No death for print — until the last drop of profit hits the bottom line

Posted by Peter Kirwan on 4 September 2008 at 17:05
Tags: Media

Press Gazette carries a gloomy prognosis from Graham Harman, the managing director of Incisive Media’s business and technology magazines.

Harman has just merged Computing and IT Week, two weekly trade titles for IT professionals. Last time I looked, these titles had a combined circulation of nearly 150,000.

Harman has also severed the title-specific loyalties of his journalists and set them to work as content specialists across a range of technology sites and magazines.

You’ve got to have some sympathy with Harman when he says: “You can’t just stick to the old practices and say ‘that will do’.”

But sympathy comes a bit harder as Harman revs up the rhetoric. In particular, note the claim that Incisive’s changes have nothing to do with “cost cutting or cost savings”.

Why do publishers always say this? Beats me. But if Incisive isn’t making savings, I’m the shah of Iran.

The need for economies is pointed up by Nielsen Media Research, which suggests that ad volumes in Harman’s markets fell by 20%-30% YOY between May and July.

These numbers are worse than anywhere else in B2B publishing (with the possible exception of financial services). In fact, they resemble what you’d expect to see in regional press classified markets.

So is Harman’s predicament the result of working in a volatile vertical sector? Or is it a sign of things to come for everyone else in B2B publishing?

Depressingly, Harman thinks it’s the latter. He predicts that a lot of his B2B rivals “won’t be ready” for big revenue declines. He predicts that many “won’t have thought about it, or be where we are in terms of the online offering.”

Upheaval is always more bearable if you emerge from it feeling far-sighted. Harman might even be correct. But Incisive’s logic seems odd in other ways.

For example, there’s this bit of advice: “You have to say to yourself: ‘If I was launching into this market now what would I do?’”

Now quite clearly, B2B technology publishing is the kind of market where readers migrated online long ago. The one thing a new entrant wouldn’t do under any circumstances is to launch a weekly print magazine. Actually, no-one has done it for the best part of a decade.

But oddly, after closing IT Week’s print edition, this is exactly what Incisive will continue to do by continuing to publish Computing. . . as a weekly magazine.

Graham Harman can be forgiven for not highlighting the contradiction. At the leading edge of B2B publishing, print really is on its last legs. This is making life tricky.

The problem for Harman is that a dwindling pool of advertisers still have some cash to spend on print ads. So even as yesterday’s medium enters its death throes, Incisive hesitates to switch off the life support machine.

Publicly, B2B publishers in this situation will say that print remains valuable because some readers still want it.

Privately, they know they need to wring the last drops of profit from a dying medium before they can flick the switch.

But there’s a problem with what we might call The Last Drop approach.

It has hidden costs. Continuing with print to the bitter end consumes lots of editorial resource in relative terms. It bends editorial and sales teams out of the shape they need to assume for the future. It dilutes focus on digital.

Some will say that this has been going on for years. True enough. But earlier in the game, print had an ace up its sleeve. It was able to generate the profits required to bankroll digital development. Presumably this is no longer the case at Incisive.

The lesson that Graham Harman really should be offering up to the market is this: It would be best for everyone if we got this over with quickly and faced the future. . . but our shareholders have made this an impossibility.

What’s in your budget for 2009?

Posted by Peter Kirwan on 4 September 2008 at 13:19
Tags: Johnston Press, Media, Trinity Mirror

Bit late with this — a piece of forecasting from Deutsche Bank that followed last week’s Johnston Press results for 1H08. The note in question summarises JP’s advertising revenues so far this year:

H1 ad revs (UK print) dropped 11%, with June down 17%. The first 7 weeks of H2 are down around 23%.

This leads Deutsche Bank to forecast that Johnston Press will face YOY ad revenue declines of 25% for the rest of the year.

Because declines were shallower during the first half, Deutsche Bank predicts that for 2008 as a whole, Johnston Press’s ad revenues will end up down 18% YOY.

A couple of things need to be said at this point.

The first is that these 2H expectations currently pivot on a ropey bit of data.

That 23% decline for Johnston Press during the traditionally thin summer months isn’t a reliable guide to what will happen between September and December.

