Media groups forced to fix business model

You do not need to look at News Corp's local operations to realise the media sector is engaging in radical change to survive the cyclical and structural headwinds.

Even Seven West Media — with its market-leading free-to-air channel reporting record revenue share, and the West Australian newspaper defying the trend of steep print declines — is having to cut costs and drastically redefine its business away from a dependence on advertising revenue.

Seven West chief operating officer Rohan Lund says under a five-year plan the group will move away from the role of a traditional media company — which reaches mass audiences to sell advertising — to that of an "audience company" that will commercialise its audience and content.

One example Seven West cites is that of fashion magazine readers being able to buy the dress that interests them directly from the digital page rather than having the publication just act as a billboard.

Even troubled media group APN has articulated a strategy to use its print audience to drive digital opportunities, such as its daily deal site, GrabOne.

But cost-cutting is the other common backdrop for all the media companies. "There will be more costs to come out, that's part of the new reality," Mr Lund says, "but [we] also need to reset the model for growth."

The comments echo those of Fairfax Media chief executive Greg Hywood, who has made no secret of the necessary upheaval needed at the owner of The Sydney Morning Herald and The Age, despite the media group experiencing a golden age of readership thanks to its online offerings.

"We don't see any diminishing interest in what we do," Hywood told a Sydney audience this week. "The numbers just tell the story. We've never had circulation or the reach that we've got now.

"It's not an audience issue for media companies, it's how you make money that's the issue. That's why we're changing the business model, we have to change the cost base from a legacy business that ran off monopoly profits and determine exactly what the cost base should be."

Changing the cost base has included cutting about 20 per cent of the company's staff last year, which will help deliver $250 million worth of annual cost savings. More is expected from a recently announced reorganisation, which will merge corporate services across the Australian print group.

Fairfax is expected to introduce digital subscriptions for its metro mastheads around the middle of the year. The company has also articulated a strategy of developing digital businesses that will prosper on an audience reach of 9 million Australians every month.

But the evolution of the company will be far-reaching, and will eventually affect the editorial content that Fairfax produces.

"Big data will improve our audience insights and increasingly inform our content choices and revenue capabilities," Hywood told an audience in New York recently.

"The content mix and how it is sourced will change. There are value and volume drivers that will influence our editorial decisions."