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The glitch in Postmedia's digital switch Add to ...

Paul Godfrey escorted directors of Postmedia Network Canada Corp. on a tour of the Calgary Herald earlier this year to showcase the struggling newspaper company’s digital future.

The Postmedia chief executive officer presented a remodelled newsroom where teams juggled written and visual content for the Herald’s websites, social media platforms such as Twitter and its 128-year old newspaper. The Herald has been so much “quicker off the mark” with digital initiatives, Mr. Godfrey said, that it is now one of the company’s most profitable divisions, and a beacon for change at Canada’s largest newspaper publisher.

“It’s time [newspapers] gave serious consideration to diving into the deep end of digital in order to bring yourself up to date,” Mr. Godfrey said in an interview.

There is hardly a newspaper executive in the world who wouldn’t agree with Mr. Godfrey. The migration of advertising revenue from printed media to online has ignited a race by publishers to launch new digital products and subscription models. When the former CanWest newspapers emerged from a court-supervised restructuring last summer to become Postmedia, the newly-appointed Mr. Godfrey promised to reverse the sleepy company’s fortunes with his ambitious digital revolution.

The trouble with this quest, however, is that Postmedia is trying to reinvent itself at a time when digital profits are still elusive and the company’s traditional newspaper business is sapping its financial strength.

Digital sales have grown quickly at the company, but only account for 8 per cent of total revenue. Meanwhile, print circulation and advertising sales at its 46 major metropolitan and community newspapers, which account for nearly 90 per cent of the company’s revenue, have shrunk faster than management expected. These declines, coupled with the need to pay interest on its heavy debt load, have triggered aggressive cost cutting.

According to people familiar with the matter, Postmedia is exploring the possible sale of a number of its community newspapers in British Columbia and its struggling Victoria-based daily, the Times Colonist. It is understood that Postmedia has been in discussions with a number of interested buyers as part of a broader strategy to pay down the company's debts.

Meanwhile, jobs are disappearing. Since it emerged from bankruptcy court protection in July, 2010, Postmedia has erased 750 jobs, or 14 per cent of its work force, bringing to 1,700 the total number of staff eliminated at the company since 2008. Faced with union resistance at other papers, many of the latest cuts occurred at non-unionized newsrooms such as the Herald, the very paper that has been leading the digital charge.

The cuts limit the resources Postmedia has to create the kind of online content that users have begun to pay for at bigger industry names such as The New York Times, which now charges frequent website users with a so-called metered payment system. Postmedia is testing these types of pay walls for its websites in Montreal and Victoria.

“It’s very easy to talk about digital,” says John Honderich, chairman of competitor Torstar Corp, owner of the Toronto Star. “We’ve all been struggling with that particular question. Putting meat on the bone, is another issue.”

Godfrey at the helm

Paul Godfrey, 72, has made a name for himself backing long shots. During a high-profile career in Toronto municipal politics, the man who calls himself “Mr. Average” went against huge odds to lobby to bring a baseball franchise to Toronto in the 1970s, and later spearheaded fundraising for the Blue Jays stadium. During his first foray as a media executive in the 1990s, he led a management buyout of Sun Media Corp.

In 2008 he was named president of Postmedia’s flagship newspaper, The National Post, a perennial money-loser that Mr. Godfrey said in a recent interview would be in the black soon. (Postmedia reports its fiscal 2011 financial results in October.)

When heavy debts and the global financial crisis pushed CanWest into bankruptcy court protection, Mr. Godfrey won the backing of its new owners, who tapped him to lead the company now called Postmedia. His selling card was a broad network of media connections and a reputation for corporate rejuvenations that generate handsome profits for investors. That’s what happened after he led the management buyout of Sun Media, and presided over its subsequent sale to Quebecor Inc. for the lofty price of $983-million in 1998

But Mr. Godfrey is unlikely to find a buyer willing to pay so dear a price for media assets as he did in the Sun Media days. And to find any buyer at all, Postmedia must reverse its revenue erosion.

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