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Postmedia CEO Paul Godfrey

Moe Doiron/The Globe and Mail

Postmedia Network Inc. isn't the only newspaper company in Canada. But it must feel like that for the company's executives sometimes, because its earnings reports thrusts them into spotlight every three months and exposes all of their challenges and forces them to talk about where they see opportunities.

The Toronto Star reports every quarter as well, but its numbers are just part of parent company Torstar Corp.'s balance sheet that also includes romance publishing and community publishing. Sun Media Corp.'s numbers are included when Quebecor Inc. reports, but again they are tricky because the bigger cable division eats up most of the analysis. The Globe and Mail is a private company, so it doesn't report any numbers at all.

So the publisher of such titles as the National Post, Calgary Herald and Vancouver Sun makes for a convenient way to take the pulse of the broader Canadian newspaper industry. As chief executive officer Paul Godfrey said on a conference call Thursday: "It doesn't matter if it's Postmedia, Quebecor, Torstar. We're all looking at the same mirror and seeing the same problem."

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That mirror isn't a pleasant thing to look into these days. Postmedia earned $8-million in its first quarter, compared to $28-million a year ago. Print advertising fell by 11 per cent, digital revenue increased by almost 10 per cent. But the dollar amounts of each are sobering - $2-million in digital gains doesn't go far in making up for a $16-million decrease in print.

The company has mostly given up on the idea of print revenue coming back. It's already cut $42-million out of its operating budget in the last year, and intends to cut another $80-million. Its regulatory filing sheds light on the extent of the cuts.

"Initiatives include the shutdown of Postmedia News, our former breaking news service, the centralization of editorial production services through Postmedia Editorial Services in Hamilton, the streamlining of advertiser flyer insert operations, the cancellation of unprofitable Sunday editions, general staff reductions through voluntary and involuntary buyouts and the elimination of unprofitable circulation. These cost savings represent the initial phase of a three year business transformation program that, in total, is expected to result in net operating cost savings of 15 per cent to 20 per cent."

Mr. Godfrey wouldn't elaborate on how he'll achieve the rest of the savings, although he does hope that digital revenues will continue to increase and that pay walls around all of his papers will help things along as well. The outcome is far from assured.

"We know that we face an economic climate that remains uncertain," Mr. Godfrey said. "We also know that the days of increasing ad revenues and the monopolistic strength of print advertising are not returning. In spite of all of this, management is confident that while this may be a lower revenue company, it will also be a less expensive one. We are building a smaller, more profitable company."

Here are some of the reasons he thinks things have permanently changed for newspapers:

· Print advertising in the last quarter was $132-million, down 11 per cent from a year ago. It is still by far the most important source of funding for the company, accounting for 67 per cent of total revenue.

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· Classified advertising took a 20 per cent hit compared to last year and is unlikely to recover as free Internet services continue to expand and improve. But it still brought in $21-million in the last quarter, or 16 per cent of all advertising revenue.

· Circulation revenue is also declining, and accounts for about 23 per cent of the company's revenues. It fell by 9 per cent in the last quarter. "Declines in circulation volumes have been experienced over the last few years and this trend continued," the company said.

· Finally, digital revenue increased by almost 10 per cent and is the main source of hope for all newspaper publishers. But it still only accounts for 11 per cent of overall revenue, and only brought in $24.8-million. "Increases in digital revenue are primarily a result of increases in local digital advertising revenue and digital revenue associated with Infomart, partially offset by declines in digital classified revenue," the company said. "We continue to believe digital revenue represents a future growth opportunity for Postmedia and as a result are focused on various new products and initiatives in this area."

Mr. Godfrey hinted at what needs to happen at newspapers when he spoke at the annual general meeting Thursday, using the National Post's headquarters in Toronto as an example of how the industry has changed. The company is moving its headquarters and the paper into a smaller space in the heart of Toronto, and the symbolism of the move was too much for him to let pass.

"We used to construct newspaper buildings to house enormous iron printing presses. We needed our buildings to accommodate shipping docks and distribution trucks," he said, as employees hung over the upper-level railings to hear him speak from a podium set up in the atrium.

"Now, we need collaborative spaces, with high speed internet and wireless connectivity, close to the heart of the city and the digital innovation community … and just as the way we create and distribute news has changed, so too must the business model established over the past two centuries."

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If the meeting had been broadcast on the Internet, publishers across the country would have been nodding in agreement. It sure beats looking into the mirror.

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