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Slowdown in auto advertising drags down Postmedia’s Q3 revenue

Print ad revenues fall 16.5%

A continued decline in automotive advertising was a key factor in a double-digit drop in print advertising revenue for Postmedia in the third quarter, the Toronto-based media company said last week.

Print advertising revenue for the three months ended May 31 was $94.7 million—or 55.4% of total revenue—a 16.5% decline from the corresponding year-earlier period.

National advertising comprised $35.2 million or 37.2% of total print revenue, followed by retail advertising ($21.3 million, or 22.5%), insert advertising ($19.3 million, or 20.3%) and classified advertising ($15.3 million, or 16.1%).

Postmedia called the loss of automotive advertising its most “significant challenge,” with the category accounting for nearly half (41%) of its total print advertising revenue decline.

Automotive remains a key category for print media, with Postmedia’s chief operating officer Wayne Parrish saying it has historically accounted for between 25% to 35% of total advertising revenue. He said that it dipped significantly over the past 12 to 18 months, with several dynamics contributing to the decline.

The growing size of dealer associations, for example, means that a decision undertaken by a group to increase its investment in alternative channels could have a greater impact than it did previously.

Further complicating matters is the fact that automotive sales have been strong in 2014—the car companies delivered a record-high 178,703 vehicles in April, for example—which Parrish said has lessened pressure on manufacturers and dealer associations to advertise.

Parrish said converting advertisers to Postmedia’s digital properties, such as the multiplatform Ottawa Citizen product introduced earlier this year, is a priority for the company.

“It’s impossible to avoid the fact that as the emphasis on print advertising declines in many major categories, our challenge is to take the return on investment that we were formerly able to provide on the print side to an [advertiser] and try and to explain to them how we can help see the same or, in some cases, a higher ROI by shifting some of those dollars to our digital products,” said Parrish.

He said he is “very confident” that the company will be able to repatriate some of the lost print dollars to digital, by creating audience segments that will drive ROI for the sector.

The company has made significant investments in audience segmentation tools in recent years, he said, with analytics one of its most significant human resource investments.

With print losses accelerating, Postmedia president and CEO Paul Godfrey said the company plans to expand model adopted by the Citizen to include other papers in the chain. During a conference call with investors, Godfrey called the May 20 introduction of the revamped Citizen a “fundamental shift” in the way Postmedia creates content and engages audiences.

“We’re still in the early days, but we are encouraged by the positive feedback we’ve received,” he told analysts.

While stressing that Postmedia is still in its infancy, Godfrey acknowledged that remaking the four-year-old company for the internet age has been a bigger challenge than expected.

“We set forth on a path to reinvent one of Canada’s largest media companies,” he said during the conference call. “We had no idea at the time how challenging that development would be.”

Godfrey said that since its formation in July 2010, Postmedia has paid off $235 million in debt while redefining its core business and outsourcing wherever possible. “We continue on a path of redefining this company by focusing on transforming legacy costs and reimagining what our products will look like in the future,” said Godfrey.

Postmedia introduced a transformation program in July 2012 intended to reduce its legacy costs by between 15% to 20% over three years. Initiatives undertaken during the past quarter resulted in net annualized savings of $8 million, bringing total savings achieved by the program to $106 million.

Postmedia said the continued shift of print advertising revenue to online and other digital platforms is expected to continue, and may be permanent.

Continuing an ongoing trend, print circulation revenue for the three-month period was $49 million, a 28.7% decline from the same period in 2013. However, this decline was mostly offset by price increases, including what the company called “strategic pricing” for new subscription bundles that led to an overall circulation revenue decline of 0.8%.

The company called for print circulation revenue to remain stable throughout the remainder of fiscal 2014.

Digital revenue for the three-month period was $23.1 million, down $1 million—or 4.3%—from the previous year. The company attributed the decline to decreases in advertising and classified revenue.

The company called digital a “future growth opportunity for the company.”

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