Will the Guardian and Telegraph play nice again?

Posted by Peter Kirwan on 5 February 2010 at 14:28
Tags: Guardian Media Group, Telegraph Media Group

The ongoing spat between the Telegraph and the Guardian has been entertaining. But I wonder whether it might be drawing to a close.

In recent months, the Telegraph has become deeply interested in the Guardian’s financial performance, variously describing this as “grim”, “disappointing”, and “disastrous”.

The Guardian’s apparent inability to impose compulsory redundancies on editorial staff has become a favoured theme. In early December, the Telegraph spoke to one unnamed insider at GNM who described “highly-paid” staff journalists immune to compulsory redundancy as “bed-blockers”.

Another Telegraph story suggested that GNM employs so many editorial staff that “one features writer is reputed not to have had his name in the paper for more than a year”.

To be sure, Telegraph Media Group makes profits and Guardian News & Media makes losses – thumping great big losses. But why is the Telegraph so preoccupied with an unquoted rival whose fate doesn’t matter to investors reading the paper’s business pages?

Perhaps the answer lies in the pages of Media Guardian. In late November, Media Guardian ran a piece that portrayed Tony Gallagher, the Telegraph’s new editor, as the kind of Mail executive who destroys professional opponents after breakfast and eats their body parts for lunch — with fava beans and a nice Chianti.

Awkwardly, the piece suggested that Gallagher, during his long career at the Mail, hadn’t been averse to doing “all the things that the PCC wouldn’t allow you to do now”. One unnamed source told Media Guardian: “I can’t think of anyone in our profession that I would least like to cross the threshold of my home.”

Elsewhere, at the Observer, in early December, Peter Preston offered his best wishes to Gallagher, before going on to argue that the Telegraph’s “perpetual”, “slithering” circulation decline has been a problem since the late 1960s. The implication was that Murdoch MacLennan’s modernization project is pointless.

Sadly, the fun may be about to end. An unnamed source — yes, another one – insists that the Guardian “has no desire to compete in a tit-for-tat way” with the Telegraph.

Is that an olive branch being extended to the Telegraph? Coincidentally, Carolyn McCall, the chief executive of Guardian Media Group, gave an interview to the FT this week in which she suggested that GMG is coming “out of the recession very strong”.

“Yes we have made redundancies,” said McCall, “yes we have got the cost base down to where we want it now. . . They have done it, the GNM management are so on track. The Guardian is in good shape.”

Cumulatively, this sounds like an effort to draw a line beneath damaging coverage of the Guardian’s financial performance.

Whether the Telegraph takes the hint remains to be seen.

Telegraph vs. Guardian: The mystery of 100 job losses

Posted by Peter Kirwan on 18 December 2009 at 14:20
Tags: Guardian Media Group

Guardian Media Group is hopping mad with the Daily Telegraph for revealing its discussions with Trinity Mirror about a possible sale of the company’s regional newspapers.

GMG has been stung by several aspects of the Telegraph’s story, including the allegation that the company is turning its back “on its heartland to keep the Guardian afloat”.

The Telegraph’s suggestion that GMG is engaged in a “fire sale” hasn’t gone down well either. Inevitably, GMG is also irritated by the fact that this story was written in the first place. GMG’s managers could do without the constant flow of leaks emanating from Kings Place.

But GMG seems particularly irked by the Telegraph’s suggestion that selling its regionals represents “a desperate attempt” to save 100 jobs at the Guardian and the Observer. No doubt that’s partly because the Telegraph’s claim opens up all of the old fault lines that exist between local and national journalists inside GMG.

But I was also intrigued by Roy Greenslade’s take on this. Yesterday afternoon, he offered up what sounded like a sanitised version of GMG’s reaction to the story:

There is no relation between those very separate matters. And there is no saving of those jobs.

The dispute is a bit mysterious. For a start, it’s not clear which “100 jobs” we’re talking about. Neither Greenslade nor the Telegraph have shed much light on this.

