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Nov 16, 2009

Australian newspapers following the US in steep decline

The declining revenues of Australian newspapers will spell trouble locally, just as the same trend has resulted in disaster for many US titles, writes Niki Scevak.

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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.

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6 comments

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6 thoughts on “Australian newspapers following the US in steep decline

  1. Mary Garden

    Hi Niki
    thanks for your response.
    We are just emerging from a global financial crisis, so in that context Australian newspapers are performing surprisingly well. And the Oz has increased its cover price twice in the last year.

    We don’t know what the future of newspapers will be, but Australian newspapers have been much more robust in circulation, ad revenue and readership than the US and the UK. Ditto N.Z.

    I’m totally amazed that so many people (and they are not all oldies or baby boomers) continue to read print newspapers when they are available for free on line. Most of Australia’s circ declines were before the emergent of the internet and they are attributable to a number of factors including the evening TV newscast, more people driving to work (rather than taking public transport) etc etc. Unlike the US and UK we have had no loss of titles, or newspapers moving to online editions. I just don’t buy the argument we are following their footsteps and are 1-15 years behind. When newspapers begin charging for access to online sites, then the picture may change.

    Readers are not deserting newspapers at anything approaching the rate of advertising customers. Dane Clausen in the “New directions”, Australian Journalism Review, 29 (2) has questioned the role of media buyers at advertising agencies for driving advertising to the internet despite high and solid numbers of consumers for newspapers and the unreliable and small numbers for websites. One could also question the role of scholars and commentators (at Crikey tc): have they also (unwittingly) influenced the migration of advertising?

    BTW There was a very interesting article in yesterday’s Oz on NZ newspapers, and how they are faring … but can’t find it at the moment. We are in the middle of a heat wave, so I’m going to hop into a cold bath with a beer to cool off, as even the air conditioner is not helping.

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