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NZME targets positive earnings from paywall in 2 years; profit falls

Tuesday 19th February 2019

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NZME will start charging online audiences for premium content in the June quarter this year, but doesn't expect to start generating earnings for another two years. 

The publisher of the NZ Herald newspaper today reported a 44 percent slide in annual profit for 2018, which it said was due to its increased investment in new revenue streams it hopes will replace a structural decline in its traditional print business. 

Net profit attributable to shareholders fell to $11.7 million in the 12 months ended Dec. 31, from $20.9 million a year earlier. NZME invested $6.1 million in its new digital classifieds businesses, which the company sees as drivers of long-term growth. 

The other area where NZME hopes to make inroads is in charging online audiences to access what it is calling "premium journalism". It hopes to secure 10,000 paid digital subscribers from its 1.7 million digital audience within the first year. If successful, NZME would have twice as many paying digital customers as niche publication the National Business Review did in its latest figures, released last year. NBR has been a frontrunner in New Zealand in charging for online news.

NZME expects to spend $1.2 million in calendar 2019 on its digital subscriptions service, including the cost of globally syndicated content, the launch, and ongoing support. 

It has "modest" revenue expectations for the new income stream in the current year, and says it is unlikely to generate.earnings before interest, tax, depreciation and amortisation before 2021. 

"NZME expects paid subscriptions to make a positive contribution to ebitda in the second year following launch," the company said in a statement. 

Like other publishers, NZME has been attempting to find new income streams, as its cornerstone print advertising is superceded by cheaper online advertising - a market dominated by early movers such as Google and Facebook in digital ads and Trade Me in classifieds. 

Group ebitda fell 17 percent to $54.7 million, with trading revenue down 2 percent at $378.4 million. 

NZME's print revenue declined 4 percent to $211.6 million, although print still accounts for more than half of the group's annual revenue. Advertising revenue was down 6 percent at $114.2 million, while a 2 percent fall in circulation revenue to $81.5 million was limited by a hike in the price. The media group hopes a spin-off benefit of digital subscriptions will be improved retention of print customers. 

NZME's earlier attempt to fend off those global rivals by merging with rival Stuff was foiled by the Commerce Commission, which rejected the deal saying it would aggregate too much soft power under one group. NZME and Stuff argued the tie-up would generate significant economic savings. 

Stuff's owner was subsequently taken over by Nine Entertainment Co, which doesn't want to keep the Kiwi business and is preparing it for sale. 

NZME today said it expects industry consolidation to continue and it will actively seek to take advantage of any opportunities that support its long-term strategy and add value for shareholders. 

The media company's digital revenue rose 9 percent to $48.9 million, while its e-commerce GrabOne revenue dipped 4 percent to $11 million. 

NZME's radio assets, including NewstalkZB, The Hits, and ZM, posted a 3 percent decline in annual revenue to $106.8 million, with weaker business confidence weighing on demand in agency advertising. 

The company won't pay a final dividend, having previously signalled plans to forgo shareholder returns while it focuses on repaying bank debt.

Net debt was $98.3 million at Dec. 31, up from $90.2 million a year earlier. That's a ratio-to-ebitda of 1.8 times. NZME wants to lower that debt by $10-15 million a year, bringing the leverage ratio to 1-1.5 times ebitda. 

NZME didn't give earnings guidance for 2019, saying it's focused on cutting costs to support the continued investment in the digital classifieds and online subscriptions businesses. However, that cost-cutting will likely be "modest". 

First-quarter advertising books were 2 percent lower than a year earlier. While that was a smaller decline than in 2018, the company noted the agency advertising market remains challenged. 

NZME shares last traded at 53 cents, and have slumped 32 percent over the past 12 months. 

(BusinessDesk)

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