Digital in the driver’s seat

Over the past 20 years newspaper companies have dealt with such game-changing issues as the switch to remote site publishing and the transformation to colour and full pagination.

In each case digital has been an ally, but now the alliance is an uneasy one. This time digital is in the driver’s seat and publishers are uneasy about the eventual destination.

The growing strength of digital platforms and its impact on print sales led News Limited and Fairfax Media last year to announce major restructures. The next few months will see most of them come to fruition and, in doing so, shape the sustainability of print platforms and the direction of digital publishing for the next generation.

In both cases, the moves are necessarily bold, but as such carry risk. To complicate issues for News Ltd, it faces a new financial year separated from News Corporation’s international entertainment assets, which will come under the banner of the Fox Group.

While this allows the publishing assets of the new-look News Corp to start with a clean slate, it provides another set of problems, as the entertainment division largely subsidised its newspapers.

In Australia, where the local division recorded a loss of $476 million last financial year after substantial masthead writedowns, this means in the short term – in a flat advertising market – News Ltd will be reliant on the revenue streams from its 50 percent interest in Foxtel and 100 percent-owned Fox Sports to support its publishing and digital growth initiatives.

At Fairfax Media, chief executive Greg Hywood has undertaken a sweeping restructure that has completely upended its previous business strategies.

Shaking off tradition, Fairfax relaunched its Sydney and Melbourne mastheads – The Sydney Morning Herald and The Age – as compacts earlier this month, a move many believe should have been taken decades ago.

Accompanying this will be the introduction of pay walls for the masthead’s websites. There was little choice. Sliding print sales had to be arrested and revenues bolstered by placing a premium on content carried on the platforms to which readers had gravitated.

‘The good news is that in real terms readership has increased substantially because of the new platforms … a positive message to take to advertisers’

There is no doubt the move to a compact format will put a spike in sales. The trick will be to sustain it.

So far the reaction to the compact dummies that have been in circulation prior to the launch has been muted.

Fairfax has chosen a middle path in terms of design layout, one that it hopes will not alienate existing readers, but still be bold enough to attract new, and hopefully, younger readers.

However, judgement on the success of this transition should be reserved. Concept dummies and launch papers are the starting point, not the end point for the printed product. History points to the fact the Fairfax compacts also will evolve to attract more readers and meet their needs.

The one constant must be the quality of the content, which is not dictated by format

There is also reason for optimism in terms of Fairfax’s website strategy. The company is expected to adopt the metered subscription model of The New York Times, which allows free access to a prescribed number of pages per month, before the consumer is asked for payment. This maintains maximum traffic, while extracting a premium from heavy users.

The model has been pivotal in a turnaround in the New York Times Company’s fortunes – which must be music to Fairfax’s ears. The publisher reported last month that for the first time annual circulation revenues had surpassed returns from advertising, with 2012 circulation income rising to $US954 million, outstripping the $US898 million from advertising.

Paid subscribers to The New York Times and the International Herald Tribune rose 13 per cent to 640,000 as of the end of the fourth quarter.

Fairfax also has positioned itself well for the transition with the sale of its remaining 51 per cent stake in Trade Me, the New Zealand auction site, for $616 million.

There was criticism of the sale as the auction site was considered to be the company’s best digital asset, but it has been key factor in Fairfax reducing net debt from $716m to $197m.

The sale also served to reduce some pressure on the Fairfax board from major investors who had had been calling for a break-up of key assets.

Hand-in-hand with the Trade Me sale was a partnership agreement with Netus, a technology investment company run by former Microsoft executive Daniel Petre and Alison Deans, a former head of eBay Australia and New Zealand.

Petre and Deans will seek out new digital opportunities, but the new partners need to pull something out of the hat soon lest the revenue generated by Trade Me will remain a black hole on the balance sheet.

News Ltd will need to look at refinements to its subscription model for the company’s state-based mastheads. What works for The Australian is not necessarily the panacea for the other masthead sites.

The Herald Sun is so far the only News Ltd state-based masthead that has introduced pay walls and its level of success has been below expectations. The website carries a preview of most stories, but the full text, in most cases, is available only to subscribers – as well as special features.

However, any reader can go to news.com.au or other News Ltd sites such as AdelaideNow and most likely read the full story for no charge.

This loop-hole will be eradicated as other sites introduce pay walls. However, there is little to differentiate the masthead sites from other news sites and little that could be classified as premium content outside of sport.

This will provide problems for News Ltd as sporting bodies such as the ARL and the NRL see more value in selling digital or broadcast packages direct to fans, without the need for a media third party.

With the build-up of internal media units by both football codes, the first steps to this end have already been taken.

The light at the end of the tunnel for all publishers will be the new metric developed by the Readership Works which will release its first survey this year and will give a more accurate picture of readership across all platforms.

The good news is that in real terms readership has increased substantially because of the new platforms … a positive message to take to advertisers.

Ian Moore was the founding editor of the Sunday Herald Sun and a former of The Sunday Telegraph.

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