28 July 2014

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Five minutes to midnight: Chris Oakley’s speech in full

Chris Oakley, former editor of the Liverpool Echo later owner of the Birmingham Post and Mail and then the Yorkshire Post, delivered this speech to the Society of Editors regional conference in Manchester on 10 May 2012.

Entitled Five Minutes to Midnight:  The death and possible re-birth of the regional newspaper industry, it amounted to a devastating critique of the current state of the regional press, which he argued now needed to be rebuilt from the bottom up.   Here is the speech in full.

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We live in strange times.

That theatre of selective amnesia, the Leveson inquiry, plays to a largely indifferent public at a cost of tens of millions to reveal what? That politicians saddled up and sucked up to media tycoons who, in turn, sought favours as all leading businessmen with access to ministers do, that journalists buy their contacts a pint or four and that celebrities want publicity – but only on their own terms. Well, surprise, surprise.

When the curtain finally falls, what will have changed? Politicians will still be slippery, businessmen will still seek to influence them, whining celebrities will still be trying to get their non-stories into newspapers…and we may have some new curbs on press freedom to work our way around.

Hacking into people’s telephones and emails is already illegal and those who do it should be prosecuted unless they can show an indisputable public interest. We don’t need to spend lorry loads of public money at a time of austerity to tell us the obvious.

On the other hand, the regional and local newspaper industry, whose titles are read by more people than all the nationals and which have a bigger influence on the lives of individuals and communities, is on the point of collapse. Twenty per cent of the UK’s local newspapers have closed in the last seven years, more than 240 titles, leaving sizeable communities from Port Talbot to Cannock from Leominster to Long Eaton without a title.

What is the government doing about that? It stood aside when Ofcom prevented a takeover of weeklies in Kent that would have saved titles from closure. In contrast, the Welsh Assembly has already launched an investigation into the local Press and the Scottish Parliament is considering a request to do the same.

Meanwhile, our wise, impartial and incorruptible Culture Secretary is devoting time and money to stimulating the launch of local television, a tried and failed experiment long ago, in an age with less competition for viewers’ time from satellite channels and the internet. Just 50 years late then.

If this is the best that arrogant, posh rich boys can do, then no wonder the Caravan Club has more members than all our political parties combined.

This week Greece has been back in the news, the disintegration of a country where the economic growth of the boom years wasn’t invested for the future but recklessly spent and used to accumulate debt.

Now Greece is no longer an independent country; it’s a province of Brussels or Berlin. Real power lies with bureaucrats and bankers whose priority is not the future of Greece and its people but to protect the money the lenders have at risk.

Thousands of workers are sacked, assets are sold off, there are no jobs for trained young people, no investment for the future. The country is moving inexorably closer to collapse.

The parallels with the big newspaper groups are disturbingly uncanny.

Take Johnston Press.

In the boom years, the Stock Market valued Johnston Press at more than £1 billion and investors and analysts applauded as the company ran up nearly half a billion in debt.

Now Greece, which has debts of 1.5 times its annual GDP, looks positively stable in comparison to JP which has debts nine times its £40 million market value.

Johnston Press first threw itself on the mercy of its lenders in 2009. Mercy and lenders do not usually co-exist in a sentence – and they didn’t in this case. The financial journalist Peter Kirwan estimated that, including fees, JP had to agree to pay an interest rate of more than 15% to secure a three-year extension of its loans.

Those millions paid to the banks equate to the salaries of about 1,000 journalists, according to Peter Kirwan’s estimate, and JP has been cutting staff ever since.

Last month, JP was forced to go back to its bankers again. This time, the interest rate is 10% and the first year fees alone are nearly £12 million. A cull of editors and their deputies was duly announced, offices were closed, staff centralised and more cuts are promised. Across the group, staff numbers have been shrinking faster than the Polar ice cap.

Yet JP last year had a profit margin beyond the imagining of most businesses – a margin of 17%…before shelling out nearly £40 million in interest.

The company’s chief executive, Ashley Highfield, plans to reduce the debt burden by doubling that margin over the next eight years.

That’s an objective as achievable as the regular predictions by another leading businessman.

It is not Mr Highfield’s fault, but the days when 35% profit margins were in reach are long gone.

If JP is a zombie company, kept alive so that the banks can suck the last drop of cash from it, then, on the face of it, Trinity is in a more comfortable place with debts of only about £265 million, just over three times its market value. That value, by the way, is down more than 96% compared to five years ago.

