The UK National Newspaper Market Is In Turmoil -- Circulation Is Down, The Daily Express Cuts Its Cover Price, Others Raise Theirs to Help Finance Disappointing Relaunches, The Financial Times Starts a Giveaway, And To Top It Off Americans Are Investing in Trinity-Mirror

Philip M. Stone January 19, 2006

FTM really should have known better than to have declared recently that the UK Newspaper price wars were over because no publisher could afford them any more. Along comes Richard Desmond, publisher of the Daily Express, cutting its cover price from 40 pence to 30 pence while maintaining newsagent commissions payable on 40p. It is all said to cost him some £500.000 a week.
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Its prime competitor, the Daily Mail matched the price for one day and then pulled back and now readers will determine whether a 10p savings every day will determine their morning read.

This is the same Richard Desmond who also publishes OK! Magazine.  With its flop US launch on his hands – around 100,000 circulation instead of the expected 300,000 – he is slashing the cover price from $3.49 to $1.99 next month on a six-month basis to see if his brand of celebrity magazine that actually caters to personalities can woo American readers. Desmond’s Northern & Shell company has deep pockets -- the question is how many £500,000 weeks can it afford while it has an expensive US magazine relaunch to finance?

Desmond saw the Daily Express steadily lose circulation in 2005, although its sales increased in December by nearly 4,000, helped by a TV advertising blitz, to end the year just above the vital 800,000 figure. The Daily Mail, has nearly triple the circulation at 2,311,023 daily, although December saw a drop of some 30,000 copies.  On the year the Express lost 11.19 % of its circulation while the Mail lost 4.31%.

In our defense in saying the price wars were over because no one could afford them anymore we were echoing no less than Rupert Murdoch -- the man who started it all in the UK in September, 1993.  He reduced the price of The Times by 30% -- at one point you could have bought it for 20 pence – and it was only a couple of months ago that The Times finally raised its price to 60 pence to equal other so-called quality UK national newspapers. Murdoch then said in an interview that publishers could no longer afford such price war folly, but it looks like he didn’t count on Desmond!

The Guardian and The Independent, both of which have gone through costly reformatting, took the opportunity once The Times increased its price to match theirs, to then raise their cover prices by 10 pence to 70 pence.

Readership and circulation figures for all of 2005 show that most UK nationals had a miserable year, but there were exceptions. The Financial Times has a global circulation of 439,563 according to the December ABCs but whatever gains it seems to be making overseas it has been losing at home.  It had a UK circulation of around 140,000 in 2002 but by the end of 2005 that was down to 127,000. Company officials dismiss a recent readership study, utilized by advertisers, that readership has dropped in the UK by one-third in the past six months, claiming the sampling was too small. 

Be that as it may, it seems the first major chore for new FT editor Lionel Barber is to get that FT UK circulation up. And how are they choosing to start doing that? By giving away on Mondays for the next six weeks compact 32-page books profiling global business personalities. (As this is being written we haven’t seen any samples of the books but it will be interesting to see whether Pearson, where book publishing is its major business, has used a little convergence here to save some costs).

At least they are not giving away expensive DVDs. Even Murdoch said at the end of last year that the DVD giveaways were sheer madness – a lot of expense for practically no return – and that view was echoed by other newspapers, too.  But no British national newspaper has taken up the marketing that has been so successful for European newspapers – that is not giving away freebies but making customers pay for them. There are newspapers groups in Europe, particularly in Spain and Italy, that can point to some 25% of their profits coming from selling books with their newspapers – not giving them away.

But the books are not really going to solve the FT’s UK problems. For the past couple of years much management time was spent on improving the read of the FTs international editions, and UK readers seemed to believe it was at their expense. And when improvements were made to the UK edition they were then cut back to save money (case in point -- sports coverage)

The FT’s major problem in the UK, however, is that its “quality” competitors have improved their own business sections very much and an exclusive business story which once belonged to the FT almost by divine right can now very well appear in print for the first time elsewhere. For many people the quality general newspapers now do such a good job in their business sections that it is not necessary to buy a specialty business newspaper.

