Financial Markets and the Demise of Canada's Southam Newspapers

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independence for local publishers. The Asper family that owns CanWest ac- The Good, the Bad, and the Ugly: tively supports the federal Liberal Party and attempts to influence political cov- Financial Markets and the Demise of Canada’s erage of their acquired newspaper Southam Newspapers chain have also come to light, in part prompting the Canadian Senate to com- mence hearings into the Canadian media in mid-2003. by Marc Edge, Nanyang Technological University, Singapore This paper presents the Southam experi- ence as a case study of the effect of financial markets on newspaper ownership and consequently on management practices. It examines the factors that contrib- Introduction creased cost-cutting not only to offset uted to the demise of family ownership National Post losses, but also to service of the Southam newspaper chain and In January 2003, the Southam name its high debt load incurred in acquiring resulted in radical changes in its opera- disappeared from newspapers of the newspapers at the top of an eco- tions. In so doing, it chronicles a change Canada’s oldest and largest chain, nomic boom. It has also brought politi- from publishing quality newspapers officially ending what one former cal controversy, as many journalists pro- under Southam ownership (the good), Southam News correspondent called “a tested the centralizing of operational to cost- and quality-cutting under the long-lived experiment in quality daily control at CanWest headquarters in management of Hollinger (the bad), to newspapering.” (Nagle 2003, p. B11) The Winnipeg in a reversal of the long- the centralization and political parti- former family-owned newspaper group standing Southam policy of allowing sanship seen under CanWest (the ugly). was renamed CanWest Publications, after latest owner CanWest Global Com- munications, a Canadian television Abstract network with worldwide holdings. CanWest had in mid-2000 acquired the The impact of financial markets on media management practices is apparent in bulk of the Southam chain, which had Canada, where public trading in newspaper company shares has contributed signifi- been founded in 1897 by William cantly to concentrated press ownership. Fluctuations in newspaper share values have Southam, from Hollinger Inc., which in often shaped firm strategies as a result. This paper presents the Southam newspaper 1996 had completed a gradual takeover chain as a case study of the impact of financial markets on newspaper management of the company. Under Hollinger, origi- practices. Historical analysis is used to show how Canada’s oldest and largest news- nally a Canadian newspaper group that paper chain, which was known for its commitment to quality journalism and for now includes the London Daily Tele- allowing its local publishers editorial independence, made a fateful decision when it graph, Chicago Sun-Times, and Jerusa- went “public” with a share issue in 1945. The increasingly widespread ownership of lem Post, the Southam dailies under- its stock led to Southam’s gradual takeover in 1996 by Hollinger Inc., which cut costs went a rigorous cost-cutting program. and reduced staff chain-wide. Sale of the Southam newspapers in 2000 to CanWest The belt-tightening accelerated in 1998, Global Communications has seen editorial control centralized at company headquar- when Hollinger chairman and majority ters and partisan support shown for the ruling federal Liberal party, contrary to shareholder Conrad Black founded the Southam’s founding principles. As a result, the Canadian Senate began hearings into upmarket National Post as a daily news- the media in 2003, bringing the possibility of government regulation to reverse the paper distributed across Canada in com- impact of financial markets on the management of media firms there. petition with Thomson’s Globe and www.mediajournal.org Mail. The expensive start-up drained Marc Edge Southam resources chain-wide, and ([email protected]) Hollinger’s stewardship of the Southam is an Assistant Professor in the School of Communication and Information at Nanyang dailies ended abruptly in mid-2000 Technological University in Singapore. His research focuses on the newspaper indus- with the surprise sale to CanWest. The try in Canada. television network’s ownership of the former Southam titles has seen in-

