Torstar cuts dividend in half as print ad revenue slides

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Torstar Corp. is urging patience as it tries to build an audience for the Toronto Star's expensive new tablet edition, after weaker advertising returns drove the company's revenue down once more.

The bottom line at Torstar continues to suffer as print's profitability erodes. Print ad revenue at the Toronto Star plunged 13.5 per cent in the third quarter, compared with a year earlier, and dropped 8.8 per cent at Metroland Media Group, which publishes The Hamilton Spectator and The Guelph Mercury, among other newspapers.

The company's digital revenue, however, showed some signs of progress. Better results from the Star website drove a 5.1-per-cent increase in digital dollars at the Star Media Group, which includes the free Metro dailies, and Torstar as a whole boosted digital revenue by 22.8 per cent, thanks largely to its $200-million acquisition of a 56-per-cent stake in online niche-interest publisher VerticalScope, which was completed in late July.

Now, the focus shifts to Star Touch, the free tablet edition the Star launched on Sept. 15., on which the paper is pinning its digital hopes despite uncertainty about the long-term popularity of tablets. On a conference call with analysts, Torstar president and chief executive officer David Holland deflected questions about the new edition's performance so far, saying it will "take time to build our audience."

"We're just seven weeks into the launch. It is still early days," Mr. Holland said.

Instead, he set a target: To attract 180,000 daily readers to Star Touch by the end of 2016. By comparison, La Presse+ – the French-language tablet daily launched in 2013, which provided the technology and template for the Star's product through a partnership – reaches about 460,000 readers weekly. La Presse has not provided a daily figure.

Postmedia Network Canada Corp., on the other hand, recently scrapped similarly labour-intensive evening tablet editions at the Calgary Herald, Montreal Gazette and Ottawa Citizen, planning to shift more resources to its smartphone apps, betting that is where readers are heading.

Torstar remains all-in on tablets, spending about $13-million in capital and up to $12-million in operating funds to develop, market and staff the new edition in 2015, and is planning up to $8-million in tablet-related operating expenses next year.

The costs of these new digital ventures combined with advertising struggles weighed heavily on Torstar's results for the third quarter, which ended on Sept. 30.

The board of directors cut the dividend by half to 26 cents a share annually, starting in the first quarter of 2016 – a "widely anticipated" move after the VerticalScope acquisition, analyst Haran Posner of RBC Dominion Securities said in a research note.

Net loss attributable to shareholders for the third quarter was $164.3-million or $2.05 a share, compared with a profit of $125.3-million in the same quarter a year earlier.

This year's loss was primarily due to a writedown in goodwill and intangible assets at Metroland Media Group totalling $135.4-million, while last year's profit was driven by gains from Torstar's sale of its Harlequin book publishing division to News Corp.

Operating revenue was down 7.3 per cent to $185.4-million, a drop of $14.5-million compared with the prior year.

"We continue to battle the print advertising pressures," Mr. Holland said. But "we've taken some big steps in the past few months, and those steps are intended to enable a meaningful transformation at Torstar."

The next year will be "pivotal" for the company, Mr. Posner wrote. So far, "we are encouraged by Torstar's recent investments in VerticalScope and Star Touch."