Nearly 13% of the content in today’s Australian Financial Review was about yesterday’s big announcement from Fairfax Media Limited (ASX:FXJ). In case you missed it – and if you’re a newspaper reader it would have been impossible to miss – Fairfax announced 1,900 job cuts, the creation of a pay wall for on-line content, a strategy to become a ‘digital’ business (whatever that means), and the closure of printing facilities in Sydney and Melbourne. It will also move to the tabloid format, a move sure to upset the aesthetic sensibilities of dozens of Age readers.
Part of the problem with the Old Media business model is its degree of self-absorption. Devoting nearly 13% of your pages to a $1.4 billion business is all out of proportion. Of course the story matters to the employees of Fairfax. But it’s not that big of a deal to investors. If the company were thinking more about readers and less about itself, it probably wouldn’t be facing $235 million in restructuring charges.
But the core of the problem is that the advent of on-line content has destroyed the old advertising revenue model of the newspaper business. As the revenues disappeared to on-line classified advertisers, the fixed overheads remained the same. Something has to give. You have to either shrink the cost structure or find new revenues.
It didn’t help Fairfax that in the first euphoric stages of the Internet boom, the pie-eyed web-geek consultants getting paid to tell everyone what to do told everyone that no one would pay for anything on the Internet. ‘Information wants to be free,’ they said.
Information itself has no value, we say. Knowledge, analysis, judgement…those are all more valuable than raw information. People will pay for certain kinds of information that add value. News Limited learned this early with the Wall Street Journal on-line. The Financial Times figured it out later.
Financial publishers have made the leap to digital media more easily than the newspapers. Why? Financial content is something some people are willing to pay for. Gathering news on companies, sectors, and markets isn’t something ordinary people have the time or interest to do. And in some cases, it’s a matter of expertise. In other words, there’s a market for it.
Without the certainty of classified advertising and business advertising, the traditional Old Media publishers are going to have to find a way to deliver content people are willing to pay for. They can forget, or at least can’t rely on, advertising revenues. Their business will live and die with subscription revenue.
Personally speaking, we love buying the paper. Maybe it’s a generational thing. But flicking through the paper and reading what’s of interest is still our favourite way to consume information and be entertained. There will always be an audience for delivering news content in the print medium. But is that audience large enough to sustain a company with Fairfax’s overheads? Probably not.
But if push came to shove, we’d be a buyer of Old Media at these prices. Pay walls can work. And ultimately, there’s a market for information delivered in print. The Old Media managers are going to have quit whinging about their importance to democracy.
They’ve lost their privileged position as a gatekeeper to information and the secure advertising revenues that position brought them. Now it’s time to adapt. Someone will figure it out. And the model that emerges will be stronger, more robust, and profitable. Shareholders will be delighted.
for Markets and Money
From the Archives…
The Disconnect Between US Household Wealth and GDP Growth
2012-06-15 – Bill Bonner
Playing The Financial Markets – The Greatest Game of All
2012-06-14 – Greg Canavan
The RBA’s Mortgage Market Denial
2012-06-13 – Dan Denning
Spanish “Assistance” or “Bailout”
2012-06-12 – Satyajit Das
Priming Your Investment Returns
2012-06-11 – Nick Hubble