The Evening Standard heads toward profit: What does this suggest to loss-making competitors?

Posted by Peter Kirwan on 14 June 2010 at 12:07
Tags: Media

Interesting to watch Geordie Greig at Friday’s Value Of Journalism conference, organised by Polis and the BBC College of Journalism. (There’s streaming video of his talk here: you’ll need to poke around a bit to find it, though).

Greig seemed tired but spoke well. He was particularly open about the Evening Standard’s economics since the paper was acquired by Alexander Lebedev in early 2009.

Here are my notes, supplemented with some ABC data on the Standard’s current circulation:

The Evening Standard: Pre-acquisition & paid-for

– Circulation (cover price) revenue, annually: £12m

– 140,000 paid-for circulation, falling by 10%-20% per annum

– Total circulation of 300,000 including bulks

– 8,000 distribution outlets

– Distribution costs: 30p per copy per reader (out of 50p cover price)

The Evening Standard: Post-acquisition & free

– Circulation (cover price) revenue, annually: £0m

– 609,000 free circulation

– NRS readership (six months to March 2010): 1.35m

– 300 distribution outlets

– Distribution costs: 4p per copy

Under DMGT, the paid-for Standard reputedly lost more than £10m a year. For Grieg and Lebedev, taking the Standard free came with risks. How much more would advertisers pay in absolute terms to reach a lot more readers? Would this be enough to compensate for lost circulation revenues and erase those losses?

Advertisers have responded well. Greig suggests that yields (per column cm) have risen by 60% since the Standard went free. Last week, the paper hit the £1m-a-week revenue barrier at which it starts to become a break-even proposition.

The maths are interesting for anyone concerned about the relative value of free and paid-for readers.

The old Standard: Ad revenues (assumption) of £30m

Old circulation (ABC – May 2009): 185,000 (paid for)/115,000 (bulks)

Old readership (NRS April-September 2009): 556,000

Ad revenue per issue (/258) = £116,000

Ad revenue per paid-for circulated copy = 63p

Ad revenue per circulated copy (paid-for & free) = 38p

Ad revenue per reader of each copy = 20p

The new Standard: Ad revenues of £30m + 60% = £48m

New circulation: (ABC – April 2010): 609,000

New readership (NRS October 2009-March 2010): 1.35m

Ad revenue per issue (/ by 258) = £186,000

Ad revenue per circulated copy = 31p

Ad revenue per reader of each copy = 14p

The old saw is that advertisers don’t value “free” readers anything like as highly as readers who pay for their news.

It’s true they don’t. But how big is the discount? The old Standard probably wrung 63p from advertisers for the privilege of reaching one paying reader on one evening of the week. The new, free, Standard, probably manages 31p per circulated free copy.

Yet when the Standard went free, it quadrupled its circulation. It also cut huge amounts of cost out of the system. The old Standard cost 30p a copy to distribute, while the new Standard costs 4p a copy.

The Lebedev Standard isn’t out of the woods yet. Break even remains a novelty. The “sunlit uplands of profit” are still “a long climb” away, added Greig. Cost management is still “very, very tight”.

For all of the disclaimers, I suspect that the free Standard is on its way to becoming a success. But this remains a curiously brittle kind of success. Going free cannot be reversed. It’s a bit like shooting the final round in your clip at pursuing villains. From then on, you’re at the mercy of events.

What happens when one of the villains fires their last shot, and begins to compete on the level? The experience of freesheet wars in London suggests that the ensuing losses can be large. Over the cycle, risk is exaggerated by steep increases and declines in the value of advertising.

The Standard’s success relies on the assumption that no-one is sufficiently crazy (or courageous) to follow its example. The massive accumulated losses of London Lite and The London Paper should have warned publishers off for a generation. Yet if the Evening Standard starts to make profits consistently, that assumption could be tested.

Free isn’t a magic formula. It’s just another price point. Beneath it, the fundamental puzzle of overcapacity among the national press remains as real as ever.

Reasons For Saving Radio 6, No.158: Shaun Keaveny on Adrian Chiles & GMTV

Posted by Peter Kirwan on 11 June 2010 at 13:38
Tags: ITV, Media

The reasons for saving Radio 6 keep piling up.

This morning, I found myself listening to the station’s presenter Shaun Keaveny playing Velvet Underground and The Gang Of Four. . . before the 9am watershed.

As if that wasn’t good enough, Keaveny does media analysis, too.

