Canadian Heritage Committee on May 12th, 2016

[Paul Godfrey]

I was going to make the point that most newspapers today, because of the drop in the bottom line and the cutbacks they've made, can't compete with the Googles of the world.

To give you one example, Google's been around for 18 years and, god bless them, you have to congratulate them for their great success, and I do that, but their market cap is close to $600 billion. I sat down with the president of the Bank of Montreal yesterday and I said, “What's your market cap? You've been around for 200 years”, and he said $50 billion. I said “Wow”, and he said “Wow”.

It just goes to show you the great impact that this basically young company has had. That's who we're competing with.

[Seamus O'Regan, Liberal, St. John's South—Mount Pearl, NL]

I guess that's the circle we're trying to square here as a committee. It's difficult. People have made their choices about whether or not they want to pay 99¢, as my colleague mentioned, for a newspaper subscription, but they have no problem paying $7.99 a month for Netflix.

We want Canadian content and we want to make sure it's represented, yet at the same time people seem to be voting with their mouses and their keyboards, clicking on exactly what they want.

I look at the number of subsidies that are given. I don't contest it; I'm just trying to figure it out.

For instance, a number of your community newspapers receive funding from the Canadian periodical fund, and cumulatively it's a fair amount, but when you look at it, it's a small amount for each one of them—$25,000 to $40,000—and it does make a big difference to those newspapers. I grew up in a small town; I know what it is to have and rely upon a community newspaper, even if it has evolved to a website.

How do we—and I would ask the same question of Bombardier or anybody—justify taxpayers' dollars, in a free market area, subsidizing certain industries or companies, when the people are choosing somewhere else, whether it be within the country or exceedingly, it appears, outside it?

[Paul Godfrey]

That's a very important question.

I think it is a balancing act. I guess the same thing could be said about how a government could subsidize or lend any money to General Motors and Chrysler over the years. It's groundbreaking, in many ways.

I looked at this thing, and I said, “We are looking for an ally. We're not looking for a bailout.” I think this is the important part.

I agree with you. Why are a lot of people objecting to pay 99¢, when for years they paid for a newspaper to be delivered to their door? Sometimes it didn't make it to the door; it made the driveway. In the winter it got awfully wet. Somehow they dried it off, continued to pay for it, and then read it. Yet if you take it through the door and put it on a screen, where there's no negative environmental impact whatsoever, they say they're not going to do that.

It has changed, and changed slightly. The problem is that even the 99¢ doesn't solve our problem. The problem we have is that our revenues are going down to such a degree that we are....

The heritage committee was set up. It was set up to find solutions for news media. It's not just newspapers: I can tell you that the television industry is not far behind where we are today. You know that many of the major television networks are suffering the same way we are suffering, but they haven't approached the point we are at. Magazines are ahead of us in suffering. We come second. You're going to see. You're going to have them coming forward, I am sure, to ask for certain amendments, especially the over-the-air channels, as they face more challenges. They're going to want to be treated the same way the cable channels are, by getting subscriber fees.

This is a phenomenon, and it's not an easy one for government. I recognize that. I'm here at your invitation to try to give you some solutions that are realistic, that can be done, and can be worked on—and not necessarily just to help the company, but also the advertiser, and to make things easier for them too, because they're going to get the tax break if you open up the door that way for them.

[The Chair, Liberal, Hedy Fry]

You have two minutes.

[Seamus O'Regan, Liberal, St. John's South—Mount Pearl, NL]

I don't mean this in an accusatory or overly aggressive way, Mr. Godfrey, but the difference between an alliance and a bailout is.... We are talking about money, obviously.

[Paul Godfrey]

Look, there's no doubt. You can call it a rose; by any other colour it's still a rose. I totally understand that.

The committee invited me here to ask what some solutions would be. I could have come here just to state what the problems are and say, “Okay, here are the problems. You figure it out.”

I think the industry is looking for an ally. These are ways.... Look, there was an Ontario digital tax credit for innovation. It was helpful for a few years. I didn't hear a public uproar, asking “Why are we doing this for these companies?” We were in better shape when that was put into place.

All we're saying now is that maybe should look at that, because the state of affairs in the industry is much worse today. I'm not trying to paint an overly bleak picture. I'm painting the picture that's out there. I will tell you that within three years, there'll be many more closures in some of your own communities because of the state of the newspapers.

We operate about 180 newspapers in this country. Local newspapers provide local content for people who can't get that information in other places. That's not going to be available if we allow this to continue.