228 © 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. III : (180 – 189) The Impact of Financial the effect of stock market trading in The Newspaper Market Markets newspaper shares as an “uncoupling of in Canada newspaper ownership from account- The impact of financial markets on ability for community service.” The fi- When Bagdikian raised the alarm in media management practices was first duciary responsibility of corporate di- the U.S. in the early 1980s about the brought to the attention of many by rectors, he pointed out, makes them high level of concentration of owner- Bagdikian (1980, p. 64), who identified legally responsible for focusing on ship of the press, half that nation’s it as a factor that had been overlooked profit, which can create a short-term, press was owned by fourteen newspa- in understanding the impact of in- bottom-line orientation. per chains. (Bagdikian 1983, p. 18) But creased concentration of press owner- by then, events in Canada had resulted ship. He identified the stock bourses as There is accountability for profit, not for jour- in 58.7 percent of that country’s daily a “third market” whose forces newspa- nalism, except as it affects the business plan. newspapers being owned by just two per managers must account for, in ad- It isn’t coincidental that two of the nation’s chains, Southam and Thomson. dition to their acknowledged markets leading newspapers, The New York Times Dunnett (1988, p. 199) singled out for readers and advertising. and The Washington Post, have structured Canada as the most noteworthy ex- their stock so that family members retain ample of ownership concentration. “No The impact of trading newspaper corporate control. These families have maintained an developed country has so concentrated stock on the stock market has meant that interest in their companies that goes beyond a newspaper industry ... . In Canada the news companies must constantly expand in making money. newspaper market is unusual in that it size and rate of profits in order to maintain is still growing and could accommodate their position on stock exchanges ... . Instead By 2001, many of the ills of journalism new entrants.” The high level of Cana- of the single master so celebrated in the rheto- were being laid at the feet of chain dian newspaper ownership concentra- ric of the industry – the reader – there are in newspapers owned by publicly-traded tion was a result of several factors, in- fact three masters. corporations. Concluded one investiga- cluding the effective prohibition of tion (Kunkel & Roberts 2001, p. 6) of the foreign ownership, a lack of enforce- Bagdikian expanded on this hypothesis state of the American newspaper: “The ment of competition laws, and wide- in his book, The Media Monopoly chains’ desperation to maintain unre- spread share ownership. (Edge 2002) (Bagdikian 1983). The expansion of alistic profit levels (most of these big newspaper chains in the United States companies now being publicly traded) A major historical factor in shaping the during the 1960s and 1970s had come is actually reducing the amount of real newspaper industry in Canada was the largely at the expense of family-owned news being gathered and dissemi- trading shares of publicly-owned dai- enterprises whose third-generation nated, most conspicuously at the local lies and then chains of dailies. Buying owners could only escape heavy inher- and state levels, where consumers need up widely-held stock from second-gen- itance taxes by selling shares publicly. it most.” A survey of editors at publicly- eration owners of family newspaper Increasingly these family newspapers traded newspaper chains in the U.S. companies was the main growth strat- became acquired by chains, which published the same year (Cranberg, egy of F.P. Publications, which in the avoided paying tax on earned income Bezanson & Soloski 2001) concluded mid-1960s was briefly Canada’s largest by re-investing it in acquisitions. Ac- that stock market influence has had newspaper chain, even ahead of cording to Underwood (1993, p. 41), in- such a negative effect on newspaper Southam. (Edge 2001) The Canadian- creased corporate ownership of dailies quality that federal regulations should based international Thomson con- resulted in two trends during the 1970s be enacted to reverse the trend, despite glomerate in turn won a bidding war and 1980s: professional management First Amendment guarantees against in early 1980 for F.P. Publications, of newspapers, often by executives government interference in the opera- whose stock had similarly become with little or no background in jour- tions of the press. The move toward widely-held following the deaths of its nalism; and an increasingly bottom- “market-driven” journalism seen in the founders. On August 27 of that year, a line, market-driven orientation. He ar- 1980s and ’90s, however, was taking date which lives in newspaper indus- g gued that both trends were largely the place not just at publicly-owned news- try infamy as “Black Wednesday,” the nal.or result of stock market influences. papers, but also at many that were already-high level of concentration of “Wall Street, as publishers have privately owned as well but similarly Canadian newspaper ownership be- learned, can be insatiable in the de- fighting for market share, as television came increased with the simultaneous .mediajour mand for earnings growth and unmer- had taken both readers and advertisers closure of Thomson’s Ottawa Journal www ciful in hammering a stock if earnings away from newspapers worldwide. and Southam’s Winnipeg Tribune. The drop.” Ureneck (1999, p. 11) described (Underwood 1993, p. 56) closures created monopolies for the

