Bullshit detection: Michael Jackson vs. BBC expenses

Posted by Peter Kirwan on 3 July 2009 at 18:22
Tags: BBC, Media

Interesting stat: the has BBC received 748 complaints about its allegedly excessive coverage of Michael Jackson’s death.

According to a BBC source quoted by the Guardian, that’s “10 to 15 times” the number of complaints that the Corporation received about its directors’ expenses, which were published last week.

Of course, this is an apples and oranges comparison. It’s as dodgy as the PR-inspired “surveys” that Ben Goldacre takes apart for fun.

Both stories generated plenty of emotionally-charged coverage, but the news of Michael Jackson’s death was far larger in terms of its impact, and therefore likely to generate more reaction.

It’s also true that complaints about the BBC’s corporate behaviour are rather different from complaints about the BBC’s editorial stance.

That said, it’s worth recalling the sheer aggression with which the Times, the Daily Mail, the Sun and the Telegraph laid into the BBC last week. No prisoners were taken.

Presumably, the BBC’s top brass would like us to understand that the bullshit detector wielded by the British public remains finely-calibrated and highly discriminating. Let’s hope they’re right about that.

Washing cars or whatever: Claire Enders on the future of local journalism

Posted by Peter Kirwan on 1 July 2009 at 00:41
Tags: Media

I’ve spent the evening leafing through Claire Enders’ evidence to the Commons Select Committee on Culture, Media and Sport.

Enders, founder of the eponymous consulting firm, came up before the committee alongside Christopher Thomson, chief executive of DC Thomson, on 16 June.

You might remember the reports. Mostly, these focused on Enders’ forecast that half of Britain’s local papers would be forced to close during the next five years.

For sure, those numbers are significant, but they’re hardly new. Enders Analysis has made similar forecasts in the past.

For me, it was something else about Enders’ evidence (which the Commons got round to putting online last week) that was revelatory.

In Enders, I suspect that the local press at last has acquired an advocate without a visible vested interest who can make its case eloquently at the highest level.

Separately, I’m planning to sift through the minutes for interesting pieces of analysis. But for now, here are Claire Enders’ thoughts on local journalists themselves.

Some readers will squirm at the mention of “very fine people”, but IMHO, it’s a masterpiece of understated appreciation that avoids both sloganeering and mawkishness. In any event, see what you think:

The people who work in the press are highly trained individuals, otherwise they would not still be there. You have to be able to do stories very quickly, you have to have an inquiring mind. I am not saying that all journalists are wonderful people but I am saying that there is a particular cast of mind.

Let us not forget that the British nation produces probably more words per capita than any other nation. We are a very literate nation, so it is a calling that has attracted many very fine people.

Those people may well, as indeed they already do, engage in blogging but they are going to have to make a living during the day, whatever it is - washing cars or whatever - and they will not be able to spend the time or be paid to spend the time to investigate local politics, or local issues which are of extraordinary interest.

If you ever read the local press, you will see that much of what really matters to communities is about the interface between the population and the rulers; the local council or the national government or whatever. Collectively people in a local community feel more empowered if someone is advancing their cause. They expect that of the press.

During the rest of the Q&A session, Enders emerged as a supporter of consolidation and a bold critic of the way in which government has diverted state expenditure on classified advertising away from the local press.

Surprisingly, the committee didn’t ask her for more prospective solutions. Most likely, they would have heard something interesting.

I say this because — unusually for a consultant — Enders is nothing if not forthright. After spending months working as a supplier of data and insights to Lord Carter, she roundly criticized the government’s policies on digital inclusion and predicted that Digital Britain would offer solutions that were “neither here nor there”.

Meanwhile, note Enders’ ironic throwaway reference to journalists seeking alternative employment: washing cars or whatever.

Enders’ pessimism about local journalism connects directly with what she calls the economic “implosion” of local communities outside the “gilded cage” of London.

