As Australian media companies struggle to adapt to the developing digital world, the future has been sighted in the latest profit and operating report from Pearson PLC, owners of the Financial Times, and a huge education business. In fact the Pearson report confirms the gulf between Pearson and the rest of the world’s media companies.

The Pearson report and commentary is full of details about the level of digital subscriptions, ad revenues and digital revenues for the Financial Times newspaper and the growth in ebook sales for Penguin. The company made the point that growth in digital subscriptions and ebooks in the US were higher and faster than elsewhere.

Contrast that to the recent quarterly report from News Corp, which made no disclosures whatsoever about the level of digital subscriptions at The Times in London, The Wall Street Journal in the US and The Australian. Nor was there any detail on the level of ebook sales by Harper Collins, News’ book publishing business.

Pearson is about a quarter of the size of News Corp by sales, but it is much further down the track towards its digital future. The uptake in digital sales and services is just as high and rapidly growing in Pearson’s education business, which is a sector in which Murdoch is trying to expand.

Compare the level of disclosure by Pearson for the FT and those made by Fairfax Media, our major listed newspaper publisher, in its recent interim financial report: just looking at both, Pearson is in the sunlight, with a defined strategy towards the future. Fairfax is still in the dark struggling with cost cutting in its analogue businesses. To raise cash (and answer the calls from dumb analysts and shareholders), Fairfax sold half its best online business Trade Me in NZ, and has lost total control of this rapidly growing future business.

But forget the financials (higher sales and profits and dividend), instead focus on the nitty gritty details in the Pearson result. Directors said sales from digital and service businesses will likely exceed sales from traditional publishing businesses in 2012.

Pearson said digital revenue now accounts for 33% of sales. Total revenues across the group, which includes book publisher Penguin and educational holdings, grew 4% to £5.9 billion and within this total digital revenues grew 18% to £2 billion, or just over a third of all sales.

This growth saw, according to Pearson: the number of students using our digital learning programs up 23% to 43 million; Penguin ebook revenues up 106%; now 12% of total Penguin revenues; Financial Times digital subscriptions up 29% to 267,000.

FT digital subscriptions rose to about 44% of total paid circulation around the world. As of the end of 2011, the number of the FT’s digital subscribers in the US exceeded the number of print subscribers for the first time.  Pearson said that digital and services now accounts for 47% of total FT Group revenues, up from 25% in 2007, while advertising has shrunk from 59% of FT Group revenues in 2007 to 42% in 2011. Content revenues comprised 58% of total revenues, up from 41% in 2007.

Combined paid print and digital circulation of the FT reached 600,000 in 2011, “the highest circulation in the history of the FT … the average daily global audience across print and online grew 3% to 2.2 million people worldwide, our largest audience ever. Readership continues to migrate online and to mobile, which now generates 19% of traffic to FT.com,” directors said.

Penguin reported a revenue decline of 1%, although on an underlying basis growth was 1%, to £1.05 billion. Adjusted operating profits grew 5%, or 8% on an underlying basis, to £111 million as Penguin also reported a massive increase in digital book sales, up 106% year-on-year, with ebooks accounting for 12% of total revenues and 20% in the US market. In 2010, ebooks accounted for 6% of total Penguin revenues. “We expect this percentage to increase significantly again in 2012,” directors said.

Digital subscriptions, ebooks, web traffic, online education testing: Pearson is looking to expand itself businesses as fast as it can in to the digital future. In contrast, Australian media companies are still groping towards the light switch.

Peter Fray

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