If the Herald can buy more newspapers, why can’t it pay workers more?


The main complaint I hear about the Chronicle Herald’s purchase of Transcontinental’s Atlantic Canadian newspapers goes like this: If Herald owners Sarah Dennis and Mark Lever can find millions to buy out Transcon, why can’t they cough up more money for striking workers?

The answer is that those are completely different kinds of transactions, as unalike as buying a new car and buying gas to run it.

If you borrow to buy a new car, there’s a chance you’ll pay extremely low interest—as low as 0% if the carmaker is eager to move inventory. But if you borrow to fill the gas tank, you’ll pay credit card rates of 18% – 28%.

Transcon, whose core business is printing, was eager to move inventory. It’s been shedding newspapers all across the country at fire sale prices. The money the Herald borrowed to buy Transcon’s Atlantic papers was secured by a combination of assets the lender can sell if the business fails (chiefly printing presses and downtown buildings in cities and towns across the region), and a business plan that convinced lenders the company will be able to meet its loan payments.

Money to pay the Herald’s workers, by contrast, must come from future revenues sufficient to meet all the paper’s costs, plus a return on the owners’ investment. If Lever had tried to borrow money to cover the cost of a new collective agreement, the same lenders would have laughed him out of the room.

Newspaper revenues have been tanking since the turn of the century. All newspapers have cut costs in response to this reality. Some have folded, including the Halifax Daily News and several of TransCon’s Nova Scotia weeklies. The Post Media papers are said to be on the brink of closing.

The Herald had high costs by industry standards. The newsroom collective agreement pushed top salaries above $80,000, and limited management’s flexibility to cope with the internet tsunami. Lever has been candid that management’s 2003 decision to buy a $25 million press, just as revenues nosedived, made the crisis worse.

The Herald did not fold, but it did roll headfirst into a bitter, 14-month strike that shows no sign of ending. Many assumed Lever and Dennis were ruthlessly trimming costs to ready the paper for sale to the Irvings. Instead, they shocked the industry by doubling down on printed news. It’s a high-stakes gamble whose outcome will be fascinating to watch.

The strike is relevant to the purchase only inasmuch as Lever has demonstrated to lenders he can run the paper without unionized staff and cover his costs. You and I may decry the loss of quality—it’s been pretty awful at times—but from the vantage point of a lender, the business seems to be working.
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