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Newspaper Killers and the “Death of Journalism”: Postmedia’s Attempts to Slash and Burn its way to Excess Profits

This has been another week of bad news about newspapers in Canada.

The largest newspaper group in the country, Postmedia, announced a set of deep cuts across its chain of ten major city daily newspapers and the National Post. The Montreal Gazette and Ottawa Citizen currently have about 105 staff each; after the cuts both will have twenty less. Three weeks ago, the company closed its national news wire service, shedding twenty-five news workers as a result. No foreign news bureaus were closed because other than the two it has in Jerusalem and Washington, there are none.

Postmedia’s CEO Paul Godfrey also announced that the company will no longer publish the Sunday edition of the Ottawa Citizen, Edmonton Journal and Calgary Herald, or print the National Post on Mondays. Production will be centralized at Postmedia Editorial Services in Hamilton, a company subsidiary shorn of pesky unions, where layout, editorial decisions and some printing functions will now reside. It’s the model pioneered in Canada by Quebecor in 2006.

Paywalls will be going up sooner rather than later, building on those already put into place last year at the Montreal Gazette and the Victoria Times Colonist (before the latter was sold last October), and already planned for the Ottawa Citizen and Vancouver Sun. While focusing on getting people to pay for news online, Postmedia will also focus on “reducing unprofitable circulation” – that is, shedding less well-off readers – states a memo from Montreal Gazette editor-in-chief Alan Allnutt.

Godfrey also railed against “foreign-owned and controlled 
digital companies who, without any regulation, are accessing Canadian
 audiences and eroding Canadian media revenues”. He was referring to Google, Facebook, eBay, Apple, Amazon, and others of this kind.

Godfrey may have legitimate concerns about these internet giants’ capacity to parlay their dominant positions in search, social and online retail and publishing into the ability to set the terms for the distribution of news and advertising revenue online. However, the claim that they are cannibalizing newspapers revenues is wrong (see below) and his not so thinly-veiled call for regulation smacks of the same tactics that commercial broadcasters in Canada have been pitching for years with little to show for their efforts.

The current round of retrenchment and cuts represent a continuation of woes that have beset Postmedia since it took over the troubled newspaper chain from bankrupt Canwest in July 2010. Immediately after taking-over the newspapers, Postmedia eliminated 750 jobs and has maintained standing buy-out offers for journalists across the chain ever since. Add the sixty-five jobs axed this month, and approximately 1,800 jobs have been eliminated since 2008.

To be sure, Postmedia is faced with tough times. Daily newspaper circulation in Canada fell to 3.8 million or so in 2011, a far cry from peak levels reached in 2000 when 5 million copies a day were sold. Industry-wide revenues have swooned as well, dropping from $5.7 billion in 2000 to an estimated $4.1 billion (in inflation adjusted “real dollars”) today. People are still reluctant to pay for news.

Nonetheless, Postmedia’s internet revenues are growing and last year they accounted for 9 percent of its revenues (p. 71), a respectable amount compared to Torstar (10.8%) and the U.S. average (11.7%). The problem, however, is that it only earns a single ‘digital dollar’ for every $4 it loses in traditional print revenue. While this is considerably better than trends in the U.S., where the ratio is $7.50 to $1, it is still not nearly enough.

Perhaps reflecting these uncertain prospects, the company’s stock market capitalization has plunged from an all-time high of $685.4 million in June of 2011 to roughly 1/10th that amount ($70.6 million) today. So maybe Godfrey is right? Perhaps there is no choice but to swallow bitter medicine in order to set things aright?

That times are tough for Postmedia and newspapers in general is beyond dispute, but there are a few surprising facts amidst this portrait of doom and gloom that have not received the attention they deserve. The two most important facts relate to profits and debt, and when we look at these factors, the consensus view of things begins to unravel.

You might be surprised, but Postmedia is a profitable company.  It operating profits in 2011 were 7.6%, just below the average for all industries in Canada (8.7%). In fact, over the past twenty years, the company has been very profitable, except for one year (2010), and well above the average for industry as a whole. The following figure illustrates operating profit levels at Postmedia and its predecessors in relation to Torstar and Quebecor as well as the average for all industries since 1995.