So for the FT to win back readership it quite simply has to extend its coverage of UK financial news to a far deeper level than its competitors can reach, and yet that additional news has to be meaningful and necessary for a businessman to fork out the £1 daily cover charge. Put simply, it is time for the FT to get back into the scoop business in a big way.

The FT had two bits of good news within the first month of this year. It has finally settled a £37 million libel case for around £4 million including costs that, if it had gone to trial and done badly would have put a real crimp in the newspaper’s operations. And its owner, Pearson, announced that in 2005 the newspaper sustained advertising growth resulting in it breaking even. It last made a profit -- £1 million – in 2002.

The bad news is that CityAM, the free tabloid start-up that is given away at metro and rail stations around London’s financial district had its first ABC in December and it showed a 69,035 circulation. This is certain to grow as its management is continually coming up with new distribution points including directly within the offices of major financial institutions. Its readership is more down-market than the FT’s, but one reason for its success is that it is not a bad editorial product and it has broken a few scoops which is not exactly what the FT needs as it tries to win back its UK readership.

But the ABCs paint a sorry tale for other newspapers, including those that spent heavily on reformats. The Guardian slimmed to Berliner size, bought new color presses, and has little change from £100 million. Yet circulation, that had shot up by some 60,000+ to exceed 400,000 in October, the first month after reformat – egged on by free DVDs – has now settled back and in December was at 380,000. That’s still a 10% increase over the numbers on relaunch day in September, when circulation had dropped to around 437,000 -- its lowest point in many years -- and for the full year it shows a 6% improvement. But the numbers are down 5% from November and overall executives had thought the reformat would do much more for the newspaper.

The Independent, the newspaper that began the compact stampede and thus has benefited the most from the format change, also lost 5% of its circulation in December over November with circulation down to 250,000 copies. The Independent, and then a week later The Guardian, started the new year by announcing 10 pence cover charge increases -- in such market conditions that must surely be considered risky at best.

Even The Daily Telegraph – it and the FT being the only two daily national broadsheets remaining -- saw its circulation fall below 900,000 in December for the first time.

The four main “popular” tabloids all lost ground in 2005 -- Murdoch’s Sun doing worse than all of them with a 60,384 drop although in percentage terms that 2% drop we nowhere near as bad as the 16% drop suffered by Desmond’s other daily, The Star.

When Murdoch was mulling his Internet policy early last year – resulting in his making $2 billion available for Internet investment – he particularly mentioned the Sun’s lost circulation to the Internet as a sign that things had to change within his empire. In the readership study The Sun was said to have lost some 712,000 readers during the year but still had a respectable 8.1 million readers daily.

Trinity-Mirror’s flagship Daily Mirror has had an up and down year but the December ABCs showed its circulation had dropped for the year from 1.701 million to 1.678 million, down 21,905. (1.3%).

But that hasn’t dampened the enthusiasm of the American Harris Associates investment company from increasing its stake in Trinity-Mirror, the UK’s largest publisher, to 8.1%. Harris has a reputation for not interfering in the management of companies it invests in, but it made a big exception recently with Knight-Ridder. As the third largest shareholder with 8.2% of the shares, it joined with the two largest shareholders in asking Knight-Ridder’s management to sell the company to increase shareholder value.

Harris started building its stake in Trinity-Mirror last October when the shares were around their lows of 554 pence and as this is written they stand at 581 pence. Harris is said now to hold some 8.1% of Trinity-Mirror, and it has also invested in Johnston Press, the UK regional newspaper group that recently bought The Scotsman newspaper, and is said to have a 3.7% stake.

In an effort to boost profits and cut costs Trinity-Mirror management announced a series of job cuts across its newspapers last December but has backed off some of them due to political and union pressures.

