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Fairfax prepares for a digital only future. Are newsagents prepared?

Newspaper publisher Fairfax announced major changes to its operations today under the heading of FAIRFAX OF THE FUTURE.

The changes prepare the company for a digital only model.  Indeed, on page 17 of the investor briefing document, Fairfax acknowledges that the move to digital only is inevitable, tying remaining in print to revenue. With print revenues in steady decline for years, there can only be one end point, an exit from print.

Click on the image to see the point made on page 16 of the investor briefing. See the pie chart – 34% of the company’s cost base goes to production and distribution. The document notes these as: costs not required in a digital only model.

Every part of the announcement from Fairfax today prepares the company for a reduction and, possibly, ultimate complete retreat from print. The move of The Age and SMH to compact formats (great move and long overdue by the way), the introduction of digital subscriptions (somewhat overdue for their quality journalism offer), the closure of the Chullora and Tullamarine print sites and their digital-first editorial model make the end game clear for Fairfax … and for newsagents.

Fairfax has intensified its focus on cost cutting, targeting annualised savings of $235 million by 2015. It’s in a race again market forces as evidenced in the chart on page 12 of the investor briefing showing the Fairfax audience by media type … chilling stuff.

I suspect that market forces will impact this plan and see the company act on at least one or more of its daily mastheads either shedding some days from the print roster or move to a digital only platform before 2015. Circulation continues to decline for all but a couple of daily newspapers in Australia and this is putting pressure on advertising revenue. Page 17 of the investor briefing makes it clear Fairfax will move to a digital only model if print advertising and circulation revenue declines materially. I think this is happening.

A day by day analysis of the return achieved for The Age newspaper, for example, would, I suspect, reveal at least three days of the week to be loss making: Monday, Tuesday and Friday. I’d expect Wednesday to be doing okay because of classifieds (but only just as advertising is falling away rapidly), Thursday to be strong due to the Green Guide, Saturday to be strong due to advertising and Sunday to be strong due to a good weekend read.

If my assumptions (above) are right, we could (should) see The Age cut days. A number of seven day newspapers in the US have done this. Equally, Fairfax could switch from seven days to digital only of the cost savings of eliminating all production and distribution costs justified the move.  I think we are more likely to see days cut in advance of a complete move – but a switch to digital only is inevitable.

I’d note that the news itself will most likely result in fewer people reading the print products as it puts migration to digital more top of mind.

The Fairfax moves are focused solely on their share price. They should not come as a surprise to anyone, especially not to newsagents. However, I think there will be newsagents who are shocked by the Fairfax moves.

Some state based newsagent associations have spent and continue to spend more time and effort on print distribution issues and plans than on retail yet the future of our channel depends more on retail. I wonder when they will realise their mistake.

While there is value in distribution newsagents consolidating in pursuit of efficiencies, there is even greater value in developing a newsagency model in a world where most newspapers in Australia are replaced by digital only platforms. We know from Fairfax and News that distribution costs are a key focus. There is no up side for newsagents from this focus. What little control newsagents had to drive their distribution businesses is fading. But this is not news.  If only channel leaders realised this and engaged with their constituency more proactively. They should have been spending more time representing the whole channel and not just distribution.

Fairfax is doing what it needs to do for its survival. Its needs do not match the needs of newsagents. Newsagents need to act on what is right for them. In my case, the decision to get out of distribution years ago feels more right every day.

Are newsagents focused on their future? Some are but not enough of them. Hopefully, today’s announcement from Fairfax will be a wake-up call for those with their heads in the sand.

While I feel for the 1,900 jobs Fairfax will shed, many more will be shed in newsagencies as digital replaces print for new consumption. This is a moment of fundamental restructuring which cannot be blamed on anyone. We have seen it coming for a while. Maybe some of those losing their jobs will not engage with more flexible and content driven online platforms.

News Limited is next up to the microphone with their announcement.

11 likes
newsagency of the future

Join the discussion

  1. Gregg

    Mark this does not suprise me but it maybe to late for Fairfax. I came from the print industry and as long ago as 10 years Fairfax discussed changing to a tabloid format but some directors insisted on tradition and that tabloids are for the uninformed swill. Some management tryed and wanted to change to a tabloid to cut costs in print production but the Board overruled.Now trying to do this years to late.
    But Fairfax as a whole, radio stations, print etc have not performed for years, maybe Gina Rhienhart may add some much needed capital improvements and have a say on the board.
    But with previous and current boards calling the wrong shots I dont think Fairfax as a whole will survive.

