Canadian Heritage Committee on May 12th, 2016

[The Chair, Liberal, Hedy Fry]

I call the meeting to order.

Today we have Postmedia Network Canada Corp. for our first hour. I know that Postmedia understands the nature of the questions we're asking, concerning access to local media, local stories, and Canadian content. The questions also pertain to the impacts of media consolidation and digital media on that access, and how one sees the future unfolding to improve the access of Canadians, regardless of where they live, to their own stories and local news and their understanding of their regions.

Mr. Godfrey, Mr. Lamb, and Mr. Nott, welcome to the committee. You have 10 minutes to present. You can decide how to share that 10 minutes, but it is 10 minutes. I will give you a two-minute advisory when you have two minutes left. After that, we will go to interaction with the committee for questions and answers.

Without further ado, I would advise you to begin.

[Paul Godfrey, President and Chief Executive Officer, Postmedia Network Canada Corp.]

Thank you, Madam Chair, and honourable committee members. Good morning.

First of all, I would like to thank you for inviting Postmedia to participate in today's session. The heritage committee has quite rightly identified the very real need to explore Canadians' access to news and information. This is a critical time for Canadian news media, and the need for action is quite urgent.

My name is Paul Godfrey, and I'm the president and CEO of Postmedia. With me today is Doug Lamb, Postmedia's executive vice-president and CFO, and Gerry Nott, senior vice-president of content, Postmedia, and senior vice-president of the National Post.

Postmedia's daily newspapers have in total the highest weekly print readership in Canada, reaching 8.3 million Canadians each week. Our digital properties have 12.8 million average monthly unique visitors, including websites that rank number one in Canada in the newspaper category. We have more than 180 print titles in all, reaching cities and communities including Melfort and Gananoque, Saskatoon and Ottawa.

I'm here today to tell you that everything you read or have seen or have clicked on for telling the doom and gloom in the news media industry does not provide the picture. In fact, it is actually quite understated.

To be clear, it is not nearly as glamorous to own a newspaper as it was back in the heyday. Just last week another Canadian media company reported troubling results. As I'm sure the committee well knows, threats from all comers—new digital operations, massive international players, and shifting advertising budgets—have wrought havoc on the cornerstone of our democracy, a free and independent press. The myriad of challenges to the traditional news media business model is well documented. We all know that a free press isn't really free.

However, without community newspapers covering hyper-local stories, they simply would go unexplored, unchallenged, and unreported. Larger Canadian cities are made up of neighbourhoods that are represented in our urban daily newspapers, too. Even at a time when people everywhere have more access to news than ever and when anyone can take an active part in breaking the news around them through social media, it is still the role of professional journalists to delve deeper, to gain access, and to ask questions on behalf of us all.

Joelle Kovach of the Peterborough Examiner won an Ontario newspaper award for coverage of municipal affairs, including the debate around a city bureaucrat owning property being re-zoned for commercial use. Stories like this would simply cease to exist without people reporting from city halls and town offices across the country in places such as Nipawin and Portage la Prairie, Lloydminster and Kincardine. Even the city of Montreal has local stories that probably don't trend on social media. Nevertheless, Linda Gyulai from the Montreal Gazette waged a seven-year access to information battle to expose corruption in Montreal's municipal government. Her work has been nominated for a National Newspaper Award.

Last week, as wildfires burned, Fort McMurray Today was delivered to the citizens in evacuation centres. When those evacuation centres were evacuated, their local paper followed them to Edmonton, more than 430 kilometres from home. Even with the ever-expanding availability of news from around the world at our fingertips, it is important that we continue to preserve local perspectives, encourage discourse, and remain a reliable source of credible Canadian news and information.

At Postmedia we have undertaken a massive transformation in an effort to create a company that can survive in spite of this rapidly shifting landscape. But if current trends continue, Madam Chairman, more drastic measures will need to be taken, which could impact publishing schedules, amount of available content, staffing levels, and even the number of titles.

This ultimately affects not just our operations, but other media outlets that have always relied on newspaper content. Radio, television and web still rely heavily on the work of newspaper journalists, even more so as these outlets look to further reduce their own operating costs.