Postmedia Operating Profits vs. Torstar, Quebecor and Average for All Industries, 1995 – 2010  (%)

Source: Company Annual Reports;  Statistics Canada. (various years). Financial and taxation statistics for enterprises. Cat. no. 61 219-x. URL: http://www.statcan.gc.ca/pub/61-219-x/61-219-x2008000-eng.pdf

Given that Postmedia is actually profitable, why the insistence on the slash and burn approach?

While respectable by economy wide standards, and especially in light of the fact that the world of journalism is being turned topsy-turvy by digitization and the internet, profit levels at Postmedia are not high enough for one decisive set of interests: its owners. The hedge fund holding a 28% ownership stake in the company, Golden Tree Asset Management, illustrates the point, gloating on its website that its “philosophy” is that “double-digit returns can be compounded over market cycles”.

Double-digit returns in the newspaper industry, however, are the stuff of the last half of the 20th century, when newspaper monopolies held sway in one city after another and the overall media environment was a lot less cluttered than it is today. Those days are gone, and we ought not shed a tear, except for the fact that Postmedia’s owners are laying waste to scores of journalists and journalism in their pursuit of monopoly-era profits in the 21st century. In other words, excessive expectations regarding acceptable profits, not tough economic times for newspapers on their own, are behind the current round of slash and burn at the largest stable of newspapers in Canada.

That debt is an equally pressing problem can be seen in the fact that Postmedia paid out almost as much in interest on its massive debt in 2011 as it made in profit (see here, p. 71). Moreover, a great deal of that debt is held by Golden Tree Asseet Management, and paid at high levels of interest.

Some of the $663 million debt that the company assumed when it took over the Canwest newspapers in 2010 has been reduced, but remains stubbornly high: $544 million at the end of 2011, and about $516 million today. The mountain of debt is a legacy of a decade-and-a-half of consolidation, a period when the newspaper chain switched hands from Southam to Conrad Black’s fraud-riddled Hollinger Corporation (1996) and then to the vainglorious Aspers in 2000 for $3.2 billion at the height of the media empire building age.

Bloated on debt and hubris, the latter crashed and burned in 2009-2010, even though it too was profitable (12.7%) – but not enough to pay its bankers while staying within their rules on acceptable debt levels. That legacy still hangs like a dark cloud over Postmedia, and it is that reality, coupled with excessive profit expectations – and that profits and interest payments on debt both flow into the pockets of Golden Tree Asset Management — that is hammering away at the company.

That these factors deserve greater weight in explanations of Postmedia’s woes is also put into sharper relief once we realize that advertising markets are not shrinking, as Godfrey asserts, but have been growing at a quick clip for most of the past decade. To be sure, the pace has been slower for newspapers and might be best described as mostly staying flat over the past decade. Phases of contraction have been modest, not calamitous, as the figure below shows.

Advertising Revenues in Canada, 2001 – 2011 (millions $)

Source: TVB/IABCanada, 2011.

If newspaper revenue was being cannibalized by Google et. al, as Godfrey claims, we should see the size of the total advertising pie staying constant, and a fall in newspaper advertising as revenues are diverted to those entities. That has not happened.

Of course, the fact that newspaper advertising revenues remain essentially flat in absolute terms while total advertising revenues expand means that the relative place of newspapers in the overall mix is on the wane. Still, however, the growth of internet advertising in Canada as part of the mix pales in comparison to trends in the UK, Denmark, Norway, Sweden and Germany, for instance, as the following figure illustrates.

Source: IABCanada, 2011

The upshot is that whatever blows have accompanied the declining place of newspapers relative to the internet, they have been gentler than elsewhere, giving newspapers in Canada more time and room to adapt to the realities of journalism in the 21st century. That Postmedia has failed to do so says more about its own self-inflicted wounds under three different owners in the past decade-and-a-half than a death sentence imposed by the economic crisis, slumping advertising or the rise of formidable new players like Google, Facebook, Amazon, Apple, etc.

