Editorial – Maude and Conrad

Lawrence Solomon
The Next City
September 21, 1997

 

Discussion

IN 1986, CONRAD BLACK WAS DOWN ON HIS LUCK. The Canadian Imperial Bank of Commerce — on whose board he sat — was treating him like some kind of deadbeat by calling in a $40 million loan to Dominion Stores, his foundering grocery store chain; the courts had ordered Hollinger, a Black-owned company, to return some $60 million to Dominion’s pension funds; and rumors swirled of his imminent bankruptcy. Black was still smarting from a 1983 police investigation into his financial affairs and from being rebuffed — due to the controversy that surrounded him — in his 1985 bid to buy into the genteel publishing company, Southam, one of Canada’s most prized newspaper properties.

But Black fought back; restored his financing by selling off assets, including a company jet; savaged opponents who libelled him; and then, soured with his native land, in 1989 he moved to the United Kingdom. But Black did not abandon his dream of establishing a Canadian newspaper empire. He waited until opportunity knocked, as it soon would, letting him return triumphant as a power in Canadian publishing. And selflessly helping him fulfil his desires, as is so often the case with men of substance, was a good woman. That woman is Maude Barlow.

Barlow is the feisty nationalist who chairs the Council of Canadians, the group spearheading the nationalists’ attack on globalization, free trade, and foreign ownership over our cultural industries. More than any other Canadian, Barlow is responsible for the public’s reluctance to allow a foreign newspaper baron like Australia’s Rupert Murdoch or worse, an American newspaper chain, from buying into Canada. More than any other Canadian, she cleared the way for Conrad Black to dominate Canadian newspaper publishing. Black has much to thank her for, but so do thousands of other affluent investors in Hollinger and Southam, the companies in Black’s Canadian publishing empire. While Barlow and other nationalists succeeded in keeping his competitors at bay, the shareholders could relax, knowing that their investments were in good hands.

Barlow helped create Black’s Canadian publishing empire in two ways. Taking foreigners out of the game meant eliminating virtually all potential buyers of Canadian newspapers, making it a buyer’s market for anyone Canadian with capital and newspaper ambitions. Black pounced on these fire sale conditions, scooping up the enterprises as opportunities appeared. As her voice became stronger, so did the independent papers’ despair at realizing fair value for their assets, and so did Black’s grip over Canadian publishing. In the last few years, while the Council of Canadians’ membership exploded to 60,000, Black’s holdings soared with her. Last year, he purchased seven Atlantic Canada papers after bagging all four Saskatchewan dailies. From the small independent Burgoyne Group, he picked up the St. Catharines Standard, the Cobourg Daily Star, and the Port Hope Evening Guide. Black now owns 59 of Canada’s 105 daily papers, plus smaller papers of all descriptions.

But his biggest acquisition by far was Southam — the plum he had long sought. In 1992 and 1993, he made his first big moves, acquiring, in league with Paul Desmarais of Power Group, a major stake in the publisher and its 17 papers at distress prices: “We had bought half a loaf for the price of a quarter of a loaf,” he boasted in his memoirs. In 1996, he purchased Desmarais’s portion, giving him effective control.

But the foreign ownership rules that let Black buy cheap also had another, equally insidious effect: They disempowered struggling papers that otherwise might have prospered. Banks and other financiers knew that the ownership restrictions made Canadian newspapers illiquid and poor credit risks, and jacked up their borrowing rates accordingly. With the financing that the independent newspapers badly needed to modernize beyond their reach, small independent papers threw in the towel. Big ones decided to sell while the selling was good. Big or small, Black greeted them all with open arms.

Barlow helped cheapen Southam and other Canadian newspaper companies, helping to deliver them into Black’s embrace. Barlow has many commendable qualities: She is sincere, articulate, passionate, and well meaning. She is also Black’s dupe.

BLACK IS NO SLOUCH IN THE NEWSPAPER WORLD. He purchased the failing Daily Telegraph in London, perhaps the world’s toughest newspaper market, and, to the surprise of the British establishment, turned the money-losing paper around by cutting dead weight administrators and investing heavily in the best editorial staff that money can buy. He purchased the Chicago Sun-Times, the no. 2 daily in the United States’ third largest market, and quickly boosted its profitability. But mostly, Black’s cunning has come from understanding monopoly markets. Most of his 400-odd papers in the United States have no direct print competitors. None of his Canadian dailies have direct print competition. The man understands the benefit of controlling the show.