    1 likes

  2. fred

    “The company said that as long as print revenue remained substantial it was not economical to move to a digital-only model.”

    Stick to the facts Mark,

    2 likes

  3. Newsagent

    I tend to agree Gregg. I am in semirural metropolitan Sydney. We have just added another 100 customers to our delivery run. Majority dont like reading their news online – old habits die hard. I hope that Fairfax dont abandon them. They like getting their newspapers in print. If they are forced online I feel that will be the death knoll for Fairfax. Just my honest opinion.

    3 likes

  4. Robert

    fred, what you talking about? The document clearly says that if they cannot make print worthwhile they will go digital only. Reversing the world wide downward trend in print would be a monumental effort by Fairfax. It is not scaremongering to think it is very likely sometime in the next 10 years Fairfax will be a digital only product.

    1 likes

  5. David Backholer

    Whilst the print media is arguably in decline I consider this post to be scare mongering.

    No where does Fairfax say it is the death knell to print media. In fact they say the opposite that print media and on line subscriptions will compliment each other and we as Newsagents will be a part of the future change for which I agree is necessary in structural change. They are reducing distribution and print costs to maintain the current end model whilst at the same time incorporating the digital age.

    Fairfax will be here in print for years to come and to say or suggest that some days of the week will be or may be cut is pure conjecture at this point.

    We as Newsagents need to adapt- yes- but we do it within the business model we share together with the Publishers.

    The Sun will rise tomorrow you can Bank on it as will Fairfax be with us aligned to trading trends aligned to business wants and needs.

    12 likes

  6. Mark Fletcher

    No scaremongering here David, just dealing with the facts as they are to be found in the Fairfax statement and investor briefing materials. Fairfax lays out the parameters for moving to a digital only model.

    We are on our own and have been for years.

    13 likes

  7. Andy

    This was to be expected. Years ago I was involved in a briefing whereby the future of newspapers in Australia was mapped out. Free community papers were seen as sustainable and had potential for growth, whilst daily papers would inevitably go digital. Metro papers would be the first to go, with country papers to either move to a free model or move online depending on the demographics. At the time a lot of people said that it would not happen in their lifetimes, but things move quickly and here we are, a step closer. Look at who owns most of the free papers in Australia – Fairfax and News Ltd. Expect to see further integration of online, print, radio and tv, as one journalist can cover a story, take photos and use a camera to cover all types of media.
    So where does this leave the newsagent in the future? I agree with Mark that its future is in retail. There will still be a need for specialist products like foreign newspapers, unique gifts etc, but those who think that things will stay as they are for quite a while yet will be surprised at how quickly changes will happen. You need to start thinking about the future now.

    7 likes

  8. Gregg

    Guys interesting article on SBS site.
    http://www.sbs.com.au/news/article/1660313/Too-late-for-Fairfax?

    5 likes

  9. Jarryd Moore

    That was my first thought too Gregg. Change is slow in the halls of old print media and their plans may be too late.

    Gina isn’t getting into media for the ROI. She’s investing in influence.

    Newsagent,

    Your evidence is as-hoc and annacdotal at best. It does not reflect the wider trends.

    10 years is a very long time in todays economy. It was only 9 years ago that Apple opened the iTunes store. They now control large sections of a number of markets including digital music, smartphones and tablets. Facebook launched only 8 years ago and is now an integral part of many people’s life. Twitter, paypal and google all now part of everyday life for many all took off well within 10 years of their creation.

    Mass-market print media needs very large audience numbers to be viable. Once numbers fall below a certain threshold those still in the game will need to get out before they begin to incur losses. That is if they haven’t pre-empted it and ‘forced’ their readers to into an earlier adoption of digital.

    0 likes

  10. Jim

    Hi i will not pay to read online why it is all free ,but will buy papers

    3 likes

  11. SHAUN S

    No print- no early starts :}
    Not such a bad idea , one thing i would like to see happen is give them the flick first , why do we sit back a let them give us the flick , why should they call all the shots . why should they tell us that the day they go digital we will be left behind , hey lets leave them behind now and leave it to them to work out how to get all those paper customers to know about there digital versions .

    16 likes

  12. KMc

    In the end it will not be readers and subscribers who decide what the future is – it will be decided by advertisers and those who control advertising budgets.

    At this stage the jury is still very much out on the advertising effectiveness of digital media versus the proven effectiveness of print. The recent Facebook IPO fizzle was a clear signal that the business community still has not proclaimed full confidence in online advertising.

