What’s behind Quebecor’s latest cuts?

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If you're looking for an optimistic take on the state of Canada's newspaper industry, don't look to Sun Media's Pierre Karl Péladeau.

The chief executive officer of Canada's largest newspaper chain by number of titles isn't willing to wait around for the industry to recover from the staggering changes that has seen advertising revenues fall far faster than digital revenues can increase.

During the 2008 recession, he cut 600 jobs at his dozens of daily newspapers and 200-plus community publications. He centralized many functions such as page layout and printing, a move other newspaper executives across North America have since emulated. Last year, with print revenue showing signs of weakness he doubled down and prepared pink slips for another 400 employees across the country.

With print revenue continuing to decline and digital growth at a standstill, he signalled his intention Tuesday to chop another 500 jobs to cut $45-million out of Quebecor Inc.'s media division in the next year. The media division had about 5,600 employees at the end of last year. He's cutting deep, putting up paywalls, consolidating printing and editing tasks now in a bid to ensure he can keep publishing in the future.

"This restructuring is regrettable but warranted by changes in our industry which force us to align our cost structure with the new reality," he said in a statement.

Troubles in the newspaper industry are well documented – advertising in print editions is decreasing and the company's digital revenues aren't growing anywhere near fast enough to make up the difference. But what's behind the profitable company's latest round of cuts?

While Quebecor posted an $18-million profit in the quarter, most of that was driven by its cable and cellphone divisions. Its news division suffered a lackadaisical third quarter, with revenue falling 3 per cent to $227-million compared to the same quarter a year ago. Advertising revenue dropped 7 per cent. Daily urban papers saw revenue drop 3 per cent, while community papers slipped 6 per cent.

Portal revenue – money brought in through its special interest websites that was once seen as a key driver of growth – dropped 13 per cent.

Like Paul Godfrey at Postmedia Network Inc., which publishes dailies such as the Ottawa Citizen and National Post, Mr. Péladeau believes the industry is going through a transformational shift and that revenues (and profits) will not return to previous levels.

The media division's operating income dropped by 25 per cent. Its cost-revenue ratio, which shows how much a company needs to spend to keep things going, increased to 89 per cent in the first nine months of the year, up from 86 per cent.

Its broadcasting division, meanwhile, saw its revenue increase 11 per cent to $99-million from a year ago. While it doesn't break down its revenue by service, it said increased advertising and subscription revenues from TVA Sports and Sun News Network helped push the numbers higher (Sun News is losing money, but less of it).

While the company didn't explain its decision to cut jobs in detail, The Globe reported Tuesday that they "are part of a restructuring that will consolidate all editorial and sales functions under three executives."

That means local managers are out, and regional managers are in. It also means fewer journalists in local newsrooms and more editors and press operators working far from the communities their papers serve.

It's not a cheap proposition: perhaps the most sobering number in the company's quarterly results is that it spent $39-million on restructuring fees – much of it dedicated to severance payments to employees shown the door. That's up from $2.9-million a year ago.

"Ultimately, this leaner structure will not only be more efficient, but more importantly will focus people on their core competencies," Mr. Péladeau said.

What's left to be seen is how readers will react to the leaner newspapers that are produced with fewer local journalists – circulation revenue fell 1 per cent in the last quarter.