Black’s central insight came from recognizing that in monopoly markets, newspapers tend to become complacent. They take on too much overhead, let three people do the work of two, and deliver too little service to their customers. In this uninspired, uncompetitive setting, papers often drift toward unprofitability and even bankruptcy.

Black learned his lesson as an impressionable youth, when at the age of 23 he and two others purchased the Sherbrooke Record for $18,000 and rescued it from bankruptcy. Through other acquisitions of small papers, he soon realized that daily papers could be profitable at a circulation of 4,000, far below the 10,000 that was the industry’s rule of thumb. On this basis, he quietly set about acquiring small papers. A little ad placed in a U.S. trade publication —”Newspapers wanted: Well-respected, growing Canadian daily newspaper with cash seeks to purchase smaller newspapers (5,000-10,000 circulation)”— turned up 34 small town papers. Now Black owns over 100 dailies and another 300 biweeklies and shopping guides in the U.S. But his significance is far more profound.

By halving the circulation needed for profitability, Black has opened up hundreds of new markets for aspiring small town and other niche publishers, who, spurred by his benchmark of 4,000, have been emboldened to invest in new ventures. He has also rewarded existing small town publishers by increasing the value of their assets — the whole publishing world, not just Black, now recognizes the little goldmines that well-run small papers represent. The young journalists working in new start-up operations may not know that they owe their job opportunities to the notorious Conrad Black, but without the small circulation revolution his discovery set in motion, prospects for Canadian publishing — until recently viewed by the investment community with disdain — would have been bleak, with fewer small town, community, ethnic, and other specialty publications serving as training grounds for big city, big circulation papers.

But Black’s shake-up of Canadian publishing has done more than spur the development of small papers. Thanks to Black, quality is also making a comeback in Canada’s moribund big city monopolies, where even Ottawa, the nation’s capital, had become a newspaper backwater. Following the same formula that turned the Daily Telegraph‘s prospects around, he cut overhead at the Ottawa Citizen and stocked the paper with some of the country’s best editorial talent, within a year transforming it into a dynamic paper.

Black’s most bitter foray was into Saskatchewan last year, where, after buying the Saskatoon StarPhoenix and Regina Leader-Post, 170 staffers lost their jobs in a bloodletting known as Black Saturday. His many detractors expressed outrage; others noted that little had changed: Before the takeovers as afterward, Saskatoon and Regina would be one-paper monopoly towns.

Not quite. Six months after Black Saturday, former StarPhoenix employees announced the birth of two new biweeklies, Regina Free Press and Saskatoon Free Press, to meet community needs that the established papers had long ignored.

“That’s the mark of a monopoly,” the upstarts’ new publisher said of the previous status quo. “The papers have been doing what pleased them and not their customers.” One year later, the biweeklies’ prospects are good — the company has expanded to Prince Arthur — another one-daily-paper town in Saskatchewan — and has shown it can attract new money. To the benefit of the province’s readers, Saskatchewan’s once-sleepy newspaper industry is the liveliest it’s been in memory.

BARLOW DEPLORES BLACK’S ASCENT, fearing he will use his papers to spread right-wing propaganda. Tom Kent, chair of the former Royal Commission on Newspapers, shares her concern, saying “he will milk many of his papers to the sacrifice of their quality and spend on some of the more important in order to bend them to his ideology.” But Black is no idealogue where business is concerned. When visiting his new employees after purchasing the Sun-Times in Democratic Chicago, to signal he would not be demanding ideological obeisance, he pointedly wore FDR cuff links. “You can’t use franchises [to promote pet causes] in a serious country without paying a heavy price,” he told Maclean‘s last year. “When Tiny Rowland got hold of [the Observer in London] and used it as a flying carpet for all his vendettas, the circulation steadily declined.”

Business trumps ideology at Black’s Saturday Night, too. Its publisher, Maureen Cavan, serves as the chair of the Canadian Magazine Publishers Association’s political affairs committee, joining Barlow as one of the country’s most powerful lobbyists for protectionism. Pushing the same hot nationalist buttons as Barlow, Cavan is in the thick of government strategizing to devise direct or indirect handouts, legislation, regulation — anything — that will pass the smell-tests set up by the World Trade Organization and keep foreigners out of Conrad Black’s Canada. Cavan’s predecessor at Saturday Night, Jeffrey Shearer, held the same lobbying post with the magazine association, and served Black with distinction as a Canadian cultural protectionist par excellence.