    Sure print will change significantly but it still has very long legs. It will have to compete with digital but it can and it will.

    Probably the biggest change will be the continued reduction of the number of habitual readers who get the same paper every day of the week. The reader of the future will graze across a number of media types and a variety of platforms.

    The publishers will promote the medium or platform that generates most advertising revenue. For the immediate future that power lies in the hands of print.

    3 likes

  13. David Backholer

    Further to my above comments (6)

    From the report and I quote:

    According to the restructuring plan, moving to a digital-only model was not currently economical for the company…..

    2 likes

  14. James

    The only problem with the prognosis is that no one can make digital only news commercially viable and Fairfax will be no different. This is not so much the death of the Age and SMH, this is the death spiral of Fairfax. Digital news in the UK is dominated by one entity, the BBC, the government funded broadcaster….and so it will be in Australia.

    For any half decent digital news, we will access it free from the ABC in the future. No one will pay to read “NineMSN” standard news snippets which is about all that is possible in the commercial Digital news business model.

    4 likes

  15. Brendan

    Jarryd, I agree 100%. It’s all about scales of economy. Once they can earn enough from online publishing and the cost of printing and distributing leaves low profits they will bail from printed distribution. Paper sales are in free fall for most of us now so these changes are on the horizon and not so far out of sight that we can afford to ignore impending change and what it means to us. Local papers only and charge a dollar for them(most locals do have a price printed on them) for our space on the shop floor? Sound like a plan to me.

    0 likes

  16. theo

    If you can get a podcast 2gb, and listen to Ross Greenwood opine on this matter, monday evening show, and a discussion on it with an adverstising exec.
    I heard also a fairfax exec state that their readership is huge online well, duh it’s free , i used to read the Australian online until a paywall was created – now i buy the paper. – but i am old school. I would like know what the digital take up rate for the herald sun et al is since a paywall was introduced. I tend to sell alot of papers when a “freebie” or collect “footy cards” promo happens. The Age was and still is it’s own worst enemy never offered a reason for people to buy it.
    I am a realist , most things will go online eventually.
    Also Mark i did mention to you awhile ago what would happen if you created a paywall to cover your costs to run, you run a business, this excellent blog site- still free for now 😉
    Cheers
    Theo

    1 likes

  17. Mark Fletcher

    ‘Currently’ is the operative word here David. If we do not prepare for newspapers closing we will not be ready. If we do prepare we have nothing to lose. We should not be afraid of taking responsibility for our businesses.

    5 likes

  18. Mark Fletcher

    “The survivor will be the one who adapts best to the changes.” Mike Smith, media analyst, speaking on 7:30 on ABC TV tonight talking about the fight between News & Fairfax and which of the companies will survive.

    0 likes

  19. Gregg

    If Fairfax has any brains the day they change the format is the day they stop free access to their web site and offer an incentive. Say free access to current subcsribers for 3 months, after that period pay an extra dollar on top of their existing sub for access to the web. This will also keep the newsagents in the loop an give Fairfax an idea of who will take up a web option. After talking to a lot of SMH readers today after Fairfax’s annoucement they may be in for a bit of a shock.
    On a positive front my 22 year old daughter who is a avide reader still living in Sydney tells me she has gone off reading books on the ipad, as have most of her friends. They are board of the novelty and are back buying books? More food for thought.

    6 likes

  20. fred

    So where would you like us to go Mark, Turning us into a franchised gift shop, forget it.

    4 likes

  21. Mark Fletcher

    Gregg I’d expect something like this to be done.

    The problem here is that all this is new stuff for print, like in the last five years. The closest comparison is music but that is quite different to the daily news purchase.

    0 likes

  22. Mark Fletcher

    ‘fred’ I have outlined here and in my Newsagency of the Future workshops plenty of options open to newsagents. None of the ideas has included becoming a franchised gift shop.

    Why are you so angry?

    9 likes

  23. David Backholer

    scare mongering again……… Let’s get positive and turn this into “how we bean advantaged player in the new market”

    Doom brings doom.. get ahead of scams and inuendos everyone…be positive and work with change…

    1 likes

  24. Mark Fletcher

    David you see what you want to see.

    10 likes

  25. yes me 17 years newsagent

    my customers buy paper not for the news. they bought for the special section of the day and who will pay for news online. not me! they are alot of free news why pay????? if i want to buy something i will google and get from the cheapest seller. print will not die, so you think Warren Buffet is idiot?

