Canadian chain shows impressive growth

Perhaps one of the most exciting stories about the growth of free dailies is unfolding in Canada. The percentage of Canadians reading newspapers has been steady in recent years because those who have abandoned paid papers are now picking up free dailies.

Three free-daily chains have spread out across the broad expanse of Canada, publishing in most markets. They are:

• Metro Canada, a joint venture of Metro International and TorStar Corp., publisher of the Toronto Star

• CanWest (headed by Leonard Asper) which publishes RushHour

• Quebecor Media, publisher of the 24 hours or 24 heures papers. And, yes, the "h" is lowercase.

Quebecor Media (Toronto Stock Exchange symbols QBR.A and QBR.B) is a huge diversified company with broadcasting, cable, telephone, wireless and phone book businesses. So the results of its smaller free daily division are often overlooked. But five days ago Quebecor Media reported its third-quarter results and they showed that revenue at the company's 24 hours/heures papers saw a 69.1 percent jump in revenues compared to the same quarter last year (See page 23 of the company's Management Discussion and Analysis for the third quarter). Dollar figures weren't given.

The third quarter must have been the best quarter for the 24 hours/heures chain because for the first nine months of the year, revenues of the free dailies grew by 58.0 percent compared to the same period last year.

One reason for the revenue jump is that Quebecor Media in the past year has added Ottawa, Gatineau, Calgary and Edmonton to its network of free daiiles that started with Montreal, Toronto and Vancouver. Again while not providing dollar figures, the company reported an 87.2 percent reduction in operating losses at its free dailies in Montreal, Toronto and Vancouver compared to the same quarter a year earlier. In other words, Quebecor Media's free dailies are still losing money, but not as much as before.

CanWest MediaWorks did not report any information about its RushHour chain in the documents it provided to shareholders.

As for Metro Canada, its 50 percent shareholder, TorStar Corp. (Toronto Stock Exchange symbol TS.B), didn't provide much information in its most recent quarterly report. But it did say, "Newspapers and Digital revenue grew $6.1 million to $253.5 million with growth at Metroland Media Group, Metro and the Digital properties." Since its 50 percent share of Metro Canada was lumped in with other assets, it is impossible to know how its five free dailies (Toronto, Ottawa, Vancouver, Edmonton and Calgary) performed. The same type of information was given for net income.

But later in the report, TorStar Corp. provides a clue: "Higher revenues at Metro and the Digital properties offset lower advertising revenue at the Toronto Star both in the quarter and year to date. ... Advertising revenue was down 7.1 percent at the Toronto Star in the third quarter ... Metro continued to have strong revenue growth through the third quarter in both the Toronto market as well as the expansion markets." Under the heading "Outlook," TorStar Corporation's managers said, "{T]he revenue outlook is mixed with advertising trends continuing to be challenging for the Toronto Star but stronger for Metro, Sing Tao and the digital properties."

A couple of observations:

• It's unclear whether any of Canada's free dailies are making money, but with revenue increasing, many will in the next few years.

• In the United States, free dailies are owned by a wide variety of owners with a lot of independents in the fray. In Canada, the free daily industry is dominated by three chains, which have expanded into every major market.