Fairfax shares climb 7.4 % as market welcomes digital paywall

Monday 18th June 2012

Shares in Fairfax Media jumped 6.9 percent after the media company battling to contain costs as consumers migrate to the internet for news announced it is paring back its print business and will introduce a digital paywall.

From next year, Fairfax will publish its flagship Sydney Morning Herald and Age newspapers in tabloid format, while their online presence will be put behind a paywall, a move long overdue according to Angus Gluskie, head of Sydney-based White Funds Management. The stock rose 4.5 Australian cents to 65 cents on the ASX, the highest level since May 31.

"It's taken a large amount of time and effort and consideration to try and plan out this change," Gluskie told BusinessDesk. "The market has been expecting something like this for months, if not years."

The shift to charging for online content has plagued publishers since the explosion of the internet as most media companies gave away their content to maintain readership. New Zealand's National Business Review is among the few to successfully introduce a paywall, something it did in 2009, saying the model of free news was 'crazy'.

Gluskie said the lag between today's announcement and when Fairfax's flagship websites go behind a paywall will give the market and rivals time to prepare.

"The important thing for advertisers is if people are regularly viewing this news and it's still valuable to the user, you need to advertise on that media," he said.

Fairfax sold down its stake in online auction site Trade Me for A$160 million, or A$2.70 a share, to New Zealand and Australian institutional investors to help fund the overhaul.

"They're making sure there's no question mark as to how they're going to fund this," Gluskie said.

Since trading resumed, Trade Me shares have jumped 4.5 percent to $3.72 on the NZX, a 7.5 percent premium to the Fairfax placement price.

Gluskie said the 3.2 percent discount on the sale was a very good price given the uncertainty in global markets as the threat of a European break-up looming over investors' heads.

Fairfax hopes to strip out A$235 million in annual costs by 2015 as it sacks 1,900 staff, shuts down two printing facilities and integrates its editorial operations across regional and platform boundaries.

Last week, it cut full-year earnings guidance by 18 percent in what's shaping up to be its worst operating performance since 2008. The media company expects earnings before interest, tax, depreciation and amortisation of about A$500 million in the 12 months ended June 30, down from A$607.4 million a year earlier

Fairfax said any impairment testing for its mastheads will be completed as part of its end of year audit. Since 2010 the media company has taken charges of more than A$1 billion against its mastheads and goodwill.

Today's overhaul of the company's metro print business comes as its biggest shareholder Gina Rinehart puts increasing pressure on directors for a say at the board, and is reportedly building her stake to 19.9 percent.

At the same time, the company has faced speculation its weak share price has left it vulnerable to a hostile takeover bid, while the outsourcing Australian jobs to New Zealand led to journalists to walk off the job.

BusinessDesk.co.nz

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