24 April 2014

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Oakley responds to Dyson questions over SoE speech

Former regional editor turned newspaper owner Chris Oakley ignited a lively debate about the future of the industry with a hard-hitting speech to the Society of Editors’ regional conference in Manchester last week.

Chris told the gathering that “time had run out” for big city dailies, citing the internet, multicuturalism, economic inequalities and the move to overnight printing among the reasons for their decline.

It prompted HTFP blogger Steve Dyson to posed three specific questions for Chris about the Birmingham Mail, which Chris both owned and edited when Steve was a young reporter there, before going on to edit the title himself under Trinity Mirror’s ownership.

Here are his responses.

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My former colleague Steve Dyson posed three questions following my speech to last week’s Society of Editors conference. They deserve an answer.

1. Why speak out today, Chris? Don’t get me wrong – this is great stuff, and so much I agree on, not least your views on former evenings losing the plot by going overnight. But why now in 2012? What I mean to say is: why not then, back in 2009 in the Birmingham Mail’s case, when a debate of whether to go overnight or not was held? It would have been really valuable to have your views at that point. Or at any point during the industry’s hand-wringing on this and other issues you raise. Now provides good retrospective for ‘I told you so’ camps, but it would have been far more useful back when someone, somewhere might have listened.

On the general point, I have never put myself forward as a media commentator. Last week’s speech came about because I was asked to contribute a chapter to a book about the regional press (no fee, no royalties). The book, What Do We Mean by Local? (published by Abramis, price £17.95), and my chapter, started an online and in print discussion. As a result I was asked by the SoE to speak about the future of the regional press. I would not have sought a platform for my views but I am happy to expound them when asked.

By 2009, it would have been pointless to try to initiate a real debate about the overnight printing of the Birmingham Mail. Any internal debate that took place must have been purely cosmetic.  Trinity had already run up large debts which needed to be serviced; large swathes of classified had disappeared online taking critical revenue with it; the economy was heading into recession resulting in further pressure on revenues.

Centralising printing at as few sites as possible brings immediate large cost savings and ensuring the press runs for 24 hours a day is the most cost-effective use of an expensive resource, even though it almost inevitably means that titles have to be printed at inappropriate times and with deadlines that will, over time, damage sales.

The die was cast when the debts were incurred for over-priced acquisitions on the basis that the advertising boom would last forever. By 2009, savings had to be found anywhere they could and overnight printing was an inevitable result.

2. What was all that stuff about alleged ‘systematic inflation of circulation’ in 1999? The then chief executive of Trinity Mirror, Philip Graf, made a statement to the Stock Exchange that circulation figures for the Birmingham Evening Mail, The Birmingham Post and the Sunday Mercury had been overstated for up to six years. This caused a huge problem in terms of revenue and confidence for the Birmingham titles, from which they arguably never recovered. Can you, Chris, who was in charge of the papers during the alleged period, shed any light on this now?

I can shed no light on the allegations of the “systematic inflation of circulation figures” in Birmingham, although I can certainly appreciate they must have damaged confidence and revenues at the titles.

I certainly never instigated any system of circulation inflation and if I had been aware that any such system was operating I would not have tolerated it for a single day.

If such a system was in fact operating, should a competent CEO have been aware of it? I can only say that in the six years I ran Midland Independent Newspapers it was subject to more independent investigations than any other newspaper group.

When we bought the titles in 1991, the private equity backers sent independent accountants into the company to conduct due diligence of every aspect of the company’s operations. They found no irregularities.

Three years later when we floated the company on the London Stock Exchange, the sponsoring merchant bank and the flotation stockbrokers sent independent accountants into the business to verify every claim made in the share sale prospectus – including circulation figures. They found no irregularities.

In 1997 when Mirror Group bought the titles, they commissioned independent accountants to conduct due diligence on all the company’s operations to justify the purchase price. They found no irregularities.

When Trinity took over Mirror Group, no doubt it also used independent accountants to carry out due diligence – although it may not have been as thorough as the previous investigations because MIN formed only the smaller part of the purchase. Apparently, they found no irregularities.

Of course, throughout the period the titles were subject to the six-monthly ABC audits. The circulation figures were never queried, the audit certificates never qualified.