Other newspaper publishers in Canada have pursued a similar course, but Postmedia is only matched by Quebecor in the severity of the slash and burn approach that they have taken thus far. The Globe and Mail and Torstar – undoubtedly struggling at times as well – have been able to pare things back with a scalpel rather than a hatchet.

Ultimately, the days of newspaper owners reaping double-digit returns are gone. In addition, other than high-end business and financial intelligence, people have never been willing to pay for news, and this is still the case. Just how to return the press to a stable footing is still the million-dollar question. However, rather than trying to raze their way to the promised land, Postmedia’s owners must temper their desire for excessive profits and bring the legacy of debt — a problem that was created in just such an illusory pursuit over the past fifteen years — to heel.

Only then is it likely that the largest chain of newspapers in Canada will be able to regain its footing and contribute to professional journalism alongside new players such as The Mark, the Tyee, Huffington Post, the Dominion and so on that are beginning to make their mark on journalism in this country.

The Twitter – Wikileaks Cases and the Battle for the Network Free Press, Now its Personal: an Afternoon with Birgitta Jónsdóttir

A week-and-a-half ago I met up with Birgitta Jónsdóttir, an activist Icelandic MP and central figure in the Twitter-Wikileaks cases (see earlier posts on the topic hereherehere and here). Passing time on Twitter, I saw she was in Ottawa, sent her a tweet, quickly received a reply and presto, we met on a Sunday afternoon with a fellow professor from Ottawa University, Patrick McCurdy.

Jónsdóttir came to our attention after becoming a target of the U.S. Justice Department’s ongoing investigation of Wikileaks because of her role as co-producer of the video Collateral Murder. The video documents a U.S. Apache helicopter gunning down two Reuters journalists and several others in Baghdad and was released by whistle-blowing website Wikileaks in April 2010. It marked the beginning of the site’s campaign to release what would be the largest cache of US classified material the world has ever seen.

Over the course of 2010, Wikileaks teamed up with five of the world’s most respected news outlets — New York Times, The Guardian, Der SpeigelLe Monde and El Pais – to release material that wreaked havoc with the routine conventions of journalism and to set the global news agenda not once, but three more times: (2) the release of the Afghan and (3) Iraq war logs in July and October, respectively, and (4) a cache of diplomatic cables starting in late November.

The response from the U.S. Government was ferocious. The search to find the source of the leaks quickly led to the arrest of U.S. Army intelligence analyst, Bradley Manning, in May 2010, and his detention in solitary confinement ever since. Simultaneously, it began shaking down popular U.S. search and social media sites such as Twitter, Facebook, Skype and Google in a bid to gain access to information about people of interest in the Wikileaks investigation.

Birgitta is one of those people, along with Wikileaks front man Julian Assange, Tor developer, activist and Wikileaks volunteer, Jacob Applebaum, as well as Dutch hactivist Ron Gongrijp. Let’s call them the “Twitter –Wikileaks Four”.

Entering this murky world of state secrets, blacked out documents and unnamed internet companies cooperating with electronic surveillance efforts by the state offers a rude slap to anyone who sees the U.S. as a beacon of democracy, human rights and the free press. In fact, such values seem to have wilted with alarming ease in the face of the national security claims surrounding Wikileaks, and Birgitta Jónsdóttir specifically.

Talking to Jónsdóttir gave us a personal look behind the cool, technical view found in legal briefs and court rulings. And one of the first things she told us is that she no longer sets foot on U.S. soil on the advice of her lawyers and Iceland’s State Department, despite having diplomatic immunity on account of being a Member of Parliament in Iceland. Still embroiled in the Wikileaks cases, she has recently joined a lawsuit launched by Noam Chomsky, Noami Wolfe, Christopher Hedges, Daniel Ellsberg, and others to overturn the National Defense Authorization Act on the basis that its vague definition of terrorists threatens to sweep up dissidents into its maw, thereby threatening their ability to travel freely in the US and worldwide without fear of being arrested.

