Quebecor is selling its chain of Sun Media newspapers to Postmedia Network, consolidating a substantial number of major dailies across Canada under one corporate umbrella in a deal both companies say is “absolutely necessary” for the future viability of their papers.
Postmedia owns the National Post as well as big city metro dailies across the country, including Montreal Gazette, Calgary Herald and Vancouver Sun.
Under the terms of the agreement announced Monday, Postmedia’s stable of newspapers will grow to include Quebecor’s flagship English-language daily, the Toronto Sun, among several other big city metro dailies that compete directly with its own papers for advertising and subscription sales.
In addition to the Toronto Sun, Sun Media owns the Ottawa Sun, Winnipeg Sun, Edmonton Sun, Calgary Sun as well as the London Free Press among other dailies. Roughly 160 community newspapers will also transfer to Postmedia (see table below), as well all of Sun Media’s English online properties.
Sun Media also owns the 24 Hours free commuter papers in Toronto and Vancouver.
New competitors
The merger of two of Canada’s oldest and established newspaper chains comes as each struggles to maintain ad and subscriber revenues amid broad upheaval in the news business, mostly wrought by the Internet.
Postmedia and Sun properties now compete against an array of news and social media platforms online, competition directly chipping away at their legacy revenue bases as consumers increasingly bypass a traditional newspaper to consume news and information on smartphones and tablets.
“The world has changed dramatically,” Postmedia president and CEO Paul Godfrey said at a news conference in Toronto announcing the $316 million deal. “In fact, I don’t consider other newspapers competitors at all.”
Digital “foreign-based” platforms like Facebook, Google and Twitter who are “swallowing up digital revenues” are Postmedia’s main competition now, he said.
‘This transaction comes at a time when the Canadian newspaper business absolutely needs consolidation’
‘Stable of brands’
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Newspapers’ efforts to monetize content online via new subscription methods like paywalls have yet to arrest the sustained slide in revenues.
“Newspaper revenues have been declining year by year,” Pierre Dion, president and CEO of Quebecor said. “This transaction therefore comes at a time when the Canadian newspaper business absolutely needs consolidation to remain viable and to compete with digital media.”
MORE: Postmedia expands paywall to remaining papers
Godfrey said combining the two firms “brings together an impressive stable of brands that collectively create a stronger Canadian media platform.”
“This investment by Postmedia is a strong endorsement of the future of the Canadian newspaper industry and made-in-Canada journalism,” Rod Phillips, chairman of Toronto-based Postmedia said.
Overlapping papers
The deal, if successful, will see Postmedia own the principal newspapers in a handful of major centres, such as Calgary, Edmonton and Ottawa, where the Sun currently competes against the Calgary Herald, Edmonton Journal and Ottawa Citizen.
Godfrey said the combined company will operate each paper independently, as Postmedia has done with its Vancouver papers, the Province and Vancouver Sun.
Asked directly about possible job cuts to newsrooms or other areas of the business, Godfrey said “it’s too early to tell.”
“We made a commitment to keep the newspapers going,” Godfrey, who also served as CEO at Sun Media in the 1990s, told reporters. “That’s our intent: to keep everything open today.”
Postmedia, which has been forced to slash jobs in recent years to offset revenue declines, noted there exists “certain shared back office functions” at its Vancouver papers that could serve as a model.
MORE: Statement from Competition Bureau on Sun-Postmedia deal
The combined newspaper company will be able to shave between $6- and $10-million in annual operating costs, Postmedia said.
Competition Bureau commissioner John Pecman said in a statement the federal agency will review the merger.
“Postmedia and Sun Media will seek all necessary regulatory approvals,” Postmedia’s statement said.
Double down on wireless?
Montreal-based Quebecor will continue to own its French-language newspapers in Quebec, as well as its television holdings, including control of French-language broadcast network TVA and the Sun News Network cable channel.
But analysts noted on Monday the divestiture of Sun Media concentrates the majority of Quebecor’s future earnings within its cable and wireless division, Videotron, which continues to post healthy sales and earnings gains.
Videotron is in the midst of weighing whether or not to expand its wireless services nationally, a strategy experts say will require significant investment should it decide to expand cellphone services outside of Quebec.
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“Quebecor could use the proceeds of the asset sale to potentially invest in a national wireless platform,” Maher Yaghi, an investment expert at Desjardins Securities said.
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