Revenue models of APN and Fairfax: how they struggled in digital transformation

Abstract

The paper explores how the business models of APN and Fairfax have been transformed from a print to digital environment, and how these models have affected their paywall implementation. It considers whether paywalls are a viable revenue option for legacy news publishers in the future. The paper is based on case study and document analysis methods, and examination of APN’s and Fairfax’s annual reports from 2004 to 2013.

The findings of the paper demonstrate how Fairfax and APN have failed to transform their revenue models in accordance with a shift from a print to digital environment. In 2013 only 14 per cent of Fairfax’s, and three per cent of APN’s total income came from digital sources. Both companies have remained heavily dependent on print advertising and circulation revenue. Therefore they have not found an income base to support their newsrooms and operations in the long term.
The paper demonstrates how the business models of Fairfax and APN entered crisis in 2012 after they wrote down values of their main print newspapers. In the year after this ‘meltdown’, Fairfax implemented paywalls for its Australian newspapers The Age and The Sydney Morning Herald. However, APN has delayed its plans to monetise online content of The New Zealand Herald multiple times.
This paper also considers possible factors affecting Fairfax’s and APN’s paywall decisions. It suggests that as Fairfax made more substantial losses than APN, and was more print reliant than APN, it had more pressure to implement paywalls. The paper also finds that Fairfax had a more substantial financial ownership than APN, and that this should be considered when evaluating the two companies’ paywall strategies. The paper finds that in the first year after implementing paywalls, Fairfax’s digital subscriptions increased strongly. However, despite this in 2013 only two per cent of the Fairfax’s total revenue came from paywalls.

Full text

Revenue models of APN and
Fairfax: How they struggled in
digital transformation

1. Aim: How the business models of APN and Fairfax
evolved from a print to digital environment, and
toward paywalls?
2. Methodology: case study and document analysis
methods - data gathered from APN’s and Fairfax’s
annual reports and other financial documents from
2004 to 2013
3. Key concepts: digitalisation of media;
financialisation of media ownership; online news
commodification
Research undertaken

From growth to meltdown

In numbers
Some business indicators 2004-2013
CHANGE
%
FAIRFAX
APN
REVENUE
+14% (acquisitions)
-
35.8%
PROFIT
-
199.6%
-
29%
EMPLOYEES
-
28%
-
49.8%
MARKET
VALUE
-
70%
-
87%
DIGITAL REVENUE
+27%
+34%

Digitalisation changed news
production and consumption
A former NZ senior journalist:
“Increased workload mean news editors no longer
have time to edit (more pages, less time, fewer
people) - they curate and process. Average time
spent on a story is 5-10 minutes.”
“Difficult subjects are dumped in favour of 'easy
news‘. Stories become shallower, fact-checking is
neglected, research is minimal, copy is rushed
through.”

Print circulation…

… and online readership

Number of APN employees…

…and Fairfax’s

Financialisation intensified profit
motives
•During the research period both APN and
Fairfax gained in financial ownership, and this
intensified their profit motives
•In 2014, New Zealand journalists identified
“profit making pressures” as one of the key
elements that had changed in newsrooms
(Hannis et al., 2014)

Sharp revenue declines

…and sinking profits

Fairfax financial ownership

APN financial ownership

Some key findings
•APN and Fairfax failed to adapt their print
based business models to digital media
environment
•Both companies lacked a long-term digital
strategy, and they attempts to build new
digital revenue streams were not well
considered
•As they failed to translate their print
advertising models into the online sphere,
they lost online classified advertising market
to new competitors

Former APN Director:
•“Newspaper publishers are still trying to sell
content to customers - they should first ask what
kind of content/services customers want and need.
•Advertising departments have not adapted to
online world - ad space is sold as in old print
environment, and there is lack of innovation there.
•Publishers pin their hopes on advertising picking up
again. The truth is that advertising will not ever
again offer similar kind of revenue as it used to in
newspapers golden years.”

Digital income of Fairfax

Digital income of APN

Fairfax digital revenue

APN digital revenue

Some key arguments
•Digitalisation made it difficult for APN and
Fairfax to commodify their print products
as audiences and advertisers moved
online
•In 2013, Fairfax’s digital income 14% of
total, APN’s 3% of total
•Therefore it is not surprising that Fairfax
introduced paywalls for its general
newspapers

Fairfax implemented
paywalls for The Sydney
Morning Herald and The
Age in 2013

Fairfax paywall income increasing, but its
not viable business model on its own

Paywalls for APN’s regional
papers in Australia in 2015

The NZ Herald digital registration
this year

WHY Fairfax has paywalls, not
APN?
•Fairfax had more substantial losses, more
debts
•Fairfax’s financial ownership more
substantial
•Fairfax more print reliant than APN
•Other companies in Australia had already
implemented paywalls

John Klepec, CDO, Hancock Prospecting:
“A series of bad decisions by the leadership team
has increased the number of publication errors
and reduced the company’s performance to cover
news.”
http://hotcopper.com.au/threads/news-gina-rinehart-sells-
out-of-fairfax-media.2453331/#.VkvWGL-YLTE
In February
2015, Gina
Rinehart
sells all her
Fairfax shares

In March 2015,
Rupert Murdoch’s
News Corp
becomes the 2nd
largest shareholder
of APN
News describes the holding as an "investment stake.“
"It's not untypical for News to buy these strategic stakes
as part of a bigger-picture move or a bigger play.”
http://www.smh.com.au/business/media-and-marketing/rupert-murdochs-
news-corp-takes-149-stake-in-apn-as-independent-news--media-exits-
20150319-1m2sxh.html