What would Paul Dacre say if The Guardian became a fully-fledged charity?

Posted by Peter Kirwan on 9 November 2010 at 14:27
Tags: Associated Newspapers, Guardian Media Group

In the middle distance, a different kind of Guardian Media Group appears to be taking shape.

The Sunday Times reports that GMG investments like EMAP and Trader Media Group, as well as wholly-owned subsidiaries that operate radio stations and classified websites, will be hived off into “an investment portfolio from where they could be sold over time”.

So what? Well, it’s what insiders call the “direction of travel” that’s important here. At some point in the future, we may wake up to find that The Guardian is being run by a charitable foundation that looks rather like The Wellcome Trust.

This weekend’s apparently innocuous restructuring news feels like part of this process. In this respect, it resembles the 2008 decision to re-cast The Scott Trust as a limited company (which left the way open to selling EMAP and Trader, and banking the cash, without incurring a huge tax bill).

From one perspective, charitable status looks like a sensible way to run a news organisation, especially one that remains committed to a future that’s web-based and ad-funded. GMG’s current range of investments is illiquid. An all-digital existence, mostly financed by ad revenues, will be highly cyclical. Setting up a cash-rich foundation seems like a logical response.

Yet there are potential problems. Among them is the likelihood that free market-loving rivals, like Paul Dacre, would view this transformation as an unacceptable triumph for the subsidariat.

At the moment, Guardian Media Group’s corporate structure is tricky to interpret, and therefore to criticise. It’s neither wholly a charity, nor a business; neither fish nor fowl. The notion that The Guardian should be “profit-seeking” rather than merely profitable captures this ambivalence. Setting up a charitable foundation to stand behind The Guardian would give free-marketeers a much bigger barn door at which to take aim.

As a result, charitable status could become a hyper-political issue (rather like the BBC’s tax-funded existence). If The Scott Foundation (as it might be called) exists solely to prop up a commercial enterprise that competes aggressively with its rivals, it would be reasonable to expect criticism. Some might regard the result as a sham charity, rather like the ones that run private schools in this country.

The parallel isn’t entirely pointless. During the Blair-Brown years, political pressure was applied to these sham charities. In return for a soft-touch regime, they were encouraged to open up their facilities for the benefit of surrounding communities.

If similar pressure was applied to The Scott Foundation, or if it decided to fund external causes as a matter of course, what else might take the trustees’ fancy?

After lobbying from a culture secretary, it might make sense to donate £25m to local TV start-ups. Or invest in cross-industry technology platforms. Alternatively, it might be a good thing to subsidise hyperlocal bloggers, or organisations that protect free speech and press freedom.

Almost without exception, you can see where this is heading. Plenty of possibilities exist, but many of them will be accompanied by political pressure, and the inevitable allegations of economic favouritism, political bias and social engineering.

Converting a national newspaper into a charity might sound like a good idea. In reality, it’s unlikely to be an easy road.

What is “sustainable” at a loss-making national newspaper?

Posted by Peter Kirwan on 6 October 2010 at 16:19
Tags: Guardian Media Group

Like many of the old guard Fleet Street commentators, Stephen Glover frequently talks nonsense when confronted by financials. This is the same man who wrote a 328pp book about launching and running a national newspaper that failed to mention revenue or profit in any substantive way.

Like the rest of us, however, Glover abhors a vacuum. So now that life has calmed down at the post-crash Guardian Media Group, he’s trying to stir things up a bit.

Writing at the Independent, Glover latches on to a £96m write-off at EMAP and another at GMG’s Trader Media Group. He announces: “Guardian Media Group’s investments have plainly not been going entirely swimmingly.”

Well, no. But (sigh) there’s a recession on. Media bosses are writing down the value of their businesses in line with a stock market that typically behaves in a manic-depressive fashion. As Glover knows perfectly well, write-downs are not a reliable way of interpreting the performance of a business.

EMAP has restructured its debts and remains highly profitable. I wouldn’t bet against David Gilbertson succeeding with his ambition to flog costly bundles of data and journalism to B2B subscribers.