This morning, the laconic Northerner picked apart ITV’s announcement that it would be replacing GMTV with a new show fronted by Adrian Chiles and a “glamorous female co-presenter”. (You can listen to this yourself, on iPlayer, here: the segment in question begins after 1hr 25 mins. . .)

“Do they have to be glamorous?” asked Keaveny. “Are they going to looking at her journalistic CV or is it just onscreen chemistry they’ll be looking at? Which translates to: can we disseminate rumours that they’re sleeping together?”

Next, Keaveny pinpoints ITV’s odd suggestion that the new show will contain more “male-friendly features”. Keaveny suggests that “Arm-Wrestling For Pints” might be among them.

New studios are being built for the £1.5m launch, he points out. At this point, surrealism takes over entirely (so it’s best to simply quote verbatim):

“It’s going to be presented by Adrian Chiles, who they’ve spent do much money on, they’re making the most of it.

“It’s going to be presented from the White Cliffs of Dover, which will be sculpted Rushmore-style into the shape of Adrian Chiles’s face. Apparently.

“And the studio will be situated in his mouth, which I can’t wait to see. It’s going to be spectacular.”

Where to start with Keaveny’s critique? It’s a sharply-turned satire on celebrity egotism, tabloid collusion, and broadcast sexism. Want to criticise the BBC for paying ridiculous amounts to Jonathan Ross? Ah, but perhaps we should also be looking at how much ITV pays Adrian Chiles. . .

No doubt ITV’s new morning show will be great.  Me? I reckon I’ll be sticking with Shaun Keaveny on BBC Radio 6. . .

Guardian Media Group: How City fund managers and cost-cutting saved Mr Marx’s cash cushion

Posted by Peter Kirwan on 9 June 2010 at 14:26
Tags: Guardian Media Group, Media

Tomorrow, when Guardian Media Group publishes its annual accounts for the year to March 2010, those who regard The Guardian as a perverse charity that distorts competition will argue that not much has changed.

They might even point to an increased pre-tax loss at GMG — courtesy of paper-based write-offs — as evidence of deterioration.

The truth, of course, is that things are slowly improving (at GMG and everywhere else).

At first glance, this might seem hard to credit. After all, we already know that this year’s operating losses at Guardian News & Media (home to The Guardian, The Observer and guardian.co.uk) are going to be similar to last year’s £33.7m.

Inside King’s Place, they’re describing this as “heroic” given a 13% YOY decline in revenues.

You’d have to be a loyalist to swallow that. GMG was late waking up to the impact of recession. In the words of one executive, its national newspapers “veered off course” in terms of sustainable losses during the second half of the Blair-Brown boom. (Last year’s operating loss wasn’t an exception: in 07-08, GNM lost £25m at the operating level.)

Internally, GMG executives talk about how these losses reflect “necessary” investments in digital publishing. No doubt that’s partly true. But by this time last year, it seemed legitimate to ask whether the company might run out of ready cash. If the recession had gone on long enough, and if GNM had taken no action, it could have panned out that way.

Tomorrow, however, GMG will reveal a balance sheet containing £261m of cash (including GMG’s investment fund). That’s down only marginally on last year’s £268m. At a company where cash lubricates cross-subsidy, this really matters.

This year, like last year, GMG raided its savings to pay for those chunky losses at GNM. Yet GMG’s investment fund delivered a stellar return of 15% or so during the 12 months to March. The losses and gains more or less cancelled each other out, leaving GMG’s cash holdings much the same as they were last year.

Guardian journalists might feel sickly raising a glass to the fund managers who invested £200m on GMG’s behalf. Yet without the help of Carolyn McCall’s friends in the City, things would have been a whole lot worse.

Of course, GMG hasn’t given itself over entirely to rentier-style capitalism –- not yet, anyway. GNM alone has seen £26m-worth of cost-cutting during the past year.

Some of the benefits of cost-cutting will only emerge in next year’s accounts. Revenues have started growing again. Both of these factors should narrow next year’s losses at GNM. The road may be starting to rise in front of Alan Rusbridger.

More broadly, GMG is under less strain. Next year, it won’t need to bear the losses generated by local newspapers (£6.7m in 2008-2009, and almost certainly more in the 2009-2010 accounts that will be released tomorrow). It also looks as if GMG Radio generated a small profit in 2009-2010, compared with last year’s operating loss of £6.6m.

