No Bezos Bait Means Postmedia to Torstar Slump
Canadian newspaper stocks including Postmedia Network Canada Corp. (PNC/A) are the worst-performing in North America, with no sign of the buyout bids from billionaires such as Jeff Bezos that have stoked their U.S. peers.
Postmedia, publisher of The National Post, has dropped 25 percent this year, the biggest decline among 15 North American newspaper companies tracked by Bloomberg. Torstar Corp. (TS/B), publisher of Canada’s top-selling daily, The Toronto Star, has also fallen 25 percent, while Glacier Media Inc. (GVC), a publisher in smaller markets, is next with an 18 percent loss.
With the exception of Sacramento-based McClatchy Co. (MNI), U.S. newspaper stocks have gained this year, boosted by buyouts from billionaires. Bezos, founder and chief executive officer of Amazon.com Inc. (AMZN), agreed to pay $250 million for the Washington Post on Aug. 5, two days after John Henry, billionaire owner of the Boston Red Sox baseball club, struck a deal to buy the Boston Globe. They followed Warren Buffett, the world’s third-richest man, who has built an empire of small-town papers in the U.S. in the last two years.
The data do not include Mexican publishers held by larger media conglomerates.
“The fact that there is some smart money buying newspapers in the U.S. has probably provided support for those papers,” said Paul Sweeney, an analyst with Bloomberg Industries in a Aug. 15 phone interview from New York. “Now in Canada, you don’t have that. I think that’s the difference.”
The average price target for U.S. publishers suggest stocks could rise 18 percent as the newspaper deals re-ignite interest in the industry, Sweeney said in an Aug. 6 report.
Paul Godfrey, chief executive officer of Toronto-based Postmedia, said the trend of wealthy investors buying up newspapers could come to Canada as well in the next five years, though he declined to comment on whether there’d been approaches for Postmedia properties.
“I speak to the major shareholders on a regular basis,” Godfrey said by phone from Toronto yesterday. “I don’t see them getting tired of being in the business. Does that mean they’d never sell, if somebody comes knocking on the door and offers them a return? Who knows what could happen? But they’ve not given me any indication that they’re ready to run for the hills.”
Postmedia owns major metropolitan dailies including The Montreal Gazette, the Ottawa Citizen and Calgary Herald. Although the company sold the Victoria Times Colonist to Vancouver-based Glacier Media in 2011, Godfrey says the company won’t sell more papers individually and its move to centralize operations from sales to newspaper coverage underscores this.
Postmedia, whose largest shareholders include U.S. hedge funds, has a dual class share structure where the majority of voting shares are controlled by Canadian investors to comply with laws on media ownership. Godfrey owns about 11 percent of Postmedia A shares, according to data compiled by Bloomberg.
The shares were unchanged at C$1.50 at 9:55 a.m. in Toronto today for a market value of C$70 million ($68 million). Third quarter sales dropped 9.5 percent to C$191.8 million from a year earlier, the seventh straight quarter of year-over-year declines while its adjusted loss per share was four cents compared with a seven cent profit a year earlier.
Torstar’s revenue fell 12 percent to C$336.6 million in the second quarter, the sixth quarter of year-over-year declines. Adjusted profit fell 34 percent to 29 cents per share from the earlier period. Glacier Media’s adjusted profit tumbled 57 percent to three cents in the second quarter from a year earlier.
Glacier Media did not return calls made to their media line requesting comment on stock performance.
Canada is no stranger to wealthy individuals owning its newspapers, with nationally-distributed Globe and Mail, controlled by the Thomsons, the country’s wealthiest family, according to the Bloomberg Billionaire’s Index.
Torstar also has a dual share structure with its voting shares owned by a trust controlled by five families.
An exodus of advertisers from newspapers into digital platforms such as Google Inc. and Facebook Inc. has meant years of revenue declines at publishing companies on both sides of the border. In the U.S., a 60 percent drop in advertising since 2005 caused publishers to start charging readers for online content, a move that is now starting to offset advertising declines, according to an Aug. 15 Bloomberg Industries report.
“A lot of the trends the U.S. newspapers are experiencing are out ahead of the Canadian newspapers,” Lorenzo DeMarchi, Torstar’s chief financial officer, said yesterday. “So I think the experience they’ve had on paywalls has been a bit sooner and there has been, on balance, results that have been more encouraging because they’ve started a bit sooner.”
Digital subscribers at the New York Times (NYT) rose 40 percent to 738,000 by the end of the second quarter and digital subscription revenue jumped 44 percent, helped offset a 7 percent decrease in print ad revenue, according to the Bloomberg Industries report. The shares have risen 35 percent this year, according to Bloomberg data.
Abbe Serphos, a spokesman for the New York Times, referred requests for comment to the statement accompanying the company’s second quarter results on Aug. 1 which attributed increased operating profit to “the ongoing evolution of our digital subscription initiatives” and the “moderation of declines on the advertising side.”
Gannett Co Inc. (GCI), publisher of USA Today, posted a 6 percent increase in circulation thanks to its online paywall, offsetting the 5 percent decrease in advertising, and a new digital subscription model at McClatchy Co., which publishes in smaller markets, resulted in a five percent circulation gain compared to a seven percent fall in ad sales, according to Bloomberg Industries.
“We do expect that the growth in our digital-only revenue business will help to get revenues going in the right direction,” said Ryan Kimball, assistant treasurer at McClatchy, by phone from Sacramento yesterday. Gannett, based in McLean, Virginia, did not respond to phone messages requesting comment left with its media relations line yesterday.
“There appears to be a slight easing of the revenue trends that we haven’t seen in Canada,” DeMarchi said.
Canadian papers have been slower to implement digital subscriptions, with The Toronto Star and Postmedia papers only erecting paywalls this year.
At Postmedia, digital revenue increased 2.2 percent in the third quarter from the year earlier period compared with a 14 percent decline in print ad revenues, according to its earnings report. At Torstar, digital revenue in the company’s media segment fell 10 percent in the second quarter, outpacing the 9.8 percent declines in print advertising revenue.
Faced with a deeper recession in 2009 and longer recovery U.S. papers posted steeper revenue declines than Canadian peers and so were forced to adopt digital strategies earlier, according to Bill Wolfe, an analyst at Moody’s Investors Service who covers Canadian newspaper companies.
“They are behind in terms of dealing with the 21st century and reinventing themselves as digital businesses,” Moody’s Wolfe said by phone from Toronto. “It’s happening at a different pace. It’s starting later and it will finish later, but it’s going to end up in the same place.”
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