Just a flesh wound? The future of local newspapers in a credit crunched world
Posted by
Peter Kirwan
on 29 September 2008 at 15:14
Tags: Cumbrian Newspapers, Daily Mail & General Trust, Gannett, Johnston Press, Newsquest, Trinity Mirror
King Arthur: [after Arthur has cut off both of the Black Knight's arms]
Look, you stupid Bastard. You’ve got no arms left.
Black Knight: Yes I have.
King Arthur: Look!
Black Knight: It’s just a flesh wound– Monty Python & The Holy Grail (1975)
At the Guardian, Roy Greenslade notes that Jane Martinson doesn’t ask “what can be done” to prevent parts of the regional press from collapsing into administration. This, he suggests, is because the question is “virtually impossible to answer”.
Virtually, but not entirely. To some extent, the answer depends on your starting point.
Mine is that the shifting metropolitan populations of our big cities are the exception rather than the norm. The vast majority of Britons still grow up, live, work and die with 10 miles of where they were born. They want local jobs and local housing. However it’s delivered, they also want local news.
The real problem is that large parts of the regional press have spent the past decade driving down the road of quoted consolidation. Today, this road has become a cul-de-sac. The debts, margins and organisational structures of these companies are unsustainable in a post-crunch world.
As Greenslade actually notes in passing, there are at least three routes forward for regional press groups threatened by collapse.
Two of them are not particularly attractive. The first involves someone like Richard Desmond emerging as an asset stripper.
The result would be stasis and the eventual extinction of more mastheads down the road. A deal like this would inhibit the deep-seated restructuring that’s required to give regional media a future.
Alternatively, we may witness the big chains attempting to merge their way out of trouble.
Greenslade describes the prospect of competition regulators approving such mergers as “remote”. Actually, it’s not. The Competition Commission has the power to wave through mergers if the alternative involves the closure of newspapers (something that would be extremely likely if Trinity, Johnston Press or anyone else went into administration).
Most likely, the real obstacles would involve shareholders and bankers. Archant would be reliant on scarce bank loans; Gannett surely isn’t in the market for a deal; DMGT would have a hard time persuading shareholders; and both Trinity Mirror and Johnston Press already possess uncomfortably big debts.
The bottom line is that the newspaper industry doesn’t boast the equivalent of Lloyds TSB, which was able to buy crisis-wracked HBOS at a knockdown price precisely because it had spent the boom years in boring mode.
The difficulty of getting any of these combinations off the ground strikes me as a good thing. Why? Because — once again — such a deal wouldn’t address the industry’s long-term structural problems.
In the case of a Trinity-JP combination, for example, analysts estimate that it would enable approximately £40m of one-off cost savings.
Followed by what? As one newspaper executive put it to me last week: “Next year, you’d be back to square one again.”
The third option involves tough love, the growth of small chains, paternalistic owners and start-ups
A few weeks ago, Jeff Jarvis asked what is to be done about large, failing, US newspaper groups. He suggested that we should all wait until “some of the giants just topple, leaving holes in the ground that’d be easier to fill from scratch”.
This approach would find favour with those of us who like the way in which freelance journalist Guy Kewney described the emerging digital landscape at The Register last year:
Isn’t this a bit like a forest, in which a huge fire has raged? Yes, much that was of value is destroyed; and in its place, there’s an amorphous two-foot growth of shrubbery. But that doesn’t mean that it will still be an unimpressive two-foot high shrubbery in 50 years.
By then, some of the green shoots will turn out to be 100-foot cedars, redwoods, pines. And others will be lost in their shade.
When a company goes into administration, specialist accountants are appointed. They have a responsibility to raise money that can be used to pay off creditors. They do so by selling off bits of the business to the highest bidder.
A fire sale of this kind might enable multiple private bidders to make realistic offers for various newspapers — without the premium required to buy a quoted media company.
Smaller outfits like Tindle, Cumbria and Iliffe could pick up a few bargains and lavish attention upon them.
Roy Greenslade argues that ownership of local newspapers is no longer a game for paternalistic magnates. I disagree. I suspect that quite a few local patricians would also emerge to make bids.
For a century or more, until the 1990s, local paper ownership was incredibly fragmented and diverse. Much of the industry was controlled by families who understood that the local press wasn’t a route to massive riches.
Who is to say that the same appetite to support local newspapers (and therefore local communities) doesn’t exist among today’s regional magnates?
Even if it doesn’t, the appetite for local news would remain. Building something new amid the ruins is a job for start-ups. They would succeed by meeting local needs, rather than following the top-down diktats of the public markets.
At the risk of sounding like The Black Knight, the collapse of a regional newspaper group wouldn’t necessarily mean the death of local news. All it would prove with certainty is that the quoted consolidation model has had its day.
The regional press needs a purge of outdated structures and excess capacity. If it can avoid single-owner asset-stripping and/or the prolonged agony of more mega-mergers, the long-term outcome might actually be rather positive.