The group’s cash cows are also looking better than they did this time last year. Internally, for example, there’s optimism about the prospects for selling GMG’s 50.1% stake in Trade Media Group in two years’ time.

In 2007, the last time Trader Media Group was valued in a transaction, it was worth some £1.3bn. At GMG, they’re hoping that the business will be worth more in 2012 than it was in 2007.

EMAP has been stabilized, too. On debt, the banks have been placated. This, it seems, has been achieved without diluting GMG’s holding in the business. Here, the mood music suggests a sale or flotation by 2015. Before then, EMAP could grow by acquisition, although a further cash injection could be required if the company wants to play a major role in consolidating B2B publishing markets.

There’s still plenty of red ink sloshing around. Yet Mr Marx’s cash cushion feels plumper than it did a year ago. Assuming that we don’t descend into a 1980s-style perma-slump, GMG appears to have passed the point of maximum danger.

This, in turn, provokes a question. Who will GMG appoint to succeed Carolyn McCall as chief executive?

The big tasks facing the new boss include steering through the sale of Trade Media Group and bulking up EMAP.

On this basis, I suspect that GMG and The Scott Trust don’t need a web entrepreneur, a bureaucrat or a technocrat.

What they really need is a financial brain. After a year in which City fund managers played such a big role in calming frayed nerves at King’s Place, that would be entirely appropriate.

Mail blasts BT for “eavesdropping” on Facebook users, but fails to mention its own Big Brotherish efforts

Posted by Peter Kirwan on 7 June 2010 at 14:43
Tags: Associated Newspapers, Daily Mail & General Trust, Media

See update to this story, added below, after conversation with John Bromley, managing director of Mail Online, this afternoon. . .

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The Daily Mail let fly with one of its periodic complaints about Big Brotherism on the world wide web this morning.

Jason Lewis, the paper’s security editor, accused BT of eavesdropping on the comments of disgruntled customers who use Facebook.

A source had described BT as “a bunch of unaccountable, business shafting, useless b*******” on the social networking site.

Within hours, the source was contacted by a BT representative who asked: “Is there anything I can do to help?”

The point, of course, is that BT, like many other companies, has taken to scanning social media platforms for negative comments. To do so, it uses software called Debatescape. After harvesting negative comments from Twitter and Facebook, BT then tries to do something about them. It gets in touch with disgruntled customers and attempts to sort out their problems.

In the face of this well-established trend, we’re bound to ask what troubles the Mail so deeply. In a bid to let us know, the paper quotes Simon Davies, director of Privacy International:

This is nothing short of outright spying. . . It may not be illegal but it is morally wrong.  And it is unlikely to stop there. If the regulators decide there is nothing wrong then political parties are sure to use it, along with lobbyists and firms trying to sell us things.

Firms trying to sell us things? Heaven forbid. Among their number, of course, we might count Associated Newspapers, publisher of the Daily Mail.

According to Andrew Bruce Smith, a PR professional who spends much of his time working with social media, Associated Newspapers — like many other national news sites — uses an application called Sophos3 to track and analyse the behaviour of users. Sophos3 describes its software as follows:

“Sophus3 has the capability to identify visitors who come from online campaigns, how they behave on your website and whether they turn into a lead or buy after that. With our analysis tools we can determine the effect of online advertising on consumer interest.”

Analytics software like Sophos3 is a major component of news sites’ efforts to prove the usefulness of online display advertising. It follows users beyond the last click they make on Mail Online, in a bid to prove that users purchase stuff as a direct result of being exposed to specific online advertising campaigns.

Without technology like this, online display advertising will remain a ghetto. And if that happens, journalism itself will become ghettoised as print revenues shrivel up and die.

Eavesdropping? Spying? Big Brother?

Some of you might find the surreptitious behavioural tracking of Mail Online users far more Big Brotherish than BT’s efforts to improve customer services by acknowledging conversations that are, in any event, being held in public on the world wide web.

But don’t worry: the chances of reading a scare story about behavioural targeting in The Daily Mail amount to approximately zero.

Hammering BT for its use of social media is so much easier. Best of all, it obviates the need to answer all kinds of awkward questions about your own organisation’s propensity for spying on web users. . .

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UPDATE: 07/06/2010:

James Bromley, managing director of Mail Online, tweets that this blog post is “factually incorrect”.

We talk, and he tells me that Sophus isn’t actually “contracted individually” by Mail Online. Instead, it works for the Newspaper Marketing Agency, gathering data on visitor numbers across national newspaper sites.

