Northcliffe Media

DMGT 2010: A weak and narrow recovery takes shape

Posted by Peter Kirwan on 25 November 2010 at 13:31
Tags: Associated Newspapers, Daily Mail & General Trust, Northcliffe Media

What’s not to like about DMGT’s final results for the year to October? A few things. Although the overall numbers suggest a welcome improvement, classified ad markets remain broken, online and in print. After the steep declines of 2008-2009, this recovery still feels very weak.

In addition, digital strategy isn’t delivering much joy. Revenues at Mail Online are growing fast, but remain vanishingly small. Meanwhile, the standalone classified sites into which DMGT has poured so much effort remain becalmed.

Associated Newspapers

Like-for-like revenues for the year to October 2010 look relatively strong, increasing by 5%, with ad revenues rising by 6% YOY. DMGT is suggesting that the combination of buoyant print display and free-to-air site growth shouldn’t be underestimated:

Underlying revenues were up 5% or £39 million with improved revenues in display advertising, digital and developing revenue streams offsetting decreases in circulation and classified advertising.

Once again, retailers were in the engine room, increasing spend by 14% YOY. Online advertising sold through the newspaper titles’ companion sites increased by 54% to £12m. (Credit for this performance is attributed squarely to Mail Online, which grew its traffic by around 70% YOY).

All well and good. But Associated is still living with the legacy of being slow to build up sales efforts at its newspaper sites. There’s no harm in ambitious talk from Martin Clarke. Yet £12m in digital revenues remains peanuts compared with the cost of underwriting Paul Dacre’s editorial vision. Much more work and investment is required.

Neither has this rising digital tide lifted all of DMGT’s digital boats. The digital classified operations formerly known as Associated Northcliffe Digital — which focus on Jobs, Property, Motors and Travel — could only manage a 1% rise in revenues, to £95m.

Northcliffe Media

Here the picture is uglier. Like-for-like revenues declined by 6%, with ad revenues down by 7%.

There are some interesting contrasts here. As we’ve seen, retail advertising grew by 14% at Associated. But at Northcliffe’s local newspapers, where retail is now the largest single ad category, it fell by 4%. The two-speed retail advertising economy persists. But for how long will retailers continue to prop up the nationals’ print editions?

It’s desperately difficult to be optimistic about classified. Last year, property ads grew by 5% at Northcliffe. With house prices teetering on the edge of a precipice, this feat may not be repeatable. Vast debts, mortgage rationing and unemployment worries will persist for much of the population.

And who among you would place bets on recruitment markets reviving? This will happen if the private sector compensates for public sector job losses between now and 2015. George Osbourne suspects that this will happen. DMGT (and the consultancy firm PwC) seems less convinced.

The City should be heartened by what’s happening to operating profits at Associated (up from 7% last year to 11% this year) and Northcliffe (up from 7% to 10%). But the mood is grimmer than you might expect: this morning, DMGT’s shares lost 4% of their value.

That’s because much of this improvement has been driven by cost-cutting (a few hundred more Northcliffe staff lost their jobs last year). This recovery itself feels anaemic, and may be more reliant upon a narrow base of advertisers than DMGT admits.

The central questions remain: What will happen to print display and online display during a second recession? And: will those classified revenues ever come back?

Like everyone else, Northcliffe is trying to reposition itself to capture what remains of the latter. This means permanently driving down the cost of advertising — and the cost of editorial (or getting rid of editorial altogether). Talking to analysts this morning, Martin Morgan, chief executive of DMGT, suggested that Northcliffe is doing all of these things, via its hyperlocal network Local People:

“We’re going to be taking the technology platform we’ve built (for LocalPeople) and merging it with the ThisIs sites

“So local people can concentrate on finding a garage, finding a plumber in such a way that provides a long tail of local advertisers - people who aren’t advertising in the local press, we think we can get them in.

“News has its place but news alone is not going to produce that flow through to looking at ads. Investment is going to go heavily in to local information content.”

Local information content? It’s an awkward term for an awkward thing: the absence of journalism.

Ad revenue recovery: Different strokes for different folks

Posted by Peter Kirwan on 13 August 2010 at 14:25
Tags: Associated Newspapers, Daily Mail & General Trust, ITV, Johnston Press, Northcliffe Media, Reed Elsevier, Trinity Mirror

The recovery is starting to remind me of the Tour De France. High on a mountain ridge, the peloton is stretched out along a vast stretch of road. But two groups are visible. The leaders represent consumer-facing mass media — the broadcasters and national press. The laggards come from B2B publishing and local newspapers. Worryingly, at this stage during a recovery, the latter should be doing far better than they are now. At local newspapers, advertising revenues are still declining.

