BUSINESS

First the good news

Anthony Wilson-Smith June 8 1998
BUSINESS

First the good news

Anthony Wilson-Smith June 8 1998

First the good news

BUSINESS

ANTHONY WILSON-SMITH

Say this for Conrad Black: the chairman and chief executive officer of Southam Inc. gives a good meeting. The annual shareholders’ meeting last week in Toronto, presided over by Black, had something to please almost everyone. The attractions included brevity (seven of 10 agenda items completed in under six minutes) ; bombast (Black’s trademark verbal strafing of such opponents as Torstar Corp. and Sun Media Group); and, best of all for shareholders, some justified boasting. Most of that related to Southam’s record financial performance during the past year. Earnings before interest, taxes, depreciation and amortization increased to $263 million from $146 million in 1996, while net income rose to $123 million from $94 million. And soon, Black proclaimed with his usual breathtaking self-confidence, the company will unveil “the most important initiative in our company’s history”—a new national newspaper.

What do you give a media magnate who has everything—or seems on his way to acquiring it? The answer for Black: some challenging obstacles to surmount in the next year. Along with his huge gamble on the still-nameless newspaper, there are labor problems, a possible downturn in the economy and growing unease over his dominance of the daily newspaper industry.

The latest speculation surrounding Black concerns Southam’s purchase last month of the Victoria Times-Colonist, the Nanaimo

Daily News and several B.C. weeklies from Thomson Corp., owners of The Globe and Mail. Among the critics of the deal were John Honderich, publisher of The Toronto Star, and Paul Godfrey, CEO of Sun Media Group. Both wanted the Times-Colonist and complained they were denied a chance to bid. Torstar wants to expand outside Toronto (and has held talks with the Dennis family, owners of the Halifax Chronicle-Herald). The Sun group, which publishes The Financial Post and newspapers in Ontario and Alberta, has long wanted access to British Columbia.

The purchase has led to Bay Street speculation that Black might swap the Times-Colonist and a smaller western paper to Sun Media in return for the Post, which he would expand and redesign. That would eliminate one of Southam’s national competitors and give the Sun group its missing B.C. link. But Southam deputy chairman David Radler, asked about the odds of a swap, responded: “Zero: I don’t see enough in it for us.” Godfrey told Maclean’s that the Post is not for sale, but added: “Offer enough money and all is possible.” For now, time is on Black’s side. The closer the new paper comes to start-up, the more it depresses the Post’s value, previously put between $125 million and $140 million.

Meanwhile, Southam faces labor pres-

sures in Vancouver, Hamilton and several smaller markets. A contract with unionized printers in Vancouver expires in the fall, and Southam insiders say negotiations will be difficult— although president Don Babick insists: “I do not anticipate problems.” The workers will have leverage because Southam plans to print the new paper’s B.C. edition on those presses. In Ontario, journalists at the St. Catharines Standard walked out on May 22 over staff cuts and plans to reduce wages for new employees. Workers at The Hamilton Spectator and the Kitchener-Waterloo Record voted to strike this month over dragging contract talks.

A series of labor battles would depress profits at a time when Southam is entering a consolidation stage. The backlash to the Times-Colonist deal makes it unlikely Black will buy new properties for a while. In fact, he said, if competitors “wish to buy some of our newspapers, they have our telephone number.” To that, Stuart Garner, CEO of Thomson’s newspaper division, responded: “I can tell Mr. Black that we would pay a very decent price for The Calgary Heraldconsidered the most profitable of Southam’s major newspapers.

Southam faces other challenges. Although circulation at its nine biggest newspapers rose four per cent last year, that trend is unlikely to continue. Analysts say price increases usually trigger an immediate drop in circulation that later reverses itself. Most newspapers raised prices in the mid-1990s because of spiralling newsprint costs, and held the line for the past two years—so some circulation rebound was inevitable.

That means next year’s shareholders’ meeting will likely be more subdued. Even if Black’s new daily is a success, the calls for more competition will continue. Black’s answer is for Ottawa to lift the 25-per-cent restriction on foreign ownership of newspapers. ‘We operate around the world,” says Black, who owns papers in London, Jerusalem and Chicago, “so why fear competition in Canada?” Any such move, however, would trigger a debate between the nationalist wing of the Liberal government and the party’s free-trade advocates. It would also alter the Canadian newspaper market forever—as Black himself has already done.

Black clouds gather over a newspaper empire