But it is worrying. At the moment, the newspaper advertising business — like the wider economy — sits at a point of inflection. The industry has its Alastair Darling types (forecasting much worse to come). And it has its Caroline Flint types (she’s the housing minister who is a bit naive about telephoto lenses and has been a key proponent of Gordon Bown’s “Don’t panic” line).

The analysts at Deutsche Bank — like most of their peers — seem to be lining up with Ms. Flint. The bank’s forecast for Johnston Press revenues during 2009 makes this plain:

We continue to assume a 7% decline in advertising revenues for 2009, but this is from the new lower 2008 base.

To say the least, this prediction looks rosy. It underlines the fact that analysts’ forecasts tend to lag behind developments in the real world during a downturn.

If 25% ad revenues declines become the reality at Johnston Press in 2H08, some revisions will be required in those 2009 forecasts.

The reckoning will have an unpleasant effect on share prices. And that, in turn, could return us to the dark days of early summer, when valuations for Trinity and Johnston Press rode so low that wild talk became commonplace.

NB: New-ish (and non-financial) readers might be wondering why I keep on referring to Johnston Press and Trinity Mirror in posts like these.

The reason is simple: these companies are part of a small band of media companies whose quoted status means they have to disclose large amounts of financial information. To some extent, this means that they have become proxies for the entire news-generating sector.

But it’s also worth remembering that both TM and JP are heavily exposed to the market’s nastiest risks: they own lots of local newspapers, they’re heavily reliant upon classified advertising and (in the case of TM), they are part of a red-top market that’s declining relatively rapidly in circulation terms.

In other words: what TM and JP offer is a guide to the leading and bleeding edge of recession. Their revenues streams started falling first, and it’s likely they will fall furthest.

If you work in B2B publishing, or even consumer magazines, JP and TM will give you an idea of where the downturn is heading. Almost certainly, however, the prognosis for your business won’t be quite so dark. Given the persistent hysteria that surrounds the media sector, this is worth remembering.

Informa gazundered by private equity as locust speculators grow restive

Posted by Peter Kirwan on 4 September 2008 at 12:52
Tags: Media

Informa has gotten itself into a right old mess.

First a potential merger with United Business Media collapsed. This happened because private equity came lumbering over the hill with an apparently unbeatable offer.

Now, it seems, that unbeatable offer has been revised. Instead of the rumoured 500p-per-share, a consortium led by Providence Equity Partners has offered 440p-450p.

The story comes from City AM, and you can read it here.

Why is this relevant to anyone? Well, predictably, it has led at least one analyst to recommend that Informa reject the offer — and sell itself off piecemeal to a selection of bidders.

This would effectively be a repeat of what happened to EMAP. Only in this case, Panmure Gordon suggests — helpfully — that a break-up would be less complicated and more attractive. (You’ll find the Panmure note quoted on FT Alphaville’s Market Live session this morning: here.)

A break-up certainly would be attractive for speculators who bought Informa at somewhere approaching 500p.

The locusts face a rough ride down to 350p if Informa returns to minding its own business.

But no-one else would benefit from the dislocation and uncertainty involved in a long drawn-out break-up. Fundamentally, there’s nothing wrong with Informa.

The only mistake the company made was setting itself up as a target for the City’s locusts when news of its talks with UBM leaked.

Two broken deals later, the insects are growing impatient. In search of sustenance, they now want to rip apart their host.

PS: City AM describes Informa as “the PR Week publisher”. Last time we looked, that august organ was owned by Lord Heseltine, who takes a dim view of the one-dimensional financial engineering that threatens to overwhelm Informa.

TMT: The two-speed investment category

Posted by Peter Kirwan on 11 August 2008 at 12:42
Tags: Media

I guess we should be grateful for accountants who are optimistic under the current circumstances. They’re a rare breed.

Among them is BDO Stoy Hayward, which has just sent me a news release entitled: “Technology, media and telecoms companies can see the light at the end of the credit crunch tunnel”.

The mixed metaphor deserves to be preserved for posterity. But here’s the nub of the argument, underpinned by research among an unspecified number of CFOs at TMT companies:

Nearly a quarter (23 per cent) of TMT companies are forecasting growth of more than 20 per cent over the next three years, and almost than two-thirds (62 per cent) are forecasting growth of more than 10 per cent.