What Claire Enders brought with her to the petrified meeting rooms of Westminster was a blast of grass roots frustration at a dying government’s inability to shape a coherent response to the crisis in media.

Credit is due to her for that.

How the financial markets engineered bankruptcy as a realistic option for Gannett

Posted by Peter Kirwan on 30 June 2009 at 13:50
Tags: Gannett, Newsquest

“Bondholders are saying that they’re hedged and that they basically want the company to die.”

If you want it in a nutshell, that’s the import of a fascinating (and lengthy) piece about Gannett in The Big Deal by Richard Morgan.

Not so long ago, Gannett possessed one of the sprucest balance sheets in the newspaper industry. In 2007, its debts were 2.1 times EBITDA, compared with an average of 4.4 for its publicly-traded peers.

Two years of horrible declines in profitability have made Gannett’s debts loom larger relative to its profits. No-one expects that trend to go into reverse.

Accordingly, Gannett’s bondholders (who own a large slice of the company’s debt) have flocked to insure themselves against loss. They’ve done so by purchasing credit default swaps (or CDSs).

Credit default swaps insure a lender against loss or default, just as a buildings insurance policy insures you against the possibility of your home collapsing into a pile of rubble.

According to Morgan, demand for Gannett-related debt insurance has grown so large that the company — like AIG and General Motors before it — has become a “CDS magnet”. While Gannett owes net debts of $3.7bn, the notional value of CDSs referencing the company is a remarkable $30.9bn.

This suggests the existence of speculation on an epic scale. According to University of Texas Law School professor Henry Hu, it also raises the prospect of so-called “empty-creditor phenomenon”. As Morgan puts it:

An empty creditor may have started out as a traditional lender by making loans and buying bonds. But somewhere along the line, he began supplementing his basic credit transactions with CDSs or other instruments. . .

Hence, the ability of the empty creditor to render himself less economically sensitive to the fate of his debt issuer, who in earlier eras he would have wanted to stay out of bankruptcy.

In a recent Wall Street Journal article, Professor Hu states the proposition more directly: “Let’s say a creditor lends $100 million but then buys $200 million in CDS protection. . . In this extreme version of an empty-creditor pattern, the lender would actually have an interest in seeing his borrower fail.”

This, Morgan suggests, is precisely what is happening to Gannett.

Gannett may have been laid low by structural changes in its markets. Yet on this evidence, the killer blow may yet be struck by the speculators and financial engineers who have already played such a visible role in the global financial crisis.

In turn, of course, this raises the question of what the market for credit default swaps looks like in relation to Johnston Press, Trinity Mirror, ITV and Independent News & Media.

In the latter case, Denis O’Brien seems perfectly well aware of the potential impact of CDS speculation on bondholders’ negotiating position. . .

Bankers agree to look away as Johnston Press struggles with debt pile

Posted by Peter Kirwan on 30 June 2009 at 12:29
Tags: Johnston Press

As summer gets into its stride, the burdens weighing upon indebted media companies grow heavier.

Yesterday, Johnston Press announced the postponement of a test of its banking covenants from tomorrow until the end of August.

In plain language, this suggests that Johnston Press is no longer generating sufficient profit to keep its bankers happy — something the company predicted might happen as recently as mid-May.

The temporary solution involves JP’s bankers averting their gaze for the rest of the summer. Meanwhile, talks will continue about the company’s £450m debt pile, most of which needs to be re-financed between now and September 2010.

With dogged determination, finance director Stuart Paterson continues to insist that a “severe cyclical downturn” (rather than structural change or ill-advised borrowing) is to blame for the vast majority of the company’s woes.

Yet not much is going to change between now and the re-scheduled covenant test in late August — at least not in terms of underlying performance. Only recently Johnston Press suggested that analysts should revise their annual profit forecasts toward “the lower end of current market expectations”.