© 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. III 229 respective chains in those markets as ther to younger family members in the widespread ownership of is shares re- well as in Vancouver, where Southam 1940s, it sought a mechanism for more duced family holdings to below 30 per- bought the Sun from Thomson on the easily trading shares in company own- cent by 1983, down from an estimated same day. Company executives claimed ership while still preserving control 40 percent two years earlier due to stock the closure decisions were arrived at in- over operations within the extended sales by family members. (Dougherty dependently, but a Royal Commission Southam clan. Some family members 1983) The fourth generation of was called to look into the matter and a favored the public trading of only non- Southam ownership had less interest in separate criminal investigation led to voting shares, while restricting owner- the newspaper business than their pre- charges of conspiracy and monopoly ship of voting shares to William decessors had, which would prove criti- being laid against Southam and Southam’s descendants. But according cal to the company. (Best 1996) This di- Thomson. to company historian Charles Bruce lution of company control made it (1968, p. 204), securities traders on the vulnerable to a hostile takeover, and The Royal Commission on Newspapers Toronto Stock Exchange were only in- unusual trading in Southam shares in held nationwide hearings and reported terested in voting stock. mid-1985 prompted speculation of within a year, calling for limits on the such an attempt. (Enchin 1985) As number of dailies a chain could own. It The investment dealers held out for Southam’s share price soared amid the also called for divestiture by Thomson listing of voting common [shares] with- speculation, a special meeting of share- of either its Globe and Mail, which was out restriction. They pointed out that holders passed the defensive measure moving to national distribution by sat- in any event the future of the company of a bylaw requiring a 50-percent quo- ellite from its Toronto base, or its other lay in Southam hands; perhaps there rum to approve transactions involving dailies across the country. (Canada was more danger in the possibility of more than 10 percent of the company’s 1981, p. 243) But despite owning a private trading (for instance, in the shares. (Jorgensen, 1985) As trading in greater percentage of Canada’s press – case of family disagreement) than in Southam shares became frantic by 32.8 percent compared with Thomson’s open dealings on the market. month’s end amid renewed takeover 25.9 percent – Southam was not speculation, a swap of shares was an- singled out for divestiture by the Royal To allay the concern of some Southam nounced with Torstar Corp., publisher Commission, even in Vancouver, where family members that the company’s of Canada’s largest daily, the Toronto it owned both dailies. The Commission guiding policy of “home rule” for its Star. In exchange for a 30-percent inter- noted Southam’s “concern for journal- local managers might be lost on subse- est in the smaller Torstar, Southam ism,” compared with Thomson’s preoc- quent generations of shareholders, di- gave up 20 percent of its shares in a cupation with return on investment. rectors also issued a public statement “near merger” that made its takeover a (Canada 1981, p. 93) A watered-down in 1945. It codified the long-standing practical impossibility. (Assael 1993) Canada Newspaper Act, which con- company policy of providing its pub- The deal included a 10-year “standstill” tained limits on chain ownership lishers with decision-making authority period, during which Torstar could not weaker than those proposed by the “to preserve complete political inde- increase its holdings in the larger com- Royal Commission on Newspapers, was pendence and to present news fairly pany, but that was later reduced to five tabled in 1983 but was never enacted. and accurately.” (Bruce 1968, p. 207) years after a legal challenge by minor- The criminal charges filed against When Southam went “public” with a ity shareholders. (Partridge 1988) Southam and Thomson came to trial in share issue in 1945, about a third of the 1983, when chain executives testified company’s existing 100 shareholders To bolster its defences against takeover, the closure decisions were arrived at in- were non-family members and to- Southam management decided to ratio- dependently but announced simulta- gether they held about 20 percent of nalize its operations in an attempt to neously in order to minimize political its stock. (p. 206) The new shares were boost its stock price and make it a less- fallout. Despite the evidence of shred- offered first to family members at $10 inviting target for acquisitors. Instead ded documents that suggested collabo- and then to the public at $13. Within of producing quality journalism, im- ration between the chains, they were days of public trading, the price hit proving Southam’s financial perfor- www acquitted. (Edge 2001, p. 324) $15. By 1966, after a 4-1 stock split in mance became a priority, with a de- 1960, the original shares were worth clared target of a 15-percent profit .mediajour The Demise of Southam $160. (p. 207) margin. (Leach 1988) Southam management, then into its fourth generation, nal.or As a second generation of Southams By the mid-1980s, following its “Black also looked in vain to the higher prepared to pass leadership of the Wednesday” dealings with Thomson, branches of the family tree for future g newspaper chain founded by their fa- Southam fortunes declined and the leadership among the hundreds of

