Upstart Challenges <I>Globe and Mail</I> for Prominence in Canadian Newspaper Market

But Hollinger International is bleeding profusely in the effort, making investors nervous.
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Critics of the traditional newspaper, taking comfort in electronic journalism's huge strides during the past decade, have been quick to write off the print medium as a dying industry. Consolidation in the newspaper industry, they would argue, points to a business in retreat mode, as upstart competitors continually emerge from a variety of media.

Newsprint naysayers, however, might find it disappointing in the Great White North, where a vitriolic newspaper war has given birth to sniping publishers, nervous investors and ecstatic readers. The two key competitors in the race to cross-Canadian prominence are the incumbent

Globe and Mail

, which serves as the country's high-brow daily, and the insurgent

National Post

, a year-old, pan-Canadian broadsheet that aims at the former's audience.

The

Post

, which just finished its rookie season in October, is owned by

Hollinger International

(HLR)

, the holding company of revered-and-reviled media baron

Conrad Black

. The Canadian's stable of over 100 dailies includes

The Chicago Sun-Times

,

The London Telegraph

and

The Jerusalem Post

, as well as more than half of Canada's dailies.

But it's the advent of the

National Post

that has roiled Hollinger's investors -- as well as the Canadian newspaper industry. The last year and a half has seen a number of major newspapers change hands, as national publishers jostle for position to fend off the

Post

. The activity culminated in last December's takeover of

Sun Media

by

Quebecor

(QBR.A:Toronto), saving the tabloid publisher from a hostile bid by publishing rival

Torstar

(TSB:Toronto).

Black, meanwhile, has had to pull out all the stops to get his project off the ground, including a slew of money-losing newspaper giveaways and promotions.

And Hollinger stock has suffered for it. Shareholders were less than pleased with third-quarter results released at the end of October. The company reported a loss of $11.5 million, compared with a profit of $10.8 million during the same period a year ago. And much of that cash crunch has been attributed to the

National Post

effort. Shares are currently trading at about 11, down from a 52-week high of nearly 16 13/16.

Meanwhile, the

Globe and Mail

, owned by

Thomson

(TOC:Toronto), has demonstrated it's ready to hunker down for a drawn-out battle. The paper has undergone two makeovers and has begun to shed its stodgy demeanor by adding color and beefing up its sports section. However distasteful that sounds to traditionalists, the evolution was as inevitable as it was necessary.

With its brash, youthful style, Hollinger's

Post

has been a huge success. The paper combines the eye-pleasing color and flair of

USA Today

with the upscale editorial content of

The New York Times

or

The Wall Street Journal

. But unlike the national dailies south of the border, which often cater to discrete demographics, Canada's warring parties are hell-bent on fighting for the same piece of turf.

"The U.S. papers are totally different in style, while the two Canadian ones are similar," says Dean Tudor, professor of journalism at

Ryerson Polytechnic University

in Toronto. He adds that the competition between the two publishers has become personal, with each trying to poach the other's staff -- which means the bad blood will continue to flow.

Recent figures released by the

Newspaper Audience Databank

show the two rivals running neck and neck in 16 key markets, with the

Post

even pulling ahead of the old guard in Vancouver and Ottawa. In those 16 markets, the

Globe and Mail

enjoyed a weekday readership edge of 844,700, while the

Post

trailed close behind at 810,400 readers.

Still, Toronto remains the focal point in all of this, as it's the most competitive advertising market in the country. Canada's largest city is served by two other popular dailies,

The Toronto Star

, owned by Torstar, and Quebecor's

The Toronto Sun

. Here, the

Post

is trailing the pack, checking in at fourth place.

According to Ben Dube, a Montreal-based analyst with brokerage

Canaccord Capital

, the more important question in all of this is how Black, and his competitors, will convert market share into dollars. "The first 12 months was a readership-circulation battle, and the second 12 months will be an advertising battle," he says. "Black is going to be aggressive and they

Hollinger are going to work for every dollar of advertising." Canaccord has no underwriting relationship with either company.

Dube has an underweight recommendation on Thomson. He doesn't cover Hollinger.

While the Hollinger leader has done his part in turning the usually ho-hum Canadian media universe upside down, a bizarre conflict unfolding between Black and Prime Minister

Jean Chretien

has got some investors worried the press baron might be concentrating on issues other than maximizing their shareholder value.

The PM -- who can't be enthralled with the

Post's

onslaught of attacks on his office -- recently prevented Black from being named to Britain's

House of Lords

. He cited the obscure 1919

Nickle Resolution

, which called for an end to the granting of titles to Canadians. Black has since countered with a lawsuit, which went to court Monday morning.

It's enough to leave Hollinger investors, more hung up on profits than peerage, shaking their heads in bewilderment -- and Canadian media junkies laughing all the way to their choice-riddled newsstands.

Derek Moscato is a freelance financial journalist in Vancouver.