Markets: Smaller and smaller print

Magazine and newspaper publisher APN News & Media (APN) APN reported this morning, showing a modest increase in revenue. But revenues from newspapers were down, with the saving grace coming from group buying business GrabOne and online shopping website brandsExclusive. Radio and outdoor advertising played a supporting role.

This is in contrast to last year when media companies reported – it was an absolute nightmare for both companies and investors. Between APN News & Media (APN) and Fairfax Media (FXJ), more than $3.2 billion in assets was written down as the companies began to accept print media was no longer as profitable as it once was.

To add to these numbers this year, it is tipped News Corp will write down $1.2-$1.4 billion of publishing assets split between Australia and the US.

Traditional print media has faced tough competition from what has been, up until recently, free news online. The media landscape is changing to meet the digital desires of end-users, but profitability is being squashed as publishers continue to struggle with ways to charge for this.

For APN, it experienced a revenue decline of 14 per cent for Australian Regional Media and 8 per cent across New Zealand.

None of this is surprising. Audit Bureau of Circulations data from May shows newspaper circulation in Australia was down more than 9 per cent, year-on-year. When you can read the news for free on your smartphone during the morning commute, why battle an actual newspaper?

Cost savings measures taken in the past 12 months will still be working through respective businesses. All it means for this reporting season is less is chopped from the bottom line, but savings do nothing to contribute to future growth. Or solve companies' digital dilemma. 

Responding to the poor news last year, investors sent APN down over 15 per cent. Fairfax came out worse, ending up more than 20 per cent down after reporting.

It has been tough ever since for both companies, with APN having fallen further. Fairfax has just edged back, but couldn’t maintain share price strength.

Source: Bloomberg

In early May APN updated the market that revenue for the first quarter had declined and that it had undertaken cost saving measures to even this out. Net profit for the first half year is now up $1 million to $16.2 million. The market has responded well, pushing APN up more than 20 per cent in trade today.

The half-year report should give APN’s share price some support for the immediate future, but what will be key for it will be turning around declining revenue growth in print media.

Traditional print pillar, Fairfax Media (FXJ) still generates around 70 per cent of its revenues from print media. Not surprisingly, they have guided the market to expect revenue growth to be around 10 per cent lower this year. Digital offerings, Domain and Stayz, will be helping their earnings along when they report next week.

Fairfax have spent time talking about how they are going to turn the company around, but nearly 20 per cent of the register are betting they can’t do it, taking short positions. They are banking on a share price fall.

After the horror of last year, any number will look better. But their fate will be in further writedowns and top line revenue.

The graph below shows 10 years of price change movements. APN and Fairfax, the bottom two lines, indicate they are flat lining. Share prices have continued a steady fall since 2010 despite the rest of the market and economy experiencing growth.

Source: Bloomberg

It is going to take more time than that already invested to get back to earnings growth. The question is now working out a model to charge readers to get their daily news hit on their mobile device so as to bring back profit growth. Digital sales are slowly increasing but they aren’t as profitable as traditional print posing another problem in an already long line for publishers.

For APN the half-year numbers aren’t too bad – they are down the lower end of analyst estimates but no shocking news was disclosed. This should give APN’s share price some support for the immediate future, but key will be turning around declining revenue growth in print media.

Wanting to survive in the digital age is going to require traditional print media companies to find the right metrics of advertising pricing versus subscription charges. Publishers are aware of the problems facing them, but having a plan and the ability to execute this is central to ongoing survival and investor confidence.

For traditional print media, it is about updating business models and offerings to be reflective of the current environment. No one wants to end up like Kodak.