And the mountain ridge? This represents the risk of a double-dip recession, which now seems to concern many analysts, despite contrary indications.

Consumer media: Q2 advertising revenues

Consumer confidence reached a nadir in early 2009, began to climb and reached a peak in April of this year. Since the election, it’s been falling. Few analysts now expect interest rates to increase soon. The notion of a double dip is no longer a dark, if marginal, fantasy. It’s closer to the mainstream of economic forecasting than at any time during the past two years.

As yet, ad revenues at major media organizations aren’t showing any side effects. Q2 wasn’t wobbly: it was strong. Marketers haven’t yet drawn in their horns, although that could change very rapidly.

Recent weeks have seen a flurry of half-year results and trading updates. DMGT released a trading statement in late July. Here, the trick was to look for the underlying numbers, which strip out the effect of disposals (like the Evening Standard).

At Associated, these advertising numbers confirmed the general pattern we’ve come to expect. The Mail had turned in 15% ad revenue increases during January and March — but less for February. The 15% rise in Q2 looked like continuing solid progress.

Digital revenues were up by 46% at Associated. This isn’t quite the 100% YOY increase that Alan Rusbridger of The Guardian claims to have seen during April. Yet fairly clearly, it’s getting to the point where last year’s online revenue declines are starting to look like a distant memory.

ITV’s half-yearly report suggested ad revenues had risen by 18% during 1H, compared with 15% for the broadcast market generally. These numbers closely resemble those from Associated Newspapers. Although ITV was early to recover and is still growing faster than the market, agencies move in lockstep.

Robust growth like this isn’t universal. At Trinity Mirror, ad revenues in the tabloids increased by a mere 2.2% during 1H. The company predicted flat ad revenues for July. At Trinity’s nationals, digital advertising was similarly subdued, rising by just 4% YOY. You’d have to suspect that chief executive Sly Bailey is examining both the reasons for these oddly muted numbers as well as ways to spur more growth.

Local & business media: advertising revenues

This bit of the peloton contains all sorts. Toward the head of the group are B2B publishers like Centaur Media. It’ll be September before we get Centaur’s full-year results (to 30 June). But the company recently suggested that ad revenues rose by 10% during 1H. For the record, that’s better than Trinity Mirror’s tabloids, where ad revenues only rose by 2%. On this basis, Centaur is up there with the leaders.

Yet a big distance separates Centaur Media from the likes of Reed Business Information. Stripping out the effect of closures and disposals, RBI’s like-for-like ad revenues during 1H declined by 4%. Here, management was content to suggest that the rate of decline in ad revenues has “moderated”.

This puts RBI on a par with what’s happening in local newspapers. Here, too, revenues are still declining, not quite bumping along the bottom. At Northcliffe, for example, underlying revenues were down by 4% during Q2 — the same as Q1’s decline.

If retail has powered ad recovery at the nationals, its relative weakness in local newspapers is worrying. Retail advertising declined by 6% at Northcliffe during 1H. Digital only rose by 10%. The fact that property ads — up by 9% — were one of the few bright spots isn’t exactly comforting.

Trinity Mirror’s local newspapers mirrored Northcliffe’s. During 1H, after stripping out revenue from titles recently acquired from Guardian Media Group, they saw revenues fall by 5%.

The bullish case runs like this: local newspapers are taking longer than expected to recover, but improvement is visible. Last year, after all, Trinity’s local newspapers saw revenues decline by 12.4%. The bearish case is pretty obvious. If a double-dip recession is coming, it seems likely that local newspapers won’t return to YOY growth before it arrives.

Ad revenues, for most media owners, wax and wane far more dramatically than circulation revenues. As a result, it’s ad revenues that tend to define the industry’s mood — as well as the ease with which it can make profits. Typically, too, the distance between the fortunate and the unfortunate always widens at economic turning points.

As a result, life at ITV and Associated Newspapers currently feels very different from existence at Johnston Press and Reed Business Information. The distance between winners and losers will probably contract if a double-dip recession takes hold. But it could expand further, too.

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.

Ad revenue gloom continues at DMGT

Posted by Peter Kirwan on 29 September 2009 at 10:19
Tags: Associated Newspapers, Daily Mail & General Trust, Northcliffe Media

This morning brings a carefully-worded trading update from Daily Mail & General Trust. Quoted companies use trading updates to “guide” the market toward reasonable expectations for full-year results. DMGT’s financial year finishes in early October. The company will report full-year results on 26^th November.