230 © 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV great-great-grandchildren of William eral politics. (Frenkel 1994, p. 160) The he managed to lobby directors to vote Southam. Unable to find a suitable fam- reputation Hollinger gained was for the deal down. According to Siklos (p. ily candidate, the head of its Coles both instituting sharp cost-cutting mea- 307), this backroom dealing sowed the Books subsidiary was named CEO of sures at its acquisitions and for impos- seed of Southam’s demise and allowed Southam in 1992, but profits fell by 95 ing a neo-conservative editorial stance Black to eventually take the company percent that year and its share price on its newspapers. over. Black and Desmarais owned plunged, again making it a ripe take- neighboring vacation homes in Palm over target. But despite its growing international Beach, Florida, noted Siklos, and the empire, Hollinger had been shut out of two men “shared a fascination with Taking Southam Over the newspaper market in its Canadian Southam and had discussed their re- home base, except for minor purchases. spective ambitions to own it over the After failing to outbid Thomson for the According to biographer Richard Siklos years.” It was in Palm Beach that Black F.P. Publications chain in 1980, Conrad (1996, p. 311), Black set his sights on and Desmarais agreed to their equal Black’s Hollinger Inc. was again an in- Southam after the “standstill” agree- ownership of Southam, including vot- terested buyer when Southam became ment expired in 1990, making repeated ing and board parity and the first right vulnerable to takeover in 1985, purchas- offers to Torstar for its stake in the of refusal for each should the other ing five percent of its stock. Following chain, which had since been increased decide to sell his shares. While between Southam’s share swap with Torstar, to 22.5 percent. Frustrated by rising them they owned less than a majority Hollinger sold its holdings at a profit Southam losses of $153 million in 1991 of Southam shares, their combined and used the proceeds to start an inter- and $263 million in 1992, Torstar also stakes gave them effective control of national newspaper empire instead. It faced capital expenditures of $400 mil- the company. Together Hollinger and first bought the money-losing Daily lion for new presses. Finally in Novem- Power Corp. owned 37.6 percent of Telegraph in London for a bargain price ber 1992 it sold its holdings in Southam Southam stock, each retained the right and joined a non-union movement out to Black for $18.10 a share, or a 15-per- under company regulations to increase of Fleet Street, by 1993 cutting almost cent premium over market value. Hor- their holdings to 23.5 percent, and three-quarters of the paper’s 1986 rified Southam family members each was entitled by the size of its workforce. (Siklos 1996, p. 383) Soon the quickly sought a counterbalance to the shareholdings to appoint three of the Telegraph’s annual earnings exceeded man they had earlier prevented from company’s 14 directors. After the deal the original purchase price paid by taking over the family firm with the to issue Desmarais 13 million shares Hollinger, and it became the profit en- 1985 Torstar share swap. One of the few for $14 each was announced in March gine that drove the newspaper chain’s Canadian businessmen with the re- 1993, Black told reporters: “With forty- expansion to become the third-largest sources to match Black was Montreal seven percent of the stock if you can’t in the world by 1997. (Jones 1998) In the businessman Paul Desmarais, whose control a company you should join a mid-1980s, Hollinger began buying Power Corp. held an estimated $27 bil- monastery or something.” (p. 318) newspapers in the U.S. through a regu- lion in assets, including a chain of 41 lar classified ad in the trade publication newspapers in the province Quebec. The Effect on Management Editor & Publisher. By 1997 its subsid- Approaching Desmarais to sound out his iary American Publishing Co. had feelings toward the traditional Southam Even before Black bought into grown, through 100 separate deals, into values of quality newspapering, directors Southam, company management had the second-largest newspaper chain in found Desmarais sympathetic. Falling instituted a cost-cutting program the U.S. as measured by number of Southam share prices had created a prob- aimed at tightening up operations and titles, although it did not even place in lem for the company with its bankers boosting share price as a defensive the top ten by circulation. (Siklos 1996, due to its increased debt-to-equity ratio, measure against takeover. In late 1991 p. 170) Its 340 newspapers were mostly and raising cash by issuing shares from Southam sold off its printing and smaller dailies and weeklies, but they its treasury to Desmarais would solve graphics division and in July of 1992 it also included the 500,000-circulation that problem in addition to diluting sold its shares in Torstar. In October of g Chicago Sun-Times. In 1989 Hollinger Black’s ownership to less than 20 per- that year the company moved out of its

nal.or bought the financially-ailing Jerusalem cent and creating an equal shareholder. long-time suburban Toronto headquar- Post and not only imposed a cost-cut- ters into less expensive premises. A ting regime in its newsroom, installing When Black learned of Southam’s plan three-year job-cutting program was in-

