Canwest newspapers are making money, the circulation slide may be over and newspaper stocks are outperforming the Toronto Stock Exchange, writes Kelly Toughill. Who knew?

Canwest newspapers are making money, the circulation slide may be over and newspaper stocks are outperforming the Toronto Stock Exchange.

Recent news about the Canadian newspaper industry has sparked welcome confusion among those accustomed to charting the demise of ink on paper

After all, isn’t news-on-the-stoop an anachronism soon to follow typewriters to the museum? Aren’t high-quality newsrooms being sacrificed to the Internet, niche publications and bloggers who have more free time than skill? Yes and no. The newspaper industry is still in peril, but for the first time in a long time, there are also signs of hope.

John Honderich, chair of Torstar Corporation, pointed out recently (during a speech at the 2009 Joseph Howe Symposium) that newspapers are far from money losers, despite the red ink that has washed across the bottom line of most newspaper companies in recent years.

Even Canwest, which filed for bankruptcy protection in early October, has a good-news story hidden in its last quarterly financial statements. The document filed in July shows that Canwest newspapers were still coughing up modest amounts of cash.

The newspaper segment of Canwest Global Communications had an operating profit of $152 million in the first nine months of the company’s fiscal year. That is down from the year before, but shows that the company took in more revenue from advertising and subscriptions than it spent on things like reporters, newsprint, computers, sales people and telephones. The red ink showed up after the company paid interest on its huge debt, and after it wrote off the declining value of its operations.

The good news is that the Canwest newspapers themselves are still viable businesses, if they aren’t forced to service a huge debt as well as cover their own costs. According to Honderich, every single newspaper in the Canwest chain is showing an operating profit, with the exception of the National Post.

The Torstar financial statements tell a similar story, with an operating profit of $20 million in the newspaper segment in the first six months of the year.

Maybe that’s why investors seem to be turning back to newspaper companies after deserting the sector.

Canadian newspaper companies have outperformed the S&P/TSX 60 substantially over the last three months. Torstar stock is up roughly 50 per cent. Quebecor is up 30 per cent. Even Canwest’s penny stock briefly rose faster than the S&P/TSX 60, before it filed for bankruptcy protection and halted trading.

The most interesting and important news is what has happened to readership and circulation.

The most recent Nadbank study shows that newspaper readership is largely stable and that online newspaper readership is up 10 per cent.

But the bigger story is in circulation.

An analysis by Ken Goldstein, president of Winnipeg’s Communications Management Inc., suggests there may be a natural floor that newspaper circulation won’t fall below.

In 1950, as many daily newspapers were sold in Canada as there were households in the country. Even though circulation continued to grow for four more decades, it didn’t grow as fast as the population. By 1990, the paid circulation of Canadian newspapers was only 60 per cent of Canadian households. Today it is less than 40 per cent.

The big question is whether circulation will decrease forever, until newspapers disappear, or will there be a natural leveling off where newspaper circulation will stabilize?

Goldstein segregated the results of English language and French language newspaper circulation. He found that the circulation of French language newspapers dropped further than English language newspapers, but then it leveled off.

French language newspapers in Canada have held their market for 10 years, selling roughly as many newspapers as 30 per cent of the households in Quebec every year since 1999. Goldstein suggests the same phenomenon might be seen in the rest of Canada soon.

The good news of operating profits, higher stock prices and circulation stability do not point to a solution for the crisis. The problems are very severe. Goldstein’s study also shows continuing declines in newspaper revenues. But the good news does inject a bit of hope into the debate over how to forge a new business model for public service journalism in the 21st century.

Kelly Toughill is an associate professor in the School of Journalism at the University of King’s College, Halifax and a contributing editor for the J-Source Business of Journalism J-Topic.

(Image by laffy4k. Used under Creative Commons license.)