A Macquarie analyst has recommended that Fairfax should shut down the print editions of The Age and the SMH and move them entirely online.
“Macquarie’s analysis suggests full-year 2010 revenue from The Sydney Morning Herald and The Age, including their Sunday editions, would be around $600m.
“But with costs estimated at $550m, this leaves earnings before interest tax deprecation and amortisation at $50m.
“Pollack said costs could be reduced to $275m if print editions were axed, and should 40 per cent of advertising revenue be retained under the new model, full-year EBITDA would be $55m.”
So if the papers are bringing in revenue of $600m PA … and 40% of $600m is $240m … this person is saying that Fairfax could effectively improve EBITDA from $50m to $55m
$240m is a lot of money to migrate. Let’s say 20% of the $240m is from ‘subscriptions’. That’s $48m. At a $5 a month access fee that means around 800,000 people would need to be full year subscribers to the electronic edition. Tough challenge.
The remainder would be ‘ad revenue’ … around $192m. Making $192m in ad revenue across those two sites on top of their current ad revenue would be ambitious to say the least. Translating the CPMs and extraction per reader the print editions achieve to current online consumption (less pages, less frequently) would be a huge task. I’m not even sure there would be sufficient inventory at current market rates to bring in an extra $192m of net advertising revenue. (don’t believe me, do the math and work backawards based on traffic and effective cost per pageview)
Here’s the issue – advertisers will not be prepared to pay the same amount for ipad eyeballs as they do for print eyeballs. Why? Because in digital channels they want a more accountable model that just CAB audits and Morgan figures – they want third party evidence the user has SEEN or had the opportunity to see the ad and will only pay if this is the case. Early on advertisers will test these devices – and when you test you generally take a leap of faith … but ultimately advertising investments on tablet based advertising will come under the same sort of scrutiny as advertising within the browser (or on TV, or in a magazine) and as a result it will need to adapt its pricing to remain competitive. On top of this, as the channel is a ‘digital’ one … advertisers will demand to know results and ROI around purchases, traffic etc.
I’m all for bold claims but this one by Macquarie misses the mark for me. It’s either a naive claim or has been incorrectly reported by the media. There is absolutely no way EBITDA could improve by doing this. Fairfax would be broke before seeing any upside.