In addition, an overwhelming majority of CFOs (80 per cent) are confident that their companies will hit their revenue targets for growth over the next three years.

Sounds reassuring, doesn’t it? And there’s more:

While the figures have shown that two thirds (60 per cent) of companies have found that the credit crunch has harmed their ability to raise capital, three quarters (75 per cent) are maintaining that it remains easy or very easy for their company to gain access to the funding it may need to operate effectively.

Something about this research makes me think that BDO Stoy Hayward’s sample includes more CFOs from T Companies (technology and telecoms) than from M Companies (media).

Thus far, T Companies — the ones that aren’t dependent on advertising — are having a fairly good recession. But as any fule no, life is very different for M Companies.

To the best of my knowledge, the TMT category was invented by investment bankers during the original dot.com boom. By associating old-school media companies with racy dot.coms in the minds of business journalists and investors, the category was intended to provide a fillip to the share prices of the former.

Of course, that’s a rather cynical view. But regardless of the reasons for its invention, the TMT category these days is looking about as unified as the United Kingdom. Whether we’ll still be talking about the sector as a unified whole in a few years’ time remains to be seen.

Murdoch’s Teflon margins: Even with Dow Jones aboard, News Corp’s newspapers still look good

Posted by Peter Kirwan on 8 August 2008 at 17:25
Tags: Media, News Corp, News International, emap

If you work at Wapping, what should you think of News Corporation’s full-year results? Here’s the stuff investor relations would like you to shout about:

• Revenue up by 9%
• Operating profit up by 18%
• Q4 net income per share up 27%

Yadda-yadda. So is everything really rosy in the garden? Given News Corp’s typically miserly approach to disclosure, it’s hard to say.

In particular, News Corp’s second-quarter earnings release is studiedly guarded about progress at Dow Jones, which became part of the P&L in Q1.

It tells us, for example, that Dow Jones generated $48m in operating profit before amortization and depreciation during News Corp’s Q4 (Q2 in calendar terms).

But it doesn’t tell us how much Dow Jones generated in revenues. As a result, there’s no way to assess the unit’s margin performance.

There’s probably a very good reason for this.

Last year, before the acquisition of Dow Jones, News Corp’s newspapers generated margins of 20.9%.

Any hint that these profits are being diluted by Rupert Murdoch’s high-priced acquisition would have enraged investors and analysts.

Happily, this week’s year-end results from News Corp don’t offer any real evidence of dilution.

Even with Dow Jones & Company on board for two quarters, News Corp’s newspaper division still managed to generate operating margins of 19.2% during the 12 months to 30 June.

It might not look like much, but this is really quite a feat.

The important point to remember is that pre-Murdoch Dow Jones was a dog (there’s no other word for it) in terms of profitability.

In Q307, for example, the company generated operating profits of $40.9m on revenues of $493.3m. That’s a paltry operating margin of 8.2%.

Historically, it was never much better.

• Q207: 12.5%
• Q107: 7.5%
• Q406: 13.1%
• Q306: 3.3%

The question is this: how has News Corp managed to shoehorn such a large and underperforming asset into its newspaper division without hammering its own margins?

Dow Jones was a biggish acquisition in revenue terms. Its $1.8bn annual revenue base compares with News Corp’s pre-acquisition newspaper-related revenues (for 2007) of $4.5bn.

And yet. . . despite absorbing the big revenues and poor profitability of Dow Jones, News Corp’s margins have barely registered the impact. Here’s what’s been happening on a quarterly basis:

News Corp newspaper margins Q208: (with DJ) — 19.2%

News Corp newspaper margins Q108: (with DJ) — 17.9%

News Corp newspaper margins Q407 (without DJ) — 21.3%

News Corp newspaper margins Q307 (without DJ) — 18.7%

News Corp newspaper margins Q207 (without DJ) — 23.4%

News Corp newspaper margins Q107 (without DJ) — 20.3%

(NB: These margins are calculated before depreciation and amortization)

Yes, there’s a small dent visible in the margin during Q108, the quarter in which Dow Jones was included within News Corp’s numbers for the first time. But apart from that, the margin performance looks unbroken.