Trinity, too, is walking a knife edge. It has to repay more than £160m to American creditors over the next three years and has decided to do this by making a 70% reduction in its contribution to a staff pension fund, which already has a growing deficit. The ghost of Robert Maxwell must have been applauding in the boardroom when that decision was taken.

The Pensions Regulator is investigating whether he should stop Trinity paying back US creditors at the potential expense of UK pensioners. To be on the safe side, the company has arranged to borrow a further £110 million.

How will the creditors’ repayment be financed? Well, it won’t be through growing profits – they were down 40% in 2011 in spite of the addition of profits from the acquisition of the Manchester Evening News and its associated titles. So profit growth is out – Trinity is following 2011’s £25 million of cuts with a further £15 million in 2012.

Not a lot of room for investment in regional titles, then.

Sly Bailey may have fallen on her sword – or tripped over her pay packet – but her successor will have no choice but to follow the same policy: more cost reductions.

Newsquest contributes 17% of the profits of the biggest US newspaper publisher, Gannett, but hardly rates a mention in the company’s annual report.

It has not, though, escaped the parent company’s substantial and continual contraction which will increase this year on the evidence of the first quarter performance when newspaper profits fell by almost half.

Northcliffe is in a stronger position than the other three major major groups but has shed almost a quarter of its 3,000 workforce since 2010 and announced a further 13% cut in regional editorial costs this year.

For decades, the regionals kept the Daily Mail afloat but some years ago the company decided to exit regional publishing…and then turned down an offer of more than £1 billion for its titles. It’s an offer that will never be repeated…and the company has been chipping away at the regionals’ foundations ever since.

So why are companies saddled with this unsustainable debt burden at a time when revenues and profits are flowing away from newspapers?

The last decade of the 20th century and the early years of the present one were a golden age for newspaper owners. Advertising spend was growing rapidly, TV and radio advertising slots were limited, the internet was in its infancy and newspapers were the obvious outlet for the rising expenditure.

Newspapers with profit margins of 25% or more were cash rich and their valuations soared. There was no shortage of banks prepared to lend to acquirers on the most improbable of forecasts. City analysts fed the frenzy, endorsing the promises of chief executives for continually growing profits and margins.

To attempt to make good on those promises, companies were compelled to compete to acquire titles because such growth could never be achieved organically…and as the groups became bigger, the acquisitions needed to be bigger too if they were to have any discernible impact on the bottom line…and so the debt mountains grew.

Between 2005 and 2007 Johnston Press spent almost £1 billion on acquisitions including £250 million for 11 paid weeklies and 10 freesheets in rural Ireland. Two years later, they tried to sell the titles. The best offer was less than £40 million.

That golden age, which generated profits that could have been used to secure the future of local newspapers, will never return.

As margins reached their peak, markets had already changed. The internet was making inroads into key classified categories because managements, with their focus on acquisitions and meeting impossible City expectations, were not prepared to divert cash to investment.

If publishers had supported Fish4, the industry’s far-sighted initiative to upload motors, property and recruitment advertising to the Internet, regional newspapers could now have the largest and best used property, motors and situations vacant sites…and RightMove would not be worth more than even the biggest regional newspaper group.

Instead, managements at first largely ignored the Internet; then they launched online sites but severely restricted them to avoid cannibalising their print titles’ advertising. Even now, many groups shy away from using the power of brands built up over a century or more and invent new names for their websites. Most give away their only trade-able commodity, local news.

Contrast that with publishers in Europe. In Norway, Schibsted decided in 1999 that classified was made for online and online for classified. They set up an independent online division to drive classified with no responsibility for print advertising. That business now produces 36% of the group’s revenues with a higher margin than its newspapers and has established Schibsted as the country’s online market leader.

In Finland, newspaper publisher Sanoma believed from the outset that its editorial had a value. It charged even seven day a week print subscribers extra for access to its online editorial. More than a third of its titles’ readers now pay that annual subscription.

You didn’t need to be a Northern European to see the threat and the opportunity. In 1999, we set up in Leeds an online only company, Regional Interactive Media, free to compete with our print titles to be the definitive source for local information, services and shopping.

We believed our ownership of the local information franchise, our instant brand recognition, our relationship with readers, buyers and sellers made us ideally placed to capitalise on internet opportunities. We could also use our newspapers to provide constant and free promotion for the sites.

