Shrink wrap tightens around Fairfax papers

Fairfax’s latest restructure should enable significant cost reductions but may also blur its mastheads' identities. And it’s not the last hard decision Greg Hywood will have to make.

Fairfax Media’s latest restructuring – at least the third of Greg Hywood’s period as chief executive – is a signal that the pressures on the group’s shrunken revenue base are intensifying.

While presented as a move to simplify the group’s structure and to drive revenue and efficiency the restructuring, like its predecessors, appears to be largely about creating the potential for another acceleration of the group’s cost-cutting.

Only last June Hywood unveiled a dramatic restructuring of the struggling media group aimed at slashing $235 million (later upgraded to $251 million) from its cost base by mid-2015, at a cost of 1900 jobs and including the conversion of the broadsheet metropolitan papers to tabloids, a shift to regional presses next year and the erection of paywalls around the metro’s online mastheads.

Since then, however, the advertising environment for all media has continued to deteriorate and with rumblings within Fairfax that the group was falling behind in its schedule for cost reductions the inexorable pressure on Hywood to keep carving into costs can only have increased. That appears to be the way the sharemarket interpreted the announcement, with the shares falling on the news.

The major change in the group’s structure revealed today – and one that should create an opportunity for another big round of cost and job reductions – is to effectively merge all the group’s publishing businesses into a single division.

Australian Publishing Media will contain the metros, the Financial Review Group, the regional and agricultural mastheads and Fairfax’s NSW community papers. In effect Fairfax is pooling all the resources that support those mastheads – editorial, sales, marketing and management functions.

That ought to create the potential for substantial job losses and cost reductions across every aspect of the group’s publishing businesses and is a logical, if tricky, extension of a consolidation strategy that has seen the group’s production, distribution and support functions progressively centralised.

The merging of the editorial functions will include the creation of four functional streams – news, business, lifestyle and community media – which will enable cross-masthead sharing of resources. The potential to blur the identities of the individual mastheads means the day-to-day management of that pooling of editorial copy will be a delicate and quite complex issue.

The group’s property brand, Domain, is going to be brought next to the Metro Media joint venture with Anthony Catalano while Fairfax’s  “Marketplaces” division is being discontinued, with the group’s digital transaction businesses being operated on a standalone basis in future with “greater autonomy and accountability”.

It is unclear how that fits with Hywood’s strategy of monetising Fairfax’s digital audiences – now about two-thirds of its total audience – by driving its viewers towards its own digital transaction businesses like Stayz and RSVP. It would appear the new digital transactions strategy is to distance those businesses from the mastheads and to build a portfolio of independent digital businesses rather than try to leverage them off the mastheads.

It perhaps isn’t surprising that the architect of the group’s digital strategy, and the big winner from last year’s restructuring, Jack Matthews, is leaving the group, apparently by mutual agreement. The winner from this restructuring is Allen Williams, chief executive of Fairfax’s New Zealand business, who has been appointed managing director of the new and enlarged Australian publishing unit.

While the continual restructuring of the group, and the down-sizing of its workforce, would inevitably be destabilising and demoralising, it is unclear what other options, if any, Hywood has.

With his traditional revenues dwindling as a result of both structural and cyclical factors and his audiences shifting into the low-yielding online environment, he has to at least try to create a cost base better aligned to those lower revenues while looking to paywall-driven subscription revenue and digital transactions revenue to supplement the much-diminished traditional advertising income and stabilise the group.

The next big decision will come when the printing of the metros moves to the regional presses and the Chullora and Tullamarine plants are shut down and sold. At that point Hywood will have to confront the decision as to whether to continue printing the loss-making Monday-to-Friday papers or to shut them down and move to a digital-only presence outside the weekends. It appears a forgone, albeit very painful, conclusion.

InvestSMART FORUM: Come and meet the team

We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.

Want access to our latest research and new buy ideas?

Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.

Sign up for free

Related Articles