Johnston Press: The fat lady ain’t singing yet

Posted by Peter Kirwan on 13 May 2009 at 12:35
Tags: Johnston Press

Contrary to popular belief, the road to repossession for most hard-up homeowners is a long and winding one. It’s the same with companies.

NTL, the cable company that once employed Lord (Stephen) Carter, spent years staggering from debt crisis to debt crisis. Somehow, though, NTL still managed to find the money required to dig up roads and send out inaccurate bills.

Banks hate calling in debts. Why? Because it forces them to write off assets. Getting involved in debt-for-equity swaps is anathema, too. As recent events have proved, bankers don’t excel at running businesses.

Confronted by their employer’s failure to sell a dozen or so Irish newspapers for a decent price, what should journalists who work for Johnston Press be thinking this morning?

“The prices offered [for the Irish newspapers] wouldn’t have made any significant impact on our levels of debt,” said Stuart Paterson, chief financial officer at Johnston Press.

When your net debts are £448m, is a 10% reduction significant? You might think so. But selling assets at fire sale prices and breaching banking covenants all the same –- well, this wouldn’t make much sense, either. 

Johnston Press is more heavily indebted than most other UK media organisations because it made stunningly bad choices during the past decade. But its back is not yet entirely against the wall. The company’s ability to walk away from an Irish fire sale suggests that it has other options.

Johnston Press will now ask the banks to loosen their covenant requirements in terms of the ratio between operating profits (EBITDA) and net debt. It also wants to discuss “more appropriate” arrangements “extending beyond September 2010”.

Independent News & Media has already performed this trick — provisionally — with banks to whom it owes €590m. (Notably, however, bondholders are still holding out, and INM’s debts are less onerous inrelative terms than Johnston’s.)

Johnston Press will walk into talks with £30m in projected cost savings up its sleeve for 2009. The company is still generating more cash than it pays out. At some point, too, the company will benefit from the government’s impending relaxation of competition law.

We’re not yet looking at a situation in which bankers give up hope of ever getting their money back.

At the moment, I suspect that the real risks have less to do with bank debt than the state of the economy. This morning’s trading updates from Trinity Mirror and Johnston Press offered little sign of improvement.

Every media boss in the land is busily proclaiming that year-on-year comparatives will improve in the second half. Perhaps. But cash is what counts. Life will really only become interesting for Johnston Press – in the Chinese sense – if the green shoots retreat and a double-dip recession becomes a reality.

Under this scenario, attitudes would harden as profits become a distant memory. We’re not there yet, not by some distance.

Counting the cost of Tim Bowdler’s Irish empire

Posted by Peter Kirwan on 11 May 2009 at 12:52
Tags: Johnston Press

The suggestion that Johnston Press may sell its newspapers in the Irish Republic for as little as €40m prefigures an abject conclusion to one of the most spectacular acts of boom-era media hubris. 

During a whirlwind summer of deal-making in 2005, Tim Bowdler, the now-retired chief executive of Johnston Press, invaded the Republic of Ireland. Within weeks, he tied up three deals that transformed the company into the country’s largest publisher of local newspapers.

In June 2005, Johnston Press snapped up five Irish newspapers — including the Leitrim Observer and the Longford Leader — as part of its £155m acquisition of Score Press from Scottish Radio Holdings. 

Next, in September, came the £139m purchase of The Leinster Leader Ltd, home to six weekly paid-for titles including the Leinster Leader, Offaly Express and Limerick Leader.

Also in September, Johnston Press announced that it would spend £65m on Local Press Ltd, the private equity-backed company that had bought out Trinity Mirror’s papers in Ireland and Northern Ireland in 2004. Local Press Ltd was home to four Irish papers, including the Donegal Democrat.

The top line suggests a total outlay of £359m. But not all of this was spent on papers in the Irish Republic. Both Score Press and Local Press had significant operations in Northern Ireland and Scotland.

Opinions vary on how much Johnston Press paid for its titles in the Republic. The figure of approximately €240m has been widely quoted. Johnston Press itself suggests its €173.6m of euro-denominated debt equates to the “approximate value of the investments made in the Republic of Ireland”. 

Of course, the balance of power between euro and sterling has changed immensely since 2005. In 2005, €173.6m — the figure quoted by Johnston Press — equated to £121m. Today, it translates to £165m.

The more widely-quoted acquisition costs (€240m) would be the equivalent of £225m today.

Even if Johnston Press does sell its Irish papers for £50m and then uses the proceeds to reduce its euro debts, the company will remain saddled with at least £100m of loans dating back to its ill-fated Irish adventure.

This year, the cost of making interest payments on that debt will amount to at least £6m.