The information gathered by Sophus isn’t behavioural either, says Bromley. Sophus might well be able to track readers “beyond the last click”, but it doesn’t do so for either the Mail Online or for the NMA.

So where does this leave us? Bromley won’t specify exactly how Mail Online tracks its users (although we know the site uses Omniture and Google Analytics). “We’re only doing what any news web site is doing,” he says. We discuss behavioural targeting and the last click problem, but he’s still reluctant to give anything away.

He admits that some advertisers who buy space on Mail Online may be using more sophisticated techniques. This in itself suggests that users of Mail Online are being tracked in ways that might surprise them.

“It’s not really the publishers that hold they key to the information that is captured,” says Bromley.

Arguably, it should be. As Addiply (Rick Waghorn) asked Bromley on Twitter this afternoon: “If the Mail *isn’t* analyzing behaviour of its online readers, then why not?”

So the central conundrum remains. The “awkward questions” I referred to in the original post remain, well, awkward.

In the newsroom of the Daily Mail, BT’s practice of responding to public complaints made by customers is anathema. In the online engine room, there’s a reluctance to discuss how Mail Online currently tracks its own users, or could track them in the future. The tension between between these different approaches remains palpable.

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UPDATE: 08/06/2010: And finally. . . another irony, one of those you don’t spot when it’s looming right in front of you. But which others see perfectly well. Here’s Martin Belam on yesterday’s Tweet from James Bromley of Mail Online:

What is this? A brand contacting someone who had written something negative about them via Twitter to try and put things right? Isn’t that exactly what the article was complaining about

Er, yes: I think that’s about the size of it. . .

Best case scenario: editors to start hiring by Christmas

Posted by Peter Kirwan on 2 June 2010 at 10:02
Tags: Associated Newspapers, Daily Mail & General Trust, ITV, News International

If anything stops the cuts, and prompts new hiring, it’s going to be advertising (not slowly declining circulation revenues). Or as Peter Williams, the finance director at DMGT, put it last week: “Advertising is probably the thing which is going to move the numbers at the margin.”

So what do DMGT’s half-year results, published in the middle of last week, tell us about advertising markets?

How is Associated Newspapers doing by comparison with ITV (ad revenues up 8% YOY in Q1)? How is it faring against The Sun (which led a YOY ad revenue rise of 10% at Wapping during Q1)?

Answer: a rising tide lifts all boats. Between October and December, underlying ad revenues at Associated fell by 7% YOY. Between January and March, they rose by 11%.

That’s very similar to what we’ve seen at Wapping and ITV. In parts, Associated may even have done better. Metro, in particular, seems to have done brisk business during Q1.

The slides accompanying last week’s presentation to analysts suggest that display revenues at the Mail, Mail On Sunday and Metro rose by 15% YOY in January and by the same amount in March.

Peter Williams, finance director at DMGT, told analysts that April was “a bit sort of choppy” but May has been “perfectly OK again”. Like others, he blames the General Election for a slight slowdown in ad spend.

Later, he elaborated, talking about YOY increases in ad revenues:

On a month by month basis, [advertising at Associated Newspapers in] March was actually well into double digits, April is actually quite low, single digits, but I think you’ve got to put those two together, that’s our view, and then May is actually looking, will be back into double digits.

So: growth is coming along nicely at ITV, Associated Newspapers and News International. Speaking in person talking to analysts on Wednesday morning, DMGT’s executives sounded chirpier than the dour earnings release they issued beforehand.

Their joy wasn’t unconfined, however. Williams, for example, warned that Associated “will not get a big bounce in June from the World Cup in the way that ITV does” because this “just doesn’t happen in newspapers”.

He added that the number of ad pages being run by Associated Newspapers “remains some way below 2008”.

And you needn’t expect that Associated will start hiring in a big way any time soon. In the words of DMGT chief executive Martin Morgan, Associated and Northcliffe have “quite a way to go before we need additional resources” to handle the upsurge in ad sales and pagination.

As profits start to surge inward over a much-reduced cost base, there’s a strict hierarchy of needs at quoted companies.

First, bankers get what they are owed (if they weren’t already). After the bankers, it’s the shareholders’ turn to benefit from resumed, or enhanced, dividends. Next come investment bankers touting hot takeover prospects. (As Martin Morgan of DMGT noted last week, media M&A markets seem to be returning to life.)

