Torstar expects more cuts, more deals to supplement digital news focus

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Cost cutting will remain a major priority for Torstar Corp. in the coming year, but new digital acquisitions are likely on the horizon after the company announced it is selling its Harlequin romance novel division.

The company's determination to drive down costs in the face of falling print advertising revenues has hurt morale at its flagship newspaper, the Toronto Star. Journalists at the paper withheld bylines from Wednesday's paper to protest the recent introduction of a new class of lower-paid digital positions, which followed layoffs for 11 full-time page editors.

Proceeds of the $455-million sale of paperback giant Harlequin, which will be sold to Rupert Murdoch's News Corp., will go to paying down its net debt, which rose to $173-million last quarter. Beyond that, Torstar president and CEO David Holland said he will be "reflecting hard" about how any deals could affect growth and cash flow.

"We have a very open mind around anything that would supplement effectively our existing newspaper business from a digital perspective," Mr. Holland said Wednesday in a conference call with analysts. But he also noted "there isn't an abundance of digital operations for sale in the Canadian landscape."

Torstar expects to finish its sale of Harlequin, subject to regulatory and shareholder approval, by the third quarter of this year. Sales at the publisher have been on the decline for some time, but it remained profitable, bringing in $48-million in profit in 2013 and nearly $13-million in the first quarter this year.

After owning the book publisher for 39 years, "you can imagine that this call was gut-wrenching," Torstar board chair John Honderich said.

Torstar's first-quarter revenue was $310-million, down 6.6 per cent from the same quarter a year earlier, mostly due to falling print advertising dollars. Earnings were $7.1-million, or 9 cents per share, up from $4.2-million, or 5 cents per share in early 2013. The media division's operating revenue was down $14.6-million or 6.5 per cent in the first quarter, and digital revenue fell 2.7 per cent due to lower revenues from WagJag and Workopolis. But a bright spot was print and digital subscriber revenue at the Toronto Star, which climbed 2.3 per cent.

Among Torstar's strategies to lower costs is the recent creation of 17 new jobs for digital writers, editors and producers at the Toronto Star. They will be paid, in many cases, about $200 less per week than entry-level reporters, which has infuriated Star staff, Dan Smith, vice-chair of the Star's union unit, said.

Publisher John Cruickshank defended the move as a simple decision "to go to market rates" for digital journalists, using websites like the Huffington Post as benchmarks. Current Star journalists are paid at a rate that hasn't fallen since the newspaper's most profitable days, he said, adding: "They've not experienced any of the downturn."

But Mr. Smith said the move creates a class of "second-tier" jobs, and worries "that's where all the population growth" will be funnelled in future. And while he accepts there are new skills in play, he contends Star journalists are already using many of them. "So the issue here isn't us sitting back, recalcitrant about change," he told Torstar's leadership at Wednesday's AGM.

Asked how the skills for new digital jobs will differ from existing roles, Mr. Cruickshank said "it's a matter of negotiation," and talks are ongoing.

Speaking to shareholders, Mr. Holland said "a time of sweeping change in our business" has made adapting quickly a necessity, particularly on the digital side. "We will not own the technology that delivers the news, but we will be there."