Given that advertising recession will probably erase most — if not all — of Johnston Press’s free cashflow during 2009, the most obvious way of paying that interest bill will be to make more journalists redundant at the titles that the company continues to publish.

If you require evidence that the casino logic of the noughties (which benefited Johnston Press directors more than most) has resulted in misery for thousands of hard-working journalists, look no further.

But as any fule no, comedy is the reliably dark underbelly of tragedy. As it turns out, the impending sale of Johnston Press’s Irish business provides comedic potential in spades.

It’s worth, for example, taking a look at who is interested in buying the Irish newspapers that Johnston Press admits are now worth a fraction of their original price.

Of the three shortlisted buyers identified by the Irish Times, two profited mightily by selling the very same newspapers to Johnston Press in the first place.

One of the bidding consortia is led by John McStay, the insolvency practitioner and former chairman of The Leinster Leader Ltd. McStay was among the 27 shareholders who sold out to Johnston Press in 2005.

Another consortium is headed by Richard Findlay, the former boss of Scottish Radio Holdings, which offloaded Score Press to Johnston Press in 2005.

But perhaps the biggest belly laugh of all should be reserved for the financier who originally induced Tim Bowdler and Johnston Press to harbour such overblown ambitions for their Irish empire. 

Back in 2005, Cathal Friel was a director of the Dublin-based investment boutique Merrion Corporate Finance. His firm advised Johnston Press on its deal-making in 2005.

Friel occupies a special place in the pantheon of spielers who talked up the Celtic Tiger. Back in 2005, he endorsed Johnston Press’s acquisitions like this: “The Irish economy holds out the prospect of double-digit growth in newspaper advertising, which compares to a stagnant market in Britain.”

Last year, Friel — who seems to have a monopoly on brokering the sale of local newspapers in Ireland – found himself selling off a small family-owned newspaper in Galway. 

Against the background of an 8.5% contraction in Irish GDP, his tune sounded familiar: “The business model is changing, there are definite challenges, but in many ways the future has never been brighter for the regional media in Ireland.”

Regardless of what happens to Ireland’s regional newspapers, the future certainly does remain bright for Cathal Friel. As the founder of Raglan Capital, the indomitable wheeler-dealer has been retained once again by Johnston Press, this time to advise the company on its withdrawal from the Irish Republic.

Regional press: Making the anti-consolidation argument

Posted by Peter Kirwan on 26 March 2009 at 01:22
Tags: Johnston Press, Media, Trinity Mirror

So far, arguments about further consolidation among the regional press have been conducted at a fairly rarified level.

There’s been an argument about business models. Some analysts are concerned that consolidation will mean more brutish one-off job cuts. Sly Bailey is trying to reassure them that “working smarter” with a new “editorial model” is part of the plan.

Then there’s the anti-trust angle. Will boiling down the Big Four into a Big Two result in a bad deal for advertisers? We’ll get to see what the Office For Fair Trading thinks about that soon enough.

I happen to think that the government will approve further consolidation. It’s a pain-free, subsidy-free way for a weakened government to assist an industry that hasn’t been particularly adroit in lobbying on its own behalf.

But for the would-be consolidators, there’s a risk that the anti-consolidation argument starts to gain momentum. The broader the debate becomes, the less attractive consolidation will appear. This could happen quite rapidly.

Back in February, the first glimmers of momentum became visible when Peter Lazenby, a Leeds-based NUJ official, called Johnston Press the “newspaper equivalent of HBOS and Northern Rock”.

This struck me at the time as a smart piece of positioning. As Lazenby said:

“This company is a financial mess not of our making – it’s the newspaper equivalent of HBOS and Northern Rock.

“The debt now amounts to 10 times its share value and the people responsible for this mess have received fat bonuses and the chief executive is retiring with a pension most working people would die for.

“They are telling us we have to pay the price for this mismanagement by sacrificing our jobs.”

Sensibly, the NUJ is extending Lazenby’s parallel.

Yesterday, the NUJ’s James Doherty told MPs that “light-touch regulation” had “failed in the banking sector. . . and failed in the media, too.”

He added: “The Newspaper Society are asking for an even lighter touch, which will result in even fewer jobs, and more news factories producing titles 80 or 100 miles away.”

Differences between lobbyists who theoretically share the aim of saving their industry? Parallels with bust banks? This is where things get interesting politically.

I feel a Select Committee hearing coming on, with Sly Bailey and John Fry lined up to reprise the roles of those bankers who so memorably hung their heads in regret before the Treasury Committee back in February. Michael Pelosi of Northcliffe Media could sit alongside them fielding awkward questions about Viscount Rothermere’s commitment to the regional press.

And if MPs really felt the need to hear the magic s-word spoken again, they could request the presence of two men who personify the debt-fuelled decade: Tim Bowdler and Roger Parry, the former chief executive and chairman of Johnston Press.