Are either or both of them referring to the 100 commercial jobs losses already planned? When it comes to redundancies, of course, numbers get thrown around with abandon. So perhaps we should be thinking about the 80 journalists who accepted voluntary redundancy at the Guardian and the Observer earlier this year?

If the Telegraph’s “100 jobs” includes all or some of these, this part of the story looks naïve. You don’t negotiate redundancy with 180 staff only to turn on a sixpence when Sly Bailey arrives in reception carrying a briefcase full of £50 notes.

But perhaps the Telegraph was hinting at something else. Perhaps it meant to suggest that selling the Manchester Evening News could obviate the risk of compulsory editorial redundancies at GNM when the division’s latest – and second – offer of voluntary redundancy ends in January.

Under the renegotiated house agreement that accompanied GNM’s move to Kings Place, the old prohibition against compulsory redundancies was set aside in favour of the idea that they might be possible “in extreme circumstances”.

Depending on how you look at the numbers, GMG’s cash position can be characterized as fairly extreme. GNM’s losses certainly qualify as such.

Compulsory redundancies remain a real possibility. If GNM tries to impose job cuts, a ballot for industrial action will follow. It could all get very ugly, very quickly.

But if GMG sells its regionals to Trinity Mirror for £40m, the NUJ will pursue the resulting logic. Surely that’s enough lucre to fend off a few dozen involuntary job losses? Surely £40m for GMG would make GNM’s situation less extreme?

Roy Greenslade’s suggestion that there is “no relation” between selling GMG Regional Media and rightsizing GNM’s cost base is made of wafer-thin stuff. Of course there’s a relationship. It’s called realpolitik, and it runs right the way through Kings Place.

Panic or logic: Selling off the Manchester Evening News

Posted by Peter Kirwan on 18 December 2009 at 12:50
Tags: Guardian Media Group, Trinity Mirror

In itself, GMG’s effort to sell its regional newspapers to Trinity Mirror isn’t surprising. The timing is interesting, though.

Only a few weeks ago, sources at GMG played down the chances of selling off the Manchester Evening News in the near term. My assumption was that a sale would have to wait until economic recovery took hold. But now we’re looking at “exploratory talks”. It’s easy to interpret this as a distress signal on GMG’s part.

In this respect, the Daily Telegraph didn’t disappoint yesterday.

Any disposal would amount to a fire sale because it is thought that GMG Regional would fetch less than £40m. Before the collapse in newspaper advertising, the Manchester Evening News alone was estimated to be worth about £200m.

Yes: but will the Manchester Evening News or GMG Regional Media ever be worth £200m again? If anyone believes this, I’ve yet to meet them.

Set aside the talk of a “fire sale” for a moment. At a deeper level, there’s some logic, rather then panic, in this potential deal.

If, like GMG, you’ve already made the decision to get out of regional publishing, now might not be a bad time to sell. The run-up in newspaper valuations has reached a plateau. The prospect of a double dip recession looms.

Remember, too, that GMG’s regionals are a sub-scale operation. The economies of scale being generated by Trinity Mirror are the only source of profits in a declining market. Even if GMG pours management time into its regionals, it won’t be able to catch up.

Perhaps, too, it’s better to sell small assets as consolidation kicks off. The alternative involves the risk that you’ll be left behind when the serious horse-trading begins.

A window of opportunity may well have opened on Trinity Mirror’s side. For a long time, Sly Bailey has looked like the only regional publisher with the wherewithal to initiate consolidation.

Plainly, however, Trinity Mirror has been fretting about the attitude of the Office of Fair Trading. The review of newspaper competition rules initiated by Lord Carter and carried out by the OFT did little to calm its nerves.

Now, however, the election of a new government is only months away. The Cameroons will take a more relaxed view of consolidation.

The City is increasingly impressed with Trinity Mirror’s Terminator-style cost-cutting. Investors might cut Sly Bailey some slack if it can beat GMG down on price.