Last in line come the wage slaves. Even if recovery remains on track, many newsrooms will spend the next six months dealing with a rising tide of pagination on the basis of depleted resources. With any luck, some editors will be hiring again — albeit very cautiously — by Christmas.

Mail Online prepares for digital revenue lift-off

Posted by Peter Kirwan on 27 May 2010 at 15:00
Tags: Daily Mail & General Trust, Media, News International

Mail Online remained the UK’s most visited newspaper site during April, pulling in 40m unique users. Here’s the league table, measured by daily average browsers during the month:

Mail Online: 2.37m (Up 74.5% YOY)

Guardian.co.uk: 1.84m (Up 22.4% YOY)

Telegraph.co.uk: 1.58m (Up 28.5% YOY)

Independent.co.uk: 0.46m (Down 2.1% YOY)

Mirror Group Digital: 0.44m (Up 11.4% YOY)

It has become fashionable to thumb your nose at numbers like these, which don’t reflect things like engagement.

But just look at the contrast between the eyeballs attracted by Mail Online and its ability to monetize them.

Digital revenues from the Mail Online rose by a creditable 20% to £5.4m during the six month period to March. This suggests a run-rate of nearly £13m for the coming year, if growth continues at a similar pace.

Yet this is way behind the £40m of digital revenues budgeted by Guardian News & Media for the current year. You’d have to guess that telegraph.co.uk is playing in a similar ballpark.

Of course, the comparison isn’t entirely fair. By flogging jobs, property, travel and motors, Associated Northcliffe Digital makes nearly £100m a year in additional revenues.

But if we simply focus on newspaper companion sites, it remains clear that Mail Online is experiencing huge audience growth that it has yet to monetize. Its rivals went through this nervy process a couple of years ago.

Looking ahead, the key question is whether Mail Online has got the tools and sales teams in place to sell the hell out of its inventory between now and Christmas.

The site needs to exploit its own audience growth and encourage advertisers to defect from the newly-paywalled Times and the Sunday Times.

Paul Hayes, News International’s top salesman, joked this week that he will be “in the shit” if Wapping’s paywalls don’t work. This is because he wrote the business plan.

At the Mail Online, publisher Martin Clarke might find himself in a similar position if digital growth disappoints during the next six months.

I doubt it will: Clarke sounds bullish. Commercially, this could be a real breakthrough moment for consumer digital revenues at Associated Newspapers.

DMGT: Revenues down, profits up, Tigger goes AWOL

Posted by Peter Kirwan on 27 May 2010 at 11:11
Tags: Associated Newspapers, Daily Mail & General Trust, Northcliffe Media

Here’s an odd one: Daily Mail & General Trust reports a 10% YOY decline in revenues but operating profits rise by 20%.

How come?

The answer is simple: at the end of every downturn, there comes a point when cost cutting starts to outpace revenue declines.

Traditionally, this is the point at which media companies and their shareholders congratulate themselves on a job well done. After sustained cost-cutting, they’ve lowered the bar so far that even declining revenues rush in over it, creating additional profit on the bottom line.

DMGT’s latest results cover the six months to early April. The entire group experienced the end-of-recession effect. But nowhere was the effect more marked than at Associated Newspapers and Northcliffe Media.

At Associated — home to the Daily Mail –- revenues came in at £427m, down by 6% against the same period last year.

Back then, recession looked like an unstoppable forest fire, consuming everything in its path. Now, however, you can see the true scale of the response, which included selling off the loss-making Evening Standard.

Yet even though revenues fell, operating profit more than doubled –- from £18m last year to £42m this year.

At Northcliffe, the regional newspaper publisher, the picture is similar. Revenues were down by 9% to £150m. But operating profits (once again) more than doubled, from a paltry £6m to £14m.

Delve a little deeper, and the end-of-recession effect looms larger. Northcliffe generates slightly more than one-tenth of its revenues overseas. If we disregard these, and focus only only local newspapers published in the UK, the profit growth story looks even more impressive. Northcliffe’s UK newspapers generated £12m in operating profits between October and March, which represents a fourfold YOY increase. (You’ll find the numbers here, on slide 48.)

More often than not, media companies come powering out recessions, gushing profits in a way that seems counter-intuitive after so much misery. Overnight, the tone of management turns Tiggerish, with much discussion of how a flattened organisational structure can “take advantage” of markets that are “bouncing back”.

