![Fairfax Media CEO Greg Hywood after the company's results announcement on Wednesday.](/content/dam/images/g/u/i/t/3/f/image.related.afrArticleLead.620x350.guioc4.png/1487754158702.jpg)
After listing its Domain real estate business on the sharemarket this year, Fairfax Media will focus on the growth of its next great hopes: the Stan video streaming service and the Drive car review and sales website.
Fairfax chief executive Greg Hywood declared a victory for the company's strategy on Wednesday after confirmation of the news that Domain would be spun off drove the Fairfax share price up 8.1 per cent to 94¢, making it the second-most valuable media company on the ASX. Analysts believe Domain could be worth $2 billion.
"It didn't just happen," he said in an interview. "What we have in Fairfax now is a pretty remarkable success story."
The split is one of the biggest developments in the recent history of the company, which owns newspapers The Australian Financial Review, The Sydney Morning Herald, The Age, The Dominion Post, radio stations 2UE and 3AW, and many other media outlets in Australia and New Zealand.
Like other media companies, Fairfax has been hit by a shift in advertising to Google, Facebook and other online companies.
Mr Hywood's response has been to build new businesses that can be promoted to Fairfax's existing audience. Stan, which is 50 per cent owned by Nine Entertainment, has more than 700,000 active subscribers and will break even next financial year, Fairfax said.
Drive has combined with The Motor Report and is one of the company's priorities. "I hope it will be a much bigger business than at the moment," Mr Hywood said.
Fairfax Media reported that first-half profits more than tripled to $84 million, reflecting large write-downs in the same period a year earlier. Excluding one-off charges, profit rose 6 per cent to $85 million. Revenue fell 5 per cent to $913 million.
Mr Hywood wouldn't say when he expected revenue to stop falling, a problem that could become more acute without Domain's strong growth.
Valuing Domain
Company-wide revenue in January was about 10 per cent below the previous year, and 6 per cent down in the first two weeks of February. But digital advertising sales in Domain rose 15 per cent during the half, compared with the same period a year earlier.
Fairfax hopes investors will value Domain higher when it is a separate company because it won't be exposed to the risk of the more traditional media businesses. By keeping a big stake in Domain, Fairfax should be able to maintain control and benefit from Domain's higher valuation. Domain could use its higher-valued scrip to buy other companies.
Another advantage is that Domain may have to negotiate market prices for services it buys from Fairfax, such as access to articles and inserting real estate magazines into the company's newspapers, according to Alex Pollak, a long-time media analyst and founder of Loftus Peak, a fund manager. That should stop one part of the company subsidising another.
"Giving Domain its own balance sheet is a great, sensible thing to do from a corporate strategy perspective," he said. "It's a world where people have egos and a world where these things can be hard to do unless they are separated."
The Domain spin-off was described as a "potential separation" after a review was conducted of the business. Under the plan, no extra money would be raised from the restructure. The new business would cost an extra $4 million to operate, reflecting a new board and corporate structure.
Fairfax said it would keep 60 to 70 per cent of Domain and issue the rest of the shares to existing group shareholders, who will have to vote on the deal. A majority of Domain's directors will be appointed by Fairfax.
Mr Hywood, who was appointed chief executive in 2011, denied a report in a rival newspaper that he would resign by the end of the year.
"They've been saying that for four years!" he said."I like being CEO of Fairfax. I like being in the media."
Cost cuts
Advertising revenue at the main Australian newspapers fell 16 per cent, hit by weakness in retail and car ads. But revenue from digital subscribers rose 22 per cent to $22 million, helped by strong growth at the Financial Review.
By cutting costs, its main newspapers were profitable, Mr Hywood said. Last week he appointed a digital specialist, Chris Janz, to head the Metro newspaper division, which operates the Financial Review, The Age and the Sydney Morning Herald.
After floating the possibility last May of cancelling some print editions of The Age and the Herald , Mr Hywood said the papers would continue to be printed "for some years yet".
He told analysts on Wednesday that shutting the papers' weekday print editions "can't ever be off the table" but it was best for shareholders to continue with them for the moment.
"We have looked at all options," he said. "We all know that print has an end game somewhere down the track."