It appears that reports of the death of Canada’s print media sector have been greatly exaggerated. This is because the efforts of some of the sector’s largest players to restructure their operations, trim costs and expand into the digital world have paid off, say securities analysts, who predict a future of healthy profit margins.

Before the recession, the print media sector was in some difficulty. Newspapers had been struggling as readers increasingly went online to get their news. At the same time, advertisers had been slowly shifting their budgets to new media to follow consumers.

And when the recession hit in full stride in late 2008, the print media sector was hit hard. Advertisers slashed their budgets for newspaper ads without mercy; simultaneously, consumers who had lost their jobs or were worried about losing the their jobs cut back on their newspaper subscriptions. Add to that the advent of eReaders and tablet computers, such as Cupertino, Calif.-based Apple Inc.’s iPad, that replicate the experience of reading newspapers in a digital format, and all the ingredients were there for a perfect storm.

In fact, one of Canada’s long-time media giants, Winnipeg-based Canwest Global Communications Corp., met its demise in late 2009, when its massively reduced revenue could no longer carry its debt payments. At that point, many questioned the future of the print media sector in Canada.

But, unlike the debt-heavy Can-west, other print media giants, such as Toronto-based Torstar Corp., Montreal-based Transcontinental Inc. (publisher of Investment Executive), and Vancouver-based Glacier Media Inc., have always had extremely low debt levels and healthy balance sheets.

Rather than crumble under the pressure, these firms used the recession to trim costs and grow the digital sides of their businesses, says Adam Shine, senior vice president and media equities analyst in Toronto with Montreal-based National Bank Financial Ltd.: “In the face of a new reality, these companies are pursuing multifold strategies, taking a different approach to the newspaper business.”

One strategy to operate more efficiently was the merging of the print and online teams of each publication, so that both platforms were working in sync. This was the strategy employed by Transcon’s media division, which publishes Elle Canada and Canadian Living, among others. By restructuring these groups — as well as selling off the direct-mail arm of its U.S. business — Transcon has effectively trimmed its workforce by 10%, or 1,500 employees.

As a result, Transcon has restructured its operations to capitalize better on the digital component of its business, says Aravinda Galappatthige, media analyst with Toronto-based Canaccord Genuity Inc.: “It has made its facilities a lot more flexible for handling multiple platforms than just simply printing.”

Torstar has also trimmed its labour costs. It cut about 1,000 staff positions during 2008-09. The company also gained $345 million in cash by selling its 20% stake in Toronto-based CTVglobemedia Inc. Although Torstar hasn’t yet announced how it will use the cash, analysts suspect it will go toward paying down debt.

Looking at the bottom line for these companies reveals that their efforts have yielded profits. Torstar’s revenue for the nine months ended Sept. 30, 2010, remained flat at $1.1 billion, compared with the same period a year earlier. Revenue from its newspaper and digital segment rose, however, to $715 million from $685 million. Torstar’s net income jumped to $34 million, a sharp rise from the $22 million loss it suffered in the same period a year prior. While there was growth in digital sales, most of that additional revenue can be attributed to a bounce-back in national advertising for the print side of the business, says Galappatthige: “The classified ads and retail ads have picked up substantially.”@page_break@As for Transconinental, its top line remained relatively flat year-over-year, but its efforts to restructure and save on production costs has led to growth on its bottom line. For the fiscal year ended Oct. 31, 2010, revenue was $2.1 billion vs $2.2 billion a year prior. Its media sector contributed about 29% of revenue, or $608 million vs $607 million a year earlier. Excluding the sales of publications that were closed or sold, revenue from Transcon’s media sector grew by $15 million organically. The firm’s overall net income rose dramatically to $167 million, vs a loss of $82 million in fiscal 2009.

Glacier Media, meanwhile, specializes in niche markets. It owns a variety of community newspapers, such as the Kamloops Daily News, and trade publications, such as the Northern Miner.

Readership for the urban dailies is declining at a rate of about 5% a year, but community newspaper readership is seeing a slower decline of about 2% a year and will most likely survive the digital revolution, says Galappatthige: “Although people can read the urban dailies online for free, community news has always been free and it’s necessary to read the paper to get all the information.”

For the nine months ended Sept. 30, 2010, Glacier Media’s revenue grew to $180 million from $169 million for the same period a year earlier. Its bottom line increased to $17 million from $14.6 million.

Expanding digitally is the next frontier for all these companies, says Joscelyn MacKay, analyst with Chicago-based Morningstar Inc.: “As people shift their consumption of news from print to online, growing digitally is a way to offset that pressure.”

Although many sector-watchers had thought that eReaders and tablets such as the iPad would lead to growth of online content, it’s too early to tell what impact they will have, says Galappatthige. Newspaper companies and Apple are trying to work out a business model in which companies can distribute their publications through iTunes, with Apple taking a percentage of that revenue. “Until the proper subscription model is worked out,” he says, “it will be some time before iPad subscriptions pick up.”

Growing digitally means finding ways to add value to consumers beyond posting printed publications online, says Shine: “It’s not just about replicating online editions of the same newspapers; it’s about creating an online experience that enhances content.”

Transcon has had success with its online strategy, adding interactive portals such as its recipe sharing forum for online readers of Canadian Living, says Shine: “It’s catering to a specific demographic that makes this successful.”

In addition, in May 2010 Trans-con acquired LIPSO Sys-tems Inc., a “mobile commerce” firm that has deals with Canadian public-transit companies, including the Toronto Transit Commission, to use GPS technology to allow riders to have next-vehicle arrival times sent to their mobile devices by text message.

Torstar also has been aggressive on this front, acquiring online businesses to mitigate the pressure on its flagship Toronto Star newspaper. Torstar now owns Workopolis, an Internet recruiting website; Olive Media, an online advertising wholesaler; and eyeReturn Marketing, an online marketing and consulting business.

These efforts have paid off, says Galappatthige: “Revenue growth for Torstar’s online businesses was 30%; for its printed segment, only 9%.”

If you have clients invested in any of these companies, he adds, the key point to remember is that print is a stable sector with steady cash flows — and investing in these firms is more about looking for income than counting on double-digit growth. IE