At Trinity Mirror’s nationals, the worst recession in living memory feels like a blip

Posted by Peter Kirwan on 4 March 2010 at 13:08
Tags: Associated Newspapers, News International, Trinity Mirror

Some news organisations have had a half-decent recession. Trinity Mirror’s nationals rank among them.

This morning, Trinity Mirror released its final results for the year to December 2009. Ad revenues at the Daily Mirror and its stablemates fell by 8% during 2009. That’s far less than the chunky double-digit percentage declines that afflicted many broadsheets.

But at tabloids like the Mirror, circulation is more important than advertising. At Trinity Mirror’s nationals, for example, circulation comprises almost two-thirds of overall revenues. During 2009, these revenues held steady at the Mirror and its stablemates, declining by a mere 0.5%.

Add it all up, and Trinity Mirror’s nationals have emerged relatively unscathed from the worst recession in living memory. Overall, revenues declined by just 3.2% YOY to £460m. On the bottom line, operating margins were barely disturbed. In 2009, these declined to 18.2% from 18.7% during the previous year.

It’s hard to call this a recession: it feels more like a blip.

Sly Bailey and her management team will feel good about this performance. The comparison with the Mail and the Mail On Sunday is suggestive.

At Associated Newspapers, home to the Mail and the Mail On Sunday, like-for-like ad revenues fell by 15% during the year to October 2009, and then by a further 11% during Q409. Although it’s hard to make a direct comparison, circulation revenues seem to have fallen more rapidly at Associated, too.

As always, however, there’s a sting in the tail. Readers have stopped buying newspapers during this recession in big numbers.

Between July and December alone, the number of national newspapers sold by Trinity Mirror declined by up to 10%.

Trinity Mirror mitigated these big declines by hiking cover prices. During 2009, the Daily Mirror rose from 40p to 45p, and the Daily Record from 60p to 65p.

But if readers’ willingness to buy newspapers continues to decline at the current rate, an awkward question presents itself.

In a world where the Daily Mail costs 50p and the Sun costs anywhere between 20p and 35p, what’s the most that Sly Bailey can charge for a copy of the Daily Mirror?

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.

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.

The decline & fall of local newspapers, Part 1

Posted by Peter Kirwan on 23 June 2009 at 12:26
Tags: Johnston Press, Media, Newsquest, Northcliffe Media, Trinity Mirror

Deflation will put an end to the supermarkets’ advertising jamboree

Posted by Peter Kirwan on 22 June 2009 at 22:51
Tags: Associated Newspapers, Media, Northcliffe Media, Trinity Mirror

Local press consolidation: How Lord Carter and the OFT opened the door for the Big Four

Posted by Peter Kirwan on 18 June 2009 at 10:42
Tags: Johnston Press, Newsquest, Northcliffe Media, Trinity Mirror

Two months ago, Sly Bailey of Trinity Mirror told a Digital Britain conference: “All we are asking for is a 21st century merger regime to support 21st century media.”

This week, The Office of Fair Trading published a 105pp annex to Lord Carter’s Digital Britain report. In an accompanying statement, John Fingleton, chief executive of the OFT, argued that the existing merger regime for local newspapers is already “fit for the needs of the media sector in the 21st century”.

If this was intended as a rebuke to Bailey, the chief executive of Trinity Mirror didn’t take offence.

Why? Here, it’s probably important to notice that Bailey’s argument has focused less on the law itself, and more on its interpretation. When competition regulators examine markets for unfair competition or monopoly, it matters tremendously how they define those markets.

Here’s Sly Bailey putting her case in an interview with Jeff Randall on Sky News back in March:

“The problem with that is that the Regulator looks at our industry and very narrowly defines us as print markets, and what we are saying is no, we now operate in a much wider competitive market not least with, with online.”

Here she is making the same point at the Digital Britain conference in April:

“Any merger regulation which doesn’t take Google, RightMove or Monster in to account isn’t fit for purpose. Allowing us to merge and consolidate is the only way we’ll be able to meet these threats head-on.”

