Too Big to Succeed

Numerous newspapers are on the financial ropes. All too often newspaper executives simply blame the Internet; it steals their ad revenue and their readership base, coaxing away readers with information gleaned from the venerable old news-providers themselves.

I believe the Internet may not be at the root of their financial crisis. It's size. Newspapers, or at least the chains that control them, have become too big to succeed, or at least too much in debt to succeed.

Take the Tribune Co. in the States — Sam Zell brought $315 million to the table to leverage control of a company valued at $13.5 billion. Just 353 days later the now private company filed for bankruptcy in a federal court in Delaware. Source: Newsosaur.

What went wrong? According to the Wall Street Journal, the Tribune Co. was unable to service its massive $12 billion in debt. Under Zell, the Tribune became the second most leveraged of the 20 largest public media companies in the States, carrying a debt load 9.2 times the company’s operating earnings.

Such massive leveraging immediately resulted in the company's bond issues falling deep into junk territory, raising borrowing costs. Considering it took only a year under Zell's leadership for the Tribune to enter bankruptcy, such massive leveraging seems to have immediately thrust the entire media operation deep into junk territory, not just their bonds.

In a financial bind like this a company can either increase profits or decrease costs. Under Zell it appears the approach of choice was to decrease costs with layoffs, more layoffs and yet even more layoffs. I call this the employee-as-ballast theory. It is followed by many in the publishing business; jettison employees and watch the company soar, not!

Closer to home, we have Quebecor Media in Canada headed by PKP, Pierre Karl Peladeau. Once called the King of Convergence by the CBC, PKP is the gentleman many credit with guiding Quebecor World, once the world's largest printer, to financial ruin, bankruptcy, insolvency.

PKP's own Canoe carried a story calling Quebecor World the "insolvent printer" in June, 2009. In early 2003 the stock reached $35; the last time I checked it could be picked up for 2.6 cents. Under PKP's leadership the world's largest printer lost 99.9 percent of its value!

In June 2009, the following was reported: Chicago-based printer RR Donnelley tendered an unsolicited bid to purchase Quebecor World, the insolvent (Sun Media's term) printer. This bid was rebuffed, but later in the month Mark Angelson, a former RR Donnelley CEO, was named chairman of the printer reorganized to "satisfy" bankruptcy code requirements.

Quebecor World and Quebecor, the owner of Sun Media, are now totally separate companies with a shared past but unlinked future. I thank an alert reader for this additonal information.

PKP has brought his magic touch to the world of Canadian media. In 1999 Quebecor gained control of Toronto-based Sun Media for about $1.3 billion, creating the second-largest newspaper company in Canada. The layoffs started almost immediately. The little paper that grew began to wither, shades of Sam Zell.

In 2007 Quebecor Media bought competitor Osprey Media Income Fund in a deal worth about $517 million. Quebecor executive vice-president Luc Lavoie said Quebecor intended to respect the traditions of its new titles.

A couple of years later the Cobourg Daily Star, founded in 1831, the Port Hope Evening Guide, founded in 1878, and the Colborne Chronicle, founded in 1959, were closed — replaced by a new Sun Media print and online newspaper, Northumberland Today. So much for tradition.

Again, the layoffs started almost immediately. Quebecor sees its now truly paper-thin newspapers as lean, mean, fighting machines. Others see the often century-old papers simply as gutted, like dead fish but with greater stench.

An ad builder and two graphic artists were laid off by the Sault Star and the pre-press department closed, said Elaine Mills, president of the Local. "They took all their computers out on Sunday and moved them to Barrie."

Mills gave an example of the cumbersome nature of the Sun Media/Quebecor Media approach called "centres of excellence" by the chain and called outsourcing by those losing their jobs.

A classified adviser who was working on a monthly real estate section had to fax every ad, along with a cover page, to Barrie where it was being produced. Dozens of faxes had to be sent and the phone lines were often busy on the receiving end, turning it into a hair-tearing chore. For full detail, see the CWA Canada article on the hollowing out of the Osprey chain.

Years ago, when I still worked for a paper under PKP's control, I was asked by the business section to take a studio photo of a voodoo doll stuck with pins clearly labelled CEO, VP, etc. I jabbed the doll with one of the large pins and joked, that one is for Pierre. Man, I wish I still had that doll.
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Since writing this in early 2009, CanWest Global Communications Corp. in Canada put its newspaper division under creditor protection on Friday, January 8, 2010.

A group of lenders led by Canada's five largest banks agreed to take ownership of the newspaper operations under a “pre-packaged” financial restructuring under the Companies' Creditors Arrangement Act. CanWest continues to search for other buyers, hoping for a superior offer.

The Asper family, which controls CanWest Global, no longer has ownership of the newspaper operations under the restructuring proposal. The family got into the newspaper business in 2000 when CanWest agreed to buy the former Southam Inc. chain of papers from Conrad Black.


The group, saddled with $1.3-billion in debt, includes many of Canada's leading daily newspapers, such as the Ottawa Citizen, Calgary Herald, Montreal Gazette and Vancouver Sun. The National Post newspaper is not included in the bankruptcy filing.

Read the whole story in the Globe and Mail here.