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Postmedia president and CEO, Paul Godfrey, appears at commons heritage committee on Parliament Hill in Ottawa on Thursday, May 12, 2016., to discuss the media and local communities. (Sean Kilpatrick/THE CANADIAN PRESS)
Postmedia president and CEO, Paul Godfrey, appears at commons heritage committee on Parliament Hill in Ottawa on Thursday, May 12, 2016., to discuss the media and local communities. (Sean Kilpatrick/THE CANADIAN PRESS)

Postmedia’s Godfrey urges tax breaks to keep ad dollars in Canada Add to ...

The head of Canada’s largest newspaper publisher made a “straight-up sales pitch” for help to a committee of federal MPs, calling for tax incentives to keep advertising dollars from draining out of Canada to powerful foreign-owned digital giants such as Google Inc. and Facebook Inc.

Paul Godfrey, the chief executive officer of Postmedia Network Canada Corp., insisted more than once that he is seeking “an ally” and not “a bailout,” even as he suggested the government should buy more of its own advertising from newspapers, in print and online.

At a meeting Thursday morning on Parliament Hill, Mr. Godfrey painted a dire picture of the struggles print media face in Canada to a panel of MPs that has invited expert witnesses to discuss the media and its impact on local communities. Citing recent decisions by other publishers to shut the Guelph Mercury and Nanaimo Daily News, he warned that, absent some action, “in three years, there will be many more closures in your own communities because of the state of the newspaper industry.”

Postmedia, which owns more than 180 publications including the National Post, Ottawa Citizen, Edmonton Journal and the Sun chain of papers, has been struggling to stay afloat under pressure from industrywide trends that are driving print ad revenue steadily downward, as well as the weight of nearly $670-million in debt. Last month, the company announced it was reviewing an array of options to improve its “capital structure and liquidity,” including selling assets, refinancing the debt or issuing new debt or shares.

“It’s ugly,” Mr. Godfrey said. “It will get uglier, based on the present trends that exist today.”

In remarks to the committee, he proposed a tax incentive that would allow ads placed with a Canadian company to be written off at a higher rate than ads bought from foreign-owned companies such as Google. He suggested the Aid to Publishers program, which supports magazines and periodicals, could be extended to daily newspapers. And he called for a national tax credit to support innovation in digital news.

“I think the industry is looking for an ally and I think these are ways,” he said.

When some MPs questioned the wisdom of subsidizing a declining industry when readers are increasingly choosing to get their news from other sources, Mr. Godfrey said a similar argument could have been made about the federal bailouts of auto makers General Motors or Chrysler in 2009. “It is a balancing act,” he said.

For years, Postmedia has relentlessly cut costs. Between 2012 and 2015, it slashed $136-million in annual costs, then announced it would need to find another $50-million in savings, and later increased that target to $80-million by mid-2017. In January, the company cut 90 jobs and merged newsrooms in Vancouver, Calgary, Edmonton and Ottawa.

The meeting’s most heated exchange was sparked by Liberal MP Adam Vaughan, who took Mr. Godfrey to task for what he saw as “contradictions” between his proposals and his papers’ editorial stand, which is often critical of government advertising.

He also challenged Mr. Godfrey to square comments he made in support of the importance of independent journalism with Postmedia’s decision to sell advertising wraps on several of its papers to the Conservative Party just before last fall’s federal vote. Mr. Godfrey replied that the wraps were offered to all parties and that “the Liberal Party bought the home page of the digital operation.”

Finally, Mr. Vaughan took aim at the fact that New York-based hedge fund GoldenTree Asset Management is Postmedia’s largest shareholder. “Why would we fund a failing business model that’s owned by U.S. interests?” he said. Mr. Godfrey countered that the company is formally owned by Canadians through a dual-class share structure, adding, “you’re not bailing out a U.S. company.”

“Canadians can step forward and buy newspapers, but none of them have,” he told Mr. Vaughan, and by singling out GoldenTree for scorn, “you’re barking up the wrong tree.”

In recent months, GoldenTree has been looking to sell its stake in Postmedia, which includes a portion of the company’s debt. Ted Lodge, who was GoldenTree’s representative on Postmedia’s board, resigned his seat in early April. The fund had held considerable sway in the company’s affairs since 2010, and the signals that it is searching for an exit has fuelled speculation that Postmedia is on a path to some sort of restructuring.

Last year, the company spent $316-million to acquire the Sun Media chain and related digital sites from Quebecor Inc., and claims the merger boosted its online audience to 12.8 million unique monthly visitors. Mr. Godfrey was gambling that this increased scale would “extend the runway” for Postmedia’s publications, as he put it on Thursday. But “the erosion of the print ad revenue has been so dramatic that even that runway has been short.”

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