The Journey From Print To Digital - Fairfax CEO Greg Hywood

UPDATE 5 May 2013: Adding additional summary information prepared for media distribution sourced from the INMA World Congress Blog - Scoop Editor Alastair Thompson

"We’re all changing our business models as fast and as furiously as we can," - Gregory Hywood

"Media consumption continues to shift and fragment, and the advertisers follow" - Gregory Hywood

"We believe that newspaper profitability can’t exist solely on a stand-alone days of the week basis," - Gregory Hywood

BULLET POINTS

- The future will be predominantly digital.
- No correlation between circulation and advertising revenue.
- If you reduce printing, you have to reduce costs.
- Defining whether or not a publication is profitable can be complicated.

SUMMARY

Businesses, and business models, don’t last forever. Gregory Hywood, CEO of Fairfax Media, said the time of print is quickly declining, and digital viewership is growing. Hywood said the industry is scrambling to adapt to digital from print. Fairfax is responding by changing -- not tweaking -- its business model by simplifying organization and using audience data and insights and closing some of their production plants, he said. Hywood said Fairfax has reduced its print circulation because there is no correlation between circulation numbers and advertising revenue. Defining a profitable newspaper is more complicated than simply closing the doors. While Hywood couldn’t pinpoint exactly when print circulation will end, he said the time is quickly coming.

SPEAKER INFO

Gregory Hywood has been chief executive officer and managing director at Fairfax Media Limited since February 7, 2011. Mr. Hywood served as the chief executive officer of Fairfax Radio Syndication Pty Limited. Mr. Hywood served as the Interim Chief Executive Officer of Fairfax Media from December 6, 2010 to February 7, 2011. He served as publisher and editor-in-chief of The Age at Fairfax Media. A Walkley award winning journalist, he held a number of senior management positions at Fairfax including Publisher and Editor in Chief of each of The Australian Financial Review, The Sydney Morning Herald/Sun Herald and The Age. He also served as Group Publisher Fairfax magazines. He was Executive Director Policy and Cabinet in the Victorian Premiers Department between 2004 and 2006 and since 2006 has been Chief Executive of Tourism Victoria. Mr. Hywood has been an Independent Non-Executive Director of Fairfax Media Ltd. since October 4, 2010. He serves as a Director of the Tourism and Transport Forum, The Heart Foundation and The Victorian Major Events Company. He served as a non-independent non-executive director at Trade ME Group Ltd. since October 18, 2011 until December 21, 2012. He serves as a Member of University Council at Deakin University.

Read more on the World Congress Blog:

How Fairfax Media reconfigures its products with a digital mindset

Speech Notes for address delivered by Fairfax (FXJ - ASX) CEO Greg Hywood INMA World Congress – New York Tuesday, 30 April 2013

1. JOURNEY FROM PRINT TO DIGITAL

A few months ago the Lex column in the Financial Times wrote about Apple Corporation.

It said there was lot we didn’t know about Apple but there was one thing we knew for sure.

That some time in the future the value of the now dominant Apple Corporation will fall to zero. We just don’t know when.

It was a simple way of saying that business models don’t last forever. Businesses don’t last forever. Industries don’t last forever – at least in the form they were at their peak.

We have heard a lot about disruption over past days. Lots of evidence about changing consumer behaviour, the endless rise of digital. Yadda Yadda Yadda. Save me from more stats on the internet and mobile.

We know that. We live it every day. We see it not just in survey numbers of consumer habits but in what really counts to our businesses – hard revenue numbers.

Print revenue has been going down for years and its going down faster now. And not going to stop.

The mass newspaper business which rode a technology called print for 500 years – a pretty good run – is in its last years.

We all know it – it’s in our numbers – some more than others – but it’s in our numbers.

The revenues are weak and the sheer cost of physical production and distribution is too great.

The numbers show the newspapers that do exist will be bespoke products – expensive and narrowly distributed.

