Fairfax to discuss charging for online news

BY CHRIS ZAPPONE

Fairfax Media is open to forming an agreement with rival News Ltd in an effort to get readers to pay for online content, Fairfax chief Brian McCarthy said.

Mr McCarthy's comments come as Fairfax - which owns Stuff.co.nz - posted a net loss of A$380 million in the year to the end of June, with earnings hurt by impairment charges and lower revenue. The company, publisher of this website, said it is confronting an ''unprecedented'' slowdown in ad revenues while addressing the structural shifts to the media industry.

"We're looking at all of our options at the moment," said Mr McCarthy, noting media-magnate Rupert Murdoch's plans to begin charging online readers of News' newspapers within the current business year.

"It's certainly something we would be open-minded to at this stage,'' Mr McCarthy said. ''If (News Ltd chairman and CEO) John Hartigan were to ring me, I'd have a chat and we'd look at it."

However, Mr McCarthy warned that because Fairfax and News are competitors any agreement would have to be subject to the Australian Competition and Consumer Commission. Media companies around the world have been battered by the economic downturn's impact on advertising, a slump exacerbated by the Internet's rise, disrupting  their traditional business models.

Mr McCarthy's comments come as News Corp's chief digital officer Jonathan Miller is believed to have met with representatives from the New York Times, the Washington Post, Hearst Corporation and the Tribune Company to discuss charging for online access to news sites, according to a report at the end of last week on the Los Angeles Times website.

Swinging to loss

Fairfax posted a net loss for the year to June 30, which included A$664.3 million in significant items, A$513 million of which related to a reduction in the carrying value of its newspaper mastheads and goodwill.

The full-year net loss reversed a A$386.9 million profit in the previous year.

Shares soared in morning trading, gaining as much as 7 cents, or 5 per cent, to $1.48, or about twice the overall market's gain.

Earnings before interest, tax, depreciation and amortisation, a common measure of company profits, dropped 27.2 per cent to A$605 million from $831.2 million last year, Fairfax said, just above the market consensus estimate of $602 million.

Revenue for the financial year was A$2.6 billion, 10.6 per cent lower than the previous year.

''Among the challenges we've faced have been reshaping Fairfax for the future at the same time as dealing with depressed advertising markets,'' Mr McCarthy said. ''The emerging company will be a stronger force in the market place.''

The company also scrapped its final dividend, ''in view of the economic environment.''

''Trading results for the first seven weeks of the new financial year indicate that the decline in advertising revenues appears to have bottomed but a material recovery in advertising demand has not yet commenced,'' Fairfax said in a statement.

''Influential factors on performance in the year ahead will be lower interest charges, a lower cost base, a team approach to entrenching Fairfax brands, and online businesses that will improve further as business conditions recover,'' the statement said.

Share rally

Wiseowl.com equities analyst Tim Morris said the price of Fairfax stock has run ''pretty hard'' with cyclical stocks. ''There is somewhat of a recovery being priced in.''

The company's stock rose from 83 cents on March 12, rising to $1.11 on July 13 and as high as $1.53 on August 11.

Fairfax's result ''just confirms that in the advertising market the worst does appear to be behind,'' he said.

''As the general share market seems to be suggesting in recent months, investor periscopes are now set on the trajectory of a recovery.''

Industry in transition

The loss for Fairfax comes as the global media sector grapples with a slowdown in ad sales and a painful transition from a print-based media market to online distribution, where consumers have grown accustomed to free access to news.

''All publishing operations suffered from lower advertising revenue and EBIDTA,'' Fairfax said, noting, however, that regional, community and specialist publications haven't been affected as much as metropolitan publishing.

Fairfax's Sydney and Melbourne metropolitan publications saw a 46 per cent drop in EBITDA compared to last year, to $96.9 million, while regional and community publications EBITDA dropped 16 per cent to $174.9 million.

''Newspapers were always going to go down,'' said RBS Equities analyst Fraser McLeish. ''They were better than we expected.''

The company's printing division posted an 18.7 per cent drop in EBITDA to $58.1 million, while online EBITDA was down 0.8 per cent to $108.7 million.

''Online is a bit disappointing given that revenues in EBDITA went down slightly in the second half,'' said Mr McLeish.

The speed of the economic slowdown, cuts to discretionary advertising and the challenges presented to online media were the major impacts on the company's operations in 2008/09, Fairfax said.

A $624 million capital raising earlier in 2009 helped reduce Fairfax's net borrowings to $1.78 billion, it said.

Fairfax also publishes The Age, Sydney Morning Herald and the Australian Financial Review.

Trade Me

Of the companies eight divisions, only two generated higher revenues.

Online increased 6.4 per cent in the year to $262.7 million, while EBITDA slid backwards by 0.8 per cent to $108.7 million.

Fairfax's online result was aided by New Zealand auction and classified site Trade Me, which shrugged off the slumping local economy to increase both revenues and EBITDA for the year.

Trade Me continued to gain market share enjoying growth across all revenue categories. The company saw revenues increased 16.2 per cent for the year, while EBITDA rose 11.5 per cent.

Fairfax Radio Network was the other stand-out division, with revenues up 37.7 per cent for the year to $112.1 million, while EBITDA gained 31.4 per cent to $25.9 million.

Fairfax is the publisher of Stuff.co.nz.

with AAP, Reuters

 

 

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