I said the statement was carefully-worded. Actually, the lack of any sign of an improvement in national newspaper ad revenues is disappointing.

Some relative improvement is visible at Northcliffe (smaller YOY declines in ad revenues). Yet local newspaper revenues continue to decline at an alarming rate.

It bears repeating: with circulation revenues stagnant at best, we need an improvement in ad revenues before we can start talking about any kind of sustainable recovery for the newspaper industry. At DMGT, there’s no real sign of this happening yet.

Associated Newspapers:

This is what we knew about ad revenues at Associated up until this morning:

Q408: -8%

Q109: -23%

Q209: -15%

And this is what we learned this morning:

Q309: -16%

Interestingly, DMGT didn’t offer a number for display advertising performance at Associated during Q3. Nor is there any mention of digital revenues. Depending on your perspective, you might choose to find this worrying.

July and August, it seems, were a nightmare:

Whilst Associated’s total advertising revenues in July and August were down by 21%. September has been better, although trading remains volatile from week to week with little visibility on future advertising performance.

Note that suggestion of “little visibility”. Associated said the same in July about Q2. The coded implication? Despite the talk of economic recovery, the slump in national ad markets continues unabated.

Northcliffe Media:

Here’s what we knew up until this morning:

Q408 (UK ad revenues): -27%

Q109 (UK ad revenues): -36%

Q209 (UK ad revenues): -33%

And here’s what DMGT told us this morning about Northcliffe in Q3:

July & August 2009: -26%

September 2009: “continuing improving trend”

And here’s what we’re told about that “continuing improving trend”:

Absolute weekly levels of advertising revenue have stabilised and year-on-year rates of decline are now showing improvements.

This sounds positive enough. Typically, local newspapers are are an early-stage recovery play. Yet these YOY declines still feel stubbornly high.

Remember, too, that DMGT’s local newspaper ad revenues have been declining at a significant rate for well over a year now. In July and August 2008, for example, the YOY decline was 23% — not much different from what’s happening now.

The only real bright spot was reserved for investors. DMGT has cut its costs by £150m this year. Across Associated Newspapers and Northcliffe Media, 1,500 jobs (around 15% of the workforce) have gone during the past 11 months.

As a result, DMGT says that it “confident” that it won’t disappoint market expectations of profitability for the full year. In particular, cost-cutting means that Northcliffe’s profitability actually improved YOY during August and September.

For small mercies like this, if that’s how to describe them, we should be grateful.

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

It’s probably time to plead that I wasn’t one of those hacks who failed to absorb Digital Britain in its full 230-page splendour.

Yes, I read it. Whether this makes me immune to Lord Carter’s charge of having regurgitated “bullshit”, I don’t know. It didn’t feel as if I was doing this. Hopefully, I would have noticed.

Coincidentally, I also read the OFT’s accompanying review of the local and regional media merger regime — twice.

One of the creditable things about government reports like this is the hard data they contain.

Ofcom and the OFT could do worse than release all of this stuff into the public domain without restrictions. Yes, I mean the raw numbers in machine-readable formats, not just spreadsheets.

As Kevin Anderson pointed out at the Guardian recently, the relative lack of hard data on what’s happening to Big Media can be frustrating.

Perhaps Sir Tim Berners-Lee, newly-appointed by HM Government to prod Whitehall towards database openness, will shortly find himself leading the staff of Ofcom and the OFT in a chorus of “Raw data now! Raw data now!”.

We can but dream.

The infoporn attached to this post (and the next one) come from the OFT’s report. They evince a world of pain with which we’re anecdotally familiar, but from which our focus is liable to wander.

Scan them and ponder. For me, the key point is the fact that the long decline of the local press started five years ago.

The argument — still tentatively advanced by John Fry of Johnston Press and others — that we’re witnessing a cyclical correction has never seemed so hollow.

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

One of this recession’s more remarkable phenomena has been the resilience of retail advertising.

A few weeks ago, Martin Morgan, chief executive of Daily Mail & General Trust, called retail an “area of strength”.

In times like these, this kind of thing is all relative, of course. The graph reproduced here, which accompanied Morgan’s presentation, certainly shows retail advertising falling in value less than any other category at the Daily Mail during the six months to March 2009.

At Associated Newspapers as a whole, retail advertising fell by just 7% YOY during the same period. Again, this compares well with the overall decline in display revenues at Associated (around 16%).