    1 likes

  26. yes me 17 years newsagent

    the only thing that kills newsagents is rent

    2 likes

  27. Kevin

    Actually it’s not strictly a road map to digital only. But they are putting themselves in a position to do that. Equally they have prepared themselves to stay with a print/digital mix if thats where the opportunity is. The medium and long term future for news distribution will be mixed platforms. Our challenge is to understand our customers behaviour in that context.
    Their print versus digital dilemma is very much like our retail versus distribution question. Newspapers are already only a single digit percentage of our bottom line but they are our reason for existence in the eyes of our community. Customers come to us to buy other stuff because we are the newsagent. If we’re not the newsagent they might well go somewhere else to get that stuff.

    5 likes

  28. Mark Fletcher

    17 yr, I see rent as part of business planning. i.e. what do we have to sell to pay this, wages, overheads and make a profit. Working back from that provides the best input for a business plan.

    3 likes

  29. Tim

    Fred, you’re lucky Mark didn’t offer a ‘dislike’ button.

    13 likes

  30. Jarryd Moore

    It’s important to remember that when talking about “digital” media we aren’t just taking about accessing the same style of website currently on offer. We’re talking about news through tablets, smartphones, TVs and a range of technology either in production or not even invented yet!

    Selling subscriptions to news websites has failed in all but a few notable cases where content is of a very high quality and usually specialised in some way. Paywalls are not the answer for Fairfax. There long term future is more likely a mixture of different offerings such as digital-subscriptions bundled with other products, integration into new technology such as tablets, smartphones or even specialised newspaper-like electronic devices and partnerships with other products such as Apple, Google, Facebook, PayPal, electronics manufacturers, etc.

    It’s hard to tell what the future of digital media will look like because no one has yet made it profitable on a mass-market basis. I suspect some media companies will inevitably have to take some bold and innovative risks in shaping that future – but for now they just seem happy to flounder and hope they find water sooner rather than later. In a faced paced digital world the old print media companies may find their slow and steady ways don’t cut it against their competitors.

    4 likes

  31. wally

    Mark,
    Perhaps a dislike button would also be good.

    7 likes

  32. Derek

    Putting my consumer hat on, I do not need the news that much in my life that I will use paywalls. I prefer Newspapers, that does not mean I do not agree with Mark’s initial post. Digital is the future and I actually liked Jarryd’s post #31 showing much needed insight.

    The questions I would like to ask is why should a consumer subscribe digitally to a paid news site when they can source News free from other sites?

    Fairfax & News have a Brand name will this be enough?

    I can also see opportinities for a few new startups possibly from the wealth of talent & experience that are about to be without a role with Fairfax & News. Its going to be a very interesting couple of years for Newsagents as we events unfold, as long as we do not watch them unfold.

    1 likes

  33. shauns

    found this on the SMH site thought it was interesting
    Which do you prefer?

    Poll form
    Please select an answer. Broadsheet
    Tabloid
    Berliner
    Don’t mind
    View results

    Broadsheet
    47%
    Tabloid
    28%
    Berliner
    10%
    Don’t mind
    15%
    Total votes: 13187.

    looks to me that the most still want newspapers

    2 likes

  34. Samuel

    The real problem for newsagent is, when people purchase a newsagency with the territory & delivery rounds, they pay substantial goodwill for that. But when Fairfax and News are implementing the changes, some newsagents will lose their newspaper delivery income in the future. Who’s going to compensate for those newsagents & families, delivery drivers who lose the jobs? Can our governement have a bailout plan to compensate these hundreds of newsagents and their families? I know the goodwill of a newsagency with the newspaper delivery business will definitely be affected by News or Fairfax decisions.

    3 likes

  35. Jim

    Chris Mitchell, editor-in-chief of The Australian, said it was wrong to suggest Fairfax’s problems signalled the end of newspapers. “The comments from Smith highlight the myopic nature of some Fairfax editors,” he said. “In his own city, the Herald Sun is still selling over 470,000 copies a day, so there is clearly a role for mass circulation newspapers.”

    THIS WAS ON BOLT ,MAKES YOU THINK

    4 likes

  36. h

    Sam.
    when we bought 17 years ago, there was goodwill in the purchase price.
    IF i could sell, there will be NO goodwill in the selling price.
    My feelings about this have no play in economic realities. The government may well have to pay us a pension, when I thought I would not need one, and I can live with that, but can the Government?

    2 likes

  37. Mark Fletcher

    There is no doubt that publishers the world over, and all businesses connected with them, are deep in unchartered waters.