So change of a different kind must be on the cards. In the wake of Digital Britain, Johnston Press may finally succeed in offloading some of its assets. It would be surprising if the company wasn’t already engaged in talks about further industry consolidation.

But how much cash could Johnston Press raise by horse-trading the awkward bits of its portfolio where costs can’t be cut much further? The botched effort to sell its Irish newspapers is hardly reassuring.

Alternatively, the banks may re-finance the company’s loans on aggressive terms or swap some debt for equity. They may also insist that shareholders in Johnston Press share their pain.

This would be an unpleasant prospect for both the founding Johnston family (whose shareholding was diluted from 19.5% to 7.6% after JP’s rights issue last summer) and Tatparanandam Ananda Krishnan, the Malaysian tycoon who spent £80m buying into Johnston Press at significantly north of 100p s share last year. Today, the company’s shares are trading at 19.25p.

Johnston Press is currently telling the world is that negotiations are “constructive”.

It remains to be seen whether they stay that way. Solving Johnston Press’s debt dilemma will prove a lot more problematic than ongoing efforts to do the same at Independent News & Media.

The decline & fall of local newspapers, Part 1

Posted by Peter Kirwan on 23 June 2009 at 12:26
Tags: Johnston Press, Media, Newsquest, Northcliffe Media, Trinity Mirror

The decline & fall of local newspapers: Part 2

Posted by Peter Kirwan on 23 June 2009 at 12:25
Tags: Media

For how much longer can Rupert Murdoch spend “major amounts of money” on the Wall Street Journal?

Posted by Peter Kirwan on 23 June 2009 at 11:43
Tags: News Corp, Pearson PLC

At the weekend, the Sunday Times ran a throwaway 150 words on Lionel Barber’s request that senior staff at the Financial Times should consider taking an extra week’s holiday this summer, on 30% of their usual pay.

So what? Well, the report prompted some thoughts from an analyst at Cazenove (reproduced at FT Alphaville yesterday). This excerpt on the FT’s business model bears repeating:

As a reminder, the Financial Times newspaper accounts for only a small part of Pearson group (we estimate 5% of revenues and 3% of profits in 2008, moving to a small operating loss forecast for 2009E).

However, there is a high drop through to profits from cyclical fluctuations in levels of advertising which (despite the retail cover price increase to £2) still account for around 70% of total FT newspaper revenues.

Following a 13% decline in Q4 of last year we have already factored in a 25% fall in FT advertising revenues this year. Each further 10% drop in ad revenues (which we estimate at £180m for 2008) hits group profits by around £15m pa (-2.5% off EPS).

The last cyclical dip in profitability at the FT — caused by the dot.com crash — was nasty and severe. It took the pink ‘un what seemed like ages to emerge from the slump. As a business publisher, the FT tends to decline late in the cycle, and recover late, too.

This time will be no different. 2010 might bring a recovery of sorts for some consumer media. But in its recent survey of the prospects for media, PwC suggests that the market for financially-flavoured business information in Europe will only start to stage an anaemic recovery in 2012.

PwC’s numbers suggest that a similar dynamic will apply to the Wall Street Journal, which shares a proprietor with the Sunday Times. If anything, the US market will prove tougher. PwC expects the North American market for financial information to contract at an average rate of 5.5% between 2009 and 2013.

Not that you’d know it. In New York, Rupert Murdoch has been spending “major amounts of money” on the Journal and Dow Jones, according to the paper’s former managing editor Paul Steiger.

As a result of this largesse, Steiger adds, the Journal has been mostly “insulated” from “all of the trauma that’s been going on in the news business and particularly the newspaper business”. Not to mention the trauma that has now started to affect the market for financial business information in earnest.

News Corp’s investment plan has culminated in the Journal’s recent office relocation from downtown Manhattan to midtown, where rents are up to one-third more expensive. The New York Observer suggested recently that the cost of relocating was “well in the millions, and could touch eight figures”.

