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Postmedia CEO Paul GodfreyMoe Doiron/The Globe and Mail

Canada's largest chain of metropolitan newspapers will close the gates in the new year and ask readers to pay to read their online content.

Postmedia Network Inc. said it would put up paywalls at all of its titles early in the new year, including the National Post, as it reported a $28-million third-quarter loss. The company blamed the red ink on a chronically weak print advertising market, which it now concedes is unlikely to return to its previous levels as companies find new ways to reach customers.

It isn't the only one coming to terms with dwindling print dollars – New York Times Co. said its ad sales were down more than 10 per cent in the last quarter as it reported an unexpected loss from continuing operations. Unlike Postmedia, the Times was able to offset the print advertising losses with an increase in revenue from its paywall.

The Times' success with the model – it saw the number of subscribers increase 11 per cent in the last quarter to 566,000 – has emboldened publishers such as Postmedia and The Globe and Mail to turn to metered paywalls to help fund their journalism.

"Newspapers are realizing you can't spend millions on content and give it away for free," Postmedia chief executive officer Paul Godfrey said after his company's conference call with analysts. "We know there's a digital world out there, and we know people want news on the platforms of their choice … I think we're at the point where pay metered systems will be put in all over the world."

Postmedia said it lost $28-million in the fourth quarter, compared to $400,000 in the same quarter last year, as revenue fell by 5.9 per cent to $190.1-million. It saw an 8.3-per-cent decline, or $10-million, in print advertising to $112-million. Digital revenue increased by 3.5 per cent, or $700,000, to $22-million.

It launched an aggressive restructuring plan in the spring that it hopes will cut some $120-million from its costs over the next three years and prepare it for a leaner digital-focused existence, and said it has already cut about $35-million of expenses.

It has sold real estate, built metered paywalls around some publications, cut jobs, stopped printing Sunday papers in some markets and centralized some tasks to reduce expenses and pay down its debt (which is now at $467-million, compared to $632-million in 2010).

It previously installed metered paywalls at the Montreal Gazette, Vancouver Sun, Vancouver Province and Ottawa Citizen. Chief operating officer Wayne Parrish said it was too early to gauge their success, but did say the response in Montreal has been encouraging.

"We've been pleasantly surprised by the response," he said. "It's been very positive to this point. The renewal rates and conversion rates are much higher than we probably anticipated."

Still, industry observers caution that only a handful of papers around the world have managed to make a profit with paywalls. They are also relatively new, so nobody quite understands how readers will interact with newspapers in the coming years as free content is withdrawn.

"A sudden flattening out in heretofore strong growth in paywall subs [subscriptions] could be a risk," Evercore analyst Douglas Arthur said.

In the last fiscal year, Postmedia lost about $58-million in print advertising and only gained $2-million in digital revenue. Mr. Godfrey said the newspaper chain needs to help transition readers away from newsprint and toward mobile devices, where costs are lower and delivery is simplified.

"When you lose a dollar in print you don't have to gain a dollar in digital. You need about 45 cents," he said. "You don't have newsprint costs, don't have ink and distribution. When you start adding it all up, you begin to close that gap."