3.  One last question is over that initial move to floatation. I know that what’s happened since is nothing to do with you – you’ve played no part in the recent savage cuts in the industry. But from your initial floatation of the Birmingham papers as MIN I presume you had knowledge of the world of public limited companies and the FTSE, where the interests of the shareholder always come first. Looking back, do you now regret taking the Birmingham Post and Mail into a scenario where increasing profits year-on-year was always going to be demanded?

The management buy-out of MIN was funded by private equity backers. Those backers always look to exit a company and to get their money back, plus a profit, probably within three to five years. The exit comes by way of takeover by another company or by flotation on the Stock Exchange.  We always aimed for the latter.

As Steve says, in the world of public companies the interest of the shareholder comes first. Are those interests best served by racking up debt and starving the company of investment or by following more prudent policies? Those shareholders in Johnston Press and Trinity who have seen the value of their holdings fall by more than 90% would undoubtedly opt for prudence.

But the City is notoriously short term and CEOs either resist or bow to pressure to follow policies which deliver short-term gains and City popularity but mortgage the future.

MIN walked away from over-priced acquisitions. It diversified into businesses such as specialist magazines, conferences and events to broaden the revenue base and make it less cyclical. But this was unpopular with the City because such businesses had lower profit margins than regional newspapers at that time.

But if the big groups had followed similar policies and resisted City calls for ever higher and higher profits and margins, they would have happier shareholders now.

13 Comments

  1. Curious

    Hats off to Chris for his prompt and thorough response to SD’s questions. There’s one thing I don’t understand. Why did Sly Bailey and Co not foresee the advertising bubble would burst when there was already evidence of that coming from America?
    She and her ilk were paid vast sums to find out about such stuff but they just rushed headlong into foolish acquisitions with money they didn’t have.
    My goldfish Bubbles would have done a better job.

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  2. Steve Dyson

    Hi Chris:
    Many thanks for taking the time to respond in such informative detail. Albeit retrospective, it’s very interesting to read your views on how you feel the industry has been ill-developed, based on short-term targets. I couldn’t agree more.
    However, I remain confused about the allegations of “systematic inflation of circulation figures” in Birmingham in 1999. This had such a damaging impact – not least £20 million of compensation to advertisers, let alone staff morale and product reputation – that it surely can’t have been based on nothing? It certainly started a steep decline in the titles’ performances.
    The only public information before now was Trinity Mirror’s published claims from 13 years ago. Your new statement above prompts more questions – such as whether you or the previous management ever considered libel action, or conversely whether TM ever tried to sue anyone for damages.
    It would be fascinating – and is arguably in the public interest – to see what it was all about as far at TM was concerned, but any detailed investigation or resulting processes have seemingly remained internal and private.
    I’m sure you’d join me is asking whether anyone else in the industry knows any more about this.
    Best wishes, Steve

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  3. Danny

    Good work Steve. I think his answer to number three basically reads as ‘I knew who I was inviting to the party and what they would do, but I’m ok Jack.’

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  4. Spanner

    Does the MD who exposed the “Fraud” have a view

    Where is Mark Haysom now ?

    1999 – Thisis Money

    Trinity-Mirror, the recently merged newspaper group, has uncovered a ‘systematic’ attempt to overstate its Birmingham titles’ circulation over at least six years.
    The irregularities, which inflated sales of the Birmingham Post, Evening Mail and Sunday Mercury by up to 17% for 4 1/2 years, led to the departure of the circulation manager and several other directors of the Birmingham Post and Mail group at the end of September.
    Trinity Mirror is providing around £20 million for possible claims for advertisers who feel disadvantaged by the overstated circulation.
    TM chief executive Philip Graf said the problem was ‘isolated to Birmingham. It is not in Coventry, the national titles or the other regional businesses. We are taking prudent and quick action.’
    The circulation inflation, which could go back as far as the period after the £125 million buyout of Birmingham Post and Mail led by Sir Norman Fowler in 1991, was discovered following an investigation by Mark Haysom, recently installed to head the Birmingham titles.
    Mirror Group, which merged with Trinity in the summer, paid £300 million for them two years ago.
    The Birmingham Evening Mail claimed sales of 220,000 in the 1990s and 187,600 last year. The real figure is likely to have been nearer 160,000.
    Trinity Mirror believes the overstatement was made so that the company could maintain the boast that it was the largest circulation regional group in

    Read more: http://www.thisismoney.co.uk/money/news/article-1576885/Trinity-Mirror-reveals-circulation-fraud-in-Brum.html#ixzz1uqhX5hQW

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  5. Danny Lockwood

    Not being funny chaps, but indulging in a Midsomer Murders whodunit on a 15-20-year-old circulation stunt of the type that was rife across the industry isn’t going to put a loaf on anyone’s table. There’s some useful and interesting debate going on around the CJO appearance last week. Focus on what gets the industry – and communities – back working on the same page. That will always be where the future of journalism lies.

