Fairfax Media holds steady on digital strategy

Have the darkest days passed for Fairfax Media? AAP/Paul Miller

The somewhat surprising departure of The Age’s editor-in-chief, Andrew Holden, the unveiling of further editorial restructures and news of 70 sub-editor redundancies in New Zealand, were significant lead-up events for the company’s half year financial results.

All reinforce the company message that Fairfax is a media company continuing to undergo a major transition from print to digital. But as usual with media companies, there is light and shade.

Fairfax Media reported a net profit after tax of A$27.4 million for the half-year to December 2015. This figure lifts to A$79.8 million excluding significant items, which is down 2.2% on the same period last year.

Fairfax’s total revenue was A$958.1 million, a 1.6% increase from the prior corresponding period.

In remarks to journalists following an analyst briefing, chief executive Greg Hywood emphasised the company was seeing growth in the “right parts”.

“Our strategy of confronting the change occurring in the media industry head on underpins this result,” Mr Hywood said.

The “winners” in the group were Fairfax’s radio assets (which were nearly sold off a few years ago) and its real estate division, Domain. Both Hywood and chief financial officer, David Housego trumpeted Domain.com’s growth of 38% with total revenue posted at A$153.9m up 62.8%; an after tax result (EBITDA ) of A$65.7m, up from A$37.8m. While still significantly behind its main competitor, REA Group (which publishes realestate.com.au), Domain has almost halved the gap in 10 months.

Also on this list, but coming off a much lower base, is Fairfax’s digital ventures segment, which includes the newcomer television and movie streaming site co-venture, Stan, and Australian edition of the Huffington Post, with this segment’s total revenues up 22%.

In contrast, the continuing “losers” included Fairfax’s metro print newspapers with a 15% fall in advertising revenues and a modest fall in print circulation. The company’s revenues from its Australian Community Media portfolio, which includes its regional newspapers, also fell sharply, down 20%, in the half year to $45 EBITDA.

However, identifying the real strengths and weaknesses of the business is made more difficult because its Metropolitan Media segment division includes both its daily print newspapers and its digital property asset Domain.

The disappointing results for the print sections of the media business follow its editorial shake-up of the metro operations across its major daily mastheads, which include The Age, Sydney Morning Herald and the Australian Financial Review.

The new structure was described by the company as emulating the Wall Street Journal and Daily Telegraph of London; but there has been concern about the implications of stories no longer being commissioned for print and the increasing level of story sharing among outlets.

(In a symbolic sign of what might be another step towards more sharing of stories between the capital city dailies, Fairfax’s Canberra bureaus physically converged last month after knocking down the wall separating the Sydney Morning Herald and The Age federal press corps.)

In the Australian news media market, which is already characterised by high concentration of ownership compared to other developed democracies, further shrinking of the pool of news topics - especially about politics - is a worrying concern.

The commonplace counter argument is that nascent digital news sites such as The Guardian and BuzzFeed negate these shrinking effects. This optimistic viewpoint is less reassuring when we consider how few journalists are employed in these digital newsrooms compared to the traditional employers of journalists: Fairfax, News Corp and the ABC.

In the past three-and-a-half years Australia’s biggest newsrooms have suffered significant staff and resource cutbacks. Fairfax and News Corp made redundant more than 2000 staff in June 2012 between them, and the ABC lost 10% of its workforce, about 400 staff, following federal budget cuts in 2014.

Further, many small digital news sites do not produce original journalism but merely repackage stories originating from the traditional, larger media outlets.

Out of today’s results, what is likely to please Fairfax management is that their strategy to transform the newspaper company from print to digital has not lost momentum; metro media digital subscriptions revenue increased by 14%.

However, given that digital subscriptions tend to cannibalise the more expensive print option as readers swap from hardcopy to digital, this increase alone will not be enough to offset the haemorrhaging costs of running a media company that still bears the expensive burden of printing newspapers.

Fairfax’s main rival News Corporation also shares this conundrum. Cost cutting is imminent at the Murdoch-owned Australian and British newspapers following the company’s dismal second quarter results for its print media operations earlier this month.

Compared to the same period of the previous financial year News Corps’ first half earnings released on 4 February fell 18.5% from US$546 million to US$445 million.

News Corp chief executive Robert Thomson singled out the daily Australian mastheads, which include the Australian, the Daily Telegraph and the Herald Sun, as prime targets for cost savings: “For our Australian mastheads, it was clearly a difficult quarter in advertising and to that extend we’ve clearly embarked on a cost-cutting program,” he said.

This might explain the Australian’s “exclusive” story on Monday about Fairfax’s “woes”. The regurgitation of the leaked three-year-old Bain&Co consultancy report appeared to be of little news worth other than as a smokescreen for the cuts that Thomson stated will be taking place in News Corp’s Australian print operations.

The truth is neither Fairfax nor News Corp have escaped the reality that off-site printing, transporting and delivering of print newspapers to suburban doorsteps each day is chewing up vast wads of cash. It is only a matter of time before these media companies decide it is no longer worth the time and effort.

Judging by today’s financial figures, the decision to end Monday to Friday hardcopy newspapers is likely to come sooner for Fairfax mastheads than for News Corp.