February 24, 2009 12:00am
Hera;d Sun
WILL there be Fairfax broadsheets for Costello or indeed anyone else to write in, much further into the future?
The most stunning revelation in Fairfax Media's numbers was that it earned more from its online operations than from the two 'rivers of classified gold' - its two broadsheets, The Age and theSydney Morning Herald.
Even more tellingly, the single biggest component of the online profit has precious little to do with media in anything remotely like the traditional sense, far less journalism. And even less to do with Australia - it was the New Zealand Trade Me online advertising business.
Talk about climate change, in the half the two rivers ran about as full and fast as the Murray - generating just $47 million in profit before interest and tax (EBIT). In contrast, online generated $51 million, with around half that coming from Trade Me.
In the December 2007 period, the two broadsheets contributed $70 million or nearly double the $45 million that came then from the online businesses.
The broadsheets have been hit by two perfect storms with any realistic assessment suggesting they will only get worse this year and longer-term.
The first is the traditional reality that costs are locked-in, so what happens to revenue tends to flow straight through to the bottom line.
In the good times that's been fantastic. In the latest half though, a $21 million drop in revenue was matched dollar-for-dollar by a $21 million drop in EBITDA (earnings before interest, tax depreciation and amortisation).
Because of a rise in depreciation, it was even worse at the EBIT level - profit dropped by $23 million.
Online is less cost-inflexible and less capital-intensive. So depreciation took just $5 million of online's $56 million EBITDA, as against $23 million or nearly a third of the broadsheet's EBITDA.
The second storm is, of course, that fundamental erosion of print's classified base. The 'climate change' that the occasional 'flood' in a property boom is not going to prevent.
But nothing could more explicitly demonstrate the basic insoluble problem: that while the ads might be migrating to the online space, whether or not Fairfax keeps them, the profits don't flow with them.
Take out Trade Me across the ditch, and Fairfax made precious little online in Australia. But those revenues came with substantial costs.
But at last they are growing. Albeit mostly in NZ. Revenues in every other division were down, and in every case operating profit fell by more than the revenue drop.
And this, when the Australian economy was still in reasonable shape. At least, compared with what might come.
Fairfax will be praying - in the non-religious sense of course, that is de riguer these days and was on display again last Sunday - that the government's stimulus packages will work and quickly.
Fairfax, and its lenders. It has $2.5 billion of net debt and is uncomfortably close to its debt covenant limits.
Shareholders are merely bystanders in all this. There is no way Fairfax is going to go to them for fresh capital.
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