It�s tough to pick the biggest problem for Postmedia, Canada�s largest newspaper company. And it�s just as hard to figure out where the corporation is going.
Postmedia released its quarterly and year-end results Thursday. They were grim, and things are getting worse, not better. (The corporation's Powerpoint presentation on the results is here.)
Print advertising, about 60 per cent of total revenue, fell 13.4 per cent in the fiscal year ending Aug. 31. That�s worse than the 10.3-per-cent drop in 2012.
For national and retail advertising, about 60 per cent of total print ad revenue, the fourth quarter was the most grisly, meaning losses are continuing to grow.
Stripped of the buzzwords, Postmedia�s strategy appears to be to cut costs, try to find ways to get readers to pay more for products on various platforms and attempt to persuade advertisers to pay more for ads that work better.
The company launched a three-year �Transformation Program� in July 2012 that aimed to cut expenses by 15 to 20 per cent - $102 million to $135 million. It�s achieved $82 million in annualized savings so far, and is on track to reach the goal, management says.
The problem is that, in the last two years, revenue has already fallen by $147 million and Postmedia predicts more revenue losses in 2014.
The cost-cutting targets sounded ambitious 15 months ago. But the corporation is not even halfway through the exercise and the targets are turning out to be much less than is needed to to offset revenue losses.
That creates a worrying prospect of endless cuts as revenue losses continue, until there is nothing left. And, in the interim, of more falling revenues caused by cuts that hurt quality and service to readers and advertisers.
The plans to find new revenue - getting readers to pay more and increasing digital revenues - haven�t worked.
Since Postmedia took over Canwest�s newspaper assets in 2010, the corporation has been talking about �Digital First� strategies. But three years on, it hasn�t come up with an effective approach. (In fairness, almost no newspaper companies have.)
In the last two years, traditional print advertising and circulation revenues have fallen by $151 million, or 19 per cent
Digital revenues, a priority for the company, have risen by $4.2 million, or 4.8 per cent. They are roughly keeping pace with inflation, despite starting from a small base and the corporation�s big emphasis on �Digital First.� (In a conference call for analysts on the quarterly report, Driving.ca was touted as an example of digital product development. It was launched this month after almost a year or work, the company said. There is some slick customer-targeting work going on behind the scenes, but the site doesn't look particularly innovative.)
The results of paywalls, intended to get money from people to read the newspapers� websites, aren�t wildly encouraging.
It�s too early to judge, as paywalls were only introduced on a group-wide basis in May. Postmedia says it now has 120,000 people registered as website digital subscribers to its 10 dailies. But that includes print subscribers who registered for their free digital subscriptions, and the company didn�t reveal how many people are actually paying $10 a month to read the websites.
So what�s ahead? Cuts, of course, and well beyond the original �transformation� project launched last year. Real estate sales, which will give Postmedia some money to pay down its $489 million in debt.
And more of the same on the revenue side.
There are changes offering some promise. The Vancouver Sun has named newsroom �champions� for tablets, mobile, web and print. The notion is apparently that they will work on deciding what content belongs on each platform, and the best way of sharing it. It might be late, and it falls short of La Presse�s $40-million bet on tablets, but it�s good thinking.
But on balance, things don�t look good. If the revenue and expense lines stay on the same track they have been on for the last two years, Postmedia could have trouble coming up with the cash to pay interest on its debt by 2015 or 2106.
That�s not much time to fix things.
For now, the lenders who financed the papers� purchase appear to be happy receiving interest and required payments on the principal. About 60 per cent of the debt carries 12.5 per cent interest rates and the rest is at 8.25 per cent.
That could change quickly if the bad news keeps getting worse and those interest payments look to be at risk.
Footnote: I wrote a four-part series of blog posts on newspapers' problems and solutions earlier this year. Find them at Part One, Part Two, Part Three and Part Four.
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