This vision of jigsaw pieces falling into place with slick precision is tempting. But let’s not get too carried away.

GMG’s situation is tricky. Pre-tax losses at GMG reached £90m in the year to March 2009, and the company will deliver another terrible set of results this year. The company’s cash cushion has started to look uncomfortably thin.

But GMG’s situation isn’t all bad. It has tiny debts, and could raise cash from banks or investors on a temporary basis if required. Emap has its problems, but it’s too early to suggest that GMG won’t get a return on the £300m it invested there 18 months ago.

The Telegraph is within its rights to call this a fire sale. Yet GMG doesn’t need to sell at any price, even if Trinity Mirror appears to be the only interested party.

In deals, it’s the future, rather than the past, that matters. Companies are valued on a multiple of their likely future profits, discounted for inflation. If the value of GMG Regional Media continues to fall during the next decade, selling up for £40m in 2010 could come to be viewed as a smart move.

This is the possibility that should haunt local journalists everywhere. The emotions that stalked local newsrooms when DMGT tried to offload Northcliffe in 2005 are in play once again.

The silver lining, if there is one, lies in the opportunities that will be created by further consolidation. Cost-conscious bosses working at 10,000 feet create organisations in their own image. In the chinks and voids around the footprints of the last remaining giants, new business models will emerge — eventually.

Guardian News & Media: Not that far out of line with the market, after all

Posted by Peter Kirwan on 18 November 2009 at 15:34
Tags: Daily Mail & General Trust, Guardian Media Group, Trinity Mirror

Did 25% of Guardian News & Media’s revenue base really disappear into thin air between April and September?

Last week, the Guardian itself left the door open to this interpretation. The Times appeared to confirm it, suggesting that revenues at the Guardian and the Observer had declined by £33m since April.

The contextual maths are unpleasant. In its last financial year, which finished in March, GNM generated revenues of £253m. For April-September 2008, it’s reasonable to assume that it generated half as much: say around £126m. A revenue decline of £33m during the same period in 2009 would have represented a fall of 26%.

Worse than anticipated? This would have been stunningly bad. Consider the following comparatives for total revenues (not just advertising revenues):

Trinity Mirror

– January-June: -17%
– 1st July-25th October: -12%

Independent News & Media

– January-June: -15% (in constant currency)

Associated Press

– March-June: -12% (underlying YOY figure, excluding Evening Standard)

Comparisons like these suggest that GNM’s revenue declines for April-September should be running at around the mid-teens in percentage terms.

As it turns out, that’s exactly what’s happening. A spokesperson for GMG tells me that the £33m YOY decline was a projection for GNM’s financial year as a whole — not for the six months between April and September.

On that basis, GNM should find itself 13% down on last year when its financial year comes to an end next March.

Worse than anticipated? Perhaps. But only slightly. Declines of this scale are not far off what the company was predicting last summer.

That said, GNM’s results for 2009-2010 — due to be unveiled next summer — could be the ugliest of the down cycle.

So far, GNM has cut £25m out of its cost base against 2008-2009. More cuts are on the way. But continuing revenue declines will punch another big hole in cashflow. On top of that, there’s the prospective impact of redundancy costs (these might be exceptional costs, but they represent real cash payments, unlike the notional write-downs in asset values that have become endemic among media companies).

Earlier this year, GMG’s chief executive Carolyn McCall outlined her timetable for turning around the group’s losses. “Can we afford it this year?” she asked. “Yes, but can we afford it for the next three years? No.”

The evidence suggests that McCall is on schedule. 2009-2010 won’t be a pleasant experience for GNM, but it won’t be anywhere near as bad as last week’s stories implied. By contrast, 2010-2011 should be a whole lot better.

Newspapers & live events: There’s money in affinity

Posted by Peter Kirwan on 21 August 2009 at 15:02
Tags: BBC Worldwide, Daily Mail & General Trust, Guardian Media Group, Media, News International

Simon Jenkins went to four festivals this year: Glastonbury, The Hay Festival, the Welsh Eisteddfod and the CLA Game Fair.