Look, though, at DMGT’s language this time around. Tigger has gone AWOL. Operating margins at both Associated and Northcliffe might have doubled to around 9%, but both divisions “remain focused on cost control”. Even as profits increased, DMGT’s newspapers shed 680 employees between October and March.

The message is mixed and grim. The combination of continuing job losses and increasing profits will confuse employees. What we’re hearing is the voice of a company that has little or no confidence in our economy’s anaemic recovery.

The numbers might be improving, but the mentality isn’t. DMGT is one company that will not need to change course if a double-dip recession materialises between now and Christmas.

Stop the presses #2: A long way to the all-digital future

Posted by Peter Kirwan on 26 May 2010 at 14:45
Tags: Associated Newspapers, Daily Mail & General Trust, Guardian Media Group, News International, Telegraph Media Group, Trinity Mirror

To say the least, the notion of “switching off the presses” is simplistic. There will be complicating factors we can only vaguely imagine. Here are a few that might emerge:

1) Print could generate profits after digital revenue streams mature

Fickle investors who buy shares in the likes of DMGT, News Corp and Trinity Mirror on the public markets will see no reason to halt print production if it remains significantly profitable.

As others go digital-only, quoted groups may hang around, mopping up the last print-based profits. As competition declines, these could prove hard to resist.

The risk, of course, is that these businesses begin to resemble Big Media’s very own rustbelt. The last men and women standing will need to be dedicated to cost-cutting. They will continue to feel the old urge to protect print at the expense of digital.

2) A two-speed national news market?

Focusing 100% on the digital future as soon as possible has its attractions. Pushing all of your resources and talent in one direction could produce impressive results. A big gulf could open up between digital-only and print/digital publishers.

Privately-held operations like Guardian and the Telegraph Media Group may find themselves free to dive headlong into a digital-only future.

3) Are conservative readers more resistant to change than liberal readers?

Some readers will never be ready for the end of print. But does the Daily Mail (for example) attract more late adopters to its ranks than the Guardian?

Logic suggests that liberals are just as likely to resist the passing of the old medium as conservatives. But the Mail’s editorial campaigning against most (all?) things digital suggests that it believes anti-digital sentiment runs deep among its readers.

Demographic trends might encourage some publishers to hold on to print for longer than others. The Sun still sells around 2m copies a day. . .

4) Print as a break-even platform dedicated to marketing the brand

Some publishers may choose to maintain dwindling print editions as a marketing tool, to promote their brands and drive readers to digital sites. For this reason, too, the death of print may be a lingering affair.

5) The ultimate mopping up operation: print editions go free

The experience of the Evening Standard suggests that free distribution could become the ultimate means of extending the lifespan of the nationals’ print editions.

The infrastructure required to distribute in huge numbers will be daunting. So will the costs. But you’d have to bet that someone will try. The Independent could become a test bed for bigger future efforts.

6) What happens to the huge build-out of print capacity?

Good question. In the run up to 2008, News International spent £650m on huge new printing facilities in Broxbourne. John Witherow of the Sunday Times suggests that these presses “were supposed to last 30 or 40 years” (ie: until 2048).

News International spent big. But lots of its rivals invested in new print plants at around the same time.

It’s too early to argue convincingly that these investments represent an industry-wide miscalculation of strategic proportions.

But what does lots of spare capacity suggest? All other things being equal, it suggests that the cost of printing newspapers, on an outsourced basis, at places like Broxbourne, can only decline. This may represent good news for local newspapers who contract out their printing to vast print plants owned by others.

Alternatively, all of that spare capacity might be dedicated to printing huge runs of a few free national newspapers.

There will be plenty of twists and turns on the road to an all-digital future. Yes, a few broadsheets might switch off the presses by 2015 or 2020 or even 2025. But their exit from the market will open up opportunity for others. Taken as a whole, the transition from print to digital still looks like a lengthy affair.

Stop the presses #1: FT could ditch print by 2015, too

Posted by Peter Kirwan on 26 May 2010 at 13:44
Tags: Guardian Media Group, Pearson PLC

See below for updates on this story. . .

+++

Last week, writing elsewhere, I did the maths on the Guardian’s surging digital revenues.

During an interview/conversation broadcast by Radio 4’s The Media Show, Alan Rusbridger suggested that online ad revenues at Guardian News & Media are growing by 100% YOY. He also suggested that online revenues as a whole would rise by 30% to £40m this year.