And Trader Media Group? Again, look at the numbers. According to Hitwise, Trader Media Group owns 40%+ of the UK market for digital classified car advertising. 62% of its revenue and 75% of its profits are digital. Last year, it generated revenues of £250m and EBITDA of £116m. This isn’t a business: it’s a cash machine. Trader Media’s very big debts are being paid down rapidly.

Having puffed up a few familiar-looking clouds of anxiety, and blown them in the direction of Kings Place, Glover moves on to some familiar “what if” scenarios:

Though GMG is very far from the edge, it may not have sufficient resources to prop up its heavily loss-making national newspaper operation ad infinitum.

and:

Maybe GMG will be able to bankroll its national papers for ever. Personally, I wouldn’t count on it, especially if more of its investments go wrong.

Count the words that add a conditional flavour to proceedings: “though”, “very”, “may”, “ad infinitum”, “maybe”, “for ever”, “personally”, “wouldn’t”, “especially if”. I make that an average of three provisos per sentence.

Early on in the piece, Glover notes how Carolyn McCall, the chief excutive who left in late June/early July, declared that GMG’s “financial position is secure”. Now, he suggests, senior executives at GMG and the Scott Trust are in “a sort of denial” about The Guardian’s continuing losses.

What’s changed? Here’s the thing:

The trouble is that there seems to be no one in the Scott Trust or Guardian Media Group or on the papers themselves able or prepared to stand up and say what is blindingly obvious to everyone else in Fleet Street – that these newspapers are continuing to live dangerously beyond their means.

Mmm. We’ll have to leave the question of whether or not The Guardian is living beyond its means — and doing so “dangerously” – to another day. Regular readers will know my views on that.

Interestingly, however, Glover’s column does highlight — probably unwittingly — something important. That’s the absence of a voice like McCall’s at GMG, trying to set the agenda in public.

This, of course, is usually the job of a chief executive. Andrew Miller, GMG’s former CFO, has been doing that job at GMG for three months. A cursory search of Google suggests that so far, he hasn’t said a word to the outside world about the future of The Guardian, The Observer or GMG.

There are a few good reasons why Mr Miller might want to get out a bit more, and talk about his ideas.

Last time I checked, the official whisper from inside The Guardian was that job cuts are no longer on the agenda, and the paper’s losses are returning to a “sustainable” level. Not all staffers buy that, of course. Some worry whether there’s more carnage around the corner.

The problem is that no-one at the paper knows how to measure the shortfall between the current situation and job security. The Guardian, The Observer and guardian.co.uk turned in an operating loss of £38m last year. No-one believes that is sustainable. But what is? £20m? £10m? Is breakeven the target? Should The Guardian and its stablemates be subjected to a kind of golden rule — like the one that used to govern public finances — that would place a limit upon losses across the business cycle?

And yes, fretting about the appropriate size of all-digital newsrooms seems to be an increasingly popular pastime. Ben Evans of Enders Analysis recently published a provocative note report on just this subject. He predicts “10-20 years of pain” inside downsizing newsrooms. Henry Blodget has been irritating the New York Times Co in similar fashion.

Over to you, Mr Miller. Unfortunately, you’re running a business that’s structured in an idiosyncratic way. Not everyone finds it easy to understand. Equally unfortunately for you, that business is an important component of national life.

Although you’re under no obligation to communicate with the outside world, doing so will help to fend off the pot-stirrers.

In addition, of course, Amelia Fawcett, the chair of GMG, has helpfully described you as an executive who knows “how to drive successful digital transformation” and “ensure a sustainable future for our journalism”.

No pressure, then. . .

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.

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.

+++

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.

What will the Guardian do if Murdoch’s paywall succeeds?

Posted by Peter Kirwan on 29 March 2010 at 23:52
Tags: Guardian Media Group, Media

Conventional wisdom suggests that the Guardian will emerge as one of the champions of free-to-air digital content when the Times and Sunday Times erect their paywalls in June.

This, after all, is a newspaper that employs Jeff Jarvis as a columnist. We’ve also witnessed Emily Bell, GNM’s director of digital content, arguing that general news paywalls are a “stupid idea”. In January, the Guardian depicted Alan Rusbridger, its own editor, as “the poster boy of the free web movement”.