.mediajour a time clock on which journalists were to sell Desmarais $200 million in stock stituted in 1991 with the aim of trim-

www required to punch in and out, but it also at $13.50 a share, he protested to the ming $75 million from the payroll by imposed a radical change to its once-lib- board that the price was too low and 1994, and it saw 679 employees leave

© 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV 231 the company in 1992. The job cuts were board members with detailed financial rigour.” He criticized Southam man- made across the board, and many em- reports because they were considered agement for panicking in 1985 at the ployees left with divisions that industry competitors. Animosities on takeover rumors that prompted the Southam sold off, but a “buy-out” pro- the Southam board built, bringing old share swap with Torstar which ulti- gram saw many senior journalists also guard directors into conflict with the mately proved its undoing. “If Southam leave with attractive severance pack- bottom-line experts brought in by the management had been a little more ages.1 With Black, Desmarais and their company’s newest and largest share- courageous, it might still be a family- appointees on the Southam board by holders. “Southam’s philosophy was controlled company.” (Miller 1998, p. the company’s May annual meeting, that they were in the business of deliv- 62) Black then fired Ardell as Southam the Globe and Mail (Enchin 1993, p. B1) ering news,” explained Jack Boultbee, CEO, took over operations of the com- quipped that shareholders might be Hollinger’s vice-president of finance, at pany himself, and called a special meet- excused for “wondering whether one point. “We’re in the business of ing of shareholders to oust the “obdu- they’ve walked into the wrong room” selling ads.” (Urlocker 1995, p. 33) Soon rate rump” of old-guard Southam given the scale of the changes. the unworkable arrangement led long- directors who stood in his way. “They time neighbours Black and Desmarais don’t believe in corporate governance,” A whole new cast of characters has taken con- to seek a way out of their partnership. said Ronald Cliff, one of the five trol of the company ... and they have stacked Black offered to buy out Desmarais, Southam directors with a collective 81 the board of directors with their own kind. who countered with a proposal to years on the board who were voted off. The gentlemen’s club ... has been overthrown break up the Southam chain, with “They think they have the right to do it by financiers determined to extract the high- Black taking ten of its smaller dailies because they own 41 per cent of est possible return even if it means hacking in exchange for his minority owner- Southam.” (Ferguson 1996, p. F3)) off a limb or two. ship. But independent directors on the Taking Southam Private Southam board blocked that move, cit- But despite their combined holdings, ing a forecast that the sell-off would Black quickly moved to gain majority Black and Desmarais grew increasingly drop Southam share price from $16 to control of Southam, first offering frustrated over the next few years at $11, prompting Black to label them an shareholders $18.75 a share in a bid to the slow pace of change at Southam. “obdurate rump.” (Hutchinson 1996, p. acquire enough stock to give him more The sale of Coles Books in 1995 brought 36) Finally Desmarais agreed in frustra- than 50 percent ownership, then in- some improvement to the company’s tion to sell his shares to Black for $18 creasing the offer to $20 when that bottom line, and in early 1996 another apiece and a total of $294 million in proved insufficient. The acquisition of 750 jobs cuts were announced. The May, giving him 41 percent ownership 8.5 million shares as a result gave company payroll by then stood at 6,400 of Southam. Hollinger 50.7 percent of the company following the departure of more than in November 1996. (Fitzgerald 1997) 1,000 employees from continuing op- Black’s gaining of effective control over Black then moved to buy up all remain- erations since 1993, in addition to Southam came on the eve of ing company stock, first using his those who departed with discontinued Hollinger’s 1996 annual meeting, at majority control in April 1997 to dis- or divested divisions. A move to cut the which he made comments that tribute the firm’s accumulated cash re- second major newspaper cost saw the alarmed many Canadians who had serves in a $2.50 per share “special narrowing by 2.5 inches of published again become concerned about the in- dividend.” (Dalglish 1997) This en- pages size at the Southam papers, with creased level of concentration of own- riched Hollinger most of all, by $47 the aim of saving $10 million annually ership of the country’s press. In his million, and enabled it to one week on newsprint. But when Southam an- speech to shareholders, Black both later to make a $923-million bid to buy nounced in February 1996 a loss of pointed to the reasons behind the de- out Southam’s other shareholders. It $53.4 million for 1995, largely as a re- mise of family control of the Southam was not accepted by enough sharehold- sult of the $120 million cost of sever- newspapers and pointed out his oppo- ers to enable Black to take Southam ing 750 more employees, Hollinger sition to its traditional operating phi- “private” again by having it de-listed www president David Radler labeled the re- losophy. “Southam management long from stock exchanges, as only 15.6 per- sults “totally inadequate” and observed accepted inadequate returns for the cent of Southam’s minority sharehold- .mediajour that his company could have done bet- shareholders, published generally un- ers accepted it, giving Hollinger 58.6 ter by investing in bonds. (Mahood distinguished products for the readers percent ownership. (Mahood 1997) nal.or 1996, p. B7) According to Siklos (1996, and received exaggerated laudations p. 404), Southam executives refused to from the working press for the result- The following year, Black acquired a g provide Hollinger and Power Corp. ing lack of financial and editorial key block of more than 8 million

