Torstar faces third-quarter loss as advertisers buy less space in papers

TORONTO – Torstar Corp. (TSX:TS.B), owner of the Toronto Star newspaper, struggled to keep advertisers buying space in its flagship newspaper, even as a scandal involving Toronto Mayor Rob Ford gained momentum this summer.

The media company, which also owns Harlequin books and other community newspapers across Canada, says it lost $70.8 million in the third quarter, which factored in a 16.6-per cent slide in print advertising revenue at the Toronto Star.

The loss included an $85.4-million writedown to recognize the declining value of its assets.

Torstar expects advertisers will remain fickle as they look for alternatives to buying ads in newspapers. The company noted a particular decline in ad buys across its national platforms, particularly from automotive, real estate and retail advertisers.

“The media segment continued to face challenges as a result of shifts in spending by advertisers, combined with economic uncertainty,” said chief financial officer Lorenzo DeMarchi in a conference call.

“For the balance of the year, we expect print advertising revenues to continue to be under pressure, but we anticipate that distribution revenue will continue to grow.”

As a result, Torstar had an overall loss of 89 cents per share in the third quarter, compared with a profit of $11.1 million, or 14 cents per share, in the same three months ended Sept. 30 last year.

On an adjusted basis, Torstar earned 21 cents per share, which met analyst expectations, according to a survey by Thomson Reuters. It came in a one cent higher than a year ago, after excluding the asset impairments, restructuring costs and other items.

Shares of Torstar were nearly three per cent lower, down 17 cents near midday, at $5.61 on the Toronto Stock Exchange.

The uphill battle Torstar faces with advertisements has been felt across the industry. Last month, Postmedia (TSX:PNC.B), publisher of several big city newspapers, said it expects weak advertising trends to continue into next year.

Publishers have also tried to keep their subscriber numbers intact as more readers migrate to the websites of papers for their news updates.

“People were just calling up, cancelling the print subscription saying ‘I get it all for free on the web,'” said president and CEO David Holland.

So, like most newspapers in Canada, Torstar began rolling out paywalls at many of its publications, most notably the Toronto Star brand in August, which gives readers 10 free articles before locking them out unless they have a subscription.

“One of the benefits of getting in behind this paywall … is to actually build our subscriber revenue across platforms,” Holland said.

However, executives say it’s too soon to gauge whether the summer launch was a success.

“It’s so early that it really is difficult to give you a response,” said publisher John Cruickshank in response to one analyst’s question about reception to the paywall.

“We’ve looked at models that are like the model that we have adopted, and looked at the experience of those newspapers, and tried to give ourselves some sense of where we want to be after six months. After six months I’ll have a better sense of if we’re tracking there.”

However, he noted that since the paywall went up, page hits to the website have gone down.

On the positive side, the company has seen the popularity of its print editions increase, likely in part from interest in Mayor Ford, who has been the centre of various controversies tied to a video that is reported to appear to show him smoking crack.

Sales of single-copy newspapers have been “more stable than it was prior,” the company said.

“We may simply be reading into stuff that isn’t really a pattern,” Holland said. “You really need a little longer to have readable data.”

Interest in the Ford scandal has directly benefited traffic to the Toronto Star website.

“There’s huge surges on our homepage,” Cruickshank added, without directly addressing the cause for the increase.

“We’re getting an enormous crowd of people coming to the homepage, and as you probably know, there’s lots of ads on it.”

The latest quarter included a total of about $6 million in restructuring charges, mostly in the media division — actually about $1 million less than the year before. For the financial year, the company expects it will save $26.8 million from restructuring its operations, a move that has included staff layoffs.

Torstar says restructuring and cost reduction will continue to be a major focus to contend with lower revenues.

For the quarter, the company reported overall revenue was down 7.7 per cent from a year earlier, dropping to $328 million from $355.3 million in the third quarter of 2012.

The media division, which includes Torstar’s newspapers, accounted for $227.4 million of the total revenue, about $20 million less than a year earlier, while revenue from book publishing was $100.6 million, nearly $8 million lower than in the third quarter of 2012.

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