It’s often said that the Guardian will become the world’s biggest liberal news site when the New York Times introduces its paywall in 2011. The expectation seems near-universal.

But what if Murdoch’s paywall is successful? What if the combination of digital advertising revenue and subscription charges generated by Times Newspapers Ltd exceeds the £25m a year that guardian.co.uk brings in from advertising? What if the ad spend diverted from Times Online doesn’t benefit the Guardian or the Telegraph as much as everyone expects?

What then?

If the dilemma does arise, it’s worth remembering that there’s a difference between writing about business and running one. If ideology often makes for a good think piece, pragmatism is the preferred approach of publishers.

This weekend, I even started to wonder whether the Guardian is preparing for the possible success of Rupert Murdoch’s paywalls. This would trigger a feisty internal debate. Indeed, that debate may already be under way. Here are three potential straws in the wind:

Exhibit No.1: Monthly charges for the Guardian’s iPhone app

The FT broke this story on Saturday, but then buried it within a re-hashed treatment of News International’s paywall announcement. Here’s the quote the FT serves up from a “senior Guardian executive”:

“We’ll enhance the app, and then the whole aim will be to get that on monthly subscription because it has been amazingly successful and . . . a fantastic experiment.”

Will the Guardian charge for an app, or for its stories? On one level, it hardly matters: what’s involved is a recurring payment for enhanced access to content. Rupert Murdoch would happily describe this as a paywall.

Intriguingly, the FT goes on to suggest that the Guardian is just one of many newspapers “considering similar moves [to News International] in the wake of falling advertising demand and lower circulations as readers migrate online”.

Oh really?

Exhibit No.2: Alan Rusbridger is “not entrenched”

This weekend, the Independent On Sunday asked Carolyn McCall about paywalls. The first paragraph of McCall’s response reiterates the Guardian’s standard position. The second is more interesting.

“At the moment, we have said we are not going to have a pay-wall for general content, but for specialist content there is a model to charge.

“We’re not as polarised as you might think. This is our strategy at the moment, but, of course, we will watch what happens. Alan is a visionary, but he is not entrenched. He is open-minded about these things.”

Not entrenched, not polarised, but open-minded. On this basis, the Guardian will surely consider following Murdoch’s example if he meets with success.

Exhibit No.3: Is Emily Bell coming over all pragmatic, too?

If Alan Rusbridger isn’t polarized, what about Emily Bell? The Guardian’s director of digital content has been a trenchant critic of widely-drawn paywalls. Bell’s opposition is both sophisticated and ideological. Not so long ago, a Guardian executive told me that the paper would introduce a paywall “over Emily’s dead body”.

Today, however, Bell filed a column that seemed to strike a different tone. In it, Bell sketched out a battleground in shades of grey, rather than black and white. She pointed to “many businesses” that operate “a number of ‘hybrid’ models”. . . including the Guardian. The case for paid content, Bell admitted, is “partly pragmatic”.

Somewhat defensively, Bell fell back on the ideological argument against paywalls. Those who argue against paywalls, she pointed out, are asking whether journalism is “a commodity or a democratic necessity”.

“I am happy to be proved wrong, but I still find it hard to understand how deliberately downsizing your audience is ever going to help with [this] broader problem.”

Happy to be proved wrong? It’s not going to happen. That’s because what we’re dealing with here is an article of faith, not a matter of fact.

Yet if Rupert Murdoch’s approach does work, it won’t be easy to deploy ideology against the potential for enhanced revenues. In the long run, even democratic necessities need to break even.

UPDATE: 31/03/2010: From Alan Rusbridger’s “Illegitimi” email to all staff, written (I think) on Tuesday, and quoted at Dan Sabbagh’s Beehive City:

What’s right for Murdoch (with Sky as a digital subscription model in the background and infinitely deep corporate cross-subsidies) may well not work for us at GNM, and vice versa. There may be different models within one newspaper. We’ll all make some mistakes along the way. We can all learn from each other.