(The CLA Game Fair? For metropolitan types among you, the CLA bit stands for Country Land & Business Association, and its Game Fair is a three-day festival of country pursuits.)

Last week, Jenkins found himself marvelling at the vast crowds that attended each of these events — vast crowds “being parted from considerable sums of money in the cause of affinity”.

Sensibly, Jenkins went on to argue that newspapers should emulate the music industry, which has “cast off its enslavement to recording studios and recast itself, almost in Victorian mode, as a mass movement for live audiences”.

At EMI, Guy Hands wouldn’t recognise this description of an industry “casting off enslavement”, but one thing’s for sure: if it doesn’t already, the music industry as a whole will soon generate more revenue from live performance than it does from the sale of CDs and MP3 files.

The increase in performance revenues is compensating for the decline in physical music sales. The lessons for publishers are obvious.

As our lives become more virtual, as the number of shared national moments on telly dwindles, we crave live experience more than ever. It’s partly a tribal thing: attending Glastonbury or Glyndebourne says a lot about who you are.

It’s also partly about the increasing importance of experiences as opposed to products. Not for nothing does an entire sub-sector of the marketing industry devote itself to experiential marketing. In an increasingly digital world, retailers need to find more ways of getting their products in front of us so that we can look at them, touch them, smell and taste them.

Broadcasters have been quicker than newspapers to satisfy this craving. Apparently, the public’s taste for Top Gear has been sufficient to sustain “a £20m world tour”, produced in associated with Clarion Events.

Like Top Gear, Kevin McCloud’s Grand Designs started out as a reviews-based show, only to become a vehicle for all sorts of collectively-held aspirations. The original TV programme (produced by Fremantle Media and broadcast on Channel 4) has given birth into a huge exhibition (organised by Media 10).

Along the way, there’s been a massive expansion of focus. On telly, Grand Designs concerns itself with self-build homes. At the NEC, in October, it promises to interest “anyone who has an interest in design, build, interiors, shopping, home wares, gardens, kitchens & bathrooms, and innovation”.

Who’s to say that the Mail, the Guardian or the Times or the Telegraph can’t mobilise similar numbers of fans? Grand Designs is watched by around 5m viewers eight times a year, with repeats driving up reach. But the whitetops reach several million readers every day, and their brands have been around a lot longer.

Intrigued, I decided to look up the financial performance of the four festivals that Jenkins mentions in his column. The results were interesting:

Glastonbury: As the great-grandaddy of them all, Glasto is an exception to the rules in terms of size. But its size hasn’t restricted growth: even this well-established event is growing rapidly. In 2005, revenues were £16.3m. As you might recall, there was no event in 2006. But in 2007, revenue shot up to £22.3m. The numbers make me wonder whether Glastonbury broke through the £40m barrier this year.

The Hay Festival: Here, too, there’s significant growth. In 2005, Hay Festival of Literature and the Arts Limited generated £1.2m in revenues. Revenues grew by 22% in 2006, and by a further 26% in 2007. But 2008 was the breakthrough year, with revenue expanding by 53% to £2.9m – probably due to international expansion. Whatever the reason, the company behind The Hay Festival has more than doubled in size in the space of three years.

The National Eisteddfod Of Wales: The only registered charity on the list, and the only one that describes itself as “a process rather than an event”. Eisteddfod has reputedly been dogged by financial problems. But its topline looks healthy enough. In 2008, it generated revenues of £3.8m.

The CLA Game Fair: According to the most recent set of accounts at Companies House, the Game Fair generated revenues of £3.2m in 2006. The event was called off in 2007 “due to the appalling weather”. But in 2008, it generated £3.8m. Once again, the growth rate is impressive: 18%.

The story is consistent and obvious. Simon Jenkins is correct: there’s money in live events. Investing in them should be a no-brainer for newspapers.

