Torstar looks beyond mainstream media with 56 per cent stake in VerticalScope

TORONTO – Torstar Corp. is tapping into the world of niche online forums by picking up a stake in VerticalScope Holdings Inc., a Canadian company that serves the appetites of car fanatics and offers tips to pet lovers.

The publisher of the Toronto Star, which ditched its Harlequin romance novel business last year for $455 million, is spending $200 million for a 56 per cent stake in the digital media company.

“We’ve been assessing opportunities to employ capital that resulted from the Harlequin sale for over a year now,” chief executive David Holland told analysts on Wednesday as Torstar reported a quarterly loss.

“It’s an important step forward in the transformation of Torstar, positioning the company for growth in its more digitally-oriented future.”

Torstar (TSX:TS.B) was hit by another quarter where the downturn of print advertising revenue overshadowed its efforts to reduce costs across the operations. The company reported a loss attributable to shareholders of $1.1 million or a penny per share for the quarter ended June 30, compared with a profit of $19.7 million or 25 cents per share a year ago.

Operating revenue fell to $206.3 million from $225.6 million.

VerticalScope could offer relief from some of the troubles with its more than 600 consumer enthusiast online forums and premium content sites.

Most of the websites specialize in a particular interest that might be too specific for a large mainstream media outlet. A notable portion of the sites focus on segments of the automotive industry as broad as popular vehicle reviews and as specific as information about tractors and snowmobiles.

The Truth About Cars, one of the more mainstream VerticalScope auto sites, digs into the details of classic cars and industry news.

A variety of other websites owned by the company specialize in technology, home improvement, advice on pets and forums to discuss sports like rugby and volleyball.

VerticalScope is based in Toronto and has about 130 employees.

“The investment in the business provides Torstar exposure to the U.S. economy, which diversifies us away from dependence on the Canadian economy in our media operations,” Holland said.

“I think the types of collaboration we could imagine may have as much to do with leveraging some of the relationships we have with major auto manufacturers in Canada,” he added.

Torstar has spent years struggling to lasso valuable target audiences in hopes advertisers would spend more if they knew which demographics were visiting websites and what they were interested in buying.

Nearly a decade ago, one effort called tried to lure users away from Craigslist with an alternative free online classified site that never took off.

Torstar also launched a series of niche websites — including Parent Central, Health Zone and Your Home — which mainly repurposed content from the Toronto Star. All of those websites have since been shut down.

Holland told analysts it was reassuring that VerticalScope founder Rob Laidlaw and early investor Jesse Rasch planned to stay with the company and maintain a 44 per cent interest in its business.

“They’ve had a tremendous track record of doing this without a lot of outside assistance,” he said.

But one analyst pointed out Torstar wouldn’t pocket all of the benefits of the business without holding a full stake in the operations.

Torstar said VerticalScope plans to make a distribution to its shareholders later this year that if completed would reduce Torstar’s net investment to about $178 million.

Other analysts expressed concern Torstar could reduce its dividend in the coming months, though Holland declined to confirm those suspicions.

“Our position on the dividend to date has been we were quite prepared to maintain the level its been at until we determined what we were going to do with this capital,” he said in response to a question on the conference call.

“Having made the determination … I think it’s appropriate we’re going to revisit our situation.”

Torstar holds an investment in The Canadian Press as part of a joint agreement with a subsidiary of the Globe and Mail and the parent company of Montreal’s La Presse.

Follow @dj_friend on Twitter.

Note to readers: This is a corrected story. A previous version said Torstar holds an investment in The Canadian Press as part of a joint agreement with a parent company of the Globe and Mail.