…

The editorial, web development and commercial sides of the business are united in the strategy for print and digital going forward. We talk all the time. On pay walls there is no difference between the editorial vision and the commercial imperative. From GMG chief executive and financial director, to GNM managing director to advertising director to editor we all believe pretty much the same.

I’m leaving on a jet plane: McCall’s exit completes hat-trick of senior departures at GMG

Posted by Peter Kirwan on 24 March 2010 at 18:46
Tags: Guardian Media Group

Guardian Media Group isn’t known for losing bosses. Yet it’s been a busy 12 months at the top of the company.

In April of last year, GMG appointed the former investment banker Amelia Fawcett to replace Paul Myners as chairman. Six months later, finance director Nick Castro retired. Now it’s spring again, and Carolyn McCall is leaving to become the boss of Easyjet.

These are unstable times. Too much turnover at the top breeds a lack of focus. Clearly, this has happened at Easyjet, which – like GMG — has lost a chairman, a CEO and its finance director within the space of a year.

At Easyjet, the departures were powered by a boardroom dispute. At GMG, all appears to be sweetness and light. But too much coming and going can cause, as well as reflect, problems.

McCall’s exit will raise eyebrows among those who are concerned about her “complete confidence” that the company’s finances are “secure”. At Guardian News & Media, NUJ chapel members are digging into the numbers in an attempt to figure out whether GMG’s “present plight could have been avoided”.

In the long term, I suspect GMG will be fine. Yet it felt premature for McCall to claim in early February that GMG is in “rude health” and the Guardian is “in good shape”. In response, the FT sounded sceptical.

Notably, GMG’s press release doesn’t wheel out the usual suggestion that it’s the “right time” for McCall to move on, a natural pause in the life of the company.

That’s because it isn’t. Most media businesses remain in intensive care, or near it, and GMG is no exception. In a year’s time, it might be different. In two years’ time, almost certainly, it would have been a lot easier for McCall to depart victoriously. (That’s when we’re likely to see GMG sell off its remaining stake in Trader Media for a handsome profit).

But now? Ad revenues are still declining. A double dip recession looms large. After last year’s big losses, it’s not even clear whether McCall will be around to publish GMG’s next set of financial results in early summer.

Plenty of strategic decisions need taking. As Rupert Murdoch readies his paywalls, and online display recovers, who will scoop up the resulting ad revenue? Should GNM emulate the digital ventures being developed by Will Lewis in Euston?

In addition, there’s EMAP, which remains vital to the long-term future of the Guardian and the Observer. Less than two months ago, presumably in the midst of her discussions with Easyjet, McCall suggested that GMG had “not decided what the solution is” to the trade publisher’s £700m debt pile.

If GMG has now decided upon its approach, who will oversee the forthcoming acquisitions? No-one makes deals during an interregnum.

Will there be an interregnum? GMG seems unsure. It isn’t saying that Amelia Fawcett will become an executive chairman. But neither does it know when McCall will depart. A quick-fix promotion from within may yet save everyone’s blushes.

Besides this, I’m assured that there’s plenty of M&A expertise in GMG’s boardroom. Yes, McCall’s departure might slow down the company down a bit. But it was an offer she couldn’t refuse.

The argument fails to convince. No publicly quoted company would be happy with the timing of Carolyn McCall’s departure. If GMG isn’t a company in turmoil, it’s doing its best to look like one.

Manchester Evening News: Did GMG invest in “things that matter”?

Posted by Peter Kirwan on 11 February 2010 at 15:39
Tags: Guardian Media Group, Media, Trinity Mirror

Over at t’other place, newsquestslave casts a critical eye on yesterday’s post comparing GMG and Trinity Mirror as owners of the Manchester Evening News.

(S)he takes issue with my suggestion that GMG invested steadily in its regionals during the late noughties, even as revenues and profits declined.

1) Operating expenditure isn’t everything

I looked at GMG’s track record in terms of operating costs (wages, rent, print contracts etc). But newsquestslave suggests another dimension:

“There is no ‘investment’ as in new capital raised from shareholders - as there hasn’t been anywhere in the regional press for decades.”

