Fairfax: Two charts, one message

Two charts explain why Fairfax's business has been headed in the wrong direction.

Everyone knows newspaper businesses are struggling. Here are two charts that explain why.

Chart 1 details US print newspaper advertising revenue (US$, inflation adjusted). In the early 2000s steady growth was replaced by free-fall as the internet started to offer new, cheaper, and more measurable ways to reach audiences.

In 2011 revenues will be around levels not seen since the 1950s. And there’s no sign of the decline stopping.

The situation is similar here in Australia. No wonder Fairfax is struggling.

The profitable parts of the newspaper business—selling classified ads—have been carved off into separate businesses such as REA Group and Carsales.com.

Fairfax has certainly tried to put up a fight and its own drive.com.au, MyCareer.com.au and domain.com.au all do a reasonable job, but are not industry leaders.

Without the burden of having to produce content these websites are vastly more profitable.

In Chart 2 Fairfax’s majority owned TradeMe, NZ’s eBay, makes the point nicely. It generates nearly a quarter as much (22%) EBIT as Fairfax’s whole publishing business (which includes the higher margin digital businesses) from only 5% of the revenue.

The media business has changed forever due to this decoupling. Large, expensive mastheads cannot survive in their current form and the current ‘death by thousand cuts’ solution won’t work.

In a following post I’ll reveal my top 5 changes Fairfax needs to make, but in the meantime I’d like to hear what you think.

If you were Greg Hywood (Fairfax’s Chief Executive) what would you do?

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