Postmedia posts $5.8M profit, digital revenue up to $31.3M
Postmedia Network Canada Corp. on Thursday reported a small net profit for its fiscal first quarter, during which legacy print revenues continued to decline and the company struck a significant deal involving the swapping and shuttering of a number of community publications.
The Toronto-based company, the country’s largest newspaper publisher and owner of the Financial Post, recorded net earnings of $5.8 million for the quarter ended Nov. 30, 2017, down from $17.8 million for the same three months of 2016.
The difference, the company said, was in part due to a gain related to a debt restructuring arrangement between Postmedia and its creditors that was recorded in the previous year’s quarter.
Revenue for the quarter was $189 million, down 10.3 per cent from the previous year, mainly due to a drop in print advertising revenue of $19.9 million. Total print advertising revenue for the quarter was approximately $91.1 million, according to Postmedia’s financial statements.
Digital revenue, however, rose 14.5 per cent to a total of nearly $31.3 million.
“The strongest validation that our strategy is working is growth in digital advertising revenue — up for the fourth straight quarter by double-digit percentage increases,” said Paul Godfrey, executive chairman and chief executive officer of Postmedia, in a statement. “While this growth is very promising, digital revenue remains much smaller than our legacy print revenue and as such it needs time to grow. Therefore, we must remain vigilant in aligning our cost structure to the industry-wide declines in our legacy business in order to extend our runway to provide sufficient time to transform our business.”
The results follow the announcement this past November of a deal between Postmedia and Torstar Corp., publisher of The Toronto Star. The arrangement saw the two companies agree to essentially trade 41 community and commuter newspapers, mostly located in southern Ontario, with plans to close the majority of them, eliminating nearly 300 jobs between the two companies.
“The properties we acquired were in markets where we already had strong local voices in our existing Postmedia publications and flyer distribution infrastructure in place,” Godfrey said on a conference call Thursday afternoon. “We’re absolutely committed to doing what … we can to keep telling the stories important to Canadians in communities across our country as we transition to a new business model.”
He also said that the transaction involved some “tough but necessary decisions” in order to extend the company’s “legacy runway,” and that the deal allowed Postmedia to focus on certain strategic areas and core products in what has become a “deeply disrupted industry.”
“The simple truth is … we monitor all of our products and papers in our network, and if some of them start to lose money, we will do everything we can to change the outcome of the revenue curve,” said Postmedia chief operating officer and president Andrew MacLeod when asked about the potential for future newspaper closings in an interview with the Financial Post.
“We’re doing a lot to try to prop the revenue up in all of our various products, and we’re starting to see positive signs of revenue growth,” he added, “but I don’t have a crystal ball, and we will take rational decisions based on what we need to do in order to preserve the profitability in the overall business.”
Postmedia said Thursday that it realized a gain for the quarter of $4.7 million because of the transaction, but also recorded restructuring and acquisitionrelated costs of $5.1 million for a net expense of $400,000 thus far. Postmedia previously said that it would close 23 of its 24 new properties by mid-January.
Canada’s Competition Bureau has reportedly said it will review the Postmedia-Torstar deal. However, in announcing the transaction, Postmedia said it was not subject to the merger notification provisions of the Competition Act, and therefore, did not require a sign-off from the regulator to close the deal.
The latest earnings statement and newspaper deal also come as tech titans Facebook Inc. and Alphabet Inc.’s Google continue to dominate the online advertising market. Statistics from the Canadian Media Concentration Project showed Google alone earned $2.6 billion in domestic online advertising revenue in 2016, or 48 per cent of the Canadian market.
Meanwhile, the once-lucrative source of revenue for newspapers, print advertising, is drying up, and digital efforts have yet to stem the job losses and cost cutting that have hit the Canadian industry in recent years, Postmedia included.
“Our corporate strategy is, simply put, we need to buy time,” MacLeod said. “We need to extend our legacy runway.”
To that end, Godfrey and others in the newspaper industry have turned to government to intervene with some temporary assistance to help with the transition to digital.
“We’re not asking for a bailout,” Godfrey said in an interview with the Financial Post. “We’re saying this should be for five years.”
While the federal government has yet to throw the newspaper industry any substantial lifeline, Godfrey said Prime Minister Justin Trudeau’s comments in China in December about the necessity of a free press were “more encouraging,” although Godfrey wasn’t reading too far into it.
“But it seemed to be that he was opening the door a little bit,” Godfrey added. “So we’re hopeful.”
In November, Postmedia adjusted its C-suite, with Godfrey adding executive chairman to his chief executive officer duties. The move was announced with the resignation of now-former Postmedia board chair Rod Phillips, who is pursuing provincial politics as a candidate for the Progressive Conservative Party of Ontario.
Those changes came a month after then-chief operating officer MacLeod added the role of president in a move the company said “formalizes a clear succession plan” for Postmedia.
We’re doing a lot to try to prop the revenue up ... and we’re starting to see positive signs of revenue growth.