The argument seems to be that GMG’s regionals were just as bad as everyone else in this respect.

But newspaper companies generate lots of cash: this is one of the reasons so few have gone bust during the recession. It’s very rare indeed for them to ask shareholders for additional capital. Johnston Press did it in extreme circumstances, to pay off debts. But elsewhere, even the huge investment in new printing presses that’s taken place in recent years has been financed out of cash flow and debt.

In any event, you’d be hard-pressed to locate shareholders who would hand over new capital to finance operating expenditure (in the form of money to hire more journalists, for example).

On this basis, criticising newspaper companies for not raising more capital from shareholders is a red herring.

By looking at operating costs, I was trying to narrow the focus to factors that affect the quality of journalism on a day-to-day basis. It still think this is a valid way of looking at GMG’s track record as a regional newspaper proprietor.

2) What did GMG’s regionals spend all that money on?

Here, newsquestslave offers two arguments:

Given that things like newsprint have gone up in price, and that GMG regional has squandered cash on the Channel M disaster and other ego projects the investment/spending in the things that matter to newspaper readers, ie newspaper editorial, have declined sharply.

On “disaster/ego projects”: yep, it’s certainly possible that GMG chose to spend money on the wrong things. Yesterday, I suggested that this might have been the case. Of course, lots of companies do this. It’s called risk-taking. The question is whether GMG took more risks, or worse risks, for longer than its rivals.

On paper costs, Newsquestslave has a point. Buying paper accounts for 15%-20% of costs at a typical newspaper. So even though GMG maintained operational expenditure between 2004-2009, the rising cost of newsprint probably did squeeze out some investment in journalism at GMG’s regionals. Yet rising paper costs were a common factor for everyone.

That said, Newsquestslave’s points did make me backtrack on the numbers I dug out yesterday. I wanted to see whether I could reinforce my argument.

So today, I’ve got two graphs for you. The first is identical to yesterday’s effort. It shows how operating costs remained fairly static at GMG’s regionals as profit (and revenues) declined between 2004 and 2009.

The second graph shows how Trinity Mirror’s managers responded to declining profitability in a very different way. Trinity Mirror squeezed operating costs in a way that GMG simply didn’t, or couldn’t. On this basis, I stand by the suggestion I made yesterday:

GMG’s exit from the market is worrying for anyone who believes that sustained investment by large companies with deep pockets is the only thing that will save local journalism. The numbers suggest that GMG has been there, done that — and met with little or no success. The notion isn’t yet dead: but it has sustained serious damage.

As I hinted earlier, there’s one proviso. Did GMG’s regionals take too many risks? If more had been invested in “newspaper editorial”, and less on peripheral projects, would things have turned out differently?

Could the Manchester Evening News have remained a viable part of Guardian Media Group? Was Channel M responsible for that not happening? Some, including AndrewT23at Media Guardian, have suggested that this was the case:

As for GMG having to support a regional title, the MEN is still very capable of making money, even for a cash sieve like the Guardian, but saddling it with the basketcase TV channel that is Channel M was just too much.

If you look around the MEN newsroom at present you can see the damage caused by making a profitable regional newspaper prop up a vanity project TV station and, indeed, The (non Manchester or Northern) Guardian.

If you’ve got a view, leave a comment below, or send me a suitably anonymous email here:mediamonied@googlemail.com

Footnote: On the Trinity Mirror graphs, you’ll note a few asterisks. For the detail-oriented among you, here’s what they mean:

* = adjusted retained businesses

** = operating costs assumption for 2009 = 2 x 1H09 operating costs (reality will be lower).

GMG & The Manchester Evening News: “C’est magnifique, mais ce n’est pas la guerre”

Posted by Peter Kirwan on 10 February 2010 at 13:19
Tags: Guardian Media Group, Media, Trinity Mirror

A few kind souls at Hold The Front Page are predicting what awaits employees of Guardian Media Group who will soon start working for Trinity Mirror:

“For those who thought [GMG Regional Media chief executive Mark] Dodson was a ruthless hatchet man, you ain’t seen nothing yet…”

“God help them….If they think they’ve been squeezed in the past, wait til TM get their mitts on them, then they will understand that it is possible to get blood out of a stone.”

