Fairfax urges investors to join its new-age transformation

In many ways listed media businesses have displayed many characteristics of - and been treated by investors similarly to - retail stocks. Until a few weeks ago, the market was factoring in a meaningful cyclical recovery that has not emerged.

Results from David Jones and Myer over the past couple of weeks have been telling a similar story - consumers are cautious. And so is the advertising market.

Both these industries are structurally challenged - the print media market more so than its television cousins or retail.

Fairfax boss Greg Hywood had the unpleasant task on Thursday of telling investors the half-year to June 30 didn't look flash, while revealing revenue was off about 10 per cent and profit before interest depreciation and amortisation would come in at $129 million to $135 million, compared with expectations of about $140 million and above.

For analysts the biggest surprise was the forecast 11 per cent decline in regional newspapers, which have traditionally been relatively bullet-proof. The share price took a 2 per cent hit but it could have been worse. There is not a lot Hywood can do about the advertising market, so his briefing to investors was an update on how the company has progressed remaking itself into a new-age media company.

His job is to convince investors - most of whom have a short-term focus on profits - to take a ride on his structural transformation journey. The trouble is he has to convince them there will be a reward when they get there - but he can't guarantee that. All he can do is outline the rate of decline in the metropolitan print businesses and the rate of costs taken out of the business, plus give them a taste of what Fairfax is doing to find new sources of revenue.

Fairfax ratcheted up its cost savings target for the third time in a year, adding another $60 million to its previous tally of $250 million, while suggesting there is more in store as the 431 publications and 337 websites it produces will be sifted through and rationalised.

This additional $60 million, which will come out by September, cannot just be added on to the profit line, as the extent of the revenue decline over the next year is unknown. But it does serve to mitigate the revenue falls.

Among the eyebrow-raising bits of news was the imminent imposition of a metered model (or subscription fee) on its metropolitan mastheads, The Sydney Morning Herald and The Age.

The reality is the subscription model is not quite as radical as it appears. Readers get 30 stories a month free before they have to open their wallets. Its a well-worn model that has been used successfully by newspapers around the world including The New York Times.

The growth in penetration and sales of digital real estate business Domain was the intel that most investors were focused on. The potential for a sale or spin-off has been enticing investors for a while.

Domain's revenue for the first half of the 2013 financial year was $66.3 million and EBITDA was $22.1 million. While this was a little lower than the previous corresponding period, as print revenues declined, most of this slack was taken up by digital revenue and profit. Sales in the second half of 2013 were up 16 per cent on successful migration of print revenues to digital. Most importantly, analysts can now put a value on Domain.