232 © 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV Southam shares from the Franklin the Toronto Star, Canada’s largest daily lion. (McCarthy 2000) Announcement mutual fund for $31.68 each, a pre- with a circulation of 458,000 on week- of the deal sent Hollinger stock, which mium of 22 percent above the market days and more than 700,000 on Satur- had languished near $10 in April, soar- price, raising his ownership of days. The Globe and Mail circulated ing 11 percent to close at $16.25. The Southam to 69.2 percent. (Mahood 330,000 copies nationally from its deal put the bulk of the former 1998) That set the stage for his second Toronto home, where it also published Southam newspaper chain in the bid for the remainder of Southam a Metro edition with local news. The hands of Israel Asper, a former presi- shares in December, which was again downscale end of the market was domi- dent of the Liberal Party in his home made with the benefit of creative fi- nated by the tabloid Sun, which sold province of Manitoba who had founded nancing. First, Hollinger used its ma- 240,000 copies daily and more than Canada’s third television network in jority control of Southam to declare a 400,000 on Sundays. The Post’s operat- 1977 and since expanded it to include special dividend of $7 a share, to be fi- ing losses of $44 million in its first year networks in Australia, New Zealand and nanced by borrowing $532 million. proved a drain on Hollinger, whose Ireland. Black (2000, p. B1) attributed Then it offered $22 a share for the re- share price fell almost 20 percent dur- his selloff, in a column in the National maining Southam stock in a bid that ing the period. In a bid to ease the Post and other Southam dailies, to the was largely financed by the special divi- company’s $2.4 billion in debt, Black “contramathematical disparity” be- dend. (Dalglish 1998) That offer was re- announced he would sell up to half of tween the worth of Hollinger shares jected by independent members of the his accumulated Canadian publishing “and the value attributed to them on Southam board, but when Hollinger empire, offering the smaller publica- the stock markets.” In an analysis, Black increased it to $25.25 early in 1999, tions for sale. In response, Hollinger biographer Siklos (2000, p. A13) agreed, they voted to recommend it. (Dalglish share prices immediately jumped 26 noting that due to its high debt load 1999a) When the offer expired two percent. (Sheppard & Chisholm 1999) Hollinger stock had risen an average of weeks later, more than 90 percent of only 6.9 percent annually since its 1994 the 22 million remaining Southam Black’s motives were mixed, however, IPO on Wall Street. “The real story be- shares had been tendered, raising due to a dispute that had begun in mid- hind Mr. Black’s ‘retreat’ from Canada Hollinger’s ownership of the company 1999 with Prime Minister Jean is that he missed out on the biggest bull to 97 percent. (Shecter 1999) Under Chretien, who had blocked the Daily market in history ... . despite all the im- Ontario securities law, that paved the Telegraph owner’s appointment to the provements Hollinger has made, and way for Black to force the remaining House of Lords by citing an obscure several Wall Street analysts decrying its shareholders out and de-list the com- rule prohibiting Canadians from ac- low valuation, Hollinger stock has been pany that Southam family members cepting foreign titles. (Freeman 1999) what they call ‘dead money.’” Black had taken public 54 years previously. Black, a dual Canadian and British citi- then renounced his Canadian citizen- (Dalglish 1999b) zen and resident of London, countered ship and assumed his peerage as Lord with a lawsuit against Chretien for Black of Crossharbour. The Emergence of CanWest “abuse of process,” claiming $25,000 in damages for “public embarrassment,” Convergence and Partisanship Black then turned his attention to but the lawsuit was dismissed in March starting up a second national newspa- 2000. (Abbate 2000) Black could only CanWest soon faced debt problems of per in Canada, in competition with accept his seat in the House of Lords by its own, first in raising sufficient funds Globe and Mail. The launch of his Na- renouncing his Canadian citizenship, to even complete its purchase of the tional Post in October 1998 exceeded but that would make him a foreign former Southam empire. In November expectations for circulation, quickly owner of the press holdings in his na- 2000 it canceled a planned $800-mil- soaring to sales of 272,000 daily, al- tive land, and under Canadian tax law lion bond issue, unwilling to pay the though critics pointed to the large advertisers would no longer be allowed estimated 12 percent return required number of heavily-discounted sales to claim as an income-tax deduction to attract the needed capital after fail- that inflated figures. More signifi- the expense of purchasing space on his ing to attract investors at rates of 10- g cantly, advertising linage lagged below pages. (Scoffield 1999) 10.5 percent. But of more immediate

