Today’s major loss and writedown of mastheads and goodwill by Fairfax will make it more difficult for the company to resist the demands of major shareholder Gina Rinehart, say media experts.
Fairfax has posted a $2.7 billion loss, and made a large non-cash writedown of $2.8 billion on the value of its mastheads, goodwill, customer relationships and software.
The company has also seen a $140 million charge as a result of its redundancy program, with annualised cost savings of its “Fairfax of the Future” initiative amounting to $56 million, just the start of a cost reduction program that is expected to deliver benefits of $235 million by mid-2015.
“The pressure for them now is resisting Gina Rinehart,” said Andrea Carson, who is researching he future of broadsheet newspapers at the University of Melbourne.
“I’m sure she’ll come back wanting a seat on the a board. Looking at those figures and the future of the company it’s going to be very hard to reject her.”
Martin Hirst, Associate Professor of Journalism and Media at Deakin University agreed.
“To me the end game now for Fairfax is how long they can hold out from a hostile takeover? It makes way for someone like Gina Rinehart to fulfil their ambition to own the paper,” Professor Hirst said.
Revenue was down 6 per cent for the year at $2.3 billion, with early FY2013 revenues tracking down 10% below the prior year, a trend Ms Carson said was significant given the declines of previous years.
“On the face of it, it looks like what we all expected – it’s a company in a lot of trouble and it isn’t showing a strong long-term future.”
Professor Hirst said Fairfax will need to consider dropping some of its daily print editions, and have another look at its redundancy scheme.
Ms Carson said the issue of reduced print editions is likely to be discussed by the company’s management again after the delivery of this result. Fairfax has already announced plans to move its broadsheet newspapers The Age and The Sydney Morning Herald to “compact” editions in March next year.
“My personal view is I wouldn’t be surprised if they might skip that step and go to an online masthead Monday to Friday, with print editions on the weekends,” Ms Carson said.
She said other options for Fairfax include selling off some high-value assets to focus on its content and masthead businesses.
Fairfax has already sold down 15% of its New Zealand-based Trade Me business to help pay for its redundancy program.
Finola Burke, principal of Media Forecasters, said there will be increased pressure for a break-up of the company.
“They really do need tho think about breaking up the business and giving investors the chance to invest in those parts that are withstanding the downturn.”
Ms Burke said the advertising market remains in a cyclical downturn driven by consumer and business confidence, meaning it will be difficult for the sector to grow advertising revenue even in the 2013 financial year.
Digital profitability is also not as good as it used to be, Ms Burke said.
“For every dollar they’re losing on the main metro mastheads they’re only getting back 30 cents in metro digital.”
She added that Fairfax had done a lot to address unprofitable editions already, and that the company would be hoping to boost advertising ratios with the introduction of its compact print editions.
On the issue of Gina Rinehart’s request for two board seats, Ms Burke said the pressure point for board changes would be at the upcoming AGM in November.