These post-recession growth rates won’t last forever. But if you apply more a more conservative growth path to online revenues over the medium-term, it becomes apparent that the Guardian might be able to support its entire editorial operation through digital means as early as 2015.

• At 10 percent annualised growth, the target date is 10 years away, in 2020.
• At 15 percent, it’s seven years away, in 2017.
• At 20 percent, it’s five years away, in 2015.

This, of course, will open the way to switching off the company’s Berliner presses. The Guardian, in other words, could choose to go entirely digital.

Others are alive to the same possibility. This week, Paid Content quotes Pearson’s director of global content standards Madi Solomon:

Solomon says the FT is committing to “less print” and says the FT sees a five-year trajectory for having exited print in substantial part. “They’re not saying that, by five years, they’ll completely stop it, but they do see that the sunset is going to be in about five years for them.”

Paid Content describes how the FT is already staging a “tactical retreat from printing in certain geographies”.

This is interesting. I’d heard that the FT is aggressively squeezing inefficiencies out of its vastly complex print operation that spans three continents and multiple editions. But the existence of a long-term trajectory for switching from print to digital is something else altogether.

You can look at this in the broader context. For much of its recent history, the FT has struggled with wafer-thin profitability and big cyclical swings in ad revenues.

I strongly suspect that outsized digital profits — from online subscriptions and ad sales — are helping to change the underlying dynamics. Digital revenues remain smaller than print revenues, but the associated margins are bigger.

“More of the costs of the editorial operation are coming over on to the online P&L, says Rob Grimshaw, the managing director of FT.com. “If we shut down the web site tomorrow, we would lose a lot of profit.

“That’s what publishers need to deal with. Revenues aren’t on the same scale, but profitability is on a different scale.”

Much of the fear about the future of newspapers we’ve witnessed in recent years has been predicated on the notion that digital revenues will never grow large enough to support traditional news-gathering operations.

But what if national news organisations can push those digital revenues to the point where they support a fully-fledged newsroom? What if the revenues in question end up being more profitable than those generated by the declining medium of print?

The possibility of these things happening — alongside the huge potential of web-based openness and collaboration – is what prompts Alan Rusbridger to suggest that we’re “on the edge of a golden period journalistically”.

It’s a wonderful thought. Increasingly, there’s more than wishful thinking behind it. Whether the answer lies in paywalls, better selling of online display, or both, the news business is getting stuck into the serious business of shaping its future. Looming deadlines have a way of concentrating the mind.

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UPDATE: 27/5/2010: Madi Solomon’s suggestion that the FT might experience the “sunset” of print by 2015 obviously provoked some turbulence inside the FT and Pearson. Initially, the FT’s Ben Fenton tweeted as follows: “Remarks of a Pearson exec on future of print are not FT or Pearson policy. I’m told Pearson is correcting it…”

Then came a kind of correction, from a spokesperson talking with Paid Content. The corrective quotes start out with the suggestion that the FT has “no plans to scale back print operations”. (Well, no, but it’s also fairly clear that Pearson/FT would be failing its shareholders if it wasn’t discussing the future of print internally.)

Some valid points follow. The FT is opening new print plants in places like Abu Dhabi. Its print editions have been doing very well indeed in readership surveys.

At this point, the spokesperson clarifies a bit of delicate politics. Pearson sees print and digital as “complimentary, not substitutional”. (This is the FT’s underlying pitch to advertisers whom it would like to tempt into cross-media deals. It’s also, I suspect, a way of trying to please both print and digital loyalists inside the FT itself. But does the “complimentary” message apply in the case of the iPad, too?)

Finally, the focus moves back to the horizon: the relationship between print and digital is “clearly something you would monitor over time”. Indeed, if digital “was growing extremely rapidly and print was falling very fast in a particular geographical area”, the FT might want to consider going digital-only “on a case-by-case basis”.

This feels fairly close to something in Solomon’s original comments that was almost drowned out amid the talk of “switching off the presses” (I plead guilty here, by the way). Solomon tried to emphasise that this will be a lengthy transition: “That pink broadsheet has such fond memories for so many people that I don’t think they’ll completely stop printing, but they will certainly pull back.”

The FT’s corrective quotes are an understandable effort to pour balm on an anticipated source of friction. It’s complicated by the corporate relationship between Pearson and the FT (nothing life-threatening here, I suspect, just different perspectives).