Guardian Media Group: Mr Marx’s incredible shrinking cash cushion

Posted by Peter Kirwan on 16 June 2009 at 17:35
Tags: Guardian Media Group

So we learn that Guardian Media Group will report an overall operating loss for the 12 months to March 2009 — its first such loss for several years.

How big is the deficit? We’ll find out in early August, when GMG publishes its accounts. But based around reports of McCall’s presentation to staff yesterday, here’s what we know already:

Guardian News & Media (home of GMG’s nationals): -£35m

GMG regional media: +£1m

GMG property: Unknown loss

GMG radio: Unknown loss

Clearly, the deficit will be more than £35m. In addition, we now know that GMG won’t be benefiting from its share of the profits generated by EMAP and Trader Media Group. These should look something like this:

Trader Media (50% owned by GMG): +£50m

EMAP (30% owned by GMG): +£30m

These profits will be ploughed back into reducing debts inside these two operations, which are co-owned with Apax Partners. In the words of Carolyn McCall, GMG has exchanged “short-term profit” for “long-term security”. The hope is that GMG will “make a good return” when it exits both of these investments.

No doubt it will – in or around 2011-2013.

Meanwhile, take a look at GMG’s cash position. At the moment, GMG probably possesses something like £150m in cash, plus £200m that has been placed into a long-term investment fund.

Compared to the losses being incurred at Guardian News & Media, these diminished cash holdings could rapidly start to look thin. The cushion supporting Mr Marx’s posterior has shrunk significantly.

Psychologically, recycling profit into off-balance sheet debt and locking up £200m for the long term does something important: it strengthens the case for commercial aggression at the company’s national newspapers and guardian.co.uk.

As its rivals never tire of pointing out, Guardian News & Media isn’t run like a normal business. Internally, however, it may be starting to feel like one.

Having successfully reduced the overall size of GMG’s cash cushion, Carolyn McCall now has the leeway to impose a challenging fitness regime on these prize assets. In the words of the old saying: “A recession is a terrible thing to waste.”

Around £20m in cost savings are already planned at Guardian News & Media. This may sound like a lot, but it only represents 7.5% of the division’s 2008 cost base.

If ad revenues don’t improve in the second half of this year, there may well be room for further cuts.

The Guardian’s Marx-Engels model: Under pressure, but far from broken

Posted by Peter Kirwan on 12 June 2009 at 15:42
Tags: Guardian Media Group

Enemies were elated and then deflated; well-wishers concerned and then (somewhat) relieved.

This week’s Telegraph story suggesting that Apax Partners, the private equity group, had written off its £300m investment in EMAP initially seemed to promise a world of trouble for Guardian Media Group.

In much the same way that Engels subsidized Marx’s writing career by managing grim factories in Manchester, GMG’s cash cows are supposed to provide the wherewithal for the Scott Trust to safeguard the Guardian “in perpetuity”.

Titter at the analogy if you like, but the arrangement has proved durable.

Last year was indicative. GMG’s national newspapers (and sites) lost £25m at the operating level. But after adding in contributions from less glamorous but highly profitable subsidiaries, GMG as a whole delivered a slim operating profit of £5.1m.

Currently, GMG owns two main cash cows:

• 50.1% of Trader Media Group (the rest held by Apax Partners)
• Roughly 30% of EMAP (acquired with Apax Partners in March 2008)

In addition, at 30 March 2008, GMG had £577.5m of cash on its balance sheet, some of which appears to have been earmarked for investment in EMAP. Shorn of that amount, GMG should currently have at least £300m in the bank.

But back to the main question: does Apax’s write-down mean that GMG’s investment in EMAP is also worthless?

The answer is no -– on at least two levels. The wording of the Telegraph’s report is vague. Actually, as The Guardian’s Richard Wachman subsequently confirmed, what has been written off is Apax’s £300m cash investment in EMAP.