We have made cuts for years now. I've been back in this business for six years. We have done everything we can. We believe that merging with Sun Media.... We went to the Competition Bureau, and spoke to them, and said, “That gives us a little bit more runway”. The erosion of the print ad revenue has been so dramatic that even that runway is short.

Yes, you're absolutely right, an option for the government is to do nothing. You're our elected representatives. I commend you for even having this meeting. If you decide to do nothing, that's your call. I'm not trying to paint an uglier picture than what it is. It's ugly and will get uglier, based on the trends that exist today.

[The Chair, Liberal, Hedy Fry]

Thank you, Mr. Godfrey.

Now we go to the second round and we're going to go for four minutes. We will begin with Mr. Maguire for the Conservatives. Actually it will be Mr. Waugh first.

Go ahead, Mr. Waugh.

[Kevin Waugh, Conservative, Saskatoon—Grasswood, SK]

I'm going to talk about content. Local content is still king.

Mr. Nott, when I was at Bell in Saskatoon, when we lost one point in the local news from six o'clock to seven o'clock, it cost us $1 million in advertising revenue. They didn't talk about that. So when you start cutting personnel and cutting people and all of a sudden you see your rating slip by three points, that's $3 million you lose.

Content in newspapers—can you talk about that? It's still the most important thing. If I'm going to buy one of your newspapers, I want to see content. I know that ads make up 50% or 60% of each page and there's 40% content. Can you talk about that? The newspapers have gone from 40 pages to 32.

[Gerry Nott, Senior Vice-President Content, and Senior Vice-President, National Post, Postmedia Network Canada Corp.]

The business model requires that there be a balance between the advertising ratio and the news ratio. It's as simple as that. I think you would see that over the years, most of our newspapers would see their news to whole ratio dramatically higher than it used to be as the ad lineage has decreased.

I'd also make the point that as we've gone through the painful reductions we've had to make, all of us have been very mindful of the principle of maintaining local feet on the street. As we've had to look at editorial head count reductions, we've tried to find areas of duplication. We've tried to take out processes that were repeated in each of our newsrooms and centralize them so that we could reduce them. We've tried a common design so that we can make sharing non-local pages easier. All of those things have been geared towards keeping local feet on the street.

I think to the extent we've been able to do that, we've had some success. Your own paper in Saskatoon has two national newspaper award nominations. It's certainly at risk. I'm not sure we have much left to trim before we get to the feet on the street issue and reduce the local reporting strength.

[Larry Maguire, Conservative, Brandon—Souris, MB]

I'd like to thank all three of you for being here today and for your presentation as well.

Mr. Godfrey, you've expanded on the fact that you have 180 newspapers and that sort of thing, but where do you see the digital side of this going?

[Paul Godfrey]

I think digital news will continue to grow. I think as the next generations come along, there's no doubt that people will continue to see it on the websites and on the tablets, but I think the smart phone is the one that is galloping away with the eyeballs more quickly than anything. That's the reason we talked about the Ontario interactive digital tax credit. It gives industry an opportunity to help promote innovation, because that's where the trend is going.

I think a great number of people in our generation will still want to see print. I don't think print is going to disappear entirely in the next short period of time, but I do think there will be publications that will just not be able to survive. At this point in time, print revenue is still the most important part of our revenue stream.

People say, “why don't you charge more for the paper?” The fact is that if people want it for the content, they should pay more, but it's like everything else. In government if you provide something free and then you tell people you're going to raise the price, your phone starts ringing. They're not phoning to congratulate you; they're phoning to complain. We receive the same thing. The model that worked for many decades was that 80% of your revenue came from advertising and 20% came from the reader even though prices went up.

When I was a boy many decades ago, I remember the newspaper was three cents and then it went to five cents and then 10 cents. Then newspapers became a little greedier and they bumped it up to 25 cents because it was a single coin and you could get away with that. Now it's significantly higher.

I can remember from my days in municipal life, that when we raised the transit fares a couple of pennies, ridership fell off.

[Larry Maguire, Conservative, Brandon—Souris, MB]

Mr. Godfrey, I have one more question.

[The Chair, Liberal, Hedy Fry]

Mr. Maguire, you won't time have time. You've used up your four minutes.

I will go to Mr. Samson. I understand you will be sharing time with Ms. Dabrusin, but you have only four minutes.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

I understand we only have four minutes, so we'll do it quickly.

What I want to ask if you're using Google more than using canoe.com?