That we know much at all about how internet companies have been dragooned into the crackdown on Wikileaks is due to the fact that Birgitta, Applebaum and Gongrijp have led the fight with legal support from the American Civil Liberties Union and Electronic Frontier Foundation against such activities in the courts of law and public opinion (Assange has kept his focus elsewhere). And it is for this reason that The Guardian newspaper last month put Birgitta, Applebaum, Twitter’s chief lawyer, Alex MacGillivray, and Assange on its list of twenty “champions of the open internet”.

MacGillivray made the list primarily because only Twitter had the spine to challenge the Justice Department’s “secret orders” (not “court authorized warrants”), whereas all of the other search and social media companies rolled-over and shut-up. This was not just a one-time stance, either. This week Twitter was at it again, pushing to have a court order forcing it to hand-over information about an Occupy Wall Street activist to New York Police over-turned.

Twitter won a modest victory in January 2011 in the first Twitter – Wikileak case when it obtained a court order allowing it to tell Jónsdóttir and the others that the Justice Department was demanding information about their accounts as part of its Wikileaks investigation. The victory also opened a bigger opportunity to discover what other internet companies may have received the Justice Department’s secret orders.

Whatever hope was raised by the first Twitter – Wikileaks ruling was dashed by a District Court ruling in the second case last November, however. The ruling was blunt: users of corporate-owned, social media platforms have no privacy rights.

Using the same logic subsequently used in the “Occupy Wall Street” case, the court argued that Jónsdóttir et. al. had no privacy rights because Twitter, Skype, Facebook and Google’s business models are based on maximizing the collection and sale of subscriber information. Under such conditions, users alienate whatever privacy rights they might otherwise claim. As the ruling put it, Jónsdóttir and her co-defendants “voluntarily relinquished any reasonable expectation of privacy” by clicking on Twitter’s terms of service (p. 28).

With privacy reduced to the measuring rod of corporate business models and a perverse interpretation of its terms of service, Twitter was forced to hand over Jónsdóttir, Applebaum and Gongrijp’s account information to the Justice Department: registration pages, connection records, length of service, internet device number, and more.

A last ditch appeal was made by lawyers at the ACLU and EFF last January to reveal which other internet companies had received “secret orders” from the Justice Department. While no one knows for certain who they are, all eyes are on Google, Facebook and Skype (Microsoft). A decision is expected by the end of June, but Jónsdóttir isn’t holding her breath.

Pausing to reflect on the personal affects of the Twitter – Wikileaks cases overall, however, she remains upbeat rather than down-trodden.

“You have to completely alter your lifestyle. It’s not pleasant, but I don’t really care. . . . It’s just insults my sense of justice . . . . I would not put anything on social media sites that . . . I don’t want on the front pages of the press.”

Rather than dwelling on the costs to her personally, however, Jónsdóttir is quick to tie these events into a larger, more daunting picture. In doing so, she wants to prick the fantasy of Obama as a great liberal president and the illusion that the U.S. turned a corner after he replaced Bush as President.

As she reminds us, the Twitter – Wikileaks cases occurred on Obama’s watch. The Obama Administration has charged more whistle-blowers (six) than all past presidents combined (three), she offers (also here).

To this, we can add that revisions to the Foreign Intelligence Security Amendments Act in 2008 gave retroactive immunity to companies and ISPs such as AT&T and Verizon for the illegal network surveillance activities they conducted under the Bush regime, with few barriers now standing in the way of their continuing in that role under Obama (see here and here).

These concerns are crystallized in the latest Reporters Without Borders’ Press Freedom Index showing that press freedom in the U.S. plummeted from 20th to 47th place between 2010 and 2011. In short, the national security state after 9/11 has not been rolled back but kept intact. Jónsdóttir experience, she wants us to know, is not a fluke.