nal.or projections, resulting in editions often concern to its bottom line were the including only 20 percent advertising This resulted at the end of July 2000 in growing losses of the National Post, of content. (Wilson-Smith 1999) An all-out the sale, not of Hollinger’s smaller Ca- which CanWest had acquired only a

.mediajour “newspaper war” resulted in Toronto, nadian newspapers, but of its 13 larg- half-interest, with Black retaining a

www where Black had hoped to establish a est and 130 smaller titles to CanWest partnership in and assuming the beachhead in a market dominated by Global Communications for $3.5 bil- publisher’s chair of the daily he had

© 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV 233 founded. Post losses in the first nine their bylines for two days in protest. Citizen subscribers cancelled home de- months of 2000 had come in at $36 (Church 2001) In early 2002 a long-time livery, CanWest shares slipped to a six- million, bringing the total since its in- Halifax Daily News columnist quit be- year low of $8.50. (Damsell 2002c) The ception two years earlier to $133 mil- cause he said his columns had been Vienna-based International Press Insti- lion. (Damsell & MacDonald 2000) changed “to match the owner’s point of tute issued a statement calling the fir- With its share price at $16, CanWest an- view.” The Daily News editor then re- ing of Mills “an attack on press free- nounced to stock analysts at the end of signed after admitting interference dom by an unholy coalition between November a plan to reduce $60 million from CanWest headquarters in politics and big business.” (Lunman & in costs company-wide through syner- Winnipeg in newspaper’s content. McCarthy 2002) Televised debates in gies and cutbacks. (Damsell 2000) By (Miller 2002) The Columbia Journalism Parliament were dominated for days by mid-2001, CanWest shares had dropped Review(Moore, A.J. 2002, p. 11) reported Opposition party accusations that the to $12.50, and third-quarter earnings that in addition to imposing national prime minister had ordered the Citi- came in 73 percent lower than the pre- editorials, one such CanWest column zen publisher’s firing personally, over vious year, due largely to a 13.7-percent arguing that Canada should back Israel dinner with Israel Asper the previous drop in profit at its new Southam Pub- no matter how it responds to Palestin- evening. (Krauss 2002) On July 2, work- lications division. (Ferguson 2001) ian suicide bombings “without the ers at CanWest’s Vancouver Sun and usual handwringing criticism about Province went on strike, dropping its In August, as National Post losses ‘excessive force’” even came with a no- shares to $6.98. (Damsell 2002d) reached an estimated $190 million, rebuttal order. “Papers in the Southam CanWest bought Black’s remaining chain were told to carry neither col- CanWest began dumping assets in a half-interest in the newspaper. (Damsell umns nor letters to the editor taking is- desperate attempt to pare down its 2001a) With its stock trading at $11.35 sue with that editorial, according to jour- debt and boost its share price, selling in mid-September, the company an- nalists at two Southam papers, who said its dailies in Atlantic Canada for $255 nounced it would suspend payment of the order came via a conference call.” million. (Ferguson 2002a) In September its annual dividend to shareholders to it quietly abandoned its policy of im- save $53 million. It also announced the In March, reporters at the Regina posing national editorials on its news- layoff of 120 employees from the Na- Leader-Post went on byline strike after papers. (Estok 2002) The moves could tional Post, or 20 percent of its they claimed a story quoting a speech not stem the slide of CanWest shares workforce, news of which boosted at the local journalism school about on the Toronto Stock exchange, how- CanWest’s share price by 85 cents. CanWest’s national editorial policy was ever, where they closed on October 4 at (Flavelle 2001) Declining advertising re-written to remove a reference to a low of $3.32. (Ferguson 2002b) By revenue in a slumping economy and ris- “censorship.” (Damsell 2002a) In April, month’s end, however, CanWest stock ing debt-servicing costs more than CanWest’s second-quarter results had rebounded to $6 a share when it doubled CanWest’s fourth-quarter loss showed a loss of $21.7 million due to reported a fourth-quarter loss of $104 for fiscal 2001 to $37 million. (Damsell flagging ad revenue at the Southam million. (Cash 2002) In January, the 2001b) In a bid to trim more costs, it papers, which sent its share price down Globe and Mail (Damsell 2003, p. B2) announced in November cancellation 25 cents to $11.20. (Pitts 2002) In June, reported what it described as “this of the long-running Southam Fellow- 40 former Southam executives took out country’s most aggressive attempt to ships, which since 1962 had provided a full-page advertisement in newspa- centralize editorial operations across a mid-career education for journalists pers not owned by CanWest, criticizing newspaper chain” when it revealed an from all media across Canada. (Moore, the company’s national editorial policy internal CanWest memo setting out O. 2001) and calling on the federal government plans for a centralized news desk in to enact measures to ensure local edi- Winnipeg to co-ordinate coverage at Soon, however, CanWest’s financial torial independence. (Damsell 2002b) the former Southam dailies across problems seemed tame compared to The controversy heightened later that Canada. The following month Senator the firestorm of journalistic criticism month when Russell Mills, the long- Joan Fraser, who had been editor of the www that erupted as a result of the new edi- time publisher of the Ottawa Citizen, Montreal Gazette when Conrad Black torial policies it imposed on the former was fired after his newspaper called for first bought into Southam almost a .mediajour Southam dailies. In December 2001, the resignation of Prime Minister Jean decade earlier, announced that the CanWest ordered chain-wide publica- Chretien as a result of a growing pa- Committee on Transport and Commu- nal.or tion of editorials written at its head of- tronage scandal. After politicians nications she chaired would hold pub- fice in Winnipeg, prompting reporters across Canada renewed calls for an in- lic hearings on the media starting later g at its Montreal Gazette to withdraw quiry into the press and more than 500 in 2003. (Block 2003)

