Black and white and dead all over? Fairfax’s $2.7b loss suggests its future is far from rosy

Fairfax CEO Greg Hywood said that the company’s 6% decline in revenue was “disappointing” - with no expectations of recovery in the short term. AAP

Newspapers love a bold, standout headline. But not when it is about them and the news is bad.

Fairfax Media today announced its annual results with a whopping headline figure of a net loss after tax of $2.7 billion. But, as most of us know, there is always more to the story than the headline.

The media group’s underlying trading performance shows a profit of $205 million after tax. That might sound reasonable compared to the Qantas result today - which delivered its first loss - but a survey of past years’ results shows a steady downward decline. For example, compared to last year, revenues are down 6%. The year before they were down 1.8%. The year before that, the headline figure was not a loss in the billions - but a profit of $282 million.

CEO Greg Hywood described the decline as “disappointing” and says there is “no expectation of an early recovery” citing at least until mid-2015. He says trading conditions have been the worst that he has seen, at least since he entered the media business as a junior reporter in the 1970s.

To sum it up for Hywood: advertising is soft, the GFC has only recently passed but is still affecting advertising markets in Australia, and its New Zealand market is distracted by the Christchurch rebuild following last year’s earthquakes. Further, Fairfax’s radio assets took a loss because of the tumult of putting them on the market last year, only to then abandon the sale process.

Hywood says that a dinner date with Reserve Bank Governor Glenn Stevens told him what he didn’t want to know: that financial, real estate and discretionary spending markets are underperforming in Australia. In the words of Hywood, these are the areas of strength for Fairfax.

On the upside, Hywood points to the digital growth of Fairfax, up 20% on last year. This means it now accounts for 17% of the group’s total revenue. But analysts at the briefing questioned how the market could value the digital business accurately. Hywood would not break down digital revenues into digital and classified, or revenues from standalone digital assets.

But here is the biggest conundrum for Fairfax - and it was barely mentioned today. What is the future of its journalism - and how will it pay for it? Hywood may be right in talking up the growth forecasts for its dating site, RSVP, its local government tending site TenderLink, accommodation site Stayz and real estate and employment sites Domain and MyCareer, but what of the hundreds of journalists who will be terminated from Fairfax when the redundancy offer closes tomorrow afternoon?

The intangible loss of experienced reporters who will not be replaced in this new media environment will affect the newspapers’ content. Internal restructuring has already combined reporting responsibilities across the editorial floors. Readers are abandoning hardcopy subscriptions. This year circulations were down compared to last year, most notably at the Australian Financial Review.

Hywood calls it a bold strategy to manage the circulation falls of 15%. Indeed it is. But the fact is that the main revenue for Fairfax still comes from its traditional print businesses, and the strength of its regional publications. He also hints that the tabloid switch may be a transitional step. “We will preserve the metro media print product for just as long as it is profitable, providing our growing news digital business with time to mature.”

With fewer journalists and more content sharing across the metropolitan newspapers, what will be the consequences for the depth in news reporting? The reduced number of journalists who remain at Fairfax will be working hard to meet varying deadlines across the day to service the breadth of digital and print platforms. There will be little time for coffee with contacts.

But there is another unknown, and that is about the style and tone of Fairfax’s publications when the Sydney Morning Herald and The Age break their 160-year plus traditions and convert to tabloid next year. Hywood avoids the word tabloid, preferring “contemporary”. My latest research into investigative journalism over seven decades suggests size does change the style of content of general newspapers, although less so with financial publications. The historic evidence shows that two thirds of print investigative journalism that wins Walkley awards in Australia has come from broadsheets. This is an important and significant contribution to the public sphere of information. This type of journalism holds those with power to account on behalf of all of us.

When some Australian broadsheets have converted to tabloid, as happened with The Courier-Mail in 2006 and the Adelaide Advertiser in the late 1990s, their award-winning contributions to investigative journalism faded away. This is not to say that tabloids do not do great reporting - many do - but it is less often investigative.

The other significant change to Fairfax next year is that it will lock some content behind a digital paywall. Hywood repeated many times today that Fairfax was the company with the largest news audience in this country: “Other companies might sell more newspapers, but we have the largest total news audience.” When the journalism is no longer free online, will he still be able to make the boast? More importantly - for future digital revenue growth - will advertisers be satisfied that enough of their target audience is looking when Fairfax readers are charged to view some of its online news?

You only need to look at last year’s readjustments to the AFR paywall and its lacklustre results today (circulation down, advertising down and the uptake of the new iPad app about 15,000 a month) to see that this is a real problem. Not just for Fairfax, but all commercial media organisations. Fairfax, like many newspaper groups in America, Britain and the developed world, is grappling with using digital solutions to prop up falling revenues. The question is: while non-commercial outlets such as the Australian Broadcasting Corporation are providing news for free, who is going to pay for it?