    2 likes

  38. shauns

    How about a no paper day . A day when no one sells any papers no deliverys no nothing , Then when the phone rings off the hook we pass on the phone numbers to the head of these paper companys so the customer can express there views . For me the couple of dollars i would loose i don’t think i would loose any sleep at all .and just maybe when the paper companys get a sh$t load of returns and no sales for the day they might just realise how important we are in the equation .

    8 likes

  39. Derek

    Shaun – ah how nice it would be. The truth however is they do not care about Newsagents and they would not give us credits.

    They are just going to use us until its time.

    1 likes

  40. heleng

    That is a fantastic idea Shaun,i love it,i for one would definately be involved,

    1 likes

  41. Jim

    Hi no money in papers anyway gave my round away ,do not get a lot of add on sales from papers.Have moved on papers now at end of shop

    2 likes

  42. Kevin

    Shauns thats a lousy idea. You might feel better but do you really think that our customers deserve to feel the brunt of our problems with publishers ?

    2 likes

  43. John Fitzpatrick

    Quote from Mr Kim Williams, CEO News today on Connect: Print is not dead and has a strong future in which we, for one, have confidence as we build all our future consumer platforms – print, online, tablet, mobile, broadcast and social. The future might be tough but it is exciting and liberating in terms of there never having been more ways to connect with consumers to meet their needs. We welcome the challenge enthusiastically. My comment – Just maybe Fairfax has missed the boat!
    John

    2 likes

  44. shauns

    Hmmmm Kevin what do you think they will be reading later on down the track ….nothing . Atleast this way it is giving them a heads up on what these companys are going to do eventually . Gees if you think they are going to be upset with just one day of there life with no paper what is going to happen later on down the track . Do you have any sugestions Kevin ?

    2 likes

  45. Derek

    Tend to agree John –

    It is clear they are diversifying – I believe print will be here for the short term however the foot traffic generated for papers may decrease, therefore the add on sales, thats why I eventually understood and agreed what Mark has been saying for 5 years, diversify.

    0 likes

  46. Kevin

    Shauns It might be different in your area. But our customers are extremely passionate about their paper and get very pissed off if they don’t get it on time. We deliver on an average week day around 1600 papers. On a typical day we have between 4 and 6 redeliveries to do. At least one of these people is extremely grumpy. The last time we had a significant delay of a Saturday paper (around 3500 deliveries) we took over 480 calls (we answered and logged everyone of them). Most from people who gave not a toss about the circumstances being beyond our control.

    This is not an aggravation experience we would volunteer for.

    2 likes

  47. Shaun s

    Kevin totally understand , I do not depend on papers as much ,well no where near actually . What are you planning on doing when they say this is the last delivery ,we are no longer going to supply you .

    3 likes

  48. Kyle

    Kevin, may I ask do you offer your customers / subagents credit or do they pay up front / in advance?

    0 likes

  49. Kyle

    Mr Backholer, wake up and smell the coffee!
    Newsagents in the distribution chain are used and abused by publisher’s. Fairfax has capped income distribution agents will now receive via the “flat-fee”, but you cannot cap the costs involved in delivery of your newspapers.
    Newsagents are now simply a tool to keep Fairfax consumers around whilst it attempts to get them switched to digital. Fairfax makes the choice to cut printing to as Mark said a few days per week or cut it all together. Newsagents have NO say in this decision.
    The reason they can do this is the newsagency channel has weak leadership, and is limited legally in taking action such as strikes, boycotting or protesting.
    If the Newsagency Industry were to come together in numbers and dictate how the future of print media unfolded, it would be beneficial for newsagents, the community and (if only they could see)….publishers!
    Fairfax Media is not ready yet to switch to digital. They do not have the online subscribers yet.
    As Shaun S hinted at..perhaps an industry turning to Fairfax and saying, hey this is how it is going to work, or you can kiss your paper good bye is a much better tactic for this industry instead of simply buckling into the pressure because we are too scared to face the future.

    1 likes

  50. Kevin

    Kyle Our subagents are billed every Monday for the previous week. They are expected to pay by the coming Friday. We have about 90% of the money in on time. We have bonds from a couple of them , and we cut them off after 3 weeks if not paid. We have no bad debts for the sub agents.
    Around 50% of our customers pay us directly. They receive a monthly account for the previous month in the first week which they are expected to pay by the end of the month. Our debtors account, which is a major investment, averages around 98% current. We cut delivery at 60 days and go legal at 90 days. We no longer send warning letters.

    0 likes

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