In the first year of operation we uploaded one million vehicle advertisements, 350,000 job advertisements and 250,000 properties for sale and achieved 12 million page impressions. Our revenues grew from nothing to £500,000. Two years later, revenues stood at £2,500,000 and the division was on the point of breaking even.

That strategy was unpopular with most investors who believed, correctly but shortsightedly, that money invested in the Internet could instead have boosted profit. In 2002 Johnston Press bought our titles. It closed Regional Interactive Media and that investment did indeed fall to the bottom line, a short term boost at the expense of a long-term future.

Opportunities were missed that it is now too late for UK publishers seize.

So what does all this mean for the future of titles that in many cases have served their communities for more than a century?

Unfortunately, companies which produce more than half the UK’s remaining 1,101 local newspapers are run to service their debts and to maintain the illusion that they will match the exceptional profits and margins they achieved in boom times. Mutally exclusive and mutually assured destruction.

So how long, can this continue? On my clock, at the stroke of midnight, it’s oblivion.

I share the view of Ashley Highfield that time has run out for the big city dailies. The policies pursued by the big groups in recent years have run the clock down and the internet has hit regional dailies particularly hard.

Most dailies have historically been profitable only three days of the week – the days on which the motors, jobs and property ads appeared, the days incidentally on which they also had their largest sales. Now those categories have largely migrated online.

The bigger dailies are almost exclusively owned by publicly-quoted companies whose own future is uncertain.

As a result, costs continue to be cut in ways which have rendered the regional dailies less readable and less relevant. You know better than me how editorial workloads have been increased while staff has been reduced; how page designs are templated in a one-size fits all approach.

JP is creating five templates for all its 270 newspapers. It’s a policy which makes nonsense of shaping a paper to project best that day or week’s news, of designing a page around the perfect headline or the compelling picture.

Remote printing has led to “evening” titles having deadlines the previous afternoon…and that matters because readers still expect to find the day’s most important local stories covered in their own daily.

A former editor of the Newcastle Chronicle Paul Robertson has written about the backlash from readers when they found they couldn’t read about the shooting of PC Rathband by Raoul Moat in that day’s paper.

Distribution has been handed to wholesalers, rather than local teams, cutting costs but offering less flexibility for editionising and home delivery and less availability in fringe areas.

In many cities, sales and household penetration have fallen below a level which can produce an acceptable response for advertisers. In Birmingham, the evening paper now sells around 40,000 a day in a city of a million; in Leeds the Evening Post sells 34,000 to a city of half a million; and it’s a similar story from Bristol to Bradford.

The response of debt-burdened companies is to rack up cover prices to replace lost circulation revenue while trimming paginations to meet rising newsprint bills. The predictable result is that sales are falling even faster – 8% in Bradford, 9% in Bristol, 10% in Birmingham, 15% in Leeds at the last count.

On top of the relentless reduction of costs, those of you who are editors of big city dailies face another problem not of your companies’ making. Local or regional newspapers need to be able to reflect the identity of the community they serve but in most major cities that identity has fractured into different and often conflicting ones, represented by race, religion, culture and economic divisions.

No daily newspaper, particularly one with a limited ability to editionise, can now, for example, meet the needs of most people in multi-cultural Birmingham or economically divided Leeds.

Not all our dailies are owned by the big groups, of course. The family-owned dailies are mostly in smaller cities with a more coherent community identity, but they are not immune to decline. In Cumbria, the News and Star saw newspaper sales fall by 10%.

But these titles are more likely to survive, although perhaps as a weeklies or bi-weeklies. Northcliffe began the conversion of evenings to weeklies and reports some success in places such as Bath, Torquay, Exeter and Scunthorpe. Johnston Press announced the conversion of five of its smaller evenings to weeklies last month.

In my view, this strategy is unlikely to offer more than a temporary reprieve for big city titles like Trinity’s Birmingham Post and Liverpool Daily Post.

Weeklies with their lower cost base and less dependence on national, property, motors and jobs advertising stand a better chance. Those chances are improved the further their circulation area is from major cities because shared identity remains stronger in more rural communities.

Survival chances are best for family-owned weeklies. Those of you editing weeklies owned by publicly-quoted companies will know only too well that you face similar cost-reduction challenges to those of your sister dailies.

I believe it is no coincidence that the latest ABC figures show that while 84 of the 693 paid and free weeklies increased their sales or distribution, the worst performing, losing almost 20% of their sales, were – all bar one – owned by one of the major groups, Trinity.