Reading the OFT’s response, it’s clear that the arguments voiced by Bailey (and submitted by the hastily-convened Local Media Alliance) have had an impact. Here’s the OFT response on the question of market definitions:

There is no binding precedent on the OFT or [Competition Commission] to apply a particular market definition (that is, the economic market in which the merging parties are considered to operate), or to carry out its competition assessment in a particular way, for a merger in a sector which has been looked at before.

This flexibility can result in different market definitions being applied in different cases, with the market definition being determined by the evidence.

Specifically, the OFT’s report suggests that data submitted by the LMA was “broadly supportive of the case for. . . wider market” [definitions] that include both print-based and online media.

Lord Carter’s suggestion that Ofcom could play a role is also be significant. As the OFT puts it: “The OFT will ask Ofcom to provide views, arising from its understanding of media markets, on factors relevant to the OFT’s decision.” Ofcom already performs this role in the case of broadcast mergers.

Yesterday, Bailey also suggested that Ofcom’s involvement might be “could be a clever answer to a difficult problem”.

This raises the prospect of Ofcom operating as a discreet sounding board between the regional chains and the OFT. Significantly, this week’s OFT review mentions that the regional chains are at liberty to dicuss mergers and transactions with the OFT before announcing them publicly. *

It also reminds the Big Four (as well as other Alliance members, including DC Thomson, Archant and Guardian Media Group) that prospective deals can be “fast-tracked” out of the OFT and into the Competition Commission. The OFT advises that by going down this route “a more advantageous outcome could be achieved by merging parties”.

The OFT’s careful suggestion that nothing has changed is designed to maintain respect for competition law in other sectors of the economy.

Beneath the surface, though, the regional chains have cleared some or all of the logjam. Expect attempts at consolidation to start making headlines sooner rather than later.

* UPDATE 18/06/2009: It turns out that the OFT already offers “extra-statutory advice on an informal basis on competition issues. . . arising out of a prospective merger”. Since 2006, however, the OFT has “not been approached in writing for Informal Advice on any potential local or regional newspaper transactions”.

In property classifieds, the winner isn’t a publisher

Posted by Peter Kirwan on 11 May 2009 at 17:48
Tags: Media, Northcliffe Media, Trinity Mirror

At Johnston Press last year, regional property advertising declined by 32%. The decline at Trinity Mirror was 27%.

During the course of the year, the two companies saw somewhere in the region of £40m-worth of property-related advertising disappear into thin air.

Putting a number on the deficit in property-related advertising at Northcliffe and Newsquest is more difficult. (Neither company releases specific numbers). Archant remains tight-lipped, too.

But it certainly seems possible that the collapse of the property market deprived the local press of £100m in ad revenues during 2008.

Where did it go? And more importantly: will it ever come back?

It’s tempting to suggest that £100m in ad revenues simply disappeared. But that’s not quite the whole story, as the slide reproduced here from Rightmove’s 2008 results presentation in February suggests.

Doubless, some of that £100m ended up with Rightmove. The pure-play property site expanded its revenues by 31% to £74m during 2008.

Last week, Rightmove issued an update to investors which suggested that the company is “trading ahead of the Board’s expectations” and delivering a YOY increase in the average revenue generated per advertiser.

This at a time when the regionals are reporting YOY declines of 50%+ in print-based classified property revenues.

It’s certainly true that the regionals have put up some resistance to Rightmove. During 2006, DMGT purchased Primelocation, which now ranks as the UK’s second-largest property site. DMGT also owns Findaproperty.com, the UK’s fourth-largest property site.

But at £88m, the classified digital revenues generated by DMGT across jobs, property, motors and dating barely outstripped what Rightmove generated through property-related advertising alone in 2008.

Elsewhere, Trinity Mirror reported that property ads accounted for 19% of its £38m in digital revenues during 2008. That’s around £7.2m.

Will that £100m of classified property revenue return to print? No doubt some of it will. But the downturn will hammer print-based yields and volumes -– permanently.

Meanwhile, on the web, the economics of winner-takes-all continue to play out. The problem for journalists is that the emerging winner in digital property classifieds isn’t a publisher of regional newspapers.