Torstar Corporation

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Torstar Corporation

One Yonge Street
Toronto, Ontario
M5E 1P9
Canada
(416) 869-4010
Fax: (416) 869-4183
Web site: www.torstar.com

Public Company
Incorporated: 1958
Employees: 5,965
Sales: $1.33 billion (Canadian) (1998)
Stock Exchanges: Toronto Montreal
Ticker Symbol: TORSF
NAIC: 51111 Newspaper Publishers; 51113 Book Publishers; 551112 Offices of Other Holding Companies

The Torstar Corporation is a diversified publisher based in Toronto, with three major business segments: newspapers, book publishing, and children’s supplementary educational publishing. Its newspaper operations include publication of the Toronto Star, which has the largest circulation of any daily newspaper in Canada. It also publishes four daily newspapers in southern Ontario, which were acquired in 1999, and more than 50 community newspapers throughout Canada, along with some miscellaneous monthly tabloids. Through a strategic alliance with Sing Tao Holdings Ltd., Torstar publishes the Sing Tao Daily, the largest Chinese-language daily newspaper in Canada with editions in Toronto, Vancouver, Calgary, and Montreal. Torstar’s book publishing consists of its subsidiary Harlequin Enterprises, the world’s largest publisher of series romance fiction. Torstar’s children’s supplementary educational publishing operations include several publishers acquired in the late 1990s: Frank Schaffer Publications, Tom Snyder Productions, Delta Education, and Brighter Vision Learning Adventures. For 1998 newspapers accounted for 48 percent of Torstar’s revenue, book publishing 39 percent, and supplementary educational publishing 12 percent.

Early History

Torstar Corporation was incorporated on February 6, 1958, to acquire the Toronto Daily Star, which was first published in 1892. Until 1975 the company’s principal activity was publication of the Toronto Star, along with other interests in commercial printing and community newspaper publishing. In 1975 Torstar began to acquire interests in domestic and international book publishing as well as supplementary educational products.

Acquisition of Harlequin Enterprises in 1981

In 1981 Torstar acquired Harlequin Enterprises. Harlequin was founded by Canadian publishing executive Richard Bonny castle in 1949. At first the small firm published a variety of American and British paperbacks, including mysteries, Westerns, classics, and cookbooks. In 1957 Harlequin began purchasing the rights to works of romance fiction published by the British firm of Mills & Boon, which had been publishing romance fiction since 1909. By 1964 Harlequin was publishing romance fiction exclusively.

After Harlequin became a publicly held company in 1968, it began to adopt a unique marketing strategy for book publishing, namely, a packaged consumer goods strategy. It became the first book publisher to use television advertising in North America. Instead of concentrating on bookstores, Harlequin sold its books where women shopped: supermarkets, drugstores, and department stores.

This strategy enabled Harlequin to grow at an annual rate of 25 percent throughout the 1970s. The Harlequin name became accepted as a guarantee of quality, and the company could introduce many new authors each year and still achieve high levels of sales based on its reputation.

In 1971 Harlequin purchased Mills & Boon, an acquisition that included the talents of more than 100 British authors. From 1972 to 1984 overseas acquisitions, joint venture partnerships, and licensing arrangements put Harlequin books in 100 markets. Sales soared from $3 million (Canadian) in 1970 to more than $165 million (Canadian) over the next three decades.

Harlequin’s highly successful North American direct mail operation was the final element in the company’s best-selling marketing strategy. Direct mail services were introduced subsequently in the United Kingdom, Australia, Holland, France, and Scandinavia.

When Harlequin became a wholly owned subsidiary of Torstar in 1981, it was well established as the world’s leading series romance publisher. In 1984 Harlequin acquired Simon & Schuster’s Silhouette imprint, one of its most spirited competitors. Under two specially created imprints, Worldwide Mysteries and Gold Eagle Books, Harlequin entered the mystery and male action adventure markets. Harlequin’s Steeple Hill imprint became a leader in the inspirational romance market. Harlequin’s Web site (www.romance.net) was launched in February 1996.

In 1998 Harlequin sold more than 165 million books worldwide. It published more than 70 titles in 14 series each month. More than 800 Harlequin titles hit the stands each month around the world in more than 100 international markets in more than 23 different languages. The company had editorial offices in 16 countries. Approximately one in every six mass market paperbacks sold in North America was either a Harlequin or Silhouette novel.

In 1999 Torstar began to implement a strategy to develop a major worldwide Internet presence in electronic commerce for Harlequin. In June Harlequin signed an agreement to partner with Women.com Networks, a leading Internet network for women, to integrate Harlequin into the Women.com Network. Harlequin’s strategy was to build a strong community-of-interest Web site that would attract romance readers who were online, a market that was projected to grow to 20 million romance readers online by 2002.

Newspaper Publishing Beginnings in 1958

Torstar was first incorporated in 1958 to take over the operations of the Toronto Daily Star, later called the Toronto Star. It has the largest circulation of any daily newspaper in Canada. In 1999 Torstar added four daily newspapers in southern Ontario, which it acquired from Quebecor Inc. Through its subsidiary, Metroland Printing, Publishing and Distributing Ltd., the company also published more than 50 community newspapers throughout Canada, along with some miscellaneous monthly tabloids. In June 1999 Metroland completed the purchase of Eedy Publications, which added ten weekly newspapers and a printing plant in western Canada.

The Sunday Star was launched in October 1977 to compete with the Sunday Sun. In 1991 the Star began publishing eye, a weekly arts and entertainment publication, which was distributed free every Thursday to some 2,200 outlets in the greater Toronto area, with a circulation of 106,000 copies a week.

In 1993 the Star completed construction of a new production facility, The Toronto Star Press Centre, on 32 acres of company-owned property on the outskirts of metropolitan Toronto. Since July 1993 the Star has been entirely printed and distributed from the Press Centre. In addition to expanding printing capacity, the Press Centre allowed for the use of full color throughout the newspaper. In 1998 Torstar expanded the color capacity of the Star from 28 pages to 48 pages.

The new ventures group of the Star began by launching two projects, the For Rent Magazine, with a circulation of 100,000 copies per month, and a redesigned Real Estate News, which the Star printed through an arrangement with the Toronto Real Estate Board. Its weekly circulation was more than 100,000 copies. In 1998 the new ventures group acquired a 50 percent interest in the Canadian operations of Sing Tao’s media group. Sing Tao Daily was the largest Chinese-language newspaper in Canada, with editions in Toronto, Vancouver, Calgary, and Montreal. The group also was involved in printing, outdoor advertising, radio broadcasting, direct mail catalogs, and magazines.

In 1998 the Toronto Star was engaged in an all-out newspaper war with the existing dailies and the National Post, which was launched by the Hollinger/Southam group in the fall of 1998. The Star unveiled its most expensive consumer marketing campaign. The multimedia campaign, ’ The Toronto Star: It’s Where You Live,” appeared on television and radio, billboards and buses, and in a variety of print media.

With 51 percent of the market, the Star was the number one newspaper in the Toronto market. To bolster its position, it hired more than 40 new editors and writers during 1998. Its marketing campaign was aided by the recent expansion of color pages from 28 to 48 pages out of a total of 96 pages in the newspaper. While advertising linage in the Star was relatively flat for 1998, ad revenues increased $14 million (Canadian), due to linage price increases.

In October 1998 Torstar initiated a hostile takeover of Sun Media, which published seven daily newspapers in major Canadian cities, including the Toronto Sun. Torstar initially offered $748 million (Canadian), or $16 per share. By December Torstar had raised its bid to more than $19 per share, or approximately $900 million (Canadian). Torstar allowed its bid to lapse when Quebecor Inc. tendered a higher offer. Torstar subsequently entered into a binding agreement with Quebecor in December 1998 to purchase the Hamilton Spectator, the Record (Kitchener-Waterloo), the Cambridge Reporter, and the Guelph Mercury, four broadsheets that belonged to Sun Media, which Quebecor was in the process of acquiring. The agreement would allow Torstar to expand its presence in southern Ontario and increase Torstar’s total average weekly circulation to 4.67 million copies, or 14.2 percent of the total for daily newspapers in Canada.

The acquisition was completed in March 1999 for about $335 million (Canadian) after Quebecor acquired Sun Media in December. At the same time, Torstar announced the formation of the Torstar Daily Newspaper Group, which included the four acquired broadsheets and the Toronto Star. The five newspapers began sharing stories, photographs, and graphics in the newly formed Torstar News Service. The Toronto Star would handle the advertising for the other four newspapers for national and multimarket advertisers. With 21 percent of the Canadian population and 25 percent of its disposable income, southern Ontario was becoming a more unified market for advertisers. The Torstar Daily Newspaper Group was the third largest newspaper group in Canada behind number one Southam Inc. and number two Quebecor.

Multimedia in the 1990s

A multimedia division was established in the 1990s to explore business opportunities in electronic publishing. Torstar’s Web site, www.torstar.com, offered content from most of its newspapers on the Internet. The online version of the Toronto Star was launched on March 30, 1996 (www.thestar.com).

Throughout 1998 new content and services were added to the Torstar site, including a chat service, online games, television listings, food and money guides, technology news, cartoons, and links to the Star’s weather, horoscopes, stock quotes, and sports sections.

The multimedia division also helped Harlequin launch its Web site (www.romance.net) in February 1996. The site included advanced technology that allowed Harlequin to market books and merchandise via the Internet.

In September 1997 Toronto Star City Search was launched by a partnership between Torstar and the Canadian subsidiary of City Search U.S.A. The new online service provided information about restaurants, entertainment, retail establishments, community events, and other services for the greater Toronto area. The original partnership was terminated in August 1998 and succeeded by a new partnership, toronto.com, among Torstar, CitySearch, and Tele-Direct Inc. Tele-Direct Inc subsequently became Bell Actimedia. Torstar held a 45 percent ownership interest in toronto.com (www.toronto.com), an online information service with more than 250,000 business listings and more than 2,000 information sites from Toronto-area businesses.

The multimedia division was also responsible for Toronto Star Television (TSTV), a 24-hour direct-response teleshopping channel that primarily featured infomercials along with news, weather, and sports headlines. Launched in October 1997, TSTV was reaching 1.4 million homes in greater Toronto by 1999.

Children’s Supplementary Education Publishing (CSEP) Formed in the 1990s

Torstar’s CSEP division provides a broad range of high quality educational materials to teachers, children, and parents. It consisted of four operating subsidiaries that were acquired in the 1990s.

Frank Schaffer Publications (FSP), based in Torrance, California, was acquired in 1994. Subsequent acquisitions, Warren Publishing House in 1995 and the Judy Group in 1997, were combined with FSP to make it a leading publisher of print and manipulative educational materials, such as teacher resource books, activity books, puzzles, charts, and posters for children from preschool age to the eighth grade.

Tom Snyder Productions (TSP), based in Watertown, Massachusetts, was acquired in 1996. TSP published a broad array of software titles in the areas of social studies, math, and science for the elementary and middle school markets. TSP was founded originally by Tom Snyder, a former science and social studies teacher, in 1980. The company was established to help teachers create great learning experiences for their students. Snyder developed more than 100 CD-ROM, videodisc, videotape, and audio tape products for schools, and TSP became a leading developer and publisher of educational software for K-12 classrooms. In addition, TSP developed a reputation as an innovative producer of animation, including the animated television series Science Court, shown on ABC, and Dr. Katz: Professional Therapist, shown on HBO’s Comedy Central.

Delta Education provided K-8 educators with hands-on science and math materials and programs. Based in Nashua, New Hampshire and originally established in the 1970s, Delta Education was acquired by Torstar in 1996. In 1997 Delta took a major step into curriculum program publishing with the acquisition of FOSS (Full Option Science System). FOSS was developed at the Lawrence Hall of Science at the University of California with funding from the National Science Foundation. It is a widely recognized activity-based full science curriculum for grades K-6.

Brighter Vision Learning Adventures was launched by Torstar in 1997. It is an educational continuity program targeted to parents of children ages 2 to 6. It was developed by educators to support the early childhood education process. Brighter Vision Retail was also launched in 1997 to create and distribute high quality education products for children and parents in convenient shopping locations. The first international CSEP operation, Brighter Vision Education, was launched in the United Kingdom in 1996.

Another 1997 CSEP acquisition, Troll Communications, was sold in April 1999 to Willis Stein Partners, L.P., a Chicago-based investment firm, for $69 million. Torstar realized a loss of approximately $100 million (Canadian) on the sale. Troll was a leading publisher of children’s books and operated school book clubs and book fairs as well as direct mail programs for children, teachers, and schools, but it had two consecutive years of poor financial performance.

Following its failed attempt to acquire Sun Media, Torstar reaffirmed its commitment to its Children’s Supplementary Educational Publishing Division. Torstar had announced previously that it would sell CSEP to finance the planned Sun Media acquisition.

Other Interests in the Late 1990s: ITI Education Corporation

In May 1998 Torstar increased its interest in ITI Education Corporation by three million shares, giving it a 26 percent ownership interest. ITIs Information Technology Institute was Canada’s leading postgraduate information technology (IT) educational institution, with five campuses in Canada and plans for two new schools in both Canada and the United States for 1999. It was Canada’s largest single source of IT graduates, and in 1995 ITI became the first Canadian education corporation to be publicly traded on a Canadian stock exchange. By the end of 1998, Torstar purchased another one million shares of ITI Education Corporation for about $7 million (Canadian), giving Torstar a 39 percent ownership interest in ITI.

Outlook

Torstar experienced solid growth during the 1990s, with operating profits doubling from $84 million (Canadian) in 1995 to $177 million (Canadian) in 1998. Total revenues grew at a steady pace from $1 billion (Canadian) in 1995 to $1.33 billion (Canadian) in 1998, with the strongest growth in the newspaper segment. Substantial investment in children’s supplementary educational publishing boosted revenues in that segment from $36 million (Canadian) in 1995 to $164 million (Canadian) in 1998. Net income grew from $64 million (Canadian) in 1995 to $260 million (Canadian) in 1997. Three properties that were sold off in 1997 and 1998 resulted in a $99 million loss from discontinued operations, which resulted in a net loss of $5 million for 1998.

Future prospects for Torstar’s newspaper, book publishing, and children’s publishing are mixed. Newspaper revenue traditionally correlates with economic activity and media spending, and the economic outlook was uncertain for 1999 based on the momentum of the Star at the end of 1998. The Star may also face higher labor costs as its largest union attempts to include the newspaper carriers, who previously had been considered self-employed independent contractors.

Torstar sees a bright future for its book publishing subsidiary, Harlequin, which dominates series romance fiction. Its continued success will be dependent on being able to offer high quality editorial product, just as its profitability will remain dependent on its operating efficiencies. Strong results also were expected for the individual units of the company’s CSEP segment.

Principal Subsidiaries

Toronto Star Newspapers Ltd. (Canada); Harlequin Enterprises Ltd. (Canada); Metroland Printing, Publishing and Distributing Ltd. (Canada); TDNG Inc. (Canada); Frank Schaffer Publications, Inc.; Tom Snyder Productions, Inc.; Delta Education, Inc.; Brighter Vision; Brighter Vision Education (United Kingdom).