That means just one thing – we are all changing our business models as fast and furiously as we can….

…. so we can extend the lives of our businesses – not as newspaper companies but as media companies whose lifeblood continues to be the public good of journalism – but distributed not via printing presses but the internet.

It’s simple really.

I’m here today to give you a snapshot of what we at Fairfax are doing in this relentless journey from print to digital and to explore the issue that is top of the mind for many of us.

…. when do we stop printing. Is there a business at the end. And how to restructure your business for that day.

Some of you will already be well down this path. Others less so.

This is just our story Fairfax Media is 182 years old. It is one of the largest multi-platform media companies in Australia and New Zealand.

We are a diversified media company spanning newspapers, online and radio with annual revenues of around US$2 billion.

Today I will be talking to you about the transformation that’s underway at our two main metropolitan mastheads, The Sydney Morning Herald and The Age – in Melbourne.

These mastheads operate in Australia’s two largest cities, each with a population of more than 4 million. Sydney and Melbourne have always been great newspaper cities, with per capita readership traditionally among the highest in the world.

Like only a handful of US cities, Sydney and Melbourne are both two newspaper towns – a fact that subtly influences our approach and strategy. Our competitor being News Corporation – although there is nothing subtle about them.

Our business model, across metropolitan and regional markets, revolves around quality, independent journalism and content – and we monetise that content throughout the day, across multiple platforms.

That’s the strategy.

We are on a journey from print to digital.

We know that at some time in the future we will be predominantly digital – or digital only – in our metropolitan markets. We can’t say whether it’s three, five, seven or 10 years, but it will happen as media consumption continues to shift and fragment, and advertisers follow.

The task for us – and one we are aggressively pursuing – is the restructuring of our business now so when the time comes we are ready. Not to do so risks being caught with unsustainable fixed costs.

So two years ago we put the disrupters in charge of the Sydney Morning Herald and The Age.

We mashed the print and digital media businesses together and put the head of digital in charge. Digital people were put in charge of various functions… including sales.

The newsrooms are fully digital / print integrated and digital first.

We replaced the legacy print production system with an Adobe web-based CMS that could drive digital journalism but at the end of the day output a newspaper.

We embarked on a radical rationalisation of print – cutting circulation, closing our big printing plants, changing formats, and outsourcing everything we could that is not core to journalism and sales. And I mean everything – copy editing, editorial production, ad production, call centres. The lot.

We are of course pursuing new revenue streams through cross-platform sales, aggressive digital sales innovation, digital subscriptions, data mining and adjacencies.

All this because as a broadly held publically listed company we have made a commitment to our investors that we are not about propping up or cross-subsidising newspapers with other parts of our business.

We will run newspapers only while they are profitable. How do you define profitable? We will talk of that later.

And as you would expect we are well down the road in developing a model that would allow the business to go “digital only” as and when required.

Lower revenues sure, but much lower costs because of the huge value unlocked in no longer printing and distributing.

But you don’t get there in one go. It’s a journey As we have all found out, structural change often does not come in easily manageable stages. It’s how you manage the change that decides your success and for some – even survival.

Australia is a wealthy nation with one of the highest levels of internet penetration in the world. That’s the environment we now operate in.

Fairfax has competitive advantage and scale in digital. We’ve been growing our digital audiences since 1995 when we first put our content online.

It has turned out to be a smart move by us – instigated, interestingly, not by editorial but by our librarians.

The websites of our two major mastheads – smh.com.au and theage.com.au – rank among the most visited news sites in Australia 1. Our digital mastheads are better positioned than equivalents 2 in the United States where online news media leadership has been captured by aggregators such as Yahoo, and the television and cable news networks such as CNN.

Today, we are more connected to our audiences than ever before. Our audiences are also bigger than ever.

Nine million out of 21 million Australians (over the age of 14) access our journalism from our major mastheads every month, through print, online, tablets, smartphones and smart TV.