234 © 2003 – JMM – The International Journal on Media Management – Vol. 5 – No. IV Conclusions Southam dailies at the top of the stock The listing for sale to the public of vot- market boom in 2000 proved unfortu- ing stock, as the Southams had agreed The most notable feature of the Southam nate timing, as the scenario of increased to in 1945, had a perhaps inevitable case is the marked change in its manage- debt reducing share values repeated it- consequence in eventually locating ment practices following the firm’s take- self, with the result again being in- company ownership and control in- over by Hollinger in 1996 and its subse- creased cost and quality cutting. creasingly outside their family, thus quent sale to CanWest in 2000. Deep cuts making its management practices ever in staffing levels resulted from a new fo- But the effects of stock market influ- more subject to market forces. The radi- cus on the financial bottom line at the ence on the Southam newspapers can cal change in operating philosophy expense of quality journalism as tradi- be traced back even earlier than the ac- that resulted was of such national sig- tionally emphasised under Southam tual change in company control to the nificance that the Canadian Senate family management. This change of di- 1980s, when the threat of a hostile take- again began inquiring into the opera- rection was both caused by and exacer- over first affected the company’s man- tions of the press, bringing the possi- bated by stock market forces. The wide- agement practices. Even under family bility that long-threatened regulations spread distribution of Southam shares control, emphasis had to be shifted might finally be implemented in allowed its gradual takeover by from quality journalism to quarterly Canada to limit concentration of press Hollinger, well-known for operating its earnings in order to keep Southam’s ownership. Thus the inexorable effect newspapers on a very tight budget. But stock price from falling and prevent it of stock market trading on the manage- the debt burden incurred in acquiring from being bought up by bargain hunt- ment practices of a nation’s press the Southam empire in turn put pres- ers looking to acquire the historic firm might prove so great as to result in sure on Hollinger’s stock. This made fur- below its true value. To those who prize state intervention to reverse the im- ther cost-cutting necessary to reduce its quality journalism, the situation went pact. losses in order to keep share prices from from good to bad as a result, but it did falling further, and it finally necessi- not get truly ugly until the long-pub- tated the sale to CanWest. The television lishing newspapers became acquired Endnote network’s acquisition of the former by owners with overt political motives. 1 Including the author, after 16 years of employment.

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