Early 2006 newspaper forecasts are bleak – no signs of recovering circulation and advertising is still said to be difficult in several categories. The Daily Mail and General Trust has its Northcliffe regional newspapers on the market – Gannett is said to be looking at Northcliffe to increase its already large UK regional presence and that in turn could have an effect on what it does or doesn’t do with  Knight-Ridder (it will be an interesting to see which has Gannett’s priority!)

Media pundits believe Northcliffe could go for around £1.5 billion and if it does then Harris might suggest to Trinity-Mirror management that shareholder value lies in splitting the Trinity regional newspapers out, too, and once again returning to being just the Mirror Group.

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FT Makes £2 million Profit in 2005 - March 1, 2006

After bleeding red ink for two years, the pink newspaper has finally found its way back into the profit column. The Financial Times reported a £2 million profit in 2005, a turnaround from the £9 million lost in 2004 and the £32 million lost in 2003.

And 2006 already shows signs of being even stronger. Revenues are up 12% from a year earlier and circulation has gained 4%.

Although financial advertising remained somewhat soft, the FT did well on luxury goods advertising – especially in Q4 and saw an upturn in display advertising. The ft.com web site also added another 9,000 paying subscribers to 84,000 and the site also benefited from advertising packages with the print edition.

Management has again denied that the paper is for sale.

Daily Express Increases its January Circulation, But the Mail Adds More Without Matching the Express Price Cut - February 12, 2006

Well, it seems a 10p price reduction, armed with a sophisticated television marketing campaign, can lift circulation. Or did it?

The January ABCs for the Daily Express showed it gained 6.07% to 849,001 copies daily, an increase of 48,598. Taken as a percentage gain that beats Its prime competitor, the Daily Mail, which kept its price 10p above the Daily Express and saw just a 3.37% increase to 2,389,011 copies a day. But that was an increase of 77,988 copies, 60% more copies than the Express. How to interpret that?

Publisher Richard Desmond had also reduced the price of the Star by 5p and that helped it to a 5.20% gain to 820,070 copies.

Meanwhile, on the other extreme, Independent editor Simon Kelner says papers should be increasing their cost per copy to £1 during the week and £2 at weekends. He should try it and the bookies will take odds on how long the newspaper stays in business.

He’s right to want that kind of money so that the Independent can break even and invest more in its product, but probably in today’s media environment Desmond is reading the current economic state of the market better than Kelner.

American Investment Groups Now Control 23% of Trinity-Mirror; Could Another Knight-Ridder Scenario Be In the Making? - January 30, 2006

With the announcement that Sir Victor Blank, chairman of Trinity Mirror, is leaving in May -- he was the great defender of keeping Trinity Mirror whole -- and with more investments by Americans in the past week, it’s beginning to look more and more as though the pressure will grow on the UK's largest newspaper publisher to sell its national titles, that include the Daily and Sunday Mirror and The People.

Shares in the company jumped some 10% last week to 610 pence. That buying spree came after the announcement of Blank’s departure and also after the American Tweedy Browne investment firm announced it had increased its holdings in the company to 5%.

It means that three American companies, Capital Group, 10,08%; Harris, 8.11%; and Tweedy Browne, 5%, between them control 23% of the company. Can one smell a similar scenario to what happened with Knight-Ridder where the large shareholders told the company to improve shareholder value – remember Harris is one of those Knight-Ridder shareholders – in this case it’s to get rid of the nationals!

Coming into play in all this is the proposed sale of Northcliffe regional newspapers that are expected to go for around £1.5 billion. If Trinity disposed of its national titles to concentrate on being a regional publisher – where the money seems to be these days in UK newspaper publishing -- plus its web sites, then it would make a Northcliffe purchase debt load that much easier to handle.

But Gannett is also said to be sniffing around Northcliffe, raising the possibility of a bidding war. And within the Trinity Mirror management, having spent so much effort in seven years to bring the national and regional groups together, do they really want to stomach a national newspaper sell-off? Maybe not, but sentimentality and shareholder value seldom make good partners.