TORONTO - Torstar Corp. (TSX:TS.B) says it plans to tear down the digital paywall at the country's largest newspaper, the Toronto Star, as it focuses on developing a new tablet app to be launched next year.
The owner of the Toronto Star and other publications is switching gears in its digital strategy of delivering content across multiple platforms — a move it's betting will attract more readers and bring national advertisers back into the fold.
"This is an important strategic step forward for the Star and for Torstar as we commit to our future of cross-platform, a future that we recognize will be increasing mobile," Torstar president and CEO David Holland told analysts during a conference call Wednesday.
Torstar has signed a deal with Montreal's La Presse newspaper to develop a new tablet product for the Toronto Star based on the technology and experience the Quebec publisher used when producing its own iPad app in 2013. The French-language newspaper invested $40 million developing the tablet edition, La Presse+, over two years. It launched in 2013.
Executives at Torstar have been encouraged by La Presse's success with its tablet app and said the partnership will create potential marketing opportunities for advertisers who want to access both English and French readers.
La Presse+ has been able to do what most Canadian media companies crave: attract a highly engaged, younger audience who use the tablet app for an average of 45 minutes a day, and up to an hour on Saturdays.
"These are numbers we've haven't see in the digital world at all to date. We're tremendously excited about that," said John Cruickshank, publisher of the Toronto Star and president of the Star Media Group.
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Torstar expects to spend $1 million to $2 million in the fourth quarter on the project and an additional $10 million to $12 million in 2015.
The new, free app is slated to launch in the fall of 2015, when Torstar will remove the digital paywall for its website, www.thestar.com.
The company put up the paywall in August 2013, allowing readers access to 10 free articles a month before locking them out unless they have a print or digital subscription to the newspaper. Like other media companies, the hope was that the revenue would offset lower print subscriptions with digital subscriptions, but Torstar executives told analysts that digital revenue has not been as strong as expected.
National Bank analyst Adam Shine said it was too early to predict how successful the tablet app will be in gaining a new, larger audience.
"Though Torstar's valuation is rather inexpensive compared with its peers, results are poised for continued disappointment, with... uncertainty surrounding next fall's elimination of the Toronto Star's paywall and the launch of a tablet version of the paper, which will fully replicate the print edition and whose revenues will be entirely based on advertising," he wrote in a note.
Like other newspaper publishers, Torstar has been struggling with declining print advertising revenues, a trend it expects to continue into the fourth quarter. Print advertising declined 20.8 per cent year over year at the Toronto Star, and 8.9 per cent at its Metroland newspapers in the last quarter.
However, the company said multi-platform subscriber revenues and flyer distribution revenues are expected to be relatively stable for the balance of the year.
Torstar said it had a third-quarter profit of $125.3 million or $1.56 per diluted share as the sale of its Harlequin romance book business boosted the bottom line. That compared with a loss of $70.9 million or 89 cents per diluted share a year ago.
Excluding the sale of Harlequin, the company reported a net loss from continuing operations of $87 million or $1.08 per share in the third quarter compared with a loss of $80.2 million or $1.01 per share in the same quarter last year.
Operating revenue slipped to $199.9 million from $215.7 million in the third quarter of last year.
Torstar sold Harlequin to global media company News Corp. for $455 million earlier this year. The company said it used some of the proceeds from the sale, which closed in August, to pay down debt.
Holland said that the company would likely not consider using the rest of the money to "double down" or purchase more newspapers, if they were to become available.
"As it relates to daily newspapers or community newspapers from our perspective, we're pretty value focused right now. To the extent that we were prepared to allocate some of this capital into this space, we'd have to be pretty convinced there were merits from a value perspective," he said.
"That's the lens that we'll look through and, a further constraint — I'm just sensitive to us having had a vehicle that was offering diversification (Harlequin) to move too much capital into a vehicle that does not (newspapers)."
Last month, Postmedia, owner of several newspapers and websites including that National Post, purchased the assets of Sun Media from Quebecor (TSX:QBR.B) for $316 million. The blockbuster deal is still subject to regulatory approvals, which some speculate may include putting up some newspapers up for sale due to competitive reasons.
Along with the Toronto Star, Torstar publishes the Hamilton Spectator, Waterloo Region Record, the Guelph Mercury and more than 100 community newspapers in Ontario. In addition, Torstar owns Free Daily News Group Inc., which publishes the English language Metro newspapers in several Canadian and several digital businesses including toronto.com and workopolis.com.
The Canadian Press is jointly owned by Torstar and the parent companies of the Globe and Mail and Montreal's La Presse.
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