The bad news continues about the newspaper sector of the Australian and NZ media: it’s glum and there’s not much future to be seen.
Two of Australia’s major newspaper groups, Fairfax Media and APN News and Media yesterday have warned investors to expect lower profits this half and for the year to June (and for calendar 2011 in the case of APN).
Fairfax’s still solidly performing digital business can’t arrest the downward pressure on profits from the slump in newspaper ads and higher costs.
There’s not enough revenue and earnings for digital advertising and various on line applications make up for the loss of revenue and profits from the newspaper business in Australia and NZ.
It is a similar story in the US with the New York Times, McClatchy, a big national media group and the biggest newspaper group of all in the US, Gannett, all reporting sharp falls in their newspaper ad revenues in the March quarter which swamped higher contributions from either TV or online businesses.
From what the company and Mr Hywood said in the statement yesterday, it looks like the wagons are being circled for a final defence of the newspapers.
As a former journalist, editor and publisher, Hywood is about to be forced into the toughest decision of his career so far at the helm of Fairfax, another round of outsourcing (of the sub editing process) and big job losses, to protect the reporting side of the papers.
For APN it’s also a wake up call that being a virtual monopoly in parts of Australia and NZ provides no protection when times are tough in parts of the wider economy that impact its core business of newspapers.
The company is probably a bit better placed than Fairfax as it has had two major one offs to confront: The impact of the two Christchurch quakes on the NZ economy and the floods in central and southern Queensland.
The NZ economy and the quakes have also hurt Fairfax, especially in Christchurch.
No company’s bottom line could be protected against such large and dramatic one off events, but the problems in Australian newspapers for Fairfax look terminal unless something drastic is done. And that’s what seems to be the bottom line of yesterday’s announcement.
Given these warnings about earnings from Fairfax and APN, all eyes will be on the News Corp results tonight night when the Rupert Murdoch-controlled group will provide brief and not very substantial information on how the country’s biggest newspaper chain went in the March quarter and what the outlook is.
The betting is that the sharp fall in the US dollar in the March quarter against the Aussie will disguise a weak result.
Fairfax warned yesterday in a statement to the stock exchange that warned that its revenue has fallen and revised its profit outlook for the financial year, saying it expects market conditions to remain subdued.
Fairfax also said it would outsource its subeditor work in favour of expanding its reporting staff in a part of strategic refocus that will involve "some pain" (i.e. job losses).
Fairfax shares fell 10.5c or 8% to $1.205 at the close yesterday.
In its statement, Fairfax said its second-half revenue to date was down 4.5% from a year ago, while costs for the period were up 1%.
The company blamed weak advertising markets in Australia and New Zealand for the outlook cut.
Earnings before interest and depreciation (EBITDA) will be $600 million before items in the 2011 financial year.
EBITDA in the 2010 financial year was $639 million, up 7% on the previous year.
So in effect, the result will be back to the depressed 2009 level when the company was very much closer to the edge as the GFC battered markets and economies here and around the world.
The company will also take a redundancy charge of $25 million for the financial year, further cutting the bottom line.
And it was a similar story from APN, except the overlay of the Queensland flood factor and the NZ quakes. The company told AGM that.
"Despite some improvement in Queensland, earnings are still being impacted by the repercussions of the earthquake on an already weak New Zealand economy coupled with an extremely strong Australian Dollar. As a result, it is now expected that the first half EBIT will be below last year by $15m-$20m.
"In response, APN has commenced a round of restructuring initiatives in our publishing operations,” APN shareholders were told.
But the meeting was also told the that the outdoor and radio businesses "continue to trade ahead of the prior year."
"Notwithstanding such a difficult start to 2011, APN’s trading is anticipated to improve in the second half, although it is not expected that the full year result will match APN’s 2010 earnings.
"This return to positive earnings momentum will ensure the continuity of dividends and most importantly, enable the pursuit of growth-orientated initiatives."
Like Fairfax, APN has a new CEO in Brett Chenoweth, so he has had a tough introduction to life at the top of a modern media company.
APN shares fell 9c or 5.7% to $1.49.
In a statement emailed to all Fairfax staff yesterday and then released to the market Mr Hywood, said the company will immediately recruit more reporters, expand its trainee programs, while shifting sub-editing work to the Australian Associated Press s
