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

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

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.

Ofcom wakes up to local news crisis. . . but will probably doze off again soon enough

Posted by Peter Kirwan on 24 March 2009 at 14:22
Tags: Johnston Press, Media, Newsquest, Northcliffe Media, Trinity Mirror

Now, finally, we know what it takes to get Ofcom out of bed.

Cindy Crawford used to demand $10,000 a day. In the case of Stewart Purvis, the absurdly-named partner for content and standards at Ofcom, it’s a 37% YOY decline in ad revenues at Northcliffe Media.

Oh, and 1,000 job losses.

Wiping the sleep from his eyes, Purvis — whose CV includes stints at Channel 4, ITN and the BBC — was all over the news bulletins last night.

What we got was yet more bleating about the role of local newspapers in a democracy. (In case you were wondering, their role is to tell voters what goes on in government “between elections”).

The abiding impression created by Purvis’s soundbite was that of a man flapping his arms in the air and repeating: “Something must be done.”

This is fine so far as it goes. But Purvis has got competition. For months now, culture minister Andy Burnham has been performing this role.

Regrettably, when it comes to taking real action — or any action at all — the minister has proved as useful as a one-legged man in an arse-kicking contest.

But still: let’s not be too harsh. Let’s ask instead what has woken Purvis from his slumber. What, in other words, was so special about yesterday’s announcement from DMGT?

On 18^th March, Gannett announced that Newsquest’s ad revenues declined by 32% (in constant currency) during January and February.

On 11^th March, Johnston Press announced a 36% decline in ad revenues during the first nine weeks of the year. On 26^th February, Trinity Mirror forecast a 37% decline in regional ad revenues during January and February.

The idea of freefall declines in regional ad revenues isn’t new. It’s been staring the industry in the face since last autumn.

Did anyone genuinely think that the 25%-30% YOY declines in regional ad revenues recorded during Q408 were going to be the end of the story?

For the past six months, this government’s response to signs of distress among local media has been consistent: let Lord Carter deal with it.

Carter largely ignored the gathering crisis in local newspapers in his interim report which was published in late January. But he provided a glimpse of his thinking last week.

On Tuesday 17^th March, Sly Bailey –- whose willingness to make waves is becoming admirable — told the FT that regional newspapers face “immediate peril”.

Two days later, a reporter asked Carter about Bailey’s repeated criticisms of him.

The noble technocrat had this to say: “Internet advertising is repricing traditional media inventory. I’m not entirely sure there’s an awful lot you can do about that.”

Carter’s quote got me wondering. What if the bleating of bureaucrats like Burnham and Purvis is actually misleading?

What if the secretary of state for culture, media and sport and the partner for content and standards actually turn out to be minimum-waged employees of the Department of Folding Deckchairs?

Furthermore: what if masterly inaction actually lies at the core of government policy?

Lord Carter may yet emerge as a Shirky/Jarvis-style technocrat who believes that the entire edifice of regional print ownership needs to collapse before a new digital order can be born. (It’s certainly a view. But until a few months ago it was controversial enough to be unmentionable in polite conversation with Big Media types.)

If Carter does hold such views, the Treasury will love him for it. HM Treasury has fought an aggressive rearguard action against any government minister who has dared to suggest that bail-outs should be offered to anyone other than bankers. You’d have to guess that Lord Carter is in agreement.

And then there’s that renowned friend of local democracy, Gordon Brown. I wonder how much priority he places upon the need for voters to stay informed “between elections”?

Of course, it was nice to see Stewart Purvis waking up to what’s been occurring beneath his nose for the past six months.

Sadly, I wouldn’t describe his new-found wakefulness as particularly encouraging. It’s entirely possible that Mr Purvis has just misread government policy in a fundamental way.

Regional press bosses go lobbying alongside the subsidy jockeys of Channel 4 & ITV

Posted by Peter Kirwan on 4 March 2009 at 18:43
Tags: Guardian Media Group, Johnston Press, Newsquest, Northcliffe Media, Trinity Mirror

It’s reassuring to see that the regionals finally mounted a proper effort to lobby Lord Carter in January, shortly after publication of the interim Digital Britain report.

At the very least, this lobbying effort should have been launched back in October, when Carter was appointed as minister for communications, technology and broadcasting. Arguably, of course, the regionals should have started bending the ear of culture minister Andy Burnham last summer.

In the event, Carter’s interim Digital Britain report emerged in late January.

It showed what happens when — as in the case of the regionals –- you approach the prospect of public sector intercourse like a Mormon cast adrift in Las Vegas.

Across hundreds of pages in Carter’s report, the regionals were crowded out of proceedings by the smart alec subsidy jockeys of Channel 4 and ITV and the smooth-talking telecoms operators. Carter mentioned newspapers precisely four times.

