Assessing Black's Toronto plan

JENNIFER WELLS October 13 1997

Assessing Black's Toronto plan

JENNIFER WELLS October 13 1997

Assessing Black's Toronto plan




Memo to Conrad Black


Southam Inc.

Dear Mr. Black:

Apologies for this trite journalistic trickery, but we feel the urge to open a direct line of communication, or direct report, as you would say in your business. We have concerns about certain rumblings within the Southam empire, and we thought we should share these with you. Our particular area of interest is this not-yet-born but much-heralded national newspaper, the one Southam types started working up when you were spurned in your attempts to buy The Financial Post. (More on this later.)

We talked to your man Gord Fisher, the vice-president of editorial at Southam, whose baby this is. (Because the baby has no name, we have christened it “NatBlack” to ease communications here.) Fisher described NatBlack as a paper of quality, a sharp-thinking, full-color broadsheet in its current configuration, though he made clear that just about any variable could change. “Tie concept is that this will be a stand-alone national newspaper for sale in most major cities,” says Fisher. NatBlack would be a national newspaper in its “truest sense,” he said, meaning that it would draw reporting and commentary from across the land and most decidedly would not be “a Toronto newspaper that we are going to foist on the rest of the country.” (To what could he be referring?)

The Toronto edition of NatBlack would be printed at Southam’s Hamilton presses, where, even as we speak, they are expressing the need for new equipment to handle increased demand for color. The Southam infrastructure— printing plants, phone rooms, circulation and financial systems—are, of course, all in place to advance NatBlack across the nation. So far, so good.

We talked to Jackie Young, the consultant who has submitted a series of NatBlack design ideas. Young is understandably enthusiastic about the project, which he described as an “editor’s idea of a newspaper” as opposed to a “marketer’s idea of a newspaper,” à la USA Today, which Young wonderfully calls “TV in a box.” Ditto Lucie Lacava, the Montreal designer who has done her own series of NatBlack prototypes in her sophisticated, content-driven style. ‘We’re creating a completely new paper,” she says. “A paper that has no history.”

Anew national daily would be a tough sell

Let us declare a bias right here. The idea of a brainy, allnew, smartly styled national newspaper holds tremendous romantic appeal in this newsroom as it does in others across the nation. (Fisher says he has been swamped by job applications.) And we love a good fight, so our ears pricked up when Young declared that The Globe and Mail can be “taken,” and that it had missed the boat on modern newspaper design and color usage. (The color Krieghoff Christmas card the Globe ran on its front page a couple of years back, says Young, hardly fulfilled the paper’s stated ambition to introduce editorial color.)

Fisticuffs are fun, but we would be remiss if we didn’t ask one small question: just what is the business case for this? We understand from Fisher that he will be making his NatBlack biz pitch to yourself and your alter ego, David Radler, soon.

So we thought we would weigh in first, unbidden.

Let’s talk circulation. The biggest target market, despite your nationalist intentions, is Toronto and environs, and there are already four dailies in that market. The Star, the Globe, the Sun and the Post each has a niche, more or less, and it’s tough to imagine where a new paper would fit in. Fisher says he wants highly educated, high-income, demanding readers—in other words, readers who are already reading. Which makes it a conversion exercise. (Remember, we are all already “time stressed.”) And readers’ habits, as you know, change slowly.

Southam already has the big papers in 17 major cities across the land. (You have two in Vancouver, for Pete’s sake.) The daily newspaper advertising pie, coast to coast, is approximately $2 billion. ($1.96 billion to be precise, just in case Mr. Radler is reading this.) Approximately $450 million of that is national advertising. The rest is the kind of local advertising upon which the Southam chain currently relies.

We phoned Ann Boden, whose McKim Media Group buys more than $360 million in advertising annually. (McKim represents the likes of Chrysler Canada and Bell, and telecommunications and car companies are among the biggest advertisers.) Boden thinks a new Southam paper would just “eat the lunch” of the chain’s own dailies. As you would expect, Fisher disagrees. The challenge lies in eroding the ad base of the Globe and the Post. ‘We think we can do that. And there are also opportunities in taking share from media other than print,” meaning direct marketing, magazines and television.

Nuts to that, says Boden. “He’s not making the decisions,” she says. “It’s people in my shoes who are making the decisions.”

She does not buy for a minute the belief that television, which still has the fastest-growing ad base, could lose ground to newspapers. We would suggest that Boden and Fisher get together to hash this out, but they already have. Fisher and his crew made a presentation to Boden’s group. ‘We told them very frankly, ‘Guys, this is a tough sell for ya,’ ” says Boden.

Now, before you go off half-cocked making accusations of reporters being a little light on the reporting end, we phoned David Harrison, chief executive of Harrison, Young, Pesonen & Newell Inc., who handles media buying for the likes of Unilever and Honda. “If you were just looking at the numbers, it would be hard to see that there’s room for another national newspaper,” he says. A Bay Street media analyst who wants to remain anonymous (don’t you just hate that?) had this to say: “Where’s the hole? I don’t see a market for it. I don’t know where the need for it is. Who’s going to use it?”

Harrison offers there might be a case to be made for running NatBlack as an insert in your paper chain, and as a stand-alone in Toronto. (“This is not something you stuff in with the grocery flyers,” Fisher snorts.) Boden says the only way to make it attractive to advertisers would be to offer a “package deal” of Southam papers with NatBlack thrown in as a bonus, so to speak. “He’s going to have to give us an incredible deal on it,” she says in that lovely Scottish lilt of hers.

You must be cautious. Forty-two per cent of Southam remains in the public’s hands, despite your efforts last June to gobble those minority shares and privatize the grand old chain. And taking a paper of size from start-up to profitability is going to be an awfully long haul. The Financial Post Co., after eating its way through $100 million in the eight years since it moved from a weekly to a daily, finally saw $2 million in cash flow in 1996. And the Post had a strong and loyal readership going in. It took Gannett Co., which launched USA Today in 1982, nearly five years to turn a monthly profit, and

11 to record an annual profit. That gamble, at times, stressed mighty Gannett severely. Southam shareholders have been pleased thus far with your stewardship, $27 a share being more than double where the share price was two years ago. It has been rather a long walk in the desert for these folks. Might a spending binge turn them off?

What’s it all about, Conrad? We now hear you remain optimistic about getting The Financial Post after all. Sun Media Corp. still insists that is not going to happen. “Sun Media loves The Financial Post,” chief executive officer Paul Godfrey said last week just after shifting Post publisher Doug Knight over to The Toronto Sun. Knight’s move fuelled speculation that Sun Media was preparing to let the Post go. Godfrey says absolutely not. “If there was any thought of jettisoning the Post for any reason, we would not have put Bill Neill in there [as publisher].” Neill is a Post veteran, an ad man much respected by Boden. She thinks he is going to “get out there and hustle” to fortify the paper’s ad base.

Three days before your hopes of getting those minority Southam shares died, you exercised your right to have Sun Media buy up three-quarters of your 20-per-cent interest in Financial Post Co. Why? To pressure the debt-laden Sun group into selling you the Post? Now it looks as though Sun Media, or a third party, will take it up, and you will be in retreat. Waiting, perhaps, for the day when that corporation becomes so financially stressed that it surrenders the Post. That sounds like you. NatBlack does not.

An Interested Observer