Writing on the wall for local papers says: consolidate
The last few months have been brutal for what remains of Britain’s local press. The industry is now well accustomed to decline as its readers die off and advertisers spend their money with Google and recruitment websites. But 2015 has been especially punishing.
Take Trinity Mirror, the biggest publicly traded player. Earlier this month it revealed that on a like-forlike basis, its revenues in the first half sank by 8.7pc as print advertisers deserted even faster than had been anticipated. Sales of print advertising were down by nearly a fifth amid uncertainty around the general election and cuts in spending by the big supermarkets, who of course have a serious structural problem of their own to address.
The trend was repeated across the industry: Johnston Press, the other listed local newspaper group, suffered a similar drop in print advertising of 9.5pc. Newsquest, owned by the US group Gannett, and Local World, owned by Trinity Mirror, DMGT and others, experienced the same rough trading. The bad news for the companies and their investors is that the signs suggest the first half of 2015 signalled a permanent acceleration in the decline of the local print advertising market. Advertisers are not coming back, and smartphone-obsessed young people are never going to acquire the habit of buying a local paper.
Huge efforts are being made by the industry to build digital businesses in place of print. Local newspaper websites are getting investment, although the newsrooms that feed them are being cut, and the publishers are experimenting with ideas such as providing tools for small businesses to easily establish a digital shopfront.
For the optimistic, these developments could offer a sustainable future for local media. Audiences are growing quickly and are no less interested in what is going on in their area. The latest figures from ABC show Trinity Mirror’s network of local newspaper websites is now attracting more than 2m visitors per day.
The reality, however, is that in financial terms digital growth is not yet matching the decline of print. Trinity Mirror’s overall print sales, also exposed to the national newspaper market via the Mirror titles, fell by £31m in the first half. Its digital revenues increased by £4m.
According to a study by Enders earlier this year, in 2014 digital advertising accounted for 14pc of industry advertising revenues, up from 11pc in 2013.
The media analysts nevertheless sounded a positive note: “Enormous traffic growth in the last year to 18 months provides some hints that a scale digital future at least looks a possible scenario for the most ambitious publishers.”
But they cautioned: “The monetisation of online audiences remains a pressing challenge. To continue accelerating digital revenue growth and effectively compete with the search and social giants, local news brands will need to maintain their current audience growth rates while improving the targeting and general service of their digital platforms for advertisers.”
At the time of Enders’ report, it looked like the decline of print advertising might be stabilising rather than accelerating. The challenges faced by local newspaper publishers are now even more pressing.
Against this backdrop, industry consolidation now looks inevitable and all four of the main players seem to be up for it. The cost savings from merging printing operations, ad sales teams and newsrooms must look very attractive at a time when growth is a distant dream.
Trinity Mirror is leading the charge. It has opened talks with Local World, in which it is already a 20pc shareholder, over a full takeover worth about £200m. Earlier this summer it was reported that one of the other shareholders, Lord Iliffe, was opposed to a deal, but people close to the situation say the two sides are moving closer to an agreement.
DMGT, which became Local World’s biggest shareholder when it contributed its local newspaper division, Northcliffe, is meanwhile believed to be a willing seller. A deal could be announced in the not-too-distant future.
If things go to plan, the takeover should provide more flexibility for Simon Fox, Trinity Mirror’s chief executive, as he attempts to navigate the shift to digital local publishing. Financially, his company is in good shape to get involved in M&A, having reported its first ever net positive cash position in its half-year results.
Ashley Highfield, at Johnston Press, has signalled he is keen for a round of consolidation too. His recent comment to The Daily Telegraph that the “mood music” is right for deals indicated some fear that his company might not be invited to dance. But Johnston Press is in a much more difficult financial position than Trinity Mirror.
It is still counting the cost of the last round of local newspaper takeovers when it massively overpaid for titles such as The Scotsman not long before the financial crisis and recession hit advertising. The company still has net debts of more than £180m and any combination it chooses to pursue will continue to bear that heavy burden.
Those in the City behind the push for local newspaper consolidation know it will not change the fact that, while the industry seeks innovations in digital monetisation, its primary task is managing decline. But in such straitened circumstances there is plenty to be said for buying more time.
‘The cost savings from merging printing operations, ad sales teams and newsrooms must look very attractive’