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.

Wednesday, April 09, 2014

Three numbers that will tell the tale for Postmedia

Postmedia will releases its latest quarterly results Thursday.
Here are three numbers that will tell if the company is making any progress toward a viable future.
Revenue: The amount of money the company takes in has been plunging since Paul Godfrey and hedge funds bought Canwest’s assets. Nothing can save the company unless the freefall is arrested. 
Revenue will still be lower than the previous year, but unless the rate of decline slows to five per cent or lower, there is little hope.
Digital revenue: Postmedia’s digital strategies have fizzled, and managers have come and gone. The company needs to show some sort of digital revenue growth - at least four per cent.
Digital subscribers: A key element of the corporation’s strategy is getting readers to pay more for the content. It hopes tablet editions will help, but the current indicator is digital subscribers. Last quarter, Postmedia said 135,000 people have registered for access to newspaper websites. But it refuses to say how many are paying customers, and how many are subscribers registering for free access.
If the strategy is working, that number should increase to at least 150,000.
The quarterly will present information on cost-cutting and restructuring. But revenue losses - 17 per cent in the last two fiscal years - have far outstripped expense reductions. 
Unless the company can find a way at least to slow the loss of revenue, its future is bleak.