Canadian newspapers defy gravity

While the bloodletting continues at U.S. dailies, with earnings and circulation coming in down sharply, Canadian newspaper revenues continue to defy gravity. Monday’s Audit Bureau of Circulations data showed major dailies down 3.6 percent for the six months ended March 31, with only the national newspapers USA Today and the Wall Street Journal showing increases, albeit less than one percent. In Boston, the dailies were particularly hard hit for some reason, with the Globe down 8.3 percent during the week and the Herald off 9.5 percent. While I am on the record as believing much of the circulation loss is strategic, with dailies cutting unprofitable distribution, there is no denying that profits have been going through the floor recently at U.S. dailies, with revenues down 7.9% in 2007. Now that first-quarter earnings are starting to come in, it is obvious that trend is not only continuing, but accelerating. Gannett’s earnings were off 9 percent, with ad revenue down 12.8 percent overall, led by real estate and job ads tumbling 26.3 and 24.2 percent respectively. McClatchy even posted red ink, recording a loss of $849,000 compared with a first-quarter profit of $9 million last year, as advertising revenues fell by 15 per cent.

Canadian newspapers aren’t as swift at counting as their American cousins, so 2008 numbers aren’t in yet, but judging by the recently-released 2007 figures, they seem to be holding their own. A two-percent drop in print advertising last year was basically offset by a 30-percent rise in the smaller category of online ads. The Canadian Newspaper Association has an interesting graphic in its latest report tracking ad revenues over the past decade compared to those in the U.S. It shows a steady rise over that period, despite the wild dips taken in the States recently, and during the 2000 stock market crash. CNA President Anne Kothawala urged media buyers not to be influenced by “tainted” results in the U.S.

"Advertisers and their agencies, many of whom are global businesses, should ensure that their Canadian buying decisions are not tainted by the US data. In an age when consumers are increasingly tuning out advertising content, studies show they continue to find newspapers engaging. Many readers turn to their paper as much for the ad content as the editorial content. The real story is how well we are holding our own in an age of global media disruption.”

I will suspend my disbelief in this gravity defiance until I see whether the trend continues into 2008 in the face of U.S. housing starts falling to their lowest level in decades.

Battle of Titans shaping up

First, bitter rivals Leonard Asper and Ivan Fecan linked arms last week to plead in unison for the CRTC to throw them some of the crumbs that cable companies have been piling up for the past few yers. Now Shaw cable boss Jim Shaw has weighed in with a letter of complaint to Prime Minister Stephen Harper in advance of his appearance before the regulatory body this week. His testimony could be similarly testy. This is one you could almost sell on pay-per-view. The Global and CTV network chiefs making a joint presentation was all Shaw could take before bashing off a five-page letter from his Calgary office to Harper, a Calgary MP. The bid to impose fee-for-carriage, which will charge cable customers for content that is broadcast free over the airwaves, goes against the Conservative government's deregulationist mantra, he pointed out.

Unfortunately, the government's objectives of driving innovation, investment and fair competition for the benefit of Canadians, and Shaw's efforts to help realize them, is being undermined by the CRTC's current review of satellite and broadcast regulations. I believe the issues being discussed show a significant gap between the CRTC's goals and your government's policy objectives.

Shaw is schedud to appear before the CRTC, which received a copy of his letter and released it to the public, on Thursday. I'm with Shaw on this one. Big Media moguls love deregulation, which allows them to grow larger and thus more profitable and politically powerful, but when it is to their financial advantage they show no shame coming cap in hand to regulators like the CRTC begging for a handout. Cash grab indeed!

Do you believe Statistics Canada?

Luckily there is an official agency that keeps track of important economic indicators in Canada, so we're not left entirely to the tender mercies of the news media to inform us about the state of their own business. Aside from periodic government inquiries into the press -- the most recent of which two years ago showed newspaper profits around 20 percent -- Statistics Canada keeps track of things like advertising revenues and company profits. Despite the media's pleas of poverty to justify massive layoffs of journalists, Statscan's latest figures show that ad revenues went up 2.7 percent, not down. Sure, the numbers are for 2006, and 2007 may show a downturn with the economy heading south, but that's a cyclical phenomenon that follows the economy.

Advertising revenues, the source of three-quarters of industry revenue, rose 2.7% to $3.98 billion in 2006. Daily newspapers
generated $2.85 billion in advertising revenues, compared with $1.13 billion for community newspapers.

The upturn in newspaper fortunes was most pronounced in Western Canada, where our favorite converged news media company, CanWest Global Communications, dominates. Newspaper operating revenues for publishers in the four western provinces rose 3.9 per cent - almost twice the growth rate in Central Canada, pushing profits to 21.1 per cent from 18.2 per cent.

Even circulation revenue increased in the latest count, despite audited numbers that show sales down drastically. According to Statscan, circulation revenue blipped up 1.5 percent, although the industry claims that changes in accounting practices are responsible for the increase. I think this helps prove the point I made back in 2006 that just because circulation sales went down, it doesn’t mean that revenue followed suit, because it gets more and more expensive to distribute copies to farther-flung areas, and newspapers can actually save money by cutting back on deliveries.

A contrast in coverage

To me, the most interesting thing about the CRTC hearings that start today won’t be the testimony, nor the arguments, but instead how the press in Canada covers them. Most of the major dailies, of course, are owned by CanWest Global Communications, which is the Big Dog in this fight. CanWest would like to convince the CRTC to force the cable companies to charge their customers to watch local stations they can get free over the air. It would like to convince Canadians that what they are seeking is not highway robbery, and that’s where the propaganda value of owning the country’s largest newspaper chain comes in. Right off the bat, it appears that the CanWest dailies will be falling in line with coverage that makes the cable companies look bad. Today’s Financial Post, for example (that’s the business section of the National Post, if you haven’t been keeping track) begins its coverage with a report that top Rogers brass isn’t even on the same page. “Dissension in Rogers ranks as CRTC hearings open,” read the FP headline. Testimony from company head Ted Rogers, noted the article, disagreed with position of his top execs, who favor unfettered competition.