This fall, Barlow will be releasing a book about Conrad Black. It will deplore Black’s takeover of Canadian publishing, decry the fact that we Canadians won’t be able to speak to ourselves in our own voices, and call for mechanisms to protect Canada from his tentacles. Her book will highlight a genuine problem — federal policies toward the newspaper industry have failed dismally, leading to a domination by Black, which otherwise would not have occurred. In the debate that will follow, the public will be exposed to various ways of diminishing Black’s stranglehold. And the debate may take surprising turns. Canadian protectionism has been a good friend to Conrad Black, but these friends may soon part.

BLACK’S CANADIAN NEWSPAPER BUYING BINGE is at or near its end, and he will soon turn his attention to increasing the value of his Canadian newspaper properties. This he can best do by opening up newspapers to foreign ownership, increasing the number of bidders and letting his newspapers reach their full market value. Watch for people in his employ to lobby against protectionism, watch for the share value of Hollinger and Southam to rise, and watch for Maude Barlow to deplore the dark forces that have conspired to bring all this about.

Lawrence Solomon
Editor

To comment, write to LawrenceSolomon@nextcity.com


Discussion


Susan Schellenberg, Toronto, responds: September 26, 1997

Maude Barlow received ridicule and William Greider (Mark Wegierski’s review of One World, Ready or Not: The Manic Logic of Global Capitalism) praise for their anti-globalization views in this issue of The NEXT CITY. This fact makes the question of globalization larger to me than Conrad Black, Maude Barlow, or William Grieder.

An article based on a three-way conversation between Lawrence Solomon, Maude Barlow, and Conrad Black might better reflect:
• the globe’s need for cooperation and partnership,
• a focus for readers on the complex economic questions we face as Canadians, and
• a more purposeful wit.


James Winter, Windsor, Ontario, responds: November 2, 1997

Editor Lawrence Solomon’s column on Maude Barlow and Conrad Black is at best inaccurate speculation and at worst an ill-conceived and sycophantic cover-up for Black.

I hope no one takes this claptrap seriously.

Solomon argues that Maude Barlow is “selflessly helping [Conrad Black] fulfil his desires,” as “more than any other Canadian, she cleared the way for Conrad Black to dominate Canadian newspaper publishing.”

Solomon says “foreign ownership rules” allegedly promoted by Barlow, were responsible. “Taking foreigners out of the game meant eliminating virtually all potential buyers of Canadian newspapers, making it a buyer’s market for anyone Canadian with capital and newspaper ambitions.”

To begin with, it’s not foreign ownership rules but tax laws preventing tax deductions on ads in publications owned by foreigners that have discouraged foreign ownership.

Solomon should look to former Ottawa Journal publisher Grattan O’Leary, not Maude Barlow. O’Leary was the chair of the Royal Commission on Publishing in 1961, which advocated protection for Canadian publishers against giants like Time and Readers’ Digest. Former Liberal Senator and rainmaker Keith Davey reiterated these concerns in the 1969 Davey Report, and they were adopted by the Trudeau government in the 1970s.

But pointing the finger at O’Leary or Davey or even Trudeau would not have served Solomon’s purpose, which was to defend Conrad Black against the new book about him by Maude Barlow and myself, The Big Black Book.

Solomon makes the dubious argument that by promoting Canadian nationalism Barlow has indirectly helped to keep foreign ownership out of the newspaper industry. This, he says, has devalued Canadian daily newspapers, by reducing the number of bidders. But if Solomon is right, then it follows that Black would not own any newspapers in the United States, where there are no such provisions. This should mean U.S. sales would go to the highest global bidders, such as Rupert Murdoch.

Oooooops, it turns out that Black has far more newspapers in the U.S. than he has in Canada. Solomon himself tells us this. “Now Black owns over 100 dailies and another 300 biweeklies and shopping guides in the U.S.,” he writes.

Solomon’s theory fails the test because it is not protectionism from global bidders that has led to Black’s Canadian stranglehold, it is Black’s penchant for vampire journalism — bleeding newspapers dry for profits. Black is the highest bidder because he can squeeze out more profits than anyone else. Unfortunately, Solomon sees this as yet another one of Black’s positive attributes.