Mr Highfield’s claim that weekly newspapers are not sensitive to cover price rises, with some of up to 25p planned by JP, would be laughable if it wasn’t tragic – especially as this is coupled with a plan to have half of all editorial content, in print and online, written by “citizen journalists.”

But all is not black. Recent major research by Deloittes reported that 40% of people read a local newspaper at least once a week. Unfortunately, we have trained younger readers to expect those newspapers to be free, just as most newspapers have trained their online readers to expect news to be free. The over 55s are the most likely to buy a local newspaper and 62% still do every week.

The research also discovered that newspaper advertising has more impact than online advertising with 62% saying they paid more attention to newspaper advertisements. In fact, Internet display advertising lost ground in 2011. Asked the same question in 2010, only 49% of respondents said they paid more attention to print than online. Interestingly enough, discount coupons cut out of newspapers were also more popular than online social couponing.

So, there is a market which reads and trusts newspapers, which can be profitably served although probably only weekly.

And why wouldn’t there be? Newspaper Society research shows that 80% of the population spend half their life and 90% of their money within five to ten miles of where they grew up. Most people still have local roots.

But those people, those potential readers, expect to see faces they know in the pages of their local paper, to read names they recognise, to be alerted to decisions and events that might impact their day-to-day life or budget, to read stories that involve or affect them, about their family, their friends, their neighbours, their team, their club, their street, their town or village

That requires feet on the ground, journalists visible, accessible and part of the communities they serve.

The owner of what is now the UK’s fifth largest group with more than 220 titles demonstrates every week how truly local newspaper empires can still grow and prosper.

Sir Ray Tindle has built his group over the last half century. For many years he was regarded with faint amusement by larger publishers as he bought weekly titles others considered to be insignificant. Unlike Sir Ray, those publishers are not smiling now.

I once asked him what the group profit margin was. He said he neither knew nor cared. What he did know was the titles made bigger profits each year, that the company had no debt and that all acquisitions were financed out of profits. The last time I spoke to him, every one of his titles was turning a profit and, incidentally, if you want to read that local news online you pay it…and people do.

Ray is not alone. The family owner of the Gossweiler Media in Switzerland launched a newspaper for his 45,000 community, bi-weekly in print and constantly updated online. Advertisers and readers pay for print, online and mobile access as one package. With margins of 30% – something the UK’s big groups will never see again – he is now rolling out the model in Austria and Germany.

At a recent conference, he held up a picture of Barrack Obama and said: This man has never appeared in our newspaper. Then he held up a picture of the local mayor and said: This man is always in our newspaper.

How Ray would applaud because, week in and week out, he demonstrates that the demand for local news and information is as great as it has ever been.

The opportunity has not gone unnoticed. Ironically, there have been more UK newspaper launches in the last two years than at any time during the last decade and 70 in the last five years.

Entrepreneurs have recognised the void opened up as the major groups retreated into their hubs and have responded by launching highly-localised publications, some weekly, some monthly, some paid for, some free, some in newspaper format, some in pocket-sized magazine format.

It is hard work to get them off the ground and individual profits are small but each title can be the building block in an expanding group.

From Saddleworth to Dewsbury, from Corby to Tenby, across the country, these new publications are packed with the sort of advertising my first newspaper, the Sevenoaks Chronicle, once carried. Most have a long way to go before they can bear journalistic comparison with traditional weeklies of the past but, as paginations grow, the breadth of their content expands.

These start-ups will never be a private equity investment vehicle, never a City favourite but they remain a good lifestyle investment – which is why families launched local newspapers more than a century ago.

So do local newspapers have a future? Not as part of the industry we now know but one rebuilt from the ground up.

The banks may yet have a part to play. Last month Lloyds wrote off the £25 million debts of the Dunfermline Free Press group to allow a management buy-out to go ahead. The bank holds 90% of the shares in the new company and how it wields the power of that shareholding to get its money back will determine whether this may be a way to salvage a future for the smaller indebted groups and titles.

Neil Fowler, a former editor and associate of Nuffield College, Oxford, has suggested, the government might help the large groups to negotiate an orderly default on their debts with the titles sold to local businessmen or communities.

It would certainly be a better, healthier use of public money than funding months more of failed recollections at Leveson but while the companies can pay the bank’s exorbitant interest rates the price of default would be high.

In any case, many of the major groups’ titles are too damaged to attract buyers.

Would I buy a big city regional daily tomorrow?

