Just months after announcing a broad restructuring that centralized production of its newspapers and led to job losses at papers across the country, Postmedia Network Canada Corp. said it will cut deeper in hopes of reinventing itself as a profitable digital company.
In late May, the publisher of such titles as the National Post and Calgary Herald said it would eliminate editing at its local newspapers in favour of a central facility in Hamilton, Ont., close its wire service and stop printing Sunday papers in some markets in a bid to save up to $40-million.
It turns out the cuts were just the first phase in a broader three-year plan meant to reduce the company’s reliance on print advertising and prepare it for a digital future. Future changes will seek similar cost reductions – meaning the company is aiming to cut its operating expenses by $120-million by the end of the program.
“Going forward we'll be a smaller revenue company and a smaller expense company,” chief executive officer Paul Godfrey said, adding the company wants to lower its expenses by up to 20 per cent. “We will be a more profitable company."
The company wouldn’t elaborate on the next phase of its restructuring, although the executives on an earnings conference call did refer to format changes at some of its print publications, property sales, increased automation of some processes, outsourcing of business functions and further cuts to the work force.
“We’re not ready to state things specifically,” Mr. Godfrey said, adding the company is bound by collective bargaining agreements. “But we are at the point where everything is on the table ... it could run the whole gamut. You can just let your imagination go.”
The media company, like others across North America, is reeling from a weak advertising market, which has seen revenue fall sharply at outlets across Canada. For every $7 publishers are losing in their print editions, a recent study suggests they are only earning $1 of digital revenue.
Just six months ago Mr. Godfrey said the newspaper industry’s problems were mostly related to a weak economy, but he conceded Tuesday that the money flowing out of the newspaper industry isn’t likely to come back.
“My gut feeling is this is more structural than the economy,” he said. “We’ve got to build a new company in a different direction ... it’s no longer about adjusting costs to revenue declines. It’s creating a new company for the present times."
The company said it lost $12.1-million in the last quarter, compared with a loss of $2.7-million in the same quarter last year. Revenue slipped 6.9 per cent to $212-million. It spent $14-million on buyouts and severance pay in the quarter.
The declining revenue in the quarter was caused primarily by a decrease in print advertising revenue, which fell 10 per cent.
The company saw revenue slip in most categories: national ads decreased by 12 per cent, retail was down 8 per cent and classified sales fell 14 per cent.
“Relative to [the first half of the year], national print advertising declines are easing, albeit still double-digit,” said RBC Dominion Securities Inc. analyst Drew McReynolds.
“Retail print advertising declines are stable with classified print advertising declines deteriorating.”
Digital revenue rose 6.8 per cent, one bright spot in the report. Mr. Godfrey said the gain was welcome after a few soft quarters, but cautioned most of the gains came from local initiatives and the increase “was nothing to do a victory lap around the building about.”
Chief financial officer Doug Lamb said subscription revenue decreased by 6 per cent, something that could worsen in coming quarters as the company looks to cut unprofitable distribution zones outside metropolitan centres from its delivery systems.