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

Currently the company’s major investors , led by New York-based Golden Tree Asset Management LP, are supportive of the company’s management, according to sources close to the company. But it is understood that Golden Tree, which owns about 28 per cent of the company, and other funds hope to sell their stakes within the next few years.

“They’ve been great investors, they’ve let us run the company the way we want to,” Mr. Godfrey said.

The biggest challenge Mr. Godfrey faced in his first year was attracting new investors. His plan last year to attract new shareholders through an initial public offering of Postmedia stock foundered.

Although Postmedia shed assets and debts while in court protection, it emerged from restructuring saddled with nearly $700-million in debt that was stapled on to the company after bondholders acquired the company. (A sizable proportion of its existing debt is held by Golden Tree, the largest shareholder, and some of it pays high rates of interest.)

While it has been paying off the debt aggressively, it is a burden for a company sprinting to catch up with a growing field of stronger digital competitors.

“I wouldn’t have taken this job if I thought it was what they call a slam dunk,” Mr. Godfrey said. “The thing that keeps me going is challenges, otherwise you lose interest.”

The stalled IPO forced the company to rearrange its share structure so that its majority of U.S.-based hedge fund holders did not run afoul of Canada Revenue Agency rules that impose a tax burden on advertisements placed in foreign-controlled media outlets.

Postmedia solved the ownership issue in June when it listed two new shares classes on the Toronto Stock Exchange. The new shares shifted effective voting control from U.S. bondholders to a small pool of Canadian investors who appear to have little immediate prospect of selling their shares, and the stock rarely trades. (The more numerous class B shares last traded earlier this week at $9.50, down from $13.50 at the listing in June.)

Senator Jerry Grafstein, a long-time friend of Mr. Godfrey’s, credits him with doing “a great job of stabilizing the ship.” But, he adds, choppy waters lie ahead because he has to push Postmedia’s “antique” newspaper business into a borderless online market where it competes with Internet news giants such as The New York Times, The Wall Street Journal and the Huffington Post, a recent Canadian entrant.

“The real race is on now,” Mr. Grafstein said.

The success of Postmedia’s Digital First strategy will be defined to a large extent by the pace at which its traditional newspaper operations shrink or grow. When management made its digital pitch to the board last year, sources say, the plan was based on the assumption that national advertising revenues from big businesses such as auto companies would rebound, buying time to find new digital revenues.

It was a reasonable assumption at the time, given the improving economic outlook and the monopoly status enjoyed by many of its city dailies. A year and a limp recovery later, circulation losses and a faster-than-expected shift by advertisers to online has seen Postmedia’s advertising revenue shrink each quarter of the past year. During the three months ended May 31, advertising revenue had fallen nearly 5 per cent to $172-million. For the nine months, it was down nearly 3 per cent to $528.9-million.

Digital revenue growth has been strong for the nine months ended May 31, but sales of $62-million add up to only 9 per cent of total revenue.

The more newspaper revenues fall, the less Postmedia will have to devote to its online strategy.

“In the context of a company that is cutting and cutting and cutting to stay within its means, the question becomes, can they produce digital content that is distinctive enough to justify people paying for it?” said Christopher Waddell, director of the School of Journalism and Communication at Carleton University.

That’s not the story Mr. Godfrey wants to tell. The eternal optimist has a view that is best illustrated by the redecoration of Postmedia’s Toronto headquarters last year. The building’s lobby now features replicas of old-fashioned newspaper boxes for many of its publications. It is not front pages that are on display in the boxes’ windows. Instead, they feature computer screens that flash the latest news updates from each newspaper’s website.

But does Mr. Godfrey have what so many newspaper companies are searching for – a workable strategy to convince its customers to pay for these digital innovations?

“That is the magic elixir, to find that,” he said.

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