We have committed to taking out $80 million in operating costs over the next couple of years. We have developed new business acumen and offerings and have teamed up with complementary businesses to develop new revenue-sharing opportunities. We're exploring new innovations that can transform our business model, but these efforts are not filling the widening gap fast enough.

In April 2015 we completed the acquisition of the English Sun Media properties in an effort to extend the runway for both companies and brands. When we met the Competition Bureau in the time leading up to receiving the okay for the acquisition, we made the case that this was the option that gave us the best chance to preserve the most brands possible.

In its “no action” letter regarding the merger, the bureau cited a number of reasons why the combination of businesses was likely to result in a substantial lessening or prevention of competition.

So what can be done? How can we work together to preserve distinctively Canadian views and protect access to proud local voices that may be silenced soon?

We very much consider this committee an ally in our quest. But be clear, we're asking the government to be an ally, not for a bailout of the Canadian newspaper industry. As this committee prepares recommendations to take back to the House, we respectively submit that there are things that the government can do to help preserve our industry.

The first is a straight-up sales pitch: come back and advertise in our newspapers and on our websites. As with many advertisers, ad budgets have been cut, and the cuts from the Government of Canada have disproportionally been to newspapers.

According to the 2014-15 “Annual Report on Government of Canada Advertising Activities”, compared with the 2010-11 report, the share of government advertising spending has increased for television from approximately 48% to 54% of the total budget. Internet share increased from approximately 15% to almost double, 28%. The lion's share of that spending went to foreign-owned digital giants who create no Canadian content and employ few actual Canadians. The share for print advertising has been halved, declining from approximately 17% to 8.5%. Also, during 2014 and 2015 Canadian Heritage spent $6 million on advertising, but did not include any print.

We would also ask that the government explore incenting other advertisers to advertise locally. Currently, Canadian companies can write off the cost of advertising with foreign-based digital entities at the same rate as with Canadian newspapers. We would ask that the government consider a higher deduction for advertising with Canadian media.

Another avenue to explore is one of this department's existing initiatives, the aid to publishers program. Expanding the program to include daily publications and free community newspapers could help to support local voices, telling the most relevant stories directly from within the communities they serve.

Recently, Ontario significantly changed the Ontario interactive digital media tax credit, such that it no longer applies to our businesses. But this type of program, which included innovation in digital news and information creation, could be developed into a national program. Supporting innovation in Canadian news delivery could help give our industry some additional runway as we work to create the new model we all see. In a fight for survival, investing in innovation, while absolutely critical, is often what suffers most.

Madam Chair, I would like to again thank you and the honourable committee members for hearing from us today. Our hope is to have been helpful in this important endeavour. We will be available to provide further information should the committee request it of us.

We would be happy to take any questions you may have at this time.

Thank you very much.

[The Chair, Liberal, Hedy Fry]

Thank you very much, Mr. Godfrey.

Now we will go to Mr. Vaughan.

Before we go to the questioners, I would like to advise witnesses that it's a seven-minute question and answer period. That means for questions and answers. Again I'm putting out my plea for everyone to be as succinct as possible, so that we can get as many questions and answers in as we can.

Mr. Vaughan, for the Liberals, you have seven minutes.

[Adam Vaughan, Liberal, Spadina—Fort York, ON]

Thank you very much.

I read through the brief and listened to your presentation. I guess I'm struck by a couple of contradictions, which appear in your print pages and in your printed words that have been presented here to committee.

Your news organizations is one of the fiercest critics of government advertising. The phrase that caught my attention, when reviewing some of the things that have been published in your newsprint, was the following:

That's right: $21.1 million, piddled away on catchy jingles. Think about the cancer drugs that would pay for. Think about little Madi, bravely fighting for her life—and the government won't pay for her meds. It makes me weep.

There has has been no fiercer critic of subsidies to the media than the Toronto Sun and the National Post. How do you square your editorial position with your corporate position?