What a swell party it would be. . .

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.

It’s the price of bread, stupid

Posted by Peter Kirwan on 18 March 2009 at 15:00
Tags: Johnston Press

“The king must die so that the country may live.”
– Robespierre, 1792 

“I don’t like using the words ‘print is dead’, but it’s not very well.”
– Nik Hewitt, former multimedia manager at Northcliffe Digital, 2009

We might as well be in Paris in 1792. Only the great debate animating society isn’t the future of Louis XVI. It’s the question of what will happen to King Print.

Jeff Jarvis and Clay Shirky, latter-day equivalents of Danton and Robespierre, have called for the monarch’s removal from power. Increasingly, both suspect that King Print must die, so that journalism may live.

Jarvis and Shirky want us to take a leap of faith. They hope to establish a technologically-enabled Republic Of Virtue in which “all despicable and cruel passions are unknown”.

As Jarvis suggests, we must focus on what we do well — and link to the rest. A bit of reverse syndication wouldn’t go amiss, either.

There’s much talk of alternative ways of organising things — ways that don’t rely on the top-down fiat of King Print. Among revolutionaries, open APIs are discussed with much fervour late into the night.

Shirky himself urges that we must allow a thousand technological flowers to bloom — in the hope of finding a route to the “democratization” of journalism.

These ambitious thoughts worry those with mortgages to pay. But they’re made plausible by the accompanying whiff of Romantic thinking that led Shelley, a generation after Robespierre, to write Ozymandias.

Both Jarvis and Shirky believe that King Print — like Ozymandias with his “sneer of cold command” — will eventually become a “colossal wreck”, abandoned to his fate in the desert.

In the future, travellers equipped with mobile broadband will be perplexed by an inscription on the ruins that could have been uttered by Beaverbrook or Murdoch: “Look on my Works, ye Mighty, and despair!”

But enough about the revolutionaries. Let’s look at the other side of this yawning political chasm, where we encounter the constitutional monarchists –- figures who resemble Mirabeau and Lafayette.

The constitutional monarchists want a bloodless revolution. Deep down, they can’t envisage life without big corporate structures.

There’s simply too much invested in the current system, including huge recent expenditure on new print capacity and billions of pounds-worth of bank debt and shareholder equity. The edifice is too big to fail.

Temperamentally, the monarchists believe –- like all conservatives -– that the new world cannot be very different from the old.

At the moment, King Print is merely unwell, not dead. So the constitutional monarchists are consolidating their arguments. They are returning to the attack — on two fronts.

Yesterday, Sly Bailey of Trinity Mirror delivered a decent impersonation of the war hero Lafayette, inciting the crowds with a populist condemnation of those ancien regime enthusiasts at the Office of Fair Trading.

Bailey warned that the OFT risks damaging the interests of King Print. Unless it casts aside “the language of purist competition theory”, the monarch will face “immediate peril”.

And then there’s John Fry, the new chief executive of Johnston Press. Fry clearly has a plan for getting through the crisis and keeping King Print on his throne. He’s emerging as something of a Mirabeau.

At first glance, that plan looks very familiar: cut costs, negotiate with the banks and keep Johnston Press cashflow-positive until the upturn begins.

But unlike King Print’s previous favourite, Fry seems confident that he can achieve these things. There will be no collapse into administration, no Ozymandias moment on his watch.

As it turns out, Fry’s scenario is based on three notions. Last week, after running through the company’s 2008 results with analysts, he named these as follows:
 

• The notion that recession will give way to recovery during 2010.
   
• The notion that digital ad spend in the UK will “plateau” at somewhere around £4.5bn annually between 2011 and 2013.
   
• The notion that resurgent revenue growth (presumably mostly in print) will outstrip a declining tendency for advertisers to defect to digital competitors.
   

Of course, the list of counter-arguments is lengthy. It includes this, this, this kind of thing and this, too.

In the end, the course of the French Revolution was defined by something very palpable: the price of bread. It was the rising cost of a loaf that prompted Parisians to storm the Bastille and to cheer when the guillotine polished off Louis XVI.

What’s our latter-day equivalent? As Fry suggests, it will be the relative growth rates of print and digital advertising during the next couple of years.

Some forecasts exist for both. But so much remains in flux that they’re essentially worthless.

For Wordsworth, witnessing the French Revolution made it “bliss in that dawn to be alive”. Now that everyone from King Print to Robespierre is running on faith, the question is whether you can persuade yourself to feel similarly.

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.

The financial reporting season: A moment of truth at Recession Central

Posted by Peter Kirwan on 9 February 2009 at 14:52
Tags: Daily Mail & General Trust, Independent News & Media, Johnston Press, Newsquest, Trinity Mirror

Have you noticed how bumpy it’s getting?

