Australian newspaper publishers say they are different from their US counterparts but they are following a near identical path to a dramatically smaller existence.
A rule of thumb in the media and telecommunications industries is that Australia is 18-24 months behind the US and in looking at the demise of the Australian newspaper industry this rule is eerily close to reality.
News Corp’s Australian newspaper revenue was down 17% on a local currency basis in the first quarter of FY10. Western Australian Newspapers were down 14%. These results are the latest in a string that show a steady acceleration in the rate of revenue declines .
This chart analyses the rate of decline in revenue at News Corp’s Australian papers, Fairfax’s metro and regional publications and WAN and compares them to the decline in US newspaper revenues (Source: NAA). I took the first year from when papers were seeing growth to when they were seeing a decline. In all cases that was 18 months after the US first began the long decline except for Fairfax’s regional publication where the clock starts 30 months later.
The picture is not pretty and shows very little difference between the newspaper industry in the US and Australia. Executives in the US have given up on the argument that advertising declines are cyclical versus secular but Australian managers have not. The earlier implies there is little to do now and that the future will magically brighten when the overall economy returns.
For instance, from APN’s chief executive, Brendan Hopkin, who chairs the industry body The Newspaper Works in April of this year: “Hopkins declined to make a forecast for the industry for this year, but endorsed an analyst report by RBS Equities that predicts advertising at metropolitan newspapers will fall 12.9% this year, and at regional titles by 9.1%, before picking up 4 per cent in 2010.”
The Australian economy has grown surprisingly well through a dire global economic backdrop. However, the strong growth in resources and commmodities did nothing for WAN’s recent results for instance. Good luck growing by 4% in FY2010.
So what will become of the papers? A pattern in the US saw papers in good times get high on their fat margins and lever up their capital structures with mounds of debt, which were used to build empires. Many, like Freedom Communications, are in bankruptcy now.
In Australia, Fairfax is saddled with nearly $1.8 billion in debt, after having (smartly) raised capital to reduce the total amount from $2.5 billion last financial year. But operating cash flow declined to $633 million in FY09. Looking at a scenario of a 20-25% decline in operating cash flow for FY2010 and it is clear why the dividend was slashed and likely will be eliminated if this case plays out, while the company attempts to service ~$170 million a year in debt repayments.
The real bell will toll as the firm enters into FY11 in June of next year where large amounts of debt fall due — neatly 18 months after the fate of such US stalwarts as the Tribune Company, the Philidelphia Inquirer and Freedom Communications began to enter bankruptcy proceedings. Fairfax has a lot more going for it than those institutions, with stronger Internet assets in TradeMe but even after multiple rounds of asset sales, the lenders on the firm’s debt may end up running important pillars of the Australian fourth estate.
Niki Scevak is the founder of Homethinking.com , a real estate site in the United States. He maintains a blog about online media and advertising.