In addition, Apax borrowed heavily in order to buy approximately 70% of the B2B publisher. So far as we know, these loans haven’t been written off.

With EMAP expected to generate profits of £100m this year, Apax’s bankers could be forgiven for thinking that their investment still retains some value. Presumably, the biggest risk-taker (Apax) has been forced to take a bath first. (The recent suggestion by David Gilbertson, chief executive of EMAP, that his company is “worth around $1bn (£0.6m)” supports this idea.)

As more than one observer has pointed out, the Apax write-down has been dictated by accounting rules that force all companies to “mark” their assets to currently-prevailing market prices.

In the run-up to Apax’s write-down, share-based media valuations reached a nadir. Almost certainly, Apax will write back some of the value of its £300m during the next year or two. In other words: Apax’s write-down doesn’t mean that EMAP is worthless in the long-term. Not by a long chalk.

At this point, two further questions suggest themselves:

Q: Will GMG be forced to write down the value of its own investment in EMAP in its forthcoming annual report?

A: Quite probably. But if it does so, GMG won’t be alone. Every media company in the developed world has written down the value of its assets during the past year.

Q: Will an EMAP write-down have any material effect on GMG?

A: Almost certainly not. Only companies that owe large amounts to banks, or which depend on stock market investors, need concern themselves with the theoretical weakening of their balance sheet induced by mark-to-market accounting. GMG neither owes unsustainable debts; nor is it quoted.

So much for GMG’s balance sheet. By contrast with those of its rivals, it still looks reasonably spruce.

In the real world, however, it’s cashflow that counts — for Guardian Media Group (and everyone else). On this basis, GMG’s forthcoming accounts for the year to March 2009 will tell a number of intriguing stories.

We already know one of them. This week, Carolyn McCall suggested that EMAP is generating £100m of profits on an annual basis. This will generate a windfall worth tens of millions for GMG, which owns 30% of EMAP.

It’ll be needed. While she mentioned EMAP, McCall failed to talk about the performance of Trader Media Group, in which GMG holds a 50.1% stake.

Last year, the publisher of AutoTrader delivered operating profits of £91m. This year, the contribution will be thinner. Online or offline, classified auto advertising is hardly flavour of the month.

Profits will also be much-reduced — possibly non-existent — at GMG’s portfolio of regionals. Last year, the regionals delivered an operating profit of £14.3m. No-one is expecting a repeat performance this year.

With some of its cash cows malfunctioning, trading at the Guardian and the Observer has become a very real concern in recent months. As one executive puts it, GMG’s nationals have “veered off course” in terms of profitability “by several tens of millions”.

Last year, Guardian News & Media, the GMG division that contains the Guardian, guardian.co.uk and the Observer, delivered a £25m operating loss.

It would be foolish to bet on that number being smaller this year.

Similarly, however, it would also be foolish to anticipate a full-scale business model meltdown at GMG. The Marx-Engels model is under significant stress. But it’s a long way from being broken.

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.

No news is good news for the financial engineers who underwrite The Guardian

Posted by Peter Kirwan on 19 December 2008 at 14:01
Tags: Guardian Media Group, Media

The Guardian is starting to look a bit like one of Leonardo Da Vinci’s perpetual motion machines.

News International might have ditched plans to move out of Wapping. But the Guardian has completed its move to a new HQ in Kings Cross.

DMGT and the Barclays are cutting costs aggressively. But there’s no news of cuts at the Guardian. The paper remains the only national that hasn’t embarked on a high-profile effort to trim its outgoings.

Leonardo drew pictures of machines that would violate the first law of thermodynamics. By contrast, Carolyn McCall and Alan Rusbridger appear to be running one.

The last thing I want to do is to anticipate carnage where none currently exists. That said, I’ve started to wonder about the amount of juice left in GMG’s incredible cross-subsidy machine. Can it guarantee perpetual motion in perpetuity?

Guardian Media Group’s last annual report, written shortly after the joint venture deal with Apax Partners to buy EMAP Communications, sheds very little light on what’s expected from the company’s cash cows this year.