This is vastly larger than the peak of newspaper circulation in Australia in the late 1970s.

Our journalism and content is high quality and independent. We’re proud of that.

Now it’s all well and good to expect to make an easy transition from print to digital – but you and I know that the reality is very different.

All of us have seen our print advertising revenues falling quickly. Perhaps faster than many expected. Digital audiences have grown fast, but development of reliable digital revenue models has trailed this audience growth.

In the Australian market, metropolitan print advertising revenues have declined 7% per annum in the last 5 years, accelerating to 12% annually in the last 2 years.

So how are we responding? As I said at the start – we have been radically changing our business model.

We all know it’s ultimately a revenue game. And we like you all are seeking every available opportunity to hang on to print revenue for as long as possible while embracing digital opportunities, be it cross platform sales, digital innovation, data and metered subscription models and adjacencies such as events.

But to be frank the first port of call required decisive action to deal with our legacy cost base.

In June last year we announced our Fairfax of the Future transformation plan.

1 Ranked No. 2 and No. 6 respectively (Nielsen, 2012).

2 E.g. New York Times is ranked No. 6 (Nielsen, 2012).

The cost component involved a commitment to take out $230 million and a reduction of at least 20 per cent in workforce of 10,000 people. That’s across the entire group not just the major mastheads. And given so much of the cost based in fixed production costs the impact on the newspapers is deep and dramatic.

To measure and drive these changes we set up a Results Delivery Office. So far we are running at over $250 million.

This month we added to our capacity to drive costs down significantly further by simplifying our organisational structure.

We recently brought together all of our Australian publishing media assets into the one division – consolidating the operations of more than 200 titles across news, business, lifestyle and community.

The changing dynamics across so many parts of our industry mean that its makes absolutely no sense to run silos with profound levels of resource overlap and business activity duplication. For the first time, we now have a group-wide integrated approach to sales, product development, audience insights and marketing. This is underpinned by company-wide centralisation of IT, Finance, Human Resources and Strategy.

We also have a Digital Strategy Review group, made up of a mix of internal and highend external talent that coordinates all digital business decision-making.

The new structure streamlines revenue generation, cuts middle management duplication as well as maximising the utility of what we produce through the sharing of content and journalism throughout the group.

We’ve done the work to understand how our costs are divided between our core functions of editorial and advertising sales, and the non-core functions performed inhouse.

We found that 70% of our costs were support functions to the core – journalism and sales – providing considerable scope for outsourcing to specialist providers.

Outsourcing to specialist service providers is providing a significant opportunity to address elements of our legacy cost base.

Take call centres.

We are moving from 31 contact points across our company to a single outsourced operator, TeleTech, from Denver, who will deliver outbound services from New Zealand while inbound calls will be handled from the Philippines.

We are halving the cost of our Contact Centres, saving $16 million and will see best practice results for customer service and engagement.

We are also reducing our real-estate footprint in our two biggest city office buildings through “real-time working” or “activity-based work” where almost all staff use laptops and don’t necessarily have a fixed desk. This will save us $30 million over four years by allowing us to sublease parts of the buildings we presently occupy. The opportunity to reduce our under-utilised space was astounding – we found that 40 per cent of desks were unoccupied at any one time in our two main buildings.

That includes me. From June I will not have an office.

We will measure our people on outputs not attendance and apart from specific roles will allow our people complete freedom to determine where they work.

On the technology front, I mentioned we are throwing out newspaper-based publishing systems and putting in place a web-based Content Management System that’s integrated across our digital activities. The newspaper is now just one result that comes at the end of a day’s activity, not the be all and end all.

We’ve also moved to a single enterprise cloud-based Google Apps solution for all of our employees. Not only does this save us money, but we’ve gone from multiple email systems to just one – and it has delivered real benefits to our employees in terms of usability, convenience and collaboration.

