would be of more than slighting public interest.
- …But the real story is that a Postmedia, leveraged to the hilt, can still generate just enough cash to further enrich Postmedia’s mostly U.S. absentee owners. And, if meeting the Americans’ demands for payments on the Postmedia debt they hold further impairs Postmedia in its ability to serve Canadian audiences, the Wall Streeters aren’t losing sleep. …
- Postmedia is encumbered with $497.5 million in debt. With total assets of $740.6 million against liabilities of $729.7 million — including its massive, U.S.-held debt — Postmedia’s liquidation value at the end of its latest fiscal year was only $10.9 million. That’s the value of a handful of McDonald’s franchises.
- And financing the Sun Media purchase will see Postmedia’s debt balloon another 28 per cent, to $637.5 million. Postmedia ended its latest fiscal year with just $30.5 million in cash. For an enterprise of this size, that’s subway fare.
- Over the next four years, and not counting Sun Media, Postmedia’s annual fixed obligations, including debt payments, will more than triple, from 2015’s $108.1 million to $360 million in 2018. This is a company with rising costs that are to be financed from declining revenues — a business model that would impress only someone who believes elephants can fly.
- … In truth, there’s little of substance to Godfrey’s strategy beyond cost cutting and asset stripping.
- …Postmedia has already sold off Victoria’s Times Colonist and is eyeing more than $50 million worth of additional asset sales. Godfrey has dropped Sunday and weekday editions at Postmedia papers. Since 2010, Godfrey has cut Postmedia’s workforce by almost half. (More than 70 per cent of Godfrey’s cost-cutting to date, or $56.8 million, has been achieved by “headcount reduction.”). In stripping papers of their publishers as well as editors and reporters — the folks who create the “content” that attracts and holds an audience — Godfrey now has just one senior executive with oversight for all Postmedia properties in each of the company’s new Pacific, Prairie and Eastern regions.
- … Media critics have been sanguine about the unprecedented concentration of newspaper ownership at an enlarged Postmedia, even though the Postmedia-Sun deal will leave just four of the leading dailies in English Canada outside of Postmedia.
- … The three leading Postmedia investors — GoldenTree, Silver Point Capital LP of Greenwich, Conn and New York-based FirstMark Capital — have already extracted close to $340 million in interest payments from Postmedia’s leading Canadian newspapers.
- … Between 2010 and 2019, Postmedia’s outflow of interest payments will appear to total $650 million. That sum exceeds the Postmedia debt held by the U.S. investors, funds they of course obtained for themselves at lower rates than they are charging Postmedia. And that calculation is based on Postmedia’s current annual $62 million interest-payment “burn,” not the still higher debt-servicing payments Postmedia will make after the Sun deal closes.
- … So the profit for the U.S. tycoons is basically locked in, provided Godfrey can keep making those interest payments. And the key to that is cutting Postmedia’s costs beyond the bone. In the looking-glass world of financial engineering, you can profit handsomely from an asset of steadily declining value. That is, from picking the carcass clean. Does anyone have a problem with that?
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