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Torstar chops dividend in half as it faces another quarter of weak advertising

TORONTO – Weaker spending by advertisers left another mark on the results of Torstar Corp. as the publisher halved its dividend payments and focused on growing readership of its new tablet app.

The media company, which owns the Toronto Star and various other newspapers in Ontario, reported a loss Wednesday as print advertising revenues dropped 13.5 per cent at its flagship newspaper — a “moderation” of declines faced in recent quarters.

Chief financial officer Lorenzo DeMarchi said Torstar’s media assets, which include the Star Media Group and Metroland Media Group, continue to face challenges from ongoing shifts in spending by advertisers.

“Indications are that revenue trends experienced at Star Media Group and Metroland in the third quarter have continued early into the fourth quarter with print advertising revenues likely to continue to be under pressure,” he told analysts on a conference call.

He said the company also expects a modest decline in subscriber revenues through to year’s end.

During the third quarter, Torstar (TSX:TS.B) slid to losses of $164.3 million versus a profit of $125.3 million in the same period last year.

Included in the quarterly loss was a $135.4-million writedown that accounted for lower revenue projections at the Metroland papers, driven by economic weakness and less interest from advertisers. A year earlier, Torstar booked a pre-tax gain of $224.6 million on the sale of its Harlequin romance novel division.

Softer advertising hurt operating revenues, which fell seven per cent to $185.4 million, as the sale of print ads continued to slow. Overall revenues from the Metroland Media Group fell 8.8 per cent.

Digital revenue across Torstar’s operations experienced better results, jumping by 22.8 per cent, mostly from the acquisition of VerticalScope. At the Star Media Group, digital revenue increased 5.1 per cent on better results from thestar.com.

Along with its financial results, the company said it would chop its dividend to 26 cents per share annually starting in the first quarter. Torstar had promised to maintain its dividend until after deciding how to invest money earned from selling Harlequin.

Over the past year, some of those plans have begun to take shape.

In July, the company announced buying a 56-per cent interest in VerticalScope Holdings Inc. as it looks to expand beyond traditional media assets. VerticalScope specializes in the world of niche online forums that cater to everyone from car fanatics to pet lovers.

The Toronto Star has also been rolling out its Star Touch tablet application, a colourful alternative for telling news stories it hopes will resonate with younger readers and keep advertisers from straying further.

“We ultimately made a decision to go with high growth … with a commitment to reinvest back into the same business,” said CEO David Holland.

The Star hired about 70 newsroom staff ahead of the Star Touch launch on Apple iPads in September. A version of Star Touch will be available for Android devices in early December, spokesman Bob Hepburn said.

Under the current plan, Star Touch will be exclusive to tablets despite an increasing number of news readers accessing information through their smartphones.

Several news organizations have decided to scrap their tablet versions in favour of prioritizing apps.

Last month, Postmedia shut down its evening tablet edition in three Canadian cities and British tabloid the Sun scrapped its tablet app to make its stories available across all digital platforms.

However, other media outlets have seen their tablet apps succeed.

French-language newspaper La Presse is making plans to publish only a Saturday newspaper starting in January as it makes tablets a priority. Readership of the tablet app has eclipsed that of its newspaper, the publisher said.

The Star hopes to follow in those footsteps with a goal of 180,000 daily Star Touch readers by the end of 2016, Holland said.

Star Touch is expected to cost between $11 million and $12 million this year, when factoring in development and marketing, which is a couple of million dollars higher than initial estimates. Another $8 million will go into the project next year, the company said.

“We’re trying to build something here and it’s going to take time and marketing dollars to support it,” Holland said.

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.

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