We have absolutely rejected circulation as a relevant measure of newspapers. There is virtually no correlation between circulation and advertising revenue. Advertisers want to know about readership and engagement of our audiences – not how many copies are produced.

We have aggressively reduced circulation that doesn’t reach our core, highly-engaged readership by 15% last year, and we’re removing another 15% this year.

Remarkably – we’ve maintained our readership and print advertising market shares.

Indeed, for the first time in 10 years, circulation revenue went up.

We have also switched The Sydney Morning Herald and The Age from broadsheets to a “compact” format which offers a tighter, easier to read experience – and a higher impact, more effective venue for our advertisers.

Lower circulation and the new format means we can close our two big printing plants in Sydney and Melbourne and consolidate to our smaller plants in regional locations.

These are big calls. Tullamarine in Melbourne was commissioned as recently as 2003 and was designed to produce 400 page Saturday editions. Saturday papers are now only half that size.

We have outsourced our copy editing to third parties and into a centralised, specialised subediting hub we operate in New Zealand.

We have also outsourced our advertising production to a specialist provider in India.

Ultimately it is all about variablising costs. It costs $400 million annually just in printing and distribution to get the SMH and The Age onto the streets.

And one day when print revenues don’t support printing on some days or at vastly smaller scale we need to capture the proportionate amount to the bottom line.

As people demand more digital and less and less print, we have to be in the position to keep the business profitable through that journey.

2. NEWSPAPER PROFITABILITY Fairfax has made a commitment that we won’t run unprofitable papers – but in the end you’re left with the question – how do you know when it’s time to stop printing? It’s a very big question – with myriad implications – both soft and hard tissue.

Assessing profitability is not always straightforward.

At one extreme, you could attempt an exercise whereby all costs are allocated to each edition, each day of the week and profitability is defined on that “day of the week” basis for each print product.

The other extreme is to view the masthead as a powerful brand, running in print that forms the backbone of a profitable multi-platform business with multiple revenue streams? We believe that newspaper profitability can’t be assessed solely on a standalone daysof- the-week “is the paper profitable” basis, but at the same time there needs to be some disaggregation.

Why’s that? I’ll go through a number of examples Number 1: How do we understand and allocate our cost base? These businesses have substantial printing and distribution infrastructures that are complex and intertwined.

Understanding what costs are associated with what parts of the business, and what is required to support a 24/7 digital newsroom are not trivial questions.

Number 2: How do we think about the benefit that our papers deliver to the credibility of our online presence. As I mentioned earlier, Fairfax has Australia’s leading news websites. Part of the reason for this was that we were early in digital, but the other part is that our papers continue to provide strong branding, marketing and are trusted.

Would going digital only impact on the online brand in the medium to long term?

Number 3: What are the broader network effects that need to be considered? For example, our real-estate business, Domain, which has a strong print and online position – is highly profitable. But in print the carriage of Domain relies on the distribution of our newspapers.

Answering these questions is not a trivial exercise, and need to be carefully considered.

A commitment to profitable papers doesn’t mean every edition every day has to be profitable, but it does mean that we need to understand the full economic effects that shutting down a paper (either completely or on a selective basis).

Simply shutting down one day won’t inherently – or immediately – lead to a reduction in fixed costs.

Variablising costs is the key Unless you can remove sufficient costs associated with shutting down a particular day of the week, there is a risk that the revenue will be lost without significantly resizing the cost base.

3. WHAT IS A PROFITABLE “NEWS” BUSINESS? Does it include online classifieds? Maybe – to the extent that certain online classifieds are still dependent on their connection with a printed newspaper – that needs to be considered in the mix.

Fairfax also has several highly successful digital transactions businesses – in areas such as dating and holiday accommodation. Should these be included? Less and less.

Earlier in the journey these businesses relied on the distribution and trust associated with our key mastheads, but today they are standalone businesses.

There are no easy answers here. But the bottom-line is that we know print revenue trajectories are pointing to a day when we won’t have a profitable pure news print business in our metropolitan markets.

