Fairfax can’t survive on digital

Many of this paper’s readers said they had ditched their Fairfax subscriptions.

Feedback about last week’s column on the future of the Fairfax print products included comments from this paper’s readers, many of whom said they had ditched their Fairfax subscriptions, and from former senior editors and writers within Fairfax, many of whom feared the piece was right about their company’s future.

As would be expected, Fairfax’s corporate lapdogs barked up a storm of protest last week and Crikey took the “look over there” approach, preferring to focus on News Corp’s challenges and ­ignore questions about Fairfax.

Yet we know for certain Fairfax is looking at closing its Monday to Friday editions of the Sydney Morning Herald and The Age. Many former Fairfax editors believe the mastheads will lose their voice in national affairs if ­reduced to web-only news Monday to Friday.

One former long-term daily editor told me last week: “It will be very difficult to be any more than Morry Schwartz’s Saturday Paper without the Monday to Friday paper. The space it will no longer occupy in national and state journalism will be enormous.”

Another who had been a long time daily editor and had held group positions said the one newsroom concept had been a dreadful mistake, corrupting the relationship between individual titles and their readers.

A senior writer still working at Fairfax said: “The issue really is that every editorial decision appears to be driven by cost management and opaque, short-term financial targets rather than any attempts to fabricate a better media business.

“For want of wit, self-confidence or basic intuition Fairfax has lost the opportunity to be ­relevant to any of its audiences, mainstream or otherwise.”

My point last week about the possibility of rebuilding print business models without just cutting costs year after year is highlighted by an improved performance at The Wall Street Journal in the US and The Times and The Sunday Times in Britain. News CEO Robert Thomson told analysts last week The Times and Sunday Times reported 413,000 subscribers at the end of June, a 3.4 per cent rise against the previous period.

Contrast that with double-digit quarterly circulation falls at the Fairfax papers for several years now. While the Fairfax papers ­occupied a similar positioning in the market to the WSJ and The Times a few years ago they may now be too far gone to recover.

Thomson also said the WSJ now had 948,000 digital subscribers and expected digital to exceed print sales “in the near future”. Circulation revenue at WSJ ­publisher Dow Jones now exceeds advertising revenue.

So consumer revenue is the key to the new business models. Sell subscriptions to readers. This is where the industry came from. Like Fairfax, News Corp also faces competition from online entrants and the drift of advertising dollars to Facebook and Google, as well as declining print sales.

Yet News is committed to print and a cursory look at the pages of its tabloid newspapers and their sales figures shows it still provides a mass market medium for retail advertisers. It is fine to talk about digital readership but those full-page display ads in print generate revenue numbers not matched on websites.

News has the advantage of a major shareholder committed to journalism and is prepared to give its print products time to evolve new business models. Fairfax management is beholden to short-term share price movements and the only way to ensure they head in the right direction is via cost cutting.

It has certainly been successful at that. While the SMH once made as much as $150 million a year, by 2010 Fairfax’s Metropolitan Media division reported total earnings before interest, taxes, depreciation, and amortisation of $102.5m on revenue of $895.6m.

A year later, EBITDA had fallen to $83.3m on lower revenue of $873.3m. While the reporting structures within the group were moved around the real benefits of cost containment showed in 2014. The share price hit a $1 momentarily with metro sales down 9.2 per cent to $803.2m, but EBITDA jumped 41.3 per cent to $120.9m.

So can digital innovation alone without print revenue really sustain public accountability journalism? I think not. Digital-only products thus far cannot generate enough revenue to support large newspaper-style newsrooms, even though they can be very profitable products. That is the point of the revenue generated by print. Of course, the costs of paper, ink and distribution affect print profitability and need to be aggressively contained.

This has nothing to do with being a digital Luddite or my dislike of Twitter. I was the first editor-in-chief at News Corp to launch the paywall. I disagreed with giving away free premium content online while asking loyal readers to pay premium cover price for it in print. So can I prove digital will not provide Fairfax with enough revenue to maintain its public accountability journalism role, at least as it stands today?

I think so. First, digital ad revenue is falling on news websites around the world. Second, Fairfax’s annual reported digital subscription revenue on The Age, the SMH and The Australian Financial Review is just $38.1m from 209,000 paying subscribers.

That equals $3.50 a week per sub, but we know the AFR charges a sticker price of $13.35 a week for its premium digital subscriptions and the SMH and The Age $5.80. The AFR’s average price will be much less the premium price, but based on The Australian’s experience at $8 a week and on what we can work out must be between 40,000 and 50,000 digital subscribers it seems highly likely the AFR is making much more than each of the metros, which I would bet are generating a fair bit less that $10m each in subscriptions.

The total editorial bill for a major newspaper like the SMH would have been as much as $50m a decade ago.

So maybe two of the world’s canniest investors, Warren Buffett and Rupert Murdoch, know a thing or two when they say they see a future for print newspapers.