Among other things, the perception that GMG’s regionals have already been “squeezed” by a “hatchet man” feeds into the suggestion that the Manchester Evening News and its stablemates have been plundered relentlessly to sustain outsized losses at the Guardian and the Observer.

Ratcheting up the rhetoric a notch or two, Ian King, at the Times, even suggests that “for many MEN staffers, the new owners could scarcely be worse than the old ones”.

The news coverage certainly suggests that cost cutting became endemic at GMG’s regionals during the late noughties. Disputes over job losses flared up repeatedly as revenues declined: in 2006, 2007 and again in 2009.

Yet the numbers in GMG’s annual reports suggest a different picture. Remarkably, GMG held operating costs at its regional newspapers static between 2004 and 2009. Year after year, as revenues and profits declined, GMG carried on ploughing the same amount — more than £100m a year — into reporting, presenting and distributing the news at its regionals.

The contrast between steady investment and the downward trajectory of operating profits during the same period is painful. (In the graph accompanying this piece, I’ve rebased both sets of numbers to 100 as of 2004 to make comparison easier).

GMG’s exit from the market is worrying for anyone who believes that sustained investment by large companies with deep pockets is the only thing that will save local journalism. The numbers suggest that GMG has been there, done that — and met with little or no success. The notion isn’t yet dead: but it has sustained serious damage.

Did GMG simply invest in the wrong stuff? Or were GMG’s regional journalists living in a relative paradise? I suspect that the commenters at HTFP are probably closer to the truth than the deputy business editor of the Times. Working for Trinity Mirror will be a whole lot different.

Bosquet, the French general, famously described the charge of the Light Brigade at the Battle of Balaclava in 1854 in the following terms: “C’est magnifique, mais ce n’est pas la guerre”.

No doubt Sly Bailey, the chief executive of Trinity Mirror, thinks similarly about GMG’s recent track record as regional newspaper proprietor.

£7m for the Manchester Evening News: Carolyn McCall isn’t related to the Barclay brothers

Posted by Peter Kirwan on 10 February 2010 at 01:17
Tags: Guardian Media Group, Johnston Press, Trinity Mirror

For most Britons, the Blair-Brown boom reached a peak in early 2008. Yet as always, the news business was ahead of the game. For most publishers, revenues hit an all-time high during 2004-2005.

One deal, in particular, signalled that we had reached the peak.

In December 2005, Johnston Press bought Scotsman Publications from the Barclay brothers for £160m. This astonishing sum represented 2.5 times the revenue generated by The Scotsman, Scotland On Sunday and the Edinburgh Evening News during the previous year.

Half a decade later, what’s to be said about Guardian Media Group’s decision to sell its 32 local newspapers to Trinity Mirror?

If GMG had sold out to Johnston Press in 2005, it might have hoped for a price tag of over £300m (on the basis that its regionals generated revenues of £128m the previous year).

Today, however, GMG is selling its regionals for £7.4m in cash.

Some will criticise GMG for not persisting with its stricken cash cow. Others will allege an excess of sentimental attachment to the Manchester Evening News.

But let’s not get too aggressive, or too dewy-eyed. It’s worth remembering that GMG’s regionals delivered nearly £90m in operating profits between 2005 and 2008. If we’re going to compare today’s thin-looking deal with what might have been possible in 2005, we’ll need to make allowances for that £90m.

In addition, as part of today’s deal, GMG finds itself relieved of the contractual need to pay £37.4m to Trinity Mirror to print the Manchester Evening News.

This represents a real-world benefit for GMG, which continues to eat through its cash reserves in a manner that calls to mind Morgan Spurlock consuming Quarter Pounders in Super Size Me.

So add it all up: in total, GMG has made a return during the past five years of something like one times its regional newspapers’ current annual revenues (and more if you make allowances for not having to pay MEN’s print bill in the future).

This isn’t the kind of coup that will see the board of GMG elected to the deal-makers’ hall of fame alongside David and Frederick Barclay. But it isn’t that bad, either.