The point also has some validity at Northcliffe Media, where retail ad revenues fell by only 24% during the six months to March. I say “some validity” and “only 24%” because of the relative performance in motors (down 23% YOY), recruitment (down 47%) and property (down 54%).

As DMGT’s half-year report suggested, this lower-than-expected decline in retail advertising was driven by “strong advertising by the supermarkets”.

DMGT might trumpet its nationals as being “particularly attractive to retail advertisers”. No doubt they are.

But Trinity Mirror’s nationals seem similarly attractive. Sly Bailey discussed the supermarkets’ continuing willingness to pay good money to publicise their special offers when she presented Trinity Mirror’s full-year results to analysts in late February.

From one perspective, this makes good sense. Even during a recession, consumers need to eat. For the most part, we avoid starvation by trading down. The supermarkets’ efforts to attract us as we switch allegiance has required expenditure on advertising.

So far, so good. But something feels odd about the supermarkets’ financials at the moment. Pretty much anyone with scale in food retailing is crowing about market share gains and increased margins.

Where is all of this growth coming from? According to one view, it’s mostly due to food price inflation, which spiked following sterling’s collapse last year. The extra cash generated by food inflation has boosted the supermarkets’ profits. It has also supported ad budgets.

According Alastair Johnson, an analyst at JP Morgan, all of this will change — and soon.

In research excerpted at FT Alphaville this morning, Johnson predicts that the UK will soon look like France, Spain and Germany, where food prices are declining at 5% annualized.

Describing the outlook for food retailers as “bleak”, Johnson suggests that the “full force of bad news on the UK sector might take six months or more to arrive”. With it will come reduced profits, and presumably cuts in ad budgets, too.

The supermarkets’ love-in with the nationals and commercial broadcasters was good while it lasted. Soon enough, the hunt needs to start for alternative sources of revenue. Let’s hope something turns up, eh?

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”.

Northcliffe & Associated: Desperately seeking an upturn

Posted by Peter Kirwan on 22 May 2009 at 12:17
Tags: Associated Newspapers, Daily Mail & General Trust, Northcliffe Media

Bang: this is where things get really tricky. DMGT’s results for the six months to 29^th March demonstrate how badly the news business needs a post-Christmas upturn, as forecast by the Chancellor.

Northcliffe Media avoided lurching into the red by the narrowest of margins.

DMGT’s regional newspaper arm announced UK-based operating profits of £3.2m on revenues of £142m. I’ll bet Michael Pelosi’s bean-counters scrutinized the underside of every stone on Derry Street to squeeze out that £3.2m.

At Northcliffe, operating costs are already 20% down on last year. “Further significant reductions” are planned.

Where are the green shoots? Conspicuous by their absence. During the six months as a whole, Northcliffe’s ad revenues declined by 31%. For April, the number was worse: -36%. Here’s what passes for a positive:

In total, advertising revenues in the last 15 weeks have remained steady with the exception of recruitment.

So rising unemployment — it started late, and will continue for a long time — is what’s now pulling down the numbers at Northcliffe. For the six months, recruitment ads were down 47%. In April? Down by 63%.

Look, too, at how the downturn is squeezing the rest of DMGT’s business. Overall revenues are down by 7% YOY, but operating profits collapsed by 30% YOY, from £166m to £116m.

Even if Lord Rothermere wanted to cut Northcliffe some slack based on good results elsewhere, he can’t. Cost cutting must be universal now.

To be fair, the rest of the damage for DMGT (in terms of profitability) is all down to Associated Newspapers, which is rapidly heading down the curve in Northcliffe’s wake. (Operating profits down from £44m to £18m YOY).

Ad revenues at Associated Newspapers were down by 15% YOY during the six-month period. For Northcliffe, DMGT offers a glimpse at April’s data. For Associated, it doesn’t. This suggests cause for concern: presumably, ad trading at Associated during April wasn’t impressive.

In property classifieds, the winner isn’t a publisher

Posted by Peter Kirwan on 11 May 2009 at 17:48
Tags: Media, Northcliffe Media, Trinity Mirror

At Johnston Press last year, regional property advertising declined by 32%. The decline at Trinity Mirror was 27%.

During the course of the year, the two companies saw somewhere in the region of £40m-worth of property-related advertising disappear into thin air.

Putting a number on the deficit in property-related advertising at Northcliffe and Newsquest is more difficult. (Neither company releases specific numbers). Archant remains tight-lipped, too.

But it certainly seems possible that the collapse of the property market deprived the local press of £100m in ad revenues during 2008.

Where did it go? And more importantly: will it ever come back?