4. WHAT DOES A DIGITAL MODEL LOOK LIKE? But a multitude of developments will occur between then and now.

Our print publishing suite will be reviewed to maximise yield.

New digital and adjacent revenue streams will be built.

Big data will improve audience insights and increasingly inform our content choices and revenue capabilities.

The content mix and how it is sourced will change. There are value and volume drivers that will influence our editorial decisions.

Sales will change. Multiplatform sales will grow; total solutions including the on-selling of third party inventory will develop.

The resourcing of newsrooms will increasingly be tailored to the around-the-clock news cycle and to the evolving mix of content.

5. CONCLUSION Let me finish by saying that there’s one thing clear about the journey from print to digital: we know our ultimate destination. At Fairfax, we are being strategic and trying to time our journey as best we can.

We are managing our business and making decisions to ensure that our newspapers and our news business are profitable.

It is what you do in this transition period to maximise opportunities that will be most important, because that’s what will maximise business performance today and in the future.

This means fundamentally changing the cost base, embracing digital, variablising production, reorganising, and assuming revenue trajectories are going to be negative on print.

Bulk of APN cost savings this year to come from NZ media, shareholders told Thursday 2nd May 2013 Text too small? APN News & Media, the Australasian publisher of the NZ Herald, is aiming to cut A$25 million of costs this year, with the bulk to come from its New Zealand operations, shareholders were told at the annual meeting in Sydney.

New Zealand Media chief executive Martin Simons, said APN's major cost restructuring projects have been completed, with the outsourcing of editorial and advertising production, the centralisation of advertising sales and editorial content, and the sale on non-core titles.

Some A$18 million of cost saving are being targeted for 2013 and a further A$10 million in 2014, according to Simons' presentation materials. APN's NZ Media headcount has about halved in the past five years to 1,037 currently.

APN posted an A$456 million loss in 2012, reflecting writedowns on the value of goodwill and its newspaper mastheads as it grapples with what is a global struggle for newspapers facing declining advertising sales and more online competition.

Its response in New Zealand has included relaunching the Herald in compact format, moving regional dailies to compact format and morning delivery, putting the Listener behind a paywall and preparing to put other titles behind metered paywalls. The company was also widened its portfolio of digital ventures, moving to 100 percent of daily deals site GrabOne last year and taking a controlling stake in online retailer brandsExclusive.

Chairman Peter Cosgrove told the meeting that APN has recorded mixed results in the first quarter of 2013.

Cost savings at NZ Media have more than made up for a decline in revenue which is itself moderating as the New Zealand economy improves. Pretax earnings are tracking slightly ahead of the same time last year.

Australian Regional Media "had a tough quarter" with a 13 percent decline in revenue, reflecting a slowdown in the mining sector, falling government advertising and the impact of floods.

Australian Radio Network "continues to perform strongly, with increases in revenue and market share," he said. Radio Network in New Zealand gained market share in the first quarter. Its outdoor advertising businesses are "performing well" while all digital ventures have produced strong revenue growth and will contribute to operating earnings this year, he said.

The company is continuing its hunt for a new chief executive after Brett Chenoweth resigned earlier this year after major shareholders Independent News & Media and Allan Gray Australia opposed a planned capital raising.

The shareholder lobbying caused a boardroom stoush which installed Cosgrove as chair and saw the departure of his predecessor Peter Hunt and independent directors Melinda Conrad, John Harvey and John Maasland. Independent director Kevin Luscombe also retired in April as planned Shares of APN fell 2.5 percent to 38.5 cents on the ASX and have gained 68 percent this year. The shares are rated 'underperform' based on the consensus of 11 analysts polled by Reuters.

ENDS

53 Seconds Of Edited Video ( Source URL )

Read more on the World Congress Blog:

How Fairfax Media reconfigures its products with a digital mindset

30 April 2013 • By Western iMedia *** ENDS ***

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