Toronto Star facing tough road but online taking on important role, CEO says

CP - Despite its successful redesign, Canada's largest daily newspaper continues to face revenue challenges amid ongoing slippage in advertising, while online media has taken on a modest but increasingly important revenue-generating role, the head of Torstar Corp. said Wednesday.

The comments from a concerned Rob Prichard came even as Torstar (TSX:TS.B), owner of the Toronto Star and other media properties, released "solid" second quarter financial results showing overall profits climbing 15 per cent to $30.1 million or 38 cents a share.

"Our growth slowed in the second quarter despite year over year favourable cost comparisons," Prichard said in a conference call with analysts. "The second quarter was tougher than the first."

Three-month revenues rose 1.7 per cent to $397 million, with modest growth seen in newspapers, digital and at the Harlequin book publishing unit.

Prichard stressed the difficulties facing the Star, the country's biggest circulation paper, a trend he predicted would continue. Advertising linage fell 5.6 per cent for the quarter with ad rates barely eking out gains.

The "tough" revenue trends at the paper were offset by the discontinuance of the weekly Scoop, which cost the Star $3.1 million in 2006, and lower pension and newsprint costs, CFO David Holland said.

The redesign of the Toronto Star, which Prichard said has been "greeted with acclaim," will further yield significant savings in the order of $3 million a year because it will be printed on smaller pages.

Overall revenues for Torstar's newspaper and digital division climbed a scant 1.9 per cent to $281 million in the quarter compared with the year-before period.

At the same time, the newspaper's website torontostar.com is enjoying increased traffic and revenues as the company invests heavily in online media.

"Digital revenue for our newspaper and digital segment grew by about 50 per cent year over year, albeit on a modest base," Prichard said.

Although digital revenues accounted for just 4.3 per cent of the total in the quarter, that was still significantly ahead of the 2.8 per cent in 2006.

"This is an important achievement for securing our future," Prichard said.

Besides the Star, Torstar also owns the Hamilton Spectator and other papers in southern Ontario, including the Metroland community newspaper chain around the Toronto area.

The company's Harlequin division, publisher of popular romance novels, continued to perform well, especially in the North American series market.

"For the year as a whole, we expect Harlequin will deliver stable earnings despite the rising strength of the Canadian dollar as business growth offsets the foreign exchange headwinds," Prichard said.

In all, book publishing revenue was $116 million in the second quarter, up $1.4 million, including $900,000 favourable impact of foreign exchange.

On the Toronto Stock Exchange Tuesday, Torstar shares were off 15 cents at $21.85.