Fairfax Media CEO suggests deep reductions in legacy costs need to precede reduced print frequency

Talk about digital disruption. The CEO of Australia’s giant Fairfax Media said last week that he is preparing the company to abandon printed newspapers entirely “in three, five or 10 years.”

“Print revenues have been going down and are going down faster now,” Greg Hywood recently told the annual World Congress of the International News Media Association in New York. To the extent print newspapers have a future, he said, they will be “expensive, bespoke and narrowly distributed.”

Pressed on when Fairfax papers in Sydney and Melbourne might reduce frequency to a few days a week, Hywood declined to offer more specifics. He did add, however, that just dropping a day or two might have a minor impact on fixed costs, and “you can lose revenue without comparable savings.”

On one hand, you could view Fairfax as providing lonesome Advance Publications a little long-distance company as it reduces most of its U.S. newspapers to three-day-a-week home delivery. But while Hywood never mentioned Advance, the gist of his presentation was that deep reduction in legacy costs needed to precede rather than accompany reduced print frequency.

Ironically, the same morning Hywood was speaking, Advance announced it was rolling back the controversial print frequency cuts it has made in New Orleans and will be offering a tabloid print edition for street sale on the three weekdays it has stopped printing papers altogether.

The change was packaged as an added offering to readers, but, observing from a distance, it looks to me as though Advance got ahead of itself, especially with the Baton Rouge Advocate, under new ownership, gearing up its investment in a competing daily New Orleans print edition.

Hywood’s blunt assessment of his own company also echoed a longtime view of mine on reduced print frequency and the reciprocal strategy of digital first. It may make sense regardless, but it actually happens only when a publisher concludes print has become barely profitable, if at all, and will never recover positive revenue momentum.

That was the case for the Ann Arbor News in 2009, Advance’s first big move to a three-day-a-week pattern, and the same year in in Detroit, where competing papers in a joint operating agreement were both believed to be losing money. Similar pessimism about print helped drive Clark Gilbert’s reinvention of Deseret Media as a predominantly digital company, and John Paton’s Digital First management of Journal Register and MediaNews.

It’s the business variation on the maxim from my high-school tennis days: “Always change a losing game.” In this case, better the high-risk try at developing sufficient digital revenues than the near-certainty of failure if tweaks to the established way of doing things are too minor and too slow. 

In Fairfax’s case, big negatives seemed to arrive all at once:

  • A base of classified ads, important to its Saturday weekend papers, held on for most of the last decade but now is falling precipitously.
  • The papers had a lot of soft, heavily discounted circulation of the sort American papers began peeling back mid-decade. “We have completely rejected circulation as a valued metric,” Hywood said in New York. “Advertisers want audience, readership and engagement.”
  • The Fairfax papers have strong competition from Rupert Murdoch’s market-leading News Corp. Murdoch won’t say so, but many think one of his objectives is to drive the Fairfax titles out of business.
  • The company’s share price has fallen from $6.10 around the turn of the century, and $5 as recently as 2007, to around 40 cents.
  • Mining heiress Gina Rinehart, often described as the richest woman in the world, has accumulated a 15 percent stake in the company. While a little fuzzy about her intentions, she and allies voted against Hywood’s compensation package at an annual meeting last fall and appear to be positioning themselves to take control.

As a result, Hywood has gone to a full-out cost-slashing mode since becoming CEO two years ago. The moves are similar to those of American publishers:

  • He is in the process of eliminating 1,900 jobs, about one-fifth of Fairfax’s work force. The cuts fall disproportionately on newspaper print operations. Printing and copy editing have been outsourced. “We found that 70 percent of our costs were outside journalism and sales,” Hywood said.
  • Physical space was also deemed excess capacity. “We found that 40 percent of the desks were not being used,” he said. In new quarters, “nobody has an office.” At Fairfax, “you get a smartphone, a laptop, and we make a commitment to you that we measure your outputs, not whether you show up.”
  • Both the Sydney Morning Herald and Melbourne’s The Age switched from a broadsheet to a tabloid format this spring. The papers currently share 60 to 70 percent of content, according to Hywood, and that will go higher.

I found Hywood’s presentation notable for two more reasons. While his initiatives have been predictably unpopular with Fairfax editorial staff and other critics, he can hardly be accused of being a bean counter who doesn’t get journalism. He began his career as a business reporter and economist, won a Walkley, one of Australia’s top journalism prizes and at various times edited each of Fairfax’s top three papers.

Also, Fairfax got a spot on the INMA program despite sentiment among most members that their circumstances are not quite so dire. In a survey, only 16 percent of respondents said that they were certain or very likely to reduce print frequency. Also Earl Wilkinson, INMA’s executive director, while continuing to advocate greater urgency about developing mobile products and digital advertising, is now saying that the industry world-wide will be in a print + digital era for some time to come.

Hywood appeared to recognize that he sounded like an Old Testament prophet. He began his talk by saying that the value of Apple’s current product line will eventually fall to zero and need to be replaced. “This is facing us all whether we know it or not.”

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  • http://www.facebook.com/profile.php?id=100000737749014 Richard S. Kazimer

    ‘The CEO of Australia’s giant Fairfax Media said last week that he is
    preparing the company to abandon printed newspapers entirely “in three,
    five or 10 years.”’

    A master of indecisiveness.

  • redmonds

    Joel:

    Yes, paid circulation used to be a proxy for all those things. But as I noted last week in a post on the release of AAM’s six-month figures, the component parts vary paper to paper — so they are the focus for advertisers rather than a total. AAM itself says so.

    I think Hywood,as briefly mentioned, was also signaling a break with former practice at Fairfax where the total was swollen with handouts at universities and other “circulation” of marginal use to advertisers.

  • Joel Whitaker

    “We have completely rejected circulation as a valued metric,” Hywood
    said in New York. “Advertisers want audience, readership and
    engagement.”

    Advertisers have always wanted audience, readership and engagement. It’s always — until now, apparently — been thought that paid circulation did in fact measure audience, readership and engagement (most of us don’t keep paying for something we never read).

    So why is circulation no longer a valued metric?