The Australian Small Business Blog

Sunday, June 17, 2012

Business Makeover – A Case Study



by Dr Greg Chapman, MBA

While not a small business, it is interesting to see what Fairfax is doing about its newspaper business. Back in the 90’s, they still talked about the classifieds as rivers of gold for the Age and Sydney Morning Herald. With the internet and sites like Seek for jobs, car sales and real estate websites, these revenue streams have all but disappeared.

Update Below

Driving these revenue losses even further is the drop in circulation. This is actually a double hit, because when circulation drops, so does ad sales.

The Fairfax response seems to be primarily cost driven. They are outsourcing jobs to cheaper locations, most recently sub-editors to New Zealand.

Fairfax is now cutting unprofitable sales in country areas and also reducing promotional copies. In the past, these numbers contributed to the circulation figures upon which their advertising rates were based, but most advertisers were not that interested in those readers who could be better reached in other, less costly ways. The commission for newsagents for subscriptions has also been reduced and unprofitable education sales have been moved to paid digital subscriptions.

All these actions will reduce the cost line and improve the bottom line, but why should people pay for your newspaper when they can read it online for free? Producing a physical newspaper is not cheap, so the final frontier on cost is to encourage readers to move online in the hope that advertising sales will increase. Fairfax has not followed The Australian in erecting a paywall.

So, in summary, Fairfax, looked at ways to reduce cost of sales, distribution costs and production costs. Increasing prices for advertisers is difficult in such a competitive market. With click-through-rates so easy to measure, advertisers are becoming very hard nosed about what they pay. In addition, unlike visitors to CarSales.com.au, people don’t read the Age online in the hope of finding a car to buy. Newspapers depend on interruption marketing rather than attraction marketing which has much higher conversions. So reliance on ad sales alone is unlikely to save the business which is clearly in trouble.



One area the board seems to be determined not to consider is the content of the product itself. This is evident by the refusal to give Gina Reinhart a seat on the board unless she agrees she would have no input on the product – something that apparently all other board members have agreed to. It is as if, as one commentator mentioned, that the Qantas board could not comment on the type of planes Qantas buys.

While charging readers online is likely to reduce the readers, this may be compensated for by changing content and attracting a wider readership. Ad click through rate may even increase with a paying readership.

With circulation for the physical product continuing to fall along with both online and offline advertising, it seems against shareholders (owners) interests that the board has apparently made payments by web visitors and content changes out of bounds. It seems only a matter of time before the owners replace the board.

The message for both big and small business (and Fairfax is barely a big business anymore) is that no part of the business can be exempted when attempting a makeover.

Update

Breaking - Fairfax to go digital and dump print and erect paywall. No word on content changes.

May Your Business this Year be - As You Plan It.

Over to You. What do You Think? Post Your Comments Below.

Dr Greg Chapman is the Director of Empower Business Solutions and The Australian Business Coaching Club and is Australia's Leading Advisor on Emerging Businesses and provides Coaching and Consulting advice to Australian Small Business Owners in Marketing & Business Strategies Planning & Systems. He is also the author of The Five Pillars of Guaranteed Business Success and Price: How You Can Charge More Without Losing Sales.

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Dr. Greg Chapman is also the author of
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