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  6. Danny Lockwood

    And for what it’s worth chaps I worked on a daily (and no, not one of Chris Oakley’s – at least not at that time) which printed bulk-sale copies by the thousand which went directly into the paper skip. They never got off site. The ‘bulks’ gig was a cottage industry all of its own, back in those good-old, bad-old days.

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  7. Last one out - switch off the light

    Er – no other regional titles involved -well maybe not in Brum!!!
    The practise of not being “precise” with circulation figures was endemic throughout the regional and “national” press for many years!!!
    Bulk drops, hotels, transport hubs, print over runs, wholesalers, events venues etc!!!!! ABC and VFD issues had been ongoing for ages. So many clients had been “sold” circulation figures and eventually that model came back to hit them hard.
    I always tried to migrate to the RPC or reach models when selling as on many occassions we could see an increase year on year and market research could verify this. One of the problems here was that the Industry and the NS just could not endorse this as they tended to be well and truly fixated on the “traditional methods” and on many occassions could not see the “wood for the trees”.

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  8. Milli Tant

    Ah the heady days when circulation was king and all hands to the pumps to get those bulks out.
    No names, no pack drill……. but I can think of one regional daily newspaper that would send out 50 editions a day six days a week to two of it’s satellite evening papers in the same area for ‘staff use’.
    Ok so it’s only was only around the 28,000 mark a year – but hey, every little helps.
    Oh, it wasn’t Trinity, Johnston or Newsquest.
    And it wasn’t based in the North, south or east of the UK. ;-)

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  9. Bob the bulk-sale Builder

    I believe it’s well known that they were selling anything from office furniture to old vans and turning the “cash” into copy sales – possibly via shows/events to try and make them look like legitimate sales. Where’s the Circulation Director now??

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  10. Ex-Insider

    About a dozen years ago, a solemn-faced MD called in to our newsroom to announce we were going to “take a hit” on sales because we were going “legit.” The true sale was about 12 per cent lower than the figure we’d been used to. We stayed “legit” for some years before another bright spark came up with a brilliant ploy to improve the figures … and it didn’t involve readers spending any money.

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  11. Steve Dyson

    Danny L: good points, but I do think that when considering how to progress, there is a point in checking the credentials/experience of those offering views. My point in quizzing Chris – and I was pleased he responded so quickly – was so that his views/pointers could be seen and appreciated in context. The fact that this has opened up memories/debates about shadowy ‘bulks’ etc is also worthy of remembering as the industry considers the true value and accuracy of today’s metrics.

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  12. Danny Lockwood

    Fair enough Steve. Listening to CJO’s speech last week I was waiting for Sir Ray to emerge from stage left and anoint Chris as the Tindle heir apparent (well the old boy isn’t getting any younger!) but I suspect a millionaire’s life in Brussels is just fine and dandy for Mr Oakley. I doubt he has many regrets about being smarter than the entire boards of Mirror Group, Trinity, Johnston Press etc. He was a newspaperman at least; they haven’t one worth the description between them. I think this remains a simple industry: a product people want to read, with affordable advertising that delivers customers = a business. All that remains after that is the detail. I’ll leave with a bold statement. With a back-up system in place (ie mine in this instance) a 10,000 run, 32-page, free distribution weekly product can be profitable on £3,000 ad/web revenue. Even at a generous 50% editorial ratio you’re looking roughly at a yield of around 70p scc. That’s for nowt as we say in Yorkshire. It won’t get Highfield’s 35% pie in the sky margins, but it would pay wages and give communities a service more and more of them are being deprived of.

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  13. Steve Dyson

    Email me Danny – I’d like to review it some time…

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