Messing about with megaphone diplomacy (Tim Bowdler in the Sunday Times) and blowing your top (Sly Bailey in the wake of Carter’s report) have been poor substitutes for engaging with the government on its own terms. The failure to engage has cost the regionals precious time.

It’s been entertaining, though. In particular, the sarcastic statement that Bailey released after publication of Lord Carter’s interim report voiced the irritation of many in the industry.

Unfortunately, it had the side-effect of making Trinity Mirror — and the regional newspaper industry as a whole — look woefully out of the loop.

For much of 2008, this was the case. Last week, however, Bailey made a strenuous effort to convey the impression that this had changed.

As she presented Trinity’s 2008 results, Bailey was at pains to stress that lines of communication with the government had been opened up. Along the way, however, the chief executive of Trinity Mirror also dropped a few mixed messages into the ether. 

Talking with Ian King at the Times in the wake of her results presentation, she had this to say:

“The old concerns about dominant market position do not apply. Advertisers do not see it that way — the regulator is the only one left who still sees markets in that way. There is an urgent need to change the way regional newspaper mergers are considered.”

This is the standard argument for a relaxation of competition law. But when Bailey spoke to City analysts last week, she seemed to say something different.

Asked whether consolidation would bring “genuinely new opportunities” in its wake (as opposed to more of the same old cost-cutting), Bailey suggested that it would give Trinity Mirror “more clout” in advertising markets.

But surely more clout for publishers must mean less clout for agencies and clients?

This is the kind of suggestion that will cause concern at the Office of Fair Trading and the Competition Commission.

Of course, it might be possible to reconcile these two apparently conflicting positions by arguing that an increase in the regionals’ ad market clout simply doesn’t matter in a world where so much revenue is migrating from print to digital.

This point is easy to argue. But it will be tricky to prove conclusively.

Presumably, this is what Lord Carter has asked the regionals to do. To crunch the numbers, the regionals have engaged the big-brained analysts at OC&C, the strategy consultancy.

It will be intriguing to see what they come up with.

Bowdler hints at mega-deals and relaxation of regional ownership rules

Posted by Peter Kirwan on 5 January 2009 at 17:37
Tags: Johnston Press, Northcliffe Media, Trinity Mirror

If we’re to take Tim Bowdler’s interview with the Sunday Times at face value, Britain’s regional newspaper owners might be about to receive a belated Christmas present from Peter Mandelson. 

In the interview, Bowdler hints that HM Government could soon relax competition rules in order to allow further consolidation of the regional press. According to the Sunday Times, he believes that the government is “sympathetic” to the industry’s case.

Specifically, Bowdler thinks the time is right for a bold merger announcement that would give regulators “something to sink their teeth into”.

Going down this route would involve a competition probe, and months of uncertainty. To make this worthwhile, Bowdler argues that the proposed merger would need to be a big one. And the outcome of a probe would need to be pre-ordained.

“It would be an unnecessary and unwelcome distraction but it depends on the size of the prize and the confidence that it could be achieved.”

If the outgoing boss of Johnston Press is talking like this, it seems likely that a deal is being cut. Something is afoot.

Of course, a big merger will open the door to reduced costs by unleashing a torrent of job losses. This would also bring concerns about editorial quality into even sharper focus.

In the Observer this weekend, Peter Preston nailed this concern eloquently. Continued cost cutting, he wrote, means that “too many papers. . . have abandoned their fundamental reason to exist”.

More will go the same way in the wake of a mega-deal (or two). In this respect, one of Bowdler’s comments strikes me as particularly interesting.

“There is a realisation today in government that the way in which our industry has been regulated hasn’t been that helpful and today it is less appropriate than it was.”

What, I wonder, does Bowdler mean by this? Is he repudiating the light-touch regulatory regime that allowed the City to hollow out the regional press from within?

Or is he hinting that Peter Mandelson’s blessing will come with strings attached?

This seems plausible. If you’re a press baron, relaxing competition law seems like an obvious remedy. But the view from Whitehall is more nuanced.

Last year, the government showed itself willing to relax competition law for bankers who will do the Treasury a favour.

But administering the same medicine in the wider economy would have big implications. If Johnston Press receives favourable treatment, what’s to stop Tesco, or BT, from lobbying for their own special measures? 

Governments aren’t in the habit of doling out competitive advantage to private companies at the commonweal’s expense. Quite possibly, the price of increased consolidation will be increased oversight.

This would make others think twice before special pleading. It should also allow the government to sidestep the charge that it is encouraging the continued disembowelling of the regional press.

Of course, the details would be nightmarish. And our regional newspapers aren’t likely to turn into European-style social enterprises overnight.

By the same token, the free market ecosystem that has sustained Britain’s newspaper industry for more than a century has never looked shakier.

UPDATE: 6th January 2009: Perhaps the gift isn’t Lord Mandelson’s to give. Judging by this story, Tim Bowdler may well be anticipating Lord Carter’s Digital Britain report.