How have Murdoch & Co. managed this feat? The answer to the question — I suspect — falls into two parts:

1) They’ve been pressing every possible button in a bid to increase margins at Dow Jones & Company (not terribly surprising).

2) They’ve been stripping costs out of every other News Corp-owned newspaper worldwide.

Is Rupert Murdoch’s obsession with the Wall Street Journal going to weaken The Sun, the News of the World, The Times and the Sunday Times? Does the competition have an opportunity to benefit from this in the short and medium term?

My guess is that the answer to both of these questions is yes — notwithstanding recent largesse in terms of new print plants, redesigns and a “permanent” 5p cut in the price of The Sun.

Dow Jones won’t get fixed overnight. Until it does, the rest of the Murdoch empire will almost certainly need to share the burden of rebuilding it.

Ad recession: We’re at the end of the beginning, not the beginning of the end

Posted by Peter Kirwan on 8 August 2008 at 10:58
Tags: Associated Newspapers, Daily Mail & General Trust, Johnston Press, Media, Newsquest, Northcliffe Media

Writing in the FT, Tim Bradshaw predicts that ITV’s forecast 20% YOY decline in September ad bookings might come to be seen as “the moment the credit crisis finally hit advertising budgets”.

This is unlikely. The credit crisis was taking a visible toll on ad expenditure as long ago as January. But in ad markets, as in property markets, the real point of impact was early May.

That’s when the decline in ad revenues moved aggressively into double-digit territory. The scale of the collapse is really visible in the numbers for Newsquest’s classified ad revenues provided in monthly bulletins issued by Gannett.

In April, Newsquest was dealing with a classified market that fell by 5.7%. During May, its classifieds were down 14.7%. (At Trinity Mirror, the Q2 decline seems to have been similarly sharp; at Northcliffe, less so.)

Since then, we’ve moved up another gear. Last week, Trinity Mirror disclosed that ad revenues at its regionals declined by 17% during June.

That’s actually worse than ITV’s prediction for September. Why? Because ITV is comparing its performance with a buoyant September 2007, which featured England reaching the Rugby World Cup final.

Strip out the effects of that, and, as ITV’s Rupert Howell notes, the channel’s underlying YOY decline in September will be something like 14%-15%.

This feels about right. When it comes to percentage declines, the big ad budgets devoted to commercial TV are always going to lag behind what’s happening in the regional press. The smaller local businesses that sit at the economy’s sharp end always feel the pinch first.

So that we can all keep a sense of proportion, here are a few data points that illustrate the speed and scale of the downturn.

The percentages refer to all ad revenues including digital (or in the case of Newsquest, to classified revenues only, where mentioned). The months mentioned are those in which the declines actually occurred (rather than when they were reported to the market by the companies in question). All % comparisons are year-on-year. . .

July:
Trinity Mirror regionals: down by “around” 17%
Trinity Mirror nationals down by “around” 13%

June:
Newsquest classifieds: down 19.3%
Northcliffe regionals: down 16%

May-June:
Trinity Mirror regionals: down 11.3%
Trinity Mirror nationals: down 13.2%

May:
Newsquest classifieds: down 14.7%
Northcliffe regionals: down 12%

April:
Newsquest classifieds: down 5.7%

March-June:
Associated Newspapers: down by 3%
Northcliffe regionals: down by 11%

March-April:

Trinity Mirror regionals: down 3.3%
Trinity Mirror nationals: down 2.4%
Northcliffe regionals: down 6.7%

January-April:

Trinity Mirror regionals: down 3.1%
Johnston Press: down 7.1%

January-February:

Johnston Press: down by 4.2%

Er, what was that about a broad-based recession?

Posted by Peter Kirwan on 29 July 2008 at 22:55
Tags: Daily Mail & General Trust, Media, Pearson PLC, United Business Media

This morning, United Business Media turned in revenues up by 10.4% YOY for the six months to the end of June. Cash conversion improved, and so did operating profit (up 11.4%).

Even CMPi managed growth of 6.2% (although margins dipped slightly below 20%).