It’s tempting to suggest that £100m in ad revenues simply disappeared. But that’s not quite the whole story, as the slide reproduced here from Rightmove’s 2008 results presentation in February suggests.

Doubless, some of that £100m ended up with Rightmove. The pure-play property site expanded its revenues by 31% to £74m during 2008.

Last week, Rightmove issued an update to investors which suggested that the company is “trading ahead of the Board’s expectations” and delivering a YOY increase in the average revenue generated per advertiser.

This at a time when the regionals are reporting YOY declines of 50%+ in print-based classified property revenues.

It’s certainly true that the regionals have put up some resistance to Rightmove. During 2006, DMGT purchased Primelocation, which now ranks as the UK’s second-largest property site. DMGT also owns Findaproperty.com, the UK’s fourth-largest property site.

But at £88m, the classified digital revenues generated by DMGT across jobs, property, motors and dating barely outstripped what Rightmove generated through property-related advertising alone in 2008.

Elsewhere, Trinity Mirror reported that property ads accounted for 19% of its £38m in digital revenues during 2008. That’s around £7.2m.

Will that £100m of classified property revenue return to print? No doubt some of it will. But the downturn will hammer print-based yields and volumes -– permanently.

Meanwhile, on the web, the economics of winner-takes-all continue to play out. The problem for journalists is that the emerging winner in digital property classifieds isn’t a publisher of regional newspapers.

Collapsing ad markets mean that only redundancies will keep the bankers happy

Posted by Peter Kirwan on 26 March 2009 at 00:08
Tags: Johnston Press, Northcliffe Media, Trinity Mirror

I see that the media buying agencies are starting to catch up with the real world.

Well, sort of. Carat has just issued a forecast suggesting that UK ad markets will decline in value by 7.1% YOY during 2009. Only four months ago, they were predicting a decline of 2.2%.

With ad revenues at ITV down by 20%+, Associated Press predicting a Q1 YOY decline of 24%, regional ad revenues collapsing by up to 40%, and digital media reduced to single-digit growth, I can only guess that marketers are going to buy shedloads of radio, cinema, magazine and outdoor space between Q2 and Q4.

Or maybe not.

By the way, you can ignore Nielsen’s bizarre suggestion (available at the previous link) that ad spend in the regional press fell by 2.1% during January.

For a taste of reality, take a look a handy guide to what happened to regional ad revenues during 2008 recently published by Johnston Press. It goes like this:

Q1 2008
– YOY percentage revenue decline: 7.3%
– YOY revenue decline: £8.4m

Q2 2008
– YOY percentage revenue decline: 11.9%
– YOY revenue decline: £13.6m

Q3 2008
– YOY percentage revenue decline: 22.9%
– YOY revenue decline: £25.3m

Q4 2008
– YOY percentage revenue decline: 28.1%
– YOY revenue decline: £28m

2008 Full year:
– YOY percentage revenue decline: 17.1%
– YOY revenue decline for 2008: £75.3m

These are astonishing numbers. Still more remarkable are the implications of the 36% decline in ad revenues for the first nine weeks of 2009 reported by Johnston Press a fortnight ago.

Here’s how this nine-week performance would play out across the current quarter, with historical comparisons to the same quarters in 2007 and 2008.

Q1 2007:
– Ad revenues: £115.8m

Q1 2008:
– Ad revenues: £107.4m
– Percentage decline: 7.3%

Q1 2009
– Ad revenues: £68.7m
– Percentage decline: 36%

Today, Dominic Ponsford, editor of Press Gazette, reprised what has become a frequently-voiced thought: that there’s a mismatch between the current bloodbath of redundancies and what look like healthy profits at places like Johnston Press, Trinity Mirror and Northcliffe.

In recent weeks, these three companies have reported operating margins of 24%, 17% and 16% within their respective regional press operations for the year to December 2008.

But remember: this downturn only really turned into a rout last October. By comparison, the first three quarters of 2008 were a cakewalk. What’s happening now is unprecedented.

Ponsford is correct when he says that many titles have “slipped into the red in recent months and that has yet to be reflected in reported profits”.

My calculations suggest that if ad revenues keep falling at the current rate, Johnston Press will be lucky to break even in 2009.

Forget about fat-cat dividends; they’re long gone. If Johnston Press can’t sell its Irish papers soon, you can forget about profits, too. The company will have to fire employees simply to make its interest payments to the banks.

Indeed, by 2010, the regionals’ primary revenue stream will almost certainly have halved in value from peak to trough.

A sobering thought.