Yep: we’re navigating the final approach to a series of extremely negative financial announcements from the UK’s consumer-facing media groups.

The coverage is telling us that we’re in for a shocker. As Sir Alex Ferguson would say, it’s squeaky bum time.

Visibly, we’ve reached the point at which struggling media groups concede the need to sell non-core assets for what they can, when they can.

That was the message delivered by Daily Mail & General Trust’s sale of the Evening Standard for £1. This morning, the Times announced that ITV wants out of ITN. So, too, does DMGT, which holds a 20% stake.

Both Johnston Press and Independent News & Media have announced fire sales of assets. INM hung out the “for sale” signs above a collection of “non-strategic core assets” a few weeks back.

The FT did the same on behalf of Johnston Press’s Irish newspapers on Friday.

We can expect more distress signals as we move through the reporting season.

Proceedings will kick off on Wednesday with a trading update from Daily Mail & General Trust.

Trinity Mirror will report its annual results on 26 February. Johnston Press will do the same a week later.

Archant’s annual report should also make an appearance in early March. ITV will report is full-year results on 4^th March. And Independent News & Media will follow in late March.

The most crucial piece of news in each announcement will involve what’s been happening to ad revenues since consumer confidence fell off a cliff last October.

The IPA’s Bellwether Report, published in mid-January, suggested that marketing directors reacted ruthlessly.

Overall, the Bellwether Report implied a “sharp acceleration in the overall rate of decline” during Q4. According to the FT, the report suggested cuts of “one-third” to “main media advertising, such as television and print”.

Arguably, these cuts had only started to filter through when the UK’s consumer-facing media groups last updated the market during November.

Back then, Trinity Mirror told us that ad declines were accelerating toward -20% YOY. Reading between the lines, November’s interim management statement from Johnston Press suggested similar. 

DMGT last offered us a snapshot of conditions on 20^th November. This told us that total ad revenues at Associated fell by 10% YOY during October. The decline at Northcliffe was a swingeing 28%.

Nothing that has occurred in the meantime suggests that ad markets have improved.

Last week, for example, Gannett disclosed a 29% YOY decline in constant-currency ad revenues — classified and display — at Newsquest between October and January.

The read-across from TV markets is worrying. A few weeks back, we reported Zenithoptimedia’s suspicion that Five suffered a 27% collapse in ad revenues during January.

That was an agency view. Sensibly, Campaign followed it up last week by talking with broadcasters directly. What it discovered about their projections for Q1 was worrying. 

According to Campaign, total TV ad revenues (including the cash attracted by fast-growing minority interest channels) are predicted to fall by 17%-18% between January and March.

ITV1 will suffer a 22% YOY hit. And Five is predicted to face a shortfall of 32% on last year’s ad revenues.

Ladies and gentlemen, fasten your seatbelts. We’re making our final approach to Recession Central. . .

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. 

Anyone up for nationalising Johnston Press?

Posted by Peter Kirwan on 26 November 2008 at 15:02
Tags: Johnston Press

Just got used to the idea of HM Government owning banks?

What about the prospect of banks owning newspaper publishers?

Or, more properly: the prospect of HM Government owning banks that in turn own newspaper publishers?

That’s what Lorna Tilbian’s suggestion of a debt-for-equity swap at Johnston Press might entail.

A swap would mean that JP’s bankers give up hope of repayment on the company’s £465m debt pile. Instead, they would take control of the company.

Bankers dislike doing this. But sometimes, it’s better than the alternative of pushing a company into administration.

A debt-for-equity swap would almost certainly wipe out existing shareholders, including the Malaysian tycoon Ananda Krishnan Tatparanandam, who punted £86m into JP in June at 135p a share.

Those shareholders wouldn’t be happy. They certainly would protest -– loudly.

Which makes the identity of JP’s bankers all the more intriguing.

Yes, folks –- among others, we appear to be looking at Royal Bank of Scotland, soon to be 60%-owned by HM Government.

It’s unclear how much RBS has lent to Johnston Press over the years. But it was the lead institution on a £680m loan that part-financed the purchase of Regional Independent Newspapers in 2002.

And RBS was listed as a “principal” banker to the company in its 2007 annual report.

These ties between RBS and Johnston Press raise a provocative little question: how exactly does Alastair Darling view the future of the UK newspaper industry?

If things get really weird, his views may end up counting for a lot.

UPDATE: So might those of Peter Mandelson, which would be ironic given the history involved. But note the interventionist posturing coming out of Mandy’s ministry at the moment.

At this rate, the minister for business is going to be a very busy boy indeed. . .