No doubt there have been accompanying economies. News Corp’s plans to drive Dow Jones into new information markets look intriguing. It’s also a fair bet that the Journal is less exposed to cyclical advertising declines than the FT.

But additional expenses will shortly be incurred in Europe, where Patience Wheatcroft, newly-installed as editor-in-chief of the Journal’s European edition, is transferring the paper’s regional HQ from Brussels to London.

With News Corp so willing to grease the palms of estate agents on both sides of the Atlantic, the Sunday Times presumably took some pleasure in reporting that FT executives have prepared an “Armageddon” plan that provides for deep cuts in local and international coverage.

Yet given what’s happening to financial information markets, the FT would be daft to ignore the darker possibilities.

The big questions don’t all loom over the FT’s HQ next to Southwark Bridge. As News Corp shareholders would probably agree, a fair few of them — mostly unanswered — have started to gather above the Wall Street Journal’s shiny new home on Avenue of the Americas in midtown Manhattan.

Deflation will put an end to the supermarkets’ advertising jamboree

Posted by Peter Kirwan on 22 June 2009 at 22:51
Tags: Associated Newspapers, Media, Northcliffe Media, Trinity Mirror

O’Reilly & the bondholders: Another twist, another turn

Posted by Peter Kirwan on 22 June 2009 at 13:37
Tags: Independent News & Media

Should journalists working for Independent News & Media be concerned about the talk of a rights issue that emerged over the weekend and was confirmed this morning?

Adjectival flourishes like “emergency” and “deeply-discounted” make the news of INM’s rights issue sound vaguely threatening.

Yes, there’s risk involved. But this also looks like the beginning of the end for INM’s irksome negotiations over the €200m bond it owes to a selection of financial institutions. And that’s good news.

The original repayment deadline was mid-May. This was extended to 26th June while negotiations continued. Now we’re probably looking at a further extension to 24th July.

A successful conclusion to talks would open the way to a separate, badly-needed, deal with the lending banks to whom INM owes a further €1.2bn. This larger deal — already agreed in principle — has been designed to haul INM through the rest of the recession.

The rights issue will raise money for a part-repayment to bondholders by offering INM shareholders the right to buy further shares in the company. If investors don’t take up their rights, the extra shares will be purchased — and offloaded at a later date — by investment banks who underwrite the offer.

This time-honoured mechanism should ensure that INM gets its money — anywhere between €50m and €100m, according to reports.

Emergency? Well, yes, this is the adjective for rights issues the City didn’t see coming, or didn’t want.

Deeply discounted? The explanation here is that INM will offer new shares to the market at a bargain compared to the company’s current share price. The more troubled the company, the deeper the discount required to induce shareholders to throw good money after bad.

This morning, the market is chasing that discount: this explains why INM’s shares fell so heavily when markets opened.

Since mid-May, we’ve seen glimpses of the negotiating positions adopted by INM and its bondholders. Some of this has amounted to little more than grandstanding.

Clearly, the bondholders want to carry away as much of the €200m they’re owed by INM. This is largely because they would rank well down the pecking order (after the banks who have granted loans) in the unlikely event of INM going into administration. Almost certainly, they’d lose their money.

For its part, INM wants time in order to avoid a fire sale of assets at low prices. Short of cash, it wants the bondholders to roll over as much of that €200m as possible into a new bond.

With two shareholders — Sir Antony O’Reilly and Denis O’Brien — holding 56% of INM’s shares, getting the rights issue away should be possible.

(Not everyone feels this way, mind. At FT Alphaville this morning, Paul Murphy used the words “finally, predictably, desperately” to describe the rights issue. He added: “I dont quite see how they can do this at this late stage.”)

Theoretically, this drama could yet play out in unexpected directions. But the willingness of lending banks to re-schedule he vast majority of INM’s €1.4bn debts suggests very strongly that the company won’t go down the tubes.