For the journalists among you, it’s worth pointing out that all of this happened inside a company (UBM as a whole) where only 25% of revenues are now generated by print. That’s down from 56% four years ago.

It’s just as well, then, UBM’s events business is doing a fair impression of the Duracell bunny. In his presentation to analysts this morning, David Levin, UBM’s chief executive, kept the best news until his last slide, which contained these bullet points:

– Forward bookings across UBM’s major events scheduled for 2H08 are 10% ahead of the previous year.

– Bookings for 2009 major events demonstrating good growth — 10% ahead.

Pearson was also presenting half-year results this morning. There, the FT Group delivered revenues up by 11% for the half-year. Much of that was attributable to the group’s Interactive Data division. But FT Publishing itself managed a 2% increase in subscription, circulation and advertising revenues.

Not bad given what’s happening to City jobs and financial services advertising.

Dame Marjorie sounded over the moon. She told the FT: “In downturns, companies like ours, which have consistently invested and have very strong balance sheets, have huge opportunities. This [the next couple of years] is probably going to be the most fun time I have had yet in this job.”

How so? Scardino mentioned acquisitions, “bolt-ons, things which are hugely synergistic”.

Whether or not she’s thinking — in part? — about enriching the FT Group with acquisitions remains to be seen.

Three or four years ago, when the FT was languishing miserably at the bottom of its profit cycle, investors would have demanded Scardino’s head on a pikestaff at Traitor’s Gate if she’d so much as hinted at such a thing. Now, as the FT prepares to confront a rampaging Wall Street Journal, there’s just a chance that things might be different.

Stranger things have happened.

Why advertisers aren’t lagging behind digital readers

Posted by Peter Kirwan on 25 July 2008 at 20:26
Tags: Media

Cheers to the ever-reliable Nate Elliott, research director at Jupiter Research, who has picked apart the old saw that advertisers need to invest a lot more money in digital advertising in order to catch up with consumer behaviour.

The logic that underpins this argument is based on the notion (accurate enough) that European web users spend 17% of their media time online.

So shouldn’t advertisers be spending a similar proportion of their budgets in digital advertising? Well, they don’t. In fact, across Europe, advertisers only spend a measly 7% of their ad budgets on digital.

The argument that proceeds from this apparent mismatch will be drearily familiar. “Just wait,” say the carriers of conventional wisdom, “until advertisers catch up with consumer behaviour.”

As Elliott points out, this is a flawed argument. Why? Because only 53% of Europeans are online. The rest are refuseniks and late adopters.

When Elliott adds non-digital media consumers into the equation, it emerges that just 9% of Europeans’ media time is spent online.

So, actually, advertisers aren’t far off the pace.

Elliott’s research paper takes another interesting twist. Here’s how he lays it out:

Every minute spent watching TV or reading a newspaper is a minute spent consuming media. But the internet isn’t just a media channel, it’s a blend of media and communication.

According to a Microsoft Digital Advertising Solutions study, just 43% of users’ online activities involve surfing, entertainment or information collection — what we classify as media activities. The rest includes communication, content creation and transaction.

This is a point I’ve made often, and it’s heartening to see someone like Elliott making it, too.

His point is that the advertising opportunities that surround all of that “communication, content creation and communication” are fairly low-grade. The CPMs achieved by webmail sites and social networks support this.

So how should we think about all of this low-grade media usage? What Elliot does next is to take that 9% figure for Europeans’ web usage and revise it downward on this basis.

If we assume non-media inventory is only worth half as much as inventory within media content, then the internet’s fair share of ad spending in 2006 was 7% — exactly the share of spending it received that year.

So there you have it: on this (only slightly speculative) basis, Europeans allocate 7% of their media time to digital media, and advertisers are allocating a similar proportion to putting messages in front of their eyeballs.

The next time you hear someone ranting on about advertisers’ tardiness in the digital sphere, remember Nate Elliott’s research. It underlines the fundamental truth that markets aren’t stupid.

NB: You’ll need a subscription to MAD to read New Media Age’s version of this exercise in shibboleth-bashing.