[Paul Godfrey]

Mr. Vaughan, you realize that columnists have the right to say what they want, which is quite often different from the policy of the paper. We know as a matter of fact that the government has to get a message out on many things. The fact is that because a columnist or an individual reporter makes a statement.... You've been in politics for many years yourself and you realize that quite often the official position of the newspaper is quite different from the position of any specific columnist.

I'm stating our position, saying that if you're going to advertise, then you should give some consideration to Canadian publications. That's the point we're making today.

[Adam Vaughan, Liberal, Spadina—Fort York, ON]

In light of that comment, maybe you could explain the following. During the election, when the National Post wrapped itself in an editorial on the front page and one of your editorial writers resigned in protest, where was the freedom? If corporate decisions for revenue override journalistic freedom—and they have at the Toronto Sun.... We know of those cases. They have at the National Post. How do you square that comment?

You claim there is editorial freedom, and yet at the same time you've had editorialists resign over the lack of editorial freedom, precisely because of the way in which you've chosen to have advertising portrayed.

[Paul Godfrey]

Mr. Vaughan, I can answer both questions for you.

With respect to the wrap-around, the wrap-around was offered to all political parties. The Conservative Party at that time bought it, and the Liberal Party bought the home page of the digital operation, and both were fully paid for by the parties in question.

With respect to the resignation by the editor, he continues to be a columnist with our paper. The fact is that at election time, the policy of the paper is carried out by the proprietor of the paper. It's been done that way, many years, and continues to be that way, many years. It sure didn't have much impact on the results of the election.

[Adam Vaughan, Liberal, Spadina—Fort York, ON]

Getting back to more editorial statements that are delivered to government as advice, the following phrase was also printed in your paper:

Few people are prepared to invest or consume so long as governments are sending out conflicting signals...in all directions at once. So unless and until governments can stop “helping,” things will continue to worsen because the corrective signals the market sends out to right itself are being drowned out by the din of...aid.

Again, you're here asking for support for an industry. At the same time, your industry says “don't support failing companies”.

[Paul Godfrey]

Well, the industry is saying that, but you already have existing policies. I think what we're basically saying is that the government has been deeply involved for many years.

I can recall, when I first left politics and went into the publishing business, there was a postal subsidy to give to publications that had to reach Canadians in distant lands. Today, the fact is that governments—the previous government, this government—have continued to advertise in U.S.-based or foreign-based properties on the web, and basically we think that the important thing is that this industry be kept alive. Just use the money you're going to spend.... We're not saying spend more money; we're not even telling you how much to spend. We're saying, whatever you spend, at least give some advantage to a Canadian operation.

I think we all believe that a free democracy should have a free press.

[Adam Vaughan, Liberal, Spadina—Fort York, ON]

On that point—

[The Chair, Liberal, Hedy Fry]

You have two minutes, Mr. Vaughan.

[Adam Vaughan, Liberal, Spadina—Fort York, ON]

—Postmedia's largest shareholder is a U.S. hedge fund named GoldenTree Asset Management. GoldenTree and its fellow hedge fund investors in Postmedia thrive on acquiring distressed properties on the cheap and milking the remaining assets.

Why would we fund a failing business model that's owned by U.S. interests and that is in a situation in which it has failed to deliver profitability?

[Paul Godfrey]

Well, first of all, Mr. Vaughan, your facts aren't correct.

The fact is that this company is controlled by Canadians. Our share structure—who owns the difference between the equity and the actual control of the company are two different things.... That allegation—their milking of the company—is absolutely wrong. That is wrong in fact, and we can prove that, without doubt.

You're quoting an article that was absolutely wrong in fact. You have to get your facts straight before you make a statement like that.

[Adam Vaughan, Liberal, Spadina—Fort York, ON]

That being said, why would we bail out a U.S.-indebted company?

[Paul Godfrey]

You're not bailing out a U.S. company. In fact, if you take a look at the shares of Postmedia and the shares of almost any publicly traded newspaper, you'll find that everything is down.

