Another bad quarter for Postmedia, and a plan that's not working

The latest grim quarterly report from Postmedia sharpens questions about the company�s future.

Continuing declines in revenue and circulation are too great to be solved by the company�s current approach.

The corporate strategy is straightforward. Cut costs, find ways to get readers to pay more, in part through innovations like tablet editions, and convince advertisers that they should pay more for more effective ads.

It might work, if revenue was not continuing to vanish at such an amazing rate. 

Revenue fell 8.4 per cent compared to the same quarter a year earlier, or $17.7 million. Print revenue - the largest category - was down 12.2 per cent.

Revenues have been eroding for two years - down 7.4 per cent in the 2012 fiscal year and 9.6 per cent in the 2013 year. Print revenues were down 10.3 per cent and 13.4 per cent in the same two years.

Based on the first quarter results of this fiscal year, which ended last Nov. 30, the decline isn�t slowing in any significant way.

That highlights the problems with Postmedia�s strategy.

Cost-cutting can only work if revenues, at some point, stabilize. Otherwise, it�s an endless process of cuts that weaken the quality of the products and services and lead to more revenue losses and more cuts.

In the quarter, Postmedia revenue dropped $17.7 million, but its operating expenses, despite the major cost-cutting initiative and falling circulation, were only reduced by $13.7 million.

The corporation launched its cost-cutting �Transformation Program� in July 2012, with a target of $102 million to $135 million in annualized savings within three years.

But since Dec. 1, 2011, revenue has fallen by $165 million. The expense-reduction program goals are far short of what�s needed. And the gap looks to keep growing.

New revenue generation initiatives haven�t worked either. Postmedia was enthusiastic about increasing digital revenues for a while, but they actually fell 5.1 per cent in the quarter.

And the plans to increase the number of people reading and paying for digital products have been slow to show results. Postmedia said 135,000 people have registered to access the newspaper websites, now paywall protected. But it won�t say how many are paying customers and how many receive free access as subscribers. Digital circulation revenue is up only $300,000 over a year earlier, a suggestion that few new paying customers are signing up.

And at the same time, print circulation was down 13.4 per cent over the previous year. Price increases offset the loss in customers, but prices can�t keep rising indefinitely.

It�s another grim quarter. Postmedia needed to show that the revenue declines were at least slowing significantly. That would have given hope.

As it is, unless the corporation comes up with a more effective, bolder strategy, and a much faster rollout, the future looks bleak.

(For earlier posts on Postmedia, see here and here.)