[Paul Godfrey]

We use many of the websites.

We do business with Google. The reason we do business with Google is that you have to do business with Google, because they do provide access to our site. But that doesn't solve our problems. We're not here to be critical of Google. In many ways we admire Google, but you have to remember that Google does not produce content. We produce content.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

I agree. I just had to ask the question.

The next question I'll ask in French. It has to do with the following.

Postmedia Network Canada Corp. owns two dailies in Ottawa, the Ottawa Sun and the Ottawa Citizen. The newsrooms of these two dailies have now been amalgamated and the content is also shared.

Don't you think that this kind of amalgamation will limit the diversity of points of view and local news?

[Paul Godfrey]

I'm going to let Gerry Nott answer that, because he was the editor of the Ottawa Citizen and publisher of the Ottawa Citizen, and now he's in charge of content for the whole country. I think he would do the question more justice than I would.

[Darrell Samson, Liberal, Sackville—Preston—Chezzetcook, NS]

I appreciate it.

[Gerry Nott]

I think the first thing to say is that the merger of the Sun and Citizen newsrooms was not envisioned at the time we entered the agreement to purchase Sun Media, but became a reality of the business as we saw the decline of advertising dollars.

When we merged those two newsrooms, we stuck to our core belief of providing great local content. That's had some significant benefit, particularly on the Sun side, where the newsroom of the merged Citizen and Sun is a much larger newsroom than the Sun standing on its own. Therefore, it's had some benefit in terms of local content creation.

There have been, and there is, similarity in the content of those papers. We've charged those editors with the responsibility of trying to define differentiation by the brand values of a tabloid versus a broadsheet. The tabloid would focus more on crime, courts, and sports, and the broadsheet would look more at a deeper civic file, a richer national file, and a richer international file. It differentiates significantly on the use of columnists. Their columnists' voices maintain distinction, their editorial voices maintain distinction, and we separate the two that way.

We think the audience duplication in the Ottawa area is less than 15%, so when those stories do appear in both publications, it's not a significant duplicated audience.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

Just to follow up quickly on that—and I did have another question—my understanding is that as a result of the merger, including of the newsrooms, some 35 journalists were laid off in Edmonton, 25 in Calgary, and 12 in Ottawa, according to the information I have. Going on what you were saying before, are you saying that merger was a good one for promoting diverse local voices?

[Gerry Nott]

It's never good when the editorial head count is reduced in any newsroom. It was a reality that we faced in terms of the economics of the business. Our strategy was to get to a head count that was going to provide the maximum amount of local coverage in both tabloid and broadsheet markets, and sustain the audience and the editorial voice of those newspapers.

[The Chair, Liberal, Hedy Fry]

That was it?

Mr. Nantel for four minutes.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

Thank you, Madam Chair.

I went to look on the Internet—I know I sound old when I say that. In the App Store, I see that you have two options for the National Post, and The Globe and Mail.

My general impression was that, except for older people who use a PC with a keyboard, apps for smart phones and iPads are part of the general trend toward tablets and smart phones. Do they not provide some independence from search engines such as Google?

I am like everyone else. I would point out that Google is one of the most popular brands in the United States, liked by Republicans as well as Democrats. Everyone likes Google. Obviously, everyone likes it and especially the little themes on Google that change every day. In reality, however, the giant is eating the roots of all the local plants. Do apps afford greater independence in respect of digital revenues as opposed to leaving the lion's share to search engines?

[Paul Godfrey]

I think the apps make it easier for readers to get to the content they want. There is no doubt that if people want to find a specific story on a specific date, they can google your name or my name or Mr. Vaughan's name, and they will get a big rundown of all the comments. We try to make it as easy as possible for readers on all our sites. We have spent a lot of money on developing it, and we have made some significant inroads in certain areas too, but the bottom line we come back to is the major loss of advertising revenue.

[Pierre Nantel, NDP, Longueuil—Saint-Hubert, QC]

With respect to journalists, newsrooms are smaller, there have been budget cuts and job losses. I have two questions for you in this regard.

Is this the reason—as I believe—for the greater number of syndicated or affiliated articles, such as those from the Canadian Press? I see the same article several times in the various newspapers I read, and the Canadian Press is often the source. Is this another type of consolidation? Newspaper newsrooms can be consolidated even if they have different readerships, and consolidation is also achieved with news agencies, which is what Quebecor has done with QMI.

Is this a reaction and the lesser of possible evils rather than having Canadian information sources, even if they are consolidated?