Torstar Corp hopes paywall will revive revenues after profits tumble to $4.2M

TORONTO, Cananda – Torstar Corp. (TSX:TS.B) hopes its digital paywall, expected to launch in the third quarter, will provide a new revenue stream as the newspaper and book publisher struggles with declines in print advertising.

John Cruickshank, publisher of the Toronto Star, said the launch is taking longer than expected because of technical challenges in trying to link the existing circulation system to the metering and content systems.

“It’s actually fairly complex,” said Cruickshank. “There are three different pieces that need to be linked together. It’s never been done before in the way that we want to do it and that’s why it’s taken rather more time than we might have hoped.”

The company, which operates a number of digital properties along with publishing the Toronto Star and other newspapers in Ontario as well as Harlequin books, reported a decline in both revenue and net income in the first quarter.

Net income attributable to equity shareholders tumbled $13.3 million to $4.2 million, or five cents per share. That’s compared with $17.5 million, or 22 cents per share, in the same 2012 period.

At the company’s annual general meeting on Wednesday, CEO David Holland said Torstar is struggling to attract national advertising online, but is seeing some growth in digital ad revenue from local sources.

The company also said it will continue to restructure its operations at the Toronto Star newspaper and focus on growing its Metro franchise across Canada.

Torstar expects to reduce costs in its media business by $14.8 million for the balance of the year due to restructuring initiatives including the recent outsourcing of pagination to Pagemasters North America.

The Canadian Press — which is jointly owned by the parent companies of the Toronto Star, the Globe and Mail and Montreal La Presse — started operating Pagemasters North America in 2009.

Cruickshank said the company will continue to look for ways to reduce costs.

“We don’t have anything else in mind at this point, but we need to continue to look at ways that we can reduce costs and maintain the very high quality that we have,” said Cruickshank.

“For us what’s important is preserving the core; making sure there’s always a core of great journalism there. Because that’s what the future will be all about.”

Adjusted earnings per share were 14 cents, down from 22 cents in the first quarter of 2012. The adjusted earnings excluded restructuring and other charges and non-cash foreign exchange in both years, and gain on the sale of assets in 2012.

Total segmented revenue in the three months ended March 31 was $332.4 million, down $18.4 million from $350.8 million in the same 2012 period.

On the Toronto Stock Exchange, Torstar shares were down 3.9 per cent, or 26 cents, at $6.33 in afternoon trading.

EBITDA from the segments was down $9.4 million to $29.4 million with the Media operation down $5.7 million due to lower results at Star Media Group.

But Holland said Torstar is encouraged that its community media operations, Metroland Media, reported a modest increase in earnings in the quarter.

EBITDA, or earnings before interest, taxes, depreciation and amortization, is a non-standard accounting term that many companies feel gives a better understanding of their business.

EBITDA at Harlequin was down by $2.8 million to $18.2 million, excluding the impact of foreign exchange. Lower results were anticipated due to comparison to a very strong first quarter in 2012 and the impact of higher year-over-year digital author royalty rates.

Holland said Torstar is focused on trying to adapt to the financial challenges it is facing.

“These challenges include an acceleration of headwinds that newspaper organizations are facing, navigating through a changing environment for book publishers and dealing with the fragile, global economic conditions that continue to persist,” he said.

“Evolution is not a choice, but a necessity for Torstar.”