Glenn Greenwald has made a similar case that positions Wikileaks as being part and parcel of a new kind of journalism that mixes crowd sourcing, the internet and professional journalism. After a recent talk in Ottawa co-hosted by the National Press Club, he also mentioned that Wikileaks had invited journalists to use its material long before all hell broke loose in 2010, but it was the lure of exclusive access in their respective home markets that finally enticed The GuardianNew York TimesDer SpeigelLe Monde and El Pais to the table.

In other words, it was the pull of exclusive rights and private profit, not a good story, that brought the press to Wikileaks’ table, and it into the journalistic fold. And seen in that light, Wikileaks serves as a much-needed corrective to lazy and cautious journalism.

Harvard University law professor Yochai Benkler makes a similar case but in a much more systematic and constitutionally grounded way. He also shines a light on how the network free press is being subject to death by a thousand legal and extra-legal cuts when what we need is a strong press to counter the power of the strong state if democracy has a hope in hell of surviving, let alone thriving.

Benkler argues that attempts to bring Wikileaks to heal have involved a dangerous end run around Constitutional protections for the networked fourth estate, i.e. the First Amendment. Pressure from Senator Joe Lieberman, Chair of the Senate Committee on Homeland Security and Governmental Affairs, for instance, led webhosting provider Amazon, domain name supplier everyDNS and financial payment providers (Paypal, Visa, Mastercard) in December 2010 to withdraw internet and financial resources that are essential to Wikileaks’ operations to exemplify the point.

While government actors are prevented from such actions by First Amendment protections for the press, Lieberman used commercial actors who were, Twitter aside, all-too-willing to serve the state on bended knees, and a campaign to denigrate Wikileaks journalistic standing, to do an end run around such Constitutional restraints. Such actions eliminated the routine financial channels (Paypal, Visa, Mastercard) through which an estimated 90 percent of Wikileaks donor funding flows, and to scramble to find a new domain name provider and webhosting site.

Now of course, some argue that Wikileaks has nothing to do with journalism and the free press. They are wrong.

Remember, it set the global news agenda repeatedly in 2010, mostly by working hand-in-glove with the world’s leading newspapers to edit and publish stories. It has won oodles of journalist awards before and after these events, as the following partial list shows: Economist – Index on Censorship Freedom of Expression award 2008; Amnesty International human rights reporting award (New Media), UK 2010; Human Rights Film Festival of Barcelona Award for International Journalism & Human Rights, 2010; International Piero Passetti Journalism Prize of the National Union of Italian Journalists, Italy 2011; Voltaire Award of the Victorian Council for Civil Liberties, Australia 2011; Readers’ Choice in Time magazine’s Person of the Year (Julian Assange) 2011. The honorifics bestowed on the “Twitter Wikileaks Four” by The Guardian, also referred to earlier, adds yet another.

Awards are nice, and the recognition helps to bestow legitimacy, Jónsdóttir observes, but the real key is to keep pushing the envelope. To that end, she updated us on the Icelandic Modern Media Initiative (IMMI) that she and others have spearheaded since the initiative’s birth in the Icelandic Parliament in July 2010. IMMI is, in short, a “dream big” project designed to make Iceland a digital free media haven where whistle-blowers are protected by the highest legal standards in the world and the value Net Neutrality formally incorporated into the country’s new Constitution that now awaits Parliamentary ratification.

Thus, as she rails against powerful forces on the global stage, Jónsdóttir is helping to build in Iceland a model of information rights, privacy and free speech for the world.

These are important things, she says, because they are all about our history and about making democracy fit for our times. In terms of history, and reaching for the right words, she points to the importance of Wikileaks as

“part of the alchemy of what is going on in the world. . . . The Iraq and Afghan war logs changed how people talk about the wars. It has provided us with a very important part of our record, our history”.

As for democracy, “voting every four years is absolutely not democracy, it is just a transfer of power”, Jónsdóttir exclaims as our conversation draws to a close. Of course, the rule of law, an open internet, and fighting against the strong state are essential, but these are abstractions unless they are made personal and concrete.

Hmmm, the battle for the open internet and network free press, now its personal. That seems like a great way to think of Birgitta, and our long afternoon together last week.

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