By the same token, dealing with a company that can’t pay its debts is always painful. In the US cliché, the talks between INM and its bondholders have been all about sharing that pain — between bondholders, shareholders and lending banks.

The bigger question is how long it will take Independent News & Media to pay down to reasonable levels the huge debts it accumulated during the boom years.

The month-to-month standstill agreements now being struck with bondholders feel highly dramatic. But they remain less significant than this other, much longer-term timeline, which could extend well into the next decade.

Local press consolidation: How Lord Carter and the OFT opened the door for the Big Four

Posted by Peter Kirwan on 18 June 2009 at 10:42
Tags: Johnston Press, Newsquest, Northcliffe Media, Trinity Mirror

Two months ago, Sly Bailey of Trinity Mirror told a Digital Britain conference: “All we are asking for is a 21st century merger regime to support 21st century media.”

This week, The Office of Fair Trading published a 105pp annex to Lord Carter’s Digital Britain report. In an accompanying statement, John Fingleton, chief executive of the OFT, argued that the existing merger regime for local newspapers is already “fit for the needs of the media sector in the 21st century”.

If this was intended as a rebuke to Bailey, the chief executive of Trinity Mirror didn’t take offence.

Why? Here, it’s probably important to notice that Bailey’s argument has focused less on the law itself, and more on its interpretation. When competition regulators examine markets for unfair competition or monopoly, it matters tremendously how they define those markets.

Here’s Sly Bailey putting her case in an interview with Jeff Randall on Sky News back in March:

“The problem with that is that the Regulator looks at our industry and very narrowly defines us as print markets, and what we are saying is no, we now operate in a much wider competitive market not least with, with online.”

Here she is making the same point at the Digital Britain conference in April:

“Any merger regulation which doesn’t take Google, RightMove or Monster in to account isn’t fit for purpose. Allowing us to merge and consolidate is the only way we’ll be able to meet these threats head-on.”

Reading the OFT’s response, it’s clear that the arguments voiced by Bailey (and submitted by the hastily-convened Local Media Alliance) have had an impact. Here’s the OFT response on the question of market definitions:

There is no binding precedent on the OFT or [Competition Commission] to apply a particular market definition (that is, the economic market in which the merging parties are considered to operate), or to carry out its competition assessment in a particular way, for a merger in a sector which has been looked at before.

This flexibility can result in different market definitions being applied in different cases, with the market definition being determined by the evidence.

Specifically, the OFT’s report suggests that data submitted by the LMA was “broadly supportive of the case for. . . wider market” [definitions] that include both print-based and online media.

Lord Carter’s suggestion that Ofcom could play a role is also be significant. As the OFT puts it: “The OFT will ask Ofcom to provide views, arising from its understanding of media markets, on factors relevant to the OFT’s decision.” Ofcom already performs this role in the case of broadcast mergers.

Yesterday, Bailey also suggested that Ofcom’s involvement might be “could be a clever answer to a difficult problem”.

This raises the prospect of Ofcom operating as a discreet sounding board between the regional chains and the OFT. Significantly, this week’s OFT review mentions that the regional chains are at liberty to dicuss mergers and transactions with the OFT before announcing them publicly. *

It also reminds the Big Four (as well as other Alliance members, including DC Thomson, Archant and Guardian Media Group) that prospective deals can be “fast-tracked” out of the OFT and into the Competition Commission. The OFT advises that by going down this route “a more advantageous outcome could be achieved by merging parties”.

The OFT’s careful suggestion that nothing has changed is designed to maintain respect for competition law in other sectors of the economy.

Beneath the surface, though, the regional chains have cleared some or all of the logjam. Expect attempts at consolidation to start making headlines sooner rather than later.

* UPDATE 18/06/2009: It turns out that the OFT already offers “extra-statutory advice on an informal basis on competition issues. . . arising out of a prospective merger”. Since 2006, however, the OFT has “not been approached in writing for Informal Advice on any potential local or regional newspaper transactions”.