As the lights go out across our planet, a mighty roar emerges from the Telegraph’s engines of doom

Posted by Peter Kirwan on 25 July 2008 at 15:55
Tags: Media

I haven’t checked. But almost certainly, Ambrose Evans-Pritchard isn’t an anagram for Hieronymous Bosch.

Still, in recent months, I’ve started to wonder whether this one-man engine of doom strapped to the Telegraph’s business desk can take the strain.

The Telegraph and Evans-Pritchard have been whipping their readers into a singular frenzy about recession and depression for several months now. I’ve started to imagine City editor Damien Reece emerging ashen-faced from the business hub and crying out to Will Lewis: “Cap’n, the engines cannae take it anymore”.

But they can, they certainly can.

Today, online, the Telegraph’s business section features a piece by Evans-Pritchard which suggests that the global economy is “at the point of maximum danger”.

It claims that the IMF has “abdicated into schizophrenia”. The European Central Bank is “fixated on the rear-view mirror, not looking through the windscreen”. Washington has its back to the wall. All over the world, it seems, the darkness is encroaching:

Britain, Japan, and the Antipodes are stalling. Denmark is in recession. Germany contracted in the second quarter. May industrial output fell 6pc in Holland and 5.5pc in Sweden.

The coalitions in Belgium and Austria have just collapsed. Germany’s left-right team is fraying. One German banker told me that the doctrines of “left Nazism” (Otto Strasser’s group, purged by Hitler) had captured the rising Die Linke party. The Social Democrats are picking up its themes to protect their flank.

This is the healthy part of Europe. Further south, we are not far away from civic protest. BNP Paribas has just issued a hurricane alert for Spain.

What does this call to mind? How about Edward Grey, the 1st Viscount Grey of Falloden, speaking on the eve of World War One (”The lamps are going out all over Europe; we shall not see them lit again in our lifetime.”)

Or perhaps W.H. Auden 25 years later, waiting for another war to start while sitting in “one of the dives/On Fifty-second Street”.

Thankfully, the Telegraph’s web folks aren’t quite so high-falutin’. They have decided to illustrate Evans-Pritchard’s piece with a mock yellow triangular sign featuring a skull and crossbones. Bless.

Anyway, enjoy. For as Ambrose knows, it’s always later than you think.

The alternatives for Trinity Mirror: Strategic investor or private equity bid?

Posted by Peter Kirwan on 18 July 2008 at 12:34
Tags: Media, Trinity Mirror

At The Times, Dan Sabbagh does the sums on Trinity Mirror’s share price. When Sly Bailey arrived in 2003, it was 370p. On Wednesday morning, it was 41p, valuing the entire company at a derisory £106m.

This, writes Sabbagh, means that the market is allocating a value of £72 to each of the Daily Mirror’s 1.47m buyers. That’s around the value of six months’ continuous purchasing. As Sabbagh puts it:

Perhaps at that point the City believes that all of Britain will become blinded by a Triffid invasion, and hence unable to read. One can only wonder how investors would react if something genuinely serious happened.

Presumably, that’s what Richard Desmond is hoping for. Sabbagh suggests that the owner of the Express reckons it would cost £800m to take Trinity Mirror private. (This sum includes a bid premium, the company’s existing debt and some cash to top up Trinity’s pension funds.)

In relation to the £150m of operating profits expected from Trinity Mirror this year, that’s a fairly big number. It would imply doing a deal with net debt at x5.3 EBITDA. According to Alan Mutter, that’s not impossible.

If Trinity Mirror then nixed its dividend payments, which amounted to £63.7m last year, the company would enjoy wiggle room to accommodate the further YOY declines in operating profit that seem inevitable. Hell, it might even be able to pour some real money into investing for the future.

So a deal is do-able. But there are doubters. Desmond, who thinks £800m is too expensive, is one of them. As he told The Times mischeivously this week: “When it’s in receivership, we’ll look at it.”

Of course, there’s another alternative — specifically, the possibility of someone taking a strategic stake in the company.

Trinity Mirror will present its 1H results to the City on 31^st July. At that point, conjuring a strategic investor out of thin air might be one way for Sly Bailey to keep her job.

Whether the de facto endorsement of her conservative regime that would accompany such a move is the right medicine for Trinity Mirror remains dubious.