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.

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.

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.

Wanted: Last Man Standing — big brands and deep pockets required

Posted by Peter Kirwan on 2 March 2009 at 19:12
Tags: News Corp, Trinity Mirror

Ed Pilkington, writing in the Guardian, suggests that executives at the New York Times are very fond of what we might call the last man standing thesis. 

The idea, of course, is that only those publishers with the biggest brands and the deepest pockets will weather the effects of recession and structural change, emerging on the other side.

Once there, the hope is that the survivors will be able to take advantage of new, as yet unspecified, opportunities.

In the US, the expression has gained currency against the backdrop of bankruptcies. Last month, Janet Robinson, chief executive of the The New York Times Company, said this to analysts:

“As other newspapers cut back on international and national coverage, or cease operations, we believe there will be opportunities for The Times to fill that void.”

In the UK, there are plenty who would like to be counted among the last men standing.

The intention to be among them was visible, for example, in Sly Bailey’s Q&A session with analysts last week.

Asked whether she would like Trinity Mirror to consolidate, or be consolidated, Bailey sensibly answered: “It depends what’s right for our shareholders.”

But she struck a different tone when asked whether consolidation would provide “genuinely new benefits”.

Bailey referred to modernising the editorial process “on a wider scale”. She also suggested that Trinity Mirror is asking itself: “What can we do with a bigger portfolio to exponentially drive benefits?” The intention seems clear enough. 

Of course, getting through to the final stages of this industry-sized knock-out competition will involve getting over a few hurdles.

Depending on where you look, the hurdles differ. In the case of Trinity Mirror, something may need to be done about pension liabilities that went up from £125m to £207m during 2008. Something else may yet need to be done about the Office Of Fair Trading.

For News Corporation, there’s the messy question of succession. If Murdoch Snr. can see the company through to recovery, so much the better. But if succession occurs before the landscape brightens, things could start to look very different.

Many of the non-Murdoch shareholders who own 75% of News Corporation are irritated by the founder’s continuing addiction to newsprint. A change of regime would be the perfect moment to raise their voices.

Meanwhile, the New York Times will need to be assured that the Sulzberger family can do without dividends for a decent stretch of time. (A prospect dismissed by New York media commentator Michael Wolff, who believes that Sulzbergers “can’t possibly stick with it”.)

The last man standing thesis is comforting for those who tell themselves that they’ve got the brand power, expertise and financial flexibility to make it through to the other side.

The only problem is that there are still way too many candidates for the job.

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. . .