Not even for £1 debt free…unless I was an asset stripper, looking to cream off the last few years’ profit before a title’s collapse or a billionaire prepared to invest unrecoverable millions for reasons other than profit – for status, to have a platform for my views, for serve my community. In fact, billionaires are buying newspapers for just those reasons – among them Alexander Lebedev in London and Warren Buffett in Omaha, even though – in Buffett’s words – newspaper finances are dire.

If I were a young journalist today, I would start my own weekly newspaper in one of those areas which the big groups nominally call theirs but from which they have to all intents and purposes retreated…and it’s important for a free, democratic and open society that young journalists do just that.

Our councils and our courts need to be covered, authority needs to be challenged, press offices need to be bypassed. This cannot be left to citizen journalists.

The paid-for local press grew up to be a mirror in which a community could see itself and more, much more besides. It was there to alert and to protect individuals, to build and to bind communities, to defend and to campaign for those in need of support, tobe the voice of those who would otherwise be unheard.

If local newspapers continue to disappear where will communities turn when planners slice up their neighbourhoods, Tesco bulldozes their tennis courts and the local school or library is closed?

Economic historians may take the view that regional newspapers were never suited to becoming public companies. Titles provide a bespoke service to a defined geographical market; their opportunities for expansion are limited; their main revenue streams cyclical.

They may conclude that regional newspapers were and are better in the hands of local entrepreneurs or families who look to enjoy the good lifestyle newspapers can provide alongside the status and service to the community that goes hand in hand with ownership.

Regional newspapers could never sustain the City’s demands for constant growth in profits and margins and we see now the consequences of attempting to do so.

In a couple of decades, managements overpaid for acquisitions, over-promised to City investors, failed to recognise the threat and opportunity of the Internet and have come close to destroying an industry.

The losers are not managements whose salaries continue to rise as their companies’ value declines, not even the many journalists whose jobs have vanished, the real losers are communities up and down the country which are now worse informed than a century ago, a depressing outcome in what is supposed to be the age of information overload.

And so we end back in Greece…where they have a word for the cause of it all – hubris.

6 Comments

  1. Regional Press Lifer

    Although CO doesn’t entirely escape any responsibility for the woes of the regional press (I’m sure he did okay out of it), this is an excellent, thoughtful analysis of what is now a pretty dire situation.

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  2. Subbed Out

    Chris is right. It’s time to start building the regional press from the grass roots up again. I’ve worked in newspapers for 30 years in one form or another, employed by all the major groups he mentions. Now even my Trinity-owned local weekly no longer has a local office, is based on an industrial estate miles away from its readership, and is full of PR puffs or ‘citizen journalism’ drivel. What I have noticed is a plethora of local magazines and amateurish news sheets springing up, attempting to fill the gap left by the once highly esteemed local newspaper. Some of these are better than others. But at least there is a feeling that they are genuinely concerned with local issues while the local Trinity weekly has all but given up.

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  3. a haynes

    Truly impressive. Not only a blistering yet considered analysis of the past and present, but a clear vision for the future.

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  4. oldhack

    Chris writes about the last time he met Ray Tindle..”The last time I spoke to him, every one of his titles was turning a profit ..”

    That must have been before he bought the South London Press…

    Sorry, but Chris really should double-check before he takes as gospel what someone says to him…

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  5. pedrowe

    There’s a recurring theme here – only a week or two ago a report about Danny Lockwood’s Dewsbury weekly looking to set up a ‘franchise’ syste, for journo’s to own their local papers.
    Of course people want to read ‘local’ news and the courts and the police and local government needs to be watched in the public interest.
    But all too often regional dailies in the UK have contracted staff to satisfy shareholder demands they have become totally irrelevant to the community they are supposed to serve.
    Well said CO.

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  6. Ex JP Editor, Yorkshire

    Quite some years ago at a Society of Editors conference I complained to Chris Oakley that I didn’t have the resources to do a decent job – to give the readers and advertisers the quality service I felt they deserved (something I was used to, having worked for family companies for 20-odd years).
    His reply was chilling – and a portent: “You don’t understand; the name of the game has changed. It’s all about how much you can get for how little.”
    I thought at the time it was just a sad, jaundiced view of the newspaper industry (though he had just sold out to JP for an absolute bomb!!), but latterly had to, sadly, agree with his depressing view of the industry.
    Those of us who had been in the business long enough to have been there, seen that, knew JP would implode the day it stopped acquiring with borrowed money . . . but obviously, highly-paid our lords and masters knew better
    I just pray a decent pension will be there to take in a few years.



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