We're not colluding, we're fighting to survive

It’s not often Canadian newspaper offices are searched by government agents; it’s the kind of event one reads about in reports from the world’s trouble spots.

So it was something of a shock in the National Post’s t hird- f l oor newsroom a couple of weeks ago when journalists learned that Competition Bureau officials were rummaging around Postmedia Inc.'s executive suites on the 12th floor. The objective, the bureau said in a statement that day, was to gather evidence regarding “alleged anti-competitive conduct contrary to the conspiracy provisions of the Competition Act.” Also raided were the offices of Torstar and its subsidiary, Metroland, participants in what competition commissioner John Pecman referred to as “the alleged conspiracy.”

Last week t he search documents were released, a filing prepared by PierreYves Guay, acting associate deputy commissioner of the Competition Bureau’s cartels directorate. Guay states he has “extensive experience investigating domestic and international conspiracies.” On the international front, he was l ead i nvestigator and case manager on major cartel probes into pharmaceutical and textile products. He also has extensive experience with wiretaps and the execution of searches.

Impressive stuff for a government agent, but some of us in the newspaper business — and some in the legal community — wonder about the thinking within the bureau when it launches a full- blown and expensive attempt to enforce “competition” in an industry — newspapers — that is in the midst of a roof-removing hurricane of actual competition. One competition lawyer not involved in the Postmedia/ Torstar case told me the bureau’s aggressive take on the case was “silly” and “mindboggling.” Don’t they have “other and bigger priority issues”?

Another question: Is it illegal under the Competition Act for two companies being killed by massive competition to co- operate to rationalize parts of their oper- ations? If that’s the case, the Competition Act needs to be overhauled.

Since 2007, newspaper advertising revenues fell 45 per cent to $2.1 billion while the industry’s key competitors, the internet operators, saw revenues soar 300 per cent to $ 5.4 billion. As the newspaper chains struggle to survive the competitive onslaught, the Competition Bureau seems to be joining the attack. Postmedia and Torstar are alleged to have conspired to allocate sales, territories, customers and markets so as to “fix, maintain, control, prevent, lessen or eliminate the production and supply of advertising services and/or flyer distribution” in certain parts of mostly small-town Canada.

The two newspaper companies allegedly engaged in said conspiracy prior to their announcement last November that they had reached an agreement to transfer 41 small community and daily publications and advertising flyers between them and then close most of them with a loss of up to 300 jobs — in an industry that in recent years has already lost at least 7,000 jobs.

While the bureau’s search experts swept the 12th- floor executive offices of the Postmedia tower for incriminating files, emails, notes and documents or whatever, they overlooked the hard evidence of the state of the industry that was in plain sight on the third floor. Most of the floor is a sea of empty desks; the journalists are figuratively up to their knees in water and spend much of their time bailing to keep afloat after having been swamped by a flood of competition from internet giants and others, including the government-funded CBC.

The bureau claims it has “reason to believe” that the Postmedia/ Torstar deal in- volved a breach of a section of the Competition Act that says that every person who “conspires, agrees or arranges to allocate sales, territories, customers or markets for the production or supply of a product” commits an offence under the act.

The bureau appears to have taken a micro perspective on the nature of the newspaper industry, defining its markets narrowly to the point of absurdity, as if newspapers held market power and monopoly control over local advertising. At one point the document worries about “a local pizzeria located in Kanata, Ontario” that lost the ability to advertise in the local free weekly the Kanata Kourier Standard, which closed after the Torstar/ Postmedia deal. Has the bureau never heard of Google? When I entered the words “pizza Kanata” the names and ratings of a dozen local pizzerias appeared, including the 4.6- star Tomaso Grilled Pizza and Panini.

Maybe the bureau forgot its previous observations on the newspaper business. In 2015, when it gave the Postmedia/ Sun merger a green light, it noted “the increasing competitive pressures from digital alternatives in an evolving media marketplace.”

Competition theory has always rested on debatable economic and political principles. From its origins more than a century ago in the United States, anti- trust lawmakers put the so- called public interest above the rights of property and business owners to sign contracts and reach agreements for the optimum benefit of their businesses.

By spending big dollars and a lot of publicity on one small newspaper deal, the Competition Bureau appears to be not only out to lunch on pizza marketing, it is also implying it’s illegal for money-losing firms in declining industries to collaborate, co-operate and jointly engage in corporate adjustments designed to help keep them in business.