He credits Black with discovering the fact that small town, small circulation dailies can be profitable, “halving the circulation needed for profitability” — as though this were nothing more than the discovery of a mathematical equation. We’ve known that all along. What Black discovered was how to squeeze excessive profits out by inventing “the three-man newsroom and two of them sell ads,” as Black’s partner David Radler told the Kent Royal Commission.

Solomon repeats a highly dubious spin Black himself is fond of using: that Black is the savior of Canadian journalism. Along the way Solomon defends Black’s drastic staff cuts. “Black’s central insight came from recognizing that in monopoly markets, newspapers tend to become complacent. They take on too much overhead, let three people do the work of two, and deliver too little service to their customers. In this uninspired, uncompetitive setting, papers often drift toward unprofitability and even bankruptcy,” Solomon writes.

Such as? Solomon fails to cite a single example of a daily newspaper gone bankrupt, or one saved from bankruptcy by Black. I doubt that the more than two dozen papers Black bought from Ken Thomson were in any danger of going into the red.

Solomon goes on to argue that “Thanks to Black, quality is also making a comeback in Canada’s moribund big city monopolies,” but can only cite the Ottawa Citizen as an example, out of the 59 dailies owned by Black.

Not satisfied, Solomon then goes on to portray Black as the savior of journalism in Saskatchewan. Why? By taking over all five dailies there and firing 25 per cent of the journalists, he encouraged those journalists to start up some competition and enlivened Saskatchewan journalism. Black’s “many detractors expressed outrage,” Solomon writes, but “Saskatchewan’s once-sleepy newspaper industry is the liveliest it’s been in memory.”

Solomon reaches far afield, desperately grasping straws to build his defence of Black. For example, he argues that Black doesn’t let ideology interfere with profits. Why? Because Black says so, and because, “when visiting his new employees after purchasing the Sun-Times in Democratic Chicago, to signal he would not be demanding ideological obeisance, he pointedly wore FDR cuff links.”

FDR cuff links?

Solomon writes that “Barlow helped cheapen Southam and other Canadian newspaper companies, helping to deliver them into Black’s embrace. Barlow has many commendable qualities: She is sincere, articulate, passionate, and well meaning. She is also Black’s dupe.”

It’s clear from his column, however, that it is Lawrence Solomon and not Maude Barlow, who is Conrad Black’s dupe.


Lawrence Solomon replies

What to make of Professor Winter’s imagined distinction between laws on publications owned by foreigners and foreign ownership rules? Or the Alice-in-Wonderland logic that leads him to think Conrad Black would not own any U.S. newspapers — and that people like Rupert Murdoch would own all — under his assumptions of my assumptions? Professor Winter triumphantly points to Black’s ownership of many U.S. periodicals, as if that proved anything. Would he have been half so triumphant had he realized Black would soon sell almost half of them?

In Professor Winter’s view, Conrad Black is very, very ruthless; more ruthless, in fact, than any other capitalist, allowing him and him alone to squeeze maximum profits out of newspapers and to acquire so many of them. Professor Winter’s regard for the reticence of other capitalists is misplaced. All industrialists worth their salt see their duty as maximizing profits; in this, Black is far from unique.

Professor Winter chides me for failing to cite a single example of a paper saved from bankruptcy by Black, missing my description of Black’s rescue of the Sherbrooke Record. In so doing, Professor Winter seems unaware of the tremendous decline in newspaper publishing across Canada, where two- and three-newspaper towns have become dominated by a single publisher. He invites me to cite papers other than the Ottawa Citizen which have improved in quality under Black’s ownership. I am pleased to oblige; the list includes the Vancouver Province, the Montreal Gazette, the Windsor Star, the Hamilton Spectator, the Calgary Herald, and the Edmonton Journal. Largely because of Black’s investments in the newspaper business, the entire industry is pulling up its socks, stopping Canada’s decade-long decline in newspaper readership.

Professor Winter’s reply betrays a poor sense of economics and a great sense of his own importance: He believes my purpose in writing my editorial “was to defend Conrad Black against the new book about him by Maude Barlow and myself,” as if I feared (or cared) that his book might bring down or diminish the Black empire. More to the point, any reader not blinded by a loathing of Conrad Black would have seen my editorial for what it was: a criticism of the counterproductive laws that created Black’s Canadian empire and the counterproductive advocacy of people like Professor Winter that created the laws.

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