Could The UK’s Advertising Downturn Force Trinity Mirror The Same Way as Knight-Ridder, And Also Blow The Main Commercial TV Network Out Of The Water?

At ITV, the UK commercial TV network, its CEO, Charles Allen, is expected to fall on his sword before Wednesday’s announcement of first half results although he may be asked by the board to stay on for the rest of the year while a successor is sought.

September ITV advertising revenues are forecast to be down by 12% over a year ago and that follows a disastrous summer – even with the World Cup. Its audience share shrank to just 16.3% for the week ending July 17 — the lowest weekly figure in its history. In the “good” days it and the BBC were usually neck-and-neck.

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It has been a downward spiral for ITV all year. It seems to have lost touch with its viewers – one recent new program lasted just one week because the ratings were so low – and lower advertising revenues meant less spent on programs. Less investment in programs meant less viewers, less viewers meant less advertising revenues… Credit Suisse said the channel's annual advertising revenues could fall this year by £205m.

To make up for its advertising shortfall the network has been selling non-core assets including, for instance, a couple of months ago its share in the Australian network Seven. So far sales from non-core assets have totaled around £270 million.

The problem for both Trinity Mirror and ITV is that there seems to be a fundamental shift in advertising away from traditional mediums to the Internet. Marketing managers are more and more judged on the measurability of their advertising spend, and they can easily quantify an advertisement's access, if not its success, via hit counts. What is probably most worrying for the traditional media is that this seems to be a fundamental shift within marketing rather than part of a cycle

Trinity Mirror has been forecasting all year that this will not be a good year because of poor advertising and it repeated the warning when it announced its interim results that it saw no improvement for the rest of the year.

So the company, that includes American investment funds that own more than 20% of the company’s shares, is eager to increase the share price – in a Knight-Ridder and Tribune context that sounds familiar especially since Trinity Mirror shares are at a three-year low. The group has written down the value of its regional newspapers by the £250 million to comply with international accounting rules, but hasn’t put a value on what the regionals are actually worth.

It has also hired the Rothschild’s investment bank to help with an overall review of the company’s business, with a report due by the end of the year. Bringing in Rothschild’s says to most analysts that Trinity Mirror is trying to figure out what it is really worth by putting a value on every newspaper in the stable.

The thought that possible asset sales could be forthcoming are heightened because Sir Victor Blank, named the company’s chairman just a few months back, has a successful career history of selling businesses that he controlled.

Trinity Mirror was formed by the merger of the Mirror Group (national newspapers) and the Trinity Group (regional newspapers) in September, 1999, to form the UKs largest newspaper group. Many analysts believe today the group should get rid of its national newspapers (Daily Mirror, People, Sunday Mirror and Daily Record in Scotland) and just concentrate on the 240 regional newspapers.

Trouble is, possible buyers – investment banks and the like -- are saying they are more interested in the regionals than they are the nationals. Everything also gets complicated because of pension liabilities and the like, but the fact is the UKs poor advertising climate is causing media problems all the way around.

The top three regional newspaper groups – Trinity Mirror, Newsquest, and Northcliffe – have all embarked on major reorganizations – converting from evening to morning publication, reducing the number of editions, combining editorial staffs on newspapers, closing local print sites and converging printing into regional sites -- whatever it takes to maintain the 20-30% margins that the UKs regional press usually provide.

The vast majority of Trinity Mirror regional newspapers are AMs, just seven are PMs. But it has just announced, for instance, its first conversion of a PM, the Coventry Evening Telegraph, to morning publication, and assuming that goes well it is expected the other six will shortly follow.

The revenues for the nationals, and for the regionals are quite similar. The nationals saw operating profit drop 12.8% to £46 million, with revenue down £15.2 million to £240.3 million. At the regionals, operating profit was down 18.5% to £64.2 million with revenue falling 7.8% to £255.8 million.

But it was the nationals getting really slaughtered in the advertising stakes – down 12.2% on the year – while the regionals saw “just” a 6.3% drop. The forecast for the end of the year is for the nationals to finish down by about 10% but for the regionals to suffer further losses – down 8-9%. The company really doesn’t see any improvements coming until at least the second half of 2007.

Perhaps a real sign of how important the Internet is becoming in the overall media mix is that Times Newspapers, part of News International, has quietly changed its name to Times Media. The Times has some 8 million unique Internet visitors monthly to its site while its daily print circulation is at 656,800.

Obviously, as the name change implies, The Times no longer sees itself as just a newspaper, and that same message needs to get through to all other media, too.