Later during Tuesday morning's hearings, Mr. Rogers again appeared to disagree with the company position on the subject of "targeted" advertising, which is being pitched as a way to give broadcasters more revenue in lieu of the controversial "fees for carriage" they are seeking.

The Toronto Star, by contrast, made no mention of dissention in the Rogers ranks in its kick-off coverage, instead reporting the Rogers delegation “bluntly telling the federal broadcast regulator that domestic broadcasters ‘don’t deserve a handout’ at the expense of consumers.”

Ted Rogers, the cable giant’s president and chief executive officer, told a standing room-only crowd in a Gatineau, Que., conference centre that if broadcasters are not as profitable as they used to be, it is because of spending on American programming and billion-dollar acquisition deals.

The Star bears much less conflict of interest in covering the hearings, being invested in network television in only a minor way, compared to CanWest. Its parent company, Torstar, bought a 20-percent interest in CTVglobemedia, which also publishes its main competitor, in 2006. That didn’t stop it from reporting that Rogers exec Ken Engelhart noted Canada “has got to be the only country in the world where profitable companies can come in and ask for subsidies,” or that Rogers himself warned of a consumer “revolt” if the fee passes.

Despite the optics and inevitable odor, don’t bet against the CRTC bowing to CanWest’s request. As I noted in Asper Nation, the company’s 2006 swallowing of the 13 specialty cable channels formerly owned by Alliance Atlantis leaves them vulnerable to increased ownership by U.S. investment bankers Goldman Sachs if their network revenues lag.

Their Global television operations would then need every advantage they could get from Ottawa to keep them mostly Canadian. The bridges they had been building to the new Conservative government would thus be more important than ever to CanWest. That in turn suggested mutual admiration would continue to be expressed between the federal government and Canada's largest news media company.

Does their nerve know no bounds?

Now that CanWest has convinced he CRTC to look the other way on their takeover of the 13 cable TV networks previously owned by Alliance Atlantis, which required an injection of American capital well in excess of foreign investment limits, the Asper boys have set out to achieve the unthinkable. Wouldn’t it be great for their bottom line if they could get the CRTC to order Canadians to pay for over-the-air television broadcasts that have hitherto been free for all? Believe it or not, that’s exactly what they’re asking for, and if the CRTC goes along with it the average cable bill will swell by several dollars. It’s not completely unthinkable, given the close relations between the ruling Conservatives and CanWest, but I’m betting that if they pull this one off it will be more of an impetus for public outcry than their near-complete domination of the news media in some parts of Canada.

It’s not enough that CanWest became the most profitable television network in Canada by buying up Hollywood programming and inserting their own commercials in the U.S. network feed. It’s not enough that they gave back very little for this veritable licence to print money, reneging on many of the commitments they made for Canadian content. Now they want to rake it in with both hands. Here’s the rationale from Charlotte Bell, the company’s senior vice-president for regulatory affairs, writing in the company’s national newspaper, the National Post. If the name sounds familiar, she’s the one who got caught arranging a fundraiser for former Heritage minister Bev Oda, whose responsibility included broadcasting regulation, a tale I chronicle in Asper Nation.

“Cable companies have built profitable businesses based on the exploitation of free programming supplied by local broadcasters without giving any of the proceeds back to the stations,” argues Bell, playing to perfection the part of the pot calling the kettle black. “They take broadcasters' signals, charge you for them, and pay us nothing.” This argument ignores a small thing known as “must carry,” the fact that in exchange for a local monopoly cable systems are required by the CRTC to carry local stations on basic cable. Bell continues by arguing that the very type of specialty cable network that CanWest has recently invested in get a sweet deal compared to hard-done-by broadcasters.

Canadian pay and specialty services such as The Movie Network and TSN each receive a portion of monthly cable and satellite bills. Foreign services such as CNN, A&E and even the Playboy Channel also get a slice. Last year alone, $250-million from Canadians' cable and satellite bills was handed over to foreign programming services -- but not a cent went to local television
stations.

Bell’s column was written in response to a column by Phil Lind , vice chairman of cable giant Rogers Communications, that was carried alongside it in that day’s Post. That’s right, Bell’s column was a response, as she had obviously had the advantage of reading and rebutting Lind’s points, which she described as “disingenuous and misleading.” That’s just the kind of level playing field the Aspers love. Lind attributed the money grab to the recent expensive acquisitions of more lucrative specialty channels on the part of CanWest Global. “They want you to subsidize their local TV operations until they're as profitable as their specialty operations. That, in essence, is what fee-for-carriage is really all about.”

At least the Aspers were smart enough to get the CBC and CTV networks onside with this power play in order to prevent looking rapacious by comparison. After all, who can turn down free money, right? The networks are all crying poverty in unison in order to justify what is essentially a tax on television viewing, according to Lind.

CTV paid too much for CHUM, Global paid too much for Alliance Atlantis; and both, because they bid against each other, are paying far too much for U.S. primetime shows. CBC has set aside insufficient funds to upgrade its ageing facilities, preferring to squander its limited resources in bidding wars for the broadcast rights to blockbuster movies, hockey and the Olympics.

Let’s hope that if the CRTC goes along with this, at least the cable companies will be given the choice to opt out of carrying the new pay broadcasters. That wouldn’t go down too well with the networks, who would lose out on all the revenue from simultaneous substitution of their ads over top of the U.S. network feed.