You have a choice. You don't have to listen to anything I say or anything that anybody else says. I can tell you that there are newspapers in this country.... There is a newspaper that has already closed in Ontario called the Guelph Mercury. It doesn't print any longer. There's been a newspaper close in British Columbia. If it continues to follow the trend it's on, you won't be sitting here and talking about whether there should be subsidies or not; you'll be talking about how we are going to continue to create a group of journalists producing content for Canadians. That's what you'll be facing.

If you think that's not going to happen within the next three years, you're going to find that there will be a lot more closings. It's not going to be a question.

Canadians can step forward and buy newspapers, but none of them have. They've all had the opportunity. You can be critical of GoldenTree Asset Management, but I'll tell you that you're barking up the wrong tree, because there are no Canadians who have stepped up to try to buy the company that was once part of Canwest.

[Adam Vaughan, Liberal, Spadina—Fort York, ON]

That's your particular company.

[Paul Godfrey]

That's not my opinion, that's a fact.

[The Chair, Liberal, Hedy Fry]

Thank you.

Now it's Mr. Van Loan for the Conservatives.

[Peter Van Loan, Conservative, York—Simcoe, ON]

Thank you very much.

Following Mr. Vaughan, I'm reluctant to give you advice on how to run your business. That said, I will first start with one observation.

That is that your local publications that have been successful in my neck of the woods have done so by being, in the past, extraordinarily in touch with the local community, whereas the Torstar or York Region news group or Metroland papers have tended to be very centralized in their production and to lose touch with their communities, which is why your papers grew favour.

The people of Pefferlaw don't like being told they live in Aurora all the time through their local media. I've seen some recent trends in which you're trying to do almost that Metroland model of centralizing editorial and control. I warn you that I think it will harm some of your long-term competitive advantage.

I offer that for unsolicited advice for what it's worth.

I want to focus on your recommendations. Firstly, you have a recommendation—you call it “shop local”. This is to have Canadian companies write off the cost of advertising.... Right now you want an advantage in writing off advertising in Canadian publications versus foreign-based digital advertising.

I want you to expand on that a bit and say whether there are any policy precedents. Finally, to clarify what you're asking for, since Mr. Vaughan is suggesting something, is this something that would benefit only your publication, or would it benefit all print outlets in the country?

[Paul Godfrey]

First of all, with print, it would encourage advertisers to advertise in Canadian publications. Who would it benefit? It would benefit the advertisers themselves.

You know, and I think most people know, that if you give a tax break to anyone, there's a tendency to follow the path of how they can achieve the tax break.

Right now, section 19 of the Income Tax Act basically says that if you're owned by a foreign publication and it's not cured within a year on the various opportunities to cure, then the ability for that advertiser to deduct that expense.... You can't deduct it as a proper business expense.

What we're saying is, why not reverse that? Use an encouragement to Canadian advertisers and say to them, instead of going to a foreign publication, a foreign website, a foreign tablet, or a foreign smart phone, give a better tax break on the write-off for business expenses if they advertise in any Canadian media outlet, which would be an incentive for them to do it.

It would be an incentive not just for us. We're not here talking about just Postmedia. I think my colleagues who are direct competitors in the print business would tell you we all suffer the same problem.

That's what I'm saying. This is not something that we would benefit from directly. We would benefit if they advertised more, but they would get the result of that tax break.

[Peter Van Loan, Conservative, York—Simcoe, ON]

Next I want to focus on your third recommendation, which, although I am not a fan of the English involved in “incent innovation”, you've said very little about in your written presentation. Could you explain what you mean by this?

[Paul Godfrey]

I'm sorry?

[Peter Van Loan, Conservative, York—Simcoe, ON]

You mentioned “incent innovation”. I said I'm not a fan of the English there, but what are you talking about?

[Paul Godfrey]

In a digital world today, the digital world is changing so quickly. I think we would all agree that what is new today in the whole digital landscape can be old tomorrow. You see companies like Apple changing and bringing out more technologically advanced iPhones. Other companies are doing the same thing.

I think what I'm trying to encourage is that our industry be given incentives so that we can carry out the same exploration to improve the way we do things to make it easier for us to compete against these behemoths in the States, such as Google, Facebook, and others.

[Peter Van Loan, Conservative, York—Simcoe, ON]

And what would those incentives be?