Yet in the end, you cannot manage the migration from print to digital on a “case-by-case” basis. Senior managers will want a strategy. One that changes over time, to be sure. But one that makes sense of the case-by-case situations.

At the moment, the conversation about print-digital transition might be restricted to a small group of executives. But it looks real enough. Sensible, too. In one way, this is the price of success: the FT and the Guardian are at the forefront of this discussion precisely because their digital operations have been more successful than most.

It’s a given that many similar conversations will take place across Medialand in the not-so-distant future.

Up, down & sideways: Boom time at The Sun, stability at Trinity Mirror and cuts at The Times

Posted by Peter Kirwan on 13 May 2010 at 17:36
Tags: Johnston Press, News Corp, Times Media, Trinity Mirror

So Sly Bailey’s regionals experienced an 8% decline in ad revenues between January and early May. This mirrors the 7.1% decline at Johnston Press over the same time period.

There was no forecast of a return to growth among the regionals in this morning’s trading statement from Trinity Mirror. Management expects “month-on-month volatility” to continue across the company.

Turn to the company’s nationals, however, and things get interesting. The language here was muted, almost downbeat. Ad revenues are “flat” and “relatively stable”: up 1% in January-February, but down 1% in March-April. Circulation revenue fell by 6% across the period.

This feels like a marked contrast with News Corporation, which unveiled its quarterly results last week.

News Corp reported a 10% YOY increase in ad revenues at Wapping during Q1. During the conference call, James Quinn, the Telegraph’s US business editor, got a word in edgeways with Murdoch about this.

Q: “Any sign that the 10% increase will be sustained?”

A: “At the moment, every sign. We’ve had many weeks when the London Sun has had all-time records in revenues. I’ve got to say I’m surprised. But it’s very welcome.

A: Are there specific titles? Is it all display?

A: It’s all display, yes.

Q: Just the Sun or is it across all four papers?

A: The Sun has been the leader, but across the four papers, we’re up.

The contrast in tone with Trinity Mirror is stark. And yes, something interesting does seem to be going on at The Sun. In early April, Media Week described ad sales for the Easter period as follows:

Among trading highlights for the week are a 50% year-on-year increase in spend from the big four supermarket retailers as they focus on Easter dining as well as their expansion into new categories such as electrical and gaming.

Among the biggest spenders for The Sun, in a sector reported to be up 50% up year on year, are B&Q, DFS, Argos, Wickes and Furniture Village.

Perhaps a fleeting 50% increase on top of last year’s collapse isn’t much to write home about. But Murdoch did seen genuinely surprised — his word, not mine — about The Sun’s ability to break “all-time records” in terms of revenues in such a weak market.

Note, too, those final few words, in which Murdoch suggests that trading is up YOY “across” The Sun, News Of The World, The Times and the Sunday Times.

At the Telegraph, James Quinn interpreted this to mean that each of these newspapers is doing better than it was last year.

It would be churlish to suggest otherwise. But if The Sun really is soaring away into the upper atmosphere, what’s happening at The Times and The Sunday Times?

You have to wonder. In Scotland, the Sunday Times has axed its marketing team. By one account, 16 out of 20 journalists could be let go. There’s a suggestion that the Scottish edition will now be produced “from England, with regionalised pages”.

Today, we got the main act: a 10% cut in editorial budgets that could cost 80 jobs at the Times and the Sunday Times in London.

When it comes to cuts like these, one quarter’s trading performance is neither here nor there.

Like HM Government, Times Newspapers Ltd is trying to cut its structural deficit. In the year to June 2009, pre-tax losses came in at £87.7m, up from £50.2m the previous year.

Perhaps management is taking action before News Corp’s shareholders rise up to demand it. In any event, the logic seems remorseless. Two years ago, Wapping offloaded 100 out of 450 sales staff after merging its tabloid and broadsheet advertising teams. Here’s how Harding describes thinking at the moment:

our losses are unsustainable. We cannot ensure the long-term future of this paper and our futures in journalism if we cannot make a viable business out of The Times.

Up, down and sideways. The good news at The Sun and ITV (ad revenues up by 8% during Q1) is balanced out by the bad news elsewhere.

The IPA’s recent Bellwether Report suggested that media budgets rose during Q1. The last time this happened was Q307, two and a half years ago.

But note that only 21% of marketing bosses increased their total spend during the quarter. As yet, the recovery is patchy and weak. It’s not hard to imagine a pull-back.