Thursday, April 10, 2014

How much longer does Postmedia have?

I’m rooting for Postmedia. But the latest quarterly results released Thursday don’t offer much hope for the future of the corporation.
Since the company took over the assets of Canwest in 2010, it has gone from weakness to weakness. The problems aren’t unique to Postmedia, of course. Newspapers and other traditional media are being hammered by a loss of audience and advertising revenues.
Postmedia was slow to accept that reality. And its response has been inadequate.
Basically, the corporate strategy is to cut costs, increase digital revenue and try to get readers to pay more for content, whether it's delivered by print, online or through mobile devices.
But it’s not working.
In the latest report, revenues are down 9.1 per cent for the quarter. That follows declines of 9.6 per cent for the 2013 fiscal year and 7.4 per cent for 2012. 
Since Dec. 1, 2011, revenue has fallen by $181 million.
The company launched a three-year cost-cutting program in July 2012, and reports it has found $98 million in annualized savings. That’s not nearly enough given the revenue drop. But deeper cuts will reduce quality and service and lead to more revenue losses, a vicious cycle that usually ends badly.
The plan to boost digital revenue has flopped. Digital revenue was down in the quarter.
The effort to get people to pay more for content is likewise stalled. Circulation is down more than 11 per cent compared to a year earlier, and price increases have not been enough to increase revenue.
And people have proved reluctant to pay for online content, despite the introduction of paywalls. 
Postmedia claims 140,000 registered online users, but won’t say how many are paying customers and how many are print subscribers who registered for free access.
In any case, only 5,000 new people signed on in the last quarter, or about 500 per paper over the three-month period. That’s not enough.
Postmedia is hoping that a planned relaunch of the print products and new tablet and smartphone subscription options will turn things around, or at least give management some breathing room. 
If they don’t, the corporation’s future is grim. Based on the current trends, Postmedia is a year or two away from facing major problems in coming up with the cash flow to make the required interest and principal payments on its debt. Asset sales might buy a little more time, but they don't change the fundamentals.


Anonymous said...

How are Black Press Glacier doing? Are they headed for the same trip over the cliff, albeit slower, or are they doing better than the bigs? As well, what's the state of the union with the parent companies of Metro and 24 Hours?

paul said...

Hard to tell about Black Press, since it's a private company and doesn't report results. Torstar owns 20%, and based on its annual report Black Press had net income of about $23 million, up from $16 million the year before.
Glacier is also a rough read, because chunk of revenue and about half profits come from information publishing, not newspapers, and they don't report the financial results separately.
Newspapers in smaller, cohesive communities, with lower wages and operating costs, have a better future than most large urban dailies.

Anonymous said...

Customers have begun to question the product.

Choice wins dinosaurs lose.

They could try negative billing I suppose.

Ron S. said...

Couldn't happen to a better group. Hopefully Black Press will follow suit.

Anonymous said...

You're saying it'll be all over in a year or two, maybe a little longer with asset sales. Smartphone and tablet stuff seems gimmicky and a year or two is a lifetime for fads.

Is the future small-town news compiled for mobile devices?

paul said...

Anonymous 8:36:
I don't think it will be all over in a year or two. That comment referred to Postmedia's challenges in dealing with its debt. But based on the current trend lines, the future looks grim.
Smartphones and tablets will evolve, but the use of mobile devices to access information will last. The challenge is to figure out what kind of information people want, and in what firm, and how to get them to pay for it.
Small towns are better news markets because people have shared interests - is the local school having problems, where is the traffic backing up. Large urban centres lack a common news interest.

Anonymous said...

The economics of the press

"...economist Matthew Gentzkow, of the University of Chicago. Mr Gentzkow was recently named the latest winner of the John Bates Clark medal, given each year to a top American economist under the age of 40. He earned the honour by turning the tools of economic analysis on the news business, with fascinating results:

As Mr Gentzkow points out in recent research, newspapers’ woes are not due entirely to readers’ defection to free alternatives online. Time spent reading newspapers did indeed fall by half between 1980 and 2012, but most of the drop came before 2000, while the web was in its infancy. From 2008 to 2012, as time spent on the web as a whole soared, time spent reading newspapers fell much more slowly. Enchanting cat videos, in short, do not seem to have crowded out much news consumption."

Norm Farrell said...

An extract from an internal report on the digital challenges of the New York Times, co-ordinated by Arthur Gregg Sulzberger, son of the paper’s publisher:

“They are ahead of us in building impressive support systems for digital journalists, and that gap will grow unless we quickly improve our capabilities. Meanwhile, our journalism advantage is shrinking as more of these upstarts expand their newsrooms. We are not moving with enough urgency.”

I suspect an honest analysis at Postmedia would yield a similar comment.