But the cashflow being generated by EMAP’s B2B magazines and Trader Media Group must be a concern.

Trader Media might well generate lots of revenues from the web. But the collapse in car sales won’t be doing it any favours.

As for EMAP’s stable of magazines and exhibitions, it, too, is probably somewhere close to the eye of the storm. The B2B recession arrived late, but hit hard.

The other potential concern is the health of GMG’s joint venture partner, Apax, the private equity fund.

A year ago, Apax Partners and GMG stumped up £1bn to buy EMAP (plus a further undisclosed amount to cover debts and liabilities). Apax had already paid GMG £650m for a 49% stake in Trade Media Group.

No-one beyond Apax itself knows how much debt is associated with those deals. As ever, disclosure doesn’t rank high on the list of private equity priorities.

Things are slightly different in the case of quoted private equity companies. Here, the side effects of indebtedness are starting to become visible. In recent weeks, two big funds — 3i and Permira — have been hit by very public crises. 

Simon Walker, the former Royal PR who now runs the private equity industry’s trade association, tells the Times that he expects some deals to “fail” during the next couple of years.

There’s been nary a whisper of concern about Apax in the markets. But it won’t necessarily take a crisis to change the fund’s attitude to its investments. In the context of a joint venture, shifts like this can be tricky to handle.

This much is clear from events in the Netherlands, where Apax’s involvement with the newspaper group PCM fell apart amid much acrimony last year. In some ways, that relationship looked a bit like the one that exists between the Scott Trust, GMG and Apax.

At Guardian Media Group, a whole lot of jobs depend upon the stability of a business partner that has shown itself to be accomplished at financial engineering.

I’ll say it again: so far, there have been zero signs of difficulty. For the everyone’s sake, let’s hope it stays that way.

Guardian Cities: Local sites for local cityfolk?

Posted by Peter Kirwan on 17 November 2008 at 13:54
Tags: Guardian Media Group

So now, courtesy of How Do, we’ve got a name for it: Guardian Cities.

The rumblings about Guardian Media Group’s ambitions in regional markets have been ongoing for a while.

Not so long ago, I heard they were looking for someone to lead the effort. There were whispers — probably wrong, it now transpires — about large amounts of unused print capacity, too.

If you think about it, GMG’s position in local newspaper publishing is intriguing.

Small enough not to be entirely mesmerized by the need to preserve print profits. Big enough to have plenty of experience and resourcing on tap.

GMG also happens to be a dab hand when it comes to classified job advertising at a national level. (”Couldn’t we do something at local level, too? With our audience of young professionals in big cities?”)

On that basis, I occasionally half-wondered whether GMG would skip the awkward evolutionary step that involves printing freesheets for every British conurbation. (Tactical distribution of free copies of the Manchester Evening News aside.)

So perhaps we’ll see McCall & Co proceeding directly to local sites for local people.

How Do’s report suggests that GMG’s researchers have been asking Mancs how they’d react to “a Guardian-branded website that would connect you with your local community, cover local issues and provide you with information that was highly relevant to your area”.

A spokesperson from Farringdon cautions How Do: “The fact that we are doing research doesn’t itself mean we will or won’t launch a new product.”

No. But the fact that you’re putting research money into the concept is intriguing. Encouraging even.

Especially when so many print-addled newspaper executives poo poo the idea of web-only local publishing. (A consensus this solid makes me suspicious that too many in the industry are simply repeating conventional wisdom.)

Interesting, too, to note that Tony Elliott of Time Out (which has sites for London, Edinburgh, Manchester) is looking for funding to help transform his empire for “a situation in two to three years where the comprehensive role that we play is online”.

In an interview with the Guardian in September, Elliott described the BBC as a “perfect partner”.

Perhaps we should take this to mean that Elliott views GMG — which does have a few quid in the bank and seems to like joint ventures — as an imperfect partner. . .