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File photo of Postmedia Network Inc. president and CEO Paul Godfrey walking through the National Post newsroom in Toronto.

Darren Calabrese/The Globe and Mail

Postmedia Network Inc. posted a sharp decrease in earnings in its first quarter, as a surge in digital revenue failed to make up for weak advertising and declining circulation revenues.

Chief executive officer Paul Godfrey doesn't see things getting better, conceding in an interview that he expects print revenue to continue to decline by about 8 per cent a quarter. The company must cut as much as $80-million out of its operating budget in the next two years and aggressively increase its digital revenue, he said, to help pay down its $464-million debt and to make investments in the areas of the business that are making money.

The company reported Thursday that print advertising decreased by $16-million to $132-million in the first quarter, while its digital revenue increased by $2-million to $25-million. It's an industry-wide problem that has sent publishers scrambling to try and cut costs to make up for the print revenue they once took for granted.

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"Look, there's going to be continued erosion on the print side," he said after his company's annual general meeting in Toronto. "We need to get paid for our digital content and we need to see digital revenue continue to increase."

The company, which publishes titles such as the National Post, Ottawa Citizen and Edmonton Journal, said it earned $8.3-million in its first quarter, compared to $28.3-million a year ago. Revenue dropped by 8 per cent, "primarily due to a decrease in print … with declines occurring in classified, national, retail and insert advertising categories."

It also saw circulation revenue decrease by 9 per cent to $49-million, taking another $5-million out of its hands compared to a year ago.

Postmedia has been aggressively cutting costs as revenue falls, and has a three-year plan to cut about $120-million from its expenses. It said Thursday it has already achieved about $42-million in savings with initiatives that have included reducing staff, cutting Sunday papers in some markets and centralizing some editorial functions.

"We have significantly reduced the duplication of efforts across our newspapers," he said at the AGM, as National Post employees looked down into the atrium from the building's upper floors. "International news in Vancouver is international news in Edmonton and Ottawa too. Recreating this content is inefficient, and a luxury we can no longer afford. In minimizing the steps required to get shared content across our newspapers, our local operations are now able to focus on their core strengths – local news and sports coverage, exploring stories of importance on a regional, provincial and local level."

He's already made some moves, but wouldn't elaborate on what he will do next to strip costs out of the company. Several of the company's papers have asked readers to pay for digital content (as have most Canadian newspaper publishers), and the publisher has asked some members of its pension plan to extend the terms of their repayment to reduce Postmedia's short-term costs.

"Recreating a cost structure that supports a new business reality rather than continuing to subsidize the nostalgia of a former business model is critical," he said.

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