The most common prediction ahead of last month’s Canadian election was that the country’s many polling firms would again fail to predict the results. In the event, most of them accurately foresaw Justin Trudeau’s Liberals sweeping into power. Instead, it was the country’s daily newspapers that got it wrong, promoting the incumbent Conservatives while readers and voters turned en masse against the party. Social media pounced on the striking disconnect with increasing ferocity as editors in virtually every Canadian city and town published tortured endorsements of Stephen Harper’s government.

The events shone an unforgiving light on the country’s newspaper industry, which is struggling to survive amid a long slump in advertising revenue and the challenge of finding new readers online. Eight of Canada’s daily newspapers disappeared last year, and the leading titles are all operating at loss. Typical is the Toronto Star, the largest title, which saw its weekday circulation drop from 250,000 to 175,000 in the first six months of 2015.

Yet the defeat was a particularly brutal blow for Canada’s dominant chain, Postmedia, which publishes more than half of the traditional daily newspapers in English-speaking Canada and all but a handful of those that matter. Postmedia achieved its market dominance in step with the rise of Harper’s Conservatives. Its support for Harper was widely seen as an expression of the company’s will rather than editorial judgment. One columnist at the Postmedia title the Edmonton Journal wrote on Twitter that owners rather than editors had decided which party to back.

The company’s chain-wide blitz supporting Harper culminated a few days before the election when virtually all Postmedia publications replaced their front pages with a pro-Conservative advertisement masquerading as an official notice from Elections Canada, the independent agency managing the vote.

“What was revealed here is that these papers have seriously lost touch with the readers they are supposedly representing, and it was noticed,” says media critic Jesse Brown, founder of the website Canadaland. “People were outraged. This was a shameful moment.”

That moment came at the end of five years of cuts made necessary by the company’s debts to its own investors. Postmedia papers “have deteriorated a long way from what I remember”, former press baron, convicted fraudster and minority shareholder Conrad Black recently complained in a company conference call.

The company has halved its workforce from 5,400 to 2,500 since it first arose from the bankruptcy of a predecessor chain in 2010, gutting newsrooms in response to falling annual revenue. It has lost money every year since, most recently posting a C$263m loss on revenues of $750m for the year ending August 2015. Despite that, it continues to expand, having recently swallowed up the rival Sun chain of tabloid newspapers to give it a near-monopoly position in the print advertising markets of all but three English-speaking Canadian cities.

Postmedia has been able to expand despite its dire financial condition thanks to a succession of high-interest loans from US financiers led by Golden Tree Asset Management, a hedge fund that specialises in the debt of distressed companies. Paying Golden Tree rates ranging from 8.25% to 12.5% on what is now $650m in debt, Postmedia has sent more than $60m annually in interest payments to New York even as revenues collapse and losses mount.

“I don’t think they care much about the economic viability of these newspapers over the long run,” says Dwayne Winseck, professor of journalism at Ottawa’s Carleton University. “They’re just riding this thing down and milking what they can out of it until the papers disappear, except for maybe a handful. It’s a pretty lousy situation.

“It seems to me the main investors are pretty well protected here,” Winseck adds. “It’s the journalists that we ought to worry about, and the public they’re supposed to be serving.” Postmedia was not alone in its isolation from its readers. For instance the Globe and Mail of Toronto inspired national ridicule when it published an endorsement of the Harper government while urging the party to replace its leader upon achieving victory. But the new Liberal government poses a bigger challenge for Postmedia than its peers if only because Trudeau will be little inclined to emulate the support shown to the chain by his predecessor.

The Harper government did not challenge the foreign takover of Postmedia, despite longstanding tax rules designed to ensure the country’s newspapers remain in Canadian hands. Earlier this year, the federal Competition Bureau approved Postmedia’s acquisition of the Sun papers, saying the new near-monopoly “is unlikely to substantially lessen or prevent competition”. In seeking permission for the takeover, Postmedia assured the regulator that its newspapers would pursue independent editorial policies. Mere months later they were predictably backing Harper’s Conservatives. The company is led by Paul Godfrey, a former Conservative politician and powerbroker from Toronto who has said he expects the chain to be sold to a wealthy businessman more interested in political influence than profits.

However, a decoupling of Postmedia from the political establishment could benefit the wider media ecosystem in Canada. “[The federal government] should stop trying to play handmaiden to owners who have made a hash of the business they’re in,” Winseck says. “These folks have been going on acquisition sprees now since the late 1990s, and they’ve been doing this at precisely the time we need all hands on deck to deal with the rapidly changing media.”

Brown goes further, suggesting Postmedia’s dominance is actively suppressing the emergence of new media in Canada. “I would like to see a lot more small companies like mine pop up in this country, and for some reason they haven’t,” he says. “One of the reasons is that we still have this failed state of a newspaper chain that is able to suck up all the oxygen.”

• This article was amended on 10 November 2015. An earlier version said that the Toronto Star’s “